Weakening Business Case For Health Insurance
Boeing, the giant aerospace concern which is celebrating its centennial this year, has been cutting out the middle-man for health benefits:
In another sign of growing frustration with rising health costs, aerospace giant Boeing Co. has agreed to contract directly for employee benefits with a major health system in Southern California, bypassing the conventional insurance model.
The move, announced Tuesday, marks the expansion of Boeing’s direct-contracting approach, which it has already implemented in recent years in Seattle, St. Louis and Charleston, S.C.
In other examples, Intel Corp. contracted directly with a major health system in New Mexico, where it has several thousand employees.
Retailers Wal-Mart and Lowe’s took a different approach, striking deals with select hospitals across the country for bundled prices on specific surgeries. The companies steer workers to those hospitals.
(Chad Terhune, “Boeing Contracts Directly With California Health System for Employee Benefits,” Kaiser Health News, June 21, 2016)
I recently discussed evidence that insurers inflate rather than decrease prices for medical goods and services. Large employers appear to be figuring this out, too. Large employers have traditionally signed Administrative Services Only (ASO) contracts with insurers for processing medical claims. However the insurers do not bear actuarial risk. The companies are large enough to bear the risk of catastrophic health costs for some of their employees.
Signing ASO contracts allowed large employers to benefit from health insurers’ networks of providers. However, they are now learning there is not much value in this. A company like Boeing, which has large concentrations of employees in a few places, can disintermediate insurers and negotiate directly with health systems.
This is a little more difficult for companies with workers distributed around the country. One would think Wal-Mart or Lowe’s would find value in contracting with a large health plan to get access to a national network. However, that value proposition appears to be deteriorating, too.
I think this is a great development because these employers have no interest in adding administrative costs to the system, like insurers do. What I hope evolves is a system whereby large employers negotiate for expensive procedures with the best hospital systems, and just let people pay for primary and inexpensive care directly, using their Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) or Flexible Spending Accounts (FSAs).
Wal-Mart has been self-administering and self-funding a significant part of their workforce medical benefits – more than ten years that I know of. And not limited to defined service bundles at specific hospitals, either. As you note, Wal-Mart Is not alone in self-administering, although most large employers still hire a 3rd party administrator and access that administrator’s “discounted” pricing. In either case, the employer / plan sponsor is bypassing the traditional insurance model.
Even the largest self-funded employer needs to carefully evaluate the risk of large individual claims. The self-funded plan I managed covered more than 20,000 employees and their families and we self insured all the risks. But every couple years we obtained specific stop loss quotes then adjusted our internal reserve to reflect the premiums quoted. A $5+ million hit can ruin anyone’s budget.
Have you noticed a trend among large plan sponsors toward negotiating their own pricing? It seems to me most employers other than Giants like Wal-Mart or Boeing would be at a disadvantage negotiating with hospital systems. It also seems to me that hospital systems wouldn’t want to do this for any but very significant employee populations in their service area. Another factor is the degree of competition among hospitals in communities where the employers have a presence. But I don’t mean to suggest it can’t be done – only that it will be tricky and difficult.
(One factor seldom mentioned is that during the 70s and 80s many employers grew (or, moved) operations to smaller communities, to obtain favorable labor and other costs. In these smaller communities there are fewer hospitals, sometimes only one. Good luck if a hospital feels no competitive pressure to discount its charges.) 😎
Yes, I think as long as the employer is the insurer of first resort, the large employers will have an advantage with hospitals (which are consolidating). However, if the individuals paid directly it would look much more like the market for airplane travel or hotels. (emergency rooms excepted,m of course).
John, your love of employer-based health insurance won’t mean much if Republicans enact age-based tax credits and we eliminate the employer-based insurance scam.
You never point out that employers just cancel the insurance on their sick employees who are too sick to work and laugh all the way to the bank.
Parents should choose the insurance on their children and not some cheap employer who only cares about the bottom line.
Senator, I say Seantor, I appreciate that your role is to point out what everyone else misses.
John, you wrote, “The self-funded plan I managed covered more than 20,000 employees…”
You knew that an employee that got too sick to work that your insurance plan would put them on a short term COBRA for insurance termination. It was just the uninformed employees who didn’t know.
