Health Insurance and Health Care Cost - a personal experience

Charlie Baker, CEO at Harvard Pilgrim Health Care, where I direct the ethics program, has a valuable posting about "Bending the Health Care Cost Trend" on his "Let's Talk Health Care" blog.

Five years ago Harvard Pilgrim made three large changes in the way it provided insurance to employees. First, and most significantly, it moved from providing a fixed percentage (80%) of the cost of each health insurance option to a fixed contribution (80% of the cost of the mid price plan). Second, it provided all kinds of tools, including a cost estimator, to help employees compare the different choices. Finally, it eliminated the option of automatic rollover. If we didn't explicitly choose a plan we wouldn't be insured.

Until that time I had subscribed to the "point of service" plan. Although I had all of my care at the Harvard Vanguard medical group, I thought of the POS plan as a source of flexibility or an escape clause. I thought that if I needed a specialized procedure, such as a joint replacement, I could shop around for alternatives, and the POS plan would pay most of the cost.

When Harvard Pilgrim started making a fixed contribution towards our health insurance, the cost of the POS plan got much more personal. It cost something like $1,750 more than the HMO plan with a $1,000 deductible, and Harvard Pilgrim paid 1/2 of the deductible for those who chose that plan.

The change led me to think through how much the flexibility the POS plan was worth to me. After I spoke with my primary care physician and some others I trusted I concluded that the care options Harvard Vanguard provided met my needs. So for me it didn't make sense to shell out the additional money for the POS plan.

Choosing the HMO with a deductible was a carefully thought out decision. But my experience with the deductible has been altogether different. Policy types like to invoke the importance of "skin in the game," but when I had what turned out to be a fungal infection of the face or, another time, bronchitis with a fever, shopping for a different dermatologist or less costly bronchitis care wasn't feasible (where would I get the information) or desirable (when you're sick one doesn't want to shop). For me, the choice of which form of insurance to adopt involved deliberation about value (cost and quality), but deductible was simply a matter of my paying more of the cost of my care - it didn't involve me in deliberation about what was worthwhile to me and what wasn't.

From talking with colleagues, my impression is that their experiences are similar to mine. Virtually all thought carefully about the type of insurance they chose for themselves and their families. But very few experienced the deductible as a catalyst for value-oriented thinking about the components of their care.

Harvard Pilgrim's approach has been well accepted by employees. And, at the same time, it has slowed the company's health insurance bill to a 6% annual increase in a region where 10% and more is the norm. There appears to be widespread agreement that it is fair to expect employees who want costlier forms of insurance to pay more, and for those who choose a plan less costly than the mid-priced option to pay less.

Harvard Pilgrim's experience shows how employers can engage employees in meaningful reflection about health insurance and health care costs, and that the effort can have a positive effect on consumer understanding and the cost trend.

(If you're interested, Harvard Pilgrim's 2003 annual report describes its approach to employee health insurance in detail.)