Some companies talk from time to time about ending healthcare insurance altogether. While the idea may sound radical, it is actually possible if employees are willing to enroll in health savings accounts, Ron Fuhrman, vice-president of TrueNorth Companies told the annual meeting of the Refrigerated Division of the Truckload Carriers Association. The meeting was held in Dana Point, California, July 13 to 15, 2005.
To qualify for a health savings account, the participant must have a single deductible amounting to at least $1,000, or $2,000 for a family, Fuhrman said. With the high deductible, participants then qualify for a tax-deferred savings account. These plans are portable in that funds move with the participant from job to job. This includes contributions from employers, he said.
In attempting to limit healthcare costs, insurance companies first tried cost controls, depending on doctors and hospitals to provide discounts from their standard rates, Fuhrman said. This was followed by insurance plans with co-payments so that using a plan would cost the employee a set amount. Health management organizations grew out of the co-payment plans with insurance companies working to control the procedures and prescriptions proposed by doctors. Most recently, insurance companies have been talking about disease management or the ability to cover only those who would behave in a manner that maintains good health.
Shifting healthcare costs
“In reality, all these health plans have simply been a continuing process of shifting the cost of healthcare by letting money that once went into the price of insurance premiums stay with employees if they don't file claims,” Fuhrman said.
Demographics are forcing a change in the way insurance companies look at potential costs, he said. The number of individuals in the 24- to 34-year old category is down 9%, but population in the 55- to 64-year old category has increased 54%. That latter age category is much more likely to need to use health insurance.
The distribution of health claims bears almost no relation to the population at large, Fuhrman said. About 11% of people covered by insurance are responsible for 75% of healthcare charges. On the other side of the ledger, 78% of those covered by insurance account for only 12.9% of total claims costs. Even with much higher deductibles, insurance still pays for almost 99% of healthcare costs. For major illnesses requiring hospital care, it doesn't take long to rack up a billing total above $250,000, he said. At that level, health savings accounts do not shift that much cost away from insurance coverage.
The best way to control healthcare costs is to educate and empower the consumers of healthcare, Fuhrman said. Those covered by insurance must realize the total cost of healthcare; the co-payment from an employee is only a small share of the total paid for a given claim. The employee may pay only $20, but the rest of probably $100 for an office visit has to come from somewhere, he said. “Co-payment plans, unfortunately, have done a good job of convincing people that going to the doctor doesn't cost much,” Fuhrman said.
Understanding prescription costs
The same problem applies to the medical community. Doctors often prescribe drugs without understanding the costs involved, Fuhrman said. They know that patients have insurance, and they know that representatives from the drug companies say a given prescription is effective, but they have no idea of the full cost of many drugs. Most assuredly, doctors are not aware of the various levels of co-payment for many drugs, he said. “They understand the therapeutic value of drugs, but they are out of the picture on costs,” Fuhrman said. “They have no idea.”
Just as employers try to help their workers understand business, they need to help educate employees about ways to manage the healthcare benefits the company provides, Fuhrman said. Companies need to give employees a way to save, but at the same time, the commitment needs to start at the top and work down. Managers should use the same teaching tools for healthcare that they use for safety, customer service, and all the other behavior vital to company success. As now structured, health savings accounts provide a monetary incentive to change habits and remain healthy. Employees who do not spend the entire balance of the savings account on healthcare have a ready supply of cash that can be spent on other things, he said.
Health savings accounts also will give employees a reason to find the lowest cost, highest value healthcare available. Medicine is the one area in life left where people don't ask about the price ahead of time, Fuhrman said. Knowing that they can keep what they don't spend will help teach people to ask about the cost of a procedure before agreeing to it; asking about the cost will help people find better pricing.
Under traditional insurance plans, employees are essentially using someone else's money, Fuhrman said. With a health savings account, the money belongs to the employee who, as a result, becomes much more careful about spending it.
Incentives for saving
When people own their healthcare programs, they will begin doing things to stay healthier. Outpatient costs will probably go down as well, and prescription prices should fall, but maybe not quite as fast as other cost factors, Fuhrman said. Right now, 85% of healthcare dollars are spent on 15% of the insured population. Of those 15%, at least 10% would not need as much healthcare as they use, because their conditions could have been identified early, he said.
Again, education is the biggest factor in healthcare costs. Right now, healthy people are paying insurance for a small minority of people who are not healthy, Fuhrman said. “Evidence suggests that 25% of all healthcare claims could have been prevented with early intervention,” he said. “Insurers pay claims as long as the diagnosis is correct and the patient's premiums are current. To control costs, insured people should begin working on the underlying conditions that cause most claims.”
The US is a healthy nation where 80% of the population can be categorized as well, Fuhrman said. Only 14% of the population suffers from episodic conditions that cause health claims. The two smallest categories are those with chronic conditions — only 5% of the population, and people who suffer from catastrophic illnesses — only 1% of the total. “When we begin looking for the biggest risk factors leading to high healthcare costs, one condition sticks out beyond all others,” he said. “Don't be surprised, but depression accounts for 70% of all healthcare costs.”