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The perverse economics of health care.

When financially “healthy” means not drowning.

From about 1999 to 2003 the Segal (actuary) consultant on the 802 health fund was a woman named Barbara Caress. I learned a lot from Barbara about adverse selection, the inevitable and steep rise year after year in healthcare costs and how you are always pushing a rock uphill in this business because you are constantly swimming upstream. She retired at the end of 2003 and this was the last thing she told me: “You will always be trying to keep up and you will never get ahead.”

That has proven to be true. The fund pays out in claims roughly what it takes in. After making any adjustment for any reason, there are usually a couple to several good years of taking more in that what comes out. Then, inevitably, it reverses.

When that happens, we have learned not to panic immediately. We have traditionally kept a year’s reserve in case there is a negative year or two. Our population is small enough that a few very sick individuals can spike the claims expenses in a given year. What you watch for very carefully, is a trend. If the trend continues downward, financially, and it often does, you have hard choices to make. You either have to pay out less, take more in or both. This can mean bargaining more contributions, but that is not a guarantee and it often comes at a cost to wages. It likely means tightening benefits, making the co-pays higher and possibly raising the participant premiums. No one likes this because it is a hardship for the members. It may mean raising the eligibility threshold. When that happens, more people fall off the plan. Some contracts have escalator clauses, making it possible to require higher contributions from employers without opening the contracts, if the eligibility is raised and people on that contract are likely to fall off.

When we implemented the last big changes in 2014, we watched nervously to see how the numbers worked out. As usual, we had a couple of good years. Now that has reversed. Last year, we had a steep rise in claims and the fund is once again projected to earn significantly less than it takes in. Once again, there will be hard choices.

Whenever anyone has ever asked me “how is the health fund doing?” my stock answer has been: “We’re doing OK. Holding our own. Running in place as fast as we can.” If a health fund is in “good financial shape” it means it’s not drowning in red ink. That year.

It’s just as Barbara Caress told me 15 years ago: “You will always be trying to keep up and you will never get ahead.”

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