A Health Reform Agenda to Replace Obamacare

The most pressing goal of health reformers in Congress should be to replace all the costly provisions in Obamacare with the consumer-friendly health plans Americans prefer. In the process, reformers must change the way medical care is financed so that consumers have control over their health care dollars, as well as the means to pay for medical care over their lifetimes. As a starting point, Congress should repeal the individual and employer mandates and taxes of the Patient Protection and Affordable Care Act (ACA).

Congress should also repeal regulations that prevent insurers and employers from designing affordable health plans, including the “essential benefits” package, and allow consumers to choose limited benefit plans and catastrophic coverage if they want. Regulations that prevent insurers from fully adjusting individual premium rates to reflect known health risks drive up costs for most Americans. In its place, Congress should restore the right to renew coverage if an applicant has maintained insurance with no gaps of more than 63 days (COBRA) and allow insurers to sell multiyear coverage. This would also allow individuals to keep their portable health plans regardless of employment. Creating a national market would also allow insurers to sell policies across state lines, resulting in competition among states to reform overly-restrictive state mandates.

Increased flexibility in health plan design should also encourage the use of cost-containment tools, such as expanded Health Savings Accounts, innovative cost-sharing and reference pricing. Reference pricing allows health plans to set the amount they will reimburse for a particular procedure, but also allows provider to balance bill if they believe their services are more valuable. This gives providers an incentive to compete on price, charging near the reference price to avoid losing customers. Insurers and health plans should also be allowed to maintain exclusive provider networks, require competitive bidding of providers and selectively contract in order to obtain the best prices.

Many Americans do not have access to coverage through work. They must pay for health insurance with after-tax wages, or pay the full cost of medical treatment out of their own pockets. Those who lack access to health coverage at work should receive a defined tax credit that provides a comparable amount of tax relief as employer-provided health benefits for a middle-income family. The tax credit should be advanceable (so that it can be used to pay monthly premiums) and refundable (that is, a net subsidy) for those who cannot fully pay the cost of premiums because of their income or health status. The tax credit would replace the cost-sharing subsidies and sliding-scale subsidies of the Obamacare exchanges, and could be used to purchase private health insurance or pay directly for care. The credit should be adjusted for health status, or age as a proxy for health status. Individuals who prefer should be allowed to keep their employer plans.

Another goal of any reform agenda should be to expand Americans’ access to primary care. The supply of physicians is relatively inelastic — it takes time to train a doctor. The shortage of primary care providers is expected to get much worse over the next 20 years. Expanding the number of primary care residencies would help. In addition, there are many foreign medical graduates who would like to immigrate but find insurmountable barriers to licensure in the United States.

Reforming the practice of medicine would also better serve patients and boost access to primary care. Medical practice has hardly changed in the past century. Many states have regulations that inhibit talking to a doctor over the phone, and prevent so-called physician extenders such as physician’s assistants and nurse practitioners from practicing to the limits of their training.

Reformers should focus on removing barriers to competition in the hospital sector and expand price transparency. Nearly one-third of health care spending is on hospital care. It is more costly than need be because hospitals do not have to compete on price to attract patients. Hospitals charge more for almost every service, whether it is only performed in hospitals or can be done in other care settings.

Public policy also should seek to encourage price transparency. This could be done by requiring a meeting of the minds between patients and their providers — the standard for an enforceable contract. It should also create a safe harbor, making it easier for a provider to collect fees if he or she is transparent about costs. Providers who disclose fees and declare their network status in a patient quotation would be an indicator of transparency. However, agreements should be obtained through informed consent, rather than consent under duress.

Health care should also be reformed to better care for high-cost patients. One-fifth of patients generate 80 percent of medical costs, while 20 percent of expenditures are on the sickest 1 percent. Some Medicaid Advantage plans employ a patient-centered medical home that coordinates care for high-cost patients and advises them on providers and procedures. Another technique is a high-risk pool that requires a higher level of patient responsibility for sticking with treatment programs and following the advice of their care coordinator.

Medicaid needs reformed to better serve low-income families. States should be allowed to experiment and find solutions that meet each state’s unique needs. For able-bodied adults on Medicaid, the program could be designed to transition them to private plans as their incomes rise, including requiring enrollees to pay small premiums; to work, seek work or participate in job training programs; and requiring enrollees to pay nontrivial copays and cost sharing. States should also be allowed to remove beneficiaries who fail or refuse to pay premiums, co-pays or follow the rules.

Medicare needs reformed to reduce the burden on seniors and taxpayers. Cumbersome regulations and procedures make the Medicare program overly bureaucratic. The program needs to experiment with cost-containment measures such as reference pricing to encourage price competition among providers, competitive bidding among providers and selective contracting with low-cost providers. It also needs to better coordinate care among its sickest beneficiaries.

Congress should also address tort and malpractice reform. Accountable Care Organizations are needlessly bureaucratic and patient centered medical homes is a concept that hasn’t been tested as much as needed.

These are just a few of the needed reforms that would make health care more responsive to patients and consumers. The key to any substantial reform agenda needs to fully engage the patient. Only then will providers compete for patients’ patronage by competing on price, quality and other amenities.

These and other reforms to fix our health care system are outlined in the NCPA’s Agenda for Health Reform.

A version of this Health Alert also appeared in Town Hall.

Comments (84)

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  1. jimbino says:

    Two important provisions you left out:

    1. Decouple insurance from medical care. We want medical care, not insurance. Those who have the good sense to pay cash for care, as they do for food, cars and gasoline don’t need insurance. They should be entitled to discounts for cash and whatever tax subsidies are provided for those who carry medical insurance.

    2. Make insurance dollars and whatever tax credits available for care rendered in Cuba, Mexico or wherever overseas, so as to lower costs and increase competition in the USSA.

    • Devon Herrick says:

      The last paragraph in the post read:

      The key to any substantial reform agenda needs to fully engage the patient. Only then will providers compete for patients’ patronage by competing on price, quality and other amenities.

      It probably should have been the first paragraph

  2. bob hertz says:

    Many good ideas here, thanks.

