Health Reform: would this work?

By Jim Holman of Gresham, Oregon. For 21 years, Jim worked as a hospital data analyst - most recently at OHSU.

There are a number of problems health insurance in the U.S., even for those with insurance or those who can afford insurance. If you change jobs you might not be able to go to your primary physician any more if the new job has a different health plan If you’re self-employed you might not be able to purchase health insurance because it’s too expensive. If you work for a company that doesn’t offer a health benefit then you’re also out of luck. Many people with existing health problems can’t purchase private health insurance even if then can afford it.

Specific health insurance reform is difficult even to talk about. Many proposals for health insurance reform are met with a charge of “socialized medicine,” an accusation which in itself can be fatal to the proposal. But “private” approaches to health insurance reform are often little more than new ways to distribute the current unfairness.

The system I propose contains both socialized and private elements. It socializes the opportunity for health insurance while retaining private funding and private choice. It retains the link between employment and heath insurance even as it widens the opportunity for health insurance to those whose employment status does not now afford them the opportunity for health insurance.

The proposal is very simple. All health insurance plans offered in the State would be available to all people who are residents in the geographic areas served by the plans. The State of Oregon would contract with one or more firms to coordinate health benefits for all people in the state. These firms would administer regulations governing open enrollment periods and other life events through which people could change insurance plans. It would also collect and distribute insurance payments and notify insurance companies of who is covered. In other words, these firms would function very much like existing companies that administer COBRA benefits.

Since all plans would have to be offered to all residents of the service area, the risk pool for each plan would be potentially the entire population of the service area.

How would this work? Let’s examine several scenarios:

1. You are employed by Acme Industrial. Acme Industrial offers up to $400 as a health insurance benefit to all employees. With that $400 you can select any plan operating within that service area; you are no longer limited to one or two plans offered by the employer. If your selected plan costs more than $400, you make up the difference with pre-tax dollars.

2. Several years later you change jobs, and you now work for Cool Products. Cool Products offers a $425 health benefit. You choose to retain your existing insurance, but now the Cool Products benefit money pays for your insurance, and you make up with difference.

3. Several months later you are laid off. There is no need for a COBRA program, since your health insurance does not depend on your employment. You decide to continue with your existing health plan, although since you were laid off you could have chosen to switch to a different plan.

4. Finally you become self-employed. As part of the larger risk pool, and having retained continuous health insurance, you continue to pay for health insurance out of your own pocket, but with pre-tax dollars.

In other words, throughout the various modes of employment you retain the same insurance, and pay the same rate that everyone else pays. When you are unemployed or self-employed, you continue to enjoy the same health insurance tax benefits that people who work for regular employers enjoy. Companies can continue to fund health insurance benefits, but in the form of money rather than in the form of specific plans.

One obvious objection to this proposal is that it would require firms to administer benefit plans, and there would be a cost for this service. In the case of companies that currently administer COBRA benefits, this is about two percent on top of insurance costs. But we need to look at this in the context of the total system. Under the current system of health insurance, thousands of companies in the state employ thousands of people as health benefit coordinators. In addition, insurers have to craft plans for individual companies and have to track clients by company. The new system simplifies health insurance procedures and reduces process cost across the state, and this offsets the new cost of the firms coordinating insurance benefits. Going from decentralized to centralized insurance benefit administration gives us the opportunity to streamline and automate the total process of benefit administration throughout the state.

People are no longer limited to insurance plans selected by individual employers. Instead, you can choose from any plan serving your geographic area. This means that insurers and contracted health systems and services would have to compete for individuals through balancing benefits and plan cost, and through better service. Since all residents of the service area are potential clients, insurers would have an incentive to develop plans that would appeal to people in various income brackets.

While insurance plans would have to compete for clients, the up side is that the potential market for each plan would be greatly expanded. For example, right now Kaiser Permanente competes for clients whose employers provide Kaiser as an option. Under the proposal the potential Kaiser client base would include potentially every person who lives in an area served by Kaiser.

