Federal Reinsurance Schemes Examined by AEI and Inquiry

IN THIS ISSUE:


? Federal Reinsurance Schemes Examined by AEI and Inquiry

? Federal Reinsurance – a Bailout for Excessive Union Demands

? Employers in Akron Looking at Consumer Driven Approaches

? Employers in Baltimore Looking at Consumer Driven Approaches

? Employers in Raleigh Looking at Consumer Driven Approaches

? 18 Carriers to Offer HSA coverage in FEHBP

Federal Reinsurance Schemes Examined by AEI and Inquiry


The American Enterprise Institute held a briefing this week that included an actuarial analysis of the cost of Senator Kerry’s health care proposals. Grace-Marie Turner was there and will write about this more extensively in Health Policy Matters this week (if you don’t already subscribe to HPM, you can do so by going to http://www.galen.org/newsletters.asp). Today I want to raise just one small thought – the idea of the government “re-insuring” employer-sponsored health coverage. Mr. Kerry has proposed that the government pay 75% of the costs above $30,000 for employer-sponsored health plans. As an article by Urban Institute researchers Linda Blumberg and John Holahan in the journal “Inquiry” indicates, this is not an entirely new idea. They cite a number of similar proposals that have been made by academics over the past ten years. The article looks at various approaches to such reinsurance proposals but states that the unifying theme for all of them is, “?the notion that at least a portion of the expenses associated with higher-cost individuals is a broad social responsibility” and hence paid by taxpayers instead of by insurance premiums. Interestingly, this article estimates the cost of a Kerry-like proposal at $40.9 billion in the first year — not that far from AEI’s estimate of $573 billion over ten years.


More important than cost estimates are the operational issues raised by the Blumberg/Holahan article. This includes picking the target population (individual, small group, large group, all of the above, or some other combination), the level of coverage (Mr. Kerry says 75%, others have argued for a scaled rate of coverage), and the threshold of expenses that are reinsured ($15,000, $30,000, $50,000?). They add, “Once a threshold level of expenditures is chosen, the design [of the reinsurance program] also has to specify the particular health expenditures that can be applied to that threshold.” And here is the biggest rub of all. To qualify for meeting the threshold does an expense have to be “reasonable and customary?” And if so, how is that defined? Does every service qualify or just those covered by the insurance plan? Do only “medically necessary” expenses qualify? Do “alternative providers” qualify? Over-the-counter drugs? Essentially Mr. Kerry would have a federal agency making all these decisions and effectively controlling the entire health care system.


The reasons Blumberg and Holahan offer for supporting such an approach are dubious at best – “[I]nsurers’ incentives to exclude individuals whom they expect to be very high cost would be diminished with the government covering at least a portion of these high costs.” They add, “In addition, the incentive to significantly ‘rate up’ premiums charged to those with high expected costs would be reduced as well.” But carriers’ ability to predict who will incur $30,000 or more in the coming year is not very good. This level of expense is largely unpredictable, including things like sudden trauma, burn victims, brain damage, birth defects and the like. Insurance company underwriting is aimed more at chronic conditions, like diabetes, hypertension, arthritis, and asthma – the kind of conditions that may consume $5,000 – $10,000 in expenses in the course of a year, and every year after that. Reinsurance pools will have no effect whatsoever on this level of expense, and so will have no effect whatsoever on underwriting practices.

SOURCE:

Information on the AEI study is available at — http://www.aei.org/docLib/200409131_antos.pdf

The “Inquiry” article is at — http://www.inquiryjournalonline.org/i0046-9580-041-02-0130.pdf

Federal Reinsurance – a Bailout for Excessive Union Demands


The real motive behind a federal reinsurance program is to get the taxpayers to bail out General Motors, Ford, and other giant manufacturers that have routinely caved in to union demands for ever-richer benefits. A story by Danny Hakim in “The New York Times” says for GM “the projected cost of providing health care benefits to current and future retirees? is a staggering $63 billion.” The article says GM covers the health care costs of 1.1 million Americans though its workforce is only 200,000. Ford’s costs “have risen to $12,443 for every current or former worker, from about $500 in 1970.” The article quotes Princeton professor Uwe Reinhardt as saying, “To saddle the cash flow of American businesses with an obligation that other [foreign] competitors do not have creates serious long-run disadvantages.” But no one has “saddled” these companies with these costs except themselves. Even today the companies and unions are barely budging from their free-spending ways. The article says last year “the union agreed to increase co-payments for brand name prescription drugs to $10 from $5 for hourly workers and future retirees.” No wonder they are facing a crisis.

