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INSURANCE

Ill-Advised Shift in Health Costs

As expenses rise, well people opt out--leaving the sick to burden the system.

November 02, 2003|M. Gregg Bloche | M. Gregg Bloche teaches law and health policy at Georgetown and Johns Hopkins universities and is at work on a book about conflict between medicine's therapeutic and public purposes.

WASHINGTON — The U.S. system of workplace-based health insurance is at risk of coming apart. Employers are looking to shift more of their rising medical costs to workers, and despite soft labor markets, many employees are saying no.

The fringe-benefit gurus who advise the largest companies didn't anticipate fierce worker resistance, just as they failed to foresee the late-1990s backlash against managed care. Instead, they told their clients to take more from workers' paychecks for medical insurance premiums and require people to pay more out of pocket to doctors and hospitals. Give employees financial responsibility, the consultants predicted, and they and their families would weigh benefits against costs better than HMO bureaucrats did.

Accordingly, well-meaning employers and consultants devised Web-based health-care "decision tools" and demanded that doctors, hospitals and health plans report on their clinical performance. The idea -- or fantasy -- is to motivate health-care consumers by passing them a share of the bill, then to give them the know-how they need to opt for "value."

It's a good story line. But it's faring poorly at the box office. Unions are fighting corporate efforts to shift costs to employees in the form of larger contributions toward premiums and higher out-of-pocket payments to providers. Union members are telling their leaders they'll settle for lower pay raises to preserve coverage that shields them from the need to weigh costs against the health of loved ones at times of medical crisis.

But unions represent only 10% of private-sector employees. In the nation's mostly nonunionized workplaces, the employee share of both premiums and payments to caregivers is growing. And employers are finding ways to avoid covering low-wage, less-skilled workers. They're making new workers wait months to become eligible for coverage, hiring part-timers without offering benefits and farming out jobs to independent contractors.

A recent study led by health economist Sherry Glied, who advised President Clinton and the first President Bush, found that large companies are increasingly using these methods. Between 1987 and 2001, the fraction of large-firm workers without health insurance rose by 57%, more than double that for small-firm employees. This year, according to the Kaiser Family Foundation, large companies are three times as likely as small ones to say it's "very likely" they'll raise employee contributions toward premiums for the coverage they still offer.

Meanwhile, prices for coverage outside the workplace are soaring. The upshot is that Americans face growing incentives to "go bare" and to take their chances without employment-based or individual coverage. The rising number of uninsured Americans -- nearly 44 million at last count -- suggests that more people are doing so.

For healthy Americans, this isn't a senseless gamble. If you're young and genetically lucky, why lose hundreds, maybe thousands of dollars a year by contributing to a medical risk pool you're unlikely to tap? The trend toward higher annual deductibles before health insurance kicks in makes this gamble even more attractive, as do higher out-of-pocket co-payments once deductibles are met.

But when healthy people abandon the risk pool, medical insurance markets break down. Those who stay in are sicker, so they push per-person costs (and premiums) higher. Rising premiums, in turn, prompt others to quit the risk pool, fueling a vicious cycle that pushes still more people into the ranks of the uninsured. Hiking co-payments and deductibles only feeds this cycle by making coverage less appealing to all except those most likely to tap it.

To the extent that people are personally responsible for their illnesses, there's a case for basing premiums on medical risk. Consider, by analogy, fire insurance. People who build or buy homes in fire-prone wild lands should pay more per dollar of coverage than those who don't, so that their decisions about where to live reflect the higher costs associated with fire risk. Similarly, overweight boomers who eat brie (without drinking red wine) should perhaps pay more for medical insurance than their trim, toned, cross-trained age peers.

For the most part, though, the analogy between medical and fire insurance fails. Connections between conscious decisions and bad outcomes are typically more remote for health than for fire risk. Blind luck, both genetic and environmental, plays a large role in determining the incidence of disease. Behavior and lifestyle matter, but their connection to ill health is usually a long-term affair. Lifestyle changes are both difficult to make and unlikely to yield immediate, large-scale health benefits.

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