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Aetna and the California Medical Association are off target

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Aetna and the California Medical Association are off target

Cover Yourself!
Op-Ed
By Jack Lewin, M.D. and Ronald Williams
(Dr. Lewin is CEO of the California Medical Association. Mr. Williams is president of Aetna.)
Wall Street Journal
August 19, 2005

With 45 million Americans uninsured, achieving universal access to health care may seem daunting, but it’s not impossible. Encouraging work is underway in California to aid employers who don’t provide insurance to voluntarily expand primary and preventive care, and the innovative coverage options targeting groups such as students and part-time employees show great promise.

Employer-based coverage is beneficial and should be preserved. But the environment is changing and costs are crippling the system. Under an individual-coverage requirement, many more Americans would benefit from the private-sector health care that most enjoy currently in our employer-based system. This would foster the adoption of consumer-directed health plans, which typically include high-deductible plan features. These new plans create greater awareness of health-care costs by providing consumers with better information about available treatment options, including the cost of these services. Consumers then can make the treatment choices that are right for them without the third-party disconnect that divorces the consumer from costs.

With an individual-coverage requirement, people who want more comprehensive coverage and can afford the higher premiums could choose to buy it.

As it is, state legislatures are still mandating costly new benefits for insured persons, destabilizing employer coverage and, as a result, increasing the number of uninsured.

We urge the state legislatures and Congress to approach this debate with an open mind as the access to care debate intensifies. At the very least, let’s study and analyze this concept to determine whether its practical application can work to unite us in our quest to solve the persistent problem of the uninsured.

The status quo is the worst possible strategy. We need a new approach to financing universal access that is more practical and affordable, while still socially responsible and ethical.

http://www.calphys.org/html/editorials01.asp

Comment: Dr. Lewin has long been a passionate advocate of health care coverage for all. He shares with us the frustrations of observing the profound escalation in costs without a commensurate increase in coverage. He is well informed on the options, but is partnering with the private insurance industry the right choice?

This joint op-ed states that “the innovative coverage options targeting groups such as students and part-time employees show great promise.” Great promise? Many of these “innovative” products do not provide even bare-bones coverage, and it should be a criminal act to even imply that they are insurance products.

The op-ed also states that “people who want more comprehensive coverage and can afford the higher premiums could choose to buy it.” With current trends, this equates to a statement that you can qualify for services such as joint replacement only if you are willing and able to pay for coverage. For those who say that joint replacement would be covered, we should ask then what would be left out?

In addition, the op-ed mentions the “third-party disconnect that divorces the consumer from costs.” This is code language for requiring the patient to pay out-of-pocket as a mechanism of relieving the insurance intermediary of its responsibility to insure against loss. That impairs access due to lack of affordability.

The op-ed calls for study and analysis, as long as the solution is a consumer-directed, individual mandate that protects insurers while leaving patients exposed to financial disaster. Although more studies will continue – indefinitely – enough have been completed to draw conclusions about the perversities of this approach. For those who believe that they need more study, I would suggest reading, as a few sources, Health Affairs, Kaiser Daily Health Policy Report, The Commonwealth Fund, Families USA, National Coalition on Health Care, Physicians for a National Health Program, Consumers Union, and a Google search of the issue. Just be careful to separate health policy science from ideology (theirs and ours).

The authors are certainly correct when they state that “we need a new approach to financing universal access that is more practical and affordable, while still socially responsible and ethical.” We are already spending enough to do that, but, sadly, their model is not socially responsible.

Employer-sponsored HMOs signal financial disaster

Health Benefits May Cost 12% More
By Kristen Hallam
Hartford Courant
August 16, 2005

American companies may have to pay an average of 12.6 percent more for their employees’ health insurance next year, according to a survey by Hewitt Associates, a leading benefits consultant.

Humana Inc. plans the largest increase, 23.6 percent, and nonprofit Kaiser Permanente the smallest at 10.4 percent, Hewitt found in a survey of employers. The rates are for health maintenance organizations, plans that cover 20 percent of privately insured Americans.

40 percent of employers are proposing to shift more medical costs to workers in the form of higher deductibles and a larger share of premiums, according to the Hewitt survey.

The Hewitt data suggest that employers’ health costs next year may climb at almost five times the U.S. inflation rate.

WellPoint Inc., the biggest U.S. provider of health insurance, is planning an average rate increase of 16.7 percent for employers, the Hewitt survey found.

CIGNA Corp., whose health insurance operations are based in Bloomfield, said earlier this month that about 80 percent of requests from employers are for information about plans that shift a bigger share of costs to workers. CIGNA plans to raise premiums 12.3 percent, the Hewitt survey found.

