Consumer-Directed Care

Can Consumer-Directed Health and Universal Coverage Coexist?

Reprinted from the Jan. 26, 2007, issue of INSIDE CONSUMER-DIRECTED CARE, a biweekly newsletter with timely news and insightful analysis of benefit design, contracts, market strategies and financial results.

Now that the Democrats have a majority in both houses of Congress, some industry observers predict they will use their new power to push harder for some form of universal health coverage. But industry observers say consumer-directed health (CDH) and universal coverage are two philosophies that can work together.

The idea of universal health insurance "is probably only possible through health care consumerism," says Ron Bachman, president and CEO of Healthcare Visions, Inc., and a senior fellow with The Center for Health Transformation. While "universal" typically is used to describe a single-payer, government-run system, it also could be describe a market-based system, he explains. Account-based plans also could play a central role in state initiatives to broaden health coverage, adds Alexander Domaszewicz, a benefits consultant in the Newport Beach, Calif., office of Mercer Human Resource Consulting.

Former CMS Administrator Tom Scully tells ICDC that state-sponsored strategies — such as the one signed into law last spring by former Massachusetts Gov. Mitt Romney (R) and the one proposed early this year by California Gov. Arnold Schwarzenegger (R) — make the idea of universal health coverage a "less risky" proposition for Republicans who have traditionally opposed the idea.

Both state plans, among other things, require all residents to have health insurance. Under Schwarzeneg-ger's proposal, employers with 10 or more employees would be required to offer health coverage to their employees or be assessed a fee equal to 4% of payroll. This is similar to Massachusetts' soon-to-be-enacted law that requires employers with 11 or more employees to provide health coverage or pay the state $295 and a surcharge for every uninsured worker. The law, slated to go into effect this summer, also requires individuals to purchase coverage.

The next step for states, says Scully, now a consultant with the law firm Alston & Bird, should be the establishment of insurance risk pools. While large, self-insured employers wouldn't be required to join the insurance pool, they would have to provide the state with information about their insured populations. Employers with healthier populations than the pool would pay "a risk-adjustment fee" into the state insurance pool. Those with above-the-pool risk would pull a fee out. Such a risk pool, he explains, would eliminate concerns that CDH plans attract only the best insurance risks.

"If an employer wants to offer an HDHP, which I think drives better behavior, a risk-adjustment mechanism makes [adverse selection] a non-issue. This would be a huge step toward universal coverage," he says, adding that "there's not a chance in hell something like this will pass in the next two years."

Insurance Must Be Affordable

About 45% of employers with three to nine employees, and 24% of employers with 10 to 24 employees, do not provide health insurance, according to Bachman. If small employers are required to have coverage, they might choose low-premium high-deductible health plans (HDHPs) over more expensive coverage options.

But that could lead to bigger problems if the deductibles are more than the enrollees can afford, Uwe Reinhardt, a renowned professor of economics at Princeton University, tells ICDC.

"Universal coverage means only that everyone is adequately protected against financial distress because of illness," he says. "It does not imply first-dollar coverage."

A health plan that includes a $10,000 deducible, he explains, would fall short of universal coverage because it would be more than a low-income family could likely afford. "That simply is not insurance which protects against financial distress," he adds.

Instead of tying HSAs to HDHPs, Reinhardt says, the tax-advantaged accounts should be available to anyone, regardless of the type of insurance. Universal coverage, HSAs and HDHPs should be able to work together "in any number of combinations," he adds.

Tax Caps Could Fund Insurance

A "basic" universal health plan, which Scully estimates would cost about $70 billion a year, could be funded without adding any money to the system. About half of the cost could be achieved through a tax cap on employer-based health plans, he says. The money raised by a tax cap could be used to subsidize health coverage for those who can't afford it. That strategy, he says, would save the government another $35 million to $40 million in subsidies now paid to hospitals to cover the uninsured.

"You can have [universal coverage] without spending a penny if you restructure the system," he explains. "Gold-plated, first-dollar coverage and zero-deductible plans are highly oversubsidized [by employers] and don't drive better behavior" among enrollees.

This idea is somewhat similar to the president's proposal that would make health coverage, which isn't now counted as income, taxable. Bush's proposal calls for a flat, standard deduction of $7,500 for individual coverage ($15,000 for family coverage).

According to the Kaiser Family Foundation, the average premium for single coverage last year was $4,242 ($11,480 for family coverage).

Amit Gupta, M.D., who founded CDH software firm CareGain, suggests a three-part universal health strategy. Under his idea, the government would subsidize preventive care to all Americans. Some of that expense could be funded by people who would be required to invest HSA dollars in government bonds in exchange for a modest return on investment. Some preventive services, he suggests, could be provided by retail-based health centers such as MinuteClinic. Routine care would be covered by an account-based CDH plan, and catastrophic care and long-term illnesses would be covered by more traditional health insurance. CareGain was acquired by Fiserv last year. Gupta recently left his position as Fiserv's executive vice president of consumer-directed health.

Domaszewicz says that while some universal-coverage proposals could include health accounts and other elements of CDH, "positioning, politics and nomenclature will no doubt keep some of them from being associated with consumer-directed health care."

Reinhardt adds that HSAs and HDHPs, by themselves, fall short of consumer-directed health care. Such plans need to work in tandem with electronic health records and detailed information about the cost and quality of health care providers. "Only then can a patient begin to act like a well-informed consumer," he says.

Advertise With AIS

Privacy

Site Map