[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 108-691
THE PERFORMANCE AND POTENTIAL OF CONSUMER-DRIVEN HEALTH CARE
=======================================================================
HEARING
BEFORE THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
FEBRUARY 25, 2004
__________
Printed for the use of the Joint Economic Committee
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Robert F. Bennett, Utah, Chairman Jim Saxton, New Jersey, Vice
Sam Brownback, Kansas Chairman
Jeff Sessions, Alabama Paul Ryan, Wisconsin
John Sununu, New Hampshire Jennifer Dunn, Washington
Lamar Alexander, Tennessee Phil English, Pennsylvania
Susan Collins, Maine Adam H. Putnam, Florida
Jack Reed, Rhode Island Ron Paul, Texas
Edward M. Kennedy, Massachusetts Pete Stark, California
Paul S. Sarbanes, Maryland Carolyn B. Maloney, New York
Jeff Bingaman, New Mexico Melvin L. Watt, North Carolina
Baron P. Hill, Indiana
Donald B. Marron, Executive Director and Chief Economist
Wendell Primus, Minority Staff Director
C O N T E N T S
----------
Opening Statement of Members
Senator Robert F. Bennett, Chairman.............................. 1
Representative Pete Stark, Ranking Minority Member............... 4
Witnesses
Statement of Dr. Arnold Milstein, M.D., MPH, Physician
Consultant, Mercer Human Resources Consulting, San Francisco,
CA............................................................. 6
Statement of John M. Bertko, F.S.A., MAAA, Vice President and
Chief
Actuary, Humana, Inc., Louisville, KY.......................... 8
Statement of Howard Leach, Human Resources Manager, Logan
Aluminum, Inc., Russellville, KY............................... 10
Statement of Gail Shearer, Director, Health Policy Analysis,
Consumers Union, Washington, DC................................ 12
Submissions for the Record
Prepared statement of Senator Robert F. Bennett, Chairman........ 35
Chart entitled ``Out-of-Pocket Spending Falls as Per-Capita
Spending Climbs''.......................................... 36
Prepared statement of Representative Pete Stark, Ranking Minority
Member......................................................... 37
Prepared statement of Dr. Arnold Milstein, M.D., MPH, Physician
Consultant, Mercer Human Resources Consulting, San Francisco,
CA............................................................. 37
Article entitled: ``The Effect of Incentive-Based Formularies
on
Prescription-Drug Utilization and Spending''............... 43
Prepared statement of John M. Bertko, F.S.A., MAAA, Vice
President and Chief Actuary, Humana, Inc., Louisville, KY...... 52
Prepared statement of Howard Leach, Human Resources Manager,
Logan Aluminum, Inc., Russellville, KY......................... 58
Prepared statement of Gail Shearer, Director, Health Policy
Analysis,
Consumers Union, Washington, DC................................ 61
Consumers Union Testimony on ``Consumer-Driven'' Health Care. 61
THE PERFORMANCE AND POTENTIAL OF
CONSUMER-DRIVEN HEALTH CARE
----------
WEDNESDAY, FEBRUARY 25, 2004
Congress of the United States,
Joint Economic Committee,
Washington, DC
The Committee met at 10:02 a.m., in room SD-628 of the
Dirksen Senate Office Building, the Honorable Robert F.
Bennett,
Chairman of the Committee, presiding.
Senators present: Senator Bennett.
Representatives present: Representatives Ryan, English and
Stark.
Staff present: Tom Miller, Leah Uhlmann, Donald Marron,
Colleen J. Healy, Mike Ashton, John McInerney, Wendell Primus,
and Frank Sammartino.
OPENING STATEMENT OF SENATOR ROBERT F. BENNETT,
CHAIRMAN
Chairman Bennett. The hearing will come to order.
Mr. Stark is on his way, I understand, and other members of
the Committee will come and go as their schedules permit.
We'll get started because we potentially have a Senate vote
that may interrupt us.
But we're grateful to the witnesses who are here to examine
this issue, which is a very important issue.
We're facing a significant challenge in this country to
keep health care affordable. For many years, our health care
spending has grown at a significantly faster rate than the
economy, and all projections are that this will only continue.
And I believe it was Herb Stein, the economist, who said
``When something can't go on''--as people are saying about
increasing health care costs--``it won't.'' Something that
can't go on will, of its own weight, fall. And I would rather
that we do something about health care spending to bring it
under control than to just let it go forward until it does fall
of its own weight with catastrophic results.
Now in recent years, we've enjoyed amazing advances in
medical technology that have extended and greatly improved our
lives. And medical procedures, as we've experienced this
technological revolution, have become less expensive and less
invasive.
But as we discovered at our last hearing on this subject
last summer, we found an interesting paradox. And it seems
counter-intuitive, but the data are clear--as costs for medical
procedures go down, and the delivery of health care
correspondingly becomes more efficient, overall costs go up.
Now much of this disconnect can be attributed to the
difference between the amount consumers pay and the actual cost
of the technology, because we found as we got into that, that
as the cost of individual procedures go down, the number of
procedures go up more dramatically than the cost comes down,
which means more people choose it, which means overall costs
rise.
Now some people might not choose expensive procedures if
there was an economic incentive that entered into their choice.
And because of comprehensive insurance and other programs,
we've created the notion in people's minds that, ``someone
else,'' is paying for our health care.
And we therefore have an economic incentive to use more and
more health services.
In other words, insured people are buying greater amounts
of medical services, which contributes to the higher insurance
premiums and the overall health care costs. And, paradoxically
again, as this happens, we're buying more and more insurance,
more and more people can't afford it, or their employers feel
that they can't afford it, and so the number of uninsured goes
up.
Now we have a chart here that illustrates, I think, the two
trends. The dark blue line is a figure in dollars that shows
the amount of per capita health care costs overall, starting
with the 1960s, the decade in which we went to Medicare.
[The chart entitled ``Out-of-Pocket Spending Falls as Per-
Capita Spending Climbs,'' appears in the Submissions for the
Record on page 36.]
And the overall costs have been going up very dramatically,
higher than the economy is growing, higher than our incomes
have grown, higher just about than anything else.
And we are now at the point where everybody says our
number-one cost problem is increasing health care.
The orange line is in percentages, not dollars. So at first
glance, this might be a little misleading. The orange line
shows the percentage of the at-point-of-service, out-of-pocket
costs that people pay.
In 1960, it was about 50 percent. When you went to the
doctor or you went to the hospital or you went somewhere, you
paid about 50 percent of the cost yourself and the other 50
percent was covered by your health care plan.
And as we can see the orange line coming down, that number
is about 15 percent today.
So if there was an economic incentive back in 1960 either
to stay healthy in the first place, or to make wise choices as
to what costs you would incur in the second place, that
incentive has gone down very dramatically.
I'm not sure we can make a direct cause-and-effect
relationship between these two lines. It's always dangerous to
put two lines on a chart and say one is causing the other.
But, nonetheless, it's something that we should consider
and pay some attention to.
Given the rapid rise of the line on the bottom, the dark
blue line that every employer talks about as his biggest
economic challenge today, including the Federal Government, we
have to look for ways of limiting costs that are not Draconian.
We want to limit costs while improving access and the
quality of health care.
Now, as we've seen in other areas, cutting costs by
government fiat causes all kinds of market distortions. The
government can't keep up with the marketplace and cost
controls, regardless of the area, have never worked over time.
If prices are set too low, there's a shortage of providers
who say that they can't make a living at those low prices. If
prices are set too high, insurance companies are forced to
raise premiums and ration services to the patients.
So there are those who believe, and I am one of them, that
a better approach is consumer-driven health care.
We've had 2 years of experience now to look at the initial
attempts at getting consumer-driven health care off the ground.
And the purpose of this hearing is to look at that evidence,
look at that experience and see what it can tell us.
A consumer-driven approach to health care does restore to
consumers a degree of direct control over their health care
dollars which has been missing.
It provides them with better value and greater choice,
improved health and recognition of the true cost of the
services they demand.
So you can see, if the cost at purchase goes from 50
percent down to 15 percent, the true cost of what they're
getting gets lost in the minds of the consumer.
Consumer-driven health care offers a broad range of options
that encourages employees to take a greater role as informed
health care consumers in choosing their health plans and
benefit packages to health care providers and medical treatment
alternatives.
Another promise of consumer-driven health care is that it
can reverse a long-term trend that has combined more third-
party payment of health care bills with substantial hikes in
health care spending.
Now, in last December's Medicare Prescription Drug
Improvement and Modernization Act, health savings account
options that were severely limited before the passage of that
act have been expanded. And they give consumers even greater
ownership and control of their health spending dollars, which
might very well reshape the health care market.
So today's hearing will examine the performance of the
consumer-driven health care market over the last 2 years to see
how this new approach is developing in terms of levels of
enrollment, plan options, consumer satisfaction, and projected
growth.
And I'm very grateful to the witnesses that will be here to
help us understand what experience we've had and give us their
opinions as to what might happen in the future.
Our panel will include a number of perspectives on this:
Dr. Arnold Milstein, who is a physician; Mr. John Bertko, who
is an actuary; the benefits manager at a firm that has adopted
the consumer-driven health approach, Mr. Howard Leach; and a
health policy analyst for Consumers Union, looking at it from
the outside to see what the insiders may have missed, Ms. Gail
Shearer.
And we're grateful to all of you and look forward to what
you have to share with us today.
[The prepared statement of Senator Robert F. Bennett
appears in the Submissions for the Record on page 35.]
Chairman Bennett. Mr. Stark.
OPENING STATEMENT OF REPRESENTATIVE PETE STARK,
RANKING MINORITY MEMBER
Representative Stark. Thank you, Mr. Chairman, for delving
into this area.
I'm troubled by the title ``The Performance and Potential
of Consumer-Driven Health Care,'' because, having spent some
time in the health care policy area, I have yet to observe any,
``consumer-driven health care'' that's performed well.
Basically, the policies that the Administration is
suggesting we use are--what they really are are tax shelters
that require people to pay more for their health care so that
insurance companies' stockholders can get rich.
The high deductible defined contribution plans are not
consumer-driven, nor do they offer very much choice.
They simply shift costs to the consumers and force the
consumers to pay more out-of-pocket, often in many cases making
it difficult for the patients to actually get the care they
need.
I know the Chairman knows a great deal about the market,
free markets and the open markets that we have in this country.
But I know that he also knows, I think as an academic as I once
was in the field of marketing, that the consumers need reliable
information.
And I'm going to challenge the Chair, which I rarely would
do, and all of our witnesses, including Dr. Milstein, who might
have reason more than any others, and anybody else in the room,
to take the Stark Test, as I call it, and get a 95 percent
score, those of us who are somewhat experts in the area of
delivery of health care, to see if you could define for me what
your own health plan provides.
Tell me, first of all, how much it costs each month. You
may know your share of the payment, if any, but I doubt if
anybody in this room knows the cost--you and I don't--of our
own health plan. And then, what are the benefits?
We may know vaguely, Mr. Chairman, that it provides 80
percent or 90 percent of medical costs. Maybe 100 percent if we
go to an approved doctor. Roughly that it provides some
hospitalization.
I think, unless you or I or our family members, or the
panel's family members have been ill recently, you wouldn't
know. I could sure stump you on mental health benefits--how
many days do you get? Or unless you have a child who has
handwriting problems like mine, occupational therapy.
Most people don't know. They just don't know.
And I just approved it. I've arranged at Georgetown
Hospital--and I have a sign-up sheet here for all of the
panelists and for you and me, Mr. Chairman, and any of the
people here in the room today, as a courtesy of Georgetown
Hospital Medical Center, to get a half-price colonoscopy or pap
smear.
Do you want to sign up?
[Laughter.]
We don't do this.
Chairman Bennett. I got mine at Bethesda Naval Hospital.
[Laughter.]
Representative Stark. And you didn't pay anything. But we
don't want to buy this stuff. We want to buy a new car or a new
suit or a tie with elephants on it. I want to get one with
donkeys on it.
[Laughter.]
But if a doctor tells us to take a test, we'll take it and
hope we pass. But we don't know what the test is.
And I'll bet you in many cases--I don't know what specialty
Dr. Milstein has--but I'll bet you outside of his specialty, he
doesn't know what tests cost. And we patients don't.
What I'm suggesting is that, yes, the Internet is informing
us more and we're learning more. And with the all the
advertising that the pharmaceutical companies are presenting
us, we're asking our physicians to improve our life so that we
can leap through the tulips or get up there with the football
players or whatever.
But I suspect that it's annoying the doctors as much as
perhaps it annoys me for giving us that little bit of knowledge
which could be dangerous.
So while I believe in the free market, had some success in
it, I just do not feel that it is possible for us to learn
quickly or to take the information that is now available and
make reasonable choices.
The high deductible plans, in fact, will attract, because
of their tax features, those of us who are younger or who are
not very sick. But it may shift the responsibility and cause
additional illness and increase costs, because if people are
deterred from getting the care they need, they may end up being
sicker which will be more expensive in the long run.
So you can do better, Mr. Chairman. The problem that we
ought to look at, for instance, in pharmaceuticals, which is
driving most of the increased health costs for the past year or
two. And we ought not to refuse to allow the Secretary of
Health and Human Services to bargain and use his market clout
to buy pharmaceuticals for us at a lower cost.
He showed that he could do that in one drug not so long ago
and got a 50-percent discount. I want the Secretary's discount.
I don't want one of these cockamamie Buck Rogers Rocket Rangers
discount cards.
I want Secretary Thompson out there getting me discounts at
50 percent when I walk into Giant or Rite Aid.
I want him on my side. That's how we'll save some money.
But I look forward to what the witnesses have to say, and
this is an area which is very interesting to me and I look
forward to a stimulating hearing.
Thank you, Mr. Chairman.
[The prepared statement of Representative Pete Stark
appears in the Submissions for the Record on page 37.]
Chairman Bennett. Thank you very much.
I normally don't comment on Mr. Stark's comments, but I
must make this personal observation when he says we don't know
what things cost and we don't know what we ought to do.
Since Bill Frist has become the Majority Leader of the
United States Senate, every Senator, regardless of party,
philosophical orientation, state, what have you, gets a letter
from the Majority Leader telling him what tests he ought to
have, what screening he ought to go through, what he needs to
do to keep himself healthy.
And my only defense is that I keep telling Senator Frist
that he drinks too much coffee.
[Laughter.]
With that, we go to our witnesses. Let's go in this
direction, start with Dr. Milstein, and just go down all four.
And when we've heard from all four, then the question period
and discussion period will start.
Dr. Milstein, your resume is on the record. I won't take
the time to go through the credentials of each of you, because
we will stipulate that every one of you is brilliant and
properly prepared.
We appreciate your willingness to come here and share with
us your experience.
OPENING STATEMENT OF DR. ARNOLD MILSTEIN, M.D., MPH,
PHYSICIAN CONSULTANT, MERCER HUMAN RESOURCE
CONSULTING, SAN FRANCISCO, CA
Dr. Milstein. Thank you for the opportunity to summarize
early results from a study of consumer-directed plans that I
lead with researchers from the Harvard School of Public Health
and staff from Mercer.
We surveyed and received responses from more than 600 U.S.
health benefit plans and have been conducting in-depth
interviews with 15 consumer-directed plans that had preliminary
results.
We studied plans that incentivized consumers to select more
affordable and/or higher quality physicians, hospitals or
treatment options, including more self-management of health
problems, and that provided consumers with comparative
information on cost or quality.
We examined both portable account plans, such as health
reimbursement accounts, as well as tiered benefit plans in
which consumers pay either a lower premium or a lower cost at
the point of service if they select a more favorably-rated
provider or treatment option.
A summary of our more detailed findings and other related
published research is as follows.
Our first general finding is that the potential gain from
consumer-directed plans is large. If consumers were first well
informed about which physicians, hospital service lines, and
treatment options offered superior affordability and quality,
and second, were incentivized to select superior options, they
could both improve their quality of care and offset
biotechnology-driven increases in insurance premiums.
Additional gains from a more performance-sensitive consumer
market would be ongoing, as safer, more affordable health care
became a market imperative for physicians, hospitals and
treatment innovators.
Ongoing gains would include acceleration of the complete
process re-engineering of in-patient and ambulatory care as
described in the Institute of Medicine's ``Crossing the Quality
Chasm'' report.
In my testimony last month at the Senate HELP Committee, I
document why I estimate these potential sources of efficiency
capture equal 40 percentage points of current spending.
Our second general finding is that early attempts to
implement consumer-driven plans are indeed slowing health
insurance premium increases, but are falling short of this
potential.
Early returns suggest that consumers are accessing
available performance information, reducing their use of
services, and substituting less costly services for more costly
services.
Annual savings based on comparisons with concurrent
increases in other health benefit plans in the same geographies
center around 10 percentage points, net of reductions in
benefits coverage.
Lack of independent scientific scrutiny of the data
underlying these reported results and information voids about
important questions, such as the impact on quality of care,
indicate that there is more to learn before projecting the
results likely to occur for the entire U.S. population.
We estimate that enrollment in consumer-driven plans will
double in 2004 to something approaching 4 million individuals.
Of these, about one-quarter will be enrolled in HRA or
spending account type plans.
We also found that consumer-directed features such as
performance comparisons of doctors and of treatment options
were beginning to penetrate mainstream health plans.
Two structural limitations explain why early results are
not approaching their full potential.
First, many plans are making cost savings a lower priority
than the simpler goal of increasing consumers' use of
performance comparisons and consumer self-confidence in using
those comparisons to select better options.
Second, very few health plans have enough claims experience
with most individual physicians or individual hospital service
lines to quantify validly for consumers the comparative quality
of care or cost efficiency when treating a longitudinal period
of illness.
Imagine trying to select baseball players for an important
game if performance information was limited to one-quarter of
your players and for those players you had fielding averages,
but not batting averages.
Let me close by pointing out that there is an important
budget-neutral opportunity for Congress to reduce the
significant informational barrier to capturing the full
potential of consumer-directed plans.
Congress could clarify to CMS that nothing in the current
Privacy or HIPAA statutes was intended to block routine access
by private-sector health plans, whether sponsored by self-
insured employers, labor unions or health insurers, to the full
Medicare claims database as long as such access assures all
statutory beneficiary privacy protections provided for under
HIPAA and the Privacy Act, such as encrypted beneficiary
identifiers.
Such information access would enable all American health
plans to compare for consumers the quality and longitudinal
cost efficiency of physicians, hospitals by particular service
lines, and treatment options.