You must be proud John.
Senator, I say Senator, you assume a lot of things you don’t know, then assume they are demonstrated fact.
Besides, I thought I made it clear we did not use insurance.
Killer John, I know that a young female employee on your so-called insurance would have her “insurance” TERMINATED if she quit working to take care of a sick child.
I know exactly what you were selling to those employees just like you do.
OR – you can correct me and say that she could keep her insurance after she quit. – FAT CHANCE –
Killer John always smiles when he sends out a termination notice to sick employees as he laughs all the way to the bank.
I do not approve of the employer-based system as structured either pre- or post-Obamacare but your description of people just having their insurance terminated is very inaccurate. As you note there was and is COBRA. Plus, after COBRA termed out, there were other options without underwriting.
In California, the carrier had to offer (without underwriting) the two most popular individual plans to the beneficiary once COBRA termed out.
It was far from perfect but the idea that that were just terminated or kicked off is exaggerated.
Employees are not aware of the total premium because (pre-Obamacare) it was hidden from them and the culture told them it was mostly paid for by their employer. So, when they got their first COBRA premium after losing their job, the combination of sticker shock plus loss of income meant they were likely to drop out.
That is being unable to pay, not being terminated or kicked off.
Correct.
(just fyi, in my company, we provided self-funded, extended coverage for 18 months beyond COBRA – three years total. Further, if any covered person were disabled and did not have other coverage – e.g., thru another employer – on the day their extended coverage would otherwise expire, our coverage was extended indefinitely so long as the disability continued.)
I think it’s clear that the original reasons for employer-based insurance have gradually been disappearing. This may eventually result in a 100% individual insurance system. It could also result in a 100% public medical welfare system. It may result in a mix of the two. As I see it, the major remaining obstacle to any payment scheme is that, so long as medical care in the US is unaffordable, the payment scheme will also be unaffordable – no matter who is the payer, private or public; group or individual; insurance or welfare.
Killer John, you wrote, “our coverage was extended indefinitely so long as the disability continued.”
Are you saying that a teenage daughter of one of your employees could keep their insurance forever when she is diagnosed with MS?
You sneaky group salesmen are pretty lost with the truth. What is your definition of “DISABILITY”?
Even people with underwritten IM coverage rely on a job to provide the cash flow to pay their premium unless, of course, they are wealthy and can pay it out of investment income. If they lose their source of cash flow, their IM coverage isn’t worth anything if they can’t afford to pay the premium.
If employer provided coverage went away, even Ron has told us in the past that up to 30% of those people would be declined by health insurers for IM coverage due to pre-existing conditions or a family history that elevates their risk. Ron has nothing for them nor does he have any constructive suggestions about how to cover them and how to pay for it.
Barry, you say that I say, “family history that elevates their risk.” — I never said that. Maybe you are thinking life insurance.
Barry, you should tell John that employees’ premiums explode upward when they are sick and are slammed on COBRA. In contrast, Individual Medical premiums remain the same.
John is so good with math yet he doesn’t care that sick peoples’ so-called options are 100% more expensive with the CHIP option if a state even had one.
John, like you, is always defending employer-based insurance but always says he doesn’t. That’s why he gets paid the big bucks.
John should name the option available in TEXAS for NCPA employees after their short term COBRA. You should help John.
John, you write, “Plus, after COBRA termed out, there were other options without underwriting.”
Please name your so-called option in Florida before 1/1/14.
Good luck. I can hardly wait.
John, you say, “So, when they got their first COBRA premium after losing their job, the combination of sticker shock plus loss of income meant they were likely to drop out.”
No John, it is when the consumer discovers the REAL price for their insurance they choose another, more reasonably priced, Individual Medical product.
It’s called the FREE market John.
John, where did you go to school in Canada?
When Ron gets his way and all employees’ plans are cancelled, he’ll be able to pick and choose which of them he wants as clients.
I was talking to a reporter the other day. He had an interesting point when he said that employer-sponsored health coverage is becoming an even more valuable perk now that Obamacare has caused the individual market to go off the rails.
