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 / Fall 2005 / Issue 40(originally published by Booz & Company)


Prescription for Change

The Public’s Benefits
As significant as their impact on the private sector could be, CDHPs could actually have their strongest effect on public-sector programs and policies — extending the trends of the past two decades toward greater personal ownership and responsibility.

CDHPs aren’t just the best idea currently on the table for dealing with health-care costs; they are also the only private-sector solution in sight that could make a difference to this immense public problem. They are being actively encouraged by the Bush administration via tax law rulings and legislative relief; that is one reason (but not the only reason) that they are growing at rates that equal or eclipse the uptake of managed care in the 1990s. Private investment accounts for younger Social Security participants have been an active area of debate in the U.S. federal government since mid-2004. Whether or not any specific reforms become a reality, there is clearly an ongoing political movement to increase personal ownership of and responsibility for life’s major decisions — and that movement will not go away anytime soon. CDHPs are an integral part of it. They suggest that a future is possible in which some of the pressures on public programs like Social Security and Medicare are alleviated, and the funding and structures of those public programs can thus be transformed. Early actuarial estimates, for example, suggest that many of today’s 20- to 40-year-olds with CDHP plans will hit retirement age with substantial accumulated balances (in the low six figures, at least). These funds would be available for any qualifying medical expenses, including long-term care, pharmaceuticals, and even supplemental insurance — bills that other health funds, public or private, would otherwise have to pay. It is too early to assert that CDHPs are the key to fixing either Social Security or Medicare, but the potential for relief will inevitably be brought into the debate by policymakers soon.

CDHP-friendly attitudes are not limited to one end of the political spectrum. Conservative and liberal policymakers alike have seen that CDHPs can improve their chances of reaching their very different goals. CDHP-style pharmacy benefit programs, in which patients have an annually renewed pool of money for prescription drugs, have already succeeded in encouraging more rational purchasing behavior. This is likely to be seen as an example for Medicare to follow. HSAs with portability and rollover balances will open up new design alternatives for Medicare as it enters the high-drain years of the baby boomers’ old age.

Furthermore, the possibility of national pooling of catastrophic risk (enabled by the design of most CDHPs) will be seen as a way of reducing the problem of the uninsured and perhaps as a step toward a national financing system. High-risk health insurance pools already exist in many states, but a comprehensive nationwide system could take advantage of significant economies of scale — in terms of both administrative costs and actuarial leverage. Both major American political parties could conceptually support this approach, though they might not agree on how to implement it. The Democrats have already suggested a government-managed catastrophic risk pool, and this argument could presumably receive Republican backing if the private sector did the pooling. Either way, helping today’s uninsured with this approach could be a major step forward in creating a more equitable health benefits system.

The question remains: What if CDHPs don’t receive the support (private and public) that they seem to deserve? A system of “muddling through” would not last much longer, especially with employers facing obligations to millions of retirees who would be entitled to 20 years or more of company-funded health care. One way or another, the political pressure for a national or “universal” health-care system in the U.S. will become impossible to ignore. The U.S.’s strong history of private enterprise and individual choice would preclude a fully nationalized system; for example, nationalization of assets seems well beyond the political pale. But the solution would undoubtedly incorporate serious controls on prices, intrusive utilization management, and centralized constraints on the supply side (hospitals, technologies, and physicians).

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