Precision in performance comparisons could be further
enhanced if CMS were to require modest expansion of hospital
and physician billing data as recommended by the Quality Work
Group of the National Committee on Vital and Health Statistics.
Thank you for the opportunity to summarize my more detailed
written testimony.
[The prepared statement of Dr. Arnold Milstein, M.D.
appears in the Submissions for the Record on page 37.]
Chairman Bennett. Thank you very much. And your testimony,
as submitted, will appear in the record.
Mr. Bertko.
OPENING STATEMENT OF JOHN M. BERTKO, F.S.A., MAAA, VICE
PRESIDENT AND CHIEF ACTUARY, HUMANA, INC.,
LOUISVILLE, KENTUCKY
Mr. Bertko. Good morning and thank you for the invitation
to present early experience with our consumer-centric health
insurance products.
I'm the Chief Actuary of Humana, which is one of the
country's largest regional insurers. We have about 6 million
total members and 3 million commercial members in about 15
major states.
Today, Humana has over 200,000 under-65 members enrolled in
our consumer-centric products, which is roughly 7 percent of
that business. The number has grown dramatically in the last
year from roughly 40,000 a year ago.
We believe that Humana ranks second in membership in these
true consumer-centric products. And we agree with Dr. Milstein
that there are about a million Americans today enrolled in
these consumer products that have a spending account.
Chairman Bennett. Let me interrupt you to be sure I have
the numbers right.
A year ago, you had 40,000 enrolled. And now you have----
Mr. Bertko. 200,000.
Chairman Bennett. 200,000. Okay.
Mr. Bertko. So the growth rate----
Chairman Bennett. I heard million in there and I didn't
know quite what--all right. So it's gone from 40,000 to 200,000
in a year.
Mr. Bertko. Yes, sir.
Chairman Bennett. Good. Thank you.
Mr. Bertko. We expect that in the next year, that these
numbers will again double and that by January 1st, 2005, Humana
is likely to have between 400,000 and 500,000 members in these
products.
Our product is called SmartSuite and we believe in the
social contract of insurance, that the healthy must subsidize
the sick and it's critical that all employees, both healthy and
high users, remain in the same risk pool for insurance
coverage. And that to maintain the integrity of this risk pool,
the employer must provide a subsidy for high-use employees and
blend these funds with contributions from employees that have
either average, high, or low utilization.
So we market what we call a total replacement solution,
where the employer chooses a bundle of products and then each
employee chooses one option from the bundle.
In employee choice, we have found in early experience that
employees make meaningful choices if given the good information
and tools, like the kind that Dr. Milstein described.
Our employees and members use a wizard to help them learn
about their plan choices and estimate the cost of services they
might use in the coming year based on the previous year's claim
experience.
Then the employer or family makes a decision as to whether
they wish to pay for their coverage through lower payroll
deductions and higher costs at the point of service or vice-
versa, choose higher payroll deductions today, but have lower
costs from cost-sharing.
Our initial and ongoing educational communications are
critical to the success of the consumer-centric approach.
Employees and dependents are provided with web-accessible
decision support tools that show how much they've spent,
different costs for services, and to the extent available,
quality information about providers.
With Humana employees as the pilot group, and now with our
customers and their employees, we've learned many lessons. But
I'd like to stress that it's still early and these should be
viewed as indicators rather than fully credible proof.
Currently, we have 125 employer customers with these
200,000 members and by the end of 2003, 28 percent of them have
chosen the consumer-centric option. The remaining 72 percent
remain in traditional products.
Cost trends have been significantly reduced by enrollment
in these products.
In our Humana employee pilot, we reduced cost trends in the
first year for Louisville employees to 4.9 percent. And in year
two, when we extended it to the 14,000 non-Louisville employees
and their dependents, we achieved a trend of 1.4 percent.
And these are well under the mid-double-digit trends that
are exhibited in the rest of the market.
When we extended these to our customer block of business,
as of January, 2004, we have credible claims experience on 43
employers covering roughly 50,000 insured members. And the
average trend for those groups today is about 6 percent.
Again, well under the double digits.
All of Humana's detailed cost and utilization evidence that
I'm going to provide now is only on our Humana employees. It's
a bit too early to give detailed experience on our customers.
We'll have that later this year.
An important question is: Why did claim trends decrease to
these single-digit levels?
Our early experience indicates that there are several types
of behavioral changes that accounted for most of the trend
reduction.
First, employees themselves chose among the options to
migrate to lower cost options, thus reducing their payroll
deductions.
Another significant factor appears to be a change in the
site of care for receiving services. Visits to emergency rooms
and use of other hospital out-patient services decreased while
use of physician office visits and preventive care increased
somewhat.
We believe that Humana's employees chose to make greater
use of the physicians and office settings where the doctor's
knowledge of his or her patient likely leads to better quality
care, while eliminating unnecessary and costly emergency room
visits or other hospital out-patient services.
And Exhibits 2 and 3 of my written testimony provide a
summary of this.
We also strongly stress the need for employers to embrace
and communicate the message of employer participation.
For employers, we provide a package of communications. For
employees, we make use of on-line enrollment applications, a
wizard to assist employees in making their health care option
decisions, and a PlanProfessor to provide those kinds of
background information needed to know what your details of your
plan are.
To date, we've had 102 of our employer customers make use
of the wizard with nearly 100,000 unique users--that is, the
employees and members--sign on to this.
So, in my opinion, the health insurance industry has
embraced consumer-centric options. Health Savings Accounts will
have enormous appeal in the individual health insurance market
where most of the products sold today do have high deductibles
to qualify.
In addition, Health Savings Accounts are likely to replace
the medical savings accounts for small employers--those under
50 lives.
In the larger end of the market, it appears to me that
health reimbursement accounts may continue to have somewhat
greater appeal due to their greater flexibility and plan design
and the ability of employers to use them to increase employee
retention.
Thank you, and I'd be glad to answer questions later.
[The prepared statement of John Bertko appears in the
Submissions for the Record on page 52.]
Chairman Bennett. Thank you very much.
Mr. Leach.
OPENING STATEMENT OF HOWARD LEACH, HUMAN
RESOURCES MANAGER, LOGAN ALUMINUM, INC., RUSSELLVILLE, KENTUCKY
Mr. Leach. Good morning, Mr. Chairman, and members of the
Committee. I'm Howard Leach, head of human resources for Logan
Aluminum, a world-class manufacturer of aluminum sheet products
located in Logan County, Kentucky, with a workforce totaling
one thousand employees.
Thank you for the opportunity to testify before you today.
I'm delighted to share with you the practical side of
consumer-directed experience at Logan Aluminum.
Like many employers, in recent years, our business
experienced annual health-care cost increases of 20-plus
percent, which, simply put, is not sustainable and not in the
best interest of our business or our employees.
Traditional approaches to the management of health care
costs have been limited primarily to employers absorbing costs,
shifting cost to employees, or reducing benefits.
Logan realized these solutions would not be effective long
term, and it was just a matter of time until neither employers
nor employees could afford the cost of health care.
As a business facing intense competition and cost
pressures, we chose consumer-directed health because we saw its
potential to help hold the line on a disturbing cost trend.
But we also made this decision for the benefit of our
employees.
To fully appreciate our enthusiasm for the consumer-
directed approach, it helps to understand our company's
culture. While employing roughly one thousand people in our
Russellville, Kentucky plant, we have established a team-based
culture that emphasizes employee involvement in nearly every
facet of the operation.
We look at our employees as partners. With the help of a
20-member employee committee, we engage our people in
thoughtful discussions several times a year about health care
costs.
These employees, in turn, disseminate information about
these issues with other smaller groups of employees in the
workforce. This helps keep every employee aware of the health
care issues affecting our business.
We are proud of the fact that we have historically offered
employees an excellent, competitive benefits package, including
comprehensive medical coverage.
We have been very fortunate in not having to ask employees
to pay a percentage of premium, and under the new consumer-
directed health care plan, we still don't.
When health care costs became more of a concern in the
early 1990s, we decided the best way to tackle rising costs was
to get at the root causes through a strong focus on prevention.
We implemented a wellness program--managed by an on-site
wellness director--that emphasizes regular health care
screenings and critical lifestyle changes.
We have an on-site medical department that includes a part-
time doctor and two nurses.
Employees are encouraged to routinely take advantage of
health care screenings, including an annual physical, on-site
and at no cost. The program also supplies our employees with a
variety of information designed to help them better understand
how they can improve their health outlook through a healthy
lifestyle.
Because we want our employees to be actively involved in
managing their health, we follow up these educational efforts
with health risk appraisals that are evaluated by an outside
vendor.
The individual results are confidential--only the employees
see their individual assessments. High-risk employees are
identified and then contacted by the vendor and encouraged to
participate in an intervention program.
Through follow-up health risk appraisals, we know we have
had an impact. Results show improvements in body mass index,
tobacco use, seatbelt use and exercise activity across our
employee population.
Consumer-directed health care, in fact, reinforces the
importance of healthy lifestyle choices and becoming a wise
consumer of health care. Employees are also encouraged to set
individual wellness and team wellness goals, which are rewarded
with additional company incentives.
Throughout the implementation process of the consumer-
directed model, we emphasized that Logan Aluminum's philosophy
remains unchanged. We want our employees to be healthy, wise
consumers, and we are providing the tools needed to help make
that happen.
We continue to provide access to free, on-site physicals.
We also provide incentives to employees who participate in the
health risk appraisal program and in wellness programs--up to
$250 in cash per employee per year if certain aggregate goals
are met.
Our results from 2003 show the average employee out-of-
pocket costs did go up in the consumer-directed health plan
from $240 to $665. However, the net effect after wellness
incentives was an increase of only about $200 per employee.
While expanding our efforts to promote wellness and
informed decision-making, we saw a reduction of 18.7 percent in
our total medical costs in 2003. This represents an improvement
of $925,000 to the company's bottom line.
We're also encouraged by utilization data that shows
employees continue to enjoy access to the care they need. One
of the best indicators of that could be hospital days of care,
which increased 4.4 percent for one thousand members in 2003.
In-patient surgeries were up 4.2 percent, an additional
indication that employees are getting appropriate treatment for
serious health events.
Logan Aluminum is committed to providing its employees with
quality health care benefits in a cost-effective manner, and we
remain committed to the active involvement of our own employees
in helping to manage these costs through better management of
their own health. Consumer-directed health care is helping us
do that.
Logan Aluminum very much appreciates the opportunity to
testify before the Committee today. I hope the perspective of a
company on the front lines of today's fast-evolving health care
landscape has been informative and useful.
Thank you.
[The prepared statement of Howard Leach appears in the
Submissions for the Record on page 58.]
Chairman Bennett. Thank you very much.
Ms. Shearer.
OPENING STATEMENT OF GAIL SHEARER, DIRECTOR, HEALTH POLICY
ANALYSIS, CONSUMERS UNION, WASHINGTON, DC
Ms. Shearer. Thank you very much, Chairman Bennett, for
providing me an opportunity to present a consumer perspective
on this important topic.
So-called ``consumer-driven'' health care plans, which have
defining features of high-deductible coverage and possibly tax-
advantaged employer contributions to health reimbursements or
savings accounts, may create serious problems for the U.S.
health care system.
Consumers Union believes that this type of coverage is
misnamed, misguided from a policy perspective, and a dangerous
distraction from the need to solve the health insurance crisis
that faces 43.6 million uninsured consumers and tens of
millions of underinsured consumers.
Our testimony also addresses issues raised by health
savings accounts, as included in the recently enacted Medicare
bill, and the President's new proposals. These proposals are
likely to accelerate the erosion of current coverage by adding
tax benefits for high-deductible coverage.
First, I need to point out that we take issue with the term
``consumer-driven,'' to refer to the transformation of the
health care system to one characterized by high deductibles.
``Defined-contribution'' health care, in our view, would be
a more accurate shorthand way to refer to a health care
approach that essentially increases deductibles and shifts
costs to sicker employees.
Many employees with chronically ill or seriously ill family
members will not view this transformation as consumer-friendly,
despite the name.
The recent expansion and renaming of medical savings
accounts and the President's proposal for a new tax deduction
are more likely than previous efforts to transform the health
insurance marketplace to one characterized by high deductibles.
The Economic Report of the President makes it clear that
this is the intention, the Administration frames the problem in
the health insurance marketplace as too much rather than too
little insurance.
The Report establishes the ideal health insurance
marketplace as one in which high-risk consumers face health
insurance premiums consistent with their risks, explicitly
rejecting the current goal of health insurance markets of
spreading risks broadly across the community.
At the same time, the Report ignores the reality that the
uninsured and the underinsured face severe health consequences,
even bankruptcy or death, because of the lack of adequate
insurance.
The Administration's proposals, which boost consumer-driven
health care, will shift more of the costs to those who are
sick.
While the Administration proposals will undermine employer-
based health insurance and shift more to the individual health
insurance market, that market underwrites risks carefully and
does not make affordable, comprehensive coverage available to
individuals who have pre-existing conditions.
The underlying nature of the population's health status--in
which risks vary widely--makes the health insurance market
different from other markets such as the market for cars or
toasters.
Individuals with underlying health risks benefit from
employer coverage or other large pooling arrangements such as
public programs, since this spreads risks broadly.
For those covered by employer health plans now, the average
cost in 2000 was about $2,600. But those in the top tenth of
spending had average costs of over $16,700.
Because of the combination of variation in risks--which
lead to different health insurance selections--and higher tax
brackets and ability to meet high deductibles, HSAs will appeal
disproportionately to the healthy and to the wealthy. Many
economic analyses, including that of the American Academy of
Actuaries, have reached the conclusion that this type of high-
deductible health insurance will fragment the risk pool, shift
costs to the sick, and ultimately drive low-deductible coverage
out of the market since it cannot exist side-by-side in the
marketplace with high-deductible coverage because of the
underlying nature of the health insurance market.
``Consumer-driven'' health care is likely to aggravate the
problem of the underinsured since individuals with moderate
income are likely to face out-of-pocket health care costs and
premiums that exceed 10 percent of their income.
The focus on transforming our health care marketplace to
one characterized by high-deductible policies is a dangerous
distraction from the urgent national goal of extending
affordable, quality health coverage to all.
And in closing, I just would like to make two points of
agreement with earlier witnesses.
First, I would agree that the research that exists to date
is of a very preliminary nature when it comes to this type of
health insurance.
And second, I would agree that we urgently need more
studies, more research that compares the clinical effectiveness
of different approaches. And if we did more of this, we would
be able to get more value for our health care dollars.
One specific area that was part of the Medicare bill was an
authorization for the Agency for Healthcare Research and
Quality authorized to spend $50 million comparing the
effectiveness, the clinical effectiveness, of different
prescription drugs in various therapeutic categories.
This type of research would help us get much more bang for
the prescription drug buck. And I would urge you to support
appropriating that money quickly.
Thank you.
[The prepared statement of Ms. Shearer appears in the
Submissions for the Record on page 61.]
Chairman Bennett. Thank you very much.
We are well into a Senate vote. So I'm going to have to
leave and do that.
Normally, I would say, I will turn the gavel over to Mr.
Ryan and let him go forward. But if I may be so selfish, I am
so interested in the clash that will now occur, that I want to
be here.
[Laughter.]
So if everybody could take a short pause, I will go save
the Republic from whatever it is we're doing on the floor and
return as quickly as I can.
[Laughter.]
The hearing will stand in recess until that time.
[Recess.]
Chairman Bennett. The hearing will come to order.
My apologies. I thank you all for your indulgence. The
Senate does have a habit of getting in the way of our schedules
by requiring us to vote from time to time.
As I hear this panel of witnesses, I think there are a few
things that we can stipulate right up front so that we don't
have to argue over them.
And that is that the information presented is preliminary.
There is no hard evidence that can justify a significant
extrapolation into the future with firm numbers.
At the same time, the early indications from people who
have tried this kind of health care activity is that it has two
features. It does bring costs down. And so far, it increases
employee satisfaction and employee health.
Is it fair to say that?
The gentlemen are nodding. I haven't gotten a reaction from
the young lady yet.
Ms. Shearer. I thank you, Senator. I believe that it is
really premature to make that kind of conclusion at this point.
Chairman Bennett. Well, that's why I made the stipulation.
But so far, on the anecdotal evidence that we have, costs
are coming down and employees are satisfied and appear to be
healthier.
Ms. Shearer. And I just think it's important to keep in
mind that when you're measuring employer costs, you have to
also be sure to keep in mind, have the costs been shifted and
what are the employee costs as well?
So it's not clear to me from the research that's been
presented today that we have all the data we need about the
whole picture.
Chairman Bennett. Well, again, with the understanding that
this is just an indication and not something on which we're
going to make long-term extrapolation, the early indication is
that it's bringing total costs down.
Mr. Bertko. Mr. Chairman, may I add something there?
Chairman Bennett. Sure. Please.
Mr. Bertko. I think Ms. Shearer has brought up several
valid issues. We have looked in our first group at what we call
the distribution analysis, how people's choices affected their
out-of-pocket spending. Across the board, the costs do go up
some.
Now it turns out that folks in the low end of the bracket,
myself, for example, might end up paying out-of-pocket costs,
not payroll deduction, perhaps $10 to $100 more a year.
We found out, though, that the people with the highest
costs, those with $10,000 or more, in our program where we
have, they can choose between a traditional HMO and PPO and
consumer-centric, they made excellent choices. And looking at a
last-year to this-year basis, their cost-sharing actually
dropped because they chose the right kind of plans to be in.
And so, I would say, again, preliminary evidence is that
folks make good choices. They have an ability to predict what
their next-year's costs are going to be, and they choose the
right kinds of plans to be in.
Chairman Bennett. Now, Mr. Leach, you have the only
experience--well, no, I guess that's not true. But you have a
direct experience within a company.
I want to focus on this question of health.
In all of the debate we have about health care in the
Congress, we almost never talk about health. We talk about
coverage. We talk about insurance premiums. We talk about
costs. We talk about negotiations. We talk about everything
other than the fact that we want people to be healthy.
If I heard your presentation correctly, you are saying that
the introduction of this program in your company has not only
had an impact on costs, but it has had an impact on behavior
that leads people to be healthier.
Not only is that your perception, but if you can, speak for
your employees. Do they have the perception that this plan
serves their needs better than the previous one and that there
are healthier choices being made?
Mr. Leach. Yes, Mr. Chairman. I would say that, in our
opinion, it does meet both the needs of employees and the needs
of the company.
What we've seen and what we try to do is to measure health.