    One qualification:

    Providers should be allowed to balance bill, but only if the balance bill is disclosed in advance, and to a patient who can make an informed choice.
    In recent years we have anesthesiologists and ER physicians who did not join any insurer network. Instead they wait until a helpless patient needs them, and then they bill whatever they feel like.

    and one comment:

    I love the idea of doctors and diagnosticians and pharma companies competing to please patients.

    Hospitals can also compete when it comes to discrete procedures like colonoscopies.

    But I do not see competition as a solution for ER care, for septic shock, for heart failure, for psychosis, for pneumonia, and similar activities.

    I favor price regulation when consumer choice is impossible.

    • Devon Herrick says:

      Providers should be allowed to balance bill, but only if the balance bill is disclosed in advance, and to a patient who can make an informed choice.

      Bob that’s actually spelled out in the longer version. I have a paper on transparency that we have not yet published where I explain there has to be a meeting of the minds, which can only occur with informed consent and a price estimate. The blanket form the hospital admission’s business office clerk shoves in your face would not suffice.

  3. Barry Carol says:

    As Bob Hertz noted, there are indeed a lot of good ideas here.

    One troubling area is hospital based care. Patients generally have no role in choosing radiologists, anesthesiologists, pathologists and ER doctors. There needs to be special rules that govern how much these doctors can charge, especially for care that must be delivered under emergency conditions. Either they should have to join whatever networks the hospital itself joins, be employed by the hospital on a salary plus bonus basis or the hospital should work out a deal with these specialists directly that determines how much they will be paid and incorporate it into the hospital charge for which the contract reimbursement rate will be negotiated with insurers.

    While Health Savings Accounts are fine, there does need to be a limit on how much can be deposited into them each year just as there are limits for IRA and 401-K distributions as all of those provisions erode the tax base. As for tax credits to purchase insurance, I don’t think age based tax credits would be close to sufficient to allow the unhealthy and already sick to purchase coverage at a price they can afford. I also have no idea how any sliding scale subsidy would take into account health risk coupled with the lack of ability to pay. One way or another, I think we need to find a way to ensure that everyone has health insurance coverage, at least for catastrophic costs.

    To better understand the components of healthcare costs, I also think it’s more relevant to look at what insurers, including Medicare and Medicaid, actually pay for as opposed to the numbers laid out in the broader national healthcare spending statistics. Private health insurers have told me in the past that their medical claims break down broadly into three buckets as follows: 40% for hospital based care, both inpatient and outpatient, 40% for physician and clinical services including labs, imaging, physical therapy, etc., and 20% for prescription drugs. Medicare data I saw for 2014, I think, revealed that 41% of spending was for Part A hospital based care, 37% was for Part B physician and clinical services which includes certain drugs administered in a hospital setting as well as dialysis care and 23% for Part D prescription drugs. Rounding accounts for the total adding up to 101%. For Medicaid, long term care is a major component of costs.

    I think price transparency and reference pricing are good ideas. So is medical tort reform and finding ways to better coordinate care for the sickest patients. I’m more skeptical about selling insurance across state lines. I don’t have a problem with it but don’t think it will save much money. Adequately funded high risk pools probably also need to be part of the mix as well.

    • Gitmoray says:

      Barry, I agree with you that Devon’s post is pretty much a Chinese buffet full of ideas, many of them very good.

      Your post here is also very good. Last week I took exception to your excusing bad lifestyle choices. Your post today hits many of the urgent problems in the healthcare system.

      On the issue of HSA’s, there are of course limits on what you can contribute, with perhaps a change needed in that the limits should be much more liberal than they are now as we age. My big beef with HSA’s remains that they are rich people’s welfare payments, by being so tilted in favor of people in high tax brackets. If we find an elegant way to address this issue, the HSA will become an important tool in containing cost inflation in healthcare, and in forcing additional cost transparency.

      Very happy to see that Devon is writing many of these posts. Once John Goodman left, this blog became a Big Pharma shill for a while…happy to see it getting back to its roots

  4. Ron Greiner says:

    Devon, this is a sloppy way of saying this: “Those who lack access to health coverage at work should receive a defined tax credit that provides a comparable amount of tax relief as employer-provided health benefits for a middle-income family.”

    We need Blue Cross CEOs saying, “These tax credits are like paying workers with tax free money not to take their employers plan, It’s not fair!”

    • Devon Herrick says:

      Ron I tend to agree. But I also realize the political opposition from workers who have not yet figured out that the $15,000 cost for an employee health plan is actually lowering their pretax wages. What would probably have to happen to move in the direction of personal and portable health plans is to allow young people the option of accepting a tax credit in lieu of paying the company health plan. Without younger workers, the employer risk pools would collapse as more and more workers migrated to personal-portable plans. The transition would be difficult for the same reason the exchanges are difficult. The ultimate goal is to move to a system where everyone deducts a payroll tax that accrues into an account they control.

      • Ron Greiner says:

        The tax credits will suck the healthy out of the employer pools which leaves employers just the sick and stupid. This is the only thing that can happen so employer-based health insurance days are numbered.

  5. Don Levit says:

    Regarding high risk pools we can do much better than segregating the unhealthy
    Risk pools are based on a person’s current condition
    Any one who exceeds $25,000 of care in a year – even 20 years into the future – is a high risk
    Regional pools can be set up so that all would belong to such a pool
    Monitor each pool’s expenses to insure a similar ratio of claims occur to any credible pool 20 percent of the people incur 80 percent of the claims

    • Devon Herrick says:

      It would not be popular with many people, but I’m tempted to suggest that in order to qualify for a high-risk pool enrollees would have to work with a care coordinator. For example, if you have diabetes or asthma, a coordinator would create a treatment plan with which the enrollee must comply. If the enroll doesn’t like being forced to adhere to the protocols (with some means to appeal) the enrollee could lose their high-risk pool benefits and have to go to the private market.

  6. Art Jetter says:

    It should be a flat credit whether it’s an individual plan or at work, and not tied to income. Income is an inexact measure of need. Tying the credit to income equates to an increase in marginal tax rate as the credit phases out. A flat credit becomes an incentive even at higher incomes.

    If covered at work, the credit could be used to reimburse the employer on the form 941 as a reduction in payroll tax.

    Individuals not covered at work could assign their credit to an insurance company or take the credit on their income tax return.

