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CONSUMER
CHOICE MATTERS, #2
DATE:
February 4, 2003
TO:
Consumer Choice Matters Readers
FROM:
Greg
Scandlen
IN
THIS ISSUE:
Medical
Savings Account Expansion in President's
Budget
We
had quite a scare over the weekend. The
media reported on Saturday a Treasury
proposal to create new "lifetime
savings accounts" that could be set
up to pay for things like education and
health care. These would be modeled
after Roth IRAs, in which the
contribution is after-tax, build-up is
tax free, and withdrawals are tax free.
Several papers including the Washington
Post said, "existing medical
savings accounts and education accounts
would not be eliminated, but savers
would be encouraged to convert them into
lifetime savings accounts."
YIKES!
Does "existing accounts" mean
those that are already in place? Does
that imply that no new accounts could be
set up? Is this the end of MSAs? Doesn't
the Administration realize that it is
the tax treatment of the MSA contribution
that is important, not the build-up?
We
were getting geared up for battle, but
then on Monday, the President's budget
proposal was released, containing a
major expansion of MSAs, as we had been
expecting. The budget calls for most of
the key provisions we've all been
discussing for years now - lifting the
caps on enrollment and employer size,
lowering allowable deductibles to $1,000
for individuals and $2,000 for families,
allowing contributions by both employer
and employee and up to 100% of the
deductible, and making the program
permanent. Plus, it allows for up to
$100 per person in preventive services
to be covered by the insurance plan.
WHEW!!
That's a relief. But the question
remains, what in the world were they
thinking by sending out such a confusing
message?
And
there lingers a suspicion that perhaps
the Administration really prefers a Roth
type approach to health care spending.
That would be a big mistake. Health care
is different than retirement or higher
education, which involve putting aside
money for 20 or more years before
touching the principle. In that
circumstance, the tax advantage of the
build-up is important. But health care
is consumed annually. Very often there
will be only modest rollover and minimal
build-up, so the LSA approach offers
hardly any advantage over simply paying
cash for a service with after-tax
dollars - as everyone is free to do
today. Also, MSAs have to compete with
employer-sponsored health insurance,
which enjoys huge tax advantages -
freedom from both payroll and income
taxes. Few people would trade a tax-free
insurance plan for after-tax direct
payment. That is precisely why we have
come to be so dependent on employer
benefits.
The
budget also contains provisions for
refundable tax credits for the
uninsured, an above-the-line deduction
for LTC insurance premiums, a $500
carry-over of unused FSA funds, an
additional option to allow $500 of
unused cafeteria plan funds to be
deposited into a retirement account or
an MSA, and, of course, a $400 billion
program to reform Medicare and make
prescription drug coverage available.
SOURCE:
The best write-up I've seen on the
Lifetime Savings Accounts is by Al
Crenshaw in Sunday's business section of
the Washington Post. Go to: www.washingtonpost.com/wp-dyn/articles/A8847-2003Jan31.html
A summary of the President's budget
proposal is at: www.treas.gov/press/releases/reports/bluebook2003.pdf
Consumerism
Good Even For Poor, Aged & Disabled
- NCOA
The
usual knee-jerk rap on consumer driven
programs such as MSAs and HRAs, is that
they might be good for the "healthy
and wealthy" but what about the
sick and the poor? How well will they
manage their funds? The definitive
answer now comes from, of all places,
the National Council on Aging (NCOA),
with support from the Robert Wood
Johnson Foundation. They have issued a
report called "Myths and Realities
of Consumer-Directed Services for Older
Persons" that should put that issue
to rest - forever.
The
report is a description of a number of
experimental programs that put money in
the hands of the poorest and sickest
population possible - elderly disabled
people on Medicaid. The programs were
funded in part by RWJ and include the
"Cash and Counseling" programs
in Arkansas, New Jersey and Florida, the
Independent Choices programs that were
used in 13 different locations, and the
Self Determination Initiative that was
aimed at people with mental retardation
and developmental disabilities. The
report says these projects included,
"randomized-controlled trial(s) of
what happens when consumers are given
supplemental income to spend as they
need instead of a set of services
prescribed by a case manager." The
report says the common thread of these
projects, "is that individuals have
the primary authority to make choices
that work best for them regardless of
the nature or extent of their
disabilities or the source of payment
for services."
The
report is loaded with anecdotes of real
life people who disprove a number of
myths. One such myth is "Consumer
directed services are not appropriate
for elderly persons with disabilities or
for individuals with cognitive
impairments." On the contrary, says
the report, in reality, "Studies
have shown that many elderly individuals
with disabilities and persons with
cognitive impairments can express daily
preferences for care and can benefit
from consumer-directed programs."
Another myth is, "younger persons
wish to direct their own services. Older
adults are not interested in consumer
direction." The reality is,
"many older persons, just like
younger adults, are interested in
consumer direction and most of them have
clear preferences about personal care,
daily activities, and where they want to
live."
The
patients involved in these
demonstrations are not selectively
chosen to get good results. They
include: a 74 year old widow with
diabetes and glaucoma who saved enough
money on personal care services to buy a
new pair of dentures; an 89 year old
woman who had been in nursing homes four
times; a family with an elderly father
with severe Alzheimers. Very often the
people use surrogates, often family
members, to be their advocates, but the
surrogate is a person of their own
choosing who knows and cares about the
patient involved.
The
paper concludes, "Consumer
direction in services for older persons
with disabilities is like a train that
is leaving the station." It adds,
"This shifting emphasis from
government-controlled to market-oriented
services is part of a trend that is
evident in the economies and social
welfare programs of virtually every
nation in the world over the past twenty
years." And concludes,
"Enabling, empowering and
encouraging consumers to self-direct has
great potential for improving the
quality of life for consumers and can
help foster more cost-effective and
compassionate systems of care."
