The coming year may be a year the private health coverage market looks about the way it looked in 2007, but with higher costs and more campaign speeches.
For the past few years, the big question about the health insurance market has been whether “consumer-driven” health plans that combine high-deductible health coverage with health savings accounts or health reimbursement arrangements would bring about a revolution.
The question is still open.
About 37% of large and midsize employers now offer HSA plans or other health account plans, up from 28% in 2006, according the consulting arm of Aon Corp., Chicago, and the International Society of Certified Employee Benefit Specialists, Brookfield, Wis.
Employee uptake has increased more slowly. The Henry J. Kaiser Family Foundation, Menlo Park, N.J., and the Health Research & Educational Trust, Washington, found when they surveyed employers that the percentage of group plan members actually enrolled in health account plans increased to 5% in 2007, from 4% in 2006.
Efforts to measure the effects of HSAs and HRAs show that health account plans have had some success at holding down increases in medical costs.
Health account plan medical costs will increase about 7.4% in 2008, compared with an increase of about 11% in 2007, while preferred provider organization plan costs will increase about 9.9%, down from a 2007 increase of about 12%, according to analysts in the New York office of PricewaterhouseCoopers L.L.C.
CIGNA HealthCare, Bloomfield, Conn., a unit of CIGNA Corp., Philadelphia, says its own experience suggests that well-designed health account plans cut the annual increase in underlying medical costs about 12% in the first year and 5% in the second year the plans are in effect.
Some experts say health account plans are having less of an effect on costs than they could because of factors such as patient confusion.
Only 50% of health account plan members say they are satisfied or very satisfied with the ability of their current plans to protect them against the risk of major health care costs, compared with 65% of the tradition plan members, according to Towers Perrin Inc., Stamford, Conn.
Although more than 70% of the satisfied health account plan members say their plans are easy to understand and use, only 16% of the dissatisfied health account plan members say they understand their plans.
Despite the growing pains in the health account plan market, rising small group coverage costs are keeping small employers from adding health benefits as frequently as they used to, and that shift will continue to send workers into the individual health market in 2008, says Jeffrey Smedsrud, a senior vice president at Independence Holding Company, Stamford, Conn.
“I don’t really see anything stopping that trend over the next many years,” he says.
In place of traditional “major medical” plans, many employers probably will shift to offering narrower, higher-deductible “moderate medical” plans, and that means that even employees who continue to have group coverage will be looking for employee-paid supplemental products that can help pay deductibles, co-payments and other costs not covered by employer plans.
In this kind of changing environment, at a time websites can handle simple coverage sales, health insurance producers “need to be more than just a warehouse for pricing data,” Smedsrud says.
Other forces that could rattle the U.S. health insurance market in 2008 include the presidential and congressional campaigns and interest in Massachusetts’ “universal health” program.
Democrats, Independents and Republicans all list Iraq as the issue they most want to hear candidates talk about and health care as the issue they are second most interested in hearing about, according to the Kaiser Family Foundation.
In the past, the “health reform” debate usually pitted advocates of European-style “single-payer” national health care systems versus advocates of preserving the U.S. health insurance market in its current state.
America’s Health Insurance Plans, Washington, and other groups have since drawn attention to two other: Promoting use of health account plans, or having the government set up “buying clubs” similar to the Federal Employees Health Benefit Program or the Medicare Advantage program that would help consumers bargain for more affordable, higher-quality coverage options.
This year, critics of the buying club approach have used allegations of marketing problems at the new Medicare Advantage private fee-for-service plans to raise questions about how the MA program as a whole has served consumers.
But, even though U.S. health costs are high by world standards, the rate of increase has been about the same in the United States as in other developed countries over the past decade, and some European countries are showing an interest in the buying club approach. The United Kingdom, often cited as an example of a country with a slow but inexpensive single-payer health care system, recently emulated the buying club approach by hiring 14 private companies-including units of Aetna Inc., Hartford; Humana Inc., Louisville, Ky.; and UnitedHealth Group Inc., Minnetonka, Minn.-to set up “primary care trusts” that will develop local health plans in the U.K.
Most of the Republican president candidates have based their health care proposals on some version of the health account concept.
The three candidates leading the Democratic pack at press time-Sen. Barack Obama, D-Ill., Sen. Hillary Clinton, D-N.Y., and John Edwards, who once represented North Carolina in the Senate-have proposed health reform plans that emulate the buying club approach.
In the United States, Massachusetts has implemented a buying club system, the Connector. The state also has created penalties for large and midsize employers that fail to provide health coverage and for uninsured individuals who fail to buy coverage through the Connector or some other vehicle.
The 2007 tax penalty for individuals who fail to meet coverage ownership requirements will be $219, officials say.
Massachusetts officials say the state’s health reform effort-which was supported by former Gov. Mitt Romney, who is now a Republican presidential contender-has helped 293,000 residents get health coverage or get more affordable coverage.
Although Massachusetts helps consumers negotiate with health plans, the state is not setting limits on increases in the cost of coverage purchased through the Connector.
Some participating carriers have asked for increases as high as 14%, and state officials are talking about requiring insurers to explain increases that exceed 5%, according to the Foundation for Taxpayer and Consumer Rights, Santa Monica, Calif. The taxpayer foundation is criticizing efforts to set up a health coverage mandate in California without restricting price increases.
“It’s outrageous that California lawmakers are closing their eyes to the fact that Massachusetts is burdened with out-of-control costs in a program that is just 6 months old,” Carmen Balber, a foundation representative, says in a statement. “Massachusetts’ experience shows that higher premiums and eroding benefits are certain under an insurance mandate that does not require health insurers, or the rest of the medical industry, to open their books and justify costs.”
But for now, the Connector system does seem to be helping Massachusetts residents who need individual health coverage without having much effect on employers, says David Proctor, president of Proctor & Company Insurance Agency Inc., Natick, Mass.
Massachusetts used to be a guaranteed issue state for individual health insurance, and Proctor sold individual health insurance only as a public service. “It was painful to do that,” Proctor says.
Now that the reforms have taken effect, the group market is about the same as it was, and the shift “really hasn’t changed our lives a heck of a lot,” Proctor says.
The new program lets insurers charge higher rates for older applicants, and one concern is that consumers are just beginning to understand the implications of that change, Proctor says.