RALEIGH – When policymakers in Raleigh talk about the corrosive effects of health-care inflation on the state budget, they are certainly referring to Medicaid – but not only to this costly welfare program. They also mean to cite the soaring costs of maintaining North Carolina’s health benefits for teachers and state employees. Just in the past three years, state taxpayers have had to dedicate hundreds of millions of additional dollars to shoring up the plan, helping to explain why the state’s tax burden has also been rising.
The taxpayer hit is only part of the picture. The health plan’s shortfalls have actually been far larger. State employees themselves have had to make up the difference in two ways: directly, through higher premiums imposed on family coverage, and indirectly, through anemic salary increases (legislators have argued, correctly, that state employees’ compensation has grown faster than the cash component of it, but employees have responded, correctly, that teachers haven’t had to pass up raises to cover soaring health costs as they have).
Plan administrators and legislative leaders have proposed a number of different strategies for reforming the state health plan. These include inducing more health networks to participate and changing the payment structure so that state employees bear some of the direct cost of their own health coverage in exchange for the state picking up some of the cost of the family-coverage premium (the latter would likely induce more children into the insurance pool, reducing the average cost of care).
Dr. Michael DeBow is a health-care expert based at two Birmingham, Alabama universities – the University of Alabama and the Samford University law school – and has another attractive idea. In a policy report published by the John Locke Foundation last week, DeBow proposes that North Carolina add a health-savings-account option to its state employee health benefits.
In the private sector, HSAs are helping to drive the trend towards consumer-driven health care. By reducing the extent to which third-party insurance covers routine, small-dollar medical bills, and passing the premium savings along to employees as deposits in their savings account, consumer-driven models give patients a financial incentive to manage their health care consumption wisely. Savings-based health benefits offer other advantages, as well, including portability and the ability to accrue funds tax-free for future use, including retirement.
The John Locke Foundation itself has embraced the consumer-driven model. Two years ago, we restructured our employee health benefit to raise the deductible significantly while creating two new savings vehicles to allow our staff to spend tax-free dollars up to the deductible amount ($1,500 per worker, $3,000 per family). The result has been relatively little escalation in our insurance premiums, savings we have passed along in other forms of compensation. Now, with HSAs becoming available from multiple providers, we are taking the next step and offering them to JLF employees instead of the previous model, which unfortunately does not allow individuals to retain ownership of unspent funds.
I guess you could portray this action as putting JLF’s money where its mouth is, but to be honest our leadership team is doing it because it makes sense for our employees – and thus improves our competitiveness as an employer. Similarly, North Carolina should act as quickly as possible to create an HSA option for state employees. The alternative, DeBow writes, is a “budgetary train wreck.” For once, let’s not wait until we hear the sounds of crashing metal.
Hood is president of the John Locke Foundation.