“You do double-digit increases year over year over year, and we’re now looking at costs of health care going up 80 percent in the last six years,”
said Paul Harris, senior health strategist at Hewitt.

http://www.courant.com/business/hc-insurancerates.artaug16,0,2934551.story?coll=hc-headlines-business

Comment: Although this report is limited to the costs of employer-sponsored HMOs, it is particularly relevant for two reasons. HMOs are designed to provide comprehensive health care services, at least in theory, so HMO premiums reflect more closely the true costs of comprehensive health services than do PPO plans which require greater cost sharing while providing fewer benefits. The other reason that this report is especially relevant is that it reflects pricing resulting from employer/insurer negotiations and therefore represents the lowest premiums attainable for comprehensive coverage, typically about 30% lower than the individual market for comparable benefits.

Our current system of funding health care has placed America’s employers in the front seat in controlling health care cost escalation. But they’re driving us off a cliff!

It’s really not the employers’ fault. They have little control over the structural flaws that are resulting in the outrageous increases in health care costs. It will take a unified system of funding care to bring the system under control. Only then could we hope to effectively tackle problems such as those demonstrated by Wennberg (regional excesses in high-tech capacity) and Starfield (lack of an adequate primary care infrastructure that would improve quality while reducing costs). Only then would we have true monopsonistic power (single purchaser) to demand value for our health care investment (a beneficent power as long as it is our own public monopsony).

General Motors, as the largest private purchaser of health benefits, recognizes that they cannot stop a system headed toward a cliff, and that we need a “national solution.” Imagine what we could do with the nearly $2 trillion we are spending on health care if only we had a rational, national program of health insurance. Comprehensive, high quality care for everyone:
it doesn’t have to be just a dream.

National health-insurance bill backed

Measure calls for public financing
By Paul Wilson
pawilson@courier-journal.com
The (Louisville) Courier-Journal
Wednesday, August 17, 2005

The director of the Louisville Metro Health Department and others called last night for single-payer health insurance — described as Medicare for everyone — to ensure quality medical care for all Americans.

“Health care is about life and death, and it should not be driven by market factors,” said Dr. Adewale Troutman, speaking to about 15 people at a community forum at the Braden Center, 3208 W. Broadway.

“This is an issue of human rights and social justice,” he added. Troutman said that more than 40 million Americans have no health insurance — and that millions more are underinsured.

Troutman was joined by Dr. Garrett Adams, president of Kentucky’s Physicians for a National Health Care Program, and Kay Tillow, coordinator of Kentuckians for Single Payer Health Insurance, in support of legislation introduced this year by U.S. Rep. John Conyers, D-Mich., that would make health care “publicly financed but privately delivered.”

Under Conyers’ bill, health care would be administered by the federal government, not by insurance companies, which Adams described as parasites on U.S. health care.

“As the number of uninsured grows, the number of administrators grow,” Adams said. “Is that right?”

About 50 House members joined Conyers in co-sponsoring the bill.

But U.S. Rep. Anne Northup of Louisville, who represents Kentucky’s 3rd District, said a nationalized health system would bankrupt the country and lower the quality of care.

Critics also say that countries with national health care, such as Canada, drive doctors away, and sometimes require patients to wait years for some procedures.

Troutman dismissed both concerns as unfounded. After hearing the presentation, Ruth Weathers of western Louisville called the single-payer idea “superb.”

She said her husband died when she was 40 — 25 years before she was eligible for health insurance from Medicare.

No longer covered by her husband’s insurance, Weathers worked two part-time jobs to pay for medical coverage.

But she wondered about the chances of Conyers’ legislation passing.

“It’s possible, but probable?” Weathers asked.

“We’ve got a long way to go, especially with this government that’s more concerned with haves than have-nots.”

Celebrate New York's victory, but get back to work!

N.Y. Council Backs Benefits Bill
By Amy Joyce
The Washington Post
August 18, 2005

The New York City Council yesterday passed a measure requiring most stores that sell groceries to provide a set level of health care coverage for their workers in a move aimed at forcing companies such as Whole Foods Market Inc. and Wal-Mart Stores Inc. to change their labor practices.

In New York, 46 of the council’s 51 members voted in favor of the bill, with one member against it. It would require any grocery store with 35 or more employees or other retail stores with 10,000 square feet or more of floor space for food items to contribute $2.50 to $3 for health care for each hour an employee works. That is the average amount that employers in the New York grocery industry that provide health care currently contribute.

Mayor Michael R. Bloomberg (Rep) is expected to veto the measure. It takes 34 votes to override a mayoral veto.

http://www.washingtonpost.com/wp-dyn/content/article/2005/08/17/AR2005081701892.html

Comment: The New York City Council should be commended for passing this beneficial measure. Advocates of incremental reform can chalk this one up as a significant victory. Any measure that expands health care coverage should receive the support of all of us.

Although this measure is a definite step forward, it does fall far short of what needs to be done. Perhaps the most important failure is that 90% of the uninsured in New York City will not benefit from this measure. Much more must be done to achieve the goal of universal coverage.

