The Economic Evolution of Healthcare
In the early 1930’s, the Blue Cross/Blue Shield Organization led consumers to hospitalization coverage (Blue Cross) and medical coverage (Blue Shield) under their own charter for everyone who sought coverage for one prepaid fee. Years later, other insurance companies, such as Kaiser Permanente began to offer coverage to consumers within their geographic boundary. Today, we are a nation with Health Care Reform signed into law by President Obama on March 23, 2010 (House Bill HR 3590), also known as the Patient Protection And Affordable Care Act (PPACA). For the remainder of this article, I will provide a look at the cost trend of our healthcare system for the past twenty-five years and at some of the changes going forward for 2010 and early 2011.
Over the years, I recognized many changes ranging from the Health Maintenance Organization (HMO) boom in the 80’s and 90’s to the more current trend of companies moving toward Consumer Driven Health Plans (CDHP).
Many people enrolled in the HMO plans at a low monthly rate because there was little to no co-payment for medical visits and services provided. Most costs were paid by the carrier, however, carriers were able to pay for services using their own discretion and requiring many restrictions for the more expensive services to be provided. The carrier would consider these expensive procedures a “risk’, and not provide coverage to the consumer. The attraction to the consumer for this option was low cost health care. On the surface, the HMO plans offered a cost savings to the consumer.
Since the HMO companies would only cover a procedure based on “risk level,” many consumers moved over to the Point of Service (POS) option. This plan is a blend between an HMO and PPO plan. The HMO aspect requires a referral to have services performed by an out-of-network physician referred by the primary care physician. The PPO aspect allows services between the network and out-of-network physicians with richer benefits offered in-network. Although, the price to the consumer was higher than the previous HMO option, it was one they were willing to accept to receive the coverage desired.
Over the past few years, there has been a growing transformation to the Consumer Driven Health Plan (CDHP) and High Deductible Health Plan (HDHP) which encourage consumers to be more conservative with the number of visits by providing policies with different premium and deductible levels. For example, if the plan offered a low monthly payment, the consumer would expect a higher deductible plan such as $1,000 or $2,500 per year. On the flip side, the employee would experience a higher out-of-pocket expense if the carrier offered a lower annual deductible. “The impact of rising healthcare costs directly impacts consumers, as greater portions of their total compensation go towards health insurance.” This expense is not just noticed by the employee, but by the employer as well since companies are continually shopping to offer reasonable health coverage that would be affordable. In a recent survey, “the average cost in 2009 for employer sponsored coverage is $4,824 for single coverage and $13,375 for family coverage.” There has also been a continual rise in the amount consumers contribute to healthcare as the geographical factors enter the picture with adjusted community ratings.
Now, let’s look forward and see what impact the Healthcare Reform will provide consumers in the short term. Since the changes will differ from state-to-state, it is important to follow the regulations based upon your geographic location. The transformation will have a direct impact on the Internal Revenue Service (IRS), Department of Labor (DOL), Health Care Accounts (HCA) and Health Care Spending Accounts (HCSA). On September 23, 2010, the most current changes will be in effect. If you have a medical plan that has a mid-year renewal, the changes will be in effect at the renewal date such as October 1, 2010. Otherwise, January 1, 2011 will be the effective date of change.
There are positive elements of this healthcare reform as well as the increased administrative responsibilities that accompany such a change. There will be an increased need to educate consumers about the changes that are taking effect both short-term and long-term. Annual enrollment will be automatic for companies with 200 or more employees, payroll deductions for health care will increase on quarterly and annual reports due to the increased number of dependants being covered, and the increased cost of coverage overall. Likewise, there will be an increase in waiver forms as employees will have the opportunity to “waive” their right to partake in healthcare benefits from the employer. Medical claims activity will rise due to an increased number of consumers covered with no pre-existing condition exclusion for those who are age 19 and younger. When services are provided for consumers beyond the age 19 for a pre-existing condition, it is not certain, but there could be an increase in consumer appeals to the health carrier.
There are two additional attractions to the healthcare reform. One is the anticipated reduction of cost to consumers by eliminating annual or lifetime maximums for services. (This reform will not affect ancillary plans such as dental, vision, hearing and prescription drug plans for adult coverage).
The other attraction is that there will always be consumer coverage. An employer would provide a temporary insurance plan to bridge the gap for retired employees who are over the age of 55, without retiree medical coverage and not Medicare eligible. “Employers would receive 80 percent of claims that are between $15,000 to $90,000 to help reduce plan costs.” The catch for the employer is to apply, document claims, and implement the program that will allow the cost savings benefit for services provided to employees who are receiving treatment for chronic and high cost conditions. This process would be audited to assure its fiscal integrity.
Another change that will need to be addressed by employers will be the definition of a dependant and how the grandfathering rules will be written for class 2 dependants and determine if sponsored parents will be eligible for coverage based upon the state regulations that will be in effect. This will be an ongoing update as this deadline is not until 2014. With this change; more dependants will be eligible for coverage up to the end of the calendar year in which he/she turns 26 years of age as long as the dependant is not eligible or enrolled into another health insurance plan.
The changes discussed are just a fraction of what will rock our nation over the next 4 to 5 years. The cost of this Healthcare Reform will affect consumers. If healthcare reform is to offer generous coverage, how will this impact our bottom line as consumers? As more information becomes available, we will begin to experience the economic reality of reform. Through it all, we must understand the healthcare changes to effectively translate their meaning to others who question the reform.
About the Author
I am a Human Resource Professional who graduated with a B.A. in Human Resource Management and a minor in Business Administration. My professional background started in corporate Human Resources with progressive generalist responsibilities in various corporate cultures and independently operated a HR department for a multi-site facility. Throughout this time, I recognized my true passion to be employee benefits. I offer the ability to translate complex plan descriptions to blue and white collar employees in a way that is easy to understand. Recently, I strengthened my training as an Employee Benefits Specialist at Hewitt Associates. As a result of these professional experiences, I understand the corporate and consulting sides of benefit administration. Continuous education is critical in this fast-paced industry to be a leader in communicating the change to others. Currently, I am open to new opportunities.