Can Consumer-Driven Health Care, Health Reimbursement Arrangements and Health Savings Accounts Save Employer Sponsored Health Care from Ruin

Authors

Larry Grudzien, John Marshall Law School

First Page

39

Document Type

Article

Abstract

Employer sponsored health care programs have been in crisis for over ten years because, year after year, health care costs and premiums continue to increase faster than inflation. Employers have tried a number of solutions, but nothing seems to stop the trend. Between 2000 to 2006, premiums for family health coverage increased by 87% compared with general inflation growth of 18% and wage growth of 20%.2 Employee spending for health insurance coverage increased 126% between 2000 and 2004. Since 2001, the employees share of health insurance costs have soared 63% for single coverage and 58% for family coverage.3 For 2006 the average annual premiums for health care coverage rose to $4,242 for single coverage and $11,480 for family coverage. A direct impact of increasing health care costs and premiums is that the percentage of employers offering health care benefits to their employees has fallen significantly, from 69% to 61%, over the last six years. The percentage of small businesses offering health coverage is plunging even more sharply. Among employers with between three and nine workers, 48% offered health benefits in 2006, down from 68% in 2000. For 2006, it is estimated that health care costs will continue to increase at a rate of 7% to 12%. The following discussion will review the reasons for health care cost and premium increases, the impact that these increases have had on the economy, and the ways employers have attempted to reduce health care costs while continuing to offer health care coverage to employees and dependents. One health care delivery system that has been recently touted as being the best way to reduce health care costs is "consumer-driven health plans" ("CDHPs"). The following will examine how CDHPs work, how they reduce costs, what advantages they offer employers, and their shortcomings. A vital part of any CDHP is either a Health Reimbursement Arrangement ("HRA") or a Health Savings Account ("HSA"). Each will be examined in detail. HSAs are very important because President Bush has made their expansion the centerpiece of his administration's health reform measures. There are also several proposals in Congress to expand the use of HSAs. In examining HRAs and HSAs, this article will review how they work, their advantages, and their shortcomings, and will conclude this discussion by offering some thoughts and observations.

Recommended Citation

Larry Grudzien, Can Consumer-Driven Health Care, Health Reimbursement Arrangements and Health Savings Accounts Save Employer Sponsored Health Care from Ruin, 19 St. Thomas L. Rev. 39 (2006).
Available at: https://scholarship.stu.edu/stlr/vol19/iss1/4