The Corner

Lessons from Middle America

Governor of Indiana Mitch Daniels sends this message from his own state: Reform is possible, even with public employees. When he was elected, the governor asked that a Health Savings Account (HSA) be added to the conventional plans then available to state employees.

In Indiana’s HSA, the state deposits $2,750 per year into an account controlled by the employee, out of which he pays all his health bills. Indiana covers the premium for the plan. The intent is that participants will become more cost-conscious and careful about overpayment or overutilization.

Unused funds in the account – to date some $30 million or about $2,000 per employee and growing fast — are the worker’s permanent property. For the very small number of employees (about 6% last year) who use their entire account balance, the state shares further health costs up to an out-of-pocket maximum of $8,000, after which the employee is completely protected.

The first year, 4 percent of the employees signed up for the plan. Today, 70 percent have. According to Daniels, the state is saving money, $20 million in 2010, and its total health-care costs are being reduced by 11 percent because of the HSA.

In order words, responsibility and reward are important factors in reducing health-care costs. Not exactly what we’ve experiences at the federal level. The graph below shows out-of-pocket payments by consumers and spending by Medicaid, Medicare, and private insurers on health care from 1965 to 2008.

Based on the trend presented above, we see that before implementing the semi-nationalization that some in Congress have in mind, we should try to increase individual responsibility for medical decisions and costs. When people aren’t exposed to the true cost of their care — even if they pay for it in foregone wages and higher taxes — they consume more. More here.


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