    • Devon Herrick says:

      Unlike some proposals for a tax credit, I’d even allow the uninsured to use them to pay for out-of-pocket medical care.

      • Art Jetter says:

        The credit should be used only for plans that include, at a minimum, catastrophic benefits.

        To use the credit for out-of-pocket expenses by uninsured means transfer of catastrophic losses to the insured pool. It would also invite adverse risk selection.

        Your financial planner would tell you to insure for catastrophe and self-insure for the things you can afford. In this case, to do otherwise would be a waste of taxpayer funds.

        Charities and other programs may find it easy to assist many people with out-of-pocket but difficult to assist large numbers of catastrophic expense victims.

        • Ron Greiner says:

          Art, are you saying that unused tax credits should not go to the consumers’ tax-free HSA?

          This invites adverse risk selection? How so?

          • Art Jetter says:

            No. I can see how my choice of words could lead to that conclusion.

            I should say, I am opposed to just giving the credit to the uninsured to pay out-of-pocket medical expenses INSTEAD of having, at a minimum, catastrophic insurance.

            I would be one of those who would purchase catastrophic coverage and deposit whatever is left of my credit into my HSA.

            Getting the credit without having catastrophic insurance would be an incentive especially for healthy people to remain uninsured. Healthy people staying out of the pool is a cause of adverse selection. That’s what I meant about inviting adverse selection.

      • jimbino says:


        Would you also permit the uninsured to use the tax credit to pay for care in Mexico, India, Cuba, Brazil, Thailand, Costa Rica and Argentina, where the cost is much lower and the care is often superior?

        • Art Jetter says:

          My daughter had her first two babies in Guatemala City. She had a beautiful single patient suite with a reception parlor for guests. Her doctor was educated in the US and Germany. My wife is a retired OB nurse. The doc passed her interrogation. Our daughter had a C section seven years ago. Cost: $4,000. So, yes.

          I would allow the credit to be used in foreign countries in the following two ways: 1) through the purchase medical insurance that provides applicable benefits, and 2) to fund an HSA with the balance of the credit not used for (at least) catastrophic insurance.

  7. The Big Ham says:

    Employer based health insurance has been a drain on the United States long enough. Its time to end the abomination and educate the public on how bad the coverage actually is. The American public just needs it explained.

    it will happen eventually look at one of the rate increases just filed in one of the cheapest states in the country. Nebraska BCBS is asking for a 34% increase on its individual plans and 9.43% on its small group. As Insurance companies use the eligibility requirements of group insurance to dump the sick into the individual markets the markets will never stabilize. The ACA really only accomplished slowing the migration from group plans to individual plans. Once the country goes to an age based tax credit you will see the end of employer based health insurance and the country will experience a never before seen economic expansion.

    Blue Cross and Blue Shield of Nebraska 29678 IND BCBSNE NetworkBlue – Individual – 29678NE110 05/04/2016 34.90% 01/01/2017 Not Available Submission Filed

    Blue Cross and Blue Shield of Nebraska 29678 SG BCBSNE NetworkBlue – Small Group – 29678NE112 05/04/2016 9.43% 01/01/2017 Not Available Submission Filed

  8. Barry Carol says:

    At the small 35 employee company my wife worked for before she retired, if you didn’t need health insurance because, say, you were covered under a spouse’s plan, the employer’s average cost for group health insurance would be added to your pretax pay. Then, if you needed it later, the cost would be rolled back out of your pretax pay. I think that’s the way it should be.

    The transition to an approach like a payroll tax deposited into a dedicated account that the individual would control would have to be phased in over a very long period of time. I note that the 1983 social security reforms didn’t even start to phase in an increase in the retirement age until 2003, 20 years after the legislation passed. The full increase from age 65 to 67 doesn’t take effect until 2027, 44 years after the legislation passed. A dedicated payroll tax approach for people with access to employer coverage might at first apply only to people born after 1990 or 1995. Everyone else with employer coverage would be subject to the current rules. Over a 40 year period, we would complete the transition to the new system.

    For those without access to employer coverage, the age-based tax credits would be OK with high risk pools available for those who can’t pass underwriting. The bottom line, as I noted previously, is that the health insurance system needs to cover everyone, at least for catastrophic costs.

  9. PJohnson says:

    This all sounds to me like owning a beater, that’s rusting out, needs a new transmission, tires, a tune up and a lot more. And you’re suggesting fixing all that only to face all the same issues in short order. Here’s another better plan: get rid of the POS and start over.

  10. Don Levit says:

    We have no real application of a dedicated payroll tax
    All those taxes as well as income taxes,etc go to the Treasury’s general fund
    A dedicated tax is a misnomer

    • Barry Carol says:

      Don – I disagree.

      Dedicated payroll taxes, at least in the cases of Social Security and Medicare, help to create political acceptability. It gives people a sense that they paid into these programs and are therefore entitled to benefits when they become eligible for them. Social Security benefits are, in fact, a function of how much any given individual and his or her employer contributed to the system though the benefit structure is skewed in favor of lower income wage earners. Offsetting that is the fact that, on average, lower income people don’t live as long as higher income people do so they don’t collect benefits for as many years.

      From a pure federal accounting standpoint, the federal government can only pay out Social Security benefits to the extent that there is money in the trust fund. I know it’s an accounting fiction but when Alan Greenspan was the Federal Reserve Chairman, he told members of congress in direct response to a question from one of the congressman holding the hearing that trust fund balances are, in fact, assets that the government needs to honor even if it means selling real government bonds, notes and bills to public investors both domestic and foreign to redeem the trust fund IOU’s.

      There is no reason why a mandatory dedicated payroll tax couldn’t be structured to contribute money to an account that would be owned and controlled by the employee just as current voluntary contributions are withheld and contributed to 401-K plans. People who don’t have access to employer health insurance plans could access the age-based tax credit instead while self-employed people could choose one or the other.

      If a dedicated payroll tax were phased in starting for workers born after 1990 and not covered under a parent’s health insurance plan, after 20-25 years, I predict most employers would drop their health insurance offerings, raise pretax pay and let those who are still exempt from the mandatory dedicated payroll tax access the age-based tax credits or high risk pools if they’re unhealthy and already sick and can’t pass medical underwriting.