Under this proposal, it is possible that health insurance costs might go up slightly, since we would be covering people who currently are not insured. But again, we have to look at costs in the total system. People without insurance still end up getting treated, and hospitals pass on the cost of uncompensated care to paying customers and their insurers. In a sense you either pay on the front end or on the back end.

But in exchange for possibly slightly higher insurance costs, people would end up with much greater choice and portability. And in the event that one were to become a sicker, more expensive client, one would still be able to obtain insurance through being a member of the expanded risk pool.

Currently many employers cannot afford to provide a health benefit to their employees. But under the proposal, employers could still contribute something toward health insurance. For example, if the company cannot afford a monthly $400 benefit, could it provide a $100 monthly benefit? If so, then perhaps the employee could kick in some additional pre-tax dollars in order to purchase at least some catastrophic insurance. This is obviously not an ideal solution, but I think that most people would find that something is better than nothing.

In addition, this proposal would broaden the opportunity for health insurance coverage. Parents could pay for health insurance for adult children, or vice versa. Rather than running its own Medicaid insurance plan, the State could simply fund all or part of the costs of insurance for people who are eligible for Medicaid.

This proposal would obviously constitute a major change in how health insurance is provided. Thus it would have to be implemented over a period of some years. Otherwise some insurers might find themselves overwhelmed with new clients; they would need some time to gear up for the additional workload. This would involve contracting with additional physician practices, and could even involve additional capital construction.

This proposal obviously does not solve all problems with health insurance, nor does it address many of the cost drivers in the medical system. But within certain limitations it does bring more people under the health insurance umbrella. It gives those people far more choice and portability than they currently have. It simplifies and streamlines the system of health insurance even as it creates more opportunities. It provides a greater incentive for health insurers to improve benefits and control client cost, even as it offers to those companies a greatly expanded potential client base. It spreads the risk, socializes the opportunities, and yet retains private funding and choice.

Comments

  • Aaron (unverified)
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    I think your proposal is far too complicated. Government is part of the problem, not the solution.

    One of the reasons that health coverage is so hard to obtain is in part because of different health coverage regulations in each state. Insurance companies in an effort to comply have to adjust their premiums accordingly.

    Secondly, the defacto monopoly status of Blue Cross and Blue Shield creates a system where prices are opaque and therefore price comparison is nil (a classic monopoly tactic). Lastly, Government helped to cultivate this problem in the late 1930s and early 1940s by advancing the current “third party” payment system we have today.

    HSAs are a great way to introduce the consumer into the mix by forcing doctors to begin to disclose prices and letting consumers have a stake in their own finances and self interest.

    I am of course not ignoring the neediest of Americans. As a society, we should care for the neediest, but most people simply do not fit into this category. Beware of demagogues who throw this into the mix.

  • askquestions1st (unverified)
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    Of course Jim's plan and Aaron's rebuttal are just two sides of the same coin. They only differ in the degree they decide to not work with the rest of society to create a working health care system. Jim draws a wall around the state, Aaron's around the individual.

    The apparent problem with Jim's plan, is that insurance companies have a legal right and fiduciary obligation under our state and national legal system to optimize risk pools to generate the greatest returns to whoever provides their underwriting capital (this includes mutual companies). This is why we have high-cost, designated-risk pools in cases where insurance companies are legally mandated to provide insurance to everyone. The companies have to participate, but they cannot be forced to do so in a way which hinders their legal right and fiduciary obligation to optimize their returns. For reasons even Aaron might not have fully anticipated, enacting such a plan based on insurance companies would require more fundamental legal reforms, perhaps some beyond the jurisdiction of the state. Also, Jim's plan does not reduce the high-overhead costs of administering their plans from the contracting insurance companies, it just builds those costs into the system resulting in higher overall healthcare costs than if we had a true single-payer system.

    Unfortunately, Aaron's view is that "I am an island and what is best for me is more important than the collective expertise of a system that provided health care to millions of people through Medicare that would have not had any health care otherwise." A large percentage of the population including middle income folks do not have the extra income of the amount required to make personal HSAs work with private insurance companies AND do not have the time or expertise in a time of health crises to do the kind of comparative shopping need to make such market-based system work.

