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Health
Care Costs Rocket Employees
Vs. Employers
New
Workforce Offerings
HR
Technology Saves Money
CRITICAL
ILLNESS<
Perfect
Storm strikes CEO's
FAQ
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WHAT
YOU SHOULD KNOW ABOUT
HEALTHCARE COSTS
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by
Edward J. Carels, Ph.D.
CEO of Medismart, Inc.
and Healthmoney, Inc.
Americans spend nearly
$300 billion annually on
out of pocket health care
expenses or nearly $1,000
per person. Most of this
is paid for at full
retail prices. In 1960,
56.3% of the healthcare
bill was paid by
consumers out of pocket.
The nation spent $26
Billion on health which
was 5.1% of GDP and $141
per capita. By 2000, only
17.5 % of the bill was
paid for by consumers out
of pocket. In 2000, the
Nation's health bill was
$1.5 Trillion which
increased to 15.9 % of
GDP and $5,198 per
capita. Clearly, as
consumers paid less of
the bill and Third
parties paid more the
costs increased
exponentially. The amount
of money spent on health
care is now 56 times more
than in 1960. The Dr. no
longer works for the
patient. Third party
gatekeepers employed by
HMOs and insurance
largely dictate what
services are needed and
how often. Neither
consumers or providers
have much incentive to
control costs or
utilization of healthcare
services
Most Americans have not
had to worry much about
healthcare costs. They
have an insurance plan at
work. The employer has
historically paid most of
the claims. American
workers were
"covered" and
most of their health care
was "free" so
they had no incentive to
reduce utilization.
What caused the explosion
of healthcare costs.
Three key things. First,
we abandoned the free
market for a government
sponsored or employer
sponsored prepaid plans
where most things were
assumed to be
"covered". What
this meant was
individuals no longer
paid the bills. They no
longer cared what things
cost. Also, more and more
things were added the
covered list which are
not insurable events,
i.e. dental visits,
eyeglasses, etc. An
insurable event is
catastrophic, infrequent,
and not under control of
the patient We have
migrated from true
insurance to benefits
which is really a form of
taxation on employers.
Second, we expanded the
role of government in
paying the bills. By
1997, government and
other public (tax based
plans) accounted for
46.4% of the total health
care bill. Government
expenses have continued
to rise while private
payments have been
reduced. Third,
technology exploded. New
and better diagnostic and
therapeutic interventions
were developed. And
everyone demanded access
to the best regardless of
cost.
As a result what are the
key concerns of most
working Americans?
According to the HIAA
Source Book on Health
Insurance Data,
1997-1998: 71% believe
medical care costs are
too high: 7.69% worry
about losing health care
coverage because of a job
change. 8.69% agree that
quality care is no longer
affordable. It is truly
amazing at how many
Americans believe in Free
Lunch.
What is the Future of
Healthcare Finance
With the recent implosion
of HMOs in many markets,
employers and the
government face huge rate
increases for health
insurance. Health care
costs are projected to
double by 2007.
Employers, consumers and
government would be wise
to install medical
savings accounts and
medical reimbursement
accounts as an option to
all Americans. It is
clear from the past 40
years that when Americans
paid most of the bill,
things cost much less.
Advantages of the MRA
The MRA has a number of
advantages to any
organization trying to
reduce healthcare costs
and create new incentives
to reduce utilization of
services. Here are a few
of the advantages:
The third party payer
problem is redressed.
With the MRA the
traditional buyer-seller
relationship in the
marketplace is
reestablished. Remember
when consumers paid over
half the Nation's health
care bill healthcare was
much more affordable for
the average American.
Demand for services are
not artificially
inflated.
When consumers get to
keep the MRA funds they
don't spend, they are
simply more inclined to
check prices and bills
and work to keep costs
down.
No limits are imposed on
choices of doctors,
hospitals, and
specialists.
Individuals and providers
make healthcare decisions
not some distant
bureaucrat.
By returning health care
money and therefore
decision making power to
patients we restore
doctor patient
relationship as well as
stimulate true
competition in the
system. True competition
has been virtually lost
in the health system and
will lead to increased
costs in the absence of
managed care pressure on
rates.
Research has shown that
MRA and MSA type plans
save money for both the
employer and employee. A
study of 27 Ohio
companies with MSA/MRA
plans when compared to
traditional fee for
service plans in other
companies found a
employees saved an
average of $317 and $1355
was saved for a family.
Additionally, when the
individual and family
MSA/MRA plans were
considered together,
employers health care
costs were about 12%
lower than with a
traditional plan.
A Rand study found that
when people spend their
own money on health care,
they spend 30% less with
no adverse effects on
their health. The MRA
will benefit the highest
risk and less wealthy
patients when compared to
the HMO. Another study by
the Rand Corporation also
showed that patients who
pick the MSA/MRA plan
were the highest risk
patients and were
considerably less wealthy
than those who chose HMO
coverage. Rand concluded
that HMOs were indeed
more attractive to
healthier and wealthier
workers.
A study conducted by
Milliman & Robertson
on the efficacy of the
MSA/MRA model to Medicare
concluded that an
estimated 50% would
choose the private option
(take the MSA/MRA plan if
offered) with that number
increasing to $200
Billion over the next 7
years. The study
concluded that these plan
shifts would decrease
Medicare spending by $200
Billion over the next
seven years.
A simple study
demonstrating the power
of incentives in the MRA
compared a matched group
with a standard cafeteria
plan to one with an MRA.
