December 15, 2009
By Wes Dyck
There's a reason employers give their workers "benefits." From free parking to health insurance, the goal is to make employees happier. That way, they'll stay with the company and be more productive.
Of course, the goal of any health plan is to provide the best possible care at the best possible price. Walking that line is difficult. Under current law it's at least possible which won't be the case if the "reform" President Obama is advocating becomes law.
To understand how things work now, consider the health plan for The Heritage Foundation's 240 staff members. We've used a variety of plan design changes over the years to limit expenses without reducing employee benefits. As a result, the cost of the Heritage health plan has grown by only 2.9 percent per year since 2003, versus the national rate of nearly 7 percent. Heritage accomplished this primarily by giving staff more control over their health care spending. We adopted a health reimbursement arrangement (HRA) in 2003 and switched to a health savings account (HSA) option in 2005. A traditional PPO plan is also available.
Sixty-four percent of Heritage staff elected the HSA this year. That plan has an annual medical deductible of $1,200 for individual coverage or $2,400 for family coverage. Heritage eliminates the financial risk for staff by depositing 100 percent of this amount in their HSA. Staff also can contribute through a pre-tax payroll deduction.
Any unused part of the HSA rolls over to the next year, and workers take any balance with them should they leave. By securing deep discounts from our insurance carrier, Heritage funded staff HSAs without increasing the overall cost of the health plan. Enrollment in the HRA began at 18 percent in 2003. It climbed to 52 percent of staff enrolled in the HSA in 2005, and has been increasing steadily since.
Under this program, benefit levels are higher and costs are lower.
Moreover, because Heritage's share of the cost of the health plan and the average age of our employees have remained nearly steady, neither demographic changes nor cost-shifting account for the flatter cost curve. Instead it's clear that, since they now have a large financial stake in the outcome, Heritage staff have begun working with their doctors to reduce or eliminate duplicative and unnecessarily costly services.
That's the sort of change that can really hold down costs in the long run. Furthermore, employees can prudently invest surplus funds for the long term. It's their money, and they can use it to build an account that will help pay medical bills in retirement. Instead of relying on the government alone for health care through Medicare, they'll be able to support themselves.
Larger employers are also finding ways to hold down costs without reducing benefits. Take Safeway's innovations in its health plan, which have kept their health care costs flat for four years running. But that may be about to change. Under legislation being discussed on Capitol Hill, many of these design decisions would be taken from us.
Details would instead be set by law.
For example, Congress is considering setting doctor co-pay amounts and deductible levels. Once the government is authorized to make health care decisions on such a micro level, any future plan design modifications would require an act of Congress or a decision by an executive branch agency. Rigid uniformity would replace flexible, cost-effective decision making.
Employer plans would be forced to cover things workers may not want to pay for. That would increase costs and turn health coverage decisions into political decisions. As innovation slows and insurance costs rise, some employers would be forced to reduce or cancel their coverage.
Millions of Americans would lose their private health insurance. Instead, President Obama should urge Congress to let us keep what we have especially since he's repeatedly promised just that in just those words. This would require Congress to restrain the impulse to decide everything for us. Instead, it should work to open an expanded variety of private options for American families. For example, lawmakers should allow insurance companies to compete across state lines; should give individuals the same health care tax benefits that companies receive; and should reform Medicare to provide competition between providers and to end the federal government's cost-shifting to private plans.
President Obama and congressional leaders talk about the need to reduce health care costs. Yet their proposals would eliminate some of the most effective tools we have to restrain rising costs. They should reverse course, before it's too late.
Wes Dyck is director of personnel at The Heritage Foundation.
First Appeared in the Bismarck Tribune
Health Care Initiative of the Leadership for America Campaign
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