The Coverage Conundrum
They're on the rise - again. Health insurance premiums are up 6.1 percent on average this year - a relatively modest increase - but overall they're 78...
They're on the rise - again. Health insurance premiums are up 6.1 percent on average this year - a relatively modest increase - but overall they're 78 percent higher than they were in 2001. A family could buy a Chevy Aveo for the cost of a year's premiums, Drew Altman, the president and CEO of the Henry J. Kaiser Family Foundation, told a gathering of reporters being briefed on KFF's annual survey of employer health benefits.
Just to put that price rise in context, during the six years when premiums rose 78 percent, inflation went up 17 percent and workers' earnings climbed by only 19 percent.
High premiums - $12,106 is the average annual family tab - hurt companies of all sizes. Witness General Motors and other auto companies trooping to the White House to ask for help on the costs of health insurance. But smaller companies bear the bigger brunt of each annual rise. This year, the smaller fry experienced premium increases of 15 percent. And it's even worse for individuals without employer-based insurance.
The KFF survey did not look just at premiums. It also studied the types of insurance on the market, in particular the growth of consumer-directed health plans - which happen to carry lower premiums. CDHPs are the latest "big idea" in the health insurance universe. Consumers open health savings accounts - either with their own pre-tax earnings or contributions from an employer. They can use those dollars to pay for health costs - say, a visit to the doctor or a lab test. Since consumers are using the money in their accounts, they would, presumably, shop around for the best price and question whether some procedures a doctor recommends are necessary. Any unused dollars in the account roll over from year to year, accumulating interest along the way. In addition, these consumers would be covered by a high-deductible insurance plan - for the big-ticket items a health savings account couldn't begin to cover.
CDHPs are being pushed by the Bush administration, which favors market-based solutions. The market idea here is that an informed consumer will be an effective tool in tamping down health care costs and rewarding high-quality care.
The plans also have plenty of sex appeal. They're new, they're different and they play into all the technology being developed to keep consumers (patients) up to speed on treatments, their costs and the effectiveness of providers.
CDHPs are certainly a good idea for more affluent consumers: They can open accounts and store away pre-tax dollars - dollars that can be invested and which, at the end of the day, can be used for non-health care purposes.
KFF's survey found that CDHPs are finding a niche in the market - 5 percent of coverage. Some of that market share comes from companies, such as Wal-Mart, that didn't offer coverage to most of their employees until CDHPs came along.
That said, growth has been slow. For most employers who offer their workers health benefits, the plans are complicated and difficult to explain. But the growth rate could get a boost from the states. Several are looking into universal health coverage for their residents by mandating that all carry health insurance. With CDHP's lower premiums, states might see them as an affordable fix.
What's so bad about that? Well, the uninsured - the object of all the reform efforts - are not the most affluent cohort in the country. And the majority of the uninsured work for companies that don't - or can't afford to - offer coverage. When they do offer insurance, many of those small businesses ask employees to pay all or most of the premium - something that is not affordable to many of these workers.
Although the premiums are lower for CDHPs, the holes in coverage are large - big co-pays plus the financial risks that come with a high-deductible plan, which is the backup to the savings account. Unfortunately, most small companies will not fund those accounts. Neither will some big employers. And that leaves the uninsured not much better off than when they were without any coverage at all.
When the Denver-based Bell Policy Center looked into health savings accounts, analysts found that health savings accounts "may be useful for some consumers, but they are by no means a solution to the major problems in today's health care system."
Ed Kahn, special counsel for the Colorado Center on Law and Policy, an advocacy group for low-income people, was blunter. He pointed out that the high co-pay and high deductions associated with HSAs discourage low- and moderate-income people from seeking needed health care. "It's like tossing a defective life preserver to somebody who is already drowning," Kahn said.
Let's hope that state legislators, as they look into mandates for health insurance, keep the downside risk of consumer-directed health plans in perspective.