Health Insurance

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The textbook discusses the various forms of health insurance. Essentially you either have (if you have health insurance) an indemnity plan or a managed care plan. The indemnity plan allows you to go to any doctor or specialists but you have to pay a deductible, either individual or family, and a coinsurance amount (usually 20%). You also have various co-payments and a prescription drug component with its own set of co-payments (generic and brand name). Managed care, which started in the 1980's was supposed to reduce the cost of health care by economies of scale: the insurer would guarantee a certain number of patients to a doctor (or specialist, hospital) in return for a reduced rate. PPO's differ from HMO's primarily by the number of practitioners that are in their program and whether you need a referral to see a specialist (most PPO's do not require a referral). All-in-all HMO's should be the least expensive, but over the past few years the indemnity plans have been just as cost-efficient. The largest players are Kaiser (HMO) and United Healthcare (PPO).

Another form of health insurance is high-deductible health plans with a health savings account (HDHP/HSA). The idea is that once the consumer understands the high costs of the medical expenses (because they have a high individual or family deductible), the consumer will be more thoughtful on whether to use the health insurance. Essentially, it's asking you "do you really need to visit the doctor or should you just take some over-the-counter medication and get some rest." The health savings account allows the employer and you to fund the account to use for the deductible; any monies left in the account at year-end roll over to the next year. The sell is the health individuals will have monies available later on compared to those that continue to use the health plan. The premiums are about $2,000 per year per insured compared to the other plans, even though HDHP/HSA plans are also PPO's or HMO's (or indemnity). Employers are using the savings to help fund the HSA account, but most employees do not know that the employer is saving money because they do not have to pay FICA taxes (Social Security and Medicare). However, unless you belong to a union that has bargained the health insurance plan in your contract, there is no guarantee the employer will fund the HSA, or if they do initially, that they will continue the same amount (or less) in the future.

Q

Do you believe that HDHP/HSA plans will change the habits of individuals? What do you see as the advantages? The disadvantages?