Another important issue is that New York has a regulatory and legislative environment that has required insurers to offer products that are readily available and relatively effective in providing financial security for those with health care needs. This means that insurance premiums are very high in New York because those with needs are included in the insurance risk pools.

Because of our fragmented system of funding health care, New York has little control over escalating global health care costs. Affordability is a major concern to all payers, yet New York and the rest of the nation can do little about it since our fragmented system has relied largely on market forces to control costs. Sadly, the U.S. experiment in private coverage has proven that market forces in health care are not only ineffective, but they have been quite perverse. A strong regulatory environment dampens the perversities, but still falls far short on equity, access, universality, efficiency and the camel-back-breaking straw – affordability.

We need a system that provides mechanisms of containing costs and ensuring that we are receiving quality and value for our health care investment. We need a system that provides access and coverage for everyone. We need a system that is funded equitably. Incremental tweaks of our fragmented system, no matter how beneficial they are, will never get us there. We really do need a single payer system.

Celebrate New York’s victory, but get back to work!

N.Y. Council Backs Benefits Bill
By Amy Joyce
The Washington Post
August 18, 2005

The New York City Council yesterday passed a measure requiring most stores that sell groceries to provide a set level of health care coverage for their workers in a move aimed at forcing companies such as Whole Foods Market Inc. and Wal-Mart Stores Inc. to change their labor practices.

In New York, 46 of the council’s 51 members voted in favor of the bill, with one member against it. It would require any grocery store with 35 or more employees or other retail stores with 10,000 square feet or more of floor space for food items to contribute $2.50 to $3 for health care for each hour an employee works. That is the average amount that employers in the New York grocery industry that provide health care currently contribute.

Mayor Michael R. Bloomberg (Rep) is expected to veto the measure. It takes 34 votes to override a mayoral veto.

http://www.washingtonpost.com/wp-dyn/content/article/2005/08/17/AR2005081701892.html

Comment: The New York City Council should be commended for passing this beneficial measure. Advocates of incremental reform can chalk this one up as a significant victory. Any measure that expands health care coverage should receive the support of all of us.

Although this measure is a definite step forward, it does fall far short of what needs to be done. Perhaps the most important failure is that 90% of the uninsured in New York City will not benefit from this measure. Much more must be done to achieve the goal of universal coverage.

Another important issue is that New York has a regulatory and legislative environment that has required insurers to offer products that are readily available and relatively effective in providing financial security for those with health care needs. This means that insurance premiums are very high in New York because those with needs are included in the insurance risk pools.

Because of our fragmented system of funding health care, New York has little control over escalating global health care costs. Affordability is a major concern to all payers, yet New York and the rest of the nation can do little about it since our fragmented system has relied largely on market forces to control costs. Sadly, the U.S. experiment in private coverage has proven that market forces in health care are not only ineffective, but they have been quite perverse. A strong regulatory environment dampens the perversities, but still falls far short on equity, access, universality, efficiency and the camel-back-breaking straw – affordability.

We need a system that provides mechanisms of containing costs and ensuring that we are receiving quality and value for our health care investment. We need a system that provides access and coverage for everyone. We need a system that is funded equitably. Incremental tweaks of our fragmented system, no matter how beneficial they are, will never get us there. We really do need a single payer system.

Taking away choice

Pick and Lose
By Jonathan Cohn
The New Republic
August 22, 2005

Has any word done more to cloak the modern conservative agenda than “choice”?

…what conservatives in this country never mention is that giving us these new choices also means taking something away–typically, programs that make us more secure.

Health care… may be the most vivid example of this. And a new bill quietly moving through Congress this summer shows why. It is called–what else?–the Health Care Choice Act. Sponsored by Representative John Shadegg of Arizona and endorsed by everybody from The Wall Street Journal editorial page to the Cato Institute, it was voted out of committee late last month. With both Speaker Dennis Hastert and Bush now embracing it, it seems destined for approval by the full House soon, though its fate in the Senate remains uncertain.

At first blush, Shadegg’s proposal seems utterly sensible. Today, if you are trying to buy an insurance policy for yourself or your family on the open market–i.e., if you don’t get coverage through your employer–you can buy only policies sold within your state. Your state, in turn, has set minimum standards for everything from the services insurers cover to the way insurers set their prices. Shadegg’s bill would obliterate that system: You would be allowed to buy any policy sold anywhere in the country, even if it doesn’t conform to your home state’s rules. So, if you live in Massachusetts, where policies tend to be relatively expensive in part because they have strict regulations, you could buy your coverage from Missouri, where they are generally cheaper thanks to looser guidelines.

Ideally, the bill’s supporters say, people would shop for insurance the same way they shop for consumer goods: online, comparing products and prices, and then deciding on the package that best suits their needs.

Lovely–except that health insurance isn’t just another sweater you can return to L.L. Bean if it arrives with holes in it.

There would also be a “race to the bottom,” as even the legitimate insurers would flock to the states with the most lax regulations about solvency and marketing practices… Even in those states determined to be vigilant, this move would render local rules on health insurance irrelevant.