Devon, this reporter has clearly not yet had the pleasure of speaking with Senator Greiner.
John, you are confused again, figures. Devon, the reporter and I all believe that Obamacare has caused the Individual Medical market harm, geez.
Senator, I say, Senator, I learn so much from your comments because you are the only one here who is never confused. I salute you sir.
John you wrote, “this reporter has clearly not yet had the pleasure of speaking with Senator Greiner.”
Yet we think exactly alike. John, you and Hillary and the Democrat Socialists support employer-based health insurance.
Face it John, you are a loser.
Senator, I say Senator, you are easily distracted.
The reporter Devon spoke with opined that employer-sponsored insurance might be viewed as even more valuable now that Obamacare has done such a number on the individual market.
Maybe the reporter is right. Er, I mean, the reporter is no doubt confused.
As I originally said before you became distracted, you have not yet had the opportunity to straighten the reporter out about employer-sponsored insurance.
John, not one child has ever lost their insurance after they have become sick because of me. In contrast, every child of one of your employees that was on your insurance lost their insurance at a majority age regardless if they had cancer, MS or any other medical problem.
I shutter to think of all of the children that have died because of you John. I’m sure it put a big smile on your face when you sent out those TERMINATION notices.
Killer John, how can you look in the mirror and not be disgusted.
Senator, I say Senator, you are a paragon of Southern virtue. I salute you suh.
I have never read any employer provided insurance plan Healrh or life that did not have an eligibility requirements to qualify. If you get so sick you can no longer work what happens to the insurance?
Lee, you are talking about the law and reality. Here at the NCPA blog people like to spread lies and propaganda to support employer-based health insurance and suggest that it isn’t deadly.
The NCPA put their own employees on health insurance that they lose if they get too sick to work. John says they have other options in TEXAS and FLORIDA before 1/1/2014 but he can’t tell us what these so-called other options are. John doesn’t care about legal facts but instead he spreads rumors that are not true.
Lee, have you talked to people on their 18th month of their COBRA and they are sick? I have, thousands of them.
If what you were writing were true, every politician would be campaigning to free workers from the burden of employer-based coverage. Lee Benham is correct: People value their employer-based benefits, despite how inefficient they are.
BTW, you must work in a pocket of people with very poor employment prospects. The reason COBRA is not perpetual is that most people get another job well within 18 months. Their spouses must also have very poor employment prospects because the unemployed can hop on their spouses’ plans.
Maybe your business would improve if you focused on markets where people have jobs and job prospects? Of course, if you are addressing these folks’ access problems for charitable purposes, I am sure all the blog readers thank you for it.
John, you write, ” The reason COBRA is not perpetual is that most people get another job well within 18 months.”
John you think people with cancer who are slammed on COBRA just get another job, truly pathetic.
Only 29% of small employers in Florida offer insurance and you know this. Even if they are married, some people are not married, that doesn’t mean they have access to coverage.
John, I’m still waiting for you to tell me the option in Florida after COBRA before 1/14/2016.
This is a lame argument John, but it figures.
I have never lived in FL and am not a broker or agent. But I believe the law to which I refer is in the 2016 FL Statutes, Title XXXVII, chapter 627, Part VI, Section 627.646 “Conversion on termination of eligibility.”
It took me less than ten minutes to find it. I am not sure why anyone would take advantage of it post-Obamacare, but there it is.
I am thinking of imposing a rule on the blog that people presenting themselves as licensed insurance professionals have their identities qualified before being allowed to comment.
This blog gives no advice but leaving comments open access does provide opportunity for mischief.
John, my question was about before 1/1/2014. Now you pull up a law from 2015. It says:
(b) The premium on the policy shall be at the insurer’s then customary rate applicable to such policies, (((to the class of risk to which such person then belongs))), and to his or her age attained on the effective date of the policy.
Do you know what that means John?
The truth is not mischief John. There are many licensed agents here and notice how nobody will defend you because I am correct, sorry.
It’s hard to defend dangerous over-priced employer-based health insurance. YOU should spend more than 10 minutes doing research to back up your false opinions.
I’m not scared of your warning to ban me.