      • Ron Greiner says:

        Barry, you said, “I predict most employers would drop their health insurance offerings.”

        Right Barry, soon employer-based health insurance will be just a really bad memory.

        It’s great that even you agree!

        Hillary is next!

  11. Don Levit says:

    You are correct from an accounting standpoint that the trust funds include numbers
    From a liquidity standpoint there is no store of wealth for every dollar withdrawn increases the debt
    The government officials can make any verbal claims but the FASAB the accounting advisor for the federal government does not consider next year’s Social Security payments as government liabilities
    So how serious is the government about meeting their responsibilities?

    • Barry Carol says:

      Don — Older people vote in large numbers so I would say the government is probably pretty serious about meeting its liabilities. It may ultimately have to increase taxes somewhat to meet them but it will meet them one way or another.

  12. Don Levit says:

    Of course the government will meet its liabilities
    The debt it issues is really government assets for it need never be paid back
    The liabilities are held by the party the debt is issued to

  13. bob hertz says:

    1. Nice to hear from Art Jetter. I have heard him speak at insurance conventions.

    2. I am not as eager as some writers about the shrinking of employer paid insurance. I see all the waste and inequities of employer coverage, but I also believe that employer policies are a great source of financial stability in health care.

    With employer policies, premiums are almost always paid on time, insured employees stay insured all year long, deductibles and copays are lower so hospital bills are paid more reliably, and I could go on and on.

    I know that this props up our bloated health sector, but it is the only sector we’ve got. A country full of people with individual health insurance might also be filled with bankrupt hospitals and fewer available doctors. I just say, be careful what we wish for.

    3. I do not think that Devon addressed how all of his proposed tax credits would be paid for.
    At the present time under the ACA, the subsidies on the exchange are (I believe) costing the Treasury about $40 billion a year. The Medicaid expansion is probably costing twice that amount.

    These costs are only incurred when someone signs up for the ACA or Medicaid.

    By contrast, it appears that the tax credits are going to flow out to the recipients automatically. I agree that this is a great savings in hassle on the exchanges, but I have to believe that the budget cost will exceed the $40 billion now being spent on exchange subsidies.

    I am skeptical of the argument that as the non-group market grows, employers will raise salaries and this will bring in more tax revenue. I have read some detailed studies which question this assumption, and my own experience in the business world makes me question it also.

    Certainly we do not see today that firms which do not provide health insurance are paying higher wages than firms which do provide it. The local muffler shop (which does not provide insurance) is not paying $15,000 higher wages than the government motor pool.

    John McCain did have some actual new taxes to cover his proposed tax credits. Do we have the same today?

    • jimbino says:

      Wrong. Some firms that provide their employees health insurance and other benefits like unemployment insurance, workers’compensation, paid vacation, sick leave, pregnancy leave, gym use, and so on also hire contractors and consultants who receive no benefits but earn, in return, an hourly wage that is often double that of the captive employee.

  14. Michael Ainslie MD says:

    Easy Healthcare Reform:
    1. Give patients back their money
    2. Get out of the way

    • Devon Herrick says:

      I like your idea, but I’m afraid the upheaval would frighten a few patients and providers (especially sick patients and hospitals). But the concept remains simple and sound.

      As Bob states above

      I also believe that employer policies are a great source of financial stability in health care. With employer policies, premiums are almost always paid on time, insured employees stay insured all year long, deductibles and copays are lower so hospital bills are paid more reliably…

      One can think of our health care system as a health care bubble economy. As we’ve seen from the financial/housing crisis, bubbles are painful to work through. There are many, many construction cranes towering over hospital construction sites that would come to a halt if the huge sums of money ceased to be poured into the health care bonfire. There is nothing wrong with that. But the restructuring of the health care sector would be painful in ways that make the financial crisis look tame. That said, it still needs to be done if we are to slow the growth in the proportion of our economy consumed by health care.

  15. Devon Herrick says:

    I am skeptical of the argument that as the non-group market grows, employers will raise salaries and this will bring in more tax revenue.

    Labor economists tend to believe that health benefits are borne by workers’ wages in the form of lower take home pay. Of course, this is the long-run assumption. Anything can happen in the short run. I believe Regina Herzlinger has proposed requiring employers to credit workers with the cost of coverage if they do not stay on their employers plan. Although, I don’t know the exact way she would structure this. I assume this is a method to make long term assumptions take effect faster in the short run.

    • Barry Carol says:

      Translating the value of employer health insurance coverage to the individual employee level is a very tricky and controversial subject. This is because employers price their coverage on a community rated basis. Individual employee contributions toward the cost of their coverage are independent of age or health status but are sometimes related to income.

      If we were to require employers to raise pretax pay while eliminating employer provided health insurance coverage, the idea would presumably be to enable employees to be able to afford to purchase their own coverage in the individual insurance market. To do that, the coverage valuation would have to be age-based. If we were to go back to medical underwriting, there would also need to be heavily subsidized high risk pools so the significant percentage of employees and family members who can’t pass underwriting could still get decent coverage for a premium they could afford. On the positive side, the low wage employee would see the same increase in pretax pay as a highly paid employee other things equal (age, single vs. family or couple coverage, etc.).

      There would also have to be rules around the definition of creditable coverage so a healthy person can’t buy a dirt cheap mini-med limited benefit plan and then expect to be able to buy comprehensive coverage after he gets sick. All plans could be defined in terms of an actuarial value. Upgrade rights should be limited to people who have current coverage at or above some defined minimum actuarial value level like 50% or 60%.

  16. Barry Carol says:

    Employer coverage would have to be an all or nothing proposition. Either they offer it or they don’t and if they do, everyone needs to participate unless they are covered under a spouse or parent’s plan. If employees could opt out, all the healthy people would leave and the employer’s cost to cover the older and sicker people that remain would be untenable.

    • jimbino says:

      Even companies that offer group insurance that covers all employees often hire contractors who receive no benefits (like Uber drivers). If hiring such contractors were somehow prohibited, that company would presumably just contract work out to a company that offered no benefits whatever, which has the added advantage that it such a bare-bones arrangement would attract mainly young, healthy, single, childfree males–exactly the group employerw prefer.