    And not to be contrary, but your last claim Aaron is just the logical fallacy of "poisoning the well" because you do not offer any even semi-statistical basis for your claim. Middle-income folks right now have an average savings rate of something like 5% or less, and that is for their retirement. So assuming they can divert half that to an HSA, and being generous that middle income is $100K for a family of 4, that would leave a something like $2500 dollars for an HSA. How much medical care does $625/person/year buy? And that is a paycheck-to-paycheck figure since nothing builds up in the account if it is all spent.)

    There are certain functions of society in which there is overwhelming negative value to society in letting market-based solutions determine allocations. In the value structure of most decent people, health care is one of those functions. Quite frankly, as a simple factual matter, and not being pejorative, Aaron's plan is just plain anti-social, as in Webster's definition "avoiding association with others; unsociable".

    Here's a simple solution to the problem that people a lot smarter than me and a lot of the rest of us have offered:

    1) Remove the age restriction from 65 and over from Medicare. And by implication limit private health insurance plans to a highly competitive supplemental market only. (Perhaps elements of Jim's plan could be brought into this plan, very likely it would become financially attractive to the companies to centralize their payment/collection operations through Medicare.)

    2) Remove the restrictions in the law that Medicare cannot negotiate prices for prescription drugs and services from suppliers.

    This works in virtually every other civilized, industrial nation in the world. And since clearly we are an industrialized nation, if it wouldn't work here because of various political factions, that would just seem to imply we aren't too civilized.

  • Concerned Patriot, Mr. J (unverified)
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    Your plan shows some thinking, and might be a partion solutions

    However i believe it fall short

    1. May not have the money to make up the deferance.

    2. Uninsured will still drive up cost by seeking medical at the only place legelly required to treat them ERs

    3. People are who they are and minimizing your health risk far more difficult than minimizing car risks

    I do have a plan the bear bones of a plan on my website, although it is socialism

  • BlueNote (unverified)
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    Most private and "public-private" health care reforms only shift cost and risk to someone else - typically to those who are less skilled at lobbying (aka buying) Congress. The U.S. already has a very efficient health care program - Medicare. The solution as I see it is to expand Medicare to cover everyone in the country and to dump the bizarre Part D drug program and substitute a full coverage benefit for drugs under Medicare. Payroll taxes will cover the cost for the employed and the government can cover the unemployed, the disabled, the retired, etc. The government will have a huge incentive to control costs. Medicare is a beloved program among the senior population including both "Reds" and "Blues" and expansion of Medicare should not draw the same kind of political fire that other single-payor plans have drawn.

  • Aaron (unverified)
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    I hope that this is not a reductio ad absurdum, but why is health insurance any different from auto insurance? Why are shopping around for the lowest car insurance and driving responsibly okay, but applying the same principals to health insurance somehow makes someone an “island” and “anti-social”?

    In a socialized medical system, we all pay for someone else’s disregard for eating right and exercising in the form of higher taxes and less freedom. Also in that kind of setting, the state is free to take draconian measures such as taxing fast food or rationing. No thanks. I would rather give to charities who directly help those in need.

    I guess I did not communicate myself clearly enough the first time. I want to clearly say that we should as a society protect the neediest.

    Also, thanks for the good critique of my lack of statistical claims about my last claim. Your point is well taken.

  • Peter Graven (unverified)
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    Great post Jim! It's nice to see a proposal that lets us discuss some of the details of health insurance.

    I think this system would help with some of the problems in the current system (ie. continuity of service, some kind ofcoverage available to all) and it even helps small businesses be more competitive by reducing their health costs in relation to larger businesses.

    Jim, under this model, would health plans still create separate risk pools within plans. That is, when you say they have to offer the same plan to everyone, do you mean the same "type" of plan, modified for their risk profile or literally the same offerings at the same price? This is putting aside askquestions1st comment about current regulations for risk pools.