John, you write, “Maybe your business would improve if you focused on markets where people have jobs and job prospects?”
I just enrolled a 26-year-old husband and child for $200 a month and the cost to add them to the wife’s plan at the TEXAS school district was $1,100 a month. I know that saving this young family $900 a month so he can go back to school is important regardless if you think they are not worth it because they don’t make as much as you. Dr. John Goodman said he was earning $500,000 a year from the NCPA. Young American families are important too John. So is the TRUTH!
Unfortunately what Ron is saying is correct and I wish every politician would campaign to remove the burden of employer based benefits from the employees and the U.S. tax payer.
sadly I don’t feel the politicians have an understanding of what happens when someone is diagnosed with a debilitating or terminal illness and can no longer work.
there is not a huge outcry because the people who are affected by these problems are a very small minority in our country.(However if you are the one it is financially devastating)
Florida is one of a handful of states (I believe 6) who tried to address the problem with losing coverage because of eligibility.
Most of these laws popped up around the time of the Kennedy/Kassebaum bill which most states interpreted wrong for a few years concerning portability.
The law that John referred to was in place in 2014 and is currently irrelevant because the ACA now supersedes it. However it does show how incompetent our law makers are at fixing problems in a complex regulated industry. This law does not address the problem that Ron is talking about.
But lets look at how it affected people back in 2014.Below is the text of the law.
Problem 1. “a policy of health insurance, either individual or family, whichever is appropriate,”
Family policies are individual policies!! (incompetent Idiots)
If you are leaving a group insurance plan that is governed by ERISA to an individual policy governed by the state you still must meet individual underwriting standards of the individual policy. The group issuing company would be required to issue a policy to the insured but it can be altered. So you are stuck with the one and only company you were with at a premium rate determined by the company.
Problem 2. “(a) The premium on the policy shall be at the insurer’s then customary rate applicable to such policies, to the class of risk to which such person then belongs, and to his or her age attained on the effective date of the policy”.
Ok there are so many problems with this paragraph I don’t know where to start!
What Risk Class is people who lost there insurance because of Eligibility? this is determined by the insurance company at the time of termination!
Again the state is mixing state laws with federal ERISA laws and they cant have it both ways.
Problem 3. “(e) The policy of health insurance may exclude any condition excluded by the prior policy.”
Group health insurance was already guaranteed issue so why the need for this language?
this law was written to address individual policies not group policies which are governed by ERISA not the states.
So what Ron is saying. “if you get so sick you cant work you lose your insurance. (that is a correct statement!) john is saying well you can have cobra for 18 month. (that is a correct statement). Ron is saying Cobra is a short term insurance plan because it terminates after 18 months and some illness last longer than 18 months. (that is also a correct statement).
On a side note to John, When Cobra was offered to the employees and the employee took that option that disqualified the employee from exercising there rights to a guarantee issue plan. what insurance companies did was to make sure the premiums for the “class” were more than the Cobra so no one exercised that option. The ACA eliminated this problem. However it has not stopped the group insurance plans from moving the sick to the individual markets. It has actually made it easier because when people are out of work they might be able to get tax credits. this drives up the costs in the individual market at a faster rate.
Employer based benefits have been a drain on our country for over 50 years. U.S. companies are saddled with almost $15,000 per employee benefit labor costs that business in other counties don’t have. People complain how horrible a deal NAFTA is. Well look north to your homeland or south of our boarders and tell me which companies domiciled outside of the U.S. have the cost of Health Insurance. disability insurance, life insurance, Social Security, State unemployment, federal unemployment, workers compensation,
as a per employee expense?
The only way to break the cycle of waste is to educate the public. I would hope the NCPA would want to be a leader in Educating the public on the horrors that can happen when you rent insurance from your employer. If the public understood the enormous premiums they are paying to have “benefits” (which the dictionary doesn’t say something you pay for!) through there employer they would demand the employer stop wasting their money!
