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(From the October 30, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Kaiser Family Foundation Releases Comprehensive Health Care in America Survey

More than two-thirds (69 percent) of Americans strongly feel the government should require employers to offer health insurance for their full-time employees, according to the Health Care in America 2006 Survey by ABC News, the Kaiser Family Foundation, and USA Today. This is but one of many potentially headline-grabbing statistics from this much talked about survey. But beyond the one-liners, the survey as a whole reveals Americans' conflicting and contradictory opinions about the current state of this country's health care and health insurance systems -- and how those systems might be changed in the future.

Expanding Coverage

More than 46.6 million people did not have health insurance in 2005, according to U.S. Census Bureau data. Slightly more than half (52 percent) of those surveyed believe this is a critical problem for the country, and another 36 percent believe it is a serious problem. There is much less unanimity, however, around what to do to fix this problem.

One idea that appears to poll well is replacing the current system, in which most Americans (60 percent) get health insurance through employers, with a government-run, taxpayer-financed, universal health insurance program. According to the survey, 56 percent of Americans would prefer a universal system to the current system. But the survey also demonstrates how easily this support is shaken when the trade-offs inherent in a universal system are considered.

For example, if a universal health insurance system does not cover some medical treatments that private insurance currently covers, support for the universal system drops all the way to 18 percent. Likewise, if a universal health insurance system limited individuals' choices of doctors, support falls to 28 percent. Only 33 percent would support a universal system if it meant waiting lists for some non-emergency treatments, and only 35 percent would support such a system if it meant higher health insurance premiums or taxes. This latter point is interesting because it seems to contradict the fact that 68 percent of survey respondents said providing health care for all Americans, even if it means raising taxes, is more important than holding down taxes.

The Consumer-Directed Health Care Alternative

A market-based alternative to a universal health care system is a consumer-directed system, in which the focus would be on incentives for individuals to regulate their consumption of health care services. The survey indicates only 30 percent of Americans support a consumer-directed system. However, the survey described a variation of consumer-directed health care that is not commonly used today. Consequently, the survey's description of consumer-directed health care might have inadvertently dampened support for the concept.

For example, the survey described a consumer-directed system as one in which health insurance covered only major medical problems, leaving individuals responsible to pay for "routine" medical care. The question explained individuals would have a limited "pool of money" to use for routine medical expenses, and any such expenses exceeding the amount allotted to the pool for a year would be paid out of pocket. But this is not necessarily how consumer-directed plans work. Many incorporate high-deductible health plans that cover all (or most) medical expenses -- including routine expenses -- once the deductible has been met. And some routine expenses, especially preventive care, might be covered on a first-dollar basis.

Also, the survey did not indicate how this pool of money would be funded, the tax treatment of contributions and distributions, or whether unused amounts could be carried over for use in future years. But favorable tax treatment and the ability to carry over unused balances are key features of health savings accounts (HSAs) and health reimbursement arrangements (HRAs), which are common to consumer-directed health plans.

Another reason to believe the survey might understate support for consumer-directed health care is the results of other questions indicating individuals believe they can do a better job controlling health care costs than employers or the government. This, of course, is one of the principal assertions made by consumer-directed health care advocates.

Specifically, 79 percent said letting individuals shop around for the best prices they can get for health care and health insurance would be very (37 percent) or somewhat (43 percent) effective at controlling health care costs. By comparison, only 62 percent said government regulation of health care costs would be very (21 percent) or somewhat (41 percent) effective. In response to a separate question about whether the current system -- in which employers arrange for health insurance to be made available to their workers -- is effective at controlling health care costs, only 11 percent responded very effective and 56 percent said it is somewhat effective.

Other Options

If neither universal health care or consumer-directed health care is the answer, what other options for increasing health insurance coverage will Americans accept and support? The survey indicates varying levels of support for a mix of mandates and incentives to expand employer-provided health insurance, and more government programs. For example, 86 percent believe (61 percent strongly, 25 percent somewhat strongly) tax breaks or other incentives should be available to businesses that provide health insurance for their employees. And, as noted, 79 percent believe (69 percent strongly, 10 percent somewhat strongly) the government should require businesses to offer private health insurance to full-time employees. However, only 64 percent believe (44 percent strongly, 19 percent somewhat strongly) the government should require businesses to offer private health insurance to part-time employees.

Eighty-two percent believe (54 percent strongly, 28 percent somewhat strongly) Medicaid and the State Children's Health Insurance Program (S-CHIP) should be expanded to cover more people without health insurance, and 75 percent believe (55 percent strongly, 20 percent somewhat strongly) Medicare should be expanded to cover uninsured individuals between the ages of 55 and 64. Finally, 79 percent believe (49 percent strongly, 30 percent somewhat strongly) the government should offer tax credits or other aid to help low-income individuals buy private health insurance.

