Future Tense?

Americans have long had a beef of sorts with the U.S. health care system.

Asked to rate that system, a majority of workers describe it as poor (21 percent) or fair (34 percent), and while nearly a third consider it good, and less than half that many rate it as very good (12 percent) or excellent (2 percent), according to the 2013 Health and Voluntary Workplace Benefits Survey (WBS). Perhaps more significantly, the percentage of workers rating the health care system as poor doubled between 1998 and 2006, according to the 1998–2012 Health Confidence Survey (HCS).

On the other hand, workers’ ratings of their own health plans continue to be generally favorable. In fact, one-half (51 percent) of those with health insurance coverage are not just content with the coverage they have, they are extremely or very satisfied with it.

Satisfaction with health care quality continues to remain fairly high, with 50 percent of workers saying they are extremely or very satisfied with the quality of the medical care they have received in the past two years.

In fact, dissatisfaction with the health care system appears to be focused primarily on cost: Just 13 percent are extremely or very satisfied with the cost of their health insurance plans, and only 11 percent are satisfied with the costs of health care services not covered by insurance.

And, despite the ongoing (and frequently dramatic) news coverage of changes (current and contemplated) resulting from the Patient Protection and Affordable Care Act (PPACA), workers continue to be generally confident that their employers or unions will continue to offer health insurance. In 2013, 28 percent of workers report that they are extremely confident their employers or unions will continue to offer coverage, 37 percent are very confident, and 28 percent are somewhat confident.

On the other hand, confidence about the health care system decreases as workers look to the future. While 46 percent of workers indicate they are extremely or very confident about their ability to get the treatments they need today, just 28 percent are confident about their ability to get needed treatments during the next 10 years; and while 39 percent are confident they have enough choices about who provides their medical care today, fewer than-  1 in 4 are confident about this aspect of the health care system over the next 10 years.

Finally, 25 percent of workers say they are confident they are able to afford health care without financial hardship today, but this percentage decreases to 18 percent when they look out over the next decade.

Ultimately, the findings of the 2013 Health and Voluntary Workplace Benefits Survey provide not only valuable insights into how Americans view and value their health care now, but also a sense that the current comfort and confidence levels could be relatively short-lived.

- Nevin E. Adams, JD

“The 2013 Health and Voluntary Workplace Benefits Survey: Nearly 90% of Workers Satisfied With Their Own Health Plan, But 55% Give Low Ratings to Health Care System” is available online here.

“Essential” Information

About a month ago, the Department of Health and Human Services (HHS) released a bulletin outlining proposed policies that it said would “give states more flexibility and freedom to implement the Affordable Care Act.”

It did that by proposing to allow individual states to select a single benchmark to serve as the standard for qualified health plans inside the Exchange operating in their state – and for the plans offered in the individual and small group markets in their state. The Patient Protection and Affordable Care Act requires that health insurance plans offered in the individual and small group markets, both inside and outside the ”Affordable Insurance Exchanges” (Exchanges), offer a comprehensive package of items and services, known as “essential health benefits(1).” This benchmark would set the standard of the items and services included in the essential health benefits package called for in PPACA(2).

Acknowledging that “[t]There is not yet a national standard for plan reporting of benefits,” HHS also noted that PPACA does not provide a definition of “typical,” and it therefore gathered benefit information on large employer plans (which account for the majority of employer plan enrollees), small employer products (which account for the majority of employer plans), and plans offered to public employees (3).

In releasing its proposal, HHS noted that “[n]ot every benchmark plan includes coverage of all 10 categories of benefits identified in the Affordable Care Act” and that “the most commonly non-covered categories of benefits among typical employer plans are habilitative services, pediatric oral services, and pediatric vision services.”

However, HHS did at least suggest some boundaries, noting that states “would choose one of the following health insurance plans as a benchmark”:

•One of the three largest small group plans in the state (4);
•One of the three largest state employee health plans;
•One of the three largest federal employee health plan options;
•The largest HMO plan offered in the state’s commercial market.

HHS is soliciting public input on this proposal – though comments are due by January 31, 2012. You can send comments to EssentialHealthBenefits@cms.hhs.gov.


