“Chop your own wood and it will warm you twice” is often attributed to Henry Ford, who had the phrase carved into his mantlepiece. Insightful, but hardly original. In Walden, Henry David Thoreau said of his wood pile, “they warmed me twice — once while I was splitting them, and again when they were on the fire.” And Thoreau echoed much older variants of the proverb that reference cutting, chopping, or collecting wood. Perhaps a more complete reflection of our collective consciousness would be “wood warms you three times — when you collect it, chop it and burn it.”
Market access decisions are a function of market dynamics. Competition and the pricing and contracting that result from it play a large role. Utilization influences access decisions and is driven by a complex web of forces that include marketing, evidence-based guidelines and, increasingly, technology assessments. Regulation can mandate access to specific products and services. Taxation, often overlooked and forgotten, also plays an important role.
Employer contributions
Health insurance premium payments are exempt from employers’ federal income and payroll taxes, and that’s been the case for more than 100 years (since 1913, employers could deduct the cost of fringe benefits from their taxable incomes, although there was no explicit exemption until 1954). This gave employers a powerful incentive to offer health insurance — which helps to finance half the market’s access to products and services. The tax subsidy increases as the health insurance premium increases, and this encouraged employers to offer not just health benefits, but richer policies with minimal restrictions.
Rising health care costs, primarily driven by innovation, were covered by rising premiums. Tax-exempt employer contributions covered most of the premiums. Historically, employment-based health insurance shielded employees and their dependents from most health care costs, and this often led to overconsumption of products and services. Consumer demand for innovation was largely unchecked and inflationary. The proliferation of MRIs and their excess capacity is an example of how manufacturers and providers eagerly grew supply to meet and surpass demand.
An early employer response to rising premiums was to slow wage increases. Once wages became stagnant, employers increased cost sharing and turned to MCOs and PBMs to restrict access to products and services. Plans increasingly used copays and coinsurance to share the spend and bend the trend. And with their lower monthly premiums, high-deductible health plans (HDHPs) emerged as an approach to encourage consumers to make more cost-conscious health care decisions. But cost sharing can dampen demand, even for some necessary care. And skipping or delaying needed care can lead to an unintended consequence: higher costs.
Health savings accounts
About 20 years ago, HDHPs were a new solution to a tax policy problem related to overconsumption. But HDHPs created a new problem: underconsumption. Predictably, the pendulum swung back. Along came a potential tax solution — health savings accounts (HSAs).
HSAs allow consumers with a qualifying HDHP to benefit from a triple tax advantage: HSA contributions are not taxed; HSA earnings are not taxed; and HSA withdrawals are not taxed if used for deductibles, copayments, coinsurance, and other qualified medical expenses, including some dental, drug, and vision expenses. Further, unspent HSA funds roll over from year to year.
On paper, HSAs seem like a great deal! Curiously, one study showed that 1 in 3 adults enrolled in an HDHP did not have an HSA, and more than half of HDHP enrollees with an HSA had not contributed any money to it in the last year. As a result, a significant portion of the market’s access to products and services is impeded by its underinvestment in HSAs. The new problem is getting HDHP enrollees to invest in HSAs. What’s needed are proven ways to fuel this behavior and/or remove friction. Making HDHP enrollees opt out of HSAs (versus opt in) is likely a partial solution.
Marketplace premium tax credits
About 10 years ago, the Affordable Care Act introduced a new approach to expand access by establishing the Health Insurance Marketplace, which went live in 2014. When policymakers had a new opportunity to reduce the cost of premiums in a targeted way, they reached for a tax credit.
Some Marketplace enrollees qualify for a premium tax credit. The amount depends on an applicant’s estimated household income and the price of the second-lowest-cost silver plan available in the applicant’s local area. The difference between the premium for the benchmark plan and an applicant’s expected contribution, which is based on a sliding scale, equals the amount of the tax credit. These tax credits may be claimed at the end of the year or, cleverly, can be used as an advance payment to lower monthly premium payments. This somewhat complicated approach illustrates how tax policies can be nuanced and targeted.
Three times the warm
Capping the tax exclusion or replacing it with tax credits could boost tax revenue. In theory (and somewhat optimistically), this revenue could then be used to improve access by expanding Medicaid, by subsidizing premiums for people who are uninsured or purchase their own insurance (particularly low-income people), or by providing financial assistance to patients with high out-of-pocket costs.
This raises a number of policy and management questions. If the tax exclusion is capped, how should the cap be set? If it is replaced by tax credits, who should be eligible for these tax credits? And how should these tax credits be calculated? How should HSA eligibility be expanded? And how could HSA uptake and contributions be effectively and efficiently encouraged? The devil is in the details.
Would these changes increase administrative costs and complexity? And, most importantly, would expanding access lead to overconsumption, rising health care costs and premiums, and tighter restrictions?
Some problems lead to solutions that lead to new problems. And we typically don’t spend the time and money to attribute cause and effect. Warming to new tax policies that efficiently expand access requires us to collect compelling evidence of causation, chop the population into actionable segments, and burn inferior policies no matter how long they’ve been in place. Manufacturers and providers confronting restrictions should consider the extent to which taxes impacted access to their products and services.
No Comments