Getting rid of those regulations, of course, is precisely what Shadegg and his allies have in mind, since they think needless state regulations are responsible for making health insurance so expensive in the first place. But along with regulations guaranteeing coverage of podiatry or acupuncture are mandates to cover cancer screening, psychiatric treatment, and other services that most Americans rightly deem essential. Other regulations are designed to prohibit insurance companies from discriminating among customers based on age or propensity for illness.

Do all of these rules drive up insurance rates, particularly for healthy people relatively unlikely to consume expensive medical services?

Absolutely. But they do so in order to make insurance more affordable for people who need intensive medical services–the ones who arguably need insurance coverage most of all. Get rid of the rules, and some of these people will have no choices at all. (Shadegg and others would theoretically address this need by supporting “high-risk” pools. But such pools, which exist in about two-thirds of the states, have proved woefully inadequate, typically offering skimpy coverage and charging higher premiums.)

That’s not to say the market for individual health insurance works particularly well. Large companies can spread the cost of insurance among all of their workers, thus securing relatively affordable coverage for them without restrictions on medical conditions. Individuals cannot do this, which is why their coverage is so ludicrously expensive and hard to obtain, even with the regulations.

But the best way to fix this isn’t to gut existing regulations. It’s to create one big pool of beneficiaries through some kind of universal health insurance system–whether it’s one that allows people to pick from among well-regulated private health plans (like President Clinton once proposed) or one that simply bypasses insurance companies altogether, giving consumers direct, affordable access to the doctors and hospitals they like best (like many European nations already do). Those aren’t the kind of choices that conservatives want to give Americans, since they happen to require expanding government. But they’re the kind of choices Americans would appreciate most.

http://www.tnr.com/doc.mhtml?pt=qCmennIQV1XefN%2BzenOwyX%3D%3D

Comment: In order to gain market share, many insurers are now offering plans with competitive premiums, made possible only by shifting much of the responsibility of paying for care to the individual patient through reduced benefits and increased cost sharing. Since these plans do not provide adequate financial security for those with significant health care needs, many states have enacted appropriate laws and regulations to ensure that insurance insures against financial loss. Shadegg’s bill would effectively replace existing state regulations with the regulations of the state with the least restrictive oversight. Can you imagine the race to the bottom as various states compete to be the home state of national insurers by abolishing essentially all effective regulatory oversight?

These “affordable” policies may be satisfactory for the majority who are healthy, but they won’t work for the minority with significant health care needs and who are responsible for much of our health care spending.

Concentrating high-cost individuals into a single pool will make insurance truly unaffordable for almost all individuals. So how do we fund these high-risk pools? There is only one way, and that is by spreading risk through the tax system.

Shadegg’s “affordable” coverage is a fraud since individuals purchasing these cheap policies will have to pay, through the tax system, the balance of the “premium” that would be required to fund comprehensive coverage. But this increased fragmentation of our irrational system of funding care would expose many more to insolvency, and, worse, to suffering and death due to impaired access to care.

Are our representatives in Congress going to join in on the Shadegg shag, or are they going to get serious about fixing the way we fund health care?
That’s a choice that really matters.

UCLA study of California insurance a lesson for all

The State of Health Insurance in California: Findings from the 2003 California Health Interview Survey
By E. Richard Brown, PhD, Shana Alex Lavarreda, MPP, Thomas Rice, PhD, Jennifer R. Kincheloe, PhD, MPH and Melissa S. Gatchell, MPH
UCLA Center for Health Policy Research
August 2005

More than one in five nonelderly Californians lacked some form of health insurance coverage for all or part of the year in 2003 – nearly 6.6 million children and adults under age 65, which is more people than the entire population of the state of Massachusetts.

Employment-based insurance coverage

Job-based coverage is still the foundation of California’s health insurance system, albeit a crumbling one. A majority of nonelderly adults get their coverage through their own or a family member’s employment, but the decline in employment-based health insurance in 2003 suggests that the long-term erosion of this foundation will continue.

Growth in the Medi-Cal and Healthy Families Programs from 2001 to 2003

Between 2001 and 2003, the growth in enrollment in Medi-Cal and Healthy Families (SCHIP) offset much of the loss in job-based coverage.

The access and health consequences of coverage

Periods of intermittent or continuous uninsurance have serious consequences for an individual’s access to important health care services. For persons with insurance, access is also affected by the type of coverage they have.

Conclusion

Bold steps are needed to effectively control the growth in health care costs for all income groups, thus avoiding the potential consequence of bare-bones insurance coverage that is likely to increase the burden of medical care costs on moderate- and lower-income families and individuals, and reduce their access to necessary medical care. Most other economically developed nations have more effectively and equitably controlled the growth in their health care spending, most through some combination of “all-payer” or “single-payer” management of paying for health care. Until the United States, as a whole, or California, in a leadership role, adopts effective controls over the health care spending, we can expect to see a continuing, and even accelerating, erosion of employment-based insurance.