Nevin E. Adams, JD


The essential health benefits bulletin is online at http://cciio.cms.gov/resources/files/Files2/12162011/essential_health_benefits_bulletin.pdf

A fact sheet on the essential health benefits bulletin is online at: http://www.healthcare.gov/news/factsheets/2011/12/essential-health-benefits12162011a.html

The Institute of Medicine’s report on Essential Health Benefits is online at http://www.iom.edu/Reports/2011/Essential-Health-Benefits-Balancing-Coverage-and-Cost.aspx

Note: The HHS bulletin addressed only the services and items covered by a health plan, not the cost sharing, such as deductibles, copayments, and coinsurance. HHS noted that the cost-sharing features will be addressed in future bulletins and cost-sharing rules will determine the actuarial value of the plan.

See also Paul Fronstin and Murray N. Ross, “Addressing Health Care Market Reform Through an Insurance Exchange: Essential Policy Components, the Public Plan Option, and Other Issues to Consider,” EBRI Issue Brief, no. 330, June 2009.

(1)Beginning January 1, 2014, qualified health plans sold in health insurance exchanges must cover all essential benefits. In addition, new plans sold in the individual and small group markets must cover essential benefits, regardless of whether plans are sold inside or outside of state health insurance exchanges.

(2) The following benefit classes are identified as essential benefit classes
◦Ambulatory patient services
◦Emergency services
◦Hospitalization
◦Maternity and newborn care
◦Mental health and substance use disorder services, including behavioral health treatment
◦Prescription drugs
◦Rehabilitative and habilitative services and devices
◦Laboratory services
◦Preventive and wellness services and chronic disease management
◦Pediatric services, including oral and vision care

(3) HHS noted that it has considered a report on employer plans submitted by the Department of Labor (DOL), recommendations on the process for defining and updating EHB from the Institute of Medicine (IOM), and input from the public and other interested stakeholders during a series of public listening sessions. In 2010, Paul Fronstin, Ph.D, Director, Health Research & Education Program at the Employee Benefit Research Institute (EBRI) was appointed to the Institute of Medicine (IOM) Committee on Determination of Essential Health Benefits. For more information on the essential benefits proposal, you can contact him at Fronstin@ebri.org.

(4) an Illustrative List of the Largest Three Small Group Products by State was just published by HHS at http://cciio.cms.gov/resources/files/Files2/01272012/top_three_plans_by_enrollment_508_20120125.pdf.

'Value' Judgments

Way before we had “reality” shows where we could watch people make fools of themselves in prime time, there was “Let’s Make a Deal.” The concept was simple – get contestants to show up in odd costumes, and give them a chance to trade in something (of no value) that they brought with them for something of undetermined value that was hidden in a box, or behind a curtain. That first trade was easy – where things got more interesting was once the contestant had obtained something of value – and was then given a chance to trade it for something that might be of higher value – or not. Sometimes it worked out – and, of course – sometimes the contestant got “zonked.”

IMHO, there’s something of that going on in the current debate over workplace benefits. I think you’d be hard-pressed to find anyone who doesn’t think that Americans should have access to basic needs such as health care, or a secure (if not comfortable) retirement. Certainly we’re all striving to help ensure the latter, and we all know that the former (or, more precisely, the lack thereof) can have a huge impact on those efforts.

The question that, IMHO, is looming just over the horizon is—how much are you willing to give up to make that happen?

Let’s start with health care. On the campaign trail, then-candidate Barack Obama said repeatedly that, if you liked the health care you currently had, you’d get to keep it—oh, and it would cost less. Moreover, he was harshly critical of then-candidate John McCain’s proposal that health-care benefits be taxed, albeit offset by a tax credit.

However, in recent days, President Obama has been willing to reconsider the notion of taxing those workplace benefits (not his preference, but keeping his options open) in the interest of securing health-care reform. Now, with several competing notions of health-care reform emerging, we don’t yet know what the final result will be, but I think that workers who currently enjoy those workplace benefits tax-free could see some—or all—of that benefit disappear—albeit ostensibly for the greater good of ensuring that everyone has access to health care. How will workers feel about that? Will they feel that the value of broadening coverage is worth giving up that benefit? What if they have to pay more—and they get “less”?

