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The health system crisis in the United States is a top issue in the 2008 presidential and congressional elections. Most conservatives’ solution to this crisis is “consumer-directed health care.” This market-oriented model gives individuals increased responsibility for their own health care spending by encouraging high-deductible health insurance purchased in the market offering individual policies. To advance this model, they would scale back the role of employers and government in guaranteeing high-quality, efficient, and accessible group coverage. A review of the research suggests that this approach could deepen our nation’s health system crisis in several key ways.
High deductibles could lower access. The conservative plan would replace up-front insurance with health savings accounts and high-deductible plans. This could:
- Discourage the use of needed care. Enrollees in consumer-directed health plans were 50 percent more likely to report a cost-related access problem compared to those in traditional plans. More than half of such enrollees report that the high deductible applies to prevention. People with chronic illnesses such as asthma, arthritis, and high cholesterol were two to three times as likely to fail to fill a prescription due to cost when enrolled in such plans compared to traditional insurance.
- Depress the quality of care. Few people in consumer-driven health plans reported access to information on the quality of their providers. The proportion of enrollees reporting that they were very or extremely satisfied with their health plans was 37 percent in consumer-driven plans compared to 67 percent in traditional group plans.
A shift from group insurance to individual insurance market could diminish coverage. The conservative plan to replace employer and public insurance with fully-insured, individual-market health plans presents a number of problems. It could:
- Undermine what limited protections exist in the individual market. Conservatives would promote individual-market insurance, in part, through deregulation. Already, coverage in this market provides little protection: Enrollees with low income and high costs spend roughly 50 percent of their income on health costs, or about the same as the uninsured. Only five states prevent insurers from denying policies to individuals based on their health status. Over 70 percent of individuals in poor health found it very difficult or impossible to find affordable, individual-market coverage.
- Put millions of already-insured people at risk of losing coverage. By ending employers’ tax incentive to fund health benefits, many of the 160 million with employer coverage today could lose it. If they lose it, then they may not be able to regain it in the individual market. Conservative plans allow insurers to deny access to coverage for those who have pre-existing conditions, who are older, or who have some other risk factor. The president’s plan, which would replace the current tax break with a tax deduction for health insurance, could result in 12 million people with employer-based coverage losing it. This loss would likely be greater under plans with tax credits that make it easier for low-wage firms to drop coverage.
- Worsen the uninsured problem. Health savings accounts, a mainstay of conservatives’ plans, provide greater tax breaks to high-income participants. Yet 55 percent of the uninsured do not pay taxes due to low income. If not paired with market reforms, even refundable tax credits could increase the number of uninsured. According to one analysis, President Bush’s original tax credit idea could have increased the ranks of uninsured by 600,000 as those with employer coverage lost it and could not regain it in the individual market. Even if conservative tax credits result in a net gain in coverage, the composition of the uninsured population would change, becoming sicker and harder to insure.
Lead to higher health system costs. Conservatives, trusting the marketplace to solve the cost crisis, would disband group purchasing and deregulate insurance. This would:
- Do little to affect excessive use and prices. The average U.S. out-of-pocket spending per capita on health care is already twice as high as in comparable nations. People paying for health care out of pocket are typically charged higher, not lower, prices than people getting group rates—especially given the lack of price transparency. And individual- market insurers tend to compete by seeking low-cost enrollees rather than lowering the price and use of care.
- Raise administrative costs. Currently, Americans pay nearly six times as much per capita on administrative health costs as residents of peer nations. This would likely increase with a shift to the individual market, whose administrative costs range from 25 percent to 40 percent compared to 10 percent for group coverage. Shifting funds from self-insured to fully-insured plans would increase insurers’ power and probably profits. Moreover, new administrative costs would be generated in the banking industry that manages accounts: One analysis estimated that the cost of financial fees could be over $5 billion over the next five years.
- Diminish the effectiveness of cost savings initiatives. Leaving tens of millions of Americans uninsured perpetuates cost shifting, contributing to higher premiums for the insured. One analysis estimated that each family pays an extra $922 in premiums to fund uncompensated care. This creates a vicious cycle that results in more uninsured Americans. It also limits the potential of policies that could lower the cost trajectory, such as widespread use of effective prevention and management of chronic disease.
In short, conservative health system proposals are both radical and dangerous, including those offered by Senator John McCain (R-AZ) and Senator Tom Coburn (R-OK). Eliminating the current tax subsidy for health insurance and replacing it with a new one would dramatically change the way that nearly 160 million Americans get coverage. Workers could lose employer-based coverage without gaining an affordable, accessible alternative source of coverage. The impact would be even larger if public programs are scaled back and all Americans are expected to join high-deductible health plans. High-deductible plans in a de-regulated individual insurance market would shift costs to the poor and sick. And, its flawed theory and design together could actually raise health system costs, exacerbating the health system crisis.