INTERESTED PARTIES HOW TO CHANGE THE HEALTHCARE SYSTEM WITHOUT GOVERNMENT CONTROL
INTERESTED PARTIES HOW TO CHANGE THE HEALTHCARE SYSTEM WITHOUT GOVERNMENT CONTROL AND ALLOWING MARKET ECONOMICS TO PREVAIL AN ARTICLE SUBMITTED TO INTERESTED PARTIES BY JOHN P. CARTER JUNE 20, 2009 1 CONTENTS INTRODUCTION ......................................................................................................................1 Changing habits changes claims’ costs ................................................................................4 Socialism Creep ..................................................................................................................5 Individual Responsibility.....................................................................................................6 The HMO Failure ................................................................................................................9 Risk Management Benefits Everyone ................................................................................13 President Obama’s Private Individual Health Policy ..........................................................14 A call to change.................................................................................................................16 How would employer-based, individually underwritten health insurance work? ................17 Responsible party for administrative (current) ...................................................................18 Broker/agent Health Insurance Portal ................................................................................19 Funding Premiums and Deductibles...................................................................................20 Eliminating the Employer Tax Deduction for Group Insurance..........................................21 Adding a Tax Credit for those not covered by individual insurance ...................................21 Funding Vehicle through tax incentives .............................................................................22 Employer Savings .............................................................................................................22 Employee Savings .............................................................................................................23 Employer Goodwill ...........................................................................................................24 Portability..........................................................................................................................24 Transparency.....................................................................................................................25 On-line posting of fees ......................................................................................................26 Achieving Universality without Government Intervention .................................................27 CONCLUSION .................................................................................................................27 iii Writer’s Background .........................................................................................................28 BIBLIOGRAPHY.......................................................................................................................1 iv INTRODUCTION The current fight to take over or substantially control the American healthcare system with government mandated and control will be an expensive folly. A government controlled health care system like that of England, Germany, or Canada would destroy the American economy through layoffs, reduced profits, and in some instances, create higher costs in some sectors. The only way government can change the system to political ends would be a wholesale takeover of all means of health care delivery, and reduce provider reimbursements to the Medicare, Medicaid, and government health programs to the tune of at least 30%, if not more. Government would have to ration care, pay providers less, and make life and death decisions for patients. In essence, government would have to apply artificial price controls on all aspects of healthcare to stymie cost increases. However, America’s healthcare has little to do with excessive and expensive provider reimbursements, costly drugs, and expensive medical equipment. Rather what is driving claims, and thus premiums, is the unhealthy lifestyles of Americans. Premiums are always a function of claims. 1 2 Market-based, competitive driven health care commerce will create a leaner, more robust healthcare system than would government controlled health care reform as now proposed. Heretofore, governments, local, state and federal government have mandated coverages, instituted special taxes on employers and insurance carriers, prevented insurance carriers from truly doing what insurance do best—risk analysis (underwriting) and spreading risk—and limited the amount providers can be reimbursed, which all have increased the cost of insuring the cost of healthcare. The current system already has important elements in place and working for the most part, but excessive government regulations and mandates systematically strangles both the competitive aspects of insurance and the underwriting features out of health care insurance. It only needs direction and a change in the rules of the game to be well-tuned, market-based entity that will serve the American public. Incentive based, private health insurance would be less costly for the nation and employers, and especially the policy holder/recipient of services. Businesses will be removed from the daily responsibility of complex billing, COBRA compliance, as well as providing daily hand-holding on claims, wellness plans (which should be part of insurance carriers’ marketing pitch to the consumer), and the general administrative minutia of group health care insurance. The current group insurance system, whether provided by private employers or government employers, does little to change the dynamics of one’s individual health under current rules. It is an after-the-fact system and its group pricing mechanism (e.g., premium payments based on composite or average rating) does little to change behavior. Additionally, most group plans do not cover part-time employees. If they do not have coverage elsewhere through a spouse or domestic partner, or on their own, many do not take out private, individual 3 health insurance. The monthly premiums, when taken out all at once as is the case with individual coverage purchased by folks without a group plan, can be daunting. Group insurance is usually deducted on a payroll-as-paid basis, making it more palatable. That could change with innovative, private programs marketed through the current channels of distribution. Current government propaganda fills Americans with the idea that all that is needed is spend enough money in preventative medicine and wellness programs, investments many call it, and everyone will be learn to be healthy if they just have the right information that will enable them to change. Every elementary, middle, and high school provides nutritional education. It is always on television in one form or another, and one cannot surf the web without seeing some reference to proper eating habits and