As the institution of employer-based health care has matured, so has the population.  The financial benefits of off-setting wage increases by a preferential tax system on health care plans decreases as the population ages, and the employers find themselves covering the insurance for their retired workers.[1]  Moreover, health premiums continue to rise, and in 2004, it was reported that premiums grew at double-digit rates for the fourth consecutive year.[2]

Many employers are increasing employee cost sharing as a means of controlling their total health care costs.  In 2004, only 17 percent of large and medium-size employers reported paying 100 percent of their employees’ premiums, down from 29 percent in 2000.  The percent of the employees’ share is increasing as well, and in 2004, 41 percent of employers are considering an increase in cost-sharing percentage.[3]  Small employers that offer health insurance have fewer cost-containment options available to them, and therefore cutting or eliminating health benefits altogether becomes a compelling option.  Other options include reducing the size of the workforce through layoffs or employing a workforce of part-time or contract workers who are not offered benefits.[4]

Health Savings Accounts

One plan for cost-savings that is receiving considerable attention is the Health Savings Accounts, or HSAs.  Originally called Medical Savings Accounts, individuals can save tax-deductible dollars in these accounts to pay for out-of-pocket medical expenses.  They exist in conjunction with high-deductible health insurance, intended to cover catastrophic, or highly expensive procedures, rather than routine procedures that can be expected and therefore should be part of an individual’s or family’s budget.  Employers can offer HSAs as an alternative to comprehensive coverage plans: the employer can contribute yearly to the savings account owned by the employee to cover medical expenses, including payments towards the deductible.  The money in this account would rollover year-to-year.[5]

Both employers and employees would see a cost savings in the smaller premium for a high-deductible plan.  The theory behind HSAs also suggests that the cost-savings would increase because patients will use more restraint in seeking medical care if, by paying for the service, they were aware of the actual cost of the care.  The AMA, conservative Republicans, and non-managed care private insurance companies support HSAs.  The National Business Group on Health, or NBGH—a coalition of 220 large employers, primarily Fortune 500 companies that together provide health care coverage for more than 40 million workers, retirees and their dependents—also supports the use of HSAs; it has declared enhancements to HSAs as one of its key policy objectives for 2005.[6]

The tax deduction for HSAs extends to the self-employed and small businesses.  However, HSAs will most likely only benefit the healthier population; the sicker population that retains private health insurance would inevitably see their premiums increase even more as the healthier exit from the insurance group and no longer provide subsidies for the higher-risk population.  Considering that health expenses are concentrated in a few, high-cost patients, there is no evidence that the high-deductible consumer-driven plans will affect costs.  It is unlikely that HSAs can help keep costs down overall and will likely succeed only in shifting costs to the chronically ill.  HSAs are likely to cause an increase of under-insured: those individuals who are “covered” by a high-deductible policy, but cannot afford the costs of their care before they reach the deductible.  Critics also see them as a tax shelter for the wealthy; pulling healthy out of existing group plans and making the those traditional health insurance plans increasingly less affordable.[7]

Conclusion

The employer-based system of health care provision grew in response to legislation that gave unintended encouragement to the growth of benefit plans.  Employers were dealing with largely short-term interests during a time of economic growth.  However, with the uncertainty of today’s economy, the aging population, and the increasing costs of health care, the once short-term solutions are beginning to lose their relevance; many Americans realize the risks involved in tying their health care to the generosity of their employers.

Mandates will not solve this problem either.  The Clinton plan did not fail simply because of the opposition of unified interest groups.  Rather, by attempting to preserve the benefits of the systems, the Clinton plan brought its complexities and contradictions to the surface.  It became impossible to formally legislate the partially government subsidized, somewhat private, somewhat public insurance system, without creating more dilemmas than already existed.  Today, the climate for health care reform has an ingredient that the past reform movements did not: close to all parties agree that the system is largely unsustainable over the long-term.  However, many also agree that voluntary employer-based system has one advantage over all the proposed reforms: it already exists.  It is a shame to defer the health care needs of Americans to an accidental status quo.


[1] Gottschalk, 110.

[2] Kaiser Family Foundation, 1.

[3] Fewer companies paid the full premium for family coverage, reported at 6 percent in 2004 compared with 11 percent in 2000, Freudenheim, 2005, C1, and Kaiser Family Foundation, 3.

[4] Institute of Medicine, 214.

[5] Bodenheimer et al., 161-162.

[7] Bodenheimer et al., 162, Enthoven, 239, and Seifert et al., 13.

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