Each group received
$3,000 at beginning of
year. The MRA employees
were told they could keep
the money left while the
other employees were
informed they would lose
any monies not spent.
Results showed that 75%
of employees in the MRA
had money left in their
accounts by yearend.
Virtually all the money
was used in the
traditional cafeteria
plan group. Utilization
patterns change when the
incentives change.
Actuarial studies have
shown across America that
on average 50% of workers
do not submit claims in a
year. Another 30% submit
claims under $600. This
leaves the remaining 20%
of workers who consume
most of the healthcare in
this country. If the
average worker were shown
the actual mathematical
figures for a 40 year
work career, they would
quickly realize that they
would be far better off
if they had a Medical
savings option instead of
sending all that premium
to cover themselves and
their families each month
to an insurance company.
Using the same rationale
as the IRA, the medical
savings plan would
provide a means for many
workers to save enough
money to protect
themselves in the event
of catastrophic illness
later in life.
Actual Experience of
Employers
A number of employers
have applied the MRA/MSA
concept to their own work
force with very positive
results:
In 1982, Quaker Oats
established a high
deductible policy and
paid $300 a year into the
personal health accounts
of each employee, who got
to keep any unspent
balance. As a result over
the next decade, the
company's health care
costs grew an average of
6.3 % per year while
premiums for the rest of
the country grew at
double- digit rates.
Forbes pays employees $2
for every $1 of medical
claims they do not
submit, up to a maximum
of $1,000. Health costs
at Forbes fell 17% and
12% in 1993. Steve Forbes
is an active supporter of
the MSA/MRA concept.
Dominion Resources, a
utility holding company,
deposits $1,620 a year
into a bank account for
the 80% of employees who
choose a $3,000
deductible rather than a
low deductible. The
company experienced no
premium increase for
several years while other
employers faced annual
increases of 13%.
Golden Rule Insurance
Company deposits $2,000 a
year into MSAs for
employees who choose a
$3,000 family deductible.
In 1993, the first year
of the plan, the company
reduced its healthcare
costs by 40%.
Singapore has had MSA
plans for over 12 years.
They have worked to keep
health care costs
controlled. As a result,
the length of hospital
stays in Singapore is
about the same as the
length of hospital stays
in the US for HMO plans
and well below that of
other plans in the US.
Workers and employers pay
into a central savings
fund and 6% goes into the
Medicine account. Besides
reduced costs for
healthcare, Singapore has
the highest home
ownership in the world
and the highest savings
rate 48% of GDP compared
to the USA's at 12%.
Employers and individuals
have found they can save
money on healthcare by
also buying a healthcare
discount card covering
many of the things not
covered by insurance.
Since most of the $300
Billion is spent at full
retail, a discount card
can make the MSAor MRA
money go much further.
The alternative to MSA
and MRA options is to
socialize the healthcare
system as has been done
in many other countries.
In France, where
healthcare is
"free", the
French pay 54% in income
tax; 19% value added tax
on purchases and must pay
tax on everything they
own (homes, cars, rings,
etc.) for as long as they
own them. If you think
healthcare is expensive
today in America, wait
until its free.
Summary- These type plans
allow employees to: !)
save money in an amount
directly related to their
own efforts; 2) seek
medical care without
considering traditional
out-of -pocket
deductibles; 3) use their
medical savings to buy
services not covered by
the employer's plan; and
4) consult any doctor
they choose.
Defined Contribution
Movement
America's health care
system is beginning a
paradigm shift toward
defined contribution and
away from HMO management.
Patient Rights
legislation has
highlighted the problems
inherent in the
bureaucratization of
healthcare under HMO
dominance for the past
two decades. Many people
were denied access to
needed care. On the other
end of the spectrum, the
HMO tried to cover
virtually everything at
little or no cost to the
consumer. This has proven
to be the equivalent of
pulling three pounds of
potatoes out of a two
pound sack. $10 co-pays
to see a doctor with
little or no deductibles
helped create a demand
for non-life-threatening
services beyond fiscal
and at times medical
resources available. Now,
employers are realizing
that one size may not fit
all people.
A study released by
Benefits Access (a Cigna
Company) showed that 60%
of human resources
executives at America's
mid sized companies wish
they could empower their
employees to make their
own benefit decisions.
Covering more than 900
companies in a variety of
industries across the
country, 60% of HR
executives wished they
could provide employees
with enough information
to make their individual
benefit decisions
"and leave the rest
to them." The reason
in part is that HR staffs
nationwide cannot keep up
with all of the
complexity in health
benefits management. And
that management costs
money. Most HR
departments simply don't
have enough staff or
enough time to counsel
each employee about
complicated benefit
choices. The defined
contribution movement
will be further propelled
by the fears many
employers have that the
Patient Rights Bill will
expose them to lawsuits
if an employees health
care results in a lawsuit
against the insurance
company or HMO and the
employer.
# # # # #
About the Author
Edward J. Carels, Ph.D.
is the CEO of Medismart,
Inc. and Healthmoney,
Inc. Medismart markets
Medical Savings Accounts
and Medical Reimbursement
Accounts to employers and
individuals. Healthmoney
markets five different
healthcare discount cards
providing access
discounts of up to 40%
off from 350,000
providers nationwide.
These providers include
hospitals, MDs, dentists,
chiropractors,
optometrists, pharmacies,
etc. A thorough review of
both MSA and discount
card products is
available at
Healthmoney.com or can be
reached at
1-888-Medismart.
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