And I know that's a difficult thing to do. But we, through
health risk appraisals, where it's employee information, look
at aggregate data from one year to the next--in this case, we
look at aggregate data from 2002 and compared that with
aggregate data from 2003.
And employees did say their health is better over the
course of one year than it was the previous year.
Now I agree that one year is not a trend, but our data
shows that employees like the plan. There's more involvement.
Employees are interested.
I think all of us want to have good health. And what we
have attempted to do is give employees a set of tools to help
them measure, monitor, and take control of their health. And we
believe that we have good preliminary results.
Chairman Bennett. All right. I have a lot more. But what I
would like to do, as my yellow light is on, just turned red, is
stay within the 5-minute requirement for members for this first
round. I'd ask Mr. Stark and Mr. Ryan to do the same thing. And
then perhaps go into more of a roundtable sort of discussion
since we do not have a large number of members and have a
little back and forth with all seven of us on some of these
issues.
So if the members are agreeable to that, Mr. Stark, I'd
recognize you for 5 minutes and then Mr. Ryan for 5 minutes,
and then we can go into that mode, unless there is objection.
Representative Stark. Mr. Chairman, I'd just like to get a
definitional issue out of the way here, because--and I think I
learned this a long time ago from somebody far wiser than me.
What we're talking about this morning is medical care.
If you get up in the morning, on a sunny spring day in
Wisconsin or in California, and you get out of bed and you're
excited about going to work and your spouse looks about as good
as he or she did to you 10 years ago. And your sex life is all
right and you're healthy.
Chairman Bennett. I'm not touching that one.
[Laughter.]
Representative Stark. All right. But if you get up out of
bed and try to put your underwear on and you fall over and
sprain your ankle, you need medical care.
And I guess what I'm seeing is that health, as we define
it, can include the environment and our economic well-being and
the state of our communities, and it goes somewhat beyond the
medical care that excellent providers, physicians and hospitals
provide.
And I think it's important that particularly when we're
talking about costs, some of Mr. Leach's programs, which I
think are amazing, may go to the overall good feeling and well-
being of their employees, but it would be hard to define the
costs.
And I'd just bring that out as something that could get
confusing.
I did want to talk to Dr. Milstein, because he brings up a
couple of issues in his written testimony and in an article
which I've looked at which he also wrote, I guess in the New
England Journal of Medicine.
[The article entitled ``The Effect of Incentive-Based
Formularies on Prescription-Drug Utilization and Spending,''
appears in the Submissions for the Record on page 43.]
But I think you do suggest, Doctor, in your written
testimony, that there is a good bit of risk selection, but we
don't know quite how much.
Is that fair?
I mean, risk selection is a result of people selecting
these plans. And you're unable to quantify it at this point.
Is that a fair analysis of your testimony?
Dr. Milstein. Yes. We examined multiple plans as part of
our study.
For some of them, such as one of the plans that Mr. Bertko
described, there are no questions about risk selection, because
they pertain to an entire employee population. For some of the
other plans that we examined, there were issues of risk
selection.
Representative Stark. And often, in employees, one of the
troubling things, companies that employ lower income
individuals, because I want to then lead to your article where
you conclude where you're dealing with prescription plans, that
by--if I can paraphrase you, if you'll allow me a little bit--
by changing the formulary or administration, which could
include co-pays and the rest, that in some instances, you could
lead enrollees to discontinue therapy, which is something that
I would think would also take place in other kinds of medical
care.
It's like titration. I know Dr. Milstein's done this. You
drop that stuff in there and all of a sudden, it all turns blue
and we're never quite sure how many drops you have to put back
before it gets clear again.
And there is the risk, and I think we'll talk about it
later, that we could deter people from getting necessary care,
which is what I mentioned in my opening comments.
And I don't know as we know yet. Kaiser, in northern
California has done some studies about, if they go from 5 to 10
bucks as a co-pay, whether it deters or just stops over-
utilization.
I worry about that in some of these plans, because it could
be an easy way to save money. Just bump that co-pay up and
particularly among lower-paid employees, you're going to have
far less utilization.
But I wanted to say, that is a concern, besides the fact
that I don't think the plans are going to work. But I just
wanted to talk about some of the more gentle problems here.
I yield back, Mr. Chairman.
Chairman Bennett. Mr. Ryan.
Mr. Ryan. I wanted to get into--I think my questions are
probably for Mr. Bertko and Mr. Milstein.
I wanted to ask the two of you about the differences
between HRAs and HSAs and the market perceptions.
HSAs are so new, so it's difficult to make any kind of
conclusions. But what is your impression as to what large
employers are saying and doing and thinking with respect to
HRAs versus HSAs?
And are there some deficiencies with the regulations
surrounding HSAs that need to be addressed so that it is an
easier decision for large employers to make the decision to go
with HSAs versus HRAs, because, for me, the most attractive
difference is that HSAs are portable. It's part of the
employee's property that they can take with them, but they
can't do that with HRAs.
Could you go into that issue as to--and if anybody else
would have a comment, that would be great.
Mr. Bertko. Sure, Mr. Ryan. Let me start and Dr. Milstein
can add.
HRAs have been around a little bit longer. We got
clarification from Treasury a little over 2 years ago. And the
reimbursement accounts are fairly flexible.
There really are fewer limits in terms of the size of the
deductible and how the accounts roll over and the plan design
itself.
So many larger employers might choose HRAs. They also can
use notional dollars, like airline credits.
Mr. Ryan. Yes.
Mr. Bertko. As opposed to filling with real cash.
HSAs, Health Savings Accounts, need actual cash
contributions. I think to the point of employees, they would
find those more attractive. They clearly are portable.
It's my understanding from listening to things from
Treasury, for example, that there are some constraints on our
ability to define the deductible, and particularly the family
deductible.
That might make them slightly less attractive.
Plus, we're big believers, I think like the rest of the
panel, in preventive care. And to some degree, we think that,
for example, prescription drugs might need to be folded into
the way that preventive care is described so that we can make
those easier to be obtained.
I think HSAs will be very, very attractive to individuals
and to purchasers and to the small group end of the market.
That's the 2-to-50-market. HRAs may continue to be somewhat
more attractive to the companies of a thousand or more.
Mr. Ryan. Is that pretty much because it's more mature of a
product and the employer which has the resources in a big
company can control it more so?
Mr. Bertko. That would be my guess, in my opinion.
Dr. Milstein. There was a single paragraph in my testimony
that addressed this and indicated that there were some areas in
which clarification for employers would help them feel more
comfortable.
Mr. Ryan. I didn't actually get that. Could you just relay
it real quickly?
Dr. Milstein. Some of those were, for example, the
possibility, if any, of rolling over balances in HRAs into
HSAs.
Mr. Ryan. Yes.
Dr. Milstein. And in particular, the relationship between
HSAs and some of the carve-out benefit programs that some
employers offer, such as carve-out pharmacy or mental health
programs.
Mr. Ryan. Okay. Ms. Shearer, I just want to ask you a quick
question.
Are you an advocate of a single-payer system, a single-
payer plan? Is that kind of ideally, if you were king or queen
for a day, you would do that?
Ms. Shearer. We are a strong advocate of universal health
care. We have supported a lot of different approaches to
getting there.
We're pretty open-minded about how to do it as long as you
cover everybody and you finance it in a fair way.
We have supported single-payer many times because it's the
most efficient way to do this. But we are very open-minded.
We think that the most important thing for this Committee
and other committees in Congress to do is to chart a course to
get us to universal coverage.
Mr. Ryan. Let me ask you this question, then, because I
read your testimony and listened to your testimony on the
criticisms you point towards HSAs and the consumer-based
system.
How do you propose to keep down costs in a single-payer
universal care system other than establishing a global budget
and rationing care?
Ms. Shearer. Well, that's a huge question. Let me just talk
about one specific way.
I think that if we had more information about comparative
effectiveness of drugs and then allowed, for example, the
Federal Government to do what it does for the Department of
Veterans Affairs, to negotiate deep discounts for prescription
drugs, that would be one way.
That's part of our health care spending where there is an
obvious----
Mr. Ryan. That sounds like a form of rationing as well.
Ms. Shearer. Well, if I may say.
Mr. Ryan. Sure.
Ms. Shearer. Other countries do this. What they do is they
look at a therapeutic category.
For example, they might pick statins, cholesterol reducers,
and realize that there are several drugs that have a similar
impact.
If they then go and negotiate with--pick a benchmark drug--
negotiate a good price, everybody's getting quality health care
at a lower price.
This is what the Department of Veterans Affairs does for
its members and it's a way to use our health care dollars much
more effectively.
Mr. Ryan. Okay. But at the end of the day, because we're
seeing in single-payer systems throughout the world that
they're running up against their global budgets and then they
have to end up rationing care.
And those ace inhibitors and those statins aren't actually
being delivered to those people.
I see that I'm out of time. I had a quality question, but
I'll ask it when we go around the next round.
Ms. Shearer. And if I could just say, the key is what kind
of budget is the government allocating.
If you look at Canada, for example, they're spending a much
lower share of their GNP on health care.
If they put in the funds, it would be much lower than the
share that we're spending, but then people would get the health
care and it would be delivered more efficiently and
effectively.
Mr. Ryan. And they're rationing. Thank you.
Chairman Bennett. Well, let's not get into a debate over
Canada, because that might get the blood pressure up to a point
where we avoid the purpose of this hearing.
Mr. Bertko, you're an actuary. And Ms. Shearer referred to
a study by actuaries. I wondered if you had an opinion on her
comments about the study.
Did you participate in that study? Are you aware of it?
Mr. Bertko. I'm aware of it, Mr. Bennett, and in fact, I
was one of the peer reviewers of the study.
Chairman Bennett. Good. Then let's get into it.
Mr. Bertko. Ms. Shearer quotes some of the things that
were, I believe, worded in the study. I didn't review that this
morning before coming over.
I would suggest, though, that that study was describing
things that were on a theoretical basis, and that what's
emerging right now is what Mr. Leach and Dr. Milstein and I are
suggesting, which are actual empirical data are now emerging.
And so, there clearly is a worry.
I mean, I would agree with the issues raised by Ms.
Shearer. But at the same point, our solution in terms of
keeping the risk pool intact is a way around this.
Large employers, in fact, in their own ways, whether self-
insured or insured, can keep those risk pools together in much
the same way.
So as long as the employer remains the basis for the risk
pool, I think that that could be managed and somewhat minimize
the worries of the selection issues that Ms. Shearer raised.
Chairman Bennett. That's true, apparently, as long as the
employee stays with the employer.
One of the biggest problems that we have with the uninsured
is that Americans no longer stay for significant periods of
time with the same employer.
COBRA is an attempt to deal with that problem as you move
from one employer to the other. But as one who has moved from
one employer to the other, dealt with COBRA, it's very
expensive.
And then, as one who has ended up in the uninsured pool--
fortunately, I stayed healthy, so that I didn't have need for
medical care. And I think staying healthy is an important part
of the cost equation--I finally got another employer where I
did get covered.
But how does this consumer-based health care plan deal with
the tremendous shifting that is going on in America and will
only accelerate. We're only going to see more of people moving
every 2 or 3 years from employer to self-employed to a
different kind of employer to their own business to working for
the government and so on.
By my own case, the 11 years I've spent as a Senator is the
longest period of time in my entire employment history that
I've drawn a paycheck from the same place.
I've changed jobs over 20 times since I turned 20.
So I'm personally very concerned about this. Those of you
who are saying, the empirical evidence says this is--yes, I
can't keep a job. That's my problem.
[Laughter.]
But I've got this one and I'm trying to get a 6-year
extension on the contract come November.
[Laughter.]
Address that from the experience that you've had. And Ms.
Shearer, we'd like your comments, too, because this is a very
major problem for an employer-based system.
Anybody--and then my colleagues, jump in with your
questions and your comments.
Mr. Bertko. Mr. Bennett, if I can start, perhaps, I think
that consumer-centric health plans can address it in two ways.
The first one is perhaps the more obvious one. If we can
actually maintain lower trend rates, something in the
neighborhood of 5-, 6-, 7-percent, versus the high ones, it
keeps the total premium more affordable.
The second part of this is, and perhaps to address Mr.
Stark's question earlier, COBRA represents the actual 102
percent of the full rate.
And so that's what things actually cost employers like Mr.
Leach's company.
If there's an HRA or an HSA, I'm at least aware of many
employers who are willing to provide the roll-over account and
is able to pay for either COBRA coverage or retiree medical
coverage.
And to the extent that people can accumulate those, that
then is some pot of money for a while. It won't be a complete
solution, but say in between jobs, if you have a 6-month gap,
it could be used to pay for COBRA coverage.
Chairman Bennett. Anybody else want to comment?
Yes, Ms. Shearer.
Ms. Shearer. If I could just say--I think that this issue
of an employer-based health care system is key here.
Now people are beginning to understand that if they get a
pink slip, they lose their health insurance because, in most
cases, if you lose your source of income, you cannot afford to
pay a premium that is 102 percent of the premium level.
Another concern that we have in talking about transitions
is that, especially with the President's new proposal for a tax
deduction for premiums paid in the individual market for a
high-deductible policy, that many employers may find that this
means that their employees have a choice, have an alternative
outside of the employer-based market. And they may actually
stop their employer coverage.
And if they have employees who are not very healthy,
they're going to really have a struggle in the individual
market.
So there are a lot of transition issues that are relevant
now, I think.
Chairman Bennett. Mr. Leach.
Mr. Leach. Mr. Chairman, I would say on behalf of the
employer's side, I don't have experience with a person leaving
our organization to go to another organization and work.
But what we do have experience on is retirees, those people
who elect to take early retirement.
I think the fact that employees can take those accounts and
use them into retirement is a very positive feature. And the
early retirees at our company have found that particularly
attractive.
So that if I have a good year this year, I can roll over
dollars to next year. And if I have a good year next year----
Chairman Bennett. By good year, you mean a healthy year.
Mr. Leach. Yes, healthy year.
Chairman Bennett. Yes, right. So that's another incentive
to stay as healthy as you can.
Mr. Leach. I think that's the key, people staying healthy
and not spending all their dollars in their account. Then they
can take that account with them to the point in the future, if
they have a year where there are serious health issues, they
have dollars to cover that.
Chairman Bennett. And could they take the account with them
if they left you to go to work for General Motors?
Mr. Leach. The retirees would.
Chairman Bennett. But somebody who just leaves you to go to
work for somebody else would not.
Mr. Leach. That's correct.
Chairman Bennett. Okay. We're joined by Mr. English. We are
in a roundtable kind of thing. So far I have dominated it.
[Laughter.]
But I will step back from that.
Representative Stark. Mr. Chairman.
Chairman Bennett. Yes, sir.
Representative Stark. I just wanted to cover a couple of
issues here.
My distinguished friend and colleague from Wisconsin was
talking about rationing. And he's correct. There is rationing
in our system. As there is in every system in the world.
The only question that I think comes up is on what basis do
we ration?
Mr. Ryan. Or who does the rationing?
Representative Stark. Yes. Do we do it clinically, as they
do in Canada, let the physician decide who goes to the head of
the queue, or do we do it financially, which says that the rich
people can get care more quickly, or get a fuller platter of
benefits?
Because reducing benefits, as some managed care plans may
choose to do, or limiting a selection of pharmaceutical
products, saves money, but is a form of rationing.
I would make the case that Medicare rations, but it is the
most efficient program that we have so far in the United
States. It has had the least average increase in costs over the
years and has, for seniors, a pretty broad selection of choice
and benefits, particularly now that managed care plans are
available under Medicare, as they were not some years ago.
The issue I think will come into play is that employers
like Mr. Leach and/or our automobile companies are going to
join with me and Ms. Shearer--I have a plant that makes most of
the Corollas in my district. And my Toyota/General Motors
partner people tell me it's about a thousand bucks a Corolla
for--I think that's health benefits. It may include some
retirement benefits.
I know that General Motors said that it costs them--they
saved $800 on every Chevy Impala they made in Canada because
they didn't have to load in the health care costs.
It could very well become--and then we have experts like
Wal-Mart who have made a science out of not paying their
employees benefits.
At some point, we may have to even that out and demand--our
former colleague in California, John Burton, has a pay-or-play
plan that says that every employer has to provide medical
benefits.
I think we're going to get there in time, because I don't
think we can sit and watch 45 million people basically go
without health care, because they don't have insurance.
I would hope that you'd stipulate to that.
How we get there will be a question of some debate. I would
say that I'd just make it--that would be my constitutional
amendment. Let's say that everybody has the right to medical
care and then it won't only be prisoners under Article 8. It
will be all of us.
Mr. Ryan. Bring an amendment to the floor.
Representative Stark. I've always said, ``what's good
enough for Rostenkowski and the Watergate burglars is good
enough for me.'' If I have to go to jail to get my health care,
that's where I get it under the Constitution.
Maybe that's where we should go. Thank you, Mr. Chairman.
Mr. Ryan. Can I chip in?
Chairman Bennett. Let's let Mr. English, because he didn't
have his 5 minutes.
So let's do that and then Mr. Ryan.
Representative English. Thank you, Mr. Chairman. But rather
than interrupt the inexorable forward movement of this
discussion, I will pass.
Chairman Bennett. All right.
Mr. Ryan.
Mr. Ryan. I wanted to get into some of the quality stuff.
But I just can't let the opportunity pass to comment on what my
friend, Mr. Stark, said.
You're right. Rationing is occurring in every model that we
have. And the question comes down to who does it?
Is it the individual with the freedom of choice, with the
consent of the physician? Or is it some third party like an HMO
bureaucrat or a government bureaucrat?
And I think if you actually look at the Canadian system,
look at the studies that they've had, the rationing and the
decision-making on who gets ahead of the queue isn't really
based on need.
The well-connected, the wealthy, the politically-connected
are the people that are getting ahead of the queue.
So even in those seemingly perfect systems, you're having
rationing that isn't, quote, unquote, fair. More importantly,
you are seriously seeing people being denied care, especially
when they need it.
In Ontario, a couple of years ago they took 121 coronary
bypass patients off the list waiting for care because they got
too sick while waiting for care.
Twenty percent of the patients looking for dialysis--in
England I think it is, I think it's dialysis--get too sick
while they're waiting on the list.
So the question is, we all want to get to full insuring of
everybody. We all want to get our hands around this issue of
under-insured and uninsured. And do we want to have an
arbitrary third-party system, whether it's government or HMOs
denying care to people, especially when they need it.
So we've got to figure this.
And in figuring this out----
Chairman Bennett. If I could exercise the Chairman's
prerogative.