Lee Benham
Insurance Broker Omaha Nebraska
President Benham and Associates since 1994
The 2014 Florida Statutes
Title XXXVII
INSURANCE
Chapter 627
INSURANCE RATES AND CONTRACTS
View Entire Chapter
627.646 Conversion on termination of eligibility.—
(1) Every health insurance policy providing hospital or medical expense coverage hereafter delivered or issued for delivery in this state or under which benefits are altered, modified, or amended shall contain a provision that, if the insurance on a person covered under the policy ceases because of the termination of such person’s eligibility for coverage prior to his or her becoming eligible for Medicare or Medicaid benefits, then such person shall be entitled to have issued to him or her by the insurer, without evidence of insurability, a policy of health insurance, either individual or family, whichever is appropriate, provided application for the policy is made and the first premium is paid to the insurer within 31 days after such termination, and provided further that:
(a) The coverage under the policy shall be in an amount equal to or, at the option of the insured, less than the amount of health insurance which ceases because of such termination.
(b) The premium on the policy shall be at the insurer’s then customary rate applicable to such policies, to the class of risk to which such person then belongs, and to his or her age attained on the effective date of the policy.
(c) The policy of health insurance will not result in over insurance on the basis of the company underwriting standards at the time of issue.
(d) The policy of health insurance may be reduced by the amount of any benefits paid for the same injury or same sickness under the prior policy.
(e) The policy of health insurance may exclude any condition excluded by the prior policy.
(2) An insurer shall offer maternity benefits and dental benefits if those benefits were provided in the policy.
(3) The provisions of this section shall be effectuated in such a way as to result in continuous coverage during the 31-day period for such insured.
(4) This section does not apply to disability income, Medicare supplement, accident only,
Lee, I don’t have any quarrel with the experiences you have with your clients but I don’t understand this:
“remove the burden of employer based benefits from the employees and the U.S. tax payer.”
When the burden is removed from employees and taxpayers, where does it go?
As I mentioned before, the employer-sponsored plan I managed was not insured. We did not buy insurance and did not pay insurance premiums. Yet our costs spiraled upward by 5% to 10% every year. It seems very clear to me that the cost of our benefit plans was not driven by “insurance”. It was driven by payments made to our employees and their families on account of the medical treatment they received. Won’t people still need medical treatment and therefore won’t the associated cost continue? Who will bear that burden?
Excellent question John,
Ill see if I can make since in a written response. if you could please answer a few questions so I am not making assumptions about your plan based off my experiences. That way I can better answer your question and we can keep Ron from having an aneurysm.
1. You managed a employer sponsored health insurance plan with 20,000 insureds.
2. The plan self insured but was administered by a insurance company third party?
3. The administrating party was paid per transaction or shared in % of profits?
4. The company collected some premiums from employees for the insurance or did it pay the entire cost of individual and family plans?
5.what were the eligibility requirements to enroll and keep the plan?
6.was there any conversion options for spouse or dependent coverage?
7.how was the plan funded if no premiums were collected?
8. Did the company take a tax deduction for its expenses?
9. did the company have employees in multiple states and/or countries?
10. what were the coverage choices the employees had?
$100 ded? $250? what were the out of pocket maxes?
I agree with you that Insurance is cheap its the cost of utilization that is expensive. a healthy 40 year old male can get $1,000,000 of life insurance for about $35 a month. Insurance is cheap cheap cheap. a 60 year old would pay closer to $300 and a 70 year old would be closer to $1000 That’s underwriting and the chance of utilization.
I look forward to the information so I can better answer your question,
Lee, your Qs point to another thing I don’t understand: why would a legislative solution, intended to remove the burden of employer-based benefits from the employees and the U.S. tax payer, depend on the details of any particular employer plan design? A solution would have to work for all plans, no?
As Lee Benham points out below, the law was in the 2014 statutes. I cannot see why the legislature would pass a law in 2015 that would only make sense in a pre-Obamacare regulatory environment.
How do you reconcile “without evidence of insurability” with “class of risk.” How would the carrier know the risk without evidence of insurability?
Anyway, whether these state COBRA conversion laws are effective or not is not the question. They existed and therefore people were not just “dropped.”
In any case, you are writing about policies you are writing today, so what does any of this have to do with pre-Obamacare COBRA conversion laws?
John, Lee said, “Unfortunately what Ron is saying is correct.”