exercise as a means to achieve healthy lifestyles. There has been no dearth in healthy living and nutritional information in America. Almost everyone knows what is good for them and what is bad for them, nutritionally speaking. Trying to put the blame on the providers of healthcare is folly; it is the same blame game Americans play with the educational system; put more money in the system by raising teachers’ salaries, hire more administrators, build better buildings, and we will have better student outcomes. For educational success, the solution always rests with the time parents spend with their children. It is the lack of “parent homework” and “parent responsibility” that is the reason for poor educational outcomes. Acute premium increases rests firmly on lack of personal responsibility for one’s health; premiums always are a function of claims. All levels of government are spending hundreds-of-millions of dollars on preventative advertisements, website creation, and personnel to create information that maybe 10-20% of the population take to heart and use to actually change their lifestyles—lifestyles that reflect in their reduced costs of healthcare claims. There is no direct financial incentive to change; either their 4 employer is paying at least 50% of their premiums, or the insurance company is prohibited from singling them out for lifestyle related diseases which drive the cost of healthcare upwardly. Changing habits changes claims’ costs The Zacharias Ganey Health Institute, a weight-management institute in Richmond, Virginia, and founded by Dr. Madge Zacharias has been following their members’ reduction in prescription drug usage, improvements in their cholesterol readings, and blood pressure improvements in their 10 weeks weight management program and lifestyle management program. The success of many of the members is phenomenal. Steve Clarke, a 50-year-old electrical products salesman who travels extensively locally, had been diagnosed with Type II diabetes. His blood tests were horrible prior to joining the institute. His story is not unique for the Zacharias Ganey Health Institute. Here is what he said: Four years ago, I was being treated for diabetes, high blood pressure, high cholesterol, and high triglycerides. My physician had even discussed the possibility of going on insulin do to poor glucose control in spite of 2000 mg glucophage a day. I was trying to eat right, had gotten my weight down, and was exercising daily. Probably due to the fact that I looked “healthy,” people tried to convince me that mine was genetic and there was nothing I could do. I joined the EZ Program [now ZG program] in 2004. Within a year, my physician had taken me off all medications. Today I continue to work out at ZG and help others as they work towards improved health. I have remained medication free for four years and my A1c runs between 5 and 5.4. My blood pressure went from 160/95 on meds to 110/70 on no medication. Cholesterol dropped from over 300 to under 160. Just last week I found out that my health insurance company has agreed to reevaluate my health and consider dropping my insurance rates (I am self employed)!1 Steve Clark’s experience is not unique the Zacharias Ganey Health Institute. Keith Lafemina, another member of the institute, is a diabetic and was taking Glucophage, Tricor, and 5 Glybutyride. He has been so successful that “today my diabetes, BP and triglycerides are under great control without meds. The highest my A1c runs is now 6.2!”2 (A1c measures the average plasma glucose concentration over time. The American Diabetes Association recommends that A1c be below 7.0%) The cost of those drugs, and the lifestyle of most Americans, is one of the major cost drivers of healthcare. Using just Keith Lafemina’s drug usage at retail prices, the costs totaled over $100 per month! While he didn’t have to pay that because his co-payments covered most of the costs of his drugs (but still a claims cost borne by the carrier which translated into increased premiums in future years), the ultimate cost to the healthcare system just for his medications was at least $1,200 per year, not counting any other special needs he may have needed for his preventable condition. According to the American Diabetes Association, there are 23.6 million diabetics in the USA. Interpolating Keith Lafamina’s retail costs and spreading those costs over just the diabetic population, that is a national claim in excess of $2,832,000,000! That’s $2.8 billion dollars in claims that drive health care premiums up. Most of those dollars can be eliminated with an incentive-based premium system. Steve Clark and Keith Lafamina already understand that change in lifestyle changed the premium/cost component of healthcare—to their advantage and to the rest of us. Socialism Creep Political scientists agree that socialism is the next step toward communism. Many laugh and make fun at those who even suggest that socialism is bad, counter-productive, or evil. For those, socialism is just the next logical step in the evolution of society, a society build on community, shared hardships, and villages. Yet, the movie Judgment at Nuremberg hints at the hideous power of the socialist German government when a defendant is asked: 6 You used the phrase, "[It] was necessary for the protection of the country." Would you say...that National Socialism helped to cure some of these conditions [poverty, hunger, healthcare]? “Yes, but at a terrible price. . .” Increasing healthcare socialism (Medicare, Medicaid, and the VA system are already socialized) can be avoided with little governmental interference through intelligent tax policy that will allow the private marketplace to adjust to newer health insurance realities. These realities, such as changing from employer provided group policies to employer sponsored individual health policies, will enhance and improve premium costs as well as portability and ownership of one’s health. Government policy controls group health insurance and acts as an enabler to those of us who do not practice sensible diet and exercise regimes. It does this by not allowing group health policies to distinguish between healthy and non-healthy participates. And, in many cases, state governments force many costly mandates upon health insurers Individual Responsibility Most Americans take responsibility for their food, rent or mortgage, homeowners or apartment insurance, automobiles and automobile maintenance, and automobile insurance, as well as a host of other needs of daily living. Rent/mortgage (shelter), food, utilities, and transportation are daily needs. Healthcare starts with personal responsibility of one’s own daily health like eating the right portions of the various food groups, avoiding too much alcohol and tobacco products, brushing one’s teeth at least twice daily, flossing daily, as well as daily exercise. The World Health Organization (WHO) lists the 10 top health conditions that are attributable to personal health responsibility3. They are: • being underweight 7 • unsafe sex • iron deficiency • indoor smoke from solid fuels • unsafe water, sanitation, and hygiene • high blood pressure • tobacco consumption • alcohol consumption • high cholesterol • obesity 60% of Americans are overweight and 30% are obese. Obesity is a medical