SOURCE: Thanks to Dr. Steve Barchet for
bringing this paper to my attention. It
can be found in either PDF or HTML
format at: www.consumerdirection.org/reso.htm
Consumer
Driven Plans Gather Steam
The
magazine HRfocus carries an
article in its February issue headlined,
"Consumer-Driven Health Care Plans
Continue to Gather Steam." The
article points out that the guidance
from the IRS on HRAs has made the
approach more attractive to employers
who are struggling with rate hikes of
15% and more. The article quotes Segal
Company's Ken Jacobsen as saying
"We're coming to the end of an
era" in which "all you can
eat" health plans predominated. He
reports that about 250,000 workers are
enrolled in consumer driven plans, up
from about 50,000 just a year ago.
SOURCE: The article is in the February,
2003 issue of HRfocus, published
by IOMA. The closest I could get to it
on-line is at: www.ioma.com/showfile.php/744
Worker
Education Overcomes Skepticism
But
the Houston Chronicle says
"workers aren't dealing well with
rising health insurance costs." It
cites labor trouble at General Electric
and Hershey Foods as examples. These
cases make employers "somewhat
leery of passing on more of those costs
to employees," and some are working
to explain the issues and give workers a
choice between keeping rich benefits and
paying more, or reducing the benefits
offered. A spokesman for one firm said
with this kind of involvement,
"There's much less a sense of
entitlement, and much more of a sense
that I have a role in this." The
article also cites Dallas-based
CompuCare Systems that is offering an
HRA program. Thirty percent of its 3,000
employees opted for the HRA, overcoming
some initial skepticism by company
executives.
SOURCE: The article is by Darrin
Schlegel and headlined, "Strategies
Evolving to Tame Plan Cost." It ran
in the Sunday, January 26, 2003 edition.
There is a charge for archives: www.chron.com/content/archive/index.mpl
Higher
Co-Pays Are a Good Thing
An
article in the St. Petersburg Times
also cites the General Electric walkout,
but concludes the "perfunctory
nature of the walkout suggests
(employees) are either resigned to
paying higher health care costs or they
understand that higher co-pays are a
good thing." Reporter Sarah Fritz
says, "the latest thinking among
health care economists" is that
"only consumer-driven plans can
retain soaring health care costs."
She cites Princeton Economist Uwe
Reinhardt as saying, "most American
workers fail to realize that the money
their employer is spending on health
coverage is their money - money they
could otherwise be receiving in their
paychecks." This article estimates
about 1.5 million people are covered by
consumer driven plans today, and
"an increasing number of companies
are expected to embrace this approach
over the next few years."
SOURCE: pqasb.pqarchiver.com/sptimes/access/278907331.html
More
Information Leads to Lower Costs
Joe
Manning writes in the Milwaukee
Journal Sentinel that, "as more
employees shoulder more of (the) burden,
the health care industry faces a sea
change… in which the public makes
choices based on quality and
price…" That means more
information. Part of that information
may lead consumers away from big
hospitals to lower cost free-standing
facilities, where services like MRIs can
cost half of what they cost in a big
medical center. The old-line hospitals
may be hard pressed to pay "the
debt loads from new building
projects," and have to cut back on
charity care and trauma care.
SOURCE: www.jsonline.com/bym/News/jan03/113577.asp
46%
of Large Employers Interested in
Consumer Driven Plans - Hewitt
A
new survey by Hewitt finds 46% of the
large employers surveyed, "are
interested in offering a consumer driven
plan with an HRA to employees as either
a replacement plan or an option to
supplement traditional plans." It
also finds that companies are expecting
a 15% rate increase in 2003, but can
only absorb an 8% increase, leaving a 7%
gap that workers will have to fill.
Employers are also interested in
implementing "custom design plans,
which allow employees to customize their
benefit options and levels for
physician, hospital, and pharmacy
benefits…" If such a plan would
lower costs by 10%, 72% of companies
would be interested, while 37% are
interested even if costs stayed the
same. There is also a high level of
interest in multi-tier hospital
coverage, which also require employees
to make more decisions in seeking health
care services. Over 80% of the employers
surveyed are "somewhat or extremely
comfortable with employees taking more
responsibility for evaluating and
selecting their own health plans,
coverage levels, providers, and health
care services."
SOURCE: Copies of the survey,
"Health Care Expectations: Future
Strategy and Direction," are
available from Hewitt at infodesk@hewitt.com
or by calling 847-295-5000.
VENDOR
CORNER
CareGain
reports that a beta test of its products
with three employers last year resulted
in an average saving of 26 percent in
health care costs. CareGain offers four
different benefits packages, with
MyCarePortal as the centerpiece cost
control and decision support tool.
Contact Russell LaMontagne at russel@corinthgroup.com,
or 212-255-5340, for more information.
West
Virginia based Vested Health has
received new venture capital funding
"to expand operations and
infrastructure." It describes
itself as "the region's leading
provider of consumer driven health
plans, serving the middle market of
10-2,000 employees. For more
information, contact CEO Mike Baker at mbaker@vestedhealth.com
or 866-347-3640.
Medfield,
Massachusetts based Benemax claims a 35%
growth in 2002. It describes itself as
"a benefit management company that
bucked the managed care trend" as
early as 1985. It claims "employers
can save as much as 25% in premiums over
managed care plans without compromising
routine or emergency care for
employees." For more information,
contact Lisa Jacobson at ljacobson@kogspr.com,
or 617-497-0193.
Greg
Scandlen
Director
Center for Consumer Driven Health Care
The Galen
Institute
P.O. Box 19080
Alexandria, VA 22320
703-299-9206 (office)
301-606-7364 (cell)
Please send all
comments/questions directly to me at gmscan@aol.com.
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