A Cure for Spiraling Health Care Costs Government Should Cover the Expense of High-cost Patients

As Governor-elect Deval Patrick and his new team contemplate a legislative strategy, reducing the cost of private health insurance for Massachusetts’s employers and employees should be high on the list of priorities. Comprehensive family coverage in this state often exceeds $12,000 per year. For a firm with an average annual salary of $40,000, such a premium equals more than 20{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of total compensation.

Of even more concern is that health insurance premiums are growing four to five times faster than wages. This trend has forced some employers to eliminate their health insurance coverage altogether, leading to a decline in the percentage of workers covered by employer-sponsored health insurance.

What will happen when health insurance consumes 30{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} or 40{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of total compensation? Not everyone views this unsustainable trend with alarm; groups that favor replacing our private employer-based health-financing system even find validation in the spiraling costs.

Yet a collapse of our employer-based health insurance system would lead to chaos for our health delivery system and reduce access to care for most residents in the state.

It may not be perfect, but employer-based health insurance has become the American way of financing health care for most individuals and families. We should develop ways to make it work better — and focusing on the most expensive patients is the way to do so.

The pattern is stark: 10{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of patients consume more than 50{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of health care resources; the top 20{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of patients use more than 80{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the resources.

Having government pay a portion of the expense of high-cost patients will lower private health insurance premiums and spread the cost of paying for these patients among all taxpayers in the state — thereby taking the burden off an individual company or group of workers. No longer will an employer or insurer have a financial incentive to avoid employing or insuring a potentially high-cost worker or family.

This might seem expensive. But overall costs can be lowered and patient care improved by requiring that, as a condition of receiving a government payment, an insurer use a case management system for high-cost patients.

Very sick people have a lot of care thrown at them. Some of it is helpful, some of it is harmful, and some of it is just wasteful; dedicated case managers can tease out what is what. While many insurers already use such techniques, it should be mandatory that all payers do so and that each system be periodically evaluated for its effectiveness.

To limit administrative costs, the insurance for high-cost patients will continue to be operated by their original private carriers. To give the private carrier an incentive to avoid overpaying for care, the state should limit its reinsurance to 75{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the cost of any care above a certain threshold — say, $50,000.

There are many who blame the high cost of health insurance on health plans or hospitals and doctors. But pointing fingers will not solve the problem.

Health insurers in Massachusetts rank among the top health plans in the country, and the state’s hospitals and health professionals are viewed with envy by most Americans. Both groups have among the lowest administrative cost rates and profit margins in the country.

The answer lies in asking all taxpayers to share health costs for the sickest patients — and letting everyone reap the benefits of lower insurance rates.

Recently, the chief executives of America’s three major auto manufacturers asked President Bush to help them compete against foreign companies by having the government pay for a portion of the cost of the most expensive patients they insure. No response yet from the president.

We in Massachusetts need not wait for a federal response.

Just as we did not wait for the federal government to pass a national health insurance system before enacting the Massachusetts Health Care Reform Plan, we can take steps to bring the cost of private health insurance down.

Stuart H. Altman is a professor of Health Policy and dean of the Heller School for Social Policy and Management at Brandeis University. This article first appeared in the Boston Globe.