condition which leads to a host of other diseases and conditions: heart disease and stroke, high blood pressure, diabetes, sleep apnea, various forms of cancer, and some evidence suggests Alzheimer’s disease. The cost of these conditions is staggering and one of the major drivers of claims’ costs and higher insurance premiums. It was estimated in 2007 that diabetes alone costs $116 billion in direct medical costs (claims) per year and indirect costs of $58 billion (lost work, reduce work performance, un-employment disability, and premature death).4 That is a combined total of $174 billion on a disease (type II) that is preventable! Healthcare services are generally needed when one become sick and for routine checkups. However, most of the diseases modern man develops are self-born. Most all these preventable conditions generate claims against a health insurance policy or, stated differently, a claim against the income (premium payments) needed to provide healthcare services. That is expected. However, the more claims charged against premiums paid, the more the premiums most go up to cover claims. It is pure math. Whether it is a single payor system, government 8 sponsored system, or private system of health insurance, the math is the same; you have to have more dollars coming in than going out. In order to do that, in a governmental socialist system, tax dollars will have to be generated, and taxing the wealthy to pay for those not so, is not the way to finance a system which is mostly a personal responsibility—a responsibility of prevention. Why should a wealthy individual, have his/her dollars confiscated in the form of taxes, to pay for those who are not willing to take personal responsibility for their own health? Healthcare, is like the car industry—repairs after the damage has been done. Most serious healthcare issues like some forms of cancer, heart aliments, type II diabetes, and high blood pressure aliments are mostly caused by long years of poor health habits that could be eliminated or arrested even after the onset of the disease, and controlled by preventative measures such as change in diet and daily exercise. And, many of these diseases can be reversed with a change in personal habits. Most insurance companies, if not all, have a plethora of wellness information on their website (and also available via U. S. Mail to policy-holders who may not have access or do not care to have access to the internet) for such wellness issues as smoking cessation, living with diabetes (and the halting of damage caused by diabetes), how to prevent diabetes, pre-natal care issues, and almost any major health problem caused by poor habits. Most of the leading health insurance carriers even employ nurses to call at-risk policyholders to advise policyholders on issues or answer any questions the policyholder may have. And, each policy holder can access this information free of charge. There are no barriers to health preventative information in this country whether one has insurance or not. Prevention is an everyday habit. Unfortunately, we live in a world that subscribes to the edict, “I’m sick, now fix me, doc!” Rather than practice preventative health, we want someone else to fix us after the fact, or 9 pay for our unhealthy lifestyles, and now, to practice preventative health. The rationale that the insurance companies (of the federal government) should pay for gym memberships is ludicrous; few will take full advantage of the services and it will run the cost up of healthcare. It comes down to the basic fact that one must take responsibility for his/her own health and that one must budget for those costs just like we budget for vacations, cable television, car insurance, mortgages, and utilities. The HMO Failure The savior for healthcare, and a way to make the American worker more productive and a better employee, was supposed to be the Health Maintenance Organization (HMO), but that model did little to change poor behavior to good behavior. In fact, the case can be made that the HMO reinforced poor lifestyle choices because their was little incentive to change due to the plan design and philosophy of HMOs—low co-payments to either the physician or the hospital, and in most cases, no matter what one’s health condition, the cost was the same, young or old, sick or healthy. While noble in its concept, the low co-payment feature was supposed to prevent financial barrier in seeking healthcare services. However, it did little to change un-healthy habits. But, the health of Americans has deteriorated since those halcyon days of creative health insurance/healthcare named “health maintenance organizations.” It has failed miserably. HMOs only further created both the enabler and the entitler mentality for healthcare and insurance (two different and opposing subjects). In Virginia, which pays 50% of the cost of Medicaid, the Federal government pays the other half, most of the recipients of Medicaid have an extensive, benefits rich healthcare plan design. 10 Copayment amounts range from $1.00 to $3.00 for most services. There is a $100.00 copayment per admission for inpatient hospital stays. The provider collects the copayment directly from the recipient at the time the service is provided. 5 Below is the list and cost of those services to the Medicaid recipient. Individuals Exempt from Copayments The following individuals are exempt from the Medicaid copayments: • children under 21 years old, • individuals who receive long-term care services in a nursing facility, rehabilitation hospital, or long-stay hospital, and • individuals receiving Medicaid community-based care (CBC) waiver services and hospice care. Services with No Copayments The following services do not have copayments: • emergency-room services, • pregnancy-related services, • family planning services, and • dialysis services. Covered Services The services listed below are covered: • case management services; • certified pediatric nurse and family nurse practitioner services; • Children’s Mental Health Program services; • clinical psychologist services; • community mental retardation services, including day health rehabilitation services and case management; • dental services for individuals under age 21 years; • emergency hospital services; • Early Periodic Screening, Diagnostic and Treatment (EPSDT) services; • family planning services; • Federally Qualified Health Center clinic services; • home and community-based care waiver services, including personal care, adult day health care, respite care, private duty nursing, case management, mental retardation services, and services for the developmentally disabled; • home health services: nurse, aide, supplies, treatment, physical therapy, occupational therapy, and speech therapy services; • hospice services; • inpatient hospital services; • intermediate care facility-mental retardation (ICF-MR) services; • laboratory and x-ray services; • Medicare premiums: Hospital Insurance (Part A); Supplemental Medical Insurance (Part B) for the Categorically Needy (CN) and Medically Needy (MN); • mental health services, including clinic services, case management, psychosocial rehabilitation, day treatment/partial hospitalization, therapeutic day treatment for children and adolescents, intensive inhome services for children