    • jimbino says:

      Even companies that offer group insurance that covers all employees often hire contractors who receive no benefits (like Uber drivers). If hiring such contractors were somehow prohibited, that company would presumably just contract work out to a company that offered no benefits whatever, which has the added advantage that it such a bare-bones arrangement would attract mainly young, healthy, single, childfree males–exactly the group employers prefer.

      • Barry Carol says:

        Jimbino – Contractors aren’t employees. They’re contractors. Either they work for a contracting firm or they’re self-employed freelancers. Part time employees usually don’t get health insurance either unless they work more than 29 hours per the ACA or at some more generous employers, 20 hours or more (Starbuck’s). I should have also noted that new employees at companies that do offer health insurance can turn it down even if they’re not covered by another plan but the catch is that if they want or need it later, they will have to pass underwriting, again pre-ACA at least.

        The downsides of contracting that you didn’t mention include the fact that you are responsible for paying both the employee and employer share of FICA taxes though you can deduct the employer share on your tax return. The number of hours of paid work may be significantly fewer than full time and erratic and unpredictable as well. My wife worked on a contract basis for a number of years both early in her career and at the end. The hourly rate in her field and in this area was about 50% higher than what comparable employees were paid, not 100% more. That seems more typical around here based on conversations with other people who have done it.

        There are a couple of other weird wrinkles related to not needing or opting out of health insurance at employers who offer it. At my former employer, if you declined the insurance because you were covered under a spouse’s plan, you received $80 more per month even though the family coverage cost the employer about $15K per year at the time. When my wife was considered for a new job shortly after her former employer was sold and all the work was outsourced overseas, she told them she didn’t need the health insurance because she was already on Medicare and asked if they would increase the salary offer by the amount of the avoided cost for providing health insurance. They said no. She turned the job down partly for that reason though there were other reasons as well. The point is that logic doesn’t always prevail on this issue.

        • Art Jetter says:

          Barry – If that potential employer said “no” to increasing salary because she was already on Medicare and wouldn’t take employer health insurance, it might have been that the employer didn’t want to break the law.

          It is illegal for an employer to offer any incentive to make Medicare primary payer. Medicare is the secondary payer and group medical insurance is the primary payer if the employer has 20 or more employees.

          If she took the group plan, her Medicare coverage would have changed from primary to secondary. If her employer paid her to keep Medicare primary if it could be secondary is still illegal with groups of 20 or more employees.

          The employer’s fine for violating this can be $5,000 plus any claims equal to the amount Medicare suffered – the difference between primary and the should-have-been secondary payment.

          By the way, if we get rid of employer based health insurance, Medicare will become always primary. This would have a devastating effect the Medicare budget.

          • Barry Carol says:

            Art – Thanks for the information. I didn’t know that. I checked with my wife and it turns out that I got the facts wrong. She was actually two years short of Medicare eligibility when she applied for that job and I was still working so she was covered under my employer’s plan. Once I retired at the end of 2011, I went on Medicare. Are you saying that after I retired, she would have had to go on her employer’s plan if she took the job or could I have picked up COBRA for her if that would be cheaper? She turned 65 about five months after I retired and I bought COBRA coverage for her to cover that gap in time until she aged into Medicare.

            • Art Jetter says:

              She could have taken her employer’s plan, if one was available to her. Since most employers pay part or all of the employee premium, and becuase an employer’s 125 plan could cause her share of the premium to be pre-tax, this could be the low cost option.

              COBRA rules can be found here: https://www.dol.gov/ebsa/faqs/faq-consumer-cobra.HTML. COBRA beneficiaries usually pay all of the premium without any employer contribution. So, this is usually the most expensive of your choices.

              She could be eligible for a plan from http://www.healthcare.gov and there is a possibility, based on her income, her employer plan availability, and subsidy eligibility, this can be somewhere between the most and least expensive option.

              If covered by her employer plan and then enrolls in Medicare, it might be less or more expensive to keep that employer plan than to drop her employer coverage and get a Medicare Supplement plus a Part D Prescription Drug Plan.

              To keep from paying a penalty if she elects to maintain employer coverage after her age 65, she needs to make sure the employer prescription coverage is “creditable”. If not, she needs to purchase a Medicare Part D Plan.

              • Not that it is any of my business, but I am also confused why Mrs. Carol stayed on her husband’s employer’s plan after she got a job (unless his employer paid for most of the spouse’s premium, which very seldom happens these days.)

          • jimbino says:

            All the employer needs to do is hire her as a contractor on a 1099, or on a W-2 through a headhunter firm that has few employees and offers no health benefits, or as a consultant.

        • jimbino says:

          Both the contractor and the captive employee pay BOTH their share and the “employer’s share” of SS and Medicare FICA taxes, according to every economist who has thought about it.

          A single, childfree, young and healthy male employee will effectively pay a part of the “family” and “couples” insurance, and not be able to benefit from FMLA or any childcare or pregnancy leave benefits the employer offers. Indeed, that type of pay discrimination is so prevalent that a single, childfree, sterilized woman is virtually compelled to inform the employer of those facts at her job interview in order to negotiate the pay premium she richly deserves, since our socialist gummint policy effectively forbids the recruiter or interviewer to ask.

          Erratic and unpredictable the job might be, but as a contractor I was able to take 6-mo vacations and from time to time gain greatly from unemployment compensation.

          The contract employee, whether on a W-2 or 1099, will be able to earn at least twice what a captive employee earns and can take some tax deductions not available to the captive. Edward Snowden, for example, reportedly earned some $200/hour as a contractor, more than he would have as a civil service gummint employee doing the same job and more than even the President earns in pay.

  17. bob hertz says:

    I do have to wonder how many employers are covering persons over age 65 on their corporate health plans, and thereby giving Medicare a break as the secondary payer.

    Outside the public sector, I almost never see this. But I have been wrong a lot of times before.

    2. I am constantly puzzled by the economists who say that health insurance comes out of wages.

    Go back to the persons who do oil changes.

    A private firm like Midas pays them $13 an hour and they have to find their own insurance.

    If they work for the state motor pool, they probably get $20 an hour AND health insurance.

    Their eages are NOT reduced at all by their employer paid health insurance.

