The Boston Globe
November 25, 2004
Employers try shifting health costs
Plans ease sting for those at lower end of pay scale
By Kimberly Blanton

To make healthcare more affordable to employees of all incomes, companies like Wachovia Corp… are adopting what are called salary-based health plans. Under the plans, employers pass on more of their rising healthcare costs to well- compensated executives than they pass on to lower-paid workers who can’t absorb the dramatic premium increases. Beginning Jan. 1, Wachovia will pass on larger premium increases to its executives around the country than to, say, its bank tellers.

Liberty Mutual is putting in place a salary component in an overhaul of its entire employee health plan designed to rein in future health expenses… Employees on the family plan who earn less than $50,000 will pay a $300 annual deductible, and their out-of-pocket costs for treatments will be capped at $1,500 per year. If their salaries fall between $50,000 and $99,999, the family deductible rises to $750, and maximum out-of-pocket costs rise to $2,250.

Executives earning $100,000 or more pay the most for a family plan: a $1,500 deductible and $4,500 out-of-pocket. In contrast to Liberty, most employers use tiered salaries only to set premium levels or annual premium increases.

“We wanted something that would not be way out there in terms of peoples’ ability to pay,” said Helen Sayles, senior vice president of human resources. “We felt it was the right thing to do.”

http://www.boston.com/business/articles/2004/11/25/employers_try_shifting_health_costs/

Comment: One of the more important goals of comprehensive health care reform is that the funding of health care should be equitable. Considering the relatively high costs of health care today, lower income individuals are not able to fully fund their portion of an appropriate level of health care utilization. To achieve equity, higher income individuals would pay more into the system.

It is certainly admirable that employers are attempting to establish equity within our fragmented system of funding care. Unfortunately, these efforts within small microcosms will amount to only a tiny mini-step towards health care equity for all of us.

The tax system provides the most effective agency for equitable funding of health care for everyone. Tax policies such as tax deductibility or tax credits can be developed to improve equity. But if applied to our current fragmented system, we would see a perpetuation of the inequities of thousands of plan designs with varying deficiencies in coverage or even total lack of coverage. Also our fragmented system is not adept at reducing the waste of administrative excesses nor the waste of ineffectual technological excesses.

Let’s follow the example set by these compassionate employers, but go them one better. Let’s support an equitable health care system for everyone:publicly funded social insurance with simplified public administration.

The New York Times
November 22, 2004
Growth Rate in Health Cost to Employers Slowed in ’04
By Reed Abelson

After years of double-digit cost increases, the rate of growth in what employers pay for employee health insurance slowed significantly this year, according to an annual survey to be released today.

The average employer cost for health benefits for an employee rose 7.5 percent in 2004, to $6,679, the lowest increase since 1999 in a survey of about 3,000 employers by Mercer Human Resource Consulting.

But this slowing rate was largely the result of employers shifting more of the cost onto their employees and changing the kinds of plans they offer, said Barry Schilmeister, a senior health care consultant for Mercer.

“What we’ve seen for a couple of years running now is that employers have made very significant changes to their programs to cut three to four points off that inflation rate,” he said.

The overall growth in health care costs remains a concern, Mr.Schilmeister said. “Underneath it all, while general inflation is 2 percent, medical inflation continues to be 10-plus percent,” he said. “We still have a significant problem to deal with.”

Comment: Rather than being good news for employers, this is terrible news for employees, and for the rest of us. Health care costs continue to increase, but those costs are being shifted from employers and insurers to individuals, especially those with greater health care needs. Having health insurance no longer means that you have protection against financial hardship in the event of significant medical need.

It’s not that we don’t have enough money. We have plenty. We are already spending enough to pay for comprehensive care for everyone. The problem is that we are slowly shifting away from the insurance principle wherein the many who are healthy contribute a modest amount to pay for the care of the few who are sick.

