In the short run, this will mean dramatic changes in employer-based insurance. But if the new system doesn't work, it could lead to renewed pressure for the sort of government-managed medical insurance that Hillary Clinton pushed a decade ago. And the push may not just come from hard-pressed consumers and liberal politicians. It may come from American businesses.
Benefits managers, who fear double-digit annual hikes in health-care costs for at least the next five years, say they can't keep funding such explosive increases. Says one senior executive, who manages benefits for a company of about 6,500 employees: "If this doesn't work, we may as well bring on Hillary-care. We just cannot sustain [these costs]."
SHARING THE PAIN. Here's the problem: Technology, an aging population increasingly in need of care, and Americans' unwillingness to reduce their spending on health are pushing costs to unheard of levels. In 1998, companies spent about $4,000 on health for each of their workers, according to benefits-consulting company Mercer. Last year, they ponied up $5,162. And this year, they'll probably spend close to $5,700.
Until now, companies have been swallowing most of those increases. Thanks to a booming economy and tight labor markets, businesses swallowed the charges rather than passing them on to employees. Those that tried to share the pain simply couldn't compete for the best workers, who would head for jobs with better benefits packages.
The slumping economy and sagging corporate profits have forced companies to rethink that view. In the coming year, expect to see your premiums and out-of-pocket payments rise, even if you stay with managed-care insurance.
THE LATEST WRINKLE. Many workers will be offered a new kind of coverage that combines sharply higher deductibles with a fixed contribution from your employer. These plans, called defined-contribution or consumer-driven insurance, cover the first, say, $1,000 of a family's medical costs. But they require workers to pick up 100% of the next $500 or so, and divide the costs of the next $1,000 between the worker and the employer. Costs of catastrophic illness and accidents (over and above these thresholds) would be paid by the company. The idea: Make employees pay more out-of-pocket to encourage them to lower their expenses.
The U.S. seemingly has tried everything to keep health-care costs under control. In the 1990s, HMOs promised to restrain costs by requiring patients to get pre-approvals before they saw costly specialists or got expensive tests. But in the face of a patient revolt, the scheme crumbled. Most managed-care plans have now abandoned the gatekeeper system.
In addition, Congress has forced insurance companies to provide all sorts of additional benefits. In recent years, it mandated an extra day of hospitalization after a woman gives birth and required insurers to pay for regular mammograms. Now, it's about to require that health plans offer mental-health coverage. These new congressional mandates may improve care, but they also sharply increase costs.
THE PRICE OF HEALTH. The biggest reason why costs are booming is technology. As treatments for chronic illnesses such as heart disease get cheaper and better, demand for such care explodes. And the overall cost booms.
Advances in medical technology are wonderful. They promise to keep more of us healthier, longer. But this will come at a staggering financial cost. And over the next decade, the great debate in Washington will be over just one issue: Who's going to pay the bill? If the new defined-contribution plans don't do enough to slow the growth of costs, watch the clamor build for some kind of nationalized health insurance plan -- Hillary Clinton style. Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington Watch, only on BusinessWeek Online