White House consultant David A. Winston said yesterday that the Reagan administration, in a major innovation in health policy, is likely to propose requiring private employers to include "catastrophic health insurance" in any health insurance policies they provide their workers.
Winston, senior vice president of Blyth Eastman Paine Webber Healthcare Funding Inc., and an unpaid consultant to the White House on health policy, also predicted at a meeting of the National Health Council that "catastrophic" insurance will be proposed for the Medicare program.
Although he said President Reagan had made no final decisions, Winston said, "I think you will see, emanating from administration proposals, catastrophic insurance both in the public and the private side."
Winston said the administration also is considering a plan to make workers pay income taxes on health insurance premiums paid by their employers. At present, such payments are not counted as income to the employe and therefore are not taxed.
The catastrophic concept, under discussion for many years, guarantees that once an individual's out-of-pocket health costs reach a specified level such as $2,500 or $3,500 a year, the insurance policy will take care of all further services. The individual thus is protected against bills that could be financially destructive.
But both in the private sector and in Medicare, the added costs of the catastrophic protection would be more than offset by forcing insured persons to pay a higher share of the costs of initial or routine health bills than now, up to the catastrophic limits.
Both the proposal with its higher costs to the patient for routine initial services and the tax on employer-paid insurance premiums are designed to restructure the U.S. health care industry.
Administration planners contend these changes would make people more cost-conscious, and therefore discourage them from using services frivolously or demanding extra-rich health insurance policies. This in turn, they argue, would help reduce the current runaway inflation in health costs.
An added bonus of the tax on health insurance payments by employers is that it would produce added revenues to help the administration reduce the federal budget deficit: if the government counted all premiums over $1,800 a year as income to the worker, subject to federal taxes, it would collect $3.4 billion in federal income taxes; if the exemption were set at $2,400, the government would collect $1.6 billion.
Winston gave no details of the catastrophic insurance proposals, but other sources said these concepts are under consideration:
* In the private sector, where about 68 million workers and their families now have employer-provided health insurance, such policies would have to include a catastrophic feature protecting the worker against out-of-pocket costs exceeding $3,000 or $3,500 per year. Otherwise, employers could no longer deduct the premiums paid as part of their cost of doing business.
Employers almost surely would offset the extra premiums to pay for the catastrophic protection by making workers pay a larger share of the routine and initial doctor and hospital bills than at present, although in no case could such out-of-pocket costs exceed $3,000 or $3,500.
* In Medicare, which covers 29 million elderly and disabled people, beneficiaries would be freed from any further outlays once their out-of-pocket costs for covered services reached $2,500 a year. This provision would provide an important new protection for seriously ill Medicare patients, but its cost would be more than offset by making Medicare patients pay a larger share of the costs of the first 60 days of hospitalization.
At present, the Medicare patient pays $260 for the first day of hospitalization (which will rise automatically to $304 on Jan. 1 under existing law) and Medicare pays for the second to 60th day.
Under the proposal, the patient would have to pay the $304 plus 6 percent to 10 percent of the daily costs from the second through 60th day.