Having now had the statement on both sides of Canada, can
we focus again----
Mr. Ryan. I'm sorry. I'm from Wisconsin. We actually look
at this thing.
Chairman Bennett. Mr. Stark did it. You did it. And it's
perfectly appropriate for both of you.
But I can see if I don't step in, we're all going to get
into it, including me, and I don't want to do that.
Mr. Ryan. Okay. The quality stuff. That's important.
If a person is going to be a good consumer in health care,
they've got to get access to quality data.
If they're going to shop around, they need to know on an
apples-to-apples comparison what things cost, who's good, who's
bad, where's the best deal, where's the best quality.
Mr. Milstein, you had excellent recommendations in your
testimony on things that Congress can do that are budget-
neutral, either through the regulatory side of things or
through the statutory side of things on how we can help wrestle
that quality data out that we collect into the public.
Does anybody else have any comments on how we could do
that? And if you could quickly summarize for everyone else's
benefit, what are the things that we could do just this year to
help get that quality and price data out to the public?
Dr. Milstein. Sure. I think, first and foremost, would be
to liberate the Medicare claims database, in a way that fully
protects the privacy of Medicare beneficiaries.
As I mentioned in my testimony, most health benefit plans,
whether they're operated by unions or large companies, don't
have enough at-bats per doctor, to use the metaphor, or at-bats
per hospital for narrow service lines such as surgery A versus
surgery B, to run a stable calculation of whether the hospital
or the physician is more efficient or less efficient, higher
quality or lower quality.
And the Medicare claims database would, except for
pediatrics and OB, obstetrics, would allow all health benefit
plans in the private sector to be able to more reliably and
more precisely compare doctor and hospital performance.
The second thing I mentioned, which would be hugely
important, would just be at the margin to consider the
recommendations of the Quality Work Group of the National
Committee on Vital and Health Statistics to slightly increase
the information that's submitted on hospital bills and
physician bills so that we'd have a little bit better ability
to not blame doctors and hospitals for what looks like bad
performance when it actually relates to differences in the
severity of the illness of the patients that they're treating.
Representative Stark. Would you yield there?
Mr. Ryan. Sure.
Representative Stark. You're talking about what I would
call outcomes research, that we have the data to be able to.
Dr. Milstein. Yes. But I'm saying we didn't foresee a mess
due to the outcomes research. If we could free up the database,
then the private sector and CMS could do the research.
Mr. Ryan. Am I correct in assuming that to liberate, as you
say, the CMS claims database, that doesn't require a statute
change. They can do it regulatorily over at CMS.
Correct?
Dr. Milstein. Yes. I believe it requires a letter of
clarification from the Congress that neither HIPAA nor the
Privacy Act was intended to prevent such release.
Mr. Ryan. Okay. Thank you. If anybody else wants to comment
on that issue, please do.
Mr. Bertko. Yes. I'd like to second what Dr. Milstein has
said.
When I was a consultant, we had access under very limited
abilities to what's called a 5-percent sample of the database.
And there's a data use agreement with a great deal of
protection.
But to be able to look in certain areas, particularly rural
areas where, using a metaphor again, the at-bats for either a
hospital or an individual or group of physicians, that would be
extremely useful.
We also support transparency, whether in quality or cost
data. There's a few states--I think Wisconsin, in fact, is one
of the leaders in that. And if that were to be present in more
states, it would be very valuable.
Representative Stark. If I could ask my colleague to yield
again.
Mr. Ryan. Yes, sure.
Representative Stark. I think this is an area where we
would find a great deal of agreement.
Now I'm not sure that we would find it among all insurers
or all providers. There is no question that when you begin to
both, say, standardized medical records. Or I remember the
scream when we said, ``Well, every doctor will have to have a
computer.'' And they said, ``Oh, we can't afford that.'' I find
that somewhat disingenuous.
But, in other words, there will have to be some standards
set, whether it's government or the medical educators or
however, before we can go ahead and make determinations of what
would be useful treatment and how much it would cost and the
outcomes.
And I for one feel that that is an area in which we're
going to have to step in as government setting some standards,
protecting some privacy, but deciding where it's more important
for us to have information than for some of us to keep it
secret.
And I would hope--as I say, we've had a variety of
opposition. Sometimes it's the insurance companies. Sometimes
it's the hospitals. Sometimes it's the physician.
Chairman Bennett. Sometimes it's the privacy advocates.
Representative Stark. Absolutely. But I would love to join
with my colleague from Wisconsin to walk down that road with
the people who are concerned about having this.
Mr. Ryan. Yes.
Representative Stark. I think it would take 5 or 10 years
for the information, the real outcomes to be available to be
used, but I think we could say that we've done a great service
to providing medical care in this country.
Mr. Ryan. Would you yield, Pete?
Representative Stark. Yes. I'm done. Thanks.
Mr. Ryan. That's really encouraging. I'm very encouraged to
hear you say that.
I hope, given the technology today, we could do it a lot
faster than that.
But are you open to the idea of doing just what Mr.
Milstein said? There's three of us here on the authorizing
committee over in the House, getting the CMS to release this
data, providing that privacy and all those considerations are
dealt with?
Representative Stark. I think that the more data that's
available, the better off we'll be.
As I say, other than what I've always said is, look,
release the data. The heck with privacy. Go after the person
who uses it to harm you.
Chairman Bennett. Can I quote you?
[Laughter.]
Representative Stark. No, seriously. I mean, it's so
important in this world today--is it important to know who has
AIDS or who has a heart condition and what they've done to get
there?
I don't know if it's important to know who the individual
is.
Mr. Ryan. Right.
Representative Stark. But I do think if somebody discovers
that and uses it to embarrass or hurt you or keep you from
getting a job, the courts could take care of that.
I would err on the side of getting the data uniform and
collectible in a database that's available to researchers.
Mr. Ryan. And shoppers and consumers. Great.
Chairman Bennett. Doesn't that go back, Mr. Bertko and Mr.
Leach, to your experience, that the more data that are
available to your employees, the better choices that they make?
And Ms. Shearer, you're in the business of getting data
into the hands of consumers. I would think that you would
endorse this idea.
I'm a little puzzled as to why you don't like the idea that
consumers get to make more and more choices under these kinds
of plans. And you're supporting that either the government or
an employer continues to make these choices.
When I came to the Senate, of course, HillaryCare was on
the floor and this was the major issue that dominated the first
session. And people would stand up and say--remember the unions
would be chanting at us wherever we went--``we want the same
plan that you've got. We want the same plan Senators have.''
And my reaction was, I want the plan I had before I came to
the Senate.
[Laughter.]
Which was better. And the reason it was better was because
I was the CEO of the company and I got to pick. And now I'm a
government employee and all I get is what the government
employees group--and I don't know who they are.
I would fail the Stark Test here. I don't know who they are
that determines what my plan is. I'm a government employee. I
get whatever a government employee gets.
But when I was the CEO, I got to pick the plan for the
whole company and it was great. I picked a plan that fit my
needs and then hoped that it would fit my employees' needs.
Now that's a little bit of an overstatement for the
dramatic impact of it, but that's where we are.
The people who are making the choices are not the people
who are consuming the services.
That's a fundamental fact of our present system and would
be a fundamental fact under a single-payer system, and that is,
in my view, where the problem is.
The people who are using the services, the consumers, are
locked out of any impact on the decision.
And I like the idea that we're getting, at least anecdotal
evidence that when you put the consumer into the decision-
making stream, the results get better. Not only the cost
results, but more important for, Mr. Leach, your employees are
healthier.
They begin to understand now that they are in the game, now
that it's their money on the line--it's all their money. The
premium is their money. The idea that the employer pays for
this is nonsense.
It's the employee's money because he earned it for you. If
you can't get enough value out of an employee to cover the
whole cost of his benefits, you can't afford him. And just
because it doesn't show up on his W-2 doesn't mean that it's
not his money and it doesn't mean he hasn't earned it with his
work for you.
But when you get the employee, you get the consumer in the
game where he or she begins to see, this is what it costs me if
I don't have the annual physical because I'm going to pay for
it later on. This is what it costs me if I don't do the
screening.
All right, I'll pay for the screening because it's going to
save me money down the way, and also, I'm going to get
healthier. We get a healthier population.
That will have as much of an impact on bringing down the
medical care costs as anything we can do.
So, in the spirit of seeing Mr. Ryan and Mr. Stark get
together, which is something that you don't happen to see every
day, Ms. Shearer, can you and Mr. Leach get together and say,
let's find a way to get the consumer of medical care into the
business of making some of the decisions regarding the cost of
medical care?
Ms. Shearer. Well, where to begin?
First of all, let me say that I certainly can agree that
more quality information in the marketplace can only be a good
thing for consumers. But it's also important to keep in mind
that it's not a be-all and end-all.
When you're having a heart attack, you don't have a lot of
time to do research into the quality of the doctor that may be
treating you.
So you can only take it so far. But also, I do need to come
back to this question about consumer choice.
This is not a marketplace for toasters. When I go buy a
toaster, whoever is selling it to me doesn't care anything
about who I am.
Someone selling me health insurance cares what my
underlying health status is. And the thing that concerns me,
it's great if we can encourage people to stay healthy and to be
healthy and preventive measures.
Those are great things. I think everybody would agree on
that.
But people get sick, often through no fault of their own.
And we have to make sure that we have a health care system that
doesn't over-punish people who get sick and throw them into
tremendous financial burdens, including bankruptcy, or possibly
even deter them from getting the care they need because they
face huge financial barriers.
So I think the key thing, because of this variation in
risk, we have to be thinking about a system that includes
everybody and that subsidizes--I was pleased to hear that
Humana adjusts the payment based on the employee's risk. That
make a huge difference. I think that that would probably be
unusual in this particular type of marketplace. But that's
something to try to replicate.
Thank you.
Chairman Bennett. Well, I'm a little surprised that
Consumers Union takes that posture because your whole history
has been to empower the consumer in areas where the consumer is
ignorant.
You're saying that, gee, when you have a heart attack, you
don't want to make a cost decision, and that's true.
But I can tell you, if I had a heart attack in Utah, I know
what I would say to the 911 people who show up. I'd say,
``Don't take me to that hospital. Take me to this one.''
Because maybe it's just reputation. Even in the pain of a heart
attack, I know that there are some certain places I don't want
to be taken, I don't want to go.
Health care is not a commodity. It is not exactly the same
everywhere.
And the more customers know, the more they're going to want
to exercise that knowledge. And Consumers Union ought to be in
the foreground of saying, these are the hospitals that are
good. These are the ones that are unacceptable.
I don't know anything about cars except how to turn them on
and how to push the brake and how to push the accelerator.
And I go to your magazine to tell me, ``This one is going
to turn over.'' There's no way I know it's going to turn over.
It's a life-threatening kind of thing. ``This one is going to
turn over. This one has got a high repair rate,'' all the rest
of it.
I'm dependent on you to help me make a choice.
The same thing with car repairs. I go to the consumer
advocates who say, ``These people will take you to the cleaners
and these people will give you''--or I go to another repair man
and say, ``Where do you take your car?'' Somebody whom I trust.
Consumers are not doctors, but they're not stupid, either,
and they need to be informed. And as they get informed, I think
the experience is that they begin to make intelligent choices.
And I would think, yes, you don't like the uninsured
problem, and neither do we, and we ought to work together on
that.
But on this issue, I would think that you'd be in the
trenches with the others trying to get as much data as possible
to see if this really works instead of just saying,
theoretically, ``Well, we're afraid that there's going to be
adverse selection here and therefore, let's not try it.''
Ms. Shearer. I am agreeing on the issue of quality data, of
quality of hospitals. I think that that can be very helpful.
I think, really, the other witnesses have acknowledged that
there is a potential for tremendous risk selection. And I don't
think that you can ignore all of economic theory based on some
very preliminary findings.
And I would predict that there would be more findings that
would come out over the next few months that may tell a
different story.
Chairman Bennett. But are you opposed to getting those
findings in case you're wrong? Are you opposed for us pursuing
this, to find out whether or not these first indications really
are not an anomaly? They are, in fact, indications of something
very solid.
Ms. Shearer. Of course not. More research, more findings
are good.
What I opposed was the expansion of medical savings
accounts, the draining of $41 billion out of the Federal
Treasury to encourage a kind of health insurance that all
economic theory indicates will separate the healthy from the
sick.
Chairman Bennett. Yes. But such initial evidence as we have
says it's working.
Ms. Shearer. Senator, with all due respect, I find that
evidence extremely preliminary and I don't believe the results
will hold up over time.
Chairman Bennett. All right. But let's see over time
whether you're right or not.
The world is filled with people who say, ``Well, this isn't
going to work.'' And somebody says, ``Let's try it.'' And the
first indications come in and say, ``Well, it is working.'' And
others say, ``Well, that's still not conclusive enough,'' and
they try to kill it.
If it turns out that it's clearly not going to work, I will
abandon it. I want to solve the problem. But the early
indications are--you talk about economic theory. The economic
theory that I subscribe to--and then I'll shut up and let my
colleagues talk--the economic theory that I subscribe to says,
``markets make better decisions than governments do.''
And here is an opportunity to get some market forces into
this, get consumers empowered to impact the market in ways that
they have never been able to before.
And I think that's an economic theory worth testing. I'll
get off my soapbox.
Mr. English, you've been very quiet here and I don't want
you to feel----
Representative English. Well, I thank you, Mr. Chairman.
Ms. Shearer, listening to your points, I guess one of the
problems I have is that the line of argument that the Chairman
has made I think is unassailable.
And quite apart from the ideological claim that by allowing
people to pay for their own out-of-pocket on a tax-advantage
basis is somehow a spectacular drain on the Federal Treasury.
And you and I may just simply have a different view on how
that works philosophically. I think it's their money. And I
think in the long run, providing tax advantages for health care
expenditures or savings directed towards health care
expenditures is probably actually a great dynamic to have in
the economy.
Is your greatest concern with consumer-driven health care
systems the shift of risk potentially allowing individuals to
avoid having to pay--I suppose what some might consider to be
their share as part of a group?
Or is it a lack of adequate consumer information? And are
not both of those solvable problems in the long term?
Ms. Shearer. Well, the lack of information is relatively
solvable, I believe. And I think there's quite a bit of
agreement on that issue today.
What isn't really solvable is the underlying nature of risk
in the health insurance marketplace and the fact that someone
in the top 10 percent will have expenditures of $16,000 in any
one year and someone in the bottom 10 percent, about $30 on
average.
As we move towards a system, if people have choices in an
employer market between a high deductible and a low deductible
plan, economic analysis shows us that the low deductible plan
will be crowded out over time.
And so, while many proponents sell this in terms of
choice--``let's give people a choice''--the reality is that
over time, unless there's careful risk adjustment, the low
deductible plan will disappear.
So that's really my concern. Transforming the marketplace
to a high deductible system is thereby shifting costs to many
employees who have chronic health conditions, who run through
that health reimbursement account.
Representative English. I understand that. And may I
intervene, because you've made a couple of good points?
Are there not also opportunities, though, to identify those
risks that you're concerned about that may create a crowding
out, and actually direct our research and our medical solutions
dealing specifically with some of those problems?
Aren't many of those high-risk cases--it's very easy to
deal with these in very broad categories. But are they not
individuals who may have conditions that are ultimately
solvable with a combination of public research and also an
active private marketplace?
Ms. Shearer. Well, I think the situation varies. The high-
risk person might be someone who needs a bypass surgery or it
could be someone who needs chronic care.
More research is certainly a good thing and can help lower
those costs. I'm not sure if I'm answering your question
exactly, but more research on diseases and more focus on
specific diseases can certainly be a good thing.
That's not the part of consumer-driven health care that I
take issue with.
Representative English. Dr. Milstein, you've heard my
exchange with Ms. Shearer. Would you like to comment?
Dr. Milstein. Yes. I think one of the reasons that this
discussion is tough is there are two different visions of
consumer-directed health care that are floating out there and
that carry different implications for some of the concerns
expressed.
One vision would simply increase cost-sharing for
everybody. And that obviously falls disproportionately on
sicker people and tends to create some of the cost-shifting
challenges towards sicker people that most people don't want.
I think your point is right that, as Mr. Bertko said, there
are ways of solving that problem by making more generous
allowances or contributions towards the plans that attract
people who are sicker.
That's vision one. And I consider that a ``blunt
solution.'' You're just increasing deductibles and now you have
skin in the game, and we'd like you to be more careful.
There's a second vision. And if you look at the enrollment
numbers that I mentioned, it's the majority vision of current
consumer-driven health care plans. The second vision is more
precise in raising consumer cost-sharing.
It doesn't necessarily involve increasing the deductible or
coinsurance; instead it varies how much people pay at the point
of care depending on the efficiency and quality ratings of the
selections made.
The article that I attached from The New England Journal of
Medicine illustrates these two different approaches. They
achieved two very different results.
One solution simply increased drug cost-sharing. It
resulted in a total cost savings, but some sick people stopped
using medications that were helping them.
That's vision one for consumer-directed health care.
They also evaluated the second vision, the other vision for
consumer-directed health care, in which there was no increase
in what people had to pay for the drugs that offered more
favorable quality and cost-effectiveness ratings. But there was
an increased consumer cost share for alternative drugs that had
a less favorable quality and cost-effectiveness rating.
The second approach did not discourage people from taking
helpful drugs and it reduced total costs both for the consumers
and for the employers.
The second vision of consumer-directed health care allows
the most common ground among the points of view expressed this
morning.
Representative English. I yield.
Representative Stark. Thanks.
Doesn't that presuppose that you will have a completely
objective selection of how the formula is determined? And if
market-based forces get involved and one pharmaceutical company
wants a bigger market share and drops the price, the market--
when you say one drug is more efficacious or better, somebody
has to make that decision on--not on a market-driven basis, but
on a professional knowledge.
And that's where it----
Dr. Milstein. Absolutely. It very much pivots on having a
reasonable scientific determination as to which physician, or
which drug offers----
Representative Stark. I guess I would say scientific rather
than market-based.
Dr. Milstein. Yes.
Representative Stark. Okay.
Mr. Ryan. Can I ask a quick question?
Mr. Bertko, you say that in your testimony, Humana has over
200,000 under-65 members enrolled in your consumer-centric
product. And that's up from 40,000 from just a year ago?
Mr. Bertko. Yes. There is a great uptake in this.
Mr. Ryan. Wow. I just met with one of your counterparts at
another company who was involved in rolling out HSAs as of
January 1, and they had a phenomenal increase in application.