and adolescents, and crisis intervention 11 services; • nurse-midwife services; • nursing facility care; • other clinic services: services provided by rehabilitation agencies, ambulatory surgical centers, renal dialysis clinics, and local health departments; • outpatient hospital services; • physical therapy and related services; • physician services; • podiatrist services; • prescribed drugs; • prosthetic devices; • Rural Health Clinic services; • skilled nursing facility services for individuals under age 21 years; • substance abuse services; • transplant services; • transportation to receive medical services; and • vision services. Humans only respond to incentives; in our society, it is mostly financial incentives, especially when one spends his/her own money. California, the birth place of the modern HMO (health maintenance organization) during the Second World War, is home to Kaiser-Permanente, the first HMO. In 2005, the California Department of Insurance issued a study that showed the most obese policyholders were in HMOs, no matter which insurance company they purchased their policies through. The outcomes were no better when the care was coordinated through the Primary Care Physician. Thus, the HMO concept, while laudable in concept by removing barriers, has done little to further the health of individuals. One may conclude that because there was little or no financial pain that would act as a modifier of poor nutritional behavior and lack of physical exercise, the HMOs will continue to be an enabler, much like the family of a untreated alcoholic, drug abuser, or spouse abuser. Business have tried to provide incentives but have the fear of government fines if they discriminate in the pricing of their employee subsidy if based on health conditions or health habits. Furthermore, many private employers have to spend enormous amounts of money on 12 consultants to navigate through regulations to avoid fines when incentive-based plans are developed. Individual insurance can promote responsibility because each person is underwritten based upon their health, age, gender—it reflects one’s lifestyle. In fact, purchasing individual health insurance has more options for the purchaser because the buyer can choose from all the options the insurance carrier provides. Moreover, in one geographical market, their may be dozens of insurance companies from which to choose. For example, Anthem Blue Cross and Blue Shield of Virginia, a division of WellPoint Healthcare, offers 12 different plans, with 49 combined deductible options for prescription drugs, maternity, and co-payments. In essence, the buyer has 49 options for health insurance—at least one may meet his/her needs. Rather than have a one-size-fits-all mentality like many of the group plans, individual plans can more readily meet an individual or family’s needs. One of the great barriers for most when considering the merits of individual insurance versus group insurance is what to do about folks that already have substantial medical problems or have genetic disorders that would be highly rated under an individual plan. That is a concern that we should be cognizant of when changing the structure of health insurance markets. Unlike individual health insurance plans, the group plan is an average or composite rate. It takes all the usually underwriting criteria (age, gender, geographical location, industry, etc.) and churns out a rate that is neither good nor bad. It is average. The healthy person pays the same as the unhealthy person; the old the same as the young. However, there is little incentive within the structure of the group plan to force good, healthy lifestyles. Individual health insurance does that today and will lend itself to an incentive-based health care system that is right for America. 13 Some estimates claim that 15% of Americans have no access to healthcare. They are confusing the term “healthcare” with insurance. All Americans have access to healthcare, but not all Americans can afford health insurance. Many can afford health insurance but choose to not to buy; they spend their money on luxury items such as deluxe cable with HMO, Cinamax, and other entertainment items (isn’t that an American right?), and fast-food. Cell phones are another consumer of the workers’ disposable income. And, if those same folks were to limit themselves on luxury items throughout the year, one could make an excellent case that the money saved could go for routine medical tests, dental checkups, or even membership at local gyms or health clubs, which are part of a comprehensive, personal health initiative that will be more cost effective than group insurance. It is the case of the ever-increasing challenge between wants and needs. In essence, it is a reflection of poor money management. The Greatest Generation called those folks spendthrifts and called themselves frugal; a term lost to contemporary Americans. Some spend it on house they cannot afford, the “I want the biggest house I can make payments on!” Or, my friend that says leasing an automobile is better than owing a car: “You get a new car every four years and you look good in a new car!” But when one losing his job in year two, what could have been a fully paid for car purchased six years in the past and paid for, is now a lease payment hanging on one’s neck as if it was a blacksmith’s anvil. Risk Management Benefits Everyone Most cannot afford to self-fund 100% of their medical bills; they either purchase insurance to transfer the risk of claims to the insurance company, or they accept some of the risk 14 through deductibles, co-payments, and co-insurance, the remaining risk of loss (claims) being transferred to the insurance carrier. President Obama’s Private Individual Health Policy Using President Barack Obama and his family as an example and living in my town of Richmond, VA, Anthem Blue Cross and Blue Shield of Virginia has 49 different options from which to choose for a long term health policy (more than 6 months) whether or not he and is family are pictures of health or in poor health. In this scenario, the president has not given up smoking cigarettes for at least a year (the smoker surcharge is about 25% on his monthly premium, a preventable, poor health habit) and he has no other health issues. Anthem’s LHIA plan, an incentive based plan with preventative benefits before the deductible, is a $1,000 deductible plan ($1,000 per person, $2,000 per family plan) with a $6,000/$12,000 maximum out-of-pocket costs for his entire family. It would cost $734 per month ($8,808 annually), including expanded dental for a family plan. Now President Obama would be underwritten (rated) at level 2 by Anthem because of his cigarette smoking, a 24.4% increase because he is smoker. Translated into an annual cost differential, that is $576 ($48 per month) extra premium payments for his bad habit of smoking tobacco, a known carcinogen and driver of health claims. He becomes, as most folks with preventable health issues, an exploiter of the health care system, usually not immediately but in future years. The Government Employees Health Association, Inc. (GEHA plan 342) high deductible plan costs $869.79 per month ($10,437 annually) and includes some very limited dental payment assistance. It has a $1,500 deductible per individual