By Kelly McCutchen
From an economic perspective, it’s not surprising that health care costs keep rising. Although we may not believe it so, most of us are insulated from the majority of health care costs by a tax code that favors employer-purchased health insurance.
We pre-pay the majority of our health care expenses through health insurance. But because employers bear most of the cost of insurance for the average employee, most people have no idea how much their insurance really costs. Employees who complain, for example, when their co-payments for an office visit increase from $10 to $25, often are oblivious that their annual insurance premium – paid for by their employer – may have increased by $1,000.
Co-payments and deductibles are rising, but out-of-pocket expenses are still low by historical standards. Third party payments now represent 85 percent of all health care spending compared to just 56 percent in 1960. Imagine what would happen to food prices if most of us only paid a $5 co-payment when we dined out and our employer picked up the rest of the tab.
What’s the solution? Rather than continuing to shift costs onto employees, some employers are giving their employees ownership of their health care dollars. This is now possible because in 2002, the U.S. Department of the Treasury issued a major tax policy ruling allowing employers to deposit funds in tax-free health care accounts for employees.
By increasing deductibles, employers are able to save money on health insurance premiums. They can then pass on these savings to their employees in the form of deposits into their health spending accounts. Using common debit-card technology, employees can use these funds to pay deductibles and other health care expenses. But instead of “use-it-or-lose-it,” unused funds remain available for the individual’s future health care costs.
The early results indicate that this approach works. Combining a wellness program with these new accounts, the Louisiana State University Healthcare Network experienced a 9.6 percent increase in physician office visits and a 28 percent decrease in total health care costs last year. In an environment of double-digit annual increases in health care costs, a 28 percent decrease is quite dramatic.
In addition to savings from eliminating unnecessary spending and encouraging more price-conscious behavior, the long-term incentive is for individuals to exercise, eat well, avoid risky behavior and practice prevention in order to stay healthy.
Improving health while lowering costs is not just wishful thinking. About 20 percent of all Americans account for about 80 percent of all health care spending. Typically, they have one or more chronic diseases such as diabetes, hypertension or heart disease. Although our health care system does a good job of caring for these individuals once they develop complications, the opportunity lies in the fact that many of these expensive complications are preventable.
The city of Asheville, North Carolina, has reduced its health care costs with a focus on education and prevention. According to a Washington Post story, in Asheville “pharmacists are paid to counsel patients, offering advice on diet, exercise, stress reduction and medications. Although drug costs rose, total health care spending on diabetics fell from $7,042 per patient in 1996 to about $4,000 apiece each year since the program began, in 1997.” City officials report savings of $4 for every $1 invested in the program.
Community Health Works (CHW) is another success story right here in Georgia. CHW is a regional, nonprofit collaborative of health care providers, community leaders and government officials in Bibb, Crawford, Houston, Jones, Monroe, Peach and Twiggs counties in Middle Georgia. Targeting uninsured, adult residents with hypertension, heart disease, diabetes or depression, CHW’s average patient has an annual income of less than $5,000, has three different chronic diseases and takes five different medications.
CHW uses an individual-centered, care management model based on the unique needs of each community it serves. The first evaluation of CHW was performed by Dr. William S. Custer of Georgia State University this year, and the results were impressive. In addition to saving the regional health system more than $340,000, more than 95 percent of patient members report improved health status. By reducing emergency room visits and hospitalization, this proactive, community-based effort has proven that improving health while saving money is possible. According to Dr. Custer, “The news is good and only going to get better.”
There is no better time than the present to transform health care in Georgia. Georgia’s previous approach to its more than 1 million uninsured residents and more than 1.2 million Medicaid recipients has been reactionary. The unspoken message is this: “Wait until you are sick, visit the emergency room as much as you want and we (the taxpayers) will pay for it.”
We must give these individuals incentives to take ownership of their own health. By engaging local leadership and providing the flexibility for innovative solutions, Georgia can harness the power of communities to make a real difference in the lives of citizens.
Kelly McCutchen is executive vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (September 5, 2003). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.