Up to the present, we have refused to enact policies that would address cost issues by reducing the profound waste in our system. At the same time we are adopting policies that will hold down the modest amounts contributed by the many who are healthy, that is, we are holding down premiums paid for coverage. This means that insurance will offer fewer benefits and will increase cost sharing. Thus, by default, we are making the few who are sick pay even greater amounts for their care.

Where is our social contract of solidarity? I guess we can cross that one off of our lists as we give thanks tomorrow. No sense wasting our “prayer capital” on that one.

Johns Hopkins University
Center for Civil Society Studies
Institute for Policy Studies
October, 2004

The Health Benefits Squeeze:Implications for Nonprofit Organizations and Those They Serve
By Lester M. Salamon and Richard O’Sullivan

Conclusion: The Silent Tax

Escalating health insurance premiums have emerged as a silent tax on the American workforce, offsetting by a substantial margin whatever advantage
workers received as a consequence of recent federal tax cuts and contributing to the reluctance of employers to add new workers to their rolls.

For the most part, attention to the impact of these rising healthcare costs has focused on the business sector. But as the research reported here makes clear, nonprofit organizations have not been immune to these pressures. To the contrary, there is evidence that they have been particularly hard hit, perhaps because they are generally smaller in scale or lack access to the benefit management specialists that seem so important in keeping healthcare costs in check in an increasingly complex healthcare market.

To date, nonprofit managers have succeeded in shielding those they serve from the impact of escalating healthcare costs except for a growing need to introduce or increase service fees. To do so, however, nonprofit managers have had to shift the costs on to their employees – through increased premiums, co-pays, and cost-sharing or through reduced raises or other benefits. In the process, however, they may be undermining one of the few concrete advantages of nonprofit employment – the generally benign human resource policies that nonprofits tend to provide.

How long this process can continue before serious problems of employee turnover and burnout surface is anyone’s guess. What is more, the pressures of continued health insurance cost escalation are likely to accelerate the trend toward increased nonprofit fees and charges, undermining the sector’s ability to fulfill its mission of service to those in greatest need and its broader advocacy role. The “silent tax” represented by continued rapid increases in health insurance costs thus has particularly profound implications for the nation’s nonprofit sector, implications that have been largely overlooked until now. Hopefully, the data reported here will help focus new attention on the health insurance crisis facing nonprofit employers as well.

http://www.jhu.edu/listeningpost/news/pdf/comm03.pdf

Comment: Employees of nonprofit organizations usually accept lower levels of compensation, but do so graciously, acknowledging that the social good advanced has its own rewards. Unfortunately, these organizations are not exempt from the same health care cost pressures faced by for-profit corporations. But most nonprofit entities do not have as much budgetary flexibility. It is particularly disconcerting to see these organizations being forced to use the same methods as businesses in shifting health care costs to their hard-pressed employees.

We are already paying enough to provide comprehensive care for everyone. We
could fund our system much more equitably through a national health insurance program. Then nonprofit organizations would not be faced with the current, unacceptable alternatives of either shifting more health care costs to employees, or increasing fees to the needy being served. We can do better.

The New York Times
November 22, 2004
Growth Rate in Health Cost to Employers Slowed in ’04
By Reed Abelson

After years of double-digit cost increases, the rate of growth in what employers pay for employee health insurance slowed significantly this year, according to an annual survey to be released today.

The average employer cost for health benefits for an employee rose 7.5 percent in 2004, to $6,679, the lowest increase since 1999 in a survey of about 3,000 employers by Mercer Human Resource Consulting.

But this slowing rate was largely the result of employers shifting more of the cost onto their employees and changing the kinds of plans they offer, said Barry Schilmeister, a senior health care consultant for Mercer.

“What we’ve seen for a couple of years running now is that employers have made very significant changes to their programs to cut three to four points off that inflation rate,” he said.

The overall growth in health care costs remains a concern, Mr.Schilmeister said. “Underneath it all, while general inflation is 2 percent, medical inflation continues to be 10-plus percent,” he said. “We still have a significant problem to deal with.”

