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How runaway costs can undermine health reform in a hurry

by David Williams

From today’s Boston Globe (Blue Cross to scrap policy with low employer contribution):

In an about-face, Blue Cross and Blue Shield of Massachusetts said it is scrapping a new policy that would have allowed owners of small businesses to contribute just one-third of the cost of their employees’ health plan premiums… Prior to the new policy… the insurer required a minimum 50 percent contribution to premiums from employers with 50 or fewer workers…

[Governor] Patrick’s administration believed that if Blue Cross allowed lower employer contributions, other companies might follow suit, sparking a race to the bottom in which employers contributed as little as possible to their employees’ healthcare.

Governor Patrick is concerned because the state’s health care reform law, which requires almost everyone to have insurance, depends heavily on employer coverage. If employers don’t keep paying up, the law won’t work.

But framing the discussion in terms of percent contribution is highly misleading. The “race to the bottom” comment is a case in point. Here’s what I mean:

  • As I mentioned yesterday on the Health Business Blog, Blue Cross plans to raise my company’s premium by 26.3 percent next year. Let’s imagine they do the same thing again next year
  • Using approximate numbers, that means the family premium will go from $1000 to $1263 to $1595 over that time
  • If the company paid 50% now, that would be $500. If the company continued to pay $500 in two years, it would only be paying 31 percent of the much higher premium!
  • That’s not a race to the bottom, folks. It’s more like holding steady

I’m assuming our rate increase is unusually large, but we can’t be alone. If it happens like this to us in two years it will happen to everyone within five.

Cost issues have to be addressed, and quick.

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