HelloWallet’s Switch to Consumer-Driven Health Care (Part 2 of 3)

shutterstock_125307056There is considerable evidence that suggests the stagnation in wage growth over the last decade is really a tale of rising medical costs. This matters to me for a number of reasons, not the least of which is a desire to distribute our success through increased compensation for the people responsible for achieving it.  But my day-to-day job as CFO is to tend to corporate margins and, subsequently, stock price and shareholder value.  What this means, in its most elemental form, is if healthcare goes up by 10% and my revenue only by 5%, I have a problem.  Said another way, one cost growing above my rate of revenue growth means less money for other things, like cost of living adjustments for my employees, much less large year-end bonuses.

 There is, of course, a logic to why one employee might be a heavy consumer of health care one year and a light consumer the next.  Our health is variable, unpredictable and episodic.  Not everyone consumes the same amount each year. Just like auto insurance, you may go a decade or two without a claim, but when you do it is likely twice or three times your annual bill, perhaps more. But, unlike auto, home and life insurance, health insurance has an employer in the middle paying the premium who cannot gauge an appropriate market rate on an individual employee’s needs.

 The discretionary pricing in insurance is just another way to ask the consumer how much “stop loss” coverage they want, a general insurance term that describes how most insurance products are positioned and sold.   For example, I can buy an auto policy with a $300 deductible for $100 a month, or I can choose a $500 deductible for $80 a month and pocket the $20 a month savings ($240/yr).  If I am not in an accident during the year, an accident that consumes my deductible – recall now the first $500 of damage is my responsibility, and $200 more than the higher priced plan – I come out ahead financially (i.e. I save $240 over the year through reduced premium savings). 

 So what does a high deductible auto insurance policy have to do with health insurance?  Everything, and then some.  Last year, with an HMO, HelloWallet chose the equivalent of a no-deductible ($0 stop loss) auto insurance plan for a group of drivers who were not in any accidents, and no history of even being accident-prone.  But the distinction is perhaps more subtle – I bought more insurance than most of my individual employees need and, by design, I cannot know what they need. 

Continue reading part 3 of 3.