IN THIS ISSUE:
? Capitol Hill Briefing: Are Tax Credits a Tax Cut for the Uninsured?
? Tax Credits and Individual Coverage
? Individual Market Expansion in Florida
? Individual Market Expansion in DC
? Cost Sharing in Massachusetts
? Cost Sharing in New Mexico
? The Dawn of the Consumer Era
? The Case for Consumer Driven Health Care
? 100 Years of Market Distortions
Capitol Hill Briefing: Are Tax Credits a Tax Cut for the Uninsured?
The Galen Institute and the Council for Affordable Health Insurance will be holding a briefing on whether a proposed tax credit for the uninsured should be considered part of the President?s tax cut package. Speakers will include Grace-Marie Turner of Galen, Merrill Matthews of CAHI, Mark Pauly of Wharton, William Beach of Heritage, and Jeff Lemieux of the Progressive Policy Institute. Senator Rick Santorum (R-PA) and Congressman Bill Thomas (R-CA) have also been invited to speak. It will be held on May 12, 2003 from 12:00 ? 1:30 pm in the Dirkson Senate Office Building, Room G-11
Tax Credits and Individual Coverage
Speaking of tax credits, I had an op-ed placed in several papers using my own experience to note that I received a tax subsidy of some $3,000/year when my employer was paying for my coverage, but once I was on my own, there was no subsidy at all. What sense does that make? I also argue that the individual market is a viable alternative to employer-sponsored coverage. In my case, my COBRA premiums would have been $675/mo, but by opting for individual coverage at $345/mo, we are saving about $4,000/year ? more than enough to cover our higher deductibles and reduced drug coverage.
Individual Market Expansion in Florida
The ?Orlando Business Journal? reports that Humana is re-entering Florida?s individual market, and Aetna is considering doing so as well. Reporter Christine Sexton says that Blue Cross and Blue Shield of Florida and United have been the only carriers providing individual coverage until now. The article quotes a Humana spokeswoman as saying, ?We?re full service. Now we have a complete product line for Florida.? An Aetna spokeswoman says they consider Florida an attractive market, and ?are currently exploring possible product offerings that would provide additional choices for Florida?s uninsured residents.? There are currently 3 million uninsured in Florida, and 600,000 individual enrollees.
Individual Market Expansion in DC
The insurance commissioner of Washington, DC, Lawrence Mirel, is developing a proposal that would build on the individual insurance model, according to the ?Washington Business Journal.? His ?Equal Access to Health Insurance Act? would use a FEHBP-type structure to enable Washington residents and employees to purchase their own coverage. The program would also include a Risk Transfer Plan that would reinsure participating carriers for excess losses. It isn?t clear whether the program would include any coverage subsidies, though the reinsurance program could make an elegant pipeline for any subsidy.
Cost Sharing in Massachusetts
The state of Massachusetts, like many others, is in desperate financial straits this year. Erik Kriss, the Secretary of Administration and Finance, writes in the ?Boston Business Journal? that the ?fiscal crisis demands that we rethink priorities,? one of which is the state employee benefits program. Mr. Kriss notes that, ?Our public employees enjoy extremely generous benefits ? in excess of those offered in the private sector.? The rationale for these benefits was that state employees aren?t paid very well, but that is no longer true. Today, according to the article, public employees earn ?20 percent more than their private sector counterparts.? They also pay only 15 percent of the cost of their benefits, compared to a typical 25 percent in the private sector. Mr. Kriss wants to, ?introduce financial incentives for plan selection,? including a defined contribution set at ?75 percent of the most cost-effective plan available to state employees.?
Cost Sharing in New Mexico
Of course, state employers are not alone in looking at increased cost-sharing with employees. In the ?New Mexico Business Journal? Becky Korenek and Sherry Vetter look at some of the strategies employers are using. They include increases in deductibles, coinsurance, copayments, and out-of-pocket maximums. But they may also include sharing the cost of premium, though the article points out that some fully-insured carriers require a certain level of payment by the employer. The authors also discuss fixed contribution programs that allow employees to ?buy-up? to richer benefits with their own funds. Importantly, say the writers, employers must communicate with workers to show them the trade-offs involved. ?When health insurance options are thoroughly researched and communicated, a large or small employer should realize cost savings while meeting the needs of the employees.?
The Dawn of the Consumer Era
Oregon held a forum on ?The Dawn of the Consumer Era? on April 30, according to Robin Moody in the ?Portland Business Journal.? The article says in 1997 it cost $3,820 to insure the average worker, but that cost has risen in 2002 to $5,758 nationally and $6,600 in Oregon. The article quotes Dr. Erik Swennson as saying, ?It?s a fallacy to think we?ll have active and engaged consumers if they are spending other people?s money. I guarantee there will be unlimited spending.? Jim Walton, the benefits manager for TOC management services, says employers are looking at non-traditional programs like medical savings accounts and HRAs. The company is scheduled to implement such a plan in 2004.
The Case for Consumer Driven Health Care
Writing in the May/June issue of ?Contingencies,? Definity?s head actuary David Tuomala makes ?The Case for Consumer-Driven Health Care.? He says all this activity is ?an attempt to build a more rational model in health care.? He disagrees with those who ?suggest that health care is fundamentally different from other parts of the economy, and that the usual supply and demand considerations don?t apply.? Instead, the key transaction occurs between a provider of care and a patient. This is where supply and demand plays out, and this is where attempts at third-party control breaks down. He argues that consumer driven models such as ?personal care accounts? that require a financial transaction at the point of care will be more effective than defined contribution approaches that require consumer judgment only at the time of enrollment. He uses the vision care system as an illustration of a point of care payment system. He says this system tends to be highly competitive, price transparent, and convenient for consumers. ?Even when expensive new technology (such as lasik surgery) becomes available, a different pattern emerges? than elsewhere in health care,? with prices dropping over time. He adds, ?many of the problems we face in health care today can be traced to the prevalence of the third-party payment system itself.?
100 Years of Market Distortions
I gave a new talk to the Virginia Association of Health Underwriters last week. They were looking for a fairly complete explanation of how we got here, so I walked them through the many governmental efforts to ?improve? things, starting with medical licensing in the first decade of the 20th Century, to the antitrust exemption for the Blues in the 1930s which formed the basis of the third-party payment system, to Hill-Burton, McCarran-Ferguson and Taft Hartley in the 1940s, tax code distortions, price controls, health planning, ERISA, and so on ad infinitum. The PPT slides amount to an outline of a paper we will be publishing in the next few months.