    Midas Muffler does not have to offer paid health insurance to get workers (although this is changing perhaps)

    What am I missing? Contrary to Jimbino, many contractors get lower wages, zero security, and no benefits, versus full timers.

    • Barry Carol says:

      Bob – Working past 65 is more common than you might think. I personally didn’t retire until age 66 and two months. One former colleague is still on the job at 68; two others worked into their early 70’s and one retired at 67. At the firm I worked for prior to that, there are numerous successful and very wealthy money managers who continue to work well into their 70’s, 80’s and beyond because they love what they do. The head of another firm just died last month at age 102 and worked until that last day! He went to bed that night and never woke up.

      As for public sector workers, their wages are not a function of market forces. They’re a function of union greed and monopoly power helped along by the union political machine that helps elect the people they bargain with. So, in effect, they often sit on both sides of the bargaining table especially at the local level which largely accounts for why state and local taxes are so high in blue states where public sector unions are well entrenched. When there are dozens and sometimes even hundreds of qualified applicants for each opening even when the economy is booming, the marketplace is telling us that those public sector jobs are overpaid especially on a total compensation basis. If they weren’t, there wouldn’t be so many people hungry to get them.

      Within the private sector, I would bet a lot of money that if employer provided health insurance went away, wages would rise commensurately over a two or three year period if not right away. Conversely, I note that in 1986, the corporate income tax rate was reduced from 52% to 35%. You would think that after tax profits would rise handsomely as a result. In fact, over about a two year period, that benefit was competed away in lower prices and more service than would have prevailed otherwise and corporate returns on capital did not increase from where they were before the Tax Reform Act passed.

  18. Michael Ainslie MD says:

    I agree that it would take some explanation, but the Dems are great to KISS things. I think we need to KISS it also. We start with long talking points and the average citizen has turned us off by point 2.

    • Devon Herrick says:

      Yes, Trump’s original health policy proposal was to put the best minds together in a room and not let them out until they’ve come up with a plan that is terrific for everybody. As you know, that’s a tall order. But most people want to hear they can access a service worth $12,000 per year without having to doll out $12,000. Had Trump tried to explain health policy people’s eyes would have glazed over.

  19. Bob Hertz says:

    My caution about the Republican reforms creating instability is informed by Joe Flower in the attached article…..


    Flower is a consultant to health care providers and insurers.

    • Ron Greiner says:

      Bob, Flowers was goofy with what he wrote.

      Sounds like an Obamacare lover to me.

    • Barry Carol says:

      I think I saw this essay a couple of weeks ago on another blog. I’ll make a few points. First, insurers generally have to commit to which exchange markets they will participate in by the middle of the preceding year. Second, if the subsidies were suddenly withdrawn, very few people would buy exchange policies as over 85% of buyers are subsidized now. In the worst case, insurers can cancel policies after two months of non-payment of premiums. Finally, most hospitals muddled along OK before the ACA was passed and could probably do so again if it were suddenly repealed. Most hospital closings we’ve seen in recent years were due to low occupancy rates, not too many uninsured patients who couldn’t pay anything for their care. Low occupancy was due to the long term secular trend away from inpatient care which will continue indefinitely and, by the way, is a good thing.

    • Devon Herrick says:

      This is a problem not just for Republicans. Democrats will also face a backlash. Six years ago I predicted that in a decade or two Americans would become so tired of rising health care spending they’d throw up their hands and accept a single-payer system.

      That said, a single-payer system will not save money. As we’ve seen, politicians are unwilling to stand up to the health care lobbyists. A so-called Medicare for All program would be as bloated as the current system of concentrated insurers and concentrated providers.

  20. Devon Herrick says:

    Hospitals failing is a very real possibility. Yet, the five big hospital systems in my town all have large construction cranes towering above huge hospital expansions. Really effective reform would require a restructuring of the entire health care system. A lot of people would be put out of work (probably those engaged in bureaucracy and paperwork).

    • Barry Carol says:

      Devon — Isn’t your city still growing fairly rapidly? Also, to what extent are those construction projects replacing double rooms with more expensive but safer single rooms? In short, what’s happening to the number of licensed inpatient beds per 1,000 of local metro area population and how does that number compare to what it was 10, 20 and 30 years ago?

      • Ron Greiner says:

        Barry, I talked to 2 mothers yesterday that are having their 30-year-old sons getting out of prison that creates a Qualifying Life Event (QLE) for a Special Enrollment Period (SEP) but because Obamacare is tied to income or EMPLOYMENT they do not qualify for one thin dime of federal tax credits. PLUS, in Tampa we just had a cancer patient lose his tax credits because he can’t work in order to qualify for these Obamacare tax credits so they just turn ’em off, pitiful. His insurance was TERMINATED!!

        We need these double room hospital beds to make the cost cheaper for all these poor souls losing Obamacare because they lose their job when they are too sick to work. It works out great for the Blue Cross CEOs so they can keep raping America with Obamacare and donating to the Democratic Party and Crooked Hillary (CH).

        Vote Trump – Repeal Obamacare for safe personal and portable Individual Medical (IM) that is not tied to employment OR income. Medically underwritten, of course, for the best VALUE.

        Come on Barry – have a heart!

        • Barry Carol says:

          “Repeal Obamacare for safe personal and portable Individual Medical (IM) that is not tied to employment OR income”

          So Ron, when they get sick and can no longer work and lose their income, how do they pay their premium for their IM insurance? And what about the people who can’t pass underwriting? Tough luck. Maybe you should have a heart!

          • Ron Greiner says:

            Barry, losing the huge tax credit for over-priced Obamacare when you lose your job because you are too sick to work, because she has CANCER, makes the premiums sky-rocket exactly like COBRA, which cancer patients can’t afford.

            The solution is age-based tax credits of Donald Trump and the Republican way. You have to agree, right?

            Barry, U have to stop thinking like a Blue Cross CEO.

          • Ron Greiner says:

            Barry, you can’t defend Obamacare terminating tax credits because someone has cancer and she is too sick to work. That kills people Barry. I notice nobody else jumped in to defend this deadly-evil-law with you.

