How do you think an additional $5000 or $10,000 in expenses would fit into your family’s budget? High out-of-pocket costs for medical care can be caused by consumer-driven healthcare plans, which were part of the Medicare overhaul legislation passed in 2003 by Bush. This is similar to a tax hike.
Two financial components of consumer-driven healthcare are High Deductible Health Plans, (HDHP), and Health Savings Accounts, (HSA).
While HDHP are less expensive than traditional insurance, they have higher out-of-pocket costs. HDHP can be purchased by individuals through insurance companies or their employers. HDHP come with a minimum self-only and family deductibles of $1050 and $2100 respectively. The maximum out-of pocket expenses for HDHP are $5250 for self-only coverage, and $10,500 per family for 2006. According to the Kaiser Family Foundation, an independent health research organization, these high-deductible plans are comparable to managed-care plans that have an average annual deductible at $323 for self-only coverage and $679 for family coverage. Traditional insurance plans have lower out-of pocket expenses (copayments or coinsurance) than traditional ones.
Health Savings Accounts are the second component of Consumer Driven Healthcare. These accounts can be opened through banks, insurance companies, or other financial institutions. Individuals can make investments up to the amount of their deductible for their health plan each year, while some employers will contribute to the accounts of their employees.
Employers are not required to contribute to an employee’s HSA in order to cover high deductibles. This results in a significant cost shift from the employer to employees for those who have traditional health insurance plans with a lower deductible. These HDHP might also have higher out-of-pocket expenses (copayments or coinsurance). The Kaiser Family Foundation found that only 3.9% of employers offering HDHP (or 19.5%) also contribute to an HSA.
Karen Davis, President of the Commonwealth Fund, a private foundation for healthcare, is one of the critics of these HDHP. She states that consumer-driven plans with high deductibles may compromise the two main purposes of health insurance. These are to lower financial barriers to care and to protect patients from high out-of-pocket costs.
These HDHP are provided by employers as a way to offer healthcare coverage to their employees, despite rising healthcare costs. According to a 2005 Kaiser Family Foundation survey, health insurance premiums rose by 9.2% on average in 2005, compared with the 11.2% average in 2004. Premiums have increased 73% since 2000. Family coverage premiums reached $10,880 in 2005. This is more than the gross earnings of a full-time worker earning minimum wage ($10,712).
Many companies are unable to afford health insurance, so they have stopped offering this benefit to their employees. According to the North Carolina Institute of Medicine’s Safety Net Task Force report, North Carolina’s number of employees with an employer-based health plan decreased from 67.4% in 2000 to 58.5% in 2003. This is a drastic drop in a very short time.
High Deductible Health Plans are accompanied by Health Savings Accounts. These accounts allow for an annual tax deduction and allow money to be deposited into them. They function as a 401K Retirement Plan, allowing the funds grow tax-free. According to the American Enterprise Institute (a Washington think tank), these funds can be used to cover medical expenses and level the playing field between people who purchase their own insurance and those who receive it tax-free through their employers.
HSAs would be attractive to the wealthy and healthy. They will also drive up the costs of traditional health insurance plans, which cover those who are less healthy but still need coverage. Jonathan Gruber, an economist at MIT, stated that if a tax deduction were added for purchasing high-deductible insurance, it would result in 1.1million people who are currently uninsured gaining coverage. This would be mainly people of higher income, who would benefit from the tax benefits these HSA offer. The changes could result in 1.4 million people losing employer coverage, including those who are less wealthy.
The Center on Budget and Policy Priorities estimates that a $1000 HSA contribution would result in a $433 tax subsidy for a family with $180,000. The subsidy would be only $153 if the family has a household income of $15,000 or less. Low income families won’t have the money or ability to purchase expensive insurance policies. Consumer driven healthcare (HDHP and HSA) will not solve the 46 million uninsured Americans in the United States.
These HSAs are designed to encourage Americans not to rely on employer- or government-sponsored health plans to take more responsibility for their financial security. These plans are designed to encourage individuals to be better medical consumers and to only purchase the care they require, as people pay for their medical care out of pocket.
Consumer-directed care has another problem. The evidence shows that consumers are not able to make informed decisions about how much they pay for their medical care. Rand Corporation’s study found that people who pay their medical bills themselves, rather than relying upon insurance, have a lower consumption of health care and a decrease in the number of questionable or expensive medical procedures.
The biggest problem with consumer-driven healthcare is the misdiagnosis of the problem. In healthcare, only 20% of patients spend 80% of the healthcare costs. In 2004, the President’s Economic Report condemned the fact that insurance pays for many services that are of questionable value, such as routine dental care and annual medical exams. The excessive use of routine care and small-expense items can’t be a major source for health care costs as they don’t account for a large portion of medical expenses. Healthcare costs are not about routine visits to the doctor for a sore throat or small-expense items. High healthcare costs are caused by high-cost procedures like dialysis, chemotherapy, coronary bypass, and diabetes. These high-cost procedures are driving up healthcare prices. Nobody is proposing a consumer-directed healthcare plan that would require individuals to pay a large portion of the extreme medical costs such as chemotherapy out-of-pocket. Consumer-directed healthcare can’t promote savings on treatments that account for the majority of our healthcare costs.
Maybe President Bush and his health policy advisors are following the lead of Vice President Cheney’s target practice. They aren’t even aiming for the target. The key to controlling healthcare costs is to address high-cost procedures and excessive use, as well as implement disease management programs. Programs for disease management are designed to target high-cost patients with serious medical conditions like heart disease, diabetes, or kidney failure. Employers are also adopting wellness programs to promote healthy lifestyles, including tackling the obesity problem.
A national reinsurance program by the US government would cover 75% for employees who have medical bills exceeding $50,000 per year. Others proposals include expanding Medicare coverage for all, insuring everyone, and requiring everyone pay into the system.
The huge cost shifting issue in healthcare could be solved if everyone paid for it. It should also help reduce the premiums of those who have health insurance. Cost shifting is when patients don’t have enough health insurance to cover their medical costs. The healthcare costs of those patients are then shifted to patients who do have insurance. A hospital bill may include a $7 charge for aspirin and a band-aid. This is known as cost shifting.
Bush’s plans to allow consumers to direct their healthcare are a distraction from real reform and a tax haven that benefits the most wealthy Americans. These plans are similar to an air conditioner that is effective at 65 degrees but less efficient as the temperature rises.
