U.S. needs community rates for health risks
By Donald E. L. Johnson
Health Care Strategic Management, Jan. 2002, Vol. 20, No. 1
Copyright 2002 by The Business Word Inc.
Health policy institutes are being formed and revived all over the country by large employers who are enraged by soaring health care insurance premiums.
They all want to figure out how to contain health care costs, which means containing access to care and the rates charged by hospitals, physicians and other providers.
Employers shift costs to older and sicker workers
Employers’ concerns about soaring health care costs in the face of price deflation in many industries are understandable, especially in this corner. Our premiums for our 32 employees (22 of whom we insure) are up some 50% from a year ago because we have fewer and older employees, and rates are up 19% to 25% in our community in general. A survey by Willam M. Mercer Inc., New York, found that 13% of small employers and 6% of large ones are considering dropping their insurance plans for employees. No big employer will make that move, but some desperate small ones will.
In response to five years of rapidly rising health insurance premiums and forecasts that health benefits will cost some $10,000 per employee by 2004, compared with $7,000 in 2001, employers are shifting costs to employees.
They’re not waiting for think tanks or legislators to solve the problem. And if you don’t think employers can change the market, just recall how they changed health care after the Clintons’ health plan failed to pass Congress in 1993. They shifted most employees into managed care organizations (MCOs) that reduced expenditures by curtailing access to care and by getting big discounts out of hospitals and physicians.
Consumers and politicians rebelled and pushed so-called patients’ bills of rights, one of which is stalled in Congress. The net effect of the “backlash” has been soaring costs of care, soaring utilization and soaring premiums.
Paying less for primary care
So now national MCOs and large employers are introducing health insurance plans that shift risks from employers and young, healthy employees to older and sicker employees. They are raising co-pays, deductibles and the share of the premiums paid by workers. In effect, they are making their insured workers pay more of the cost for primary care, chronic care and drugs. Primary care and non-catastrophic drug costs never should have been insured in the first place. All catastrophic costs, including chronic care, should be.
This will reduce the number of insured older employees who won’t be able to afford the higher premiums and out-of-pocket costs. But it won’t increase the number of younger, healthier employees who buy insurance, because many of them won’t buy at any price. They prefer new cars and vacation travel to health insurance.
At the same time, however, if employers can avoid the risk of insuring older (45-plus) employees, they would be less likely to discriminate against older workers in the hiring process as they do today.
What we really need is federal legislation that forces insurers and ERISA companies to put all enrollees into one risk pool per insurer or self-insured parent company and community rate all risks.
Regulated community rating would reduce costs
A moderately regulated, open system of investor-owned and not-for-profit health insurers who community rate all enrollees in their corporate risk pools would:
- Give employers and consumers the freedom to choose among insurers and types of insurance-catastrophic, medical savings accounts, PPOs, point of service HMOs and closed panel HMOs.
- Give everyone a given type of plan from a given insurer at the same premium regardless of age, sex, health status or size or type of employer.
- Allow insurers and providers to respond to changing market demands, new technology and other variables without unreasonable government control.
- Simplify administrative procedures and claims processing costs for the insured, employers, insurers and providers, thereby reducing administrative costs.
- Reduce the number of insurers to a few large national firms, increasing economies of scale and making it easier to regulate them.
- Simplify and reduce government regulation.
- Keep government out of the health insurance business and reduce politicians’ influence on the field.
- Prevent ageism in selling health insurance and in hiring by putting everyone into the same risk pool.
- Save money for older, established companies with older workforces and require new businesses with young workforces to pay their share of total health costs. A new competitor that employs people in their 20s and 30s wouldn’t have an unfair health insurance premium cost advantage over one that has people nearing retirement.
- Allow all insurers and providers to make reasonable profits and earn decent incomes while allowing more older workers to afford a choice of health plans and providers.
Hospitals should support community rating
Hospitals, physicians and other health care providers should support community rating of health insurance, which would force insurers to charge all of their customers the same premiums and end age and health status discrimination in the insurance market. Here is why:
- Some 15% to 20% of the privately insured population accounts for 75% to 80% of health care expenditures.
- Community rating would ensure that more of the older (45 years old-plus), sicker workers and their dependents would have at least catastrophic coverage by a private insurer.
- With more of their best customers covered by insurance, providers would be more likely to be paid, and they would have lower bad debt expenses.
- Self-insurance by large employers ultimately might have to be banned, to eliminate financial incentives for companies that discriminate against older and sicker workers by lowering health insurance costs, and to force everyone to pay their fair share of costs.
- Under-funded universal health insurance, which would turn providers into government employees instead of government (Medicare, Medicaid) contract workers, would be less of a threat.
- Community rated health insurance would lead to health insurance company consolidation, which would reduce claims processing complexity and facilitate electronic data processing and info exchange.
- Coupled with enactment of the patients’ bill of rights, which would encourage defensive underwriting by insurers and end utilization controls of all kinds, a community rated insurance system would allow providers to prosper.
Unions might oppose community rated health insurance plans for all workers, because they might view this as a limitation on their freedom to negotiate health benefits with employers. But in reality, if all plans were community rated and all insured workers were put into huge risk pools, there would be just as much for unions to negotiate.
The biggest problem with this approach is the same problem with the Clinton plan. It is too big and too radical. But this makes perfect sense and doesn’t give more power to politicians. Instead, it gives more power to providers, payers and patients.