04/2003 Scandlen at Large: Maryland and HRAs

Published April 1, 2003

I recently testified on Health Reimbursement Arrangements before the Maryland Senate Finance Committee.

Maryland is unique in having a “Health Care Access Commission” that defines what benefits will be allowed to be offered in the small group market. The powers-that-be in Maryland (including the couple of major insurers that control most of the market) are quite happy with this arrangement. Publicly they argue that having standardized benefit plans is good for consumers because it makes it easier to comparison-shop among plans. In fact, it impedes competition and innovation, so the major players can continue dominating the market without having to work very hard.

A few years ago the Commission decided to allow MSAs to be sold in Maryland, but added so many requirements to the already-complicated federal rules that few if any have ever been sold in the state. The legislation I was testifying on would have required the Commission to allow small employers to establish Health Reimbursement Arrangements. There were quite a few misconceptions among the Senators. They seemed to assume, for example, an HRA must involve a high-deductible insurance plan. Source: http://www.galen.org/news/021303a.html

Labor and Health Benefits

Referring to the coming round of labor negotiations, where health care will be at the very top of the agenda, David Stires writes in Fortune magazine, “You don’t need a crystal ball to see that that is a fight waiting to happen.” The tone was set by the two-day walkout by General Electric workers and the earlier 44-day strike at Hershey Foods.

The GE workers did not want to bear an additional $200 to $400 per year in out-of-pocket costs, and the Hershey workers agreed to take lower pay increases to offset increased health care costs.

The article says corporations, especially in manufacturing, are reaching a breaking point. Health care costs are soaring, rising by 44 percent since 1999 at GE. SBC Communications is even worse off, with health costs jumping by almost 50 percent since 1999, requiring a total outlay of $2.5 billion for 343,000 active and retired employees–$7,829 per person. The Big Three automakers have total health care liabilities of $92 billion–50 percent greater than their combined market capitalization of $66 billion.

Strikes are likely and could kill off the economic recovery. The Fortune article notes the West Coast dock strike last year “was the single biggest influence on the fourth quarter’s sharp drop in national output,” costing the economy $2 billion a day.

There isn’t much optimism in the article. While GE’s senior vice president of human resources is quoted as saying the company was passing on just 10 percent of its health care increases, the president of the union, Edward Fire, said “we’ll fight to the bitter end” if the company tries to get workers to pay more of their health care spending. Source: http://www.fortune.com/fortune/articles/0,15114,423756,00.html

Overutilization Overstated

With union dynamics like that, consumer-driven health care seems an awfully thin reed to pin our hopes on. Theodore Marmor and Kip Sullivan argue in the St. Paul Pioneer Press that the whole premise is wrong. They see a giant conspiracy by corporate America to mislead the public into thinking health care inflation is the fault of over-insured patients. “There is no credible evidence that Americans received a lot more medical care in the past few years,” they write.

The real culprit, they claim, is “the market power of insurers, drug manufacturers, hospitals and other suppliers of medical services.” They argue underuse is every bit as prevalent as overuse. “Advocates of medical savings accounts … know they have no solution for underuse and that their practices will almost surely aggravate it.” Source: http://www.twincities.com/mld/pioneerpress/news/opinion/5216693.htm

Third-Party Rationing

The Orange County Register points out one of the reasons costs rise in the health care industry faster than in other sectors of the economy is because health care is more heavily regulated than other sectors. “The best way to arrest the cost increases in health care, or even reverse them, would be to reduce the role of government and increase the role of the private, voluntary sector.” It adds, “When third parties pay and recipients perceive services as ‘free,’ the tendency is to demand more than is really needed, which drives up prices or induces rationing.” Source: http://www2.ocregister.com. Search Commentary.

Consumerism Needed

Michael Prince writes in Business Insurance, “Cost-shifting is only a temporary solution.” What is really needed, he notes, is “a fundamental change in employees’ health care mindset.”

The article quotes Jack Mollen of EMC Corp. as saying, “We can never solve the 15 percent compounded growth problem without focusing on the long term.” The article goes on to say a successful long-term approach “involves instilling a consumer mentality,” including cost awareness and better information.

Keith Peden of Raytheon said 3,000 employees have signed up for Definity’s consumer-driven plan. He reports no adverse selection. At Coors Brewing, 14 percent of employees signed up for the plan when it was first offered. But Mollen added consumerism does not have to mean adding a consumer-driven plan. “Consumerism is getting the employee to be an effective decision-maker. It’s about making the right choices.” Source: http://www.businessinsurance.com/cgi-bin/article.pl?articleId=12351&a=a&bt=cost-shifting

Milwaukee Employers Consider Return to Fee Schedules

Employers in Milwaukee are looking at reinstating fee-schedule payments, according to Joe Manning in the Journal Sentinel. “The idea is high on the agenda of the Business Health Care Group of Southeast Wisconsin,” which includes most of the area’s larger employers. The group has employed Mercer Consulting to study whether the idea could be part of the solution.

Humana’s Larry Rambo says his company also has been looking at the feasibility of a fee-schedule product. And Richard Blomquist has been looking at price variations in the area and setting up a fee-schedule program under Blomquist Benefits. He has found hospitals charging from $2,736 to $6,268 for vaginal childbirth. His fee schedule would pay slightly more than $3,800. Fees for a colonoscopy range from $743 to $2,552 and for a coronary artery bypass from $21,250 to $43,567. The article raises the concern about higher payments for more complicated situations, and the need for patients to know about quality and safety along with prices. Source: http://www.jsonline.com/bym/News/feb03/118760.asp

Association Health Plans Get Senate Help

Kent Hoover reports “Momentum Grows for Association Health Plans” (AHP) in several of the local business journals. The hook is a hearing chaired by Senator Olympia Snowe (R-Maine) in her new role as head of the Senate Small Business and Entrepreneurship Committee. The hearing heard from hard-pressed business owners and led Snowe to conclude, “Let there be no doubt, there will be cost savings [if AHPs are enacted].”

Also testifying in favor of AHPs were Secretary of Labor Elaine Chao and Small Business Administration’s Hector Barreto. The article says Snowe has the moderate credentials to appeal to Democrats, and the AHP drive is also helped by the election to the Senate of Jim Talent (R-Missouri), an ardent proponent when he was in the House. Opposing AHPs are the Blue Cross Blue Shield Association and state insurance commissioners. Source: http://tampabay.bizjournals.com/tampabay/stories/2003/02/17/story8.html

Greg Scandlen is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News. Please send all comments/questions directly to Scandlen at [email protected]