Facing Higher Health Costs

In the health care reform debate, the escalating cost of health care is cited as one of the primary reasons for reform. And the rapid rise in the cost of health care is often attributed to the reimbursement model and that people who receive health insurance through an employer or through the state are insulated from the actual price tag for the care they receive. Many contend that if more consumers were directly responsible for a larger portion of the cost of care, then they would influence the marketplace and costs would go down. However, some consumer advocates insist that if employees shoulder a greater share of cost, then they will avoid preventive care and drive costs up, in addition to being unable to afford the care they need.

An article titled “Employees face 'shockingly higher' health costs” by Parija Kavilanz posted today on CNNMoney.com examines the growing trend of employers shifting the cost of health coverage to employees.

It's open enrollment time at work. Prepare yourself. Starting in 2010, your employer is making sure that when it comes to paying for your health care, you're going to be sharing much more of the burden.

"The headline is greater cost sharing," said Tom Billet, senior consultant with human resources consultancy Watson Wyatt. "That means higher [employee] contributions, higher deductibles, or both," he said.

In 2010, employers are "putting everything on the table," implementing benefit changes aimed at making workers more aware of the actual cost of services," said Paul Fronstin, director of the health research program at the Employee Benefit Research Institute (EBRI), a public policy research group.

Barry Schilmeister, health care consultant with Mercer, a global firm specializing in employee benefits, agrees.

"Most people are shielded from the true cost of care because all they pay when they go to the doctor is a $15 to $20 co-pay," he said. "To me the catch phrase in 2010 will be 'Taking responsibility.' "

Consumer advocates, however, aren't thrilled with these declarations.

"We recognize that this is a hard economy," said Cheryl Fish-Parcham, deputy director of health policy with Families USA, a health care consumer advocacy group.

"We know that medical debt is growing. We know that [employer-based] coverage is thinning," said Fish-Parcham. "This is a really difficult environment for everyone. That's why we're all looking forward to health reform."

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Higher out-of-pocket costs
"Employers and employees will face shockingly higher [health care] costs," warned Helen Darling, president of the National Business Group on Health, whose members include Fortune 500 companies such as American Express, Coca-Cola and IBM.

Companies are raising deductibles, co-payments and employee out-of-pocket limits. "In better economic times, employers are better able to shoulder the [health care cost] burden. Not as much now," said Billet, who estimates that costs could increase between 10 to 20% for insured workers.

Besides the economy, Billet said other underlying factors driving up health care costs include aging of the population, greater use of technology in health care and government cost-shifting.

"Medicare and Medicaid typically pays providers less than the actual cost of care," he said, adding that providers make up the difference by raising their rates to their insured clients.

Co-pay to co-insurance
Darling said companies have been shifting over the past five years from a co-pay, a flat dollar fee ranging between $10 and $35 that employees pay at each doctor visit, to a to co-insurance model.

With co-insurance, employees pay a percentage of the total medical expense. Experts say co-insurance rates are typically split 80-20 or 70-30 between the health plan and the insured worker.

"By changing to co-insurance, people are more aware of costs and the hope is that they'll be more careful about how they spend their [health care] dollars," said Schilmeister.

Billet, whose corporate clients include Time Warner, the parent company of CNNMoney.com, said co-insurance used to be the norm prior to the advent of health management organizations (HMO). "So it's almost like a back to the future," he said. Time Warner is shifting from a co-pay to a co-insurance model next year.

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Consumer-directed health plans
About 20% of large employers offer consumer-directed health plans (CDHP), up sharply from 14% last year, according to Mercer.

These plans, which couple catastrophic illness coverage with employee-funded health savings accounts (HSA) or health reimbursement accounts (HRA), are 20% less expensive than traditional preferred provider organizations (PPOs) and HMOs, said Schilmeister. CDHPs usually have much lower premiums, although the deductibles are higher than other options. Some employers do help workers with the high deductibles by contributing money into their HSAs.