And 30 percent of their applications for HSAs were people who
were uninsured.
Do you have any data to that effect as to the jump from
40,000 to 200,000? How many of those people were people who
were uninsured?
Mr. Bertko. Well, let me say that this is a different
market from what I believe you were talking about, the
individual health insurance markets.
So ours are primarily employers who----
Mr. Ryan. Employers converting over to a consumer-based
thing?
Mr. Bertko. Yes, exactly.
Mr. Ryan. Okay. Thank you.
Chairman Bennett. Okay. We're reaching the witching hour.
I found this very stimulating and very helpful and I'm
grateful to all the members of the panel. I want to make one
final point.
When we talk about statistics, which we always do in the
Congress, we forget that people move. I've already talked about
people moving from employers. People also move from one
quintile to the other, to use the economist's term.
Once again, to be personal about it, in my lifetime, on the
income range, I have been in the bottom quintile and I have
been in the top quintile, and in the process, moved back and
forth.
Since I got to the Senate, I dropped out of the top
quintile and come back into other areas.
But the reason I make that point is that much of the
rhetoric around taxes are, well, it only benefits the people at
the top, as if the people at the top have always been there and
always will be.
And the benefit of people who are moving up and down--I use
myself as having moved both up and down. Donald Trump moved
down very dramatically at one point. Now he's back.
That principle, the understanding of that, makes the tax
system look different than if you assume that everybody at the
top has always been there. We are the most fluid society in the
world economically as people move up and down.
I make that point because the same is true in health care.
If we leave the older seniors out and the Medicare problem--80
percent of Medicare costs go for the last 60 days as people are
dying--and so on. If we leave that out of the equation and talk
about the people under 65 who are employed, with some obvious
exceptions, the general rule is that somebody who has a serious
health problem that requires high cost in one year, recovers
and goes back to the low costs in the next year.
In other words, you don't have a pile of people, to use
your figures, Ms. Shearer, who are $16,000 and a pile of people
that are $30, and they stay that way.
Somebody in the $30 a year can have an incident that takes
him up into the $16,000 a year area, get well and go back.
That means if there is an incentive--I keep coming back to
this--is there an incentive for smart purchasing and for
improving one's habits, and therefore, one's health.
Over a lifetime, you can fund the years where you have the
high health problem and still get the benefit at the end of
your life of the money you have accumulated by making wise
choices.
And I think we ought to keep that in mind as we look at the
equation of what happens when we're trying to incentivize and
inform customers and allow the consumer of the service to make
some choice as to what happens to the service.
We come back, Dr. Milstein, to your second vision, which is
the vision that I embrace, that an informed consumer can have
an impact on the whole system.
And my big problem with the present system is, as I say,
the consumer is frozen out of any decision-making. The decision
as to which plan he's going to be in is made for him by his
employer.
And increasingly, the decision of which doctor he can go to
is made by the plan, and so on. And he ends up with whatever he
gets.
And then the other comment I will make just for the record,
for all of these discussions, there's a woman in Utah who
listened to me speak very authoritatively on this subject.
After the luncheon, she came up and said, ``You're a very
nice man, and you don't understand anything at all about the
problems of the poor.''
And she is an advocate to the poor, works among them
immensely, and she made this point as she brought me down to
earth.
She said, ``The problem with the poor in health care has
relatively little to do with money. The system is so
impenetrable that the poor cannot navigate through it.'' She
said, ``You've got to pay more attention to community health
centers, because the main function of a community health center
is when somebody walks through the door, they can find their
way to what they need.''
She said, ``You want to create this system and then just
give the poor enough money to survive in it, and they won't
know how to use that money. They just can't navigate the
system.''
And she appropriately humbled me, and I've spent some time
looking at that. And the community health centers, at least in
Utah, do a fabulous job. And somebody who is homeless, somebody
who is on Medicaid, walks into one of those, the most important
service they provide is navigate through the bureaucratic
shoals and get them what they need.
And the flip side of that, if I may--Mr. Stark has left.
I'm not taking advantage of that. He would get upset about
this. But he'll be back.
The flip side of that, I have another woman in Utah who
said to me, ``You know how I deal with Medicare?'' She said,
``I take care of my mother's affairs. I have an 85-year-old
mother. I am a professional woman. I am a college graduate. I
think I'm pretty smart. The Medicare forms absolutely baffle
me. And any thought that my 85-year-old mother would be able to
handle this----''
So she said, ``I have figured out how to deal with
Medicare. I throw away everything unopened and once a month I
call the Salt Lake Clinic and say, `what do I owe you?'
``I write the check, send it in. They may be over-charging
me. They may not. But the peace of mind not having to deal with
the system is worth whatever financial problems I might have
had.
``I don't even open it. I just throw it away. And once a
month I call the Salt Lake Clinic where she goes for her
treatment and say, `what do I owe you?' ''
That is part of the problem and that is what a system
designed to get the consumer informed and empowered will, I
think, begin to impact not only the federal bureaucracy, but
for most of these people the private bureaucracy.
Let me again thank you all for coming. It's been a most
stimulating morning. And we hope that those of our colleagues
who are on the tax-writing committees will benefit from the
record that we are building here in this Committee.
The hearing is adjourned.
[Whereupon, at 12:05 p.m., the hearing was adjourned.]
Submissions for the Record
=======================================================================
Prepared Statement of Senator Robert F. Bennett, Chairman
Good morning and welcome to today's hearing on consumer driven
health care.
The United States faces a significant challenge to keep health care
affordable. For many years, our health care spending has grown at a
significantly faster rate than the economy, and all projections
indicate that this will only continue.
In recent years, we have enjoyed amazing advances in medical
technology that have extended and greatly improved our lives. Medical
procedures have become less expensive and less invasive. However, as we
discussed at our hearing last summer on technology and innovation in
health care, we have found an interesting paradox. It seems
counterintuitive, but the fact is that as the cost for a medical
procedure goes down--as the delivery of health care services becomes
more efficient--overall costs actually go up.
Much of this disconnect can be attributed to the difference between
the amount consumers pay and the actual cost of the technology--and
health care as a whole. Because of comprehensive insurance and other
public programs, we have created the notion that ``someone else'' is
paying for our health care and so we use more and more health services.
In other words, insured people are buying greater amounts of medical
services which contributes to higher insurance premiums and overall
health care costs.
So today we are looking for ways for market forces to limit costs
while improving access and quality of health care. As can be seen in
other areas, cutting costs by government fiat creates market
distortions. The government can't keep up with the marketplace, so cost
controls have never worked. If prices are set too low, there will be a
shortage of providers, and if they are set too high, insurance
companies are forced to raise premiums and ration services to patients.
I believe a better approach is consumer driven health care. We have
two years of experience to look at and see that this approach is
gaining some traction.
A consumer driven approach to health care restores to consumers
direct control over their health care dollars. It provides them with
better value, greater choice, improved health, and recognition of the
true cost of the services they demand. It offers a broad range of
options that encourage employees to take a greater role as informed
health care consumers in choosing health plans, benefit packages,
health care providers, and medical treatment alternatives. Another
promise of consumer driven health care is that it can reverse a long-
term trend that has combined more third-party payment of health care
bills with substantial hikes in health care spending.
New health savings account options, included in last December's
Medicare Prescription Drug, Improvement, and Modernization Act, give
consumers even greater ownership and control of their health spending
dollars, which could reshape the health care market.
Today's hearing will examine the performance of the consumer driven
health care market over the last two years. We can see how this new
approach is developing in terms of levels of enrollment, plan options,
consumer satisfaction, and projected growth. I believe the Congress
should learn more about what works, and what can be improved upon.
With that, we welcome our panel that will provide a number of
perspectives on consumer driven health care, including a physician, Dr.
Arnold Milstein; an actuary, Mr. John Bertko; a benefits manager at a
firm that has adopted a consumer driven health care approach, Mr.
Howard Leach; and a health policy analyst for Consumers Union, Ms. Gail
Shearer. We look forward to your reports on the performance--to date--
of consumer driven health care.
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Prepared Statement of Representative Pete Stark,
Ranking Minority Member
Thank you, Chairman Bennett. I have to say I'm extremely skeptical
about the title of today's hearing--``The Performance and Potential of
Consumer Driven Health Care.'' Having spent much of my Congressional
career in health care policy, I have never known so-called ``consumer
driven'' health care to perform well or to have much potential. Rather
than hide behind euphemisms, we should just call these policies what
they really are: tax shelters that require people to pay more for their
health care, so that insurance company stock holders can reap the
benefits.
These high deductible, defined contribution plans are not consumer-
driven, nor do they offer much choice. Instead, they simply shift costs
to so-called ``consumers'' and force patients to pay more and more out-
of-pocket, making it difficult for patients to get the care they need.
These so-called ``consumer driven'' health plans rely on consumers
obtaining reliable information on treatment choices, quality and
charges of providers. Yet, this information doesn't even exist in our
system today. I am very pleased that Gail Shearer is here today from
Consumers Union--the preeminent source for consumer information--to
talk about this fact.
The concept of ``empowering'' consumers to make more responsible
choices about their health care decisions is misleading rhetoric.
Purchasing health care is not like buying a car or a toaster. This is
true not only because the information is not available, but also
because health care needs are often unanticipated and patients rely on
their doctors' expertise--not their own--to guide medical decision-
making.
Having a heart attack is not like having your car break down. If
your mechanic makes the wrong decision about your engine repairs, it is
not life or death. People cannot generally predict when they need
health care. And even if they could, there is nowhere to seek out
credible information on where to go for care or what to ask for and
what to expect to pay.
The President has now proposed to spend $41 billion on high
deductible plans, which will at best extend coverage to a minute
fraction of the 44 million who don't have coverage today.
In fact, the Administration has finally admitted that these
policies are not about insuring the uninsured, but an attempt to insert
more ``cost consciousness'' into the system to reduce consumption.
However, I would argue that these policies fail to meet even that
objective.
While it may shift responsibility of costs under the deductible,
most of our national spending is on behalf of people who are very sick.
High-deductible plans are unlikely to alter the overall level of
spending, but instead shift more costs to people who can barely afford
their current obligations. Who knows? These plans could have the
perverse effect of increasing overall spending as people delay care
until their treatment is even more costly than it would have been if
treated early.
Given that this is the first hearing on health care in the JEC this
session, and that this was what my colleague Ways and Means Chairman
Bill Thomas shared as his vision for the U.S. health system, it is
clear that Republicans view high deductible plans as a sort of magic
bullet for our health system.
We have a lot of issues that can and should be addressed.
Certainly, the rising cost of health care is a growing problem that is
forcing more and more people to become uninsured. Of course, a
significant part of the rising cost of health care is due to
prescription drug spending. If Republicans were really interested in
controlling costs, they would have given the Secretary authority to
negotiate for discounts in the Medicare program, but that's another
story.
These health plans being discussed today force individuals to
negotiate prices on their own. This dilutes purchasing power. These
plans don't reduce cost, they discourage people from using health care
services.
__________
Prepared Statement of Arnold Milstein, M.D., MPH
Physician Consultant, Mercer Human Resource Consulting
CONSUMER DIRECTED HEALTH BENEFIT PLANS COULD GREATLY IMPROVE QUALITY OF
CARE AND HEALTH INSURANCE AFFORDABILITY; EARLY ATTEMPTS WILL FALL
CONSIDERABLY SHORT OF THEIR POTENTIAL; THERE ARE BUDGET-NEUTRAL
OPPORTUNITIES FOR CONGRESS TO HELP
I am Arnold Milstein, a physician consultant at Mercer Human
Resource Consulting, and the Medical Director of the Pacific Business
Group on Health, which serves 44 large and over 2000 small California
employers. My testimony summarizes the initial findings of a Robert
Wood Johnson Foundation funded study that I lead in partnership with
Professor Meredith Rosenthal at the Harvard School of Public Health; it
does not represent the positions of these organizations. A more
detailed summary of the findings of the Mercer/Harvard Study will be
released in the second quarter. Professor Rosenthal will publish
additional findings in scientific journals over the next 12 months.
We studied consumer-directed health benefit plans by surveying in
the first quarter of 2003 over 600 for-profit and not-for-profit
regional health plans of all types, serving employers of various sizes.
They included regional components of national insurers as well as
regional insurers; they included diverse plan types such as HMOs, PPOs,
and indemnity plans, offered on both insured and self-insured bases.
Over the past several months, we also have been conducting 15 in-depth
case studies of consumer-directed health benefit plans of diverse
types, serving multiple U.S. regions and populations. These case
studies include interviews with health plan executives and purchasers,
with follow-up review of print and electronic documentation. We defined
consumer-directed health plans as health benefit plans that
incentivized insureds to select more affordable and/or higher quality
health care options and provided cost and/or quality information with
which consumers could compare available options. Case study interviews
are ongoing and will add detail; but the broad shape of our findings is
not likely to change.
A. INCREASED CONSUMERISM COULD GREATLY IMPROVE QUALITY OF CARE AND
HEALTH INSURANCE AFFORDABILITY
This conclusion is drawn from evidence internal and external to our
research. The external evidence is that (1) as summarized in my January
25, 2004 testimony to the Senate HELP Committee, up to 40% of what we
are currently spending on American health care could be eliminated over
a 10-year period, and thereby slow the rate of biotechnology-driven
health insurance cost increases without impinging on quality of care,
clinical outcomes, or patient satisfaction; (2) as documented in the
Institute of Medicine's 1998-2001 reports on quality of care, quality
reliability is seriously flawed, even among our best providers; and (3)
as described in both of these sources, inter- and intra-community
variations in quality and cost-efficiency are wide among hospitals,
among physicians, and among different treatment options for the same
condition. Such wide performance variation offers substantial
opportunity for informed and incentivized consumers to preferentially
select better performing physician, hospital and treatment options,
including better self-management of health risk and avoidance of
services offering no health value. In addition to capturing immediate
gains in quality and cost-efficiency, this expression of the market's
invisible hand would generate ongoing gains by more strongly motivating
all providers and treatment innovators to discover ``better, safer,
leaner'' methods of transforming health benefit plan dollars into
improved health.
The internal evidence that we uncovered in our research is that, if
carefully explained and encouraged, many enrollees, including sicker
individuals, are willing to enroll in consumer-directed health benefit
plans, seek performance information and select more affordable health
care options. The 600+ plans that we surveyed had enrolled over 2
million enrollees in consumer-directed health benefit plans for 2003
and more than 4 million for 2004. These overall consumer-directed plan
numbers included approximately 500,000 enrollees of account-based (also
known as Health Reimbursement Accounts or HRA) models in 2003 and 1
million account-based model enrollees in 2004. While these absolute
numbers are small, the consumer-directed health benefit movement is
early in its adoption curve, the growth rate is high (we anticipate
another doubling of enrollment by 2005), and many mainstream health
plans are beginning to integrate consumer-directed features, such as
hospital or physician quality and/or affordability comparisons, into
their other offerings.
B. EARLY ATTEMPTS TO IMPLEMENT CONSUMER-DIRECTED HEALTH BENEFIT PLANS
WILL FALL CONSIDERABLY SHORT OF THEIR POTENTIAL
1. Structural Limitations
My prediction of substantial shortfall is partly based on insurers'
near-term goals. The stated motivation for insurers and purchasers that
offer consumer-directed models are varied. The majority of health plans
we interviewed indicated that their main objective was to increase
consumer engagement in health care decision making, rather than wholly
rely on physicians and hospitals. These plans believed that improved
cost-efficiency and quality of care would eventually follow, but argued
that these goals were secondary in the near-term. In contrast, most
employers prioritized immediate slowing of increases in health benefit
costs.
Shortfall in results will also arise from two primary informational
gaps that severely handicap consumer-directed health benefit plan
innovators: (1) valid, easily understood performance comparisons among
physicians (e.g., a surgeon's complication rate), among hospitals by
specific service lines (e.g. a hospital's average total lung cancer
treatment cost), and among treatment options (e.g., patient
satisfaction ratings from open vs. closed biopsy of a suspected breast
tumor) are generally lacking; and (2) we lack research evidence on the
form and size of incentives minimally required to motivate consumers,
especially the 20% sickest consumers who spend 80% of health benefits
dollars, to switch from an MD, hospital, or treatment with which he or
she (or someone whom they trust) is familiar to a less familiar
alternative, when the alternative offers better quality and cost-
efficiency.
Of the 15 plans we studied in depth, only one offered consumers
clinical quality of care comparisons for physicians (medical groups in
this case) across a variety of measures using audited data. Six others
provided information only on patient satisfaction or patient-reported
quality of care. Twelve plans offered comparative quality information
on hospitals across a large number of service lines either through a
vendor or, in one case, by creating a unique hospital report card.
Information on the quality implications of major treatment options was
provided by seven plans. Only one plan offered consumers detailed cost
comparisons (in this case, based on the negotiated fee or unit price)
for physicians and hospitals by service line. Three other plans made
available qualitative performance ratings on physician or medical group
cost (e.g., an indication of above or below a threshold using stars or
dollar signs); to rate economic performance, these three plans used a
measure of cost-efficiency rather than unit prices.
With respect to hospital quality of care comparisons, we found
plans were primarily relying on hospital billing data or unaudited
hospital reported survey responses. The consensus of the scientific
community and a recent measures endorsement process by the National
Quality Forum is that hospital billing data is generally an inadequate
basis on which to compare hospital quality.
We found a different but equally severe handicap with respect to
most cost comparisons. The most commonly offered cost comparisons,
which are limited to drug options and procedures, were based typically
on the unit price(s) charged by the physician, hospital, or pharmacy,
rather than on their longitudinal cost-efficiency. Longitudinal cost-
efficiency in this context refers to the effect of a doctor, hospital,
or treatment option on the total cost of treating an episode of acute
illness or a year of chronic illness. In the case of a physician, it
reflects not only the cost of his/her services but also, for example,
the cost of differences in the average frequency with which their
patients with the same chronic illness are scheduled for return office
visits or are admitted to the hospital. Use of unit price as an index
of cost-efficiency is problematic because researchers such as Elliott
Fisher at Dartmouth and teams at Premera Blue Cross have independently
documented that unit prices are misleading signals of relative cost-
efficiency. Indeed, researchers such as Tom Rice at UCLA have
documented that lower unit prices typically induce physicians to
provide a greater volume of services, either services billed by them or
by others, such as laboratories, radiologists, or hospitals.
This substantial informational barrier to consumer identification
of the most affordable providers is not caused by a lack of analytic
methods with which to compare the longitudinal cost-efficiency of
doctors or hospitals. Rather, most health plans lack enough claims
experience with individual doctors or individual hospital service lines
to allow statistically valid comparisons.