  • Jim Holman (unverified)
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    Peter writes: "Jim, under this model, would health plans still create separate risk pools within plans. That is, when you say they have to offer the same plan to everyone, do you mean the same "type" of plan, modified for their risk profile or literally the same offerings at the same price?"

    I would see the risk pool defined by the service area in which the health plan operates. For example, if the health plan covers the tri-county area, then that would be the risk pool, and everyone living in that area would be in the risk pool.

    Let me give you a little background behind the "inspiration" of the idea, if I may call it that. My wife and I had Kaiser coverage for years through my employer. We loved Kaiser, never had a problem, and were extremely pleased with our physician. Then I got laid off and got a new job. My wife also got a new job and the same time, but neither of our employers offered Kaiser.

    One day it occurred to me that there were two employers paying money for health plans that we didn't want . . . and meanwhile the plan we wanted wasn't offered. Then it occurred to me: why does an employer even CARE what health plan I have? What does it matter to them? Why can't we take the money that employers are spending on health plans we don't want and spend it on a health plan that we do want?

    Forgetting the economic aspect for a moment, another important issue here is continuity of care. You see a physician for years, you establish a relationship, the physician knows you inside and out (literally) and then poof! all that goes down the drain, and you start over with someone who has no idea who you are.

    In addition, in many cases employers only offer one health plan, and there are no other options to choose from.

    I think my proposal speaks to continuity of care, choice, portability, greater opportunity, and competition for the individual consumer of health care. Does the proposal solve all major health care issues? Of course not, and others in this venue have already pointed that out. But I think it's a good start, and there's nothing in it that rules out various cost controls, moving toward universal coverage, single payor, or any of the other typical proposals.

    Also, I think one of the strongest points is that it cannot be criticized as "socialized medicine." It has nothing to do with socialized medicine. There's nothing in it that requires a penny of public money. All that's required of government are laws and rules that make the program possible.

  • MsBlue (unverified)
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    Kitzhaber says health care reform this isn't going to happen inside the beltway anytime soon. That seems right, lobbyists won’t allow it. So while Medicare conversion is the better idea, moving the state to make the kind of change Jim suggests might well be politically possible. Both parties are talking about health care. The Working Families party will likely name this as their issue. But naming the problem isn’t enough.

    I am glad to see discussion of solutions. The Greenlick/Westlund health care initiative being circulated for signatures requires the legislature to find a solution within two years. That means specific ideas need generation and consideration now.

    It scares me that the Greenlick/Westlund initiative will create another unfunded mandate. Initiatives 5, 47 and 50 elected to shift the education costs to the state, but provided no funding mechanism. If we’d not found revenue via the lottery, we’d be up a far worse creek than we currently are. But what’s the funding mechanism for this? Given the lack of political will to addresses tax reform, will we pay for it with increased class size?

    How about these two as funding mechanisms:
    1) Require that all employers contribute a certain minimum amount for health care, for all employees---say $1 per hour, $160 a month for a full time employee, or $1920 a year. That keeps the 50% of us who have health care, and provide most of the money for Medicare and Medicaid from carrying the whole system. It gets Wal Mart and the local pub both contributing, from the first hour of employing someone. Include mandated payments by the self-employed as well.

    2) Limit the deductibility of medical costs to some dollar amount that covers basic medical, but not the kinds of plans that will include visits to spas and cosmetic surgery that the market Jim’s idea will create. The non-tax dollar benefits under our current system are, I believe, the most expensive tax advantage we offer, costing the federal government, if I remember right, $150 billion a year. That means it costs the state a lot too. So limit it to a basic plan, and let those of us who one our own, or through our employer get premium systems to pay taxes on that it.

    3) Do something to get the wealthy off automatic inclusion in free Medicare. It is unethical to require the working poor - who have only the emergency room for health care - to subsidize health care for the retired or disabled wealthy.

    It is great to see this discussion happening. Thanks for putting your head into the issue, proposing a solution and getting the disucssion going.

