Most people want the best health coverage possible, but is it possible Cadillac Health Plans are the wrong way to think about it?
Cadillac Health Plans and insurance remain a hot topic of conversation since I pondered Cadillac Health Plans several months ago. Generally a Cadillac Plan provides many bells and whistles for its subscribers, but also comes with a much higher premium. Taking that car analogy in a different direction, what if we could rethink what it means to have good health insurance and model it after car insurance? This would give people more control over their health and health spending, much like the car insurance model. Now, that would be more like a true Cadillac Plan . . . . I digress.
In an earlier post about health insurance costs I talked how we (my wife and I) will pay about $12,960 for health insurance in 2010. It’s a pretty good plan – a PPO – one that has more degrees of freedom than other plans. But it still dictates how we spend the dollars that we’ve paid in to the system and incentivizes wasteful spending. Moreover, why does everyone have to be on the same paradigm? Put a lump sum in, get some care out – why not create insurance products that work differently while at the same time creating social pressures to reduce unnecessary costs?
The annoying thing about this insurance plan is that we only used about $2,000 worth of the benefits. So, in essence, we pay almost $13,000 in to the system and the system tells us what we can and cannot do and only allows us to use $2,000. And that was only for costs that were deemed “appropriate and necessary” by the insurance company. We had to pay another $1,500 out of our own pockets for legit physical therapy and dermatology treatments.
OK, so clearly that extra $11,000 that we paid in is a risk premium to cover catastrophic costs – if something happened to either one of us, I’m sure we’d be glad we had the insurance. That said, $11,000 sounds like an awful lot, particularly when you consider that you probably pay only $1,000 or so a year in car insurance. Why can’t healthcare be structured more like that? The person pays for maintenance and routine care, while insurance pays for catastrophic and serious illnesses/conditions.
For instance, let’s say such a plan existed. My wife and I could contribute $2,000 (more or less, depending on how much we wanted to put away) in pre-tax dollars to a Health Savings Account (HSA – yes, it rears its head again). That $2,000/year per person could be used to cover sick visits to the doc, derm care, physical therapy or other costs – any way we saw fit. Another benefit is that if we needed more money, we could pay out of pocket and submit those receipts on our taxes much like we do today – all care dollars would be pretax. Best of all, those HSA dollars would roll-over year to year just like cash.
For catastrophic illnesses, we could purchase insurance much like we do for our cars. Let’s say it would cost us $2,500/year per person for that insurance – that’s almost 3-4 times more than our car insurance covers and our car insurance covers about $100,000 worth of damages and injuries. Seems decently reasonable.
And, according to this simplified model, we’d still only be contributing $9,000 for our healthcare – that would leave an extra $4,000 in our pockets over what we’re spending today. We’re not used to thinking about that money as coming out of our paychecks because it’s part of our benefits. But, you can be sure it’s affecting our take-home dollars. Additionally, I’m sure spending money out of our HSA would also cause us to pay more attention where our money is going and help curb frivolous spending.
When looked at from another angle, the current state of doing business in healthcare it pretty bad. Why not completely change some aspects to make it work better?
What I’m proposing is that we as consumers gain more control in how we spend our healthcare dollars. This insurance model could be similar to how car insurance works today. You pay for your own maintenance costs (i.e. the HSA dollars) and then pay-in to insurance for catastrophic costs.
For example – let’s say you went in to the ER with abdominal pain and the doc suspects you have appendicitis and a CT scan is performed. Lo and behold you need to have an appendectomy – that’s a pretty serious illness, which would be covered by your catastrophic insurance. Everything from the CT scan to the operation and anesthesia. All told, about $20,000 worth of care – easily less than most car accidents, and therefore it seems that there should be a feasible business model like car insurance in there somewhere.
I’m sure that I’m over simplifying the catastrophic insurance proposal and it might cost more per person per year. Even so – if we paid $3,000-$4,000 a person per year for catastrophic insurance that would still save us money over what we pay today. To boot, we’d have more control and responsibility over our day-to-day healthcare spending.
This plan won’t work for everyone and we’d still have to make a determination of how to provide care for the uninsured and current Medicaid patients, but I’m sure we could use a system similar to what we have today. Additionally, chronic illnesses would also need to be addressed, but it’s most likely do-able if some of the current healthcare reforms go through. This high-level model that I’m proposing is at least a new way to start thinking about the change we’d like to see. Maybe it would be a sub-component of larger change? It’s a start.
Cadillac care, indeed. Or at least modeled after insurance for Cadillac autos. What do you think? Curious to your thoughts!