There are some valuable immediate and longer-term steps that California can take to cover the uninsured. Expanding coverage for children represents the relatively low-hanging fruit because it is relatively modest and builds on the longstanding commitment of State and Federal policy makers-and the public-to assure health insurance and access to care for all children.

Additional measures that would cover adults are more challenging, both fiscally and politically. Nevertheless, bold leadership will be needed to address this widespread, serious and growing problem. The dialogue created by pay-or-play, the proposal for an individual mandate, and the proposed single-payer system offer an opportunity to engage the public in a fruitful discussion and begin building a political consensus on the direction that California should take to cover all of its residents.

http://www.healthpolicy.ucla.edu/pubs/files/SHIC03_RT_081505.pdf

Comment: Although there is modest variation in demographics and policies amongst the various states, California does represent a microcosm, albeit one with the population size of Canada, of the flawed model of health care funding in the United States. As state and national policymakers consider various options for reform, much can be learned from this important UCLA study of the state of health insurance in California. In this 84 page report, the authors identify the flaws in our fragmented system of health insurance, and they discuss options for reform.

The report mentions modest programs and proposals that could expand coverage, but concedes that “California needs to take some much bolder steps to address this very large and growing uninsured population.” Three major policy strategies are discussed: 1) a “pay or play” requirement imposed on employers and employees; 2) an individual mandate that would require each California resident to demonstrate that he or she has coverage; and 3) legislation to consolidate all health care payment sources into a publicly run single-payer health insurance system that would replace private health insurance as we know it.

Single payer advocates will be interested in their comments on the single payer option, as follows:

“The third alternative is to replace the fragmented private health insurance system with a publicly run “single-payer” health care system that would provide coverage to all Californians. Long a goal of many health advocates, single-payer proposals have been repeatedly introduced in the California Legislature, including proposals by Republican Governor Earl Warren in the 1940s and more recent proposals sponsored by Health Access, a consumer advocacy group. In the last several years, Senator Sheila Kuehl (D, Santa Monica) has been the author of the current single-payer bill, SB 840 (in the previous legislative session: SB 921). Under SB 840, taxes would replace all deductibles and premiums, and the government would become the sole payer of all health insurance benefits. Employers and employees would pay more progressive taxes to a State trust fund rather than premiums to health insurance companies. The bill also shifts reimbursement for hospitals and other providers back to fee-for-service, which would provide relief on the supply side of the health care system. There is considerable evidence that Senator Kuehl’s proposal would dramatically reduce the high administrative costs of the current system and that the enormous purchasing power of such a state program would enable it to reduce the costs of prescription drugs and medical devices.

“There are many features of a single-payer system that are attractive to health policy analysts as well as to the advocates. First, a universal single-payer system would sever the dependence of health insurance on employment. As workers change or lose jobs, their health insurance coverage and that of their family would not be affected. Second, a single-payer system would facilitate more effective cost control. As noted above, a unified single insurance plan would reduce the high administrative costs associated with the current churning and changing of coverage, as well as the myriad payment rates and systems that are expensive to administer for providers of care and for payers alike. By consolidating the purchasing power of all residents in the state, such a plan also could exert greater control over both the prices that health care suppliers charge and the rate of growth in health care costs. Third, having a single source of health care financing would effectively address the problems that patients and health care providers face with currently fragmented sources of coverage. It would reduce the frequent confusion that individuals and families face about what is covered and what is not, what providers they can use and which ones they cannot use.

“Nevertheless, a single-payer system has its critics, and a number of serious criticisms have been leveled against it. Just as markets can fail, so can government. According to Charles Wolf, government faces a number of challenges, including the fact that it is, by nature, monopolistic and does not have to adhere to bottom-line profit and loss signals.

“Government agencies are overseen by politicians who are more likely to look for quick fixes than for long-term solutions. This means that the public policies developed may fail to achieve all of the goals of efficiency and equity associated with single-payer – although such a system would almost certainly be more efficient and equitable than the current market-dominated one. Public control creates the conditions for more accountability to the public’s interests, but the controlling executive and legislative branches of government are subject to political influence that can constrain the efficiency and effectiveness of a public agency, often on behalf of the special interests that deal with the subordinate government agency.

“The political challenges are equally formidable. Even though many researchers have shown that single-payer systems can save money, this is a difficult sell to the public, particularly in the U.S. where interest groups are largely responsible for the funding of political campaigns. Perhaps the main hurdle is the fact that even if total health care expenditures would be lower under a single-payer system, government expenditures – and therefore, taxes – would be higher since the vast majority of health spending would be from the public sector. It has proven difficult to successfully persuade the public that they might spend less overall because their higher taxes could be more than offset by larger take-home wages when employers no longer have to pay the additional fringe benefits associated with employer-based health insurance. Indeed, this was the experience in California in 1994 when Proposition 186, a single-payer initiative, was rejected by nearly three-quarters of the electorate.”

http://www.healthpolicy.ucla.edu/pubs/files/SHIC03_RT_081505.pdf

Beth Capell, PhD, policy consultant for Health Access, has frequently made the point that, once we are fortunate enough to have enacted a single payer system, the political effort required to maintain and improve the system will have only just begun.

