Pulling It Together: What Do We Want Health Insurance To Be?

Trends in the health insurance marketplace show substantial growth in high deductible health plans, especially among smaller firms, where 35% of workers are now covered by plans with a deductible of $1,000 or more. That’s according to our recently released employer health benefits survey, which we have been conducting now for ten years. The majority of these plans are simply high deductible health plans; only a minority are so-called “consumer driven” plans with savings accounts. The percentage of workers in firms with high deductible plans has almost doubled in the last two years.

There are several important messages here. First, while enrollment in plans with savings accounts is growing modestly, the larger trend is simply towards more bare bones high deductible plans with no savings accounts or consumer-driven features to help employees cover out-of-pocket costs. Second, the health insurance people get from smaller employers, if they get it at all, increasingly looks very different from the coverage workers get from large employers; it looks much more like the insurance people get in the non-group market. A recent analysis by our researchers showed that people in the non-group market shouldered 43% of their health costs out of pocket compared to 22% for people in employer plans. Third, people are paying more for their health care at the worst possible time, when their wages are flat, energy and food prices are up, 401ks are falling, and many face problems paying the rent or mortgage or credit card debt. Small wonder so many Americans in our tracking polls name paying for health care and health insurance as one of their top economic problems.

For as long as I have been in the health care field, there has been debate between experts about how much health insurance people should have. Some — typically conservatives — argue that we are over-insured, and that if people saw more of the costs of health care themselves they would consume it more prudently, use less health care overall, and we would spend less on health care  as a nation. They also believe that making more bare bones options available in the market will enable more people to afford coverage. The liberal view is generally that if people paid more of the cost of health care they would be even more exposed than they are today to financial hardship, access would suffer, and low-income people and the chronically ill in particular would be hit the hardest. They also believe that offering less comprehensive insurance options will split the risk pool further, driving up costs for those who remain in more traditional comprehensive plans. They advocate providing more comprehensive health insurance along with generous subsidies so that it is affordable for low-income individuals and families. These differences on what the nature of health insurance should be are reflected in the candidates’ positions. Senator Obama favors comprehensive coverage similar to the coverage Federal employees and members of Congress get. Senator McCain is proposing fixed dollar tax credits, in part, he has said, as a way to encourage people to buy high-deductible plans with savings accounts.

No doubt there are elements of truth on both sides of the argument of the comprehensive versus less comprehensive health insurance debate, but one thing is just common sense: skimpier insurance with higher deductibles is simply cheaper, as smaller employers have discovered, but it also shifts more of the burden of paying for care to working people. And, while the troubled economy is one of the main impetuses behind the desire by employers to cut costs, it also means that employees are facing an extra burden at the same time as they are under intense financial pressure across all fronts.

Ultimately the comprehensive versus less comprehensive insurance question frames a fundamental tradeoff that is almost never stated clearly in public debate, perhaps because it is regarded as too stark for the public to digest.

• Do we want and can we afford to provide subsidies to make more expensive comprehensive coverage, from preventive to catastrophic care with more modest out-of-pocket costs, affordable for people who are already struggling from the burden of health care costs?
• Or should government subsidies and tax policies encourage less comprehensive and somewhat cheaper insurance with higher deductibles, higher out-of-pocket costs for routine care and back-end catastrophic protection?

Answering this question explicitly would force us as a nation to more clearly point out who would win and who would lose if we move further in either direction. The answer also will frame broader discussions about how the nation will attempt to contain health care costs and whether we want to do it primarily by influencing demand using insurance as a lever or by other means.

Currently, the marketplace is edging towards less comprehensive coverage as employers, especially smaller employers with few other options, seek to reduce their health premiums. The question is whether we will have a national discussion of what we want health insurance to be, or if this fundamental question will remain the elephant in the room in the health reform debate that we never really talk about.