Comment: Rather than being good news for employers, this is terrible news for employees, and for the rest of us. Health care costs continue to increase, but those costs are being shifted from employers and insurers to individuals, especially those with greater health care needs. Having health insurance no longer means that you have protection against financial hardship in the event of significant medical need.

It’s not that we don’t have enough money. We have plenty. We are already spending enough to pay for comprehensive care for everyone. The problem is that we are slowly shifting away from the insurance principle wherein the many who are healthy contribute a modest amount to pay for the care of the few who are sick.

Up to the present, we have refused to enact policies that would address cost issues by reducing the profound waste in our system. At the same time we are adopting policies that will hold down the modest amounts contributed by the many who are healthy, that is, we are holding down premiums paid for coverage. This means that insurance will offer fewer benefits and will increase cost sharing. Thus, by default, we are making the few who are sick pay even greater amounts for their care.

Where is our social contract of solidarity? I guess we can cross that one off of our lists as we give thanks tomorrow. No sense wasting our “prayer capital” on that one.

California Medical Association
8th Annual Leadership Academy
Acceleration: Access, Quality and Cost in the Era of Consumerism.
La Quinta, California
November 18-21, 2004

Keynote Presentation

Can a “Consumer-Driven” Health Care System Succeed?

Uwe E. Reinhardt, Ph.D., Professor of Political Economy, Princeton University:

“What should be the goal of a health system? It should improve health status. It should protect families from financial ruin over illness. It should leave people satisfied with the care they got. But it should also make them feel good about a sense of fairness in their society, as Canadians fiercely feel proud of the sense of fairness in their system, whatever problems they have. And the Germans and the Swiss are fiercely proud of the social contract of solidarity.

“Intermediate goals are access to timely care, that feeds into health status and that. See, these are not goals, they’re just instruments to reach these goals: efficiency and fairness, fairness in financing health care…

“We don’t talk enough about financial protection, about people who have cancer also going broke, and the insult and hurt that that represents.

But, you know, ‘It wasn’t my fault that I got cancer, now I have to sell my house.’ That’s an insulting thing for a Canadian and German like me to think about. And it happens. Many, many American families go broke over health care.

“We don’t ever talk enough about fairness and equity, not at all about the social ethic. We talk about the Judeo-Christian ethic as if it were something else. It should really be ours, and, incidentally, there is a confusion in all kinds of other ethics. But they all ask for the same.

“In the present instance, I think we should ask how these goals are affected relative to the status quo and relative to alternative policy options that we might consider, like traditional, comprehensive coverage with managed care, single payer system, and so on. And I think we need to have some debate; which of these approaches actually gets us closer to those goals…

“A major problem in the U.S. is we never discuss ethics; that’s somehow a taboo topic, because here we get ideological and then we get political. And I say, ‘Bullshine.’That is at the core of health care. That is the foundation that should surround health care, because that’s how physicians,among others, are trained.

“So, to me, we can’t really judge whether this will succeed. Some people will say, ‘It succeeds.’ It’s like beauty and honor, the evaluation of consumer-directed health care will be driven much more by ideology than by data. And that’s where we are right now. And I wish it were more driven by two things: data, to tell us what this thing really does, and, secondly, what would we like to be like as a people.

“Do we want to be the kind of people that treats soldiers the way we do ($8000/year pension after losing a limb)? Do we want to be the kind of people that leaves a mother, who raises three children for America, sitting there without health insurance or (with only) the policy that she can find on eHealthInsurance.com (leaving her with $20,000 out of pocket on $26,000/year income)? Is that what we’re about as a people? I’m just an immigrant here. I can’t tell you. This is your problem, not mine. I’m well to do; I buy out of this. But I urge you to reflect on those aspects of it before we get into the technique.

“We can do this. When you tell me the ethics; we can implement it, or the people who spoke yesterday (see comment). We know how to do this. But ethics first. And I think we put ethics last.”