Lee and I are both licensed and as you say – YOU are not. I asked you to name your so-called option before 1/1/2014 and you can’t. You came up with something after 2014 then say, “They existed and therefore people were not just “dropped.” – you are wrong and Lee and I are right, sorry.
John, you wrote, “If what you were writing were true, every politician would be campaigning to free workers from the burden of employer-based coverage.”
I tried in 1997 to get Dr. John Goodman to write about it and after 20 years the NCPA is still insisting that employees don’t have their insurance TERMINATED.
You folks must get paid big bucks to not tell the truth. Come on John show us the law before 1/1/2014. Do a little research.
You will never convince people Group health insurance is the evil devil because it’s all ever ever known the group insurance guys will continue to sell at Avon convince the people dental insurance is a good deal .
Only good thing the ACA has done this allow people that are terminated from the group insurance with the pre-existing condition to buy individual policy with out pre-existing. Convincing people to give up their group benefits is a monumental task people are like she’d like to be told what to do even if it’s costing them thousands of dollars a year .
Guess talking texting has some room for improvement 😜
John Fembup in 2005 you wrote
“It took less than 48 hours for my health plan to get in touch with me about the withdrawl of Vioxx from the market last October . . . I still haven’t heard from my personal physician and don’t expect to”
“And don’t expect to.” Well, why don’t you expect to? This low expectation is consistent with my observation regarding Dr Greenberg’s article. Why should competition among health plans – rather than among health care PROVIDERS – be expected to keep down the cost of health care? Why the low expectation of providers?
I think part of the explanation is that, in the public debate, even respected voices are often careless about the difference between health care and health insurance. That leads to confusion and inhibits rational discussion.
I think that the cost of health insurance cannot be contained in any meaningful way unless the cost of health care can be contained. Focusing on “health plans” or “health insurance premiums” misses the point. The cost of health care is more fundamental. Therefore, while it’s fine for health plans to compete, IMO it’s a forlorn hope that they can thereby succeed in containing the cost of either health insurance premiums, or health care. What health plans’ competition brings is superior administrative services (e.g., the notice regarding Vioxx).
I have read several of your blog posts covering a 10 year period and I agree with a lot of what you have to say. I have also noticed a theme with your various posts. you seem to be vary knowledgeable and you ask a lot of question but never really offer any solutions. you stated that you managed a company sponsored plan with 20,000 members. I asked a few simple questions so I could clarify my post . You then asked another question without providing any answers. The reason I picked the above posting of yours is I think it will tie in nicely to my answer to your original question as soon as you get me the information that I asked for.
thanks
Lee, you stated “I wish every politician would campaign to remove the burden of employer based benefits from the employees and the U.S. tax payer.”
In response, I asked “When the burden is removed from employees and taxpayers, where does it go?”
I pointed out that the employer-sponsored program I managed was not insured, only to illustrate that its cost is not an driven by “insurance” – it’s driven by payments made to employees and their families on account of the medical treatment they receive. I might have added that if medical care were not costly, insurance would not be costly, and if the cost of medical care were not rising, the cost of medical insurance would not be rising. I have said these things for more than 10 years. Looks like we agree 100% on these things.
But my Q was: where does the burden go if employees and the U.S. taxpayer were relieved of it? You knew next to nothing about the program I managed when you stated your wish. Likewise it’s not necessary to know details about that program, or any other employer-sponsored program, before answering my Q.
As to my not offering solutions, you are correct. I know some things about the US medical care delivery system, but I don’t pretend a full understanding. I usually ask questions when I believe I don’t understand something. (Besides, if I knew what to do I would certainly not post my solution on a message board. Instead I’d be in Washington, letting Congress and Jonathan Gruber know what to do; I’d be on the cover of magazines. I’d be winning prestigious prizes.)
Anyway, I still ask “When the burden is removed from employees and taxpayers, where does it go?”
Thanks –
John, just imagine how much more in expenses you would have had for medical care if you didn’t TERMINATE your sick employees or dependents.
Dumping your sick employees and dependents onto the Individual Medical market or taxpayer is not INSURANCE, so I completely agree with you there.
It’s more like a scam. That is why your name is Killer John because what you did is so deadly.