Still, consumer-driven health care plans have caught the attention of small to mid-sized companies as a way to rein in spiraling health insurance premiums to cover employees, and as an alternative to dropping health insurance altogether.
While consumer-driven health care plans do have merit, they don’t necessarily solve the chronic underlying problem of escalating health care costs and the inability of both employees and employers to pay, says John McCracken, Ph.D. and director of the Alliance for Medical Management Education at the University of Texas at Dallas School of Management.
Smart Business spoke to McCracken about the pros and cons of the trend toward consumer-driven health care and the implications for the future.
What has caused the current condition of health care benefits?
Premium increases have caused the problem. Employer health insurance premiums have increased an average of 11 percent per year over the past six years. Compare that to the less than 4 percent cost-of-living increases that employees are earning and you can see how this is causing a squeeze.
Tell us about consumer-driven health care plans. How can they help?
The consumer-directed health care movement is based on the assumption that health care is a ‘market good’ as opposed to a ‘social good.’ A market-based approach focuses on individual rather than collective responsibility. The assumption is that markets are reasonably efficient at allocating resources, but the downside is that those unable to pay face barriers to access.
A consumer-directed plan is a Health Savings Account (HSA) which was authorized in 2003 coupled with a high deductible health plan, defined as one with at least $1,050 deductible for single coverage and $2,100 for family coverage. Both individuals and employers can deposit money into the HSA, reap investment returns and withdraw money for eligible medical expenses including the health plan deductible all tax-free. The HSA is also portable; that is, an employee can carry any unused portion into future years and withdraw it after age 65 to meet Medicare expenses.
These plans are of interest to smaller employers and they do help make employees responsible for their own health care spending decisions.
What are the downsides to consumer-driven plans?
For a market-based solution to work, consumers have to be able to shop intelligently based on knowledge of provider prices and quality. But prices in health care are not transparent. It is virtually impossible for a consumer to find out the cost of a procedure beforehand, and worthwhile information about physician and hospital quality is almost nonexistent.
Second, it does not address the problem that almost 80 percent of all health care spending is accounted for by 20 percent of the population. The top 20 percent of health care users includes those suffering from major chronic diseases such as cancer, pulmonary disease and congestive heart failure, as well as those nearing the end of life. A recent Medicare study showed Medicare spending averaged $24,800 per capita for those in the last year of life versus only $3,700 for those who were not.
Finally, the plans do not address the one-third of the working population who earn $37,000 a year or less. For these people, a high deductible policy is out of reach they cannot afford to fund the HSA deductible, so these plans do not work for them.
Are there any other issues that employers face in regard to these health care plans?
The trend to rate all health insurance (not only consumer-driven plans) actuarially rather than on a community basis has put a real strain on the employer. A company that has the misfortune of having a few employees with chronic health problems will have higher significantly premiums than one with a predominately healthy employee population. This puts small employers in the untenable situation of having to choose between bearing higher premium costs, deselecting unhealthy employees and potentially being in violation of the Americans with Disabilities Act, or dropping employee coverage altogether.
JOHN McCRACKEN, Ph.D., is director of the Alliance for Medical Management Education at the University of Texas at Dallas School of Management. Reach him at (972) 883-6252 or email@example.com.