The Promise and the Pitfalls of Health Savings Accounts

By Michelle Andrews
The New York Times
August 14, 2005

Health savings accounts, a sort of I.R.A. for health care, let people set aside money tax-free to pay for medical expenses, both now and later. But the accounts have been controversial since their introduction in January 2004.

Depending on whom you ask, they are either a wonderful tool to help Americans become wiser, more price-conscious health care consumers, or just another way for employers to pass along more health care expenses to their workers. Critics also contend that the accounts are basically a tax-shelter gimmick for people who are healthy and wealthy enough to invest in them but don’t have to rely on them to cover their care costs.

Most businesses have not yet offered the accounts as an option in their insurance plans. But as health costs continue to climb, some businesses and individuals are more curious to try the idea. Since they were established under the 2003 law that set up a prescription drug benefit for Medicare, more than 425,000 accounts have been established, according to a survey of administrators by Inside Consumer-Directed Care, a newsletter based in Washington, and more than 50,000 are being opened each month.

Nearly a year and a half into the experience, however, it is becoming clear that while the accounts may be a reasonable option for some people, there are potential drawbacks.

A health savings account must be paired with a health plan that meets certain criteria, including a deductible of at least $1,000 for individuals and $2,000 for families. Some employers offer them, although individuals can also apply for a qualifying health plan and open one of these accounts on their own.

Individuals can deposit money into their accounts to cover the deductible and other medical expenses, and employers can also deposit money for employees. Generally, the account balance earns interest, though some accounts allow holders to invest the money in mutual funds or other vehicles.

If an employee leaves his job, the money in his health savings account stays with him. And these accounts, unlike flexible spending arrangements, have no “use it or lose it” rule, so the funds roll over from one year to the next. An account holder pays no tax on withdrawn funds as long as they are used to pay for qualified medical expenses. If the money is used for any other expenses, it is subject to income tax and, for those under 65, to a 10 percent penalty.

Some people are discovering downsides to the accounts. Ric Joyner, president of the National Association of Professional Benefits Administrators, says he has received frequent calls from companies and individuals interested in setting up the accounts. But lately, Mr. Joyner, who is also president of eflexgroup.com, a benefits administration company in Madison, Wis., says he has been getting calls from people complaining that their account balances are shrinking even though they have not used the money.

“The money they’re setting aside for health care is being eaten up by fees,” he said.

Typically, the companies that administer the accounts charge a set-up fee of around $20, plus a monthly fee of about $2 or $3. They may also charge an annual fee, as well as a transaction fee every time a customer writes a check or uses the account’s debit card. Some charge a fee to close an account.

American Health Value, an administrator of health savings accounts, charges a one-time, $15 fee to open an account, and $36 annually to administer it. There is also a $2.50 monthly service charge, which is waived if the balance is more than $2,500.

In the early years of an account, when the balance is typically low, fees can take a relatively big bite out of the total. A new customer with American Health Value who deposited $1,000 during the first year, for example, could expect to pay $45 in fees ($15 to set up the account and $30 for 12 months of service charges at $2.50 each). That $45 far exceeds the $7.50 that the customer would have earned in an interest-bearing account, based on the 0.75 percent now being paid on balances of up to $1,000.

“Unless employers are putting a bunch of money in, I really don’t see how these balances are going to get much bigger,” said Gary Claxton, vice president of the Kaiser Family Foundation, a health care research and education company in Menlo Park, Calif. Some companies permit an account holder to invest the balance in stocks or mutual funds, though a certain minimum balance – say, a few thousand dollars – may be required to do so. Such investments, of course, offer a chance for greater returns – but also the risk of losing money.

There are also ceilings, indexed to inflation, on annual contributions: in 2005, it is the lower of the deductible or $2,650 for individuals and $5,250 for families. Account holders who are 55 or over can also make catch-up deposits. In 2005, the ceiling is $600; it rises gradually to $1,000 in 2009.

But even if you deposit the maximum amounts and don’t touch the money to pay for health care before you are 65, you won’t accumulate enough to cover medical expenses in old age, according to an analysis by the Employee Benefit Research Institute, a nonprofit research organization based in Washington. In a model created by the institute, a 55-year-old who set aside the annual maximum – as well as catch-up contributions – starting in 2004 would save $44,000 in 10 years, assuming a 5 percent return. If that person lived to 80 and had retiree health coverage, he would need anywhere from $137,000 to $337,000 to cover premiums and out-of-pocket medical expenses, according to the institute’s analysis.

