The increased use of catastrophic health insurance coverage could get a boost from the U.S. government’s fiscal woes as it looks to pare down deficit spending including potentially eliminating the tax break employers get for employee health insurance costs. High deductible catastrophic coverage is increasingly a mainstay among the self-employed in the individual health insurance market and is now moving into employer paid insurance. It’s already becoming prevalent among smaller employers with 100 or fewer employees.
Catastrophic coverage works similarly to what was known decades ago as “major medical.” As the name suggests, it covers only high cost care such as hospitalizations and surgeries. Routine doctor visits are paid out of patients’ pockets.
“The idea isn’t to just raise revenue, economists say, but finally to turn Americans into frugal health care consumers by having them face the full costs of their medical decisions,” an Associated Press story today notes. Health care policy wonks have long observed that as long as people’s medical care is largely paid by others — employers, health care service plans and insurers — there is little incentive for patients to be parsimonious when using medical services.
This logic would work if the market for health services functioned as a truly competitive market. Inasmuch as there are many sellers and buyers of health services, the market is nominally a competitive one. But it doesn’t behave as a competitive market. In fact, just the opposite. People tend to remain loyal to their doctors for routine care. And for emergency or non-routine care, the motive is to get treatment quickly and not shop around for treatment options and prices.
Bottom line, the rise in catastrophic coverage isn’t emerging as a remedy to make the health care market more competitive in the hope doing will will drive down prices and bend the cost curve. Rather, it reflects the fact that health care costs have reached a tipping point such that it’s no longer feasible to cover most routine services.
The prevalent U.S. sedentary office worker/long commute and minimum exercise/high calorie diet lifestyle is beginning to take a major toll, according to a report released today by the UnitedHealth Group’s Center for Health Reform & Modernization. The alarming report, The United States of Diabetes: Challenges and Opportunities in the Decade Ahead, projects more than 50 percent of Americans could have diabetes or prediabetes by 2020 at a cost of $3.35 trillion over the next decade if current trends continue.
All of that pre-diabetes and diabetes will account for an estimated 10 percent of total health care spending by 2020 at an annual cost of almost $500 billion – up from an estimated $194 billion this year, according to the report, which calls for lifestyle interventions to combat obesity and prevent prediabetes from becoming diabetes and medication control programs and lifestyle intervention strategies to help improve diabetes control.
It will have to go far beyond that. Lifestyle changes mean work/life changes so people can spend a lot more time exercising and less time commuting and sitting in cubicles — as well as getting sufficient sleep. This is the ultimate workplace wellness program. Simply doing a few stretches and yoga at lunch and trying the latest diet fad isn’t going to make a dent in this problem.
The Los Angeles Times today is reporting today that California’s 12.4 percent unemployment rate — the third highest in the nation — has wiped out so much employer paid health insurance through job loss that the health care sector is being adversely affected. Those who are employed are paying higher deductibles and co-pays, further depressing medical utilization, according to The Times. As a result, many newly minted health care workers are themselves unemployed, the newspaper notes.
Neeraj Sood, an associate professor at the Schaeffer Center for Health Policy and Economics at the University of Southern California, sees decreased medical utilization as ultimately a positive development for the overall economy by making it less dependent on the healthcare sector for growth, according to the Times story.
I would agree with Sood, provided lower use of medical services is driven by people taking better care of themselves. However, in the context of the Times story, that’s clearly not the case. It’s people’s inability or reluctance to pay for medical services — even doctor visits — not necessarily less need for them.
This story might also herald a time where medical utilization and costs are being reconciled with buyers’ ability to pay for them. Medical costs cannot keep rising at a rapid pace. Eventually they will hit a price point of resistance and they may be fast approaching that point. We may be on the verge of a fundamental shift in the health coverage back to the old “major medical” model that covered only hospitalizations, surgeries and other high cost services and not the routine and minor care people have come to expect in recent years.
This article makes a point also made on this blog: that increasing access to health care fails to address the root cause of increased health care utilization and particularly lifestyles that lead to preventable chronic conditions that are a major driver of that utilization.
Employers are becoming increasingly sensitive to the rising cost of health care, driving interest in prevention and wellness programs designed to reinforce healthy behaviors such as exercise. Some are paying workers rewards to take good care of themselves and even strapping pedometers on them.
But will these measures have a meaningful, long-term impact on getting rising health care costs under control? I’m doubtful because I view this not so much as a workplace issue but more of a work-life time management issue, particularly for office/information workers. If they are commuting to an office five days a week there’s often not much time or energy in the workday for a significant and beneficial amount of exercise and the seven to eight hours of sleep many medical experts say people aren’t getting but should. Sitting in a commute and then sitting in a cubicle for eight or more hours does not a healthy lifestyle make. Just look at the many supersized workers who inhabit this work environment.
One employee wellness intervention that employers of this large category of workers should consider implementing to get measurable results is allowing them to work from their homes or from locales close to their homes for some or most of the workweek. The freed up commute time can then be used for an hour of exercise based on the average U.S. commute time. There’s also the added plus of more sleep time since teleworkers can start work soon after rising without having to prepare for a trip to the office.
A month ago, the Associated Press reported state Pre-existing Condition Insurance Plans (PCIP) set up this year under the Patient Protection and Affordable Care Act’s (PPACA) are not attracting the flood of applicants some some feared would quickly deplete the $5 billion the PPACA for appropriated for them. The PPACA’s appropriation for the Interim High Risk Pool is to provide coverage for people in the individual health insurance market with pre-existing medical conditions who because of the conditions can’t get coverage in the standard market until insurers must accept all applicants starting Jan. 1, 2014.
The New York Times last week did its own story on the lackluster enrollments in the mostly state-run PCIPs. While sign ups may be slow for a variety of reasons — the bad economy probably chief among them — the PCIPs seem to show the biggest initial appeal to those who have costly conditions requiring expensive treatment such as the cancer patient profiled in the Times story.
If early trends continue, the PCIPs could end up becoming more of a catastrophic coverage pool for those requiring very high cost care, known as high severity losses in insurance terminology. Such high severity losses could threaten to rapidly draw down the $5 billion allocated for them in the PPACA just as easily as too many people turning to PCIPs to get individual health coverage.