and $3,000 for a family, with a $5,000 maximum out of pocket cost per individual and $10,000 for family. Comparing individual plans 15 to group plans “apples to apples” is impossible. But, showing a CDHP (consumer directed health plan) with preventative benefits will give a good, close comparison. In comparing the individual Anthem LHIA plan to the group Government plan, the Anthem individual plan policyholder is taking less risk at the front end of the plan because President Obama is only paying the first $1,000 while under the government plan, he would be paying the first $1,500 in claims, i.e., more risk of financial costs to his family. Thus, the insurance company is taking on less risk on the front end of the policy where most of the claims are. On the back end of the plan, the Anthem plan is transferring more of the risk to the policyholder. Significant is the cost of the plans. The annual premium cost of the group plan is $1,629 per year more expensive than the individual plan even with President Obama being rated as a smoker in the Anthem individual plan. The group government plan is even more expensive if President Obama was rated a non-smoker in the individual plan to the tune of $1917.48 per year. Just to give a different but succinct perspective, President Obama’s quote just for him and not including his family would cost $1.11 per hour under the non-smoking rate and $1.39 under the smoker rate Picking a $1,000 deductible in lieu of a $1,500 deductible is an example of risk transfer; the higher deductible a person chooses, the more he is willing to accept some risk of loss (claims), i.e., to self-fund services. The lower the deductible indicates that the policyholder wants the insurance company to accept more risk of loss (claims). But, the more risk of claims the insurance company (or company plan, if the plan is self-funded as is many large group plans) carries, the higher the premium must be. A friend of mine has carried a $10,000 deductible individual health policy for years. He pays all the small items under $10,000 but gets all the discounts that a policyholder with a $100 16 deductible receives; but he doesn’t have to pay the premium that would have to be charged to cover that first $10,000. He banks all his premium savings in his personal savings account. What most do not understand about high deductible policies is that all the discounts negotiated by the insurance carrier for all their products will accrue to the policyholder, and the policyholder will end up paying the lowest discounted price available. According to the VHHA PricePoint System, a service of the Virginia Hospital and Healthcare Association, the average negotiated discount off hospital charges for all services rendered during the period January 2007 to September 2007 was about 51% of the charges billed by the hospital to private insurance companies. For Medicare patients, the charges paid are determined by Medicare; there is no negotiation with Medicare. In that same study, Medicare received an 83% discount on the amount charged by the hospital. Medicaid, the insurance plan for the indigent, the discount was about 81%. One section of the website (www.vapricepoint.org) asked the following question: “How much do government programs pay compared to private insurance? In many cases, Medicare & Medicaid reimburse hospitals at rates that do not cover the costs they incur to provide care. Payments from privately insured patients generally subsidize the shortfalls created by Medicare and Medicaid and therefore represent a “hidden tax” on individuals and families not covered by government programs.”1 (vapricepoint.org; Henrico Doctors Hospital) A call to change The current delivery system in America for group health insurance has been through the employer. The employer chooses the plan or plans he wants and can afford and decides which class of employees will be offered insurance. In addition, the employer subsidizes the premium charged by the carrier; receiving a tax deduction for the amount of premium he pays for the 1. Unknown, Www.virginiahospitalandhealthcareassociation.org, http://www.vapricepoint.org (accessed November 3, 2008). 17 employee. The employee can also pay for his share of the premium in pre-tax dollars if the employer has a section 125 plan. The employer sponsored health plan has worked well for Americans because it allowed insurance companies to reach more employees and their dependents in the quickest and most efficient manner. The carriers’ channel of distribution was the employer. However, group insurance is an obsolete way of providing insurance because most employers are limited to just one insurance carrier offering insurance in their company, the employee is limited to just a few plans from a host of HMOs or PPOs. Most carriers will not allow part-time employees to be covered under the group policy, and the cost of the insurance can be extremely costly because the group insurance premium cannot discriminate in favor of healthy employees or un-healthy employees. Thus, true group insurance creates a dis-incentive for un-healthy employees (who may have very preventable health issues, a/k/a overweight or obesity, smoking related illnesses, etc.). And, there are all sorts of arcane government mandates for group insurance, as well as HIPAA and COBRA rules that the employer can be held financially accountable if the rules are not followed, even if accidental. Most, if not all, of these barriers to a smooth, efficient health care system could be avoided with employer-sponsored individually underwritten healthcare. How would employer-based, individually underwritten health insurance work? Using the current employer-based delivery system, the carrier channel of distribution, would facilitate employees’ purchase of individually owned healthcare insurance and ancillary products which can taken with the employee as they move from job to job or from job to nonemployment. Current technology and addition of easy to design software systems would allow employers to access through web-portals provided by their insurance broker or agent. That 18 technology already exists. A universal health assessment application would be used. Virginia and Michigan, and a few other states already use one. Each employee would fill out the application, including health related questions, and summit to all the insurance carriers operating in the geographical location of the employee and contracted with the broker/agent. As is with current individual health insurance, there is a wide variety of deductibles and co-insurance options. Employees will see an easy to understand sideby-side premium comparison and plan differences as they explore various options. They can select a plan and premium that meets there own unique needs. The insurance company could then underwrite based upon risk, one of the major components of insurance (spreading the risk being another). This is already being offered in the marketplace for those who do not have group health but look for individual health. Insurance carriers could offer substantial discounts for greater participation to each employee within a company that signs up with them. Or, the employer could choose one carrier over all others and get the maximum discounts for the employee based on volume. It would