SOURCE: http://www.nytimes.com/2004/09/15/business/15retire.html?ex=1096252883&ei=1&en=79dc65e66c8ee429

Employers in Akron Looking at Consumer Driven Approaches


Meanwhile, in the real world, “Employers are continuing to ask their employees to share more of the burden of escalating health-care costs,” according to an article in the “Akron Beacon Journal.” Sara Taylor with Hewitt says, “The trends we see are increased premiums, increased co-pays, increased co-insurance.” The article continues, “Some companies are coping by switching to a new health insurance option: a high-deductible plan teamed with a health savings account.” It gives as an example the Evans Insurance Agency in downtown Akron that is giving its employees a $1,000 HSA contribution to use against a deductible of $2,000. Company Vice president Ed Morrison says, “We’re encouraging our clients – and our employees – to be not only a good patient, but you’re also the customer, too. It’s a new trend of training the populace just to be good consumers.”

SOURCE: http://www.ohio.com/mld/ohio/living/health/9626978.htm

Employers in Baltimore Looking at Consumer Driven Approaches


Employers in Baltimore, facing similar conditions, are making similar choices according to the “Baltimore Sun.” The article by M. William Salganik cites the recent report by the Kaiser Family Foundation on employer costs, now averaging $10,200 for family coverage. Jeff Levin, the general manager of a retail store in Pikesville, MD, says he doesn’t want to drop coverage, so he “is considering shifting to a plan that would require his workers to pay higher out-of-pocket costs with a health savings account.”

SOURCE: http://www.baltimoresun.com/news/health/bal-te.bz.premium10sep10,1,6767680.story

Employers in Raleigh Looking at Consumer Driven Approaches


An article by Jean Fisher in the Raleigh “News & Observer” covered much of the same ground — local conditions reflect the national trends. “Employers still don’t see a clear solution to moderate health-care costs, though some of the biggest companies see some promise in higher-deductible or ‘consumer-driven’ health insurance plans.” The article cites the Kaiser study as reporting that “27% of all employers surveyed said they are either ‘very likely’ or ‘somewhat likely’ to add a high-deductible plan within two years.” One such company is the city of Salisbury which “is intrigued with consumer-driven benefits but isn’t ready to take the plunge with a high-deductible plan.” Instead it is requiring a 50% copayment for name brand drugs.

SOURCE: http://www.newsobserver.com/print/friday/business/story/1621538p-7835148c.html

18 Carriers to Offer HSA coverage in FEHBP


The Office of Personnel Management (OPM) announced that 18 carriers will be offering HSAs and high deductible health plans to federal employees in the 2005 plan year. Federal retirees who are eligible for Medicare cannot have an HSA, but will have an HRA available to them. OPM estimates some 3.2 million federal workers will be eligible for the HSA products. OPM Director Kay Coles James also announced that federal employee premium contributions will rise 7.9% in 2005, the lowest increase in eight years. Ms. James said, “The work of OPM and the Administration to create new choices and options for the American health care consumer has helped us hold the average increase in FEHBP premiums to the lowest level in years.” Open enrollment for federal workers runs from November 8 through December 13 this year.

SOURCE: Information on the health plans available to federal workers is available at http://www.opm.gov/insure

Please send all comments/questions directly to me at gmscan@aol.com.


“Consumer Choice Matters” is a free weekly newsletter published by the Galen Institute, a not-for-profit public policy organization specializing in research and education on health policy. Visit our website at http://www.galen.org for more information.


If you wish to subscribe/unsubscribe or update your address, please send an e-mail to galen@galen.org.


The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.