Investing in a health savings account at an earlier age won’t solve the problem, said Paul Fronstin, the institute’s director of health research and education and a co-author of the report.

“The gap is only going to get larger,” he said, “because of the way that health care costs are increasing compared to how much you can put in.”

THE amount saved is not the only concern. There are other wrinkles that can trip up consumers. For example, health savings accounts cannot be used with many flexible spending arrangements offered by employers.

In addition, some states have laws that conflict with health savings accounts. Those laws may require, for example, that certain types of medical care be covered under plans before the deductible is applied. States have until Jan. 1 to bring their laws into line with the federal law, and many have done so already.

Prescription drug coverage poses a problem for many people who are considering whether to open health savings accounts. Starting in January, many prescription drug expenses in qualified plans will be subject to the deductible. Now, consumers typically pay only a portion of the drug costs from the outset.

Mr. Joyner said the idea of paying more out of pocket for prescription drugs made his employees reject the idea of health savings accounts. “They didn’t like it that there wasn’t going to be a drug card,” he said.

Many major insurers and banks now offer the accounts to individuals and companies. But details like fees and investment options vary widely, as do the basics of the accompanying health plans. “The biggest drawback about H.S.A.’s is that they can be very confusing,” said Martha Priddy Patterson, a director for Deloitte Consulting.

Because these accounts are still relatively new, and changing fast, the best advice may be to read the fine print before opening one.

Thorpe's NCHC report on the costs of comprehensive reform

A previous Quote of the Day provided a link to Prof. Kenneth Thorpe’s PowerPoint presentation of his study of the costs of four models of universal health care coverage. The National Coalition on Health Care has now released a formal report of Thorpe’s analysis:

Impacts of Health Care Reform: Projections of Costs and Savings
By Kenneth E. Thorpe, Ph.D.
National Coalition on Health Care
August 2005

Summary of the Coalition’s Specifications:

1. Health Care Coverage for All
2. Cost Management
3. Improvement of Health Care Quality and Safety
4. Equitable Financing
5. Simplified Administration

Viable options for insuring all Americans:

Scenario 1: employer mandates (supplemented with individual mandates as necessary)
Scenario 2: expansion of existing public programs that cover subsets of the uninsured
Scenario 3: creation of new programs targeted at subsets of the uninsured (FEHBP model)
Scenario 4: establishment of a universal publicly financed program (single payer)

In sum, a reformed health care system – reformed, that is, along the lines recommended by the members of the National Coalition on Health Care – would cost our nation much less money than an unreformed system. What should also be clear from this analysis is that a reformed system would produce more value than an unreformed system – by guaranteeing health insurance for all Americans, by increasing the efficiency of the health care sector, and by improving the quality and safety of the care that patients receive.

http://www.nchc.org/materials/studies/Thorpe%20booklet.pdf

Comment: This study demonstrates that, over the next decade, each of the first three scenarios would reduce health care costs by about one-third of a trillion dollars, whereas the single payer model would reduce costs by over $1.1 trillion. Clearly, this study confirms that reform is imperative, and that the onus for convincing the nation that the single payer model should be rejected has been placed on supporters of the alternative models.

This important report should be downloaded and used in your advocacy for a better health care system for all.

Thorpe’s NCHC report on the costs of comprehensive reform

A previous Quote of the Day provided a link to Prof. Kenneth Thorpe’s PowerPoint presentation of his study of the costs of four models of universal health care coverage. The National Coalition on Health Care has now released a formal report of Thorpe’s analysis:

Impacts of Health Care Reform: Projections of Costs and Savings
By Kenneth E. Thorpe, Ph.D.
National Coalition on Health Care
August 2005

Summary of the Coalition’s Specifications:

1. Health Care Coverage for All
2. Cost Management
3. Improvement of Health Care Quality and Safety
4. Equitable Financing
5. Simplified Administration

Viable options for insuring all Americans:

Scenario 1: employer mandates (supplemented with individual mandates as necessary)
Scenario 2: expansion of existing public programs that cover subsets of the uninsured
Scenario 3: creation of new programs targeted at subsets of the uninsured (FEHBP model)
Scenario 4: establishment of a universal publicly financed program (single payer)

In sum, a reformed health care system – reformed, that is, along the lines recommended by the members of the National Coalition on Health Care – would cost our nation much less money than an unreformed system. What should also be clear from this analysis is that a reformed system would produce more value than an unreformed system – by guaranteeing health insurance for all Americans, by increasing the efficiency of the health care sector, and by improving the quality and safety of the care that patients receive.

http://www.nchc.org/materials/studies/Thorpe%20booklet.pdf

Comment: This study demonstrates that, over the next decade, each of the first three scenarios would reduce health care costs by about one-third of a trillion dollars, whereas the single payer model would reduce costs by over $1.1 trillion. Clearly, this study confirms that reform is imperative, and that the onus for convincing the nation that the single payer model should be rejected has been placed on supporters of the alternative models.