For tape or CD recordings of the Leadership Academy:
http://www.audio-digest.org/cgi-bin/htmlos/01203.1.1018082396615917308/cma

Comment: The first day of the plenary sessions began with speakers well known to those of us who have studied consumer-driven health care (CDHC). John Goodman of the National Center for Policy Analysis and Grace-Marie Turner and Greg Scandlen of The Galen Institute explained consumer-driven health care, especially health savings accounts and high-deductible health coverage. They did not present any new information on CDHC.

The plenary sessions closed with Uwe Reinhardt’s presentation. Mentioned here are only a few of his many important points. He questioned whether patients could be empowered decision makers since current information systems are too primitive to allow individuals to make truly informed decisions about their health care. He provided considerable data to demonstrate that current high-deductible policies leave low income individuals exposed to the potential of insurmountable medical debt. He demonstrated how health savings accounts reward higher income individuals with progressive tax benefits to the detriment of lower income individuals. He showed that those in the lower one-third of income levels will bear
the financial brunt of the CDHC model. Then he ended his presentation with the message transcribed above.

The majority of those attending represented the leadership of medical associations and health care providers. I would describe their response to the presentations on CDHC as mixed, at best. Yes, some passionate supporters were in the audience.

But there is great news. With this audience of physician leaders, Uwe Reinhardt was the only speaker to receive a standing ovation!

There is hope for the future of our health care system.

The New York Times
November 18, 2004
Controlling Health Care Costs
By Hal R. Varian

Health care just keeps getting more expensive.It has been argued, with considerable justification, that a significant part of the increase in health care expense is a result of improved quality.

Economists have two magic potions to control prices and improve quality :
competition and incentives.

What is needed is experimentation with, and competition among, different ways of delivering health care: prepaid group practices, health maintenance organizations, traditional preferred providers, and other ways not yet thought of. The key is to give consumers a choice among different delivery systems, not just minor variations on a single theme.

Current practices offer perverse incentives. Employers often cover some fixed fraction of the cost of each plan. (Stanford economist Alain C.) Enthoven… argues that it would be better to have the employer cover the entire cost of the low-price plan, and let the employees who choose higher-priced plans cover the additional costs themselves.

…it seems clear that more choice, more competition and stronger incentives would be good medicine for the health care industry.

Comment: Just in case you believe that we have moved the reform debate beyond failed models, we haven’t. But Enthoven and colleagues are still beating the drum for an experiment with competition amongst health care middlemen, integrated with delivery systems.

The fact that this article was published in the business section of The New York Times implies that the concept has some credibility. But California has completed an extensive and expensive period of experimentation with this model and it has failed miserable.

Admittedly, Enthoven claims that the experiment wasn’t valid because comprehensive, integrated systems were under-represented in the experiment. But even large urban areas would have difficulty corralling providers into enough truly integrated but completely separate systems to be able to provide multiple, readily accessible, comprehensive systems. He believes that part of the problem lies in the fact that most providers contracted with many loose networks, and they really couldn’t effectively compete against themselves. As an example, in his model, a major hospital would be a part of a single integrated system. Since hospitals must be accessible, how many hospitals can compete in one service area when patients are limited to the hospital that is a part of their integrated system? Enthoven’s refinement of the failed model of competing plans simply cannot work because of the logistical hurdles.

And if Berkeley professor Varian (the author) believes that the primary reason for the increase in health care costs is quality, he must have isolated himself from the great body of health policy literature. It is no wonder that he supports such a highly flawed model that has already failed experimentation in the marketplace. He missed the whole show.

The business community should be interested in a model that controls costs
,improves efficiency, provides better incentives for quality, and eliminates the benefit plan problem for employers. The health policy literature indicates that a single payer plan would accomplish those goals. You would think that the editors of the business section of The New York Times might want to publish such a concept in the interest of promoting an informed discourse on reform, especially reform that serves the interests of business.

Or shall we simply continue on the easier path of living with our political preference for perpetuating a system characterized by waste, inefficiency, mediocrity, and staggering costs in health care?