This barrier is especially problematic because most plans are
hesitant to pool their claims data with competing plans, out of fear
that negotiated unit price advantages they may hold with some
physicians or hospitals would be revealed and then replicated by a
competing insurer. To address this problem, many plans rate large
physician groups or all of a hospital's service lines in a bundle. Such
bundling obscures important performance differences and depresses the
gains from better engaged consumer. Other plans are responding to this
barrier by limiting their ratings to the minority of providers with
whom they have adequate claims experience.
The main obstacle to comparisons of cost-efficiency and quality for
treatment options is our insufficient federal investment in AHRQ, on
which most stakeholders rely to quantify the comparative performance of
treatment options. Many large purchasers support much better funding of
AHRQ to generate these comparisons.
Even if consumer-directed health benefit plans had reasonably
accurate performance comparisons for consumers, we currently know
little about the economic and non-economic incentives that are
minimally required to induce selection of better performing, but
unfamiliar, physicians, hospitals, and treatment options. In the
absence of these planning inputs, consumer-directed health benefit plan
designers have often relied on blunt incentives such as higher
deductibles, higher co-insurance, and portable spending accounts that
generally discourage use of all services, including services that are
essential to maintaining patient health (e.g., betablocker use by
patients recovering from a heart attack). That blunt, overall
reductions in benefit coverage can discourage use of clinically
valuable services was most recently documented in attached research
findings. A promising exception to this general picture is that four
accountbased plans exempted recommended preventive care from the
relatively strong incentives to control spending from the first dollar
and one plan reduced the out-of-pocket cost for chronic medications for
individuals who participate in a chronic illness registry, a clinical
innovation shown to improve patient health outcomes.
Consumer incentives to select cost-efficient options are
concentrated at the low end of the distribution of annual per capita
health care costs. The majority of the plans provide the strongest
incentives to choose low-cost hospitals, physicians, and treatment
options only up to $2,000 to $3,000 for a person with single coverage.
Beyond that point, coverage mimics typical PPO coverage and is almost
always accompanied by an out-of-pocket maximum. For large self-insured
employers, who make up the majority of current consumer-directed plan
enrollment, out-of-pocket maximums are as low as $1,500 (for small
employers, we encountered some as high as $5,000.) Thus, a typical
enrollee of an account-based plan that anticipated minor surgery or a
maternity stay would have no incentive to control other spending during
the year. Finally, even for the one of 15 plans that calibrated out-of-
pocket costs at the point of service to the comparative cost-efficiency
of the health care provider selected by the consumer, this incentive
did not extend beyond the plan's out-of-pocket limits, even for
affluent enrollees. Only the three ``narrow provider network'' plans
created incentives to select more efficient or higher quality providers
at all levels of spending, because they offer no coverage for services
delivered by providers excluded from the network based on poor
performance.
Failure to encourage even affluent individuals to select more cost-
efficient options at higher levels of annual personal health care
spending will severely limit the savings from most early consumer-
directed health benefit plans; this is because roughly 55% of total
commercial health insurance spending is by enrollees who exceed their
annual out-of-pocket limits.
Finally, we found only one plan that specifically aims to assure
that they do not shift a greater share of out-of-pocket cost onto
sicker enrollees. This account-based plan provides first-dollar
coverage with low coinsurance for all cancer care and hospital
admissions. As a result of this design, the aforementioned plan has
demonstrated that sicker individuals disproportionately benefited
economically from the consumer-directed plan relative to a typical PPO
plan. If widely adopted, this approach could offset the quality loss
described in the Epstein study or the concern that the consumer-
directed plans approach will impoverish the sick. Failure to attract
sicker individuals whose selection decisions offer the largest
opportunity for health benefit plan savings threatens realization of
the full potential of consumer-directed health plans.
2. Early Evidence on Risk Selection and Impact
Because consumer-directed plans are relatively new to the market,
there have been limited opportunities to study their effects. Most of
the available evidence on savings, recently summarized at a briefing by
the Galen Institute, has come from the plans themselves and should be
regarded as preliminary until independently confirmed by health service
research.
Risk Selection
Consumer-directed plans are offered to employers both as a total
replacement for all prior options (often, but not always in the fully-
insured segment of the market) and as an additional option alongside
prior options. In the latter case, plans have indicated mixed results
in terms of risk selection. One major HRA plan found evidence that
individuals selecting their plan were much healthier than those
choosing competing HMO and PPO options. Another similarly designed plan
found that enrollees who chose their plan were slightly sicker than
average. Many plans have also reported that the type of employer that
chooses to offer a consumer-directed plan is highly varied and includes
many employers with predominantly low-wage employees. More data will be
needed to address this question and selection patterns will likely
change as more information about the new model is disseminated.
Impact on Spending and Service Utilization
Reports of the impact of consumer-directed plans on spending are
similarly sparse because only a few plans and employers have enough
claims experience to assess the impact of these new models. It is also
important to note the difficulty of assessing the impact on spending of
consumer-directed plans because of issues such as risk selection.
Moreover, none of these findings have been validated by independent
researchers. Three of the studied consumer-directed plans reported
reduced spending growth compared to ambient health insurance trend. The
reported savings net of reductions in benefits coverage were on the
order of ten percentage points. Consumer out-of-pocket spending was
reported to have grown more slowly than comparison plans as well. Most
of this effect is attributed by the plans to behavioral changes such as
substitution of generic for brand name drugs and substitution of office
visits for emergency room visits. Two of the account-based plans we
examined also report that preventive care use increased relative to
comparison groups. Because these findings relate to specific
populations and plan designs (both the consumer-directed plan and the
plan with which it was compared) it is not yet possible project early
results to the insured population at large.
Other Effects
Several account-based plans have reported high retention rates for
both employers and employees with a choice of plan. This suggests
relatively high satisfaction with the plans. The impact of account-
based and other consumer-directed models on important outcomes such as
clinical quality and longer run cost-efficiency is not yet known.
In summary, significant structural limitations in the early forms
of consumer-directed health plans have not blocked directionally
favorable early results. Most pioneers report decreased rates of per
capita health spending and increased consumer information seeking.
However, (1) none of these early self-assessments have examined impact
on health outcomes or robust measures of quality; and (2) reported
savings, ranging up to a 15 percentage point offset of concurrent
insurance premium trends, have not yet fully accounted for more
favorable enrollee health status, leaner covered benefits, cost
transfers to sicker beneficiaries or to the employer-purchaser, and the
economic value of health or quality losses that consumers did not
intend.
3. How Will HSAs Alter This Picture?
Through our interview with plans and other interactions with Mercer
clients and contacts, we assessed the market's early reaction to the
Health Savings Account (HSA) provisions of the recent Medicare reform
legislation. All but one of the account-based plans are developing or
had developed a product that would meet the more restrictive definition
of an HSA. Large employers, however, appear to be cautious about HSAs,
waiting for clarification on a number of fronts. One plan reported that
the main question from its employer clients was whether HRAs could be
converted into HSAs. This plan indicated that its clients and potential
clients wanted to experiment with an HRA before offering an HSA, which
cedes to employees more control of benefit dollars. Other employers had
unresolved questions about the relationship between HSAs and both FSAs
and pharmacy benefit carve-outs.
C. THERE ARE BUDGET-NEUTRAL OPPORTUNITIES FOR CONGRESS TO HELP
There is a short list of budget-neutral interventions available to
Congress to address some of the structural barriers facing consumer-
directed health benefit plans and allow realization of their full
potential for improving the quality and affordability of American
health benefit plans.
1. Give employer-, union- and insurer-sponsored health plans real-
time access to the full CMS claims database, holding back data only to
the extent necessary to protect the privacy of individual Medicare
beneficiaries. The Medicare claims databases are a severely
underexploited national information asset that would allow all private-
sector health benefit plan sponsors to compare more validly the
longitudinal cost-efficiency and quality of physicians, hospitals by
service line, and treatment options. Current CMS rules restrict access
to research that will benefit CMS. However, wider access is, in the
view of most external legal experts, not restricted by the statutory
language of HIPAA or the Privacy Act, if beneficiary privacy is fully
protected. Congress could clarify this and encourage CMS to revise its
regulations to allow real time access, subject to full protection of
beneficiary privacy via encryption and other methods specified in
existing law.
2. Encourage CMS to support rapid expansions of minimally required
hospital and professional billing data, as recommended by the Quality
Work Group of the National Committee on Vital and Health Statistics.
This would enable much better performance comparisons of providers and
treatment options by CMS and private-sector health plans, especially in
reducing the confounding effect of differences in patient severity of
illness on provider performance comparisons.
3. Encourage the Secretary of HHS to speed up adoption of the
National Provider Identification program. This will allow all benefit
plans to better identify individual providers and more accurately
compare their performance via analysis of CMS and private sector claims
data.
No health care professional, government official, or well intended
health benefit plan manager can better determine the most personally
satisfying tradeoff for consumers between health care spending and
anticipated health improvement than well informed consumers can for
themselves. Especially when paired with robust pay-for-performance
programs for physicians and hospitals, consumer-directed health benefit
plans can be a vehicle for great improvement in both the affordability
and quality of American health care. Expect initial shortfalls in the
results from early consumer-directed health benefit plans; and
encourage CMS to help all American health benefit plans gain access to
information that they need to deliver maximum potential consumer gain.
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Prepared Statement of John M. Bertko, F.S.A., MAAA
VP and Chief Actuary, Humana, Inc.
Thank you for your invitation to present early experience with
consumer-centric health insurance products from Humana, Inc. and
additional observations relating to the experience of the health
insurance industry. My name is John Bertko and I am the Vice President
and Chief Actuary for Humana, Inc. Humana is one of the country's
largest regional health insurers and is a leader in design and
implementation of consumer-centric health products. With over 6 million
total members and 3 million commercial members in 15 major states,
Humana has a cross-section of the country's insured consumers in its
variety of traditional and consumer-centric products.
Today, Humana has over 200,000 under-65 members enrolled in our
consumer-centric products, roughly 7% of our total non-governmental
business. This number has grown dramatically in one year from the
roughly 40,000 enrolled as of January 1, 2003. From our market
research, we believe that Humana ranks second in membership in true
consumer-centric products, if defined as products with a spending
account. Overall, we estimate that there are roughly 1 million
Americans enrolled in some form of consumercentric product with a
spending account. (This number at least doubles if various choice
products with multiple options but no spending accounts are included in
the total.)
We expect that this number will at least double again during 2004,
perhaps growing even faster as more employers and consumers become
interested in consumer-centric products and more insurers enter the
market. At this point, we believe that most employers that offer these
products are the ``early adopters.'' By January 1, 2005, we expect
Humana will have from 400,000 to 500,000 members enrolled in its
consumer-centric products.
The good news, at least from Humana, is that the consumer-centric
concept succeeds by giving individuals incentives to choose health care
services and options that are right for them in a total replacement
solution by providing the information and tools to make their choices
easier. Before providing a summary of our early experience, let me give
a very brief description of the Humana consumer-centric solution.
HUMANA'S CONSUMER-CENTRIC SOLUTION--SMARTSUITE SM
First, Humana believes in the social contract of insurance--that
the healthy must subsidize the sick. It is critical that all employees,
those who use few or no services (the healthy) and those who use many
services (the high users) remain in the same risk pool for insurance
coverage. In order to maintain the integrity of this risk pool, the
employer must provide a subsidy for the high use employees and blend
these funds with contributions from employees with average, high or low
utilization of services.
Based on this premise, Humana, unlike its competitors, markets a
``total replacement'' solution. Employers choose from a variety of
bundles of products containing traditional products (i.e., HMOs and
PPOs) and high deductible or ``consumer-centric'' products for which we
create rates to maintain affordable coverage for all products. Each
employee then chooses his or her own option from the products offered
in the bundle.
Humana's consumer-centric options typically have an allowance or
spending account of between $500 and $1000 for the employee to ``choose
and use'' health care services. Each employee has control over those
dollars, to spend on preventive care, office visits, imaging or lab
tests or other services. After this allowance is exceeded, the employee
must meet a deductible, generally in the range of $1500 to $3000.
Expenses above this deductible are then covered by true catastrophic
insurance with low cost-sharing (generally 10% or less).
EMPLOYEE CHOICE
Experience shows that today most employees do not make an active
choice of health insurance coverage each year. Most employees default
to the coverage they had the previous year. Humana experience reveals
that when employees have to make an active choice each year, they make
more meaningful choices if given good information and tools. In the
Humana scenario, each employer is strongly encouraged to have a
``positive open enrollment'' for its employees during which time
employees examine all options. Employees use a ``wizard'' to help them
learn about their plan choices and estimate cost of services they or
their family might use in the coming year based on previous year's
claims' experience. Then, based on this information, the employee or
family makes a decision as to whether they would prefer to pay for
their coverage through lower payroll deductions and higher costs at the
point when they need services or choose higher payroll deductions and
lower costs at the time they seek services.
IMPORTANCE OF COMMUNICATIONS
Initial and ongoing educational communications are critical to the
success of the consumer-centric approach. In our approach, employees
and dependents are provided with Web-accessible decision-support tools
that show how much they have spent, different cost levels and, to the
extent available, quality information about providers. We want our
members to think about what services they obtain, at which site of care
they want to seek services and the quality and efficiency of their
providers.
Also critical in the educational process is the public availability
of comparative cost and performance data. States like Pennsylvania, New
York and Wisconsin have taken the lead in publishing this kind of
consumer information on their Web sites. The Centers for Medicare and
Medicaid Services (CMS) has begun to publish some data for health
plans, nursing homes and home health agencies. Just as they do in all
other areas of their lives, consumers make better choices when they can
compare cost and quality information. We encourage you to advocate for
faster disclosure of this kind of information at the federal level.
EARLY EVIDENCE OF SUCCESS
Through our experience, first with Humana employees as a pilot
group, and now with customers and their employees, we've learned many
lessons. We have provided a significant amount of this information to
health services researchers as part of outside independent assessments
of our data. However, I need to point out that it is still ``early''
and the data should be viewed as good indicators rather than fully
credible proof that the concept works.
From Humana's perspective, we view our results as representing the
effects on ``health systems in miniature''--using an employer as a risk
pool and measuring what happened from year to year. The following
evidence represents a summary of the last 2\1/2\ years of experience,
for both Humana's pilot initiative for its own employees and then for
Humana's ``early adopter'' customers.
ADOPTION AND ENROLLMENT IN CONSUMER-CENTRIC OPTIONS
As of mid-February 2004, Humana has 125 employer customers, with
over 200,000 members in consumer-centric solutions and products of all
kinds. These customers are evenly distributed across our major states
and in a variety of industries, from financial companies to hospitals
to school districts to restaurant industry companies.
As I previously mentioned, in Humana's solution, individual
consumers choose between traditional products and consumer-centric
options. While early enrollment in the consumer-centric option was a
low percentage at both Humana and its competitors in 2001, by 2003
nearly 28% of members were enrolled in consumer-centric options, with
other employees remaining in traditional options. Humana believes that
most employers will want to continue offering both traditional and
consumer-centric options, while encouraging efficient behavior.
COST TREND EXPERIENCE
Cost trends have been significantly reduced by enrollment in these
products. And, because Humana views these trends across the whole
``employee health system,'' we've seen a significant impact on
traditional as well as consumer-centric options. In our Humana employee
pilot, we started with 10,000 Humana Louisville employees and their
dependents on July 1, 2001. As measured a bit more than a year later in
late 2002, our average health care trend was 4.9% (the year-over-year
total increase) versus an average trend in the Louisville market of
around 15% (after benefit buydowns). In Year 2, we extended this
solution to our 14,000 non-Louisville employees and dependents and
achieved a trend of 1.4%, attributable in part to ``word of mouth'' and
a greater 20% enrollment in the consumer-centric option. The same year,
Humana offered its Louisville employees a next generation solution with
even more customizable features, including Health Reimbursement
Accounts. This solution's trend was 2.7%. All of these trends compare
to mid-double digit trends in the rest of the traditional marketplace
in 2001 through mid-2003.
Similar cost trends are now emerging in our customer block of
business. As of January 2004, we have credible claims trend experience
on 43 of the 125 employers (many just enrolled as of January 1, 2004),
covering 48,000 insured members. The early evidence for these groups
points to an average trend in a range between 5% and 8%. We update this
experience monthly and the results have been consistent through 2003.
EARLY EVIDENCE OF UTILIZATION AND BEHAVIORAL CHANGE
All of Humana's detailed cost and utilization evidence is derived
from analysis of the experience of our 24,000 employees and dependents.
It is too early to look at the results of covered customer members
since analysis of actuarially credible data requires 12 full months of
data, plus a minimum of three months of ``run-out'' claims to allow for
processing of utilization ``in the system.''
Based on the Humana experience, we first find that there is
significant favorable selection by the ``early movers'' into consumer-
centric options. In Year 1, these ``early movers'' (6% of employees and
dependents) of Humana members had prior claims that averaged only 53%
of the average cohort. In Year 2, with now 20% of members in the
consumercentric option, these healthy individuals averaged around 50%
of the average cost. They are clearly healthier, although were
approximately the same age, on average.
The next question is ``Why did claim trends decrease to single
digit levels?'' Our early experience indicates that several types of
behavioral change accounted for most of the trend reduction. First,
employees chose themselves to migrate to lower cost options, thus
reducing their payroll deductions, in some cases from approximately $20
per pay period for a single employee to $5 per pay period.
Another significant factor appears to be a change in site of care
for receiving services. Visits to emergency rooms and use of other
outpatient services decreased relative to Humana's market averages,
while use of physician office visits increased somewhat. In addition,
more prescription drugs were used, generally consistent with more
office visits. We believe that many of Humana's employees chose to make
greater use of their physicians in office settings, where the doctor's
knowledge of his or her patient likely leads to better quality care,
while eliminating unnecessary costs associated with emergency room
visits or other outpatient services. Exhibits 2 and 3 provide a summary
of the behavioral changes that shows the consumer-centric solution
(SmartSuite SM) vs. Humana's market averages.
In addition, about 200 employees chose to waive coverage. We
checked with all of them and all but one had coverage elsewhere
(generally through spousal coverage). Reduction of duplicative coverage
frequently means that use of unnecessary services is diminished.
