Thursday, March 03, 2011

Paying more for the amenities you may never need

Let's continue our discussion about the future of employer-based insurance products in the US. We have talked about a general shift of employer-based plans to insurance exchanges and Medicaid; about a shift of retiree health benefits away from employer-based plans; and a move to reallocate risk away from insurance companies and towards doctors and consumers. What's left?

Well, as the commercial insurance pool shrinks and as subsidies for government-chartered or government-paid insurance products diminish, the norm for the general public will be a "dumbed down," lowest common denominator kind of insurance. With accountable care organizations and a move to bundled or capitated payments, limited networks will come into play. Deductibles and co-pays will rise to discourage people from using health care services. Likewise, if you choose to go out of network for your care, you will see higher personal charges.

But the potential for market segmentation never disappears. What will you do if you are an employer who wants to retain an insurance plan to attract workers in competitive fields? The answer may be to provide your staff with a "privileged access product," something that we have seen in Europe. (There, government-sponsored insurance can leave out a lot of items that are routine in the US, and rationing by congestion of high-end services is more commonplace.) The idea of this kind of privileged access product is to address the insecurities that people of means may have about the new environment. They want to assure themselves rapid access to the services they want, including the latest technological advances. They also want extra amenities like private rooms and other concierge type services.

It is a recognized phenomenon that people, especially people of means, are willing to pay more for amenities they may never need. So, look for such high-end specialized product offerings, especially in companies where well-paid workers in demand by competing firms represent a significant share of the workforce.

So, when you put this all together, we will likely see a move towards a more egalitarian (government provided or government-influenced) offering of insurance products for the majority of the workforce, combined with a less egalitarian offering of premium services for those with higher incomes. As I suggested years ago and reiterated last year, expect a convergence of the US and European models:

I predict . . . that the systems will start to look more and more alike over time. Pressure in the US for a more nationally-determined approach. Pressure in Europe for more of a private market approach. It shouldn't surprise us to see this convergence. After all, the countries are dealing with the same organisms, both biologically and politically.


Anonymous said...

I would next like to see a series on how you think all this could be done better, perhaps drawing on your international experiences.


Barry Carol said...

As I understand it, the German population is generally satisfied with their healthcare and health insurance system. However, people can opt out and access more comprehensive private insurance if they want to and can afford to. About 10% of the population chooses the private system. One way or another, the wealthy and upper middle class will always be able to trade up creating, in effect, a two tier system. Personally, I don’t have any problem with that as long as what’s available to the bulk of the population is widely perceived as “good enough.”

fairhavenhorn said...

I think that Americans would do well to learn the Dutch and Swiss models. These are not at all like the imaginary European health systems of the sound byte pundits. They have real complexity, deal with real problems, and are much closer to typical American structures than people expect. They also work.

For example, the Dutch have an extremely spartan basic health care insurance. It is mandatory and inexpensive. The poor get an extra welfare credit to cover its costs, not an exemption. It is similar in practice to the mandatory auto insurance in MA in terms of being spartan, cheap, and mandatory. This insurance follows the person around, not the employer. It is also unrestricted. The insurers must offer it, and cannot refuse a customer. It is their equivalent to Medicaid/Medicare also.

Employers are expected to handle automatic deductions for payment to *employee selected* insurance. This will cover the mandatory, and will cover any optional personal extended healthcare insurance. This too is similar to automobile insurance. Those who can afford it, get insurance that is much less spartan. This insurance is selected by the person, not the employer. The employer is a paperwork agent making the payments flow easily. The extended insurance may be refused by an insurer, but as with automobile insurance, this is a big market and insurance is generally available. Again, this insurance follows the person around, so there is no personal disruption driven by job changes or corporate decisions about insurance carriers.

There may also be corporate selected insurance options, like in the US.

Then there is another major financial difference. Most insurers are mutual companies, not part of financial conglomerates, and most hospitals are mutual companies. This means that any profits beyond those needed for maintaining capital and growth reserves are returned to the customers. The customer is the stockholder in a mutual structure. This balances out management mistakes and "excessive profits". Any "excess profits" become a dividend back to the customers.

As you dig into it you will find the problems, inconveniences, and difficulties that a system like this can have. But it also does deliver a comparable quality of care.

I personally think that the core of making this work was the attaching of insurance to the person rather than the employer. This provides continuity of many financial and care relationships, and it means that the insurance relationship is matched to the needs of the insured and insurers. It's impossible for any corporate HR group to negotiate one master insurance agreement while simultaneously matching the needs of all the employees.

Paul Levy said...

Dear nonlocal and Barry, See a new post above for my response:

Paul Levy said...

Good points, fairhavenhorn. I discussed the Dutch system here: