Over the next year or two, many Americans may find themselves paying a higher share of their own medical bills. The administration believes that the best way of controlling medical-price inflation is to reduce the amount of health insurance that people carry, and raise their out-of-pocket costs.
Federally subsidized health programs like Medicare can be cut by legislation. Company-paid insurance, which covers employes, can be cut by forcing an increase in price, or perhaps through the use of tax incentives.
People who pay for their own comprehensive coverage are already cutting back on insurance, because of the big increase in policy premiums over the past two years. Prices on some policies are up 70 to 150 percent.
"As inflation moves the cost of insurance higher, the healthy family doesn't see the individual policy as worthwhile," says Julius Vogel, vice president and chief actuary at Prudential Insurance Co. "But the less healthy families keep the policy," he says, which raises claims and raises prices even more. Prudential recently stopped selling individual health insurance.
A recent study by the Rand Corp. found that people with comprehensive health insurance visit doctors more, and enter hospitals more often, than people who have to pay part of the medical bill themselves. In general, the more they have to pay, the less they use medical services.
The administration hopes that by encouraging less use of medical services, it will cut the average rate of medical-price inflation. Even with a lower inflation rate, however, individuals' medical costs could rise sharply if they have to assume a larger portion of their own bills.
Here are some of the ideas and trends that are likely to affect you:
* The rising cost of group health insurance is causing companies to look for ways to save money, by raising the price to employes or by reducing benefits. But only a few companies have made such changes so far. It's hard to maintain the goodwill of employes when you're cutting their health insurance.
* The administration wants to reduce Medicare insurance, which would raise your out-of-pocket costs. If you buy private insurance to cover the gaps in Medicare, the price of your insurance premiums would rise.
* Another proposal of interest to the administration would give tax incentives to companies that offered their employes a variety of health-insurance plans, including a plan where employes pay more of their own medical bills. An employe who rejected the cost-sharing plan, and chose comprehensive coverage instead, would pay an indirect price for that added insurance: Its extra cost would be taxed to him as personal income.
If you are ever offered this choice, look carefully at how much comprehensive health coverage would actually cost in higher taxes, and compare it with the extra benefits you get. The added payment may be worth it, to guard against the risk of substantially higher medical bills. Employes in lower tax brackets would pay less for comprehensive insurance than employes in higher brackets.
* Individual health insurance will continue to get more expensive. Some Blue Cross-Blue Shield plans are asking state regulators for 40 percent increases this year. As the population ages, more claims will be made on health insurance, and increased claims will raise premium costs even if medical-price inflation slows. Inevitably, more people will drop out of private health insurance because they can't afford it.
If you're between jobs and have a family, you can't afford not to have health insurance. Your group plan with your former employer may cover you for one to four weeks after you leave the company (check on it). After that, ask an insurance agent about buying temporary health insurance. Some companies sell coverage for two months to a year.
But temporary policies usually do not cover illnesses treated within the past two years. If someone in your family is sick, your only choice may be to convert your group coverage with your old employer into an individual policy, until you get onto another company's payroll.