Last, there was some element of buydown of coverage in this pilot,
since Humana added a hospital copay to all of the traditional benefit
options.
use of communications and shared-decisionmaking tools by consumers
Humana strongly stresses the need for employers to embrace and
communicate the message of employee participation in their health care
decisions. For the employer, we provide a package of communications
materials tailored to explaining the consumercentric solutions, from
messages from senior management to payroll inserts to newsletters to
posters.
For employees, Humana makes use of on-line enrollment applications,
a wizard to assist employees in making health care option decisions,
and a ``PlanProfessor SM'' to provide background information on how to
maximize their benefits and options. To date, we have had 102 of our
employer customers make use of the wizard and had nearly 100,000 unique
users log in. The wizard leads consumers through a series of questions
about their prior utilization of services, their preferences for
physicians and hospitals and the tradeoffs between lower payroll
deductions and lower point-of-service cost-sharing. This tool provides
options to:
``Narrow My Choices''
``Tailor My Benefits''
``Balance My Cost''
``Tell Me How Much Will I Spend?"
The wizard and the on-line application allow specific information
to be provided to consumers without overwhelming them with data. Access
to the applications can be provided through work desktop computers,
home computers, kiosks at work locations or through the Internet at
libraries or other public facilities.
THE HEALTH INSURANCE INDUSTRY HAS EMBRACED CONSUMER-CENTRIC PRODUCTS
In my opinion, the health insurance industry has generally embraced
consumer-centric products. Humana and nearly all of our major
competitors offer some version of a product with health spending
accounts or multi-option choice product. These products come in many
variations but all make the point of increasing consumer involvement in
the ``choose and use'' health services process.
Since the Department of Treasury issued a statement clarifying the
position of Health Reimbursement Accounts (HRAs) in June 2001, most
large insurers have included these accounts in their products. HRAs
have considerable flexibility in plan design and generally use
``notional'' dollars in accounts that are available to employees but
allow balances at the end of a year to roll-over to be used in future
years. ``Notional'' dollars are accounting credits, like airline
frequent flyer miles, that can be used later but are not cash
contributions. Between 30% and 50% of employees have some of their HRA
amounts remaining to be rolled over. Use of the rollover amounts
depends on the employer's plan provisions, but they may be used for
paying down deductibles or coinsurance in future years, for COBRA
coverage or for retiree benefits. Generally, I don't believe most
employers allow the accounts to be portable.
As you know, Health Savings Accounts (HSAs) were included in the
Medicare Modernization Act (MMA) signed into law in December 2003. Many
health insurers either already have HSA products on the markets or are
in the process of developing and filing these products today. HSAs use
actual cash contributions into an account (in contrast to the notional
dollars used with HRAs) and are truly portable for consumers. There
are, however, certain legislated constraints on plan design that may
reduce the appeal to some consumer segments.
In my opinion, HSAs will have enormous appeal in the individual
health insurance market where most products sold today have deductibles
large enough to qualify as high deductible health plans to meet the HSA
requirements. In addition, HSAs are likely to replace the Medical
Savings Accounts available to small employers. In the larger employer
market, it appears to me that Health Reimbursement Accounts (HRAs) may
continue to have somewhat greater appeal, due to their greater
flexibility of plan design and the ability of employers to use them to
increase employee retention.
SUMMARY
Consumer-centric products will be the focus of attention in
employer-sponsored and individual health insurance over the next few
years. Getting consumers involved in the ``choose and use'' decisions
about their health care coverage is essential to reducing the health
care cost burden. HRAs and HSAs are likely to emerge as common product
features available to most American workers and their families and will
be a necessary component of a strategy of communication, shared
decision-making and choice.
[GRAPHIC] [TIFF OMITTED] T3563.010
[GRAPHIC] [TIFF OMITTED] T3563.011
Prepared Statement of Howard Leach, Head of Human Resources,
Logan Aluminum, Inc.
Good morning, Mr. Chairman and members of the Committee. I am
Howard Leach, head of human resources for Logan Aluminum, a world class
manufacturer of aluminum sheet products located in Logan County,
Kentucky, with a workforce totaling 1,000 employees. Thank you for the
opportunity to testify before you today.
I am delighted to share with you the practical side of the
consumer-directed experience at Logan Aluminum. Like many employers, in
recent years our business experienced annual health-care cost increases
of 20+ percent, which, simply put, is not sustainable and not in the
best interest of our business or our employees. Traditional approaches
to the management of health care costs have been limited primarily to
employers absorbing costs, shifting costs to employees or reducing
benefits. Logan realized these solutions would not be effective long
term, and it was just a matter of time until neither employers nor
employees could afford the cost of health care.
As a business facing intense competition and cost pressures, we
chose consumer-directed health because we saw its potential to help
hold the line on a disturbing cost trend. But we also made this
decision for the benefit of our employees. Now, with more than a year's
experience in a consumer-directed plan, I am here to testify to the
fact that we made the right call and, just as important, I believe our
employees feel we made the right call. Looking back at our experience
in 2003, we have determined that this approach has more than met our
expectations in several important regards, specifically:
Consumer-directed health care is a perfect match for any
company, such as ours, that is motivated by a desire to control long-
term health care costs through a healthier, responsible workforce. We
provide incentives for our employees to complete an annual health risk
appraisal, and we now have a 99.7 percent completion rate.
By encouraging employees to be wise consumers of health
care services, consumer-directed health care can help reverse
unsustainable health care cost trends. As a self-funded benefits plan,
we were able to realize an 18.7 percent reduction in our total medical
costs in 2003 over 2002.
And, most importantly, consumer-directed health care did
not negatively impact our employees' use of preventive health services
and the care needed for serious medical issues. In fact, hospital days
of care were up 4.4 percent in 2003.
A TEAM-BASED CULTURE
To fully appreciate our enthusiasm for the consumer-directed
approach, it helps to understand our company's culture. While employing
roughly 1,000 people in our Russellville, Kentucky plant, we have
established a team-based culture that emphasizes employee involvement
in nearly every facet of the operation.
We look at our employees as partners. With the help of a 20-member
employee committee, we engage our people in thoughtful discussions
several times a year about health care costs. These employees, in turn,
disseminate information about these issues with other smaller groups of
employees in the workplace. This helps keep every employee aware of
health care issues affecting our business.
We are proud of the fact that we have historically offered
employees an excellent, competitive benefits package including
comprehensive medical coverage. We have been very fortunate in not
having to ask employees to pay a percentage of premium, and under the
new consumer-directed health care plan, we still don't. In the past,
the only out-of-pocket costs employees were liable for was a $15 co-pay
for in-network doctor visits.
When health care costs became more of a concern in the early 1990s,
we decided that the best way to tackle rising costs was to get at the
root causes through a strong focus on prevention. We implemented a
wellness program--managed by an onsite wellness director--that
emphasizes regular health care screenings and critical lifestyle
changes. We have an onsite medical department that includes a part-time
doctor and two nurses.
Employees are encouraged to routinely take advantage of health care
screenings, including an annual physical, onsite and at no charge. The
program also supplies our employees with a variety of information
designed to help them better understand how they can improve their
health outlook through a healthy lifestyle. Because we want our
employees to be actively involved in managing their own health, we
follow up these educational efforts with health risk appraisals that
are evaluated by an outside vendor.
The individual results are confidential--only the employees see
their individual assessments. High-risk employees are identified and
then contacted by the vendor and encouraged to participate in an
intervention program. About 250 employees have been identified as at-
risk, and 90 percent of them are now participating in health management
activities. Logan Aluminum sees aggregate results only, helping us to
identify health-related issues across our employee population as a
whole. This allows us to concentrate our educational efforts and
incentives on developing health issues.
Through follow-up health risk assessments, we know we have had an
impact. Results show improvements in body mass index, tobacco use,
seatbelt use and exercise activity across our employee population.
Right now 25 percent of our employees are using the company fitness
center, and 10 percent are in weight reduction programs. Anecdotally,
we have all been extremely gratified to hear that health screenings
have caught cancers early while still treatable. However, despite these
significant trends in the `90s, we did not get all the behavior changes
we had hoped for. And, when costs began to rise dramatically several
years ago, we knew we had to respond aggressively.
Late in 2001, we assembled a task force made up of seven
individuals with the expertise needed to examine the problem
effectively. After extensive research and analysis, the group reported
back to senior management the following spring that it was recommending
a consumer-directed health care model. The task force reasoned that
consumerism offered not only a solid chance of helping to slow costs
but of fitting well with our focus on wellness and behavior
modification. Consumer-directed health care, in fact, reinforces the
importance of healthy lifestyle choices and becoming a wise consumer of
health care. Employees also are encouraged to set individual wellness
and team wellness goals, which are rewarded with additional company
incentives.
CONTINUOUS INFORMATION IS KEY
We very quickly communicated with our employees about the need to
make a change in health care benefits. Initially, there were many
questions and a few concerns about adopting a consumer-directed
approach, but we responded as best we could with the promise of more
information to come. When management approved the health benefits
change, we returned to employees with more information about how the
plan would work. A couple of months later, we went back again with more
detailed information and reading materials to help familiarize our
employees, their dependents and retirees with the specifics of the
plan.
We selected Aetna HealthFund as our consumer-directed health care
plan. Having enjoyed a long relationship with Aetna, we determined that
this would minimize disruption to employees and allow us to continue to
utilize Aetna's extensive PPO network in our area.
Throughout the implementation process, we emphasized that Logan
Aluminum's philosophy remains unchanged. We want our employees to be
healthy, wise consumers, and we are providing the tools needed to help
make that happen. We continue to provide access to free, onsite
physicals. We also provide incentives to employees who participate in
the health risk appraisal program and in wellness programs--up to $250
in cash per year, per employee, if certain aggregate goals are met.
Consumer-directed health care complements these efforts by
encouraging employees to assess the value and quality of health care
services available to them. Preventive care is included as is treatment
for more serious medical conditions, after the deductible has been met.
In fact, with employees in the health plan now having access to a
health reimbursement account, we implemented an additional $200
incentive to be applied to the employee's account if he or she
completes the health risk appraisal. As a result, 99.7 percent of our
people now complete the health risk appraisal, and we are paying out
$418.75 in total incentives to each employee for 2003.
With the help of online tools provided by Aetna, employees now are
getting a better understanding of the true costs of health care. This
information is helping them make informed choices among the options
recommended by their physicians. Our employees generated more than
15,000 hits to the online Aetna site in 2003.
The end result is that, over the course of 2003, employee concerns
and questions virtually dried up. Our annual employee survey at the end
of 2003 showed virtually none of the health care concerns expressed in
2002, before the plan was implemented.
While the deductible in the plan does have the potential to
increase out-of-pocket costs, employees still do not pay monthly
premiums. And, employees know that if they maintain good health they
can save some portion or all of their health reimbursement accounts and
roll them over to another year--decreasing the potential out-of-pocket
exposure in the following year. Again, they also know that full
coverage kicks in once the Aetna HealthFund reimbursement account is
exhausted and the deductible is met.
Our results from 2003 show that average employee out-of-pocket
costs did go up in the consumer-directed health plan from $240 to $665.
However, the net effect after wellness incentives was an increase of
only about $200 per employee. And, the results compare favorably with
national averages. Hewitt Associates (October 2003) projected that the
average employee contribution toward health care expenses would reach
$1,565 in 2004, up from $1,276 in 2003.
SIGNIFICANT IMPACT ON COSTS
As I alluded to earlier, we are seeing truly impressive results
after just one year in Aetna HealthFund. While expanding on our efforts
to promote wellness and informed decisionmaking, we saw a reduction of
18.7 percent in our total medical costs in 2003. This represents an
improvement of $925,000 to the company's bottom line. It's all the more
remarkable when you consider that 13 and 14 percent increases are
currently routine for alternative health care plans.
Similarly, we implemented a new, three-tiered pharmacy plan in 2002
that charges employees a co-pay for generic prescription drugs, a
higher co-pay for preferred brand-name drugs and a higher-yet co-pay
for non-preferred, brand-name drugs. After five years of near-20
percent increases in our pharmacy costs, we saw a 5 percent reduction
in the first year under the new plan and an additional 3 percent
reduction in 2003.
We recognize that these results represent only a short period of
time, but we are very encouraged that we are moving in the right
direction.
EMPLOYEES GET NEEDED CARE
We also are encouraged by utilization data that shows employees
continue to enjoy access to the care they need. One of the best
indicators of that could be hospital days of care, which increased 4.4
percent per 1,000 members in 2003. Inpatient surgeries were up 4.2
percent, an additional indication that employees are getting
appropriate treatment for serious health events.
Use of health care services in some other settings, however, did
drop off. For example, office visits per 1,000 members fell 6.3
percent. Emergency room visits dropped 2.1 percent. Since emergency
rooms are a high-cost environment in which to receive care and should
be used for true emergencies only, we think these results actually
demonstrate that employees are giving serious consideration to their
health care options and are making appropriate choices.
CONCLUSION
Logan Aluminum is committed to providing its employees with quality
health care benefits in a cost-effective manner, and we remain
committed to the active involvement of our own employees in helping to
manage these costs through better management of their own health.
Consumer-directed health care is helping us do that.
It's hard to overemphasize how big a threat rising health care
costs have become to the competitiveness of American businesses today.
Consequently, quality, affordable health care is extremely important to
us from a business standpoint. But our passion and excitement for
consumer-directed health care comes not just from a business objective
met, it comes from a truly innovative solution that allows us to
continue being the kind of company in which we have always taken pride.
In consumer-directed health care we have found an approach that
provides employees with the health care services they need, helps make
our employees wiser, more educated consumers, and holds the line on
costs. I call that a win-win by any measure.
We will continue to watch the results of our new health plan. We
will continue to talk to our employees to make sure the plan continues
to meet our collective needs and that employees have the information
they need. But if I'm certain about one thing it's that consumerism
needs to move forward so that its potential for helping all of us to
become better, more intelligent consumers of health care is realized.
Logan Aluminum very much appreciates the opportunity to testify
before the Committee today. I hope the perspective of a company on the
front lines of today's fast-evolving health care landscape has been
informative and useful. We know how promising the consumer-directed
health care movement has become to us. We would very much encourage
Congress to do what it can to ensure that this important new approach
to health care is given every chance to demonstrate what it can do. We
all need to be participants in a health care benefits solution.
Consumer-directed health care readies us better than anything I can
think of for this new era.
Thank you.
__________
Prepared Statement of Gail Shearer, Director of Health Policy Analysis,
Washington Office, Consumers Union
So-called ``consumer driven'' health care plans, which have
defining features of high-deductible coverage and (possibly) tax-
advantaged employer contributions to health reimbursement or savings
accounts, may create serious problems for the U.S. health care system.
Consumers Union believes that this coverage is misnamed, misguided from
a policy perspective, and a dangerous distraction from the need to
solve the health insurance crisis that faces 43.6 million uninsured
consumers and tens of millions of underinsured consumers. Our testimony
also addresses issues raised by health savings accounts, as included in
the recently enacted Medicare bill and the President's new proposals.
These proposals are likely to accelerate the erosion of current
coverage by adding tax benefits for high-deductible coverage.
We take issue with the growing use of the term ``consumer-driven''
to refer to the transformation of the health care system to one
characterized by high-deductibles. ``Defined contribution'' health care
would be a more accurate shorthand way to refer to a health care
approach that essentially increases deductibles and shifts costs to
sicker employees. Many employees with chronically ill or seriously ill
family members will not view this transformation as consumer-friendly,
despite the name.
The recent expansion and renaming of medical savings accounts and
the President's proposal for a new tax deduction are more likely than
previous efforts to transform the health insurance marketplace to one
characterized by high deductibles. The Economic Report of the President
makes it clear that this is the intention; the Administration frames
the problems in the health insurance marketplace as too much rather
than too little insurance. The Report establishes the ideal health
insurance marketplace as one in which high-risk consumers face health
insurance premiums consistent with their risks, explicitly rejecting
the current goal of health insurance markets of spreading risks broadly
across the community. At the same time, the Report ignores the reality
that the uninsured and underinsured face severe health consequences,
even bankruptcy or death, because of the lack of adequate insurance.
The Administration's proposals, which boost ``consumer-driven'' health
care, will shift more costs to those who are sick.
While the Administration proposals will undermine employer-based
health insurance and shift more to the individual insurance market,
that market underwrites risks carefully and does not make affordable,
comprehensive coverage available to individuals who have pre-existing
conditions. The underlying nature of the population's health status--in
which risks vary widely--makes the health insurance market different
from other markets such as the market for cars or toasters. Individuals
with underlying health risks benefit from employer coverage or other
large pooling arrangements (e.g., public programs), since this spreads
risks broadly. For those covered by employer health plans now, the
average cost (in 2000) was about $2,600, but those in the top tenth of
spending had average costs of about $16,700.
Because of the combination of variation in risks (which lead to
different health insurance selections), and higher tax brackets and
ability to meet high deductibles, HSAs will appeal disproportionately
to the healthy and wealthy. Many economic analyses, including the
American Academy of Actuaries, have reached the conclusion that this
type of high deductible health insurance will fragment the risk pool,
shift costs to the sick, and ultimately drive low-deductible coverage
out of the market since it can not exist side-by-side in the
marketplace with high-deductible coverage because of the underlying
nature of the health insurance market.
``Consumer-driven'' health care is likely to aggravate the problem
of the underinsured since individuals with moderate income are likely
to face out-of-pocket health care costs (and premiums) that exceed ten
percent of their income.
The focus on transforming our health care marketplace to one
characterized by high-deductible policies is a dangerous distraction
from the urgent national goal of extending affordable, quality health
coverage to all.
______
Consumers Union Testimony on ``Consumer-Driven'' Health Care
INTRODUCTION
Employers, who provide health insurance for about 60 percent of the
U.S. population, are increasingly under pressure to constrain their
spending on health insurance premiums, which have been growing in
recent years at an annual rate of 5 to 8 percent. This pressure is
aggravated by the recent weakness in the economy. One way to reduce the
employer premiums for health insurance, and to make payments more
predictable, is to switch to a ``defined contribution'' approach to
health insurance, similar to the shift in recent decades from defined
benefit pensions to defined contribution pensions. In the employer
health insurance market, a key distinguishing feature of its effort to
move toward a defined contribution model is high-deductible coverage.
As indicated by the title of the Joint Economic Committee hearing, the
term that insurers and employers have coined to name this new trend in
the marketplace is ``consumer-driven health care.'' Consumers Union,
\1\ which appreciates the opportunity to present our views to the
committee, is troubled by this trend in the marketplace. In our
testimony, we plan to explain why we believe this type of coverage is
misnamed, misguided from a policy perspective, and a dangerous
distraction from the health insurance crisis that faces 43.6 million
uninsured consumers and tens of millions of underinsured consumers.
