Health Insurance Trends

1
Health Insurance Trends

• With health care expenditures growing far more
  rapidly than the economy, employers and health
  insurers are implementing new ways to reconcile
  the strong demand for medical services with the
  means to pay for them
• Individual consumers should assume greater
  financial responsibility for selecting insurance
  benefits and seeking medical treatment
• Employers prefer this approach to controlling
  costs vs. government intervention

2
Health Insurance Trends

• In contrast to other industrialized nations, the
  U.S. favors reliance on voluntary,
  employer-sponsored health insurance
• Since WWII, federal government encouraged
  voluntary approach by exempting from taxation
  insurance premiums paid by employers
• cost about 141 billion in 2000, making it the
  third largest federal health program (based on
  expenditures)
• favors people of means because the higher the tax
  bracket, the greater the break

3
Health Insurance TrendsStatus of Insurance
Coverage

• In 2000, employer-based insurance covered 171
  million people
• Medicare, Medicaid, and other public programs
  covered an additional 80 million people
• From 1994-2000, the number of people without
  health insurance remained unchanged 17
• Many retirees have seen employer-based coverage
  that supplemented Medicare diminish/disappear
  over the last decade

4
Health Insurance Trends Premiums

• From 1994-1997, small annual increases in
  premiums and overall health expenditures less
  than overall inflation
• Since then, spiraling costs
• Movement to less intrusive methods of cost
  control
• Hospital systems exploited leverage with insurers
• Rapid growth rate of health insurance premiums
  key factor in employers decision to reduce
  coverage for retirees

5
Health Insurance TrendsThe Return of Cost
Sharing

• At employers urging, insurers are redesigning
  benefits packages to have the greatest effect on
  workers who seek medical care
• Feature fewer benefits, larger cost-sharing
  requirements at point of service, or both
• Smaller premium increases than would have
  otherwise been the case
• Reversal of a decades-long pattern
• 15 of consumers personal health expenditures
  were out-of-pocket in 2000, down from 20 in 1990
  and 48 in 1960

6
Health Insurance TrendsThe Return of Cost
Sharing

• Forms of cost sharing
• Annual deductible
• Specific deductible for hospital admission
• Copayment
• Various forms for generic and brand-name drugs
• Recent study suggested that employers could
  realize greatest reductions in premiums through
  increased cost sharing by patients rather than
  elimination of specific benefits

7
Health Insurance TrendsA New Balance between
Employers and Employees

• Employers considering basic change
• Abandon defined set of insurance benefits
• Offer employees fixed amount of money to pay for
  coverage
• Employees responsible for any costs that exceed
  employers contribution (up to a maximal amount,
  beyond which insurance covers serious/catastrophic
  illness)
• Defined contribution first introduced in
  context of pension benefits for retirees

8
Health Insurance TrendsA New Balance between
Employers and Employees

• Most employers interested in offering employees a
  less radical version
• Portion of employers contribution to health
  insurance is placed in a personal health account
  - employee can purchase health care services with
  tax-exempt dollars
• Major medical policy (also purchased with a
  portion of the employers contribution) covering
  the costs of catastrophic illnesses

9
Health Insurance TrendsA New Balance between
Employers and Employees

• Most companies slow to embrace new model
• Self-insured employers concerned that
  defined-contribution approach could become more
  (rather than less) expensive for companies if
  employees draw heavily on personal accounts for
  discretionary services
• Concerns about jeopardizing the pooling function
  of health insurance