After watching what seems like endless debates relating to the current state of our health care system, and the merits of a government run option, I feel compelled to give my observations in this arena. I run a Third Party Administrator (TPA) for medical, dental and vision benefits in California. I have members in my employer groups from all over the country. As a TPA, I work with mid-size to large employers who self fund their health insurance programs. We are operating under the Employee Retirement Income Security Act (ERISA) legislation which is governed by the federal government, and not the individual states. This allows employers that have staff in multiple states to offer a single set of benefit plans across the country without having to modify their plans due to state mandates across state lines. One major reason employers look to this approach is to obtain access to their claims data so they can manage it and reap the rewards directly of lower claim costs. ERISA plans are fully transparent. All expenses relating to these plans are fully disclosed to the employer. Given that, it is clear we are in a unique position to pinpoint where the expense in the current health care system is coming from and to propose solutions for reform. It is from this vantage point I offer the following observations and suggestions.
There are two separate issues attempting to be addressed simultaneously. The first is what to do with the uninsured population in this country. Most would agree American citizens and legal aliens should have access to our quality health care system. Agreeing on how many uninsured there are is another story. The number being bantered about is somewhere in the neighborhood of 36 million people. Most agencies, when this number is dissected, say it is way over stated. This number, for example, represents anyone who was uninsured at any time over a one year period and not at a single point in time. So, as a result, anyone who switched jobs during the year and had a waiting period imposed by their new employer would be included in this count. Anyone who has access to COBRA but is waiting to elect it would be included. Also, there are a significant number of people in this count that make in excess of $75,000 a year but elect to waive coverage, in lieu of paying the insurance premium. They prefer to pay for medical expenses as they occur.
Including all of these people in the count is not right.
Medical Insurance should be required like car insurance. I suggest that employers withhold wages for people who make more than 200% of the poverty level (set by each state), and waive coverage, to assist in paying for the coverage for those who cannot afford insurance. A premium tax should be charged on all types of insurance policies to help fund the plan. And, these low income earners should be covered by a plan that currently exists, Medicare. Why develop a new vehicle when we can use the existing Medicare plan for these “formerly” uninsureds? This would eliminate the cost shifting that is going on today by the health care system who try to recoup their lost expenses from the uninsured by raising the cost of health care for the private health plans thus raising the cost of these plans.
Insurance reform should include the elimination of the pre-existing conditions clauses from policies. These clauses bar people with existing illnesses or conditions from being covered either for specific waiting times or even bar them completely from being insured. By eliminating these clauses, it creates a level playing field for the insurers and it will eliminate insurer’s fear of anti–selection. Anti-selection is when members with expensive illnesses or conditions select an insurance plan due to it having less stringent rules, than another plan, thereby causing the selected plan to absorb high claims. All Health Policies should be “guaranteed issue” (this means a member will not be barred from getting an insurance policy due to an existing medical illness or condition). This works much better in a group model where the insurance company has enough premiums in a policy to absorb these claims. So lets look at refining the current system to address those who are under served and not implement a massive government bureaucracy that at best is bound to be inefficient.
The second area under attack is the cost of the current system. Cost shifting has been going on for some time with more of the cost being borne by the employees. In truth, if you look at use, the health care system is being used more than ever by the current population. Let’s face it, the baby boomers are getting older and requiring more services. All medical plans under ERISA are required to be transparent and all expenses are required to be disclosed. Under our plans the fixed administration costs are 10% or less of the total cost, the rest is claim expense. TPAs run a very efficient system which I am confident could not be matched by any government run program.
So, obviously if we are to reduce expenses we must attack the claim expense part of the equation. The formula for computing claim expenses is simple. Total claims are the unit cost (cost per service), multiplied by the number of units (such as hospital or office visits or procedures). Today, Government programs reduce the cost per service by applying low Medicare reimbursement rates. The government program proposed will most definitely be based on Medicare reimbursement levels. This is the cost control dial that the government uses to reduce expenses. This means that the medical system will bear the burden of reduced income. Many rural hospitals will have trouble making ends meet. They cannot survive on rates this low. Providers also will tell you they cannot survive on Medicare reimbursement rates, and many will either move strictly to a fee-for-service billing or will leave the practice of medicine entirely. There is already a shortage of medical providers. A government run program, based on Medicare rates, will only make matters worse because there most definitely will be a migration from the private insurance plans into the government plan. There is no way for the private sector to compete against a plan based on extremely low Medicare reimbursement rates.
