Collision course on health care for state employees
Column by Mark Obenshain
Here’s a sobering statistic: In the last decade, the cost of providing health care to state employees has risen an astonishing 135 percent, and now costs $770 million a year. If that weren’t startling enough, consider this: a further $325 million cost increase is anticipated for the 2010-’12 biennium, and it is now apparent that unless we do something, health-care costs and balanced budgets are on a collision course.
Virginia continues to face a serious revenue shortfall, and we’re up against the limits of what traditional responses can accomplish to get us back on course. We need to set aside conventional notions and start having some discussions that may be uncomfortable.
Today is the second (and final) day of the Senate Finance Committee retreat, and each successive presentation only reinforces an unfortunately grim outlook. The Commonwealth’s employee-health benefits are just one piece of the puzzle, but it’s a large and very important piece nonetheless, and nearly everyone agrees that continuing on the current course is simply impossible. Bottom line: We can’t afford it.
We have an obligation to state employees – and we also have an obligation to the taxpayer. Finding a solution will require thinking out of the box. We have to be willing to try something new. So here’s one idea: What if we moved state employees to Health Savings Accounts (HSAs), as a growing number of businesses are doing? For those unfamiliar with HSAs, the idea is to enroll each HSA plan participant in a high deductible health care plan that covers the sort of medical issues for which insurance was originally intended: surgeries, extended hospital stays, expensive procedures, and the like. The coverage is extensive, but the deductible is high. Perhaps we could set it at $1,000.
If we stopped there, that wouldn’t be particularly fair to state employees, but that’s where the Health Savings Accounts come in. HSAs are tax-deferred medical expenditure contribution accounts, the balance of which can be expended on medical expenditures up to the deductible level or not covered by one’s insurance plan. This way, the individual has a greater control over his or her health care decisions, and we re-introduce a degree of price transparency. The state could even fund a portion of employees’ accounts.
You never lose money invested in an HSA, unlike with traditional insurance. And upon retirement, you can even withdraw a portion of the money without penalty, if you so choose, though most HSAs are structured in such a way as to ensure that individuals do not draw down the account to low levels. (By retirement age, one can build up a decent tax-deferred nest egg in such an account – all money that would have normally gone toward insurance, whether you used health services or not.)
Let’s be very clear on this point: I’m not talking about a reduction in benefits. To avoid that, the state can fund much of the deductible by making a contribution into employees’ HSAs. The idea is to give state employees more choices about how to manage their health, to let them decide how to spend the money in their HSA. We need to get in front of this problem now; waiting until the money dries up is a sure way to hurt the Commonwealth’s finances and employees’ benefits, and we have an obligation to keep that from happening. This is one possible way to do that.
Some people have doubts about HSAs, but where they have been adopted, employee satisfaction with their health care has gone up, and it saves money for employer and employee alike. It’s important to emphasize that this isn’t about limiting what procedures are covered: above the higher deductible, the plan would look about the same as it does now. It’s a step, moreover, towards getting state government to reenter the real world.
Just a thought, and a controversial one, no doubt. Any time we’re talking about making changes to state employee compensation or benefits, no matter what those changes are, there are going to be many different points of view, and quite understandably so. But that’s no reason to shy away from the discussion; we’ve done that for too long, and look where’s it’s got us. We can’t afford not to start looking for ways to get rising costs under control.
State Sen. Mark Obenshain represents the 26th Senate District in the Virginia General Assembly.
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