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Everyone out of the risk pool?

ASK THIS | January 19, 2006

Harvard scholar Rashi Fein suggests reporters explore whether Bush administration health care policies are accelerating the development of a multi-tier system of access to care. Fein is co-author of the new book, 'The Health Care Mess: How We Got Into It and What It Will Take To Get Out.'

By Rashi Fein

Q. What can be done to reverse or at least stabilize the declining role that private, employer-provided health insurance plays in the American health system?

Q. What can be done to bring the annual increases in health care costs and expenditures more in line with the growth of the American economy and the increase in other consumer prices?

Q. Does the requirement that “traditional Medicare” compete with subsidized managed care entities for clients put Medicare as we know it at risk -- especially if the private entities enroll younger, healthier, and less costly subscribers?

Q. Will the expansion of tax-free Individual Health Savings Accounts -- which are combined with high-deductible health insurance -- lead to fragmentation of the risk pool and increased premiums for sicker individuals?

Q. Will the expansion of tax-free Individual Health Savings Accounts lead to a decline in preventive care and early diagnoses?

Q. What policy proposals would bring us to universal health insurance, a goal articulated by President Nixon in the early 1970’s and President Clinton in the early 1990’s?

The percentage of Americans without any health insurance (15.7%) did not increase significantly between 2003 and the latest year for which we have data, 2004. Nevertheless, this finding masks an important shift: The proportion of working Americans between 18 and 64 without health insurance is increasing -- and stands at almost one out of five. The gap is being made up by an increase in the number of Americans covered by Medicaid and the State Children’s Health Insurance Program. Yet, given the federal deficit and the fiscal problems faced by many states, this shift from private to public coverage cannot be sustained in the longer run. We face a situation in which the public sector will not be prepared to deal with the consequences of the decline in private sector enrollment. (See the Center on Budget and Policy Priorities August 2005 report.)

Health care expenditures increased by 7.9% in 2004 and accounted for 16% of the GDP. While the rate of spending increase has slowed somewhat over earlier years, it still exceeds the rate of growth of the economy and the rate of increase in other consumer prices. This trend cannot continue without severe impact on the American consumer. Increasingly, we are developing a multi-tier system of access to care, one in which persons at the upper end of the income scale will be able to continue to allocate a higher and higher proportion of their income to health insurance premiums and health care, while those in the middle class (above the poverty line for Medicaid eligibility) will discover that their discretionary income is insufficient to pay their share of premiums, deductibles, co-insurance and other health care costs. Without federal government action this trend will not be reversed. (See “National Health Spending in 2004,” from the January-February 2006 issue of Health Affairs.)

The Medicare Prescription Drug and Modernization Act of 2003 established Medicare Part D. It also encouraged (and provided subsidies to) managed care organizations to enroll Medicare beneficiaries in their plans. What might be called “traditional Medicare” will be required to compete with these subsidized entities. Many observers anticipate that healthier beneficiaries who, on average, use less care would enroll in the HMOs. As a consequence, average risks and costs for those in traditional Medicare would increase. And over time, traditional Medicare would enter a “death spiral.” This outcome would move us from today's provision of all medically necessary service benefits to a defined cash benefit -- and has the potential to move us to a voucher system. Such a voucher system is hardly likely to keep up with annual increases in health care spending.

The expansion of Individual Health Savings Accounts (essentially tax-free accounts that are combined with high-deductible health insurance) – also part of the Medicare Modernization Act – inevitably leads to fragmentation of the collective “risk pool.” One of the strengths of large employer-provided health insurance (and of Medicare) is the sharing of risk across large numbers of individuals. If the pool is fragmented and each of us has his or her individual insurance and savings account, premiums will increase for those who are sicker or older as they fall for those who are healthier or younger. This cannot be justified as a matter of social policy. For instance, it would exacerbate the present situation in which almost 20 percent of African Americans and one-third of Hispanics are uninsured. Furthermore, the tax-free characteristics of the savings account provide an incentive to postpone preventive care services and early diagnoses – if I wait perhaps it will go away and I get to keep the money in the savings account. Yet in some cases such postponements lead to bad health outcomes and even higher long run costs. Thus the savings account approach is not only bad social policy, but – because it negates the current emphasis on health promotion and disease prevention – it represents bad medical policy.

The issue of coverage for the growing number of uninsured (a number that will continue to grow as employers cut back on the provision of health insurance as a fringe benefit) once again raises the issue of universal coverage. It is over a decade since this was last on the federal health policy agenda. The issue has never been one of costs: all analysts have agreed that the increase in expenditures under universal insurance would be minimal. The issue, rather, is one of philosophy about the role of government, the justification for redistribution (am I my brother’s keeper), and the role for individualism and for an “ownership society.”

The Health Care Mess;
How We Got Into It and What It Will Take To Get Out, by Julius B. Richmond, Rashi Fein (Harvard University Press)

What can be done to lower the price of the prescription-drug benefit?
By Merrill Goozner (NiemanWatchdog.org)

Questions about health care spending
By Brad DeLong (NiemanWatchdog.org)

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