Now let’s take a look at the number of units, or utilization. Between 10 and 15% of the members in any health care plan utilize 80% of the total claim costs. Most of this expense is made up of large hospital claims for catastrophic medical conditions (many being end of life claims) or chronic ongoing issues. For the government to have any significant impact on total claim expenses, they will have to concentrate of the top 10% of these users of expensive medical care. This is where the government coaching plans come into play. Although they state they will not intervene, to obtain any “results” (claim cost savings) in this area, the government must limit access to procedures costing significant dollars for which they feel there will not be a “reasonable return” for the expense. A “reasonable return” would be a cure of the condition or a marked improvement in the condition, which would mean either a decrease of expense or an end to the expense. This is why many Americans are concerned about the possibility of government rationing of critical services when they are needed the most. I don’t feel American citizens will find this approach acceptable at all.
The public option is not the answer. The truth is there will be no competition if this approach is enacted. A private company, even as efficient as ours, cannot compete against a plan that does not have to show a profit and can dictate the reimbursement rates to the provider community (e.g. Medicare). If the Government plan projects it will run out of funds, the Government will simply impose new taxes or lower claim reimbursement rates. Their track record in projecting expenses has been abysmal to say the least, and will most likely be low balled to get this approach started. The penalties being considered by the Government run option are less than the current cost of employers offering their own plans. Faced with the penalties, employers will simply tell employees to go to the public option, rather than continuing their own plans. This can only end with the elimination of the group insurance model. Each person will then be required to acquire insurance on their own based on their medical experience. This will adversely affect the members who really need care, even at Medicare rates. With a group model this expense is borne by the group thereby making this more affordable for all employees regardless of medical status, over a long period of time.
This is not to say there isn’t anything that can be done to the current system to make it more affordable. Tort reform is desperately needed to reduce unnecessary tests, reduce malpractice rates and reduce the cost of health care. A large group of doctors recently pegged the costs of unnecessary tests and excessive insurance at over $2 billion dollars. Many, many tests are performed by doctors afraid of the liability if they don’t do them. Doctors in some markets are paying in excess of $200,000 a year in liability premiums. Next, like in ERISA plans, allow each employer to see the actual claims they have incurred for their plan. This will allow companies to be much more informed on their actual expenses and allow them to shop their plans more effectively and drive down costs.
A secondary benefit would be that private insurance plans will be more focused on controlling their fixed costs in a competitive environment. Employers under ERISA have this benefit and have historically had lower trends in health care expenses. They use their access to the claim data to implement programs to control medical costs much in the same manner safety programs are implemented by employers to reduce their worker compensation costs. More plan designs are needed to reflect life styles, similar to the way your car insurance premium reflects your driving record. People, whose lifestyles contribute to higher claims, should and will have higher premiums in this model.
Today, Disease Management programs are showing good progress at reducing expenses, particularly for those who have chronic conditions and need help controlling their medical expenses. Also, by looking at claim expense histories, many of our organizations also use their Utilization Management partners and their Pharmacy Benefit Management Partners to identify opportunities to proactively tailor their benefit plans to meet the needs of their members. We should continue to allow smaller employers to ban together in a captive approach (a private vehicle to allow groups of employers to ban together to buy health insurance as a single entity) to give them access to ERISA plans normally reserved for large employers, giving them financial stability and claim predictability.
All of these tools I have mentioned here are available today. It is clear some tweaking of the current system is necessary. But, I say, do this through insurance reform! Do not dismantle our current health care system in favor of a Government run plan. A Government run plan is not an option that anyone would like or could afford. Just because it is a Government run program doesn’t mean it is suddenly free or even cheap for that matter. I continue to hope saner minds prevail in Washington, and they take more reasonable steps toward solving this problem. Legislators, pundits and the media cannot solve this problem by continuing to talk about it. One could only hope that Washington would reach out to me and others who live and breathe this health care business every day, for help in solving this problem. We are here and we are willing to provide our expertise to fix it, give us the chance.
David Reynolds
CEO
Capitol Administrators, Inc.
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