The State of the Union previews have made it clear that President Bush wants to emphasize health care in 2006. It’s about time. During the Bush Administration, the number of Americans without health insurance has increased by 6.2 million, while health care premiums have increased by 73 percent over the last five years, and workers, families and businesses have struggled to cope with rising premiums and diminishing benefits.
However, President Bush will likely offer a series of tired, stale and ideologically-driven proposals that will do little to address the nation’s health care crisis. His policy proposals, centered on health savings accounts (HSAs) and Association Health Plans (AHPs), are re-treads of ideas he promoted during the 2000 and 2004 campaigns. Unfortunately, these proposals will not begin to solve the problems of the 46 million Americans without health insurance, and they will cause new dilemmas for those fortunate enough to have health care coverage. The White House and conservatives are promoting "solutions" that will only exacerbate problems within our already broken health care system.
Although the President’s State of the Union focus on health care may stimulate national debate on this important issue, his policy recommendations would do nothing to address the problems of cost, quality and access in the American health care system. The American health care system is broken and needs fundamental reform – reform that provides affordable coverage to all Americans, controls costs and makes prevention a national priority. We need bolder solutions, not recycled ideas that will cause further damage to our fragile health care system.
Health Savings Accounts
Health Savings Accounts (previously known as Medical Savings Accounts), the keystone of consumer-driven health care, have been available to at least some individuals, workers and employers on a tax-favored basis since 1996. HSAs – a special savings account for medical expenses – are paired with high-deductible insurance coverage. Employers and employees may contribute to the HSA on a tax-preferred basis up to the lesser of the deductible amount or $2,700 for an individual or $5,450 for a family. The employee may use the HSA to pay for health care services prior to reaching their deductible, and to cover cost-sharing imposed after the deductible is met. In 2003, Congress removed enrollment caps and provided greater tax advantages for funds placed within the HSA. Today, approximately 2.4 million Americans receive coverage through a high-deductible plan and an HSA.
The ideological basis for HSAs is the belief that consumers will spend their health care dollars frugally and effectively by restraining their demand for unnecessary services, seeking higher-quality providers and shopping for better prices for a given procedure. This will result, proponents say, in greater control over health care costs and greater consumer satisfaction, since individuals will make their health care decisions without the interference of insurance company bureaucracies and restricted networks. In addition, the notion of a consumer-controlled savings account for health spending dovetails neatly with other aspects of President Bush’s concept of an ownership society, such as private Social Security accounts.
However ideologically coherent HSAs may be, they fail to address the most significant problems with the American health care system – rising costs and rising numbers of Americans without health insurance. And, they exacerbate unsettling trends by undermining existing strategies for sharing the risk of high health care costs – strategies such as traditional insurance built on large pools of healthy as well as sick enrollees.
In addition, to the extent that HSAs provide incentives for enrollees to reduce their health care spending, they focus on health care that people use before they meet their deductible. However, 80 percent of all health care spending is dedicated to only 20 percent of the population – people with catastrophic problems, or chronic illnesses, who use health care services at a level that far exceeds a deductible, including the high deductibles featured in HSA plans. Focusing on the health care spending patterns of healthy individuals simply does not address the factors that drive the vast majority of health care spending in the United States.
Similarly, because HSAs seek to control health care spending through individual decisions to seek or avoid care, they similarly encourage consumers to limit spending on the care they can control, such as physician visits and prescription drugs. But nearly half of our spending on health care services is dedicated to institutional payments – payments to hospitals, nursing homes, and other facilities. In general, when individual consumers need these levels of care, they have very little ability to control the health care services, and the cost of these services, they receive – their needs are simply too acute or too complex.
In addition, HSAs assume that consumers can purchase health care like any other commodity – with sufficient information on quality of care and the cost-effectiveness of treatments, consumers will make rational choices about their health care behavior. But even assuming an availability and transparency of quality and cost information that does not currently exist, health care is not like other goods. It is irrational to assume that the parents of a critically ill child will call for price quotes on an urgently-needed procedure, or that accident victims will consult hospital quality report cards to direct the ambulance to the emergency department of their choice. This emphasis on "consumerism" to control health care costs also assumes that people are indifferent to any factor other than price – when, in fact, patients choose physicians based on long-standing relationships, trusted referrals, location and convenience, and intangible attributes such as personality and compassion.