            More bad news for Obamacare, Crooked Hillary and Barry. Blue Cross of TEXAS News-Flash:

            “Investor’s Business Daily-Blue Cross Blue Shield of Texas, facing massive losses for its Obamacare plans, has requested a 58% premium hike!”

            So, in 2016 TEXAS BCBS terminated all PPOs and only offers dangerous Hillary HMOs that pay NOTHING if the consumer used a non-network provider. NOW – TEXAS BCBS wants to jack premiums $58% just one week before the 2016 Presidential Election.

            Vote FREEDOM / Vote TRUMP and the Republican Way for Beefed-Up HSAs!

            (There is a bill in Congress to reduce the non-qualifying HSA withdrawal penalty to the traditional 10% before Obamacare. Because the payroll tax is $15.3% – the government would get less taxes on HSA funds used to purchase beer than if those funds were paid on the employees’ paycheck, which is taxed to the max, by both the feds and the states.)

            Vote TRUMP and make America great again!

  21. Wanda Jones says:

    Devon and colleagues::

    This exchange should be preserved in aspic for the policy-makers who come after you, and the myriad of elected officials, insurance executives, Doctors, healthcare administrators, Employer leaders, individual policy-holders, state insurance execs and regulators who would have to 1) understand and agree on options mentioned here, 2) get Congress to understand and agree on a reform program, 3) protect the “ideal” from the particular provisions pressed by industry lobbyists, and 4) implement and oversee the results. And 5) make incremental adjustments as needed to adapt to future conditions, in a timely fashion. And 6) sunset the laws and regulations that make it hard to adapt the current system. Note the slowness of Congress to amend its own programs to make them more responsive and modern. There is some mythology in the health field that the “Government” is competent, to be relied upon, and does no harm to the healthcare system.

    There was no recognition that the healthcare system is constantly changing, is moving rapidly toward true cures for serious diseases, and the public is improving its own health practices. And no recognition that part of the total healthcare share of GDP is a combination of essential medical care and optional consumer amenities, such as cosmetic procedures.

    There is too much tolerance for the notion of instigating a lot of provider failure in the name of reform. How do you think the public will evaluate a policy regime that would do that?

    Take comfort in the progress that is being made that is making healthcare better and more responsive to the public. One of the least appreciated big changes is the formation of regional and state-wide healthcare systems, as these make it feasible to fit services to populations at the community, regional and state-wide levels, and to innovate in reaching formerly difficult risk groups now well handled in the private medial practice setting. When policy-makers simply see these as a means of gaining enough market share to raise prices, they simply show that they do not have a grasp of the positive roles played by these systems. For one thing, they have the capability to develop primary care centers by the dozens at one time, and have done so.

    I’m serious!!! Keep this topic alive–it is a window into the thinking of many informed people, containing both good information and some raisins of cliche solutions.

    Wanda Jones
    San Francisco

  22. bob hertz says:

    Ron, as to the persons who are are ill and too sick to work:

    If their income drops to zero, then in the 30+ states which expanded Medicaid, they will eventually get free health insurance. The expansion of Medicaid to childless adults with incomes under 138% of policy was one thing that the ACA targeted.

    As to the moves by Texas Blue Cross and other insurers:

    This is not an Obama-based conspiracy. The carriers are losing a lot of money on the ACA exchanges, especially on gold plans with PPO networks. These plans are a magnet for persons who used to be in high risk pools. The real cost for persons in high risk pools used to be $12-$15K per year. Carriers like Blue Cross set their premiums for 2014 and 2015 a lot lower than that.

    So they are raising their rates in that direction now. It is not pretty but seems like pretty straightforward actuarial science to me.

    • Ron Greiner says:

      Bob, who are you trying to fool? Making people who purchase Individual Medical (IM) pay the premiums of high risk pools only helps employer-based insurance companies because now Obamacare has eliminated low-cost personal and portable IM. So, over-priced dangerous employer-based insurance got to live a few more years.

      You Obamacare supporters have to help Hillary better than this propaganda you wrote. You sound exactly like a group health salesman with, “Don’t worry about losing your insurance if you get too sick to work because the MAGIC of Medicaid will save you!”

      By the way, there are none of your PPOs in TEXAS or FLORIDA because with Obamacare everybody is forced onto HMOs like cattle. You need employer-based insurance to get those fancy PPOs.

      You will need better Obamacare propaganda here at the NCPA blog. I’m certified to sell on the Exchange and I know the law. Obamacare’s cataclysmic collapse is coming fast! You think price hikes of 58% is straightforward actuarial science, geez.

      Abracadabra MEDICAID and the magic of employer-based health insurance and Obamacare. The really good news is now you will have Managed Care!

  23. charlie bond says:

    Hello All,

    I believe I should weigh in on this string. To pick up on Wanda’s encouragement to preserve these ideas in aspic, I would say to some of Devon’s ideas, “You bet your aspic” , while I find others a bit half-aspic.

    Someone, however, needs to make a few basic points:

    1. The principal source of our health care crisis is that there is no cost-based pricing in health care. The result is that every segment of the health care industry is charging whaever it can get away with, and costs are spiraling continually upward. Indeed, we are in the midst of a health care bubble–a bubble that dwarfs all other bubbles we have seen in history.

    2. The national policy should be to take ALL steps possible to reduce health care costs, because those costs are bankrupting our country and guaranteeing that our children and their children will have a lower standard of living than we have. Shame on us.

    3.”Consumer-friendly” health care reform does not equate to shifting the risk of paying out-of-control health care prices to individuals and families, who may make unwise decisions when they are healthy, because those decisions could later turn out to be catastrophic for them and for the society who will ultimately have to pay for their over-optimism. The principle of insurance is to spread the risk, not narrow it.

    4. Speaking of which, the current fad of push for Medicare Advantage programs as a solution is equally flawed. These programs are shifting the population risk to providers rather than the insurance companies and health plans who are supposed to be in the underwriting business.Again, the purpose of insurance is to spread the risk, not place it on the backs of folks who have neither the patient-base nor resources to accept and spread the risks they are being asked to assume. As a result of having to accept risk, providers are having to reorganize their industries, invest in data systems and otherwise devote massive amounts of moneyl that should and could be spent on providing care to the Baby Boomers–the largest demographic bulge in history. Now is not the time to devote billions and billions of dollars to the reorganization a $3 trillion industry.To do so would require health care providers to finance the greatest economic reorganization since the Industrial Revolution.