A less popular option is requiring all Americans to have health insurance. Sixty-five percent believe (35 percent strongly, 29 percent somewhat strongly) the government should make individuals responsible for obtaining health insurance coverage, even if tax credits or other aid is provided to low income people to help pay for it. But only 52 percent support -- and 44 percent oppose -- the new Massachusetts law that requires that state's residents to have health insurance coverage.

Attitudes about Insurance

Anecdotal evidence suggests Americans who have private health insurance coverage -- including employer-provided coverage -- are not necessarily happy with their coverage. But the survey tells a somewhat different story. In fact, 88 percent of those with health insurance said their coverage was excellent (33 percent) or good (55 percent). Only three percent called their coverage poor.

An oft repeated criticism of health insurers is that they make it difficult for beneficiaries to get the benefits they are entitled to. However, 80 percent of those with health insurance said their plans tends pay their medical expenses without much problem. And only about one-third (32 percent) said their plan had ever refused to pay for all or part of a medical treatment they thought should have been fully covered.

Additionally, 90 percent of those who said they or a member of their immediate family have had a serious injury or illness under their current insurance plan are either very (60 percent) or somewhat (29 percent) satisfied with the care they received during that time. Similarly, 87 percent of those who said they or an immediate family member had a chronic ongoing illness requiring medical care under their current insurance plan are either very (56 percent) or somewhat (31 percent) happy with their insurance coverage during that time.

Even if individuals are not happy with their current private health insurance, there does not appear to be much hope that a universal health insurance system would make things any better. Slightly more than one-quarter (26 percent) said a universal system would improve their health care costs, but only 20 percent said such a system would make more health care treatments available to them, and only 15 percent said it would improve their choice of doctors and hospitals or the overall quality of their health care.

Controlling Health Care Costs

The survey also reveals a divided opinion on health costs in general and individuals' own costs. Fifty-eight percent of Americans are very dissatisfied with the total cost of health care in this country, and another 22 percent are somewhat dissatisfied. However, 57 percent say they are very (23 percent) or somewhat (34 percent) satisfied with their own health care costs, including the cost of insurance and out-of-pocket medical expenses. This is in spite of the fact that 66 percent of those with health insurance coverage said their premiums have been going up a lot or somewhat lately, and 48 percent said their deductibles and co-pays have been going up a lot or somewhat lately. Additionally, 60 percent of those with health insurance said they are very or somewhat worried they will not be able to afford insurance over the next few years.

When asked about factors driving health care costs, 50 percent said drug and insurance companies making too much money is "one of the biggest" factors and another 36 percent said this is a "major" factor. Other factors frequently identified as being in the "one of the biggest" category were fraud and waste in the health care system (37 percent), doctors and hospitals making too much money (36 percent), and the administrative costs of handling medical insurance claims (30 percent).

But what about the demand side of the health care cost equation? The survey indicates 37 percent of Americans believe too many medical malpractice lawsuits is "one of the biggest" factors driving health care costs, and another 41 percent believe it is a "major" factor. Beyond that, only 30 percent believe people getting medical treatments they don't really need is "one of the biggest" factors, and 29 percent put people needing more medical care because of unhealthy lifestyles in this category. Less than one-quarter (23 percent) list the aging population as "one of the biggest" factors, and a mere 12 percent believe more people getting better medical care than ever before is among the single biggest factors.

Risk-Adjusted Health Insurance Premiums?

Even though only 29 percent of respondents believe unhealthy lifestyles is "one of the biggest" factors driving health care costs up, the survey indicates some support for letting insurance companies charge higher premiums to those at greater risk of experiencing health problems. However, the survey indicates support for this practice largely depends on who is defined as being at risk.

Almost two-thirds (63 percent) said insurance companies should be permitted to charge higher premiums for smokers. But more than two-thirds (68 percent) said insurance companies should not be permitted to charge higher premiums for people who are overweight. One obvious explanation for this disparity is the fact that, according to Centers for Disease Control data, only 21.5 percent of adults in the U.S. smoke while more than 65 percent are considered overweight. Another may be that Americans are less aware of the health risks associated with being overweight than those associated with smoking.

The first U.S. Surgeon General's Report on the dangers of smoking was issued more than 40 years ago, in 1964. Since that time the incidence of smoking among adults has dropped from 42 percent to 21.5 percent, although the rate of decline has slowed during the last 15 years. By comparison, the public health campaign to educate Americans about the dangers of being overweight is still in its infancy.

Of course, private employer-sponsored group health plans generally cannot charge higher premiums to individuals who smoke or who are overweight. This is because the HIPAA nondiscrimination rules prohibit group health plans from charging higher premiums to individuals based on their health status, medical condition, evidence of insurability, etc. However, state and local government employers with self-insured plans can opt-out of the HIPAA nondiscrimination rules. As a result, at least four states impose higher health insurance premiums on employees who smoke.

Deloitte logoThe information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Laura Morrison 202.879.5653, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955.

Copyright 2006, Deloitte.

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