act like a group policy, but more like a volume discount, because the carrier is now getting all the employees, including part-time folks. Responsible party for administrative (current) Currently, the employer hands out applications, reviews for completeness, submits them to the insurance carrier, or at the least, sets this up through spreadsheet submission to the carriers, handles all the negotiations with the insurance carriers for the group health insurance, adds or deletes employees, helps with problem claims (or asks the broker/agent to intercede), as well as creates wellness programs to do what employees will not do for themselves. And, either the employer has to assign all this to someone who most likely has other responsibilities (comptroller, bookkeeper, office manager) and is not really qualified, or hire a professional HR person or benefits specialist. After all this is done, the employer has to pay the premium, at least 19 50% of the “employee only” tier. All this is costly both in time, human capital, and a charge against profits. There is a better way. Broker/agent Health Insurance Portal By creating an “Employee Health Insurance Portal” through the broker/agent, each employer would be essentially removed from the business of administrating all the complexities of group insurance, HIPAA regulations, COBRA compliance, and the multitude of state and federal regulations governing employer provided health plans. This portal, an already exiting technology through companies such as Norvax, could be added to the employer’s website, trade association website, or the broker’s website, be secure, would contain a universal health underwriting application that all carriers could use to underwrite the risk of claims, and contain access to all the carriers operating in the geographical location of the employee. Portal technology can also aggregate all the health issues into a format whereby the broker/agent and the employer can ascertain what are the major health issues with his/her employee population, if desired. If the employer has the funds to spend, he/she could create a wellness program designed to address those issues. But, it would be up to the employer is he/she wanted to expense those funds. These carrier websites and the portal could also have the Wellness Programs or other health related information offered by the insurance carriers added for employee education or an inducement by an individual carrier to use their services over another carrier’s services. This would certainly create competition between carriers because of the “features and benefits” of one plan over another. This is pure competition and marketing at its best. It is what a market economy and free enterprise is all about. Heretofore, employees located in areas not served by the group carrier serving the employer’s headquarters are oftentimes short-changed by not being able to access the insurance 20 carrier’s network of providers; they often have a different plan that is not as competitively priced as those in the headquarters’ office. Now, each employee can choose any carrier with networks located in the employee’s home or office, or both. Funding Premiums and Deductibles The employer, if they wanted to offer medial benefits, would set up a Health Reimbursement Arrangement (e.g., a banking relationship with an account to deposit and debit the funds) for each employee through a master HRA account with existing banking relationship or a new one, either offered by the insurance carrier or local bank, or set up by the employee. The employer would fund the account to pay for the monthly or weekly premiums based upon the current employer group insurance funding or subsidy now being provided by the employer, or any method he/she wishes. For example, suppose an employer’s “employee only” premium billed by the insurance carrier is $200 per month for a PPO plan with a $250 deductible, and the employer subsidizes 75% of that premium or $150 ($75 per bi-weekly payroll deduction). The employer would fund the HRA for $150. The employee would then search through the employer health portal for any policy that meets his or her needs. If the employee chooses a plan that costs $100 per month, then $50 per month ($600 per year) would remain in the employee’s account and the employee might use it for deductibles or co-insurance, or anything medically related (dental checkups, over-the-counter drugs, etc.). And, if included in the program, the employee might use it for any employee benefit not provided by the employer, e.g., disability insurance, life insurance, long term care insurance, etc. All, some, or none of it could be rolled over to the next year, depending on how the employer designates the use of excess funds. Employers would now be in the position to attract the best employees to work for their company, and also be in competition with other employers for the best employee. It would not be uncommon for employers to advertise, “We fund $600 per month for employee health 21 insurance, $1,000 for family!” Each person applying for a job might take that into consideration as part of their true compensation. Eliminating the Employer Tax Deduction for Group Insurance By eliminating the tax deduction for group health insurance and transferring that deduction (or creating a tax-credit) to premiums funded by employers and used only for true individual plans, the market will respond by offering individual health insurance through the employer, now prohibited by most group insurance carriers. Employers would still receive either a tax deduction or tax credit depending on rules set by Congress. Adding a Tax Credit for those not covered by individual insurance For those employers who do not currently offer insurance to some full-time employees or part-time employees, a tax credit for the employer and the employee would push more employees into the insurance pool. For example, it is common for employers not to cover parttime employees under their plan. In fact, most insurance carriers do not allow part-time employees to be covered under the group plan. Only carriers that offer limited medical plans do, and self-funded plans can cover any employee deemed eligible in their plan document. Providing a tax credit to employers for the premium paid for health insurance for those not already covered and including a tax credit to the employee who contributes to the premium, would add millions to the insurance pool. These employee tax credits could be applied when payroll taxes are applied, thus providing both insurance and possibly excess spendable dollars for other needs and, dare say, wants. Yet, healthcare is a personal responsibility and the cost of tax credits can be costly. One way to minimize the loss of revenue to the government would be to use a declining balance tax credit. Each year the tax credit amount declines and is replaced with a tax deduction for the policyholder. It allows them a cushion to take on the responsibility of 22 paying for their own insurance if the employer does not offer insurance. Another way to cover the employee would be an employer mandate whereby the employer provides the health insurance access through a deduction in wages, a one-to-one dollar reduction in wages for the cost of insurance should the employer not provide health