Americans will be on their own for retiree health care coverage

That's my prediction, anyways. Americans won't be able to count on retiree health care benefits from either Medicare or private company insurance. Take a look at what General Motors just did.

But GM's announcement Tuesday that it would cease medical coverage for its salaried retirees age 65 and above signals that a new era of ever-shrinking benefits has arrived. Beginning in January, even former employees who are already in retirement will lose their benefits, which most of the company's retirees use to supplement gaps in their traditional Medicare coverage. The auto maker will boost monthly pension payouts to help offset the cuts. The company's unionized workers aren't affected by the cut to retiree health benefits.

And here's the advice from the retirement experts:

At this point, employees and retirees "have to feel lucky if they still have retiree [health-care] benefits, and have to start planning for when they won't," says Rick McGill, head of retiree medical consulting for employee-benefits firm Hewitt Associates. He says such benefits are "a dying breed."

Retirement-benefit experts have for some time been recommending that all workers -- even those close to retiring and who've "earned" full retiree benefits -- should assume that those benefits will likely be eliminated, either before or during their retirement, and start planning and saving for it.

Medicare won't be there either

I don't think Medicare will be there to pick up the slack for retirees who lose company sponsored health plans. It's an unsustainable program. Kotlikoff wrote an entire book on the problems. According to Fidelity Investments, which was referenced in the Journal article, "a 65-year-old couple's out-of-pocket health-care costs could reach $225,000 in their remaining years". Sadly, that money is going to have to come from the retiree him- or herself, not from the government. There will no longer be government sponsored health care for the elderly. It's a bum deal, for sure, but we'd better start planning for it.

State and city workers will fare no better than corporate workers

State and municipal workers counting on retiree health care benefits won't make out any better. These old Fortune articles give some good background. Let's not kid ourselves, taxpayers aren't going to fund public sector retiree benefits. They're going to be cut.

Again, this is all very sad, but unfortunately, it's reality. I hope I'm wrong about this, but this doesn't look like a problem that we can grow our way out of.

Consumer Reports to rate hospitals

Consumers Union (Consumer Reports to you and me) will start a new hospital rating service (free WSJ Digg Link).

The nonprofit Consumers Union is launching a new hospital-ratings service, adding to the growing competition to provide online consumer information about health care.

The effort by the publisher of the popular Consumer Reports magazine is a gamble that the credibility of the magazine's name and its no-advertising stance, identified with widely used ratings for cars and other products, can translate into the tricky field of health care, where doctors and other providers have objected to some evaluations proposed by insurers. The field is increasingly crowded, with an array of players trying to build definitive consumer-health information sources.

Consumers Union already offers assessments of health-insurance plans, drugs and some medical treatments. Other areas the nonprofit is considering include physician groups and elder care. The new hospital ratings, which are expected to be supplemented with further information later, are the first step in a broader effort to expand the nonprofit's health-care offerings.

The article brings up objections to the rating methodology, but what methodology is perfect? I support efforts to bring more transparency to health care outcomes and costs. This transparency is especially necessary if people are going to start using HSAs and consumer driven plans.

HSA experiences

Here's a story on some realities of Health Savings Accounts that makes me glad I didn't choose one, and is decreasing the likelihood that I'll choose one for next year's medical plan.

More on Health Savings Accounts

I've covered my decision not to use a Health Savings Account. Now comes another story asking if HSAs are right for you (free WSJ Digg link).

Not my experience

High-deductible plans have premiums that are often 20% to 25% lower than those of health maintenance organizations, usually the cheapest type of comprehensive plan.

This wasn't my experience with the HSA/consumer driven option I had. The premium savings were a little over 12%. These savings weren't nearly high enough. I hope in next year's options a 20-25% premium savings is available.

Young and healthy workers who are unlikely to incur many medical bills are most likely to benefit from high-deductible plans, says Wendy W. Bunnell, a benefits attorney and consultant in Minneapolis.

High-income individuals and families who can afford to pay their own medical bills with cash up to the deductible limit also may benefit. While paying for some care directly, they can use an HSA primarily to invest tax-free and fund medical care in retirement. (You can submit receipts for reimbursement at any time, even years after the money went into the HSA.)

I do see the benefits in using the tax-free money for retirement medical care, and the HSAs seem like a good fit for the mass affluent. I'll need more than a $500 premium savings to use for funding an HSA to make it worthwhile though.

Evaluating health insurance

I'm working on benefits enrollment this weekend. I've compiled all of this year's medical expenses to help decide what option to go with. I know that we're very fortunate not to have any health problems. The only times we typically see a doctor is for an annual checkup. This year, we had a baby, which increased our medical expenses. I'm going to use this year's expenses to help decide if we can go with an HSA or whether it's better to stick with our current POS plan.

POS plan basics

I have two options for the 2008 POS plan, a high and a low option. The high option costs about $5400 in premiums to insure my family for 2008, and the low option about $3900 in premiums. The main differences that would affect us come down to the low option copays being $20 more per doctor visit, and the low option covering 80% of certain costs (like lab costs), while the high option covers 90%.

Since we can rely on in-network doctors, both the POS high and low option out-of network deductibles don't really affect us. The out of pocket maximums for both in-network and out-of-network are drastically higher for the low option, so much so that I'd choose the high option if we expected any type of medical costs beyond routine checkups in 2008. The POS high option has in-network out of pocket maximums of $1200 for an individual and $3600 for a family.

HSA plan basics

The HSA/consumer driven plan costs about $3400 in premiums to insure my family for 2008, about $500 cheaper than the POS low option and $2000 cheaper than the POS high option. The HSA/consumer driven option has out of pocket maximums of $2500 for an individual and $5000 for a family. All the plans will cover preventative expenses 100%.