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\1\ Consumers Union is a nonprofit membership organization
chartered in 1936 under the laws of the state of New York to provide
consumers with information, education and counsel about good, services,
health and personal finance, and to initiate and cooperate with
individual and group efforts to maintain and enhance the quality of
life for consumers. Consumers Union's income is solely derived from the
sale of Consumer Reports, its other publications and from noncommercial
contributions, grants and fees. In addition to reports on Consumers
Union's own product testing, Consumer Reports with more than 4 million
paid circulation, regularly, carries articles on health, product
safety, marketplace economics and legislative, judicial and regulatory
actions which affect consumer welfare. Consumers Union's publications
carry no advertising and receive no commercial support
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MISNOMER: ``CONSUMER-DRIVEN'' HEALTH CARE IS BETTER CALLED ``DEFINED
CONTRIBUTION'' HEALTH CARE
Defining features of so-called ``consumer-driven health care''
plans tend to be high deductible policies (e.g., $5,000), combined with
a contribution by the employer to a health care savings account, at a
level that leaves the consumer exposed to some out-of pocket costs
before the high-deductible is met. For example, the employer might
provide $2,000 toward a family's health reimbursement account, and
offer a deductible of $5,000. (Often, the employer provides additional
access to information about health care choices, such as information
about managing certain diseases.) ``Consumer-driven'' implies that
consumers have a full range of choices, and are in the driver's seat
calling the shots. The problem with this is that too many consumers are
not in control of their health care out-of-pocket costs or health
coverage. An employee with a seriously, chronically ill child, for
example, will not be able to accumulate a nest egg in a health
reimbursement account, and will face high out-of-pocket costs each
year. A consumer with an income in the range of $25,000 to $30,000 will
suffer financial hardship if they face out-of-pocket costs as high as
$3,000 a year. An employee with existing health conditions such as high
blood pressure or diabetes will face very limited choices in the
individual marketplace if his employer decides to ``cash out'' its
health insurance plan and send employees into the individual market for
coverage. This type of policy appears to be driven largely by the
employer's desire to curb its health care expenditures. The term
``consumer-driven'' may well mislead employees and the public about the
true impact of this type of coverage.
THE MEDICARE BILL AND ADMINISTRATION PROPOSALS ACCELERATE THE
TRANSFORMATION OF THE MARKETPLACE TO ONE CHARACTERIZED BY HIGH
DEDUCTIBLE COVERAGE
The year 2003 may well go down in health care history as the year
that the health care system began to rapidly evolve toward a system
characterized by health insurance deductibles in the range of $1,500 to
$2,000 for individuals and $2,500 to $5,000 for families, instead of
deductibles that are around $250 for individuals and $500 for families.
``Consumer-driven health care'' plans in the employer benefit system
are one mechanism for movement toward high deductibles. The expansion
of medical savings accounts (renamed as Health Savings Accounts or
HSAs) in the Medicare Modernization Act is another major step toward
high deductible coverage as the norm. Because employer and employee
contributions to HSAs (when accompanied by a high deductible policy)
will be shielded from taxes, it is likely that this financial incentive
will stimulate substantial rapid expansion.
The Administration's additional proposal for making premiums paid
for high deductible policies tax deductible is likely to boost the
popularity in the marketplace substantially and dramatically exacerbate
market segmentation. While supporters of MSAs, HSAs and ``consumer
driven health care'' initially argued that consumers should have a
choice of this type of high-deductible coverage, recently they have
spoken more openly (to their credit) about their intention to transform
the health care system to one in which high-deductible policies are the
norm. This is a more honest approach to pretending that high-deductible
and low-deductible policies can exist side-by-side in the marketplace,
when the nature of varying risks in the marketplace, and adverse
selection, make this impossible. This year's Economic Report of the
President \2\ clearly indicates the Administration's opposition to
health insurance coverage for relatively routine health care needs; a
key policy recommendation (for tax deductions for premiums for high
deductible policies) clearly indicates the Administration's preference
for a high-deductible health insurance system. Similarly, former House
Speaker Newt Gingrich has spoken about his goal of transforming
America's health care system into one characterized by high deductible
coverage.
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\2\ P. 200, Economic Report of the President, February 2004.
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Despite the theory (as expressed in the Economic Report of the
President) that health insurance with higher deductibles will lead to
consumers shopping around for health services (based on price and
quality), the reality of health care needs (often requiring timely
care, often requiring decisions by doctors, not patients) and
inadequate information in the marketplace about health care quality and
prices, precludes the workability of a ``consumer-choice'' type of
model. Even if perfect information about price and quality were
available on an instant basis, it is the doctor who ultimately makes
judgments about needed care. Another problem with the theory is that
most health care expenditures are incurred in the course of very
serious illness, after the deductible (and probably the stop-loss) have
been met, thereby negating any curbing of expenditures that would be
based on patients' financial incentives. Instead of reducing aggregate
expenditures, such policies are more likely to shift even more costs to
consumers.
THE PRESIDENT'S ECONOMIC REPORT FAILS TO RECOGNIZE THE COSTS INCURRED
WHEN CONSUMERS ARE UNINSURED AND UNDERINSURED
The focus of the President's Economic Report chapter on health
insurance is more on the alleged problems of over-insurance rather than
the problems associated with the lack of insurance and underinsurance.
The chapter could be a primer for a Health Economics 101 course on the
virtues of an unfettered free market for health insurance: the reader
learns about different consumption choices that consumers make when
they have insurance. It posits that patients might over-consume
services if they face too little cost-sharing. Insurers might be
disadvantaged because applicants know more about their health status
than the company does. The lack of insurance is a matter of choice for
the uninsured who opt out of employer coverage or fail to enroll in
public coverage.
The report suggests that in an ideal world, the insurer would have
complete information about the applicant's health status, and this
would enable the insurer to more easily discriminate in pricing between
the healthy and the potentially sick: ``If insurers could distinguish
among different types of consumers, policies could be tailored to
specific types and priced accordingly.'' As Paul Krugman pointed out in
The New York Times recently, this approach would lead to insurance
companies denying coverage for dialysis if new insurance company tests
indicate that they are likely to experience kidney problems later in
life. \3\
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\3\ Paul Krugman, ``The Health of Nations,'' New York Times,
February 17, 2004.
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Nowhere in this chapter is there recognition of the reality that
faces millions of Americans every year: For the most part, people are
not uninsured out of choice, but because they can not afford to pay
health insurance premiums. Every day, uninsured and underinsured
Americans are dying because of the lack of insurance. An Institute of
Medicine study reported that an uninsured woman diagnosed with breast
cancer is 30 to 50 percent more likely to die than a woman with private
health insurance. The record is clear: uninsured people get inadequate
care. Cancer patients die sooner when diagnosis is delayed; uninsured
people with diabetes are at greater risk of uncontrolled blood sugar
levels and hence are at risk of additional chronic disease and
disability; and adults with mental illness who lack mental health
coverage are less likely to receive mental health services consistent
with clinical practice guidelines.\4\ When the marketplace shifts to
one characterized by pricing to risk, as suggested by the President's
Economic Report, this leads to escalating premiums for the very people
who can least afford them--people who face serious health challenges.
In addition, unreimbursed health care costs are a leading cause of
bankruptcy, and contribute to half of all bankruptcies.\5\
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\4\ Care Without Coverage: Too Little, Too Late, Institute of
Medicine, 2002, pages 3-11.
\5\ Consumer Bankruptcy: Issues Summary. Leo Gottlieb, Professor of
Law; Elizabeth Warren, Harvard Law School, January 7, 2003.
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The United States is the only industrialized country in the world
that would consider ``pricing to risk'' instead of spreading health
care costs broadly across the population. A World Health Organization
report found that the U.S. had the highest per capita health care
spending, but rated 54th (of all the countries in the world) when it
comes to fairness of financial contribution.
I would like to share a personal story that is a stark reminder of
the irony that a country as rich as ours fails to provide health
coverage to all. A cab driver, who came from Egypt over 20 years ago,
had experienced health care in Egypt (with a per capita income about
one tenth the level of the United States) with health care in America.
He reported to me how a U.S. doctor marveled over his high-quality scar
from stitches received in a major abdominal operation, all at no cost
to him. In contrast, his wife, recently diagnosed with breast cancer,
is receiving court notices for her failure to pay bills for a
mastectomy, even though there had been assurances that her treatment
would be covered by subsidies. He posed the question to me: how can a
country this rich put such a financial burden on people who are
seriously ill?
The Administration's proposals, which boost ``consumer-driven''
health care, by design, shift more costs to those who are sick. The
result will ultimately be a health care system that distributes costs
of health care even less fairly than it does today.
HEALTH INSURANCE RISKS VARY
There is tremendous variation in health care costs incurred by
those covered by employer health insurance, as shown in the Figure
below. Based on survey data from the Medical Expenditure Panel Survey
(MEPS) and adjusted to 2000 levels (by the Lewin microsimulation
model), the average health care costs of those with employer based
coverage was $2,628 in 2000. However, the average masks a large degree
of variation: those in the lowest fifth of spending incurred on average
$30 of health care expenditures, while those in the top tenth of
spending incurred costs of $16,710.\6\ This variation of risk goes to
the heart of the need to find a way to spread costs broadly in order to
keep costs affordable to those at the highest risk level.
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\6\ Gail Shearer, Consumers Union, The Health Care Divide: Unfair
Financial Burdens, August 10, 2002, Table 10.
[GRAPHIC] [TIFF OMITTED] T3563.012
A 62-year-old overweight smoker with high blood pressure
was rejected 55 percent of the time, and was offered coverage with
benefit limits or premium surcharges 42 percent of the time, at average
premiums of $9,936/year.\7\
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\7\ How Accessible is Individual Health Insurance for Consumers in
less-than-perfect health? The Henry J. Kaiser Family Foundation, June
2001, www.kff.org.
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A 48-year old breast cancer survivor was rejected 44
percent of the time, and was offered coverage with benefit limits or
premium surcharges 38 percent of the time.
Even a 24-year old with hay fever faced rejection 8
percent of the time, and benefit limits or premium surcharges 87
percent of the time.
Yet the Economic Report of the President suggests that instead of
spreading risks broadly so that health coverage will be affordable to
those with existing conditions, ``pricing to risk'' is a primary goal
of the health insurance marketplace. This approach sacrifices any
notion of community and sharing of our neighbor's burden, in favor of
marketplace efficiency. Clearly, a shift of the insurance market away
from employers and toward the individual insurance market, as
encouraged by the President's proposal, will add financial burdens and
challenges to all those that have any existing health conditions.
HEALTH SAVINGS ACCOUNTS (HSAS) DISPROPORTIONATELY BENEFIT THE HEALTHY
AND WEALTHY AND FRAGMENT THE RISK POOL
Expansion of medical savings accounts (MSAs) under the new name of
Health Savings Accounts (HSAs) add a new wrinkle to ``consumer-driven
health care'' plans by making the contributions to the health
reimbursement account tax deductible. This new tax policy, combined
with high deductible health coverage, is likely to appeal
disproportionately to the healthy and wealthy.\8\
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\8\ Edwin Park and Robert Greenstein, Center on Budget and Policy
Priorities, President Proposes to Make Tax Benefits of Health Savings
Accounts More Lucrative for Higher-Income Individuals, February 9,
2004.
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The healthy benefit because they have the new prospect of
a tax-sheltered investment in which money is not taxed when put in or
when withdrawn.
The wealthy, with higher tax brackets, benefit
disproportionately because the tax savings are larger at higher tax
brackets than lower tax brackets.
Because of the divisive impact of high-deductible health insurance,
it is also likely to aggravate already serious health marketplace
disparities that result in inferior health care for blacks and Latinos,
another troubling possibility at a time when the nation is finally
beginning to address these problems. Because of the variation of risks,
and different selections made by people of different health status,
high deductible plans can not exist in the long-term in a marketplace
that offers low-deductible plans as well. Ultimately, low-deductible
plans will be driven out of the market, with ``premium spirals''
driving out comprehensive coverage.\9\
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\9\ Daniel Zabinski, Thomas M. Selden, John F. Moeller, Jessica S.
Banthin, Center for Cost and Financing Studies, Agency for Health Care
Policy and Research, ``Medical Savings Accounts: Microsimulation
Results from a Model with Adverse Selection, Journal of Health
Economics, 18 (1999) 195-218.
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At the same time that this type of policy drives low-deductible
coverage out of the marketplace, it is expected to do so with
considerable federal expenditures. While the 10-year estimate of the
HSA provision in the Medicare bill is $16 billion, adding the cost of
the President's proposal to make premiums deductible brings the 10-year
cost to $41 billion.\10\ Beyond draining the federal treasury (and
these cost estimates may well be low), it is important to keep in mind
what other experts have said about the impact of such high deductible
coverage:
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\10\ The $25 billion estimate is from: ``General Explanations of
the Administration's FY2005 Revenue Proposals,'' Department of
Treasury, February 2004, p. 26. The HSA provision of the Medicare
Modernization Act was initially estimated (by the Joint Committee on
Taxation) to cost $6.4 billion over 10 years. The Administration budget
estimated this cost to be $16 billion. OMB, Analytical Perspective:
Fiscal Year 2005, p. 292, cited in Edwin Park and Robert Greenstein,
Center on Budget and Policy Priorities, President Proposes to Make Tax
Benefits of Health Savings Accounts More Lucrative for Higher-Income
Individuals, February 9, 2004, p. 3.
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``Fundamentally, those who would likely win from shifting to MSA/
catastrophic arrangements are the healthy who will `take back' some of
their `excess' contributions that effectively help to subsidize
others.'' \11\
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\11\ Len M. Nichols, Marilyn Moon & Susan Wall, ``Tax-Preferred
Medical Savings Accounts and Catastrophic Health Insurance Plans: A
numerical Analysis of Winners and Losers,'' The Urban Institute,
Washington DC, April 1996, p. 12.
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``The great savings will be for the employees who have little or no
health care expenditures. The reatest losses will be for employees with
substantial health care expenditures.'' \12\
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\12\ American Academy of Actuaries, ``Medical Savings Accounts:
Cost Implications and Design Issues,'' May 1995.
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``Insurers view high deductible plan enrollees as presenting a
lower claims risk than enrollees in traditional low deductible plans .
. . Insurers expect relatively better health status and lower service
utilization by enrollees selecting high deductible plans and price
their products accordingly.'' \13\
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\13\ ``Medical Savings Accounts: Results from Surveys of
Insurers,'' U.S. General Accounting Office, December 31, 1998, GAO/
HEHS-999-34, Appendix, p 14.
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``If MSAs become widely popular among consumers with relatively
better health, an adverse selection cycle could be triggered that would
drive up the cost of conventional, more comprehensive insurance. The
resulting premium increases are likely to be large enough to make such
insurance unaffordable and unavailable for substantial numbers of
Americans.'' \14\
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\14\ Iris J. Lav, Center of Budget and Policy Priorities, ``MSA
Expansions in Patients' Bill of Rights Could Drive up Health Insurance
Premiums and Create New Tax Shelter,'' February 23, 2000.
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A recent study of ``consumer-directed health benefits'' concluded
that the young and healthy are potential winners, and that older people
are less likely to choose high-deductible plans.\15\
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\15\ Dwight McNeill, ``Do Consumer-Directed Health Benefits Favor
the Young and Healthy?'' Health Affairs, January/February 2004, p. 186-
196.
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Another concern about the President's proposal to make premiums for
high-deductible health insurance policies tax deductible is the likely
erosion of employer-based health coverage. When employers realize that
employees have alternatives to employee coverage (i.e., through tax
credits or deductions on the individual market), they may decide to
discontinue offering their employees health insurance. Economists have
estimated (in the case of tax credits) that for every 100 individuals
who become newly insured through tax credits, 42 individuals would
become uninsured because their employer dropped coverage.\16\
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\16\ Estimate calculated based on Jonathan Gruber's testimony
before the Subcommittee on Health, House Ways and Means Committee,
February 13, 2002. See also: Edwin Park, Center on Budget and Policy
Priorities, Administration's Proposed Tax Credit for the Purchase of
Health Insurance Could Weaken Employer-Based Health Insurance, February
18, 2004. www.cbpp.org.
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In sum, high deductible coverage, combined with the new tax
shelter, drive up premiums for those wanting low deductible coverage,
are likely to lead to elimination of low-deductible coverage, strain
the federal treasury, and will lead to shifting of costs to those who
are sick while benefiting the healthy and those in high tax brackets.
``CONSUMER DRIVEN HEALTH CARE'' WILL NOT SOLVE THE PROBLEM OF THE
UNINSURED WHILE AGGRAVATING THE PROBLEM OF THE UNDERINSURED
Approximately one in six (16 percent) families (with head of
household under 65) incurred out-of-pocket health care costs (including
premiums they pay directly) that exceed 10 percent of their income.\17\
Economists have used a risk-based definition of the underinsured--in
which individuals are ``underinsured'' if they have private insurance
and yet, because it is not comprehensive, run the risk of having out-
of-pocket costs exceeding 10 percent of their income if they face a
catastrophic illness.\18\ As the President's Economic Report clearly
points out, high-deductible (and ``consumer-driven'') health care plans
are designed to increase out-of-pocket costs for those who have health
care expenditures. The gap between money in a health savings account
and the high-deductible (this gap could be very high, in a range of
$2,000 to $5,000 for families) is likely to cause a large number of
families with relatively modest income to fall into the category of
being ``underinsured'': they are at increased risk (especially when
including premiums and health care expenses not even covered by their
policy) of having out-ofpocket costs exceeding 10 percent of their
income. This concern is aggravated by the fact that many costs (e.g.,
charges that exceed allowed rate levels, charges for non-covered
services) will not count toward meeting the deductible or toward any
stop-loss in the policy. In our view, shifting this kind of financial
burden to families with moderate incomes is undesirable. This segment
of the population is also at risk of facing loss of employer coverage
(if employers drop out of the health care market) and higher premiums
for low-deductible coverage (if high-deductible policies are
available).
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\17\ Gail Shearer, Consumers Union, The Health Care Divide: Unfair
Financial Burdens, August 10, 2002, p. 14.
\18\ Pamela Farley Short and Jessica S. Banthin, New Estimates of
the Underinsured Younger Than 65, JAMA, 274: 1302-1306.
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Focusing on transforming our health care marketplace into a high-
deductible marketplace is a dangerous distraction from the urgent
national goal of extending affordable, quality health coverage to all.