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BEGINNING IN 1961—and for the 48 years that followed—I administered, designed, managed and negotiated health plans covering some 40,000 employees. In the late 1970s, cost became a growing issue. Over the years, we tried every trendy thing to control costs, from HMOs to wellness programs to shifting costs to employees. Nothing worked then and nothing seems to work today.
Before you jump to the most common conclusion, there was no insurance involved in any of the plans I managed. Instead, they were all self-funded by the company. The claims administrators we hired were at no financial risk from claim payments, had no incentive to deny claims and didn’t set premiums.
Today, a common focus is on insurance premiums and insurance companies. Indeed, many people see insurance as the problem. It isn’t. Our problem is how we use health care. That’s what drives premiums and that’s what we must deal with. Changing how Americans use health care and their expectations for the health care system isn’t easy.
It has been estimated that up to $25 billion annually is spent on health care that’s low value or unnecessary. Sound high? Maybe not. The Institute of Medicine estimates that $210 billion is spent needlessly on medical testing and medical care annually in the U.S. Who knows what the right number is? But one thing is certain: Unnecessary care—often expected, if not demanded, by patients—not only costs money, but can also harm patients.
Americans are desperate for an answer to high costs. A growing movement sees a universal health plan in the U.S. as the solution. You might even have heard the popular acronym M4A—Medicare for All. As we debate our next move, however, we shouldn’t think we can merely apply European solutions to Americans, because there are major differences in attitudes toward health care spending.
The cost of M4A is frequently stated as a cost to the federal government. But we all know where the government gets its money: through taxes or borrowing. What I think most people don’t understand is that no matter the cost, including any overall savings, most Americans will be trading today’s highly variable health care costs for fixed costs—in the form of higher taxes.
The reality is, in any given year, most Americans have no significant health care expenses. For example, in 2015, half the population accounted for 97% of health spending. The 5% of people who are the biggest consumers of health care spend an average $51,000 annually. People in the top 1% have average spending of more than $112,000. At the other end of the spectrum, the 50% of the population with the lowest medical expenses accounted for just 3% of total health spending. The average amount spent by these folks was $277.
That brings me to two health plans offered on the health care exchange in my area. As you’ll see, there’s a tradeoff between monthly premiums and potential out-of-pocket (or OOP) costs—the key word being “potential.” If you had high medical bills, which plan would you choose? Many people will look at the Gold plan’s lower deductible and OOP limits, and conclude that’s the plan they need. People are overly afraid of health care bills and incorrectly believe that there’s a high risk of such bills.
Plan GOLD BRONZE
Family Deductible $2,000 $6,000
Family OOP 10,000 13,000
Monthly Premium 1,867.88 643.28
But the fact is, even if a family incurred $1 million in bills, the Bronze plan is still the better deal. They save $14,695 in annual premiums, far more than the potential additional OOP costs. If they chose the Bronze plan and, in the first year, saved the premium difference, perhaps in a Health Savings Account, they could easily manage routine OOP costs for several years and still save lots of money. For most families, the Bronze plan is the right choice.
What’s my point? Americans want access to top-notch health care and worry greatly about medical bills—but, in the end, most don’t spend very much. Now, imagine we implemented an M4A-type plan. There may be overall cost savings. Still, most Americans will end up paying more each year in additional taxes than they currently pay in premiums plus OOP costs. This is especially true if their premiums today are subsidized by their employer. They’ll effectively end up paying for the Gold plan, regardless of their health care needs.
To be sure, an M4A-type program has the very important advantage of universal coverage. But there must be tradeoffs to make it affordable and sustainable. To manage costs would require managing health care in ways quite similar to what insurers do today. Americans who believe they can pay a little extra in taxes and get free, unlimited health care are likely to be disappointed.
Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Viva Las Vegas, Running in Place, Tortoises Needed and That’s Rich. Follow Dick on Twitter @QuinnsComments.
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Americans seem to consume most things without reflection including health care.
The youth of America get little exercise; many don’t even go outside. Just look at the trend with Type 2 diabetes! And while we cannot turn back the clock, we can get young people moving, active, and more attentive to their diet. This could eventually turn the tide and reduce the high cost of fixing unhealthy people.
“Still, most Americans will end up paying more each year in additional
taxes than they currently pay in premiums plus OOP costs. This is
especially true if their premiums today are subsidized by their
employer.”
Interesting tacit assumption – that the employers will simply pocket the money that they would have spent on premiums, instead of paying it directly to their employees (or increasing tax-favored benefits like HSA or 401k contributions), and instead of paying it as extra taxes (similar to the current ACA penalty for not providing coverage).
Also interesting is the objection to people paying more in order to ensure that all people get needed care. Under the ACA, the only ones who really pay more are the unsubsidized, healthy subscribers. Under M4A, this burden would be spread across all taxpayers, including those who currently get coverage through their employers. Seems fairer to me.
“most Americans will be trading today’s highly variable health care costs for fixed costs”. Isn’t that the idea of insurance? That we spread the risks. And trade highly variable costs for fixed premiums even though we expect those premiums to never pay off (e.g. fire insurance).
IMHO, the entire discussion of insurance as insurance is a red herring. So long as costs remain the same, we’re just considering where to place the chairs on the deck of the Titanic. The focus needs to be on cost containment.
To the extent that the ACA has cost containment measures, they tend to be concentrated on Medicare. Medicare is a big enough elephant to push payment for results as opposed to payment for services. For example, the ACA added a Medicare program to bundle payments for all services related to a patient’s hospital stay. M4A could make it easier to implement such approaches for many more people.
Maybe then we might see hospitals sharing expensive equipment, instead of each buying its own. Right now, hospitals spend money drumming up business in order to cover the cost of such equipment. With a payment system that focused on results maybe the health care industry could get back to health CARE.
P.S. I get your point that people expect “free, unlimited health care”. The thing is, care under Medicare isn’t free. There’s a 20% copay. That’s more than your gold plan, and it isn’t capped (unlike all ACA plans). I’m happy to engage in a dialog on how to manage expectations; that is indeed another aspect of cost containment.