Health Insurance and You!

The goals of health care reform legislation are universal coverage and cost control. Logic tells us that increasing the demand for medical care while keeping costs in check is a formidable challenge. Now we have data to confirm and quantify just how challenging it is. Over the weekend, The Boston Globe reported the results of a study by a non-profit health care foundation called The Commonwealth Fund that tracked the cost of premiums for a family of four from 2003–2008. Massachusetts is being watched as a case study for health reform because in 2006 it enacted the nation’s first universal coverage law.
Over that five-year period, health insurance premiums offered by employers, rose 40% to $13,788, the highest in the country. For the rest of the nation the increase was lower than Massachusetts, but still unacceptably high at 33%. This can’t go on.

There are many cost-savings ideas being debated. We should consider the options based on the potential benefit and also on their ease of implementation. Those ideas that are high on both dimensions should be at the top of our national to-do list. The ideas that are most hotly debated are actually those that are high-impact but difficult to implement or low-impact and easy to implement. They include pay-for-performance, incentives for primary and preventive care and reducing profits and administrative costs for insurers.

High-impact/difficult to implement

• Pay-for-performance: While we are very likely heading toward a pay-for-performance model, the details are controversial and implementation will take many years.
• Incentives for primary and preventive care: Motivating patients to rely more on primary care sounds reasonable, but we have a critical shortage of primary care physicians across the country. Waits to see a primary care physician for an initial examination can be more than a year. Remedying the shortage will take time.

Moderate-impact/some difficulty to implement:

• Reducing profits and administrative costs for insurers: For-profit health insurance companies earn an average of 3-4% of revenues – so there is not too much to gain here. On the other hand, administrative costs average 12-13% of revenue and represent some opportunity for savings. We should be careful here – for-profit companies have a strong built-in incentive to reduce costs, so getting below 12% must be difficult to do.

While these ideas should be pursued, there are some cost savings ideas that are high-impact and easy to implement. They have not received as much attention but are worthy of a closer look.

High impact/easy to implement

• Fraud control: Detecting and combating fraud is an opportunity for savings that is both substantial and uncomplicated. Fraudulent claims cost payers, and consumers, more than a hundred billion dollars each year. Efforts on this front will benefit everyone while more systemic changes get underway.
• Incentive compatibility: Health savings accounts, HSAs, with higher deductibles are an innovation in both employer-sponsored and individual plans that merit close observation. HSAs effectively put consumers in charge of their own health care spending and reward them with tax-deferred medical accounts. Finally, the incentives of the consumers match the incentives of the providers instead of working against each other.