Death spiral of comprehensive coverage
Los Angeles Times
September 29, 2002
Rising Costs Put Pressure on Kaiser
By Don Lee
Kaiser Permanente is having one of its brightest financial years ever, but
beneath the rosy numbers lies a harsh reality: The company is facing a
challenge that threatens the survival of the managed-care model that it
pioneered decades ago.
The nation's leading nonprofit HMO and hospital system and its 11,000
doctors are being confronted by the rising costs of treating its aging
membership, while more bare-bones health plans are drawing away the coveted
young and healthy consumers.
As the nation heads into the third straight year of double-digit health-cost
increases, with no relief in sight, the insurance industry is devising more
plans with skinnier benefits and fatter member co-payments and deductibles.
Employers want them because they minimize premium increases, and the plans
are especially appealing to young, healthy individuals who don't want to pay
higher premiums for comprehensive coverage they don't think they'll ever
use.
These changes will be increasingly visible to millions of Americans at open
enrollments this fall. Many will be offered so-called consumer-driven plans,
which will allow employees to tap into a savings account to pay for medical
services as needed.
The Oakland-based health system has been a model of managed care, providing
a basic full-coverage plan for all members...
But like those of other HMOs and health plans, Kaiser's premiums have soared
in the last couple of years. That raises the question of whether Kaiser can
maintain its one-shoe-fits-all approach and its competitive edge, and avoid
segmenting the membership.
In a recent memo to the staff, George Halvorson, Kaiser's new chief
executive, laid out the dilemma this way: "Those shifts [in the marketplace]
will cause many of our healthiest members to leave us for lower-cost,
lower-benefit plans. At the same time, employers will save money if their
sicker patients voluntarily migrate to us."
http://www.latimes.com/business/la-fi-kaiser29sep29,0,845054.story?coll=la%2
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Comment: This is a disaster! Not just for Kaiser, but for our entire system
of funding health care through private plans.
Rising costs are being shifted from employers and the health plans to
individual employee-beneficiaries. These cost increases are not being
tolerated. The primary cost decision is being made at the time of selecting
the health plan. For the majority of individuals who are relatively healthy,
plans with the lowest premiums will be selected.
The only way the health plan industry can offer products with lower premiums
is to reduce benefits and increase cost-sharing by the beneficiaries. That
is not a major problem for the healthy, but it can result in financial ruin
for those with significant chronic disorders. Less healthy individuals will
have to select the plans with higher premiums to be sure that care will
remain affordable.
Segmentation of the market is inevitable. The healthy will move into the
Spartan plans and the sick will be concentrated in the comprehensive plans
such as Kaiser. With a concentration of high cost patients, comprehensive
plans will be forced to dramatically increase their premiums to the point
that they are unaffordable. This "death spiral" will knock comprehensive
plans out of the market.
Thus, the chronically ill will be forced into the "consumer-driven" plans
and face financial ruin because of the excessive burden of cost-sharing.
Also, some of the healthy, who gambled by selecting low premium plans, will
develop severe acute or chronic problems and likewise face financial ruin.
Unpaid medical bills are continuing to increase as a major cause of personal
bankruptcy.
And what national policies are we adopting to address this disaster? We are
"strengthening" the employer-link by increasing the menu of low premium
plans that will control the employers' health care costs and will assure the
health plans that they will continue to have a solid market. It matters
little to the health plans that their products are of little value as long
as they continue to receive their portion of the health care dollar. And the
government is seriously considering subsidizing this process through tax
credits which can only result in perpetuation of these cruel policies.
We are spending $1.55 trillion in health care this year. That is more than
enough to provide comprehensive health care services for everyone. We could
achieve this goal merely by adopting a single, publicly administered,
national health insurance program. Yet we continue with these insane
policies because we don't want the government involved.
But 60% of health care funding is already through the public system. Canada
has a universal system which is 70% publicly funded, and their entire public
and private funding is less than our current government funding alone. Our
government is already deeply involved. Let's demand that we change public
policies from those that nurture health plans to those that nurture
patients.