SHARE THIS ARTICLE

About the author

IN THIS ISSUE:


? Federal Reinsurance Schemes Examined by AEI and Inquiry

? Federal Reinsurance – a Bailout for Excessive Union Demands

? Employers in Akron Looking at Consumer Driven Approaches

? Employers in Baltimore Looking at Consumer Driven Approaches

? Employers in Raleigh Looking at Consumer Driven Approaches

? 18 Carriers to Offer HSA coverage in FEHBP

Federal Reinsurance Schemes Examined by AEI and Inquiry


The American Enterprise Institute held a briefing this week that included an actuarial analysis of the cost of Senator Kerry’s health care proposals. Grace-Marie Turner was there and will write about this more extensively in Health Policy Matters this week (if you don’t already subscribe to HPM, you can do so by going to http://www.galen.org/newsletters.asp). Today I want to raise just one small thought – the idea of the government “re-insuring” employer-sponsored health coverage. Mr. Kerry has proposed that the government pay 75% of the costs above $30,000 for employer-sponsored health plans. As an article by Urban Institute researchers Linda Blumberg and John Holahan in the journal “Inquiry” indicates, this is not an entirely new idea. They cite a number of similar proposals that have been made by academics over the past ten years. The article looks at various approaches to such reinsurance proposals but states that the unifying theme for all of them is, “?the notion that at least a portion of the expenses associated with higher-cost individuals is a broad social responsibility” and hence paid by taxpayers instead of by insurance premiums. Interestingly, this article estimates the cost of a Kerry-like proposal at $40.9 billion in the first year — not that far from AEI’s estimate of $573 billion over ten years.


More important than cost estimates are the operational issues raised by the Blumberg/Holahan article. This includes picking the target population (individual, small group, large group, all of the above, or some other combination), the level of coverage (Mr. Kerry says 75%, others have argued for a scaled rate of coverage), and the threshold of expenses that are reinsured ($15,000, $30,000, $50,000?). They add, “Once a threshold level of expenditures is chosen, the design [of the reinsurance program] also has to specify the particular health expenditures that can be applied to that threshold.” And here is the biggest rub of all. To qualify for meeting the threshold does an expense have to be “reasonable and customary?” And if so, how is that defined? Does every service qualify or just those covered by the insurance plan? Do only “medically necessary” expenses qualify? Do “alternative providers” qualify? Over-the-counter drugs? Essentially Mr. Kerry would have a federal agency making all these decisions and effectively controlling the entire health care system.


The reasons Blumberg and Holahan offer for supporting such an approach are dubious at best – “[I]nsurers’ incentives to exclude individuals whom they expect to be very high cost would be diminished with the government covering at least a portion of these high costs.” They add, “In addition, the incentive to significantly ‘rate up’ premiums charged to those with high expected costs would be reduced as well.” But carriers’ ability to predict who will incur $30,000 or more in the coming year is not very good. This level of expense is largely unpredictable, including things like sudden trauma, burn victims, brain damage, birth defects and the like. Insurance company underwriting is aimed more at chronic conditions, like diabetes, hypertension, arthritis, and asthma – the kind of conditions that may consume $5,000 – $10,000 in expenses in the course of a year, and every year after that. Reinsurance pools will have no effect whatsoever on this level of expense, and so will have no effect whatsoever on underwriting practices.

SOURCE:

Information on the AEI study is available at — http://www.aei.org/docLib/200409131_antos.pdf

The “Inquiry” article is at — http://www.inquiryjournalonline.org/i0046-9580-041-02-0130.pdf

Federal Reinsurance – a Bailout for Excessive Union Demands


The real motive behind a federal reinsurance program is to get the taxpayers to bail out General Motors, Ford, and other giant manufacturers that have routinely caved in to union demands for ever-richer benefits. A story by Danny Hakim in “The New York Times” says for GM “the projected cost of providing health care benefits to current and future retirees? is a staggering $63 billion.” The article says GM covers the health care costs of 1.1 million Americans though its workforce is only 200,000. Ford’s costs “have risen to $12,443 for every current or former worker, from about $500 in 1970.” The article quotes Princeton professor Uwe Reinhardt as saying, “To saddle the cash flow of American businesses with an obligation that other [foreign] competitors do not have creates serious long-run disadvantages.” But no one has “saddled” these companies with these costs except themselves. Even today the companies and unions are barely budging from their free-spending ways. The article says last year “the union agreed to increase co-payments for brand name prescription drugs to $10 from $5 for hourly workers and future retirees.” No wonder they are facing a crisis.

