Health Plan Seen Linking Patients’ Fees to Incomes

Out-of-pocket expenses most Americans would pay for medical services under the emerging federal health care plan are likely to be tied to their income levels, with wealthier patients assessed higher annual deductibles and service fees, knowledgeable sources said Tuesday.

The rationale is that those of greater financial means can better afford steeper deductibles as well as higher fees each time they visit a doctor or enter a hospital, sources said.

The purpose is not to tap into new sources of revenue, they said. Instead, deductibles are being included under the plan to make consumers more aware of costs and to serve as a deterrent to excessive use of medical services, perhaps especially by the millions of newly insured Americans under the Administration’s proposed universal coverage plan, the sources said.

The provision--likely to apply to all but the poorest of Americans--also would be in accordance with the dual themes of “personal responsibility” and “paying one’s fair share” that are the hallmarks of many speeches by President Clinton and First Lady Hillary Rodham Clinton, particularly on health care and welfare reform.

“Think about it, it makes perfect sense,” said one reliable source.

No final decisions have been made on the so-called cost-sharing proposal, including the precise formula for calculating annual out-of-pocket payments, sources said. But the plan, if endorsed by President Clinton, could mean steeper annual deductibles and co-payments for higher-income Americans, who also would pay more to finance the basic system under proposed payroll deductions of 1.5% on individuals.

Sources said current thinking in the Administration is that a cost-sharing formula tied to income levels should be required even from those with incomes at or just above the federal poverty level. This could mean, for instance, that people at the poverty level might have to pay $5, or possibly less, in co-payments, sources said. People living below poverty would not be charged out-of-pocket fees.

The President is expected to make the final decisions on his health care reform plan in coming weeks. The plan was to be unveiled later this month, but Administration officials said Tuesday that that timetable is increasingly unrealistic.

Officials had hoped that Clinton would lay out the plan with a speech to Congress on June 22. But for that to happen, he needs to make a series of decisions soon on its key elements, ranging from the overall size of the benefit package to the tax structure used to pay for it.

Aides originally planned to schedule meetings on those decisions last week but had to abandon the idea because Clinton needed to concentrate on House approval of his budget. Now, with the President preoccupied with internal White House staff changes, picking a Supreme Court nominee and strategy for getting the budget through the Senate, those meetings seem unlikely this week, either, aides said.

If Clinton cannot meet the June schedule, the health plan would remain under wraps for at least a month because the President plans to be in Tokyo for the annual economic summit of the major industrial nations during the first week of July and on vacation for several days after that.

Under the co-payment proposal, the one major category of health services for which no payments will be required is prevention services, such as childhood immunizations, sources said.

Universal childhood immunizations have been ardently championed by both the President and Mrs. Clinton, who chairs the White House Task Force on National Health Care Reform.

Health policy analysts consider the current cost-sharing provisions in most fee-for-service plans regressive because they are unrelated to ability to pay. In most employer-sponsored health plans, annual deductibles average about $200 for individuals and $400 for families, meaning that insurance coverage does not kick in until those out-of-pocket ceilings are met, regardless of income.

Co-payments are fees that a person is required to pay out-of-pocket for each visit to a health care provider after the deductible ceiling is surpassed. Those payments typically average about 20% of the total charge.

The Administration’s emerging proposal to tie cost-sharing to income levels is also in line with its current intention to seek a payroll levy from both employers and workers as the chief funding mechanism to pay for health care reform.

That payroll tax would average about 7% for most employers--less for small businesses--and 1.5% for most workers. To alleviate its burden on small businesses and low-income workers, the levy would exempt a certain base amount of a company’s payroll and of an employee’s salary.

The practice of cost-sharing already exists in the federal Medicare program for the elderly, although it is unrelated to income or ability to pay. Under Medicare’s hospitalization plan, there is a fixed inpatient deductible of $676. Similarly, there is a $100 annual deductible for physician visits.

In the private sector, about 95% of insurance policies now have fixed annual deductibles, up from about 85% in the mid-1970s. In addition, small but perhaps growing numbers of private employers are beginning to adopt income-related cost sharing plans.

A new study co-authored by UCLA public health professor Thomas Rice found that 2.7% of employees in companies with more than 100 workers and their dependents now have their deductibles tied to earnings. In contrast, 93.5% of U.S. workers and their dependents have a fixed-dollar annual deductible and 3.7% pay no deductibles at all.

For such a cost-sharing formula to be truly equitable, according to Rice, the requirement should be pegged to a family’s total income, not just to the employee’s wages. That could be best accomplished through the income tax system, according to Rice.

But it is not clear what the Administration’s health planners have decided to do about that, if anything. Rice’s co-author on the study, Kenneth E. Thorpe, now assistant secretary for health policy in the Department of Health and Human Services, could not be reached for comment.

The notion of tying patient cost-sharing to income levels has been debated in health care circles for more than two decades. It was developed in 1971 by Harvard economist Martin Feldstein, who later served as one of President Ronald Reagan’s top economic advisers.

In arguing for cost-sharing tied to income levels, Rice wrote in the current issue of Health Affairs:

“Keeping the current system will mean that even under a universal coverage scheme, poorer people will still bear an unfair economic burden. Serious consideration therefore should be given to making income-related cost-sharing a central component of any health insurance reform package.”

* CLINTON’S NEW COURSE: He seeks to redefine himself as the voice of middle class. A12