The New York Times
December 5, 2001
by Milt Freudenheim
"Pressed by employers, some of the nation's biggest insurers are introducing a new kind of health plan that would significantly change the way employees are reimbursed for ordinary medical expenses."
"Most working families, who have relatively low medical bills, could save money under the plans. But those with several thousand dollars in medical expenses could wind up paying much more."
"The new plans typically require a family to pay an annual premium of $1,000 to $1,400, slightly lower than the cost of traditional managed care. Families then receive an allowance of $2,000 to $3,000 each year to spend on medical expenses, including drugs."
"But after they have spent that, they have to cover every cost above that cap, sometimes up to $5,000 or more. After the higher amount is reached, the employer picks up most of the bills."
"A family that keeps its medical bills lower than the allowance can roll over any unspent money to pay medical bills in future years."
"But for a family that uses up the allowance, the plans stop paying entirely until a ceiling is reached... If they go to doctors outside the network, their deductible could rise even higher."
"Insurance and insurance rates are usually designed around the idea of a pool of risk - the chance that a few members of a group will have high claims that can be covered by the premiums paid by everyone else. But the new plans move away from that notion, effectively penalizing people with higher medical costs and rewarding those with lower expenses."
"Indeed, when employers offer both the new plans and traditional managed care, the new savings accounts may attract largely young, healthy members, while sicker people stick with plans that cover more of their medical costs. Eventually, however, consultants expect many employers to offer only the new type of plan."
Uwe E. Reinhardt, an economist at Princeton University:
"The effect will be to shift more of the costs into the pockets of the sick people. The insurance industry has decided that if you are sick, you ought to eat the costs. It's a very dubious social policy."
http://www.nytimes.com/2001/12/05/business/05CARE.html
Comment: These new health plans represent a convergence of ideas. Employers want lower health care costs and now are quite willing to shift those costs to their employees. The insurance companies want lower risk and now are shifting risk to their beneficiaries. Both trends are being touted as a method of empowering the patient-employee-beneficiary-consumer. By becoming sensitive to health care costs, patients will reduce their utilization of "unnecessary" services (but, more importantly, also will reduce utilization of beneficial services).
A highly touted model that would accomplish these goals is the medical savings account (MSA) combined with catastrophic insurance. But the insurance industry really didn't want to hold on to the catastrophic business while the Wall Street money managers walked away with the bread and butter funds in the MSAs.
And so they came up with the perfect solution, that is, perfect for them and for the employer-purchasers of their plans. Instead of medical saving accounts, they have developed the "health savings account product" as Aetna has labeled it. Let's call it "Health SAP." The Health SAP functions like an MSA, but it leaves the funds under the control of the health plan. To understand the implications of the Health SAP, we should look at the winners and the losers.
The insurance industry is the big winner. Shifting the bulk of up-front costs to the beneficiaries reduces both medical losses and administrative costs. Up-front costs are paid by fund accounts already delegated for care, or by the patients' own personal funds. In essence, for the bulk of routine expenses, the insurance companies are paying nothing except modest administrative costs. The savings more than offset the reduction in "premiums" collected. Yet, for catastrophic losses, the plans still benefit by controlling rates for contracted panels or providers. By paying a portion of the first dollar out of the fund accounts, the health plans create a perception of "full coverage with deductibles," when, in reality, patients really have only catastrophic coverage.
Employers are also winners. Because a large amount of the up-front costs are shifted to the patients, the costs to the employers are limited to the catastrophic coverage and the funding of the accounts, an amount that is less than the costs of the more comprehensive plans now dominating the market. There is risk that the catastrophic costs will increase significantly, but employers may well increase the deductible threshold, especially once the average amount retained in the savings accounts increases. (This would compound the difficulties for those that must spend down their accounts.)
The greatest losers are the patients. The healthy, who do not require much care, will be fine. The wealthy will have no financial barriers to care. But the moderate and low income individuals who do require care for chronic or catastrophic disorders will rapidly deplete their disposable income. This will erect financial barriers to access. For those with the greatest needs, Health SAPs will ration care based strictly on the ability to pay, the most inhumane form of rationing.
The providers are losers. Physicians have been in strong support of MSAs with catastrophic indemnity coverage. Although they claim that they support this model because it empowers consumers, their interest actually has been quite self-serving. With cash pools of MSAs and a backup of indemnity-type catastrophic plans, physicians believe that they would be free to charge any rates and provide unlimited services, returning to the "Golden Age of Medicine."
But instead of MSAs, physicians are going to be the saps of Health SAPs. Their fees will still be rigidly controlled, and a much larger number of their patients will no longer be able to pay their up-front expenses. Physicians will find that many of their routine services will no longer be paid for by the insurance plans, and will be uncollectable from patients that have no disposable income. In supporting MSAs, physicians had no grasp of the astute business ingenuity of the MBAs in the health plans. Doctors, you've been snookered again.
The government and taxpayers are losers. The pool of patients unable to afford needed care will be significantly larger than it already is. In health care, the government always is the payer of last resort. Taxpayers will be forced to fund necessary care through a fragmented system of various public programs that lack the efficiency and equity that would be inherent in a unified program of universal health insurance.
What will be the response of the patients to this? The majority, who will remain relatively healthy, will believe that they have the security of health care coverage. But, more significantly, they will watch their health savings accounts grow and, with their new found wealth, will become avid supporters of the Health SAPs.
Individuals that do require health services will be relieved to see that the health plans are no longer intruding into their care. The more traditional physician-patient relationship will be renewed. But they will not understand why they are broke at the end of the month, with unpaid bills stacking ever higher.
Sadly, the majority will be smugly satisfied, and the vulnerable will be dejected, not realizing that they should be outraged instead. The insurance industry wins again, but this time at a terrible cost in health care equity and justice.