The individual health insurance market isn’t a feasible replacement for employer-based coverage. So concludes the 2011 Commonwealth Fund Health Insurance Tracking Survey. The survey of 2,134 U.S. adults found 25 percent experienced a gap in their health insurance in 2011, with a majority remaining uninsured for one year or more. Losing or changing jobs was the primary reason people experienced a coverage gap.
“The individual market has proven to be a weak stop-gap option for families who lose employer insurance,” the survey states. It reported those who attempted to find coverage in the individual market reported substantial difficulties finding affordable coverage that met their needs. Almost half of those surveyed ended up going without coverage as a result, with affordability the most common reason for not purchasing a plan.
Health reform seen as unstoppable in California — notwithstanding U.S. Supreme Court ruling on PPACA
While constitutional soundness of the Patient Protection and Affordable Care Act (PPACA) is to be decided this year by the U.S. Supreme Court, health care reform will continue to move along a rapid trajectory of change in California regardless of the high court’s ruling. That’s the view of health care industry panelists at a recent symposium hosted by the Sacramento Business Journal, according to this item from the California HealthCare Foundation’s California Healthline.
Michael Taylor — senior vice president of operations for Dignity Health’s Greater Sacramento-San Joaquin area — said, “We believe we need to drive health care reform whether it’s legislated or not.” He added, “Health care costs are out of control and we need to bend the curve.”
According to the California Healthline item, the panelists agreed reforms must address a shortage of primary care physicians, the need to refocus health care on prevention instead of treatment of preventable conditions, and a transition away from employer-based health coverage to a new model where individuals dictate plan purchases instead of employers. I’ve lately read suggestions by some observers that shift could take the form of a defined contribution health plan.
UCLA report finds economic downturn and job loss pared health coverage for middle class Californians
Critics of employer-based health insurance (and single payer advocates) will likely point to this recent article by the California HealthCare Foundation’s California Healthline reporting on a recent UCLA Center for Health Policy Research report finding 670,000 Californians lost employer provided health insurance in 2008 and 2009. The article quotes Shana Lavarreda, lead author of the report, describing the numbers as an indication that medical coverage among middle class Californians was significantly undermined by the economic downturn and resulting job losses. “The uninsured here is less and less an undocumented [worker] problem, and now it’s more of a Main Street problem,” Lavarreda told California Healthline.
The report has implications for the Patient Protection and Affordable Care Act, which is predicated on all Americans being in a public or private managed care or health insurance plan by 2014 — with the bulk of private coverage employment-based. The experience of California (and certainly other states) in the two years leading up to the enactment of the Act in 2010 shows that employer-based coverage — which had been eroding even prior to the recession with fewer small employers providing coverage — remains quite vulnerable to fluctuations in the economy that disrupt employment.
Underlying the enactment of the Patient Protection and Affordable Care Act (PPACA) in 2010 was a fundamental policy choice that rejected the idea of cutting out private “middle man” health plans and insurers in order to make coverage more accessible and affordable by adopting a Canadian-style single payer model in which the government pays all medical bills. Or have a government-run insurance plan compete with private payers — the so called “public option.” The Obama administration rejected these deprivatization schemes as too radical and instead chose to build upon the existing system largely based on working age people and their families having private health coverage paid for by employers.
Two recent surveys by benefit consulting firms Towers Watson and Mercer suggest however the foundations of that system could ironically erode under the PPACA if employers drop their group insurance and managed care plans and opt to have their employees purchase coverage in the individual market. One of the major motivators, this AP article suggests, is the creation of health benefit exchanges designed to make it easier for individuals and families to buy their own coverage.
Given steep medical cost inflation that has rapidly accelerated the cost of covering workers over the past decade, at least some employers see “opting out” of providing health coverage as their cost control “nuclear option” despite the adverse tax implications and penalties they would incur by not covering their employees.
The implications of the Towers Watson and Mercer surveys are controversial and are drawing caveats from administration officials, particularly insofar that the benefit exchanges won’t open for business until January 2014. With more than two years until then, it’s hard to draw any firm conclusions regarding what employers will actually do when the exchanges become operational. But benefits consultants warn that it won’t take many employers to start a trend of opting out as the AP story notes:
Benefits consultants say most companies, especially large employers, will continue to offer coverage because they need to attract and keep workers. But that could change if a competitor drops coverage first.
Michael Turpin, a national practice leader at broker and consultant USI Insurance Services, said one of his clients plans to drop coverage as soon as any competitor does. The client, a major entertainment industry company he declined to identify, will be at a financial disadvantage if it doesn’t.
“In those industries … if somebody makes the first move, the others are going to follow like dominoes,” Turpin said.
If that happens, the PPACA will have the unintended consequence of radically altering the employer-based system of health care coverage in the United States, moving it instead toward one based in individuals purchasing their own coverage.
In another sign of the breakdown of traditional, all inclusive employer paid health insurance, the (Santa Rosa) Press Democrat reports today that the now common 75-25 percent employer/employee premium cost share is morphing into a straight split. “Often we see companies cutting their contributions down to as low as 50-50,” David Hodges, a Santa Rosa insurance broker, told the newspaper.
Marian Mulkey, director of health reform and public programs at the California HealthCare Foundation, is quoted, pointing to a rapid rise in health care costs and utilization that have ratcheted up premiums 117 percent in California over the past eight years. “We use more services and we pay more for what we use,” Mulkey noted.
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 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.