The National Center for Policy Analysis has released three new health policy-related Brief Analyses, one by Ron Bachman of PricewaterhouseCoopers and two by me.
Bachman’s, titled “Giving Patients More Control,” describes the product design and advantages of Patient-Directed Healthcare Benefits (PDHBs). These products feature high-deductible major medical plans, employer-funded Personal Health Accounts, first-dollar coverage for preventive services, and an FSA or Premium Conversion Plan for employee contributions. Bachman argues such plans can “help lower costs and increase access while offering patients more choices and better medical care.”
I wrote one on “Five Steps Employers Can Take Now” to increase consumerism in health care. Those five steps are:
- Letting workers know what their health insurance and health care services cost.
- Allowing cash-outs for employees who can get a better deal elsewhere.
- Eliminating “community rating” within the company to encourage participation by younger employees.
- Offering a wider range of plan options with a fixed contribution by the employer.
- Increasing the amount of direct pay for services, whether through a PHA, MSA, shared-deductible, or any other mechanism to increase price sensitivity.
The other NCPA Brief Analysis I wrote summarizes The Commonwealth Fund’s recent survey of health care systems in five nations. That report will appear in the September issue of Health Care News.
EBRI Equates Defined Contribution with Managed Competition
The Employee Benefits Research Institute (EBRI) released a new issue brief by Len Nichols, “Can Defined Contribution Health Insurance Reduce Cost Growth?” It is an interesting discussion, but frustrating because Nichols equates defined contribution with managed competition—that is, he assumes a DC approach is nothing more than a choice of several health plans selected by the employer with a standardized benefit design and a fixed contribution—and he maintains that new technology is necessarily cost-increasing.
He does concede that, while “the demand for health insurance is considered to be fairly price in-elastic … plan switching elasticities are much higher.” So, “whereas a 10 percent premium increase might induce only a 5 percent reduction in the probability of purchasing health insurance at all, a 10 percent premium differential … might engender as much as a 50 percent reduction in the market share of the high-priced plan.”
Because employer-sponsored coverage represents only 27 percent of total health care costs, he argues, even a major cost reduction will have little effect on total national health expenditures. The paper would be stronger if it also considered the effects of more direct pay by patients, and how that might force new technologies to be more cost-effective.
Source: EBRI will send you an electronic version of the paper for $7.50. Go to http://www.ebri.org.
EBRI Conference Asks about Controlling Technology Costs
EBRI also held a conference on consumer-driven health care, according to an article by Jill Elswick in Employee Benefit News. EBRI’s Paul Fronstin made the point that 50 to 60 percent of health care inflation can be attributed to technology, and asked how consumer-driven plans would address this. Michael Parkinson, chief medical officer at Lumenos, replied that 70 percent of family doctors will prescribe drugs they don’t think are needed because patients request them. Having a financial stake would change that, he said.
A Definity representative said its consumers use nurse hotlines twice as often as managed care patients do and their costs are 15 percent lower than managed care alternatives. One of Lumenos’ accounts, Pharmacia, reported there were no selection problems with the plan.
But Delta Airlines’ Miles Snowden said he couldn’t see contributing dollars to an account for someone who would otherwise consume no services. He was also nervous about the lack of guidance from the IRS, and by the prospect that workers would try to max-out their health account before leaving the company since they would otherwise forfeit the balance. (Managing Editor’s note: See page 1 for coverage of recent favorable rulings by the IRS.)
UCLA Survey Sees Substantial Cost Sharing
The nation is entering into a massive real-time experiment on what direct pay will do to health care costs as more and more companies decide they simply cannot absorb cost increases of 20 percent and more.
Don Lee reports in the Los Angeles Times that a new survey by UCLA shows employers “are preparing to make substantial changes in health plans to shift more of the burden of rising premiums to workers.” He writes, “about 75 percent of the managers polled said they were somewhat or very likely to substantially revise their health plans when annual renewals come up.” One broker reports her clients are seeing rate increases from 10 to 30 percent.
The article reports that “so far … no one has dropped coverage, but some have boosted deductibles and switched from a regular HMO to a cheaper plan with fewer benefits.”
The story also says there is “no rush to switch to so-called defined contribution plans,” but the employers seem to misunderstand what this means, because “employers are hesitant to offer these plans because of tax consequences and the uncertainties of leaving it up to the employees to buy private medical coverage, which typically is more expensive.”
Supreme Court Okays State Review Panels
The U.S. Supreme Court issued an unsurprising decision that state-based independent review panels (for HMO decisions) do not violate ERISA because they fall within the “savings clause,” which reserves the regulation of insurance companies to the states. Such panels will continue to be pre-empted for self-insured employer plans, but not for “fully insured” plans (which most HMOs are).
The decision is unlikely to have any impact on the federal Patients Bill of Rights, but it may encourage employers to reduce their HMO options and encourage more use of self-funded PPOs instead.
Source: The decision may be downloaded at: http://a257.g.akamailtech.net/7/257/2422/20jun20021230/www.supremecourtus.gov/opinions/01pdg/00-1021.pdf
Greg Scandlen is senior fellow in health policy at the National Center for Policy Analysis in Dallas, Texas and assistant editor for Health Care News. To sign up for his free weekly e-newsletter, Scandlen’s Health Policy Comments, log on to http://www.ncpa.org/sub. Email Scandlen at [email protected].