Retirement Plans

Now, on retirement plans, the current Administration proposal—the automatic workplace IRA—purports to leave our current private-sector solutions in place. Indeed, officials go out of their way to emphasize that intent, and with more than half the nation’s workers currently without a workplace retirement plan, we clearly need something to fill that gap. On the other hand, the drumbeat that workers can’t (or won’t) save enough to provide an adequate retirement continues loud and strong. Some voices have already taken to task the “disproportionate” benefits of the 401(k) (that is, a plan that allows you to defer taxes is most prized by workers who actually pay taxes)-—while others are, for the moment, anyway, content to simply challenge its vitality.

The stridency of these arguments has, IMHO, strengthened in the aftermath of the extraordinary market decline, and I’m reasonably sure that the spotlight being cast on target-date offerings (which had, until recently, been a remarkably strong counter-point to the claim that participants were incapable of, and/or unwilling to, make solid investment choices) will do nothing to quell
those concerns. Meanwhile, the widely publicized announcements about 401(k) match suspensions are, for some, a reminder of just how tenuous that commitment can be.

Indeed, once you take away the promise of a defined benefit pension (admittedly an elusive fantasy at best for most in the private sector) and undermine the viability of the 401(k) as an effective retirement income generator, those looking to ensure broad-based retirement income coverage are left with little in the way of resources beyond Social Security and personal savings to fund those retirement paychecks. The former has well-documented fiscal challenges of its own, of course, and the latter—well, let’s just say that if you aren’t saving in a 401(k) or like vehicle these days, you probably aren’t saving.

All of which is leading what seems to be a growing number to suggest that the best solution to the challenge of ensuring adequate retirement income for all lies in a system that doesn’t depend on the responsibility and prudence of individuals, but rather one that, like Social Security, is the result of a government mandate. One that is based on a premise where the financial resources of the nation’s workers are “pooled” and ultimately redistributed, ostensibly in a way that provides a more certain result for all, but one that may well be distributed disproportionately to one’s individual contribution. Said another way, like Social Security, one in which what you put in and what you eventually get back are, shall we say, “unrelated.”

Now, as I said earlier, I think many—perhaps most—would agree with the proposition that we should look for solutions that provide the means for adequate retirement income for all. The question in my mind is—how much would you be willing to give up to provide that? Would you be willing to pay higher FICA taxes to prop up the current system, to give up the tax benefits of your 401(k) to help fund a broader initiative? Indeed, would you be willing to give up your 401(k)? Would you be willing to “make a deal?”

These are questions that we may be asked to answer in the coming months, though they may not be presented that plainly. But, IMHO, the answers – the decision to keep what you already have, or to take a chance on “what's behind door #2” - will determine not only the future of the 401(k), but that of the American retiree as well.

- Nevin E. Adams, JD

The Mean-ing of Average

As if retirement savers didn’t have enough problems, last week Fidelity Investments reminded us how much money we’re going to need for health care.

According to Fidelity’s annual estimate, an average couple retiring in 2009 would need $240,000 set aside by age 65 in order to pay for health-care expenses in retirement (see “Retiree Health Care Estimate Jumps 6.7%”). Worse, that’s up from $225,000 in 2008—and even worse, the 2009 figure is 50% higher than the $160,000 Fidelity estimated in 2002 would be required.

Even those workers who still have employment-based retiree health benefits to supplement Medicare, but who must pay their own premiums, need to set aside a hefty amount, according to a 2008 EBRI report; men would need between $102,000 and $196,000 in current savings (50th and 90th percentiles, respectively), while women would need between $137,000 and $224,000, respectively, due to their greater longevity, according to the report (see “EBRI Pinpoints Retiree Health Expenses”.

That 2009 Fidelity estimate continues to assume individuals do not have employer-provided retiree health-care coverage, but it does take into account coverage by Medicare, while assuming life expectancies of 17 years for a male and 20 years for a female.

Now, those estimates are actuarially sound. EBRI notes that, on average, women age 65 live to age 85, while men will live to age 82. However, as Dallas Salisbury, EBRI’s CEO, has reminded me more than once, most of the population is not average. In fact, by the very definition of the term, “average” means that about one-half of men and women will die before they reach average life expectancy—and the rest will live longer.

