Monday, June 13, 2005

How many times have you heard health care costs are rising at record rates? Well, they aren’t any more.

The Bureau of Labor Statistics reports health care costs rose 71/2 percent in 2004, well under the 11.4 percent rise in 2002. The BLS also reports cost increases for employers for health insurance per employee per hour worked has slowed even more. From March 2001 to March 2002, those costs rose 11 percent; from March 2002 to March 2004, it rose 9 percent each year. But from March 2004 to December 2004, it rose only 3 percent.

Something is going on out there. Politicians and political commentators always assume government must do something new and different if health-care costs are to be held to bearable increases. But the evidence is that health-care costs are being held down by the marketplace, partly in response to health-care legislation passed in the last four years.

For one thing, employers offer and employees are choosing health-savings accounts and high-deductible health insurance in greater numbers. HSAs were given a big boost in the Medicare prescription drug bill passed in late 2003. Indeed that was why most Republicans voted for a bill that included the biggest new entitlement program since Medicare was passed in 1965.

HSAs seem to be gaining popularity. A survey by Watson Wyatt and the National Business Group on Health found 8 percent of employers offer health savings accounts this year, and 18 percent plan to offer them in 2006. Large majorities of employers believe HSAs will help lower overall health-care costs and that they will expand options for employees.

The number of people covered by HSAs and high-deductible insurance policies increased from 438,000 in September 2004 to 1,031,000 in March 2005. Nearly half of these people are over age 40 — though some predicted such policies would not be attractive to that age group.

One thing HSAs and high-deductible health insurance help do is to make employees more cost-conscious on health care decisions. HSAs allow employees keep money they don’t spend on health care this year and roll it over to next year, and on and on. Therefore, an incentive exists not to fritter the money away. High-deductible health insurance operates as high-deductible auto insurance does: It does not pay for the equivalent of your oil change but pays when your car is totaled.

For many years, the World War II decision to make health insurance coverage tax-deductible for employers and nontaxable to employees has driven health insurance to a different model, one that pays for virtually every procedure but in a surprising number of cases does not cover catastrophic costs. Increasingly, that makes no sense.

As Wall Street Journal columnist Holman Jenkins points out, the tax subsidy to employees, while worth a lot to high-income earners, is worth very little to those whose income tax liability is low or, as in the case of Earned Income Tax Credit recipients, nonexistent. To them, it is hardly worthwhile to pay an insurance company to process their claims for predictable items like annual checkups and routine pediatric care, yet to be left with a policy that, to control employers’ costs, provides no catastrophic coverage.

The other interesting development is emergence of health insurance policies that encourage healthy behavior. Health-care experts note the increase in diabetes and other obesity-related diseases threatens to hugely increase future health-care costs .

Old-style health insurance policies provide no incentive to behaviors that tend to reduce the incidence of such disease. In a previous column, I looked at one company that provides such policies, including health-club membership for employees. These policies may provide a long-term answer to problems of concern to health-care analysts of all political stripes.

The overriding assumption in much commentary on health-care finance is that individuals and companies are helpless automata waiting for government action before anything can be done about health-care costs. But recent developments suggest that, in fact, employers and employees are active players, and that provisions of recent legislation not much noticed by the commentariat have enabled them to take action that reduces costs and provides increased benefits and incentives for healthier behavior.

We have problems, yes, but we are not helpless.

Michael Barone is a nationally syndicated columnist.

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