This important report should be downloaded and used in your advocacy for a better health care system for all.

Another report on medical debt

Seeing Red: Americans Driven into Debt by Medical Bills
By Michelle M. Doty, Jennifer N. Edwards, and Alyssa L. Holmgren
The Commonwealth Fund
August 2005

ABSTRACT: New analysis of the 2003 Commonwealth Fund Biennial Health Insurance Survey reveals that an estimated 77 million Americans age 19 and older – nearly two of five (37%) adults – have difficulty paying medical bills, have accrued medical debt, or both. Working-age adults incur significantly higher rates of medical bill and debt problems than adults 65 and older, with rates highest among the uninsured. Even working-age adults who are continually insured have problems paying their medical bills and have medical debt. Unpaid medical bills and medical debt can limit access to health care: two-thirds of people with a medical bill or debt problem went without needed care because of cost – nearly three times the rate of those without these financial problems.

http://www.cmwf.org/usr_doc/Medical_bills_FINAL.pdf

And…

Weighing your health plan choices
Consumer Reports
September 2005

Billing remains a pain for PPO members. Among those who contacted their health plan (56 percent of HMO members and 58 percent of PPO members), 63 percent in PPOs said they had to contact their plan about bill or claim status… And PPO enrollees experienced more difficulties with customer support, complaining that they had to phone or write the plan repeatedly and that solving the problem took an unreasonable amount of time.

http://www.consumerreports.org/main/content/display_report.jsp?FOLDER%3C%3Efolder_id=763363&ASSORTMENT%3C%3East_id=333141&bmUID=1123779022633

Comment: The Commonwealth Fund report adds to the plethora of health policy studies confirming that: (1) ameliorating medical debt has become a major health policy challenge, (2) medical debt impairs access to care, and (3) even continuous coverage with private insurance is failing to provide adequate protection against medical debt with the resultant adverse impact on health care access. Though there is nothing really new here, there are a couple of other points worth considering.

Although Medicare covers only about one-half of costs for those over 65 with their greater health care needs, it has done a better job of protecting against medical debt than the fragmented system for those under 65. Though some protection for the retired is afforded by pension funds, the much larger incomes of the workforce are not adequate to compensate for the deficiencies of private coverage. Obviously a universal Medicare program with expanded benefits would be much more effective in preventing medical debt.

Although private insurers are failing miserably in their function of preventing medical debt, some argue that they still serve a purpose in providing administrative functions such as claims processing. The very high costs of health care administration have been well documented. And what are we getting for this? Nearly two-thirds of PPO patients experience unsatisfactory administrative support for claims processing!

We pay an exorbitant amount to insurers but are receiving only inadequate reduction of risk exposure and incompetent administrative services. Why do we continue to nurture the private insurance industry at the cost of the patients who do need care?

Alberta's Premier Klein supports better access for those willing to pay

Opening access to health care is a moral duty, says Klein
By Ralph Klein, Premier of Alberta
Calgary Herald
July 30, 2005
Opinion

Let me be blunt. We have unacceptable waiting lists in our publicly funded, rationed health-care system, and all the money in the world is not going to eliminate them.

The answer is not more money; the answer is more choice.

Choice can be found in a supplementary insurance plan to privately fund non-emergency medical services…

In simple terms it means that if you are in pain or suffering and cannot wait in line, you should be able to buy the health care you need.

Not jump the line, but move out of the line. Move out of the publicly-funded health-care system and into an expanded parallel system that has more capacity to end your pain and suffering, but to do so at your own cost.

http://www.canada.com/calgary/calgaryherald/index.html

Systemic fix
Calgary Herald
August 6, 2005
Letters

Health Care: Ralph Klein states that “all the money in the world” is not going to eliminate waiting lists, unless the source of the funds is private instead of public. What nonsense. An MRI machine or surgical bed is no different whether paid for by private or public dollars.

Excessive queues are eliminated by making minor, selective adjustments in the system’s capacity. Compared to the global costs of establishing and maintaining a health-care system, these adjustments are negligible.

Responsible stewards of any health-care system, public or private, will make these adjustments. The difference is the public system would be adapted to accommodate everyone, whereas private systems accommodate only those who can pay.

By failing to tweak the system’s capacity, Klein has confirmed he is an irresponsible steward of Alberta’s public system. He should consider resigning to accept a position as a health-care executive in the U.S. Our grand experiment with his preferred private system has demonstrated that we are capable of spending almost $2 trillion without allowing the 45 million uninsured to have any position in the queue.

All systems ration care. Excessive rationing due to limited capacity is easily remedied. Rationing by ability to pay results in suffering and death. We know which model of rationing Klein prefers, but which model do Albertans prefer?

Don R. McCanne, M.D.
San Juan Capistrano, Calif.

Don McCanne is a senior health policy fellow with Physicians for a National Health Program.

http://www.canada.com/calgary/calgaryherald/index.html