This post was coauthored by Inna Shelley.
Princeton economics professor, Uwe E. Reinhardt, recently posted an interesting article on the New York Times “Economix” blog entitled “The Fork in the Road for Health Care.” The post discusses the seeming inevitability of healthcare rationing and attributes rising healthcare costs under employer-provided health policies to rising healthcare prices rather than increased utilization of healthcare services.
For example, the Milliman Medical Index tracking average annual medical costs for a typical family of four has found that average healthcare costs increased from $8,414 to $20,728 between 2001 and 2012, with a 6.9% increase in the prior year alone. Given the fact that about 50% of U.S. households have an income of $50,000 or less, the expected average out-of-pocket family contribution of $8,584 in 2012 begs the question of how our society will handle the rising costs.
Dr. Reinhardt outlines several potential options, including government action to cap health care costs or segregating health care into income classes by eliminating tax preferences and subsidies for high-income groups, setting up “reference pricing” arrangements that tie reimbursement to regional low-cost rates, utilizing high-deductible policies and coinsurance for the middle class, and establishing public health systems for low-income persons similar to the Veterans Administration system to deliver services and control costs.
Regardless of which option society chooses down the road, healthcare rationing by income level may be inevitable (many would say it exits already). As Dr. Reinhardt writes, economists understand that the employer’s portion of healthcare costs is often effectively shifted back to employees in the form of lower pay increases. Thus, shifting increasing healthcare costs to employers is usually counter-productive as these cost increases are almost always offset by stagnant wages and reduced bonuses and are ultimately indirectly shouldered by employees.
At the same time, another study recently released by the Commonwealth Fund looks at individual plans. These plans are generally medically underwritten and are purchased by persons using their own funds. Individual purchasers can buy whatever coverage they choose, since once they meet the underwriting standards, they can select any plan they prefer, so long as they are willing to pay the cost.
The new study finds that over half of the individual policies currently in force will be below the minimum coverage allowed to be provided on the health insurance exchanges under the Patient Protection and Affordable Care Act. Thus, many current individual policyholders will be forced to purchase plans with higher benefits—and consequently, higher costs. As a result, the individual coverage markets will face considerable upward price pressure, as half of the current purchasers must give up coverage they now like in order to buy more expensive options.