Still, Schilmeister said CDHPs probably make more sense for a healthy worker who doesn't utilize medical care frequently. Otherwise they can be expensive for employees.

"Be careful with these," said Fish-Parcham. "If employers aren't funding your HSA, it can become a huge problem especially for lower-income workers."

If employers increasingly shift health coverage costs to their employees, as those quoted in this article predict, what will be the impact on the cost and quality of health care in this country and the reform efforts in play in Washington?

A Different Kind of Public Option

Catholic Healthcare West co-led the task force that designed the nation's only public health care option for uninsured residents. It's not insurance in the traditional sense; it uses the medical home model to ensure that care is available (including hospitalizations) to all who need it.

The New York Times recently published a Q&A with William Dow, a health economics professor at the University of California, Berkeley, who is studying Healthy San Francisco. Here are a few excerpts:

Q. Healthy San Francisco is not a single-payer system, but it does seem to offer much more than is available to the uninsured in most U.S. cities. What were the origins of this program?

A. It was an initiative of Mayor Gavin Newsom and the San Francisco Board of Supervisors to provide universal access to health care for the uninsured.

Q. Has it done that?

A. There were about 60,000 uninsured adults in the city when Healthy San Francisco came into effect in July 2007. Since then, 45,000 have signed up.

Q. To be clear, this isn’t insurance per se.

A. No. The city is careful not to call it health insurance. It provides access only to health care within San Francisco and only at a specified set of providers, mostly safety-net providers. If you get sick outside the city, you’re in trouble. It’s more like an insurance plan with a geographically restricted network.

It started by covering only those under the poverty line. Then in January 2008, it expanded to those making up to 300 percent of the poverty level. Now that’s been extended to 500 percent of the poverty level, which qualifies the vast majority of uninsured individuals in the city. Five hundred percent would work out to an income of about $54,000 for an individual, or $110,000 for a family.

Q. What kind of fees do people have to pay to participate?

A. There is a participant fee, which is like a premium. Under 100 percent of the poverty line, you pay no participant fee. The next group — 100 to 200 percent of poverty — pay $60 per quarter, or $240 a year. That’s for an individual. It’s capped, so that no family has to pay more than 5 percent of income.

In addition, there is a co-pay of $10 for general care, $20 for specialty care, $5 for prescription drugs on the formulary, or $25 for those not on the formulary. For hospital admission, you have to pay $200. It’s not huge, but for those with the lowest income, it’s not trivial, so those under the poverty line are exempted from the co-pays.

Q. Are enrollees happy with the program?

A. The Kaiser Family Foundation did a survey and found people think they’re better off than they were before. Overall, 94 percent said they were satisfied with the program, which is quite impressive. But some of those people aren’t well informed about program restrictions. For example, about one-third did not know that the program does not provide access to care outside of San Francisco.

Q. How’s the quality of care?

A. The providers give high quality medical care. But the typical health-care user doesn’t rate health care on adherence to evidence-based medicine or the latest medical guidelines. They have different patient satisfaction metrics. The public has a perception that safety-net providers are lower quality because they have longer queues for service and a particular demographic uses them. These aren’t facilities that have invested in soaring atriums and beautiful physical plants. So the city is pleased that a few private providers, such as Kaiser Permanente, have now agreed to join the provider network.

Q. This obviously is a different type of public option than we’re discussing on the federal level. Do you see it as an alternative?

A. I’ve made the argument for that. The current versions of the public option in Congress are threatening to insurers. If a public option were designed to be attractive only to the lowest income individuals, it would be much less threatening to the health care industry. This could easily be accomplished by giving anyone the public option of buying into their state Medicaid program. It’s a very sensible way to craft a compromise around a public option, but it’s not gotten much traction at this point. Public-option supporters haven’t wanted to backpedal to something like this, but I fear that lower-income folks will lose out if we let the perfect be the enemy of the good.

Preventing the Spread

Prevent the spread of H1N1, this doctor's rap goes viral: