October 3, 2007

RECONNECTING COSTS TO BENEFITS:

Control Your Own Health Care (John Stossel, 10/03/07, Real Clear Politics)

[H]igh deductibles may be the key to lowering costs and putting you in charge of your health care.

Five years ago, the Whole Foods grocery chain switched to a high-deductible plan. If an employee has a sore throat or a sprained ankle, he pays. But if he gets cancer or heart disease, his insurance covers it.

Whole Foods puts around $1,500 a year into an account for each employee. It's not charity but part of the employee's compensation. It's money Whole Foods would have otherwise spent on more-expensive insurance. Here's the good part for employees: If they don't spend the money on medical care this year, they keep it, and the company adds more next year.

It's called a health savings account, or HSA.

CEO John Mackey told me that when he went to the new system, "Our costs went way down."

Yet today, some workers have $8,000 in their accounts.

"That's their money," Mackey said. "It builds up over time because the money is compounding for them."

It will cover all sorts of future out-of-pocket expenses.

Most important, since employees control the money, their behavior changed. Whole Foods workers started asking "how much things cost," Mackey said. "They may not want to go to the emergency room if they wake up with a hangnail in the middle of the night. They may schedule an appointment now."

There was no need to ask about costs before because the insurance company seemed to pick up the tab. But that drove up costs for everyone. Now, saving money makes sense to employees because the money belongs to them.


Wising Up on Health Care (HOLMAN W. JENKINS, JR., October 3, 2007, Wall Street Journal)
Now that the UAW is collecting a $35 billion lump sum from GM and taking on responsibility for retiree health care, the union has a big stake in changing the incentives of the system to make sure the money lasts.

The operative concept is "coinsurance rate" -- which a rational UAW should want to enlarge: More spending should pass through the beneficiary's pocket, less from a distant bureaucratic check-cutter. Note this doesn't mean "cutting" benefits. It means giving each UAW retiree a cash account to spend on health care, plus incentives to use the money wisely, say, by letting him or her roll over unused amounts and keep a share of what isn't spent.

Here, the UAW might sit down with Whole Foods CEO John Mackey. His company trimmed health-care spending by 13% in the first year after shifting to such a coverage plan. That 13% savings also happens roughly to match what economic studies estimate for the economy as a whole if the national "coinsurance" rate were corrected for the tax bias in favor of insured spending.

Remember the $51 billion that GM says is the present value of its health-care liability? That figure is based on today's level of spending and the historic growth rate. Reduce the level of spending and/or slow the rate of growth, and the economics of the plan shift. Managed well, the $35 billion could even become a source of net new wealth for UAW retirees.

OK, that such intellectual daring might be found in the cubicles of Solidarity House seems unlikely. One reported condition of last week's deal was GM's agreement to help in lobbying for national health care. How good a steward of health-care dollars could the UAW intend to be if it's already looking for a bailout?


Posted by Orrin Judd at October 3, 2007 10:49 AM
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