  • Robert Harris (unverified)
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    I agree with MsBlue that one big impediments to universal heath care is the funding mechanism. Though It shouldn't be, as I seem to recall a recent article that stated most industrial countries with universal health care spend about 10% of their GDP on health care and cover everyone, while the US spends about 15% of its GDP on health care and has about 45 million uninsured.

    So while the dollars are in the system, any large reform will result in winners and losers, and if other countries experience is any indication, the net loss to providers (insurance salespersons, hospitals, drug companies and doctors among others) could be as much as 5% of the total GDP. So there will be some big big losers so big big reasons for them to fight for their lives.

    For instance, health insurance salespersons make as much as 30% of the policy premium. With a state sponsored basic coverage system, those companies would lose a large amount of their business.

    While an expanded medicare is the best way to go, Like MsBlue I think an incremental approach is the only thing we can hope for in the near future(Progressive, in my book, means making progress). I also considered an idea similar to MsBlue that would impose a mandatory financial contribution on en employer based on employee hours. But, I'd make it a health care fee (a tax) and the funds would go cirectly into the Oregon Health PLan for expanded coverage. AND, employers would receive a credit for any monies they spent on health coverage for their employees. (why make the good employers who crrently pay for coverage shoulder the burden of employers who don't) So employees who provided health coverage would probably not pay the tax and those who didn't would. You may get the support of many in the business community for this because its the uninsured that cause every employers rates to go up. And, depending on the rate of contribution, it may cause many businesses that now don't provide insurance to go out into the market place and get it for their employees because it wouldn't cost them anything and it would make for happier employees.

    Why make employers carry the burden of expanding the rate of insurance coverage for all? Three reasons

    First, its either employers, the government, or the current system. The current system is inadequate, right now there's too much resistance to turn the system over to governemt, and our current system is based on employers providing insurance.

    Second, because labor can be viewed as a national asset that benefits everyone, particualrly capitalist. Imposing the obligation a the employment level prevents a free rider problem, where some employers don't pay for a healthy workforce while some pay for their own employees, and for other workers by having their rates increased to cover the uninsured.

    Three, it offers the best chance to really get employers on board because it offers them a choice. Find your own insurance in th market, or pay an "healthy work force tax"

    Sorry for the long post. I was actually going to write something on this myself last week, but someone beat me to the punch.

  • Jim Holman (unverified)
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    Robert Harris writes: "Three, it offers the best chance to really get employers on board because it offers them a choice. Find your own insurance in the market, or pay an 'healthy work force tax'."

    The problem is that the employer isn't finding his own insurance in the market; the employer is finding your insurance. Why would you want your employer to choose the health plan that is available to you? Wouldn't you want to choose it yourself? The main point of my proposal is that one should be able to take the employer contribution and purchase any health plan that serves one's service area. I'm talking about being able to buy health insurance the same way that I buy groceries: I work, my employer gives me money, and I buy whatever I want. I don't have to buy groceries at Safeway because the employer has a contract with Safeway. Why should I be forced into a health plan that I don't want simply because my employer has a contract with that plan?

  • BlueNote (unverified)
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    The problem I have with allowing employees freedom to shop around for their own coverage is the risk pool problem. If I employ 100 people and give each a fixed sum to purchase insurance without mandating that they stay in a company plan (or one of several company plans), the young, healthy and/or childless people head for low cost plans and leave the older, the less healthy, and those with large families as the only remaining participants in the "company plan". The company plan premiums start to skyrocket due to heavy claims costs in the company plan(s), making continued coverage of the "high cost" folks become too expensive for the employer and the employees. If you can figure out a way to force the insurance companies to provide group coverage based on broad geographic claim pools then your idea is probably better than what we have now, but I am skeptical that this is possible. So far this has been tried by various business and governmental agencies and to my knowledge - and with the possible exception of certain Kaiser plans - the insurance companies have been able to defeat every effort in this regard by continuing to syphon high profit low risk people into cheaper plans and leaving the high risk people behind. They are then priced out of the market.

