I was invited by Miles Cole of the Maryland Chamber of Commerce to speak about Health Reimbursement Arrangements (HRAs) at a public hearing before the Maryland Health Care Commission in Baltimore.
Reception to the idea by this government agency was markedly different than in my talks with doctors in Ocean City and insurers in Salt Lake City.
The Maryland commission is conducting its annual review of the comprehensive standard health benefit plan all small employers providing health insurance in the state must offer. The Chamber thought it would be a good idea for the commission to hear about the new HRA consumer-driven health plan option.
I provided a package of materials including an excellent description of HRAs prepared by the Employers Council on Flexible Compensation and a detailed description of the new HRA offering for federal workers by the American Postal Workers Union.
Concerns: To put it mildly, commission members had many concerns about HRAs. Commissioner Ernie Crofoot, who repeatedly implied his support for a single-payer system, said he believed: 1) People will forgo care to save money, and 2) HRAs would lead to the very adverse selection the small group market reforms were created to address 10 years ago.
I responded that most of the HRA plans are incorporating generous incentives for people to get screening and other diagnostic tests, immunizations, etc. Also, it is penny wise and pound foolish for people to forgo care since they will pay in poorer health and more expensive care later on.
Also, people with more health problems are likely to find attractive a plan that allows them maximum choice of physicians through their spending account. Once they trigger the catastrophic insurance threshold, they have good fee-for-service insurance.
Too Complicated? Executive Director Barbara McLean said, “Do you really think small business owners can organize something this complicated?” I suggested they are very motivated to find some way to control costs, and many find it appealing to offer a product that engages consumers as partners in saving money on health care. I also believe the market would organize itself to make the HRA offering relatively simple for small businesses to administer.
Acceptance: Another senior staffer of the commission asked, “Why would HRAs work when only one company in Maryland is offering MSAs, and MSAs and HRAs are virtually the same thing?”
First, I noted, Maryland makes it almost impossible to offer MSAs because of its comprehensive benefit package requirement; second, HRAs have many fewer dictates from government about how they can be shaped; and third, HRAs have a much bigger potential market, making it worthwhile for companies to invest in creating this new product.
Competition: Commission members did express their concern about how little competition there is in the small group health insurance market in Maryland. Witness after witness said competition would bring down prices. Commissioner Crofoot suggested the only solution he sees is a single-payer system. (He was, by the way, very distressed that a union would be offering the HRA plan to federal employees, believing they must have been tricked.)
As an aside, I was surprised to see that Dr. Lynn Etheredge of George Washington University’s Health Insurance Reform Project is a member of the commission. He brought both insight and knowledge to the discussion.
My conclusion: Government officials are not very receptive to new ideas, especially ideas that would empower consumers. Especially in Maryland. The commission decided on October 17 that HRAs would not be available as an option in the state’s standard benefit program. Companies operating under ERISA could still choose the HRAs, as could clever small businesses operating outside the state’s mandated benefit program.
RECENT NEWS ARTICLES AND STUDIES
Association Health Plans
National Center for Policy Analysis, 10/8/02
By allowing small employers to group together to offer health coverage, Association Health Plans (AHPs) would provide many of the same benefits that exist for large, self-insured companies, says Greg Scandlen of NCPA. These advantages include economies of scale in group purchasing, exemption from state mandates, lower administrative costs, and protection from volatile underwriting cycles.
Making it easier for small businesses to offer health benefits is vitally important since the Census Bureau recently reported only 31 percent of workers at companies with fewer than 25 employees had health insurance in 2001. Small employers are facing 50 to 70 percent premium hikes this year.
In related news, the BlueCross BlueShield Association published a statement in October opposing AHPs, raising concerns of adverse selection and saying AHPs would operate in a regulatory vacuum. Scandlen addresses criticisms of AHPs in Part II of his analysis.
Medicare Versus Private Insurance: Rhetoric and Reality
Karen Davis, Cathy Schoen, Michelle Coty, and Katie Tenny
Health Affairs, 10/9/02
Karen Davis and colleagues at the Commonwealth Fund report on an extensive survey “that demonstrates that Medicare beneficiaries are generally more satisfied with their health care than are persons under age 65 who are covered by private insurance.” They found “sixty-two percent of elderly Medicare beneficiaries reported being very satisfied with their care, compared with 51 percent of those covered by private insurance,” and they use the data to argue against a Medicare program offering private, competing health plans.
The study proves what other polls show: Medicare beneficiaries love Medicare, and they use it a lot. But many people with private health insurance are trapped into take-it-or-leave-it plans at work, and many face restrictions on access through managed care that the majority of seniors in Medicare’s fee-for-service plan do not. A better measure would have been comparing existing Medicare with the Federal Employees Health Benefits Program, where workers have a choice of competing plans, much like a modernized Medicare would offer. That would provide a better comparison with the kind of plans envisioned for Medicare.
Benefits and Costs of Newer Drugs: An Update
National Bureau of Economic Research, 06/02
Frank Lichtenberg, a Columbia University professor and NBER Research Associate, updates earlier research to find many advantages to Medicare beneficiaries of replacing older drugs with newer ones, including reducing hospital costs, fewer doctor visits, and reducing other non-drug expenditures. “A reduction in the age of drugs utilized reduces non-drug expenditure 7.2 times as much as it increases drug expenditure,” Lichtenberg writes.
For example, replacing a drug approved 15 years ago with one approved 5.5 years ago would increase prescription drug spending by $18 but reduce other medical spending by $129, yielding a $111 net reduction in total health spending. Using new drug therapies reduces non-drug expenditure by all payers 8.3 times as much as it increases drug expenditure. Lichtenberg also found that the average age of drugs used by Medicare enrollees with private prescription drug coverage is about 8.6 percent lower than the average age of drugs used by Medicare enrollees without either private or public prescription drug coverage.
Full text (pdf): www.phrma.org/publications/publications//2002-10-07.584.pdf
Material for this report is provided by The Galen Institute, P.O. Box 19080, Alexandria, VA 22320, http://www.galen.org. Grace-Marie Turner is president. This report was produced by Elizabeth Lamirand, who can be reached at 703/299-9550, and edited by Conrad F. Meier, managing editor of Health Care News.