insurance. For President Obama, as mentioned earlier, if he was not provided employer based insurance, then he could participate by reducing his hourly wage by $1.39 per hour, and receive either a tax credit or tax deduction. Employers are already paying for social security, workers ’ compensation (a medical, disability, and life insurance plan for employees hurt on the job or become ill due to their job), as well as a host of other government mandates. Another mandated cost (tax) to profits would drown the American small business employer. This way, Funding Vehicle through tax incentives But, if employers create the HRA as a way to fund employee individual health, an additional deduction would be available for administrative costs. It could be as little as 1% of premiums funded. This would facilitate employers “buying in” to the change. A tax credit might be utilized to induce employers to offer some form of healthcare to those now not being covered. In this case, part-time employees with no coverage through a spouse, those excluded classes of employees, or those who choose not to be covered because of cost, might be induced to be covered by offering Limited Benefit Plans via the tax-credit. The credit could be on an immediate basis through the tax deductions on weekly, biweekly, monthly, etc., payroll or, any device that may “lead” the un-covered employee to purchase insurance. Employer Savings The employer would save precious potential profits with individual health insurance. By eliminating liability for , COBRA and DOL compliance, the employer can divert resources to the primary focus of the company. They would be able to eliminate the cost of COBRA compliance 23 software and companies involved in providing the service to the employer, and eliminate human capital now being used for compliance. These human capital resources now would be redeployed elsewhere. Furthermore, the employer’s overall healthcare insurance cost could be much less in future years due to the fact that the employee base, now responding to marketplace underwriting and the subsequent incentives that pricing plays in health behavior, e.g., smokers who quite saving 25% on their health insurance premiums, obese or overweight folks saving 25% to 75% on premiums as well as drug costs because of changed behavior, will be paying less for their insurance and the workforce, over time, will become healthier. Government is left out, completely. Employee Savings Employee savings is also a key to changing the delivery model of modern health insurance/healthcare. While many wish for a system with little or no out-of-pocket costs, that is just not reality. An individual, health underwritten system would allow younger and healthier policyholders to reap large savings and thus, more disposable income. Younger folks are usually healthier, but also make less money than those who have been working 20 years or more, and younger folks are still in the consuming stage for their home furnishings, homes, and cars. Those who are older will pay more for individual premiums, but older folks having already been through their “wants” (i.e., consuming the basics of life such as furniture, housing, etc.) period and are more likely able to afford higher premiums than younger folks. Those who are less healthy due to lifestyle, whether young or old, will pay more but will have the opportunity to change behavior and have a subsequent reduction in premium based on their improved health. And, in many cases, the individual premiums are less expensive than group premiums and there are many more options from which to choose in individual premiums. 24 Employer Goodwill As is with the current group system, employers who choose to offer healthcare subsidies through the HRA concept and individual health portal would benefit through goodwill, attract employees, retain employees, and may be more profitable because of fewer resources being diverted to activities not directly affecting their raison d'être. Many critics ridicule companies for complaining about all the government forms, requirements and other externalities required of them to stay in business. It is not uncommon for critics to say, “that’s just the price of being in business.” However, that is not true. The more efficient a business can be the more profit it can make. And, we are all aware of how profit drives salary increases, new employment, purchases of new equipment, research, maintenance, and all the other needs of businesses, by which all benefit in a capitalistic society. Portability Under the individual health coverage plan, each employee and his or her dependents own the policy and would be able to carry their coverage anywhere they want to; to the new employer or at home if the employee becomes unemployed or retired. The policyholder would now be responsible for the premium out of his or her pocket, but it would be their choice of plan. Moreover, in most cases, insurance carriers allow for change of policy (usually a downgrade— higher deductable, etc., without further underwriting) at any time before renewal. This would allow the employee to have a policy that suits his or her financial needs as their circumstances change. It is not uncommon to see monthly premiums less than $100 for males under 40 or a little more for females ($150) under 40 for excellent PPO plans and individual plans less expensive than company sponsored group health plans. Competition between insurance carriers would spark new plan types and services. Even COBRA, the true cost of the insurance plan offered by the employer (i.e., the 25 invoiced premium by the insurance carrier to the employer, plus a 2% administrative charge tacked on) is limited because the COBRA individual has only one choice: the plan they had when they became COBRA eligible. Only at the time the employer renews coverage can the COBRA recipient change to a new plan through the employer. And, it is not portable in the truest sense because it has a time limit, it is limited to one choice, and most of the time an individual policy is less expensive. The new Obama plan that will subsidize premiums up to 65% of the COBRA premium will again give rise to market inefficiencies by not allowing the health insurance market to price a policy based on age, gender, health conditions, and geography (cost of living). The Obama plan will be paying unnecessary dollars for health insurance on premiums that could be far lower for most folks. As for discontinuing COBRA, an individual policy will negate any need for current COBRA and HIPAA regulations under the current group benefit setup. And, that will save millions of dollars employers now spend on compliance issues, penalties, and doing tasks they should not have to do. Transparency One of the most serious defects in healthcare is knowing the cost of services. Few know the actual cost of services received from providers. Those with insurance just show their insurance card, pay a nominal deductible, co-payment, or co-insurance, and the transaction is over. That is the norm. Some understand their EOB (explanation of benefits) received after services are performed, and they are aghast at the “Provider Charged” amount and the “Allowable Charge” amount negotiated by their insurance carrier. It can be substantially different and have little baring