SOURCE: http://www.nytimes.com/2004/09/15/business/15retire.html?ex=1096252883&ei=1&en=79dc65e66c8ee429

Employers in Akron Looking at Consumer Driven Approaches


Meanwhile, in the real world, “Employers are continuing to ask their employees to share more of the burden of escalating health-care costs,” according to an article in the “Akron Beacon Journal.” Sara Taylor with Hewitt says, “The trends we see are increased premiums, increased co-pays, increased co-insurance.” The article continues, “Some companies are coping by switching to a new health insurance option: a high-deductible plan teamed with a health savings account.” It gives as an example the Evans Insurance Agency in downtown Akron that is giving its employees a $1,000 HSA contribution to use against a deductible of $2,000. Company Vice president Ed Morrison says, “We’re encouraging our clients – and our employees – to be not only a good patient, but you’re also the customer, too. It’s a new trend of training the populace just to be good consumers.”

SOURCE: http://www.ohio.com/mld/ohio/living/health/9626978.htm

Employers in Baltimore Looking at Consumer Driven Approaches


Employers in Baltimore, facing similar conditions, are making similar choices according to the “Baltimore Sun.” The article by M. William Salganik cites the recent report by the Kaiser Family Foundation on employer costs, now averaging $10,200 for family coverage. Jeff Levin, the general manager of a retail store in Pikesville, MD, says he doesn’t want to drop coverage, so he “is considering shifting to a plan that would require his workers to pay higher out-of-pocket costs with a health savings account.”

SOURCE: http://www.baltimoresun.com/news/health/bal-te.bz.premium10sep10,1,6767680.story

Employers in Raleigh Looking at Consumer Driven Approaches


An article by Jean Fisher in the Raleigh “News & Observer” covered much of the same ground — local conditions reflect the national trends. “Employers still don’t see a clear solution to moderate health-care costs, though some of the biggest companies see some promise in higher-deductible or ‘consumer-driven’ health insurance plans.” The article cites the Kaiser study as reporting that “27% of all employers surveyed said they are either ‘very likely’ or ‘somewhat likely’ to add a high-deductible plan within two years.” One such company is the city of Salisbury which “is intrigued with consumer-driven benefits but isn’t ready to take the plunge with a high-deductible plan.” Instead it is requiring a 50% copayment for name brand drugs.

SOURCE: http://www.newsobserver.com/print/friday/business/story/1621538p-7835148c.html

18 Carriers to Offer HSA coverage in FEHBP


The Office of Personnel Management (OPM) announced that 18 carriers will be offering HSAs and high deductible health plans to federal employees in the 2005 plan year. Federal retirees who are eligible for Medicare cannot have an HSA, but will have an HRA available to them. OPM estimates some 3.2 million federal workers will be eligible for the HSA products. OPM Director Kay Coles James also announced that federal employee premium contributions will rise 7.9% in 2005, the lowest increase in eight years. Ms. James said, “The work of OPM and the Administration to create new choices and options for the American health care consumer has helped us hold the average increase in FEHBP premiums to the lowest level in years.” Open enrollment for federal workers runs from November 8 through December 13 this year.

SOURCE: Information on the health plans available to federal workers is available at http://www.opm.gov/insure

Please send all comments/questions directly to me at gmscan@aol.com.


“Consumer Choice Matters” is a free weekly newsletter published by the Galen Institute, a not-for-profit public policy organization specializing in research and education on health policy. Visit our website at http://www.galen.org for more information.


If you wish to subscribe/unsubscribe or update your address, please send an e-mail to galen@galen.org.


The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.







SHARE THIS ARTICLE

About the author