Extended Interview: Helen Darling on Health Care Costs
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SUSAN DENTZER: How, in general, are employers responding to these sorts of increases? How have they responded over the last couple of years?
HELEN DARLING: Well, they’ve begun to think again about returning to first of all more cost-sharing. We have an interesting phenomena that’s happened in the last five-six years in this country. In order to encourage employees to join managed care plans, employers actually gave them a much more generous benefit at much lower cost sharing. So consumer out-of-pocket costs and the things that they had covered had to – well, the things they had covered have gone up, and consumer out-of-pocket costs have gone down.
So the American people who are in health plans got accustomed to a much more comprehensive health benefit package at very little out of pocket cost. So what’s happened in the last two years is employers have begun sharing more of those increases than they have in the prior five years, and this past year, meaning January 2002, was probably a – what the employees would think was a significant increase in what they paid as part of the monthly premium, and then they also probably had higher co-payments with their prescription drug costs.
So they really moved to much more cost sharing, and I think we see in the future that they will move to more co-insurance, back to the old days, if you will, of insurance where employees might pay a percentage of the hospital visit, or a percentage of the prescription drug coverage, instead of a flat co-payment like $5.00 or $10.00 They might pay 10 percent, 20 percent. So we’re going to return. And some would say return, and this is old wine in a new bottle.
SUSAN DENTZER: Do people think that the era of paying $5.00 to go to the doctor was what helped launch this current cost spiral?
HELEN DARLING: Absolutely. It was clear that people have begun to think that health care doesn’t cost them very much, and they have begun to use the system more than they used to. And so we have increased costs for prescription drugs. We have an increased number of prescriptions, we have an increased number of visits. And there’s good data on how likely a consumer is to use more services if the costs are lower, especially the cost at the time of service.
SUSAN DENTZER: How much of the cost spiral is due to the death of managed care, either deliberate rejection by individuals, by employers of managed care’s constraints because they prove to be so unpopular, or just the fact that managed care itself lost some of the ability to drive the hard bargains with providers and so on, that in fact, it seems to have lost over the last several years.
HELEN DARLING: Well, that’s an excellent question because you’ve hit both of the problems. They’re both happening, and they’re happening simultaneously. I mean, one of the problems in the health system is these things do happen, and they independently drive costs, but they also have a synergistic effect. So, for example, if you had higher demands for just utilization, more doctor visits, more prescriptions, things like that, more x-rays, all of that, then if you didn’t also have hospitals mainly, but health care systems saying well, we’ve decided we’re not going to give you the kind of discounts we used to give you, it wouldn’t be so bad.
But you put those two together and then you put the industry, the health plans and insurance companies that are supposed to help in holding down this semi-exploding set of costs, you put them in the position because you tell them through the politicians, or even tell them through the media and through movies like Helen Hunt, that what you’re doing is bad, and we certainly – we, the American people, don’t want you to do these things. You combine all those things together and everybody is just sort of giving up and saying well, we don’t want to take it on, we don’t want to fight it. This is what people want. They want unlimited access.
SUSAN DENTZER: So it’s almost as if everybody is just giving up.
HELEN DARLING: Right. It’s almost as if everybody has given up, and it’s been happening within the last two years. So we have this confluence of forces all coming together simultaneously, and large employers in particular who have been in the middle of trying to manage the system and also trying to introduce quality and patient safety are beginning to realize that there is nothing out there that would actually change the outcome unless they got together and began exerting some counter-pressure on some of the things that are happening.
SUSAN DENTZER: Two particular acts by employers have been threatened over the last couple of years as responses to these skyrocketing costs. One is the threat that employers will simply walk away from coverage altogether, and many small businesses continue to state in surveys that that’s the ultimate, that’s the end of the line here. The other one, of course, is a movement to more defined contributions. Take the first one first, the threat of walking away and just throwing up their hands. Is that materializing to any degree, or is that likely to happen?
HELEN DARLING: We don’t see that with middle and large-sized employers for the most part. There are a couple of reasons for that. First of all, even though we are in a recession, especially if you’re in the tech sector, we at least have a very struggling economy.
Most employers actually still have problems of recruitment and retention for talent. So they[‘re not going to want to be in a position of not being able to offer what everybody considers an absolutely essential benefit as part of the work force and what benefits you get. I think we do see that small employers, though, are voting with their feet on this, and we can certainly imagine that the number of small employers who decide not to provide health coverage will be related to the rapid rise in health care costs. So it’s probably a question of the size of the emporia and how that’s impacted.
I think we’ll also see, in relation to your question about define contribution, I think we will see that more employers, even large employers will be looking at ways to manage the cost, including, for example, perhaps having a fixed amount of money. It would increase each year, so it wouldn’t be permanent forever. But they might say, for example, we estimate that family coverage is going to be about $10,000 in January of 2004.
They might say for that group maybe in the next year we pay $10,000 plus another thousand, so it would go to $11,000. So they might give a health plan choice that is a very good comprehensive package but has managed care in it for the 11,000.
But if you want a much more comprehensive package, and you want freedom of access to choose everything you want to choose, different doctors, different hospitals, you might have to pay three or four thousand more dollars for that same package of benefits, if that’s the model you want.
So I think we’re moving in the direction where there’s going to be more use of the coverage dollars by employers to support employees to make choices, but not necessarily give them all comprehensive benefits of whatever they want, and that’s the big change.
We already see that in retiree medical. The number of employers who provide retiree medical in this country is declining, and it’s actually well below half at this time, and most large employers and medium-sized employers, if they provide retiree medical at all, they are moving towards more of a fixed allowance or an accountant model rather than just providing coverage when you retire.
SUSAN DENTZER: Would you say that employees have, to a large degree, been shielded from most of these kinds of drastic measures to date, and that we’re about to see a major return to that?
HELEN DARLING: Yes. Actually, employees, unless they’ve been reading the newspaper a lot and listening to TV programs and news programs on these subjects, they have no idea what’s coming because they probably feel that they got a big increase this year, and we’re talking about really very modest increases. And certainly the next couple of years there will be bigger changes, they will be larger dollar amounts, and one of the problems is that most of the decisions about what an employee and employer were paid are based on a percentage.
So, for example, 15 percent of $100 doesn’t sound so bad, but when the base is up to $250 and it’s 15 percent, and the absolute dollar amount is considerably higher, it really gets people’s attention. Plus if you look at the rate at which health care costs have gone up, and you compare that to what has happened with wages and salaries, especially in the last year or two, I mean, wages and salaries for several years have been flat, if not declining, and even if they only, you know, went up a couple of percent per year, we’re talking about a big gap between what people are getting in their paycheck, their take-home pay and what they’re having to pay additionally for the health care costs.
It’s not unusual for employees to say, again, especially if they are sort of middle to low wage level, that their health care costs may eat up more than – they’ll actually be worse off – more than any pay increase they might get.