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Inside Intel’s Health Care System


In many ways, Intel Corp. is the anti-GM. So looking at what Intel’s doing with its health care benefits is instructive and pretty frightening for those of us not working in such rich company and for the health care system, over-all.

At a conference last week, Intel (along with Cisco and Oracle) gave some more information about an announcement they’d made to reward physician groups in the Bay Area that used technology and improved patient outcomes. But that program is mostly symbolic and I wanted to know what their real motivations were. In the Q&A they weren’t very forthcoming.  Not, you’ll understand, because they were hiding anything, but because I don’t think that they think about the entire health care system as much as their part of it. Corrie Zenzola, US Benefits Health Initiative Strategist at Intel, was strident in saying that Intel would keep providing health care benefits for its workers.

Now of course the average Intel employee represents a huge chunk of revenue — Intel employees are young (average age in the US is 39) and with revenues over $30 billion their revenue per employee is north of $300,000.  So health care costs are nowhere near the percentage cost of labor for Intel that they are for the restaurants that have been getting upset about pay-for-play in San Francisco.

But Intel’s response to the health care system’s cost crisis in the last few years is instructive. After the boom, life got very tricky for Intel, and they completely re-designed their health benefits after 2001. Corrie told me that prior to 2001 employees didn’t have to pay anything toward their premiums at all. Now they have a choice. Employees with families can with pay $400–ish a month for comprehensive first-dollar-ish coverage, or pay nothing and get $4,000 deductible plan and a health savings account (HSA) that they can contribute to tax-free and pay for health care from — but which Intel will not pay into. If you’re single and unhealthy, you’re better off taking the comprehensive coverage, but for the family employees with dependents, they’ve made it so that you’re a little better off going the HSA route.

This makes lots of sense for Intel. They still have to pay for the few expensive people who run up much more than $4,000 a family in costs but they’ve got out of paying for everyone’s “first-dollar” coverage. The math works out that they are paying some 60–70% of what they would have paid before, They’re basically paying for 80% of the costs for their most expensive 20% of employees (who use 80% of the care dollar) and not paying anything for the rest. The balance of the money (for all the care of most people, and the first few thousand dollars of the sickies) now comes from the employees, not from the company. Intel employees are usually highly-paid so it’s not that big a deal for them. But’s the problem is that it’s a microcosm of where the Republicans want to take the country.

President George Bush gave a speech at Wendy’s yesterday laying out the deal. It’ll sound familiar.What Bush wants is for everyone to buy a high deductible insurance plan and put some money in a tax-free HSA from which they’re supposed to pay the first chunk of care. So if the U.S. is like Intel, we’ll all pay the first few thousand out of our pocket and rely on an catastrophic plan to supply the rest.

But the U.S. is not quite like Intel so there are two problems. Their first is that there are many poorer and sicker people in America who don’t have the money to fund the accounts, and so won’t. And for many of these people – our busboys and waiters from a few weeks back – what may seem like minor health costs to the well heeled nicely paid Intel worker means the difference between making it and going under.

The second problem is that Intel controls its “insurance pool” so Intel knows that in total as it will continue to pay for health benefits it will need a certain amount of money to pay for the care of its sick 20%. If it just handed over all the cash it retains for that pool and divided it up amongst its employees, the ones that were sick wouldn’t have enough to cover their costs, so in effect Intel is “redistributing” the amount required for catastrophic care from the “compensation” of the rest of its employees. It’s just no longer doing it for the first few thousand dollars of each individual’s care (and is therefore somewhat reducing its costs and indirectly increasing its profits by doing so).

America of course has the inverse problem. Leaving aside Medicare, unlike Intel we don’t have a “universal system” that we’ve all “paid into” that a government can redistribute. Instead some of us (usually via our employers) voluntarily “pay into” an insurance pool that’s supposed to redistribute the costs of care. Over the years the insurance industry has tried damn hard and with some success to exclude anyone who might require such “redistribution” and the Bush Administration seems intent on turbo-charging that situation by encouraging the healthy to basically withdraw from paying into the system. Which means that the “redistribution” in what’s left of the insurance pool will be from the sick to the sicker, making it more and more unaffordable to buy insurance, leading to more and more people leaving the pool, or buying skimpier and skimpier catastrophic plans. This is called a death-spiral – in the insurance or pretty much any other business.

While the Intel’s of the world might continue to manage their risk pool with some responsibility, most employers are taking as many opportunities as they can to get out of paying for their employees’ care. So, even without the Bush plan, this would lead to more employees having high-deductible plans, and of course some of the lower-paid sicker ones will finding themselves with out of pocket costs that they can’t afford. And more and more employers are giving up offering health benefits in the first place (fewer than 60% of Americans get their health insurance from work). And so more and more people are being essentially forced to take the choice of paying less and less into the risk pool.

The most likely end game of this is the collapse of our traditional insurance system, with eventually a government-backed universal payment system taking its place. But between here and there is lots of torment, as Intel – and all of us – make rational individual decisions which add up to what is sure to be a collective disaster.

Share  Posted by Matt Holt at 8:21 AM | Permalink

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