EBRI research has shown that a couple retiring at age 65 in 2008 could need as “little” as $194,000 to cover health insurance costs and health-care expenses not covered by Medicare. However, if that couple happens to live far beyond average life expectancy, say to that experienced by the 90th percentile, and at the same time needs to use a lot of prescription drugs during retirement (again, the level out at the 90th percentile), EBRI notes that the couple could need as much as $635,000 in savings when entering retirement.

Indeed, setting aside the financial viability concerns surrounding the Medicare program (it’s actually in far more precarious financial shape than Social Security), that coverage attends to only a little more than one-half of the Medicare population’s health-care needs, according to EBRI. Not that most Americans are aware of those limitations, IMHO. In fact, I’d be willing to bet that many, perhaps most, assume that Medicare is all the post-retirement insurance they need. Of course, I’m equally sure that many assume that those Social Security checks will provide all the income they need¬ – only to discover too late that it is all they have.

Ultimately, these projections serve to remind us of a couple of key considerations. First, health-care costs need to be contemplated as a part of retirement savings—both because those costs can quickly wipe out funds set aside for living expenses, and because not purchasing the proper amount/kind of health care can have a deleterious affect on your quality of life. Second, one shouldn’t assume that Medicare will address every medical need, any more than you would assume Social Security will comfortably address every living expense. And finally, and perhaps most significantly, “average” is only one point of reality, and one that few of us actually live—or retire—in.

—Nevin E. Adams, JD

See also see “The Lure of Averages”

A Good Deal?

A survey published this past week by Fidelity noted that workers cited health insurance, retirement savings plan matching contributions, and dental insurance as the three most important benefits, with health insurance ranking as No. 1.

That study (see Workers Underestimate Cost of Providing Health Benefits ) offered some interesting perspectives on health care and the expenses associated with that benefit. The good news was that workers very much prize this benefit – and in large part (72%) believed that what they got through their workplace was better than, or at least as good as, what most other companies offer. That said, more than half (61%) noted that they were paying more than they once did, but were getting the same – or less – in terms of benefits than they did in 2007.

However, a more striking finding in that Fidelity study, IMHO, was that more than half (53%) thought that that health insurance benefit was costing their employer less than $5,000/year, when a more typical range (depending on where you are, for health-care costs, like housing, can vary widely depending on where you live) is anywhere from $5,000 to $15,000. A benefit that, it should be noted, is still tax-free to workers (though there have been “designs” on that from both major U.S. political parties, see McCain’s View ).

Now, that workers underestimate the cost of providing health-care insurance is perhaps not surprising, in view of how insulated most are from the “real” costs under the current system (and let’s not for a second imagine that a nationalized version would do anything to close that gap). That’s why employers are increasingly predisposed to embrace programs that do a better job of “engaging” workers in the costs, even as those workers are asked to pay more. However, as the Fidelity survey illustrates, they may know they’re paying more, but most still have no real appreciation for the cost of the benefit they are being provided, and thus doubtless have less appreciation for the “deal” they are getting. Workers may appreciate the benefit – but how much more might they if they had a clue what it was costing?

When it comes to retirement programs, workers have long been asked to pay an increasing share of the costs; but, unlike health care, the shift of those costs has been less obvious, due to the imbedded nature of the expenses within/netted against the fund returns. As a consequence, surveys routinely show that participants (and plan sponsors) also underestimate those costs. In fact, in the extreme, a large number regularly opines that they pay nothing at all for those services.

Now, I’m not saying they aren’t being “told” now – or at least given the raw data with which to discern that impact. However, I suspect – and those aforementioned surveys validate - that the vast majority haven’t a clue as to the costs they are paying for those services. And, while it’s not here yet, the day is coming – and, IMHO, coming soon - when it will be mandatory to disclose that information to participants in a format much more likely to be understood and…“appreciated.”

And on that day, whenever it falls, those expenses – however fair, “disclosed,” and well-deserved they may be – will doubtless come as a shock to those participants. Participants who may well have been getting a good price, maybe even a good deal – but who thought they were getting it for a good deal less.

- Nevin E. Adams, JD