Unhealthy Trends for 2006
If the closing weeks of 2005 are any indication, 2006 is rapidly shaping up as the year of the health care coverage crisis in the United States. Middle class Americans will join the 46 million uninsured in feeling the pain as companies trim benefits and shift costs to their employees under the guise of so-called consumer-driven health care. Judging from the results to date, the experience won't be a pleasant one.
The looming crisis is much larger than just the steep decline in companies providing health care benefits to their employees. (According to the Kaiser Family Foundation, only 60% of companies now provide health coverage for their employees, down from 69% in 2000.) In just the last several weeks, Ford and GM joined the growing list of American companies cutting back on health care benefits for their employees, retirees and their families.
At GM, the UAW in October agreed to health care cuts slashing $1 billion a year from the automaker's $5.6 billion tab for employee and retiree health care. Those give-backs (over $750 per worker in new premiums, co-pays and deductibles) were not enough to save the 30,000 workers whose jobs GM announced just one month later it would eliminate. Just weeks later, the UAW inked a similar package of benefits cuts with Ford to help the company try to rein in health care costs forecasted to rise to $3.5 billion next year.
Public employees will join their counterparts in private firms in losing the security of hard-won health coverage. Across the country, state and local governments and agencies are looking down the barrel of mushrooming medical costs for their current and retired teachers, judges, firefighters, bus drivers and other former employees. In New York City and elsewhere, the problem of rising health care costs is magnified by changes in accounting rules that highlight severe underfunding in pay-as-you-go systems for employee and retiree insurance coverage. As a result, New York City alone could face a five-fold increase in the costs of its health benefits for retired city employees, a jump from $911 million in 2005 to over $5 billion by 2007. In upcoming years, health care coverage will no doubt be the central issue in strikes by municipal employee unions nationwide.
The prospects for the future are just as bleak. According to a survey by Mercer Human Resource Consulting, employer health care costs are forecast to jump by 10% in 2006. The firms surveyed, however, are only budgeting a 6.4% increase in spending for medical coverage, passing the rest of those costs onto employees in the form of flexible spending plans featuring higher deductibles, higher co-payments and greater constraints on coverage.
This trend is greeted with enthusiasm by the advocates of consumer-driven health care (CDHC) in the Bush White House and its conservative amen corner like the Wall Street Journal. They encourage new market-based approaches like tax-deductible health care accounts, which allow individuals and families to save towards health expenditures, rolling over unused funds from year-to-year. Cost-conscious health care consumers, they contend, will drive down costs by optimizing their "purchasing decisions" and avoiding unnecessary treatment.
CDHC detractors, however, argue that medical savings accounts and similar plans supported by employers will neither curb costs nor provide for healthier Americans. Arnold Relman of the Harvard Medical School in a stinging critique of the CDHC model rejects the model of patient and provider meeting as equals in the marketplace for health care, arguing:
...Our health policies have failed to meet national needs because they have been heavily influenced by the delusion that medical care is essentially a business. This delusion stubbornly persists, and current proposals for a more "consumer-driven" health system are likely to make our predicament even worse.
Robert Reischauer, president of the Urban Institute and vice chair of the Medicare Payment Advisory Commission concluded bluntly "this trend will shift more of the costs of health care onto the sick, especially those with chronic conditions, larger families, and older workers and reduce the burden on the young, the healthy and singles."
Which is exactly what appears to be taking place. In one the first evaluations of consumer-driven health care plans, a joint study by the Employee Benefit Research Institute and the Commonwealth Fund found much lower satisfaction, higher costs and more missed health care with CDHC plans than traditional employer health packages. Americans utilizing new high-deductible CHDC health plans such as health savings accounts (HSAs) and health reimbursement accounts (HRAs) experienced dramatically higher out-of-pocket costs, with over a third paying more than 5% of their income towards health-related expenses, versus just 12% of those in traditional plans. Worse still, CDHC participants, especially those making under $50,000 a year, were much more likely (35% versus 17%) to skip or defer needed health care. The key to the new wave of consumer-driven plans, it would seem, is to be healthy, wealthy and lucky.
Luck, after all, is what you'll need to be to survive the coming health care coverage crisis in 2006. Whether as consumers, taxpayers or employers, Americans will be paying more for health care while receiving less of it. As Reischauer concludes:
With health costs rising, people will be picking up the tab. The question is, which of their several hats would they like to wear when they put their money on the table?...The distribution among different types of people -- rich vs. poor, healthy vs. sick and workers vs. non workers -- varies greatly depending upon which hat is worn.