Finally, consumer-driven health care, as embodied by HSAs, undermines the risk-sharing capacity of our health insurance system. Early evidence shows that HSA enrollees are significantly healthier than other individuals with health insurance. Premium payments for healthy enrollees, which are necessary to spread risk across the population of healthy and sick individuals and keep overall premiums down, are therefore being pulled out of the traditional insurance system. Over time, traditional plans will be populated with sicker enrollees, who cannot risk the out-of-pocket costs that high-deductible plans are likely to impose – even if their employer contributes generously to an HSA account, they are likely to drain it every year and incur additional expenses. Traditional plans will therefore need to raise prices as they lose their healthy enrollees and their population becomes disproportionately sicker – which will make regular insurance even more expensive for businesses and workers.
Association Health Plans
The President has also promoted insurance purchasing arrangements known as Association Health Plans (AHPs) for several years, arguing that they would provide new avenues for small businesses to purchase health coverage at group rates. Unfortunately, most AHP proposals – for example, H.R. 525, which the House of Representatives recently passed – would exempt AHPs from state regulation and oversight, drive up premium costs for small employers with sicker employees, strip consumers of critical rights and protections, and increase the number of Americans without health insurance.
While small businesses are certainly struggling to pay health care premiums for their employees, these proposals would provide minimal relief from high insurance costs for some small businesses – primarily those with healthier-than-average workers. In fact, some analysts have concluded that AHPs would actually increase premiums for most small businesses. For example, a 2003 study by Mercer concluded that average small employer premiums would increase following the implementation of AHPs – the average premium increase for the population that remains in the state-regulated small-group market would outweigh any decreases for those who receive coverage through AHPs.
AHPs would be able to draw a healthier-than-average enrollee population thanks to the exemptions from state-mandate benefits and insurance regulation that AHPs would enjoy. Specifically, instead of covering critical services for diabetes or other chronic conditions – required by many states – AHPs could design benefit packages tailored to healthy enrollees. In addition, AHPs would be able to set higher initial premiums and increase premiums for businesses with sicker workers beyond current state-enforced limits, thus steering businesses with high-cost workers into the traditional, state-regulated market.
While many small businesses would be worse off if Federal policy were to encourage AHP formation, consumers would be hurt as well – in particular, because they will lose protections that only exist at the state level. Using H.R. 525 as an example, key consumer protections that would be wiped out for individuals who receive their coverage through these arrangements include:
- Assurances that critical health services are covered. AHPs would not need to meet state requirements that insurers cover mammography screenings, well-child care, mental health services, and other important benefits. AHPs also would not need to provide direct access to obstetricians and gynecologists without a referral, or access to clinical trials.
- Key consumer rights. Consumers would lose their right to appeal to an independent panel when insurers refuse to pay medical claims.
- State-based solvency requirements and oversight. AHPs would be exempt from state rules that assure that health plans are financially solvent – which means that businesses and consumers risk being left with unpaid medical bills if their AHP plan goes out of business. Other exemptions would leave consumers vulnerable to marketing fraud and insurance scams.
Most significantly, to the extent that AHPs result in higher average premiums for small businesses, particularly firms with high-cost employees, some small employers will be priced out of health coverage and will drop health insurance all together. Mercer estimates that four years after full implementation of AHP legislation, the number of uninsured workers and dependents in small firms would increase by more than 1 million individuals – an 8.5 percent increase.
Conclusion
The true state of the union on health care is that America is experiencing a health care crisis. Health care premiums have increased 73 percent over the last five years while wages have increased only 15 percent. Large manufacturers and neighborhood small businesses are struggling to remain competitive while paying for their employees’ health care coverage, while 46 million Americans go without coverage of any kind.
Instead of addressing these problems with common-sense solutions – solutions that extend affordable coverage to all Americans, and solutions that realistically tackle health care costs – the President will offer approaches that will benefit wealthier, healthier individuals, but drive up costs for sicker, poorer Americans and raise the specter of increased premiums for small businesses and larger numbers of Americans without health insurance.
The Bush Administration is to be applauded for acknowledging the critical condition of our health care system. Although their tired, ideologically-driven approaches will only exacerbate current trends, their interest may help stimulate public discourse on the health care system – but until the White House and Congress are ready to embrace bold, comprehensive ideas that will provide all Americans with affordable coverage, the public’s interest in meaningful, positive change will be unfulfilled.