on reality, at least to the policyholder. Their insurance policy then pays according to its benefits, e.g., applying the deductible and/or co-insurance to the 26 “Allowable Charge.” The final result is what the policy holder owes to the service provider. Further, most do not even know and are intimidated by asking their physician or hospital what their charge is for a particular service, especially for surgery. “Who shops doctors on surgery? That is so . . . You do not shop your surgeon.” Many are lead to believe, especially, in the physician’s office, that the carrier reimbursement information is not available. The physicians sign contracts with each insurance carrier or provider network detailing exactly what they are going to be paid under that contact for every procedure (service) they provide. Sometimes those contracts with the insurance carrier or network are 5 years in length. The physician office and hospital know exactly what their reimbursements are from every carrier for every procedure they perform. Of course, they also know to the penny what their charges are for those who do not have insurance. That is the charge they really want to get from everyone but because of insurance, they do not get it. On-line posting of fees It is now time for all healthcare providers to post their fees online. They should at the very least, post their top 100 procedures, their cost without insurance, and the negotiated cost they have with any particular carrier. Aetna insurance, at least in Virginia, provides a similar service to their current policyholders. Why should not all have access to those facts? Every single service or product has a price and folks have a reasonable expectation to see the cost before they utilize that service. That is not true in healthcare. And especially true for those who purchase CDHP (Consumer Directed Health Policy) policies that have large upfront deductibles. Seldom does one know the cost. And, if they do know the cost, it was a Herculean exercise to get the information. Prescription drugs have a similar track record. Try calling a pharmacy and asking the pharmacist what the cost of a drug is with and without insurance. You will be frustrated at the 27 answer. Price Transparency in the healthcare industry will dramatically change the price points in the industry. It will force providers to operate at the most efficient and most competitively they can. All will be better off; private sector competition (free market economics) has always risen to the challenge and that is the great equalizer for Americans. Prices and services always are better when government is eliminated from the equation. Achieving Universality without Government Intervention Changing the dynamics of the distribution of the health insurance through the broker portal, the changing of the tax policy of health insurance, and allowing for multiple insurance carriers within the broker portal, will achieve almost complete “universality” of insurance for healthcare. Of course, there will be those who cannot afford to pay for insurance, no matter what the cost. That is where government should step in. Americans of every ilk demand a solution for those who cannot afford to care for themselves or their children. Medicaid, where limited, can help do that. But, that should be limited to the poorest of the poor. Healthcare through insurance should be mandated like automobile insurance is in most all states. Thus, when someone comes to work for a particular employer, then they have to show proof of coverage either through their spouse, their own initiative. However, if Bill Gates and Warren Buffet want to show financial proof that they can do without insurance, then let them do so without penalty. CONCLUSION The purpose of this paper is not to determine whether or not healthcare is a right or privilege. But, one’s health is a responsibility much like providing shelter (paying rent or a mortgage), buying food, securing insurance for one’s automobile, house or anything of value that 28 one wants to protect. One must also allocate, i.e., save for healthcare expenses, whether it is for premiums, out-of-pocket costs, or wellness, e.g., gym memberships, at home exercise equipment, etc., just as one saves for a new car, a down payment on a house, for their vacation, and for unscheduled automobile maintenance and house maintenance. Those are just the basic tenants of living in society, the responsibilities all have. Taxing wealthy Americans to cover the health habits of other Americans is wrong—it is socialism. Socialism is best described as the solution when capitalist give up finding free-market solutions. The current group insurance-employer distribution channel is now a dead horse. It galloped boldly to cover the maximum number of people, at the best cost to do so, but its days are numbered. Now is the time for a new horizon for individual coverage using the same distribution system, the employer, and allowing for rate flexibility to drive healthy habits. Now is the time to make people responsible for their own health, where possible, and allow market dynamics lead the way. Government will only smother what could otherwise be a successful venture. Healthcare is tailor-made for the private sector when it is allowed to work independent of government control but with the help of sound tax policy. This paper is, however, a way to maximize the distribution of insurance and make it easier to satisfy the health insurance and healthcare needs of a complex and economically diverse society. Writer’s Background John Carter, president of the J. P. Carter Company, www.jpcarterco.com, is an insurance broker specializing in group employee benefits. He started his firm in 1993 after working with Marsh & McLennan (Marsh, Inc.). He has placed insurance with companies as small as 2 employees and as large as 5,000 29 employees. He also places insurance for individuals not covered by group plans. His contact information: John P. Carter, President J. P. CARTER COMPANY 5301 Lee Avenue Richmond, VA 23226 Telephone: 804.288.5548 Email: [email protected] Web: www.jpcarterco.com 1 BIBLIOGRAPHY Unknown. www.virginiahospitalandhealthcareassociation.org. http://www.vapricepoint.org. Rosenthal, Anne M. “WHO Names Top 10 Health Risks,” July, 2003. Environmental Health Perspectives. http://www.ehponline.org. “Direct and Indirect Costs of Diabetes in the United States,” http://www.diabetes.org/diabetesstatistics/cost-of-diabetes-in-us.jsp. Unknown. http://www.dss.virginia.gov/files/division/bp/me_famis/policy/manual/m18.pdf. “Testimonials,” http://www.zghealthinstitute.com/Testimonials.htm. “Testimonials,” http://www.zghealthinstitute.com/Testimonials.htm. 1“. Testimonials,” http://www.zghealthinstitute.com/Testimonials.htm. 2“. Testimonials,” http://www.zghealthinstitute.com/Testimonials.htm. 3. Anne M. Rosenthal, “WHO Names Top 10 Health Risks,” July, 2003, Environmental Health Perspectives, http://www.ehponline.org (accessed June 7, 2009). 4“. Direct and Indirect Costs of Diabetes in the United States,” http://www.diabetes.org/diabetes-statistics/cost-ofdiabetes-in-us.jsp (accessed June 7, 2009). 5. Unknown, http://www.dss.virginia.gov/files/division/bp/me_famis/policy/manual/m18.pdf (accessed June 29, 2009). 1
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