Employer-Sponsored Health Care Insurance: Not So Exceptional After All David Orentlicher, MD, JD Samuel R.
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Employer-Sponsored Health Care Insurance: Not So Exceptional After All
David Orentlicher, MD, JD Samuel R. Rosen Professor Co-Director, Hall Center for Law and Health Indiana University Robert H. McKinney School of Law
U.S. exceptionalism: Perception
Only country where residents generally obtain their insurance from their employers Employers have long complained that because they bear the costs of health care coverage, they are at a competitive disadvantage with respect to businesses in other countries that have government sponsored health care
Perception
“Is General Motors an automobile manufacturer that provides healthcare benefits for its workers? Or is it a health insurance provider that also happens to make cars?. . .
At the company's annual meeting in Detroit last week, CEO Rick Wagoner told shareholders that health benefits add a staggering $1,500 to the price of every vehicle GM makes.”
Jeff Jacoby, Boston Globe, June 16, 2005
Thanks to David Hyman for the quotes Note that GM’s problem was with retiree health benefits
U.S. exceptionalism: Reality
U.S. employers are not exceptional in terms of their role in financing health care spending. Employers in France and Germany, for example, also shoulder a high percentage of health care costs With a single-payer system, U.S. employers would no longer contribute to the cost of their employees’ private health coverage, but they instead would contribute to the cost of their employees’ public health insurance
New America Foundation (May 2008) United States Canada Percent of payroll for health benefits 13.0
Hourly pay manufacturing 18.32
Hourly cost health benefits manufacturing 2.38
Total pay plus health benefits manufacturing 20.70
4.5
19.21
0.86
20.07
Japan Germany United Kingdom France 3.7
6.7
1.9
12.8
Foreign, weighted average 4.9
18.06
25.53
20.91
16.93
19.79
0.68
1.70
0.40
2.17
0.96
18.74
27.23
21.31
19.10
20.73
ACA and employer-sponsored coverage (ESC)
ACA addresses a key problem with ESC—the job lock problem
Workers might not have started their own companies or made other changes in employment that would cause them to lose their health care coverage, especially if they had a pre-existing condition
Under ACA, the entrepreneur will be assured of access to federal subsidies for the purchase of affordable, community rated insurance
Employer-sponsored coverage (ESC) and access to coverage
As the job lock problem illustrates for access to coverage, what has really mattered about ESC in the United States is the porous safety net for people who do not have access to good insurance from their employers
That also was true in France until the 1980s because of low public subsidies ACA greatly strengthens the safety net with the Medicaid expansion and the exchange subsidies
Employer-sponsored coverage (ESC) and cost containment
While ACA addresses the access problem with ESC, what about employers’ concerns with health care costs?
Does ESC make it more difficult to contain health care spending?
Depends on why spending is higher in the United States than in other countries
Americans are less healthy?
Americans actually may suffer less from high-cost medical conditions than people in Western European countries
McKinsey & Company 24 of study) study estimated that the United States may spend a little less than other countries because of lower disease prevalence (pages 23 Americans smoke less and are younger
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Price-insensitive patients?
Insurance => Price-insensitive consumers
If treatment costs $100 and yields a “value” of $75, it shouldn’t be provided—but if the patient only pays $25 and receives the $75 value, it will be worth it to the patient Americans pay more total dollars out of pocket, but we generally pay a smaller percentage of our health care costs out of pocket (i.e., through deductibles and co payments) (premium payments are not included)
France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32%
Peterson & Burton, Congressional Research Service (2007)
Financial incentives for patients?
If people are not sufficiently sensitive to costs because of insurance, should we use health savings accounts or other mechanisms to give patients more skin in the game?
Raising out-of-pocket costs reduces patient demand for care, but
Patients do not always distinguish between necessary and unnecessary care
Caps on out-of-pocket costs prevent patient sensitivity to costs of high-cost services (e.g., heart surgery, cancer chemotherapy)
Buntin et al., Health Affairs (2006)
Fee-for-service health care?
Fee-for-service reimbursement => Quality insensitive physicians and hospitals
Physicians and hospitals paid more to do more, regardless of outcome, will do more
Especially when they lose money on higher quality care (Urbina, NY Times, 2006) Example of clinic that switched from salary to commission on fees generated and doctors scheduled more appointments and ordered more blood tests and x-ray
Hemenway, NEJM (1990) But fee-for-service is common around the world
Higher labor costs?
In one view, we can explain higher health costs in the United States on account of two factors:
Medicine is a labor intensive good and Labor is more expensive in the United States than in other countries
Rubin & Miyagiwa, Why Is Medical Care Expensive in the US.? (March 5, 2011) While individuals can purchase some health care overseas (medical tourism), it’s much harder for consumers to benefit from lower labor costs overseas in health care than with other goods
Higher prices in US?
Costs are higher in US in large part because prices for health care services are higher
On the buyer side, governments in single payer systems can bargain more effectively than can US insurance companies with doctors, hospitals and pharmaceutical companies
On the seller side, hospital mergers have led to greater negotiating leverage with insurers (beware of ACOs)
Peterson & Burton, Congressional Research Service (2007)
Lowering health care costs
“All-payer regulation”—Other countries with multiple insurers rely on a universal fee schedule (with regional variations) negotiated between government or insurers collectively and health care providers
Oberlander and White, NEJM (2009) But even with all-payer regulation, fee-for service exerts inflationary pressure Elimination of fee-for-service reimbursement (salaries, capitation)
Perception
“It’s strange. When I joined GM 28 years ago, I did it because I love cars and trucks. I had no idea I’d wind up working as a health care administrator.”
Rick Wagoner, GM CEO, interviewed by George Will, May 1, 2007
Thanks to David Hyman for the quote
Perception
But with costs under control, would Wagoner be happier paying the government to run his employees’ health care plan?
Indeed, in 1950, GM created its health benefits plan as a preferred alternative to government-sponsored health care
GM wanted to preserve its autonomy