  • Jim Holman (unverified)
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    BlueNote writes: "The company plan premiums start to skyrocket due to heavy claims costs in the company plan(s), making continued coverage of the 'high cost' folks become too expensive for the employer and the employees."

    Solution: don't have a company plan. That's what my proposal is all about. Actually, the situation you describe happens now when small companies end up hiring someone who requires expensive healthcare -- an HIV or transplant patient, for example. One or two such employees can affect the rate that the company has to pay, because the rate is calculated according the history and size of the company's risk pool.

    BlueNote: "If you can figure out a way to force the insurance companies to provide group coverage based on broad geographic claim pools then your idea is probably better than what we have now, but I am skeptical that this is possible."

    A friend who used to be in the HMO business tells me that this is the original idea behind an HMO. The HMO would operate in a particular service area, and their rates would be calculated according to that risk pool. Thus, they could offer the same rate to everyone in the service area; the cost of an individual health plan would be the same as what a company would pay for a group plan, based on the number of people to be covered. This is possible because the rate is calculated for the entire "pie," not for each individual fragment of the pie.

    In other words, under my proposal health plans that serve the same geographic area are going to be faced with the same risk pool. They don't need to calculate different rates for a thousand different companies, because the pool of potential members is drawn from the entire service area, not just from individual companies.

  • Eric Novack (unverified)
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    Universal access to health insurance does not give you universal access to healthcare. In Canada, 12% of the population does not have access to a primary care physician. 12% of the US population roughly totals the number of uninsured in the US. How would your proposal increase access? Medicare cuts of 4.4% will be put upon doctors on Jan 1 (hospitals and insurers will see reimbursemene increase by the same amount, due to different formulas)-- this will make fewer doctors able to stay in business to deliver care- and will force less time to be spent with each patient.

  • Jim Holman (unverified)
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    Erc Novack asks: "How would your proposal increase access?"

    As I mentioned in a previous comment, I believe my proposal enhances "continuity of care, choice, portability, greater opportunity, and competition for the individual consumer of health care."

    While the proposal does not deal directly with issues related to access, I believe that it does in fact take a significant step toward improving access. At a minimum, it puts everyone on the same footing. It gives everyone the same opportunity for coverage whether employed for someone else, self-employed, or unemployed.

    As others have noted, it does not guarantee anyone a "right" to healthcare or even health insurance. But it takes a step in that direction. You're not limited only to the plan offered by your company. You're not charged more for a particular health plan than anyone else is, even if you don't work for a traditional company. You're not excluded from coverage because you're a potential high-cost client. You have the opportunity for continuity of care throughout all the various modes of employment or unemployment. By way of analogy, it doesn't guarantee that you'll be able to buy whatever you want to in the grocery store, but it does guarantee that you can shop at any store where you live under the same conditions as anyone else.

    Is it a perfect plan? No. But I'm reminded of the old saying that "the perfect is the enemy of the good." If we wait for the perfect plan, we will end up waiting for something that may never arrive. Until then I believe my proposal offers us a better system that what we now have. And it in no way elminates other future reforms, public or private, that may take us even closer to where we want to be.

  • Eric Novack (unverified)
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    Jim- thank you for responding. I will briefly elaborate-- you must distinguish in your proposal whether you are simply trying to increase the numbers with insurance (which I believe you are) or trying to reduce/ limit costs. I would make the case that simply deeming everyone insured without understanding the delivery side and the cost side would make things worse. Regardless of where you stand on the political spectrum, the transfer of decision-making power in healthcare to the government would end up in the diversion of important time, energy, and money away from the research, development and treatment of people to the world of endless lobbying- where different disease interest groups would be competing for recognition.

    A brief quote from Benjamin Rush (Revolutionary war physician) at the Constitutional Convention: "Unless we put medical freedom into the constitution the time will come when medicine will organize into an undercover dictatorship and force people who wish doctors and treatment of their own choice to submit to only what the dictating outfit offers."

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