Comparison of the options

This year, we had about $1750 in medical costs beyond our medical insurance premiums. If we chose the HSA/consumer driven option, and had similar medical needs next year, we'd have to exceed the deductible of $1200 for an individual and $2400 for a family before coverage kicked in. This would cut the HSA/consumer driven option advantage from $2000 to $800 ($2000 in annual premium savings less the $1200 deductible).

Next, we exceeded the $1200 individual in-network out of pocket maximum on this year's POS plan and got some bills covered 100%. We'd have to exceed $2500 in expenses under the HSA/consumer driven plan before we got those same bills covered 100%. The POS high option is the better option if we had similar expenses in 2008 as we incurred this year (the low option having already been eliminated for this scenario).

Since I don't expect expenses like this year's in 2008, I'm down to the POS low option or the HSA/consumer driven option. While the HSA/consumer driven option has cheaper premiums, it has the deductible for non-preventative medical expenses, while the POS low option doesn't. A couple of trips to the pediatrician's office with a sick kid could easily wipe out the savings benefits. Because of this, and the fact that our pediatrician doesn't accept the company that provides the HSA/consumer driven option's insurance, meaning we'd have to use out of network benefits, means that I'm going with the POS low option.

The HSA part of the health plan isn't even a factor in my decision, it's the premiums. The premiums are going to have to come down significantly more before I'll consider going with the HSA/consumer driven option.

Researching hospital care

Following up on yesterday's post on HSAs, here's an old Journal article on sites that have data on hospital quality (free WSJ Digg link). The sites mentioned include:

www.hospitalcompare.hhs.gov
www.leapfroggroup.org
www.nahdo.org/qualityreports.aspx
www.talkingquality.gov/compendium/
www.healthgrades.com
www.dartmouthatlas.com

Health Savings Accounts

It's benefits enrollment season. This year I'll be investigating Health Savings Accounts(HSAs) to see if they make sense for me. I learned some useful things from the following two articles. First, a personal account of using an HSA from a University of Minnesota professor:

In the name of academic research, finance professor Stephen T. Parente got his physician wife to agree, reluctantly, to make a radical change in their family's medical coverage. The health-economics specialist who teaches at the University of Minnesota's Carlson School of Management had realized he knew a lot about health savings accounts (HSAs) as a scholar. But he had no experience with them as a consumer. So two years ago he enrolled himself and his family in a high-deductible insurance plan linked to a tax-sheltered HSA for medical expenses.

[...]

So what has he learned as a consumer? Just as with his previous insurance, he doesn't worry that medical bills will cause financial ruin. Once he exhausts his $5,000 deductible, his insurance kicks in and his family is protected against disaster. In addition, he is now fully covered for preventive care to encourage sound medical habits, a relief with three children, ages 2, 5, and 10. Such services includes immunizations and well-child care, as well as annual physicals and mammograms. Some 82% of high-deductible/HSA plans follow this practice, according to the Kaiser survey.

Parente has been surprised by the cost of using an HSA. The premium of $84.20 per biweekly pay period is only about 12% less than a preferred provider plan, and he thinks the savings should be greater. Parente also puts $3,650 in the HSA to reach the maximum contribution (the university puts in $2,000), but the money belongs to him, not an insurance company.

[...]

The savings should be much greater. Why would I assume the increased risk and increased deductible for such a paltry savings? Continuing on:

Parente says there still isn't enough data to confirm whether the combination of consumer-driven insurance and HSAs lives up to its promise. A lot of the talk in health policy circles about savvy consumers shopping for the best deal is hype. The only good price information currently involves pharmaceuticals. Consumers can go online and compare prices of brand-name drugs vs. generic competitors, or mail order vs. local pharmacy, and so on. "But the notion that it's possible to shop for physician prices, that there's a marketplace in doctors, well, it just isn't there," he says.

[...]

This article is failing to convince me to go with the HSA/high deductible health insurance plan. Then there is this WSJ article on HSAs (free WSJ Digg link):

[...]

The numbers of U.S. workers enrolled in such plans through their jobs (excluding dependents and those in firms with fewer than three workers) grew only slightly, to 2.7 million in 2006 from 2.4 million in 2005, according to the Kaiser Family Foundation. Most do it because either their companies give them no choice or the premiums are the cheapest. Enrollment is growing faster on the individual market and among sole proprietors, but that may be because the plans are often the only affordable option.

Where employees do have a choice, only 19% choose the newfangled plans, the Kaiser study estimates. In the Federal Employees Health Benefits Program,
which has offered the plans for several years, only about 50,000 of its eight million members were enrolled in them in 2006, according to industry estimates. At lightbulb-maker Osram Sylvania, just 5% of employees enrolled in the plans in
2006, their first year.

In addition, those who are in consumer-directed health plans often report lower satisfaction and confusion about how the plans are supposed to work. The general idea is for patients to conserve money in their savings accounts, which are meant to pay for care until they reach their high insurance deductible. In theory, patients who shop carefully could have money left over, which they can keep and let build into savings for bigger health-care costs down the line.

[...]

One reason for the frustration is the uphill battle many consumers describe in trying to shop for their health care. Six years ago, Howard Katz, an industrial-design research consultant in rural eastern Pennsylvania, bought a family health plan with a savings account and a deductible that is now $5,650. But getting specific price information on which to base purchase decisions for MRIs, doctor visits and blood work has been difficult, he says.

[...]

This article doesn't give me the warm and fuzzies about HSAs either. Still, I'll be doing a careful analysis of my own HSA option soon to see if it's viable.