    5. Nor is it time to further encourage the headlong trends toward consolidation. We have seen that health care costs have gone up when one or two health systems dominate a market; we have seen that healthcare costs are 20% higher when patients are treated by doctors employed by a hospital; we have seen pharmaceutical prices continue to rise astronomically as fewer and fewer companies are in the market;and, most disturbingly, we have seen health insurance premiums continue to skyrocket as the health insurance industry has hurtled toward nationwide consolidation. We are rapidly creating health care behomeths whose power and money already warp policy initiatives, legislation and administrative regulations. They s are growing and growing to such an economically dangerous level that when the health care bubble finally bursts the few remaining giants will be “Too Big to Fail”; the federal government will then have no choice but to bail them out–without ever changing our phony health care pricing, without fixing ou perversely misaligned incentives and without addressing the sheer waste that arises from our disorganized and dysfunctional delivery system.

    6. We know what to do to reduce costs:
    (a) Truly coordinate care and offer hefty incentives to end the silo-ization of specialties and facilities, especially in chronic care, post-acute care and end-of-life care. Care coordination can prevent duplicative testing and wasteful treatment,and can bring to bear evidence-based protocols and cost-effective use of less costly providers (most notably home health). At present the patient (particularly chronic and elderly patients) cycle from self-care (which often fails to follow doctors’ orders and fails to take measures to preserve wellness); to primary care (which orders tests and works up the patient); to specialist (who orders tests and works up the patient); then often to the ER (which orders tests and works up the patient); to hospitalist (who orders tests and works up the patient); to nursing home and its medical director (who orders tests and works up the patient}; to home health (who is often directed by the primary care doctor and whose ability to care for the patient is often artificially limited by regulatory or budgetary constraints); then back to the patient. And so the cycle starts again. Coordinating care is not a simple question of having an interoperative electronic medical record. Our country has wasted billions and billions of dollars subsidizing the development of competing electronic records that are not interoperative and which actually reduce provider efficiency. (Contrast France.) The absence of the electronic record, however, is not the problem; it is the over-specialization of each provider and the lack of a single care coordinator. What we need are continuum of care organizations in which providers contract with payors to coordinate and render care (particularly to chronic or high-cost patients) and are incentivized by being paid a significant chunk of the savings they achieve. A portion of the savings should also be paid directly to the patient if the patient cooperates, takes care of him or herself and follows doctors’ orders. (The measly gainshares offered by CMS to ACO’s obviously do not create a sufficient incentive to re-design care in this fashion, as evidenced by the failure and withdrawal of many ACO’s from the market. Nor does the government’s 3-year benchmarking and re-setting of the ACO gainshare allow enough time to amortize the costs of setting up an ACO or continuum-of-care-organization, much less realize a meaningful rate of return on the investment.) Coordinated care can save enormous sums, but those savings must be passed along to providers to incentivize and pay for the necessary reorganization.

    (b) Patients/people should take care of themselves and should be directly rewarded if they do. We have more than enough evidence to show that investing in the well-being of individuals pays off in savings. Thus every patient should be directly incentivized to participate in an wellness program, whether through their employer or through community-organized efforts for those who are not employed. We know that these programs can yield a net saving in health care costs of about 3%. Accordingly, pople should be given meaningful rewards (directly, not in the form of lower premiums) if they take care of themselves and promote their own wellness. The rewards to incentivize these wellness programs can and should be funded directly from the savings they achieve.

    (c) The definition of health care needs to expand to treat the whole patient: We have more than enough evidence to show that health and social conditions are inextricably linked. High-cost patients should be targeted and offered a complete set of social services to improve their overall social condition. This approach has been called “Hotspotting” by Jeff Brenner, MD, and was the subject of a Gawande article in the New Yorker. Brenner’s methods and results have been duplicated elsewhere. This is not a boundless offer of everything for everybody; but a sensible investment of resources for the sickest of the sick to provide the kinds of support that evidence-based studies show will make a difference in lowering costs and improving outcomes. Again, studies show that this approach works economically (as the additional funds required to provide extended forms of care to the highest utilizers can be paid for by the savings in their health care costs.) This approach, therefore, makes sense; it also happens to be compassionate.

    (d) In addition to taking care of ourselves, we need to take care of each other.Studies universally show that patients stay healthier, are more compliant with their doctors’ orders, and have fewer complications and better outcomes if they have a “care buddy”–i.e. some companion who helps them maintain their medical regimen and wellness program and simply keeps them company. We should again use the gain-sharing approach to incentivize neighbors to take care of their neighbors. This is what humankind did throughout history–until hospitals and big insurance companies came on the scene in the mid-20th century. Now we look to big institutions to “save” us, but our real health lies in our daily lives. We can’t build enough nursing homes and train enough caretakers (much less pay for them) to take care of the Baby Boomers, especially with their longer lifespans and the upwelling prevalance of neurodegenerative diseases. So we will have to learn to take care of each other. A portion of the savings resulting from tapping this volunteer pool should be used to incentivizes the volunteers, i.e., the care buddies. BTW: Perhaps most interesting is the fact is that not only does the care buddy system lower costs and improve the health measures of the patient, but the health measures of the care buddy improve significantly thereby creating a boomerang effect to achieve even more savings.

    (e) Pharmaceutical costs could be readily reduced by billions of dollars annually merely be removing the Congressionally imposed barrier preventing the largest purchasers of drugs to use their buying power to negotiate what they pay for them. Medicare and state governments buy more pharmaceuticals than anybody in America, but are prohibited by law from using their purchasing power or group purchasing to lower the costs of drugs they buy. This is an irrational perversion of natural market forces that results in our country having the highest drug prices in the world. We can no longer afford this special protection for the drug industry.

    (f) As we all know, at least 1 in 4 Medicare dollars are spent on end-of-life care. We could dramatically reduce the cost of care for end-of-life patients by tens of billions of dollars annually by reversing the present legal presumption that, in the absence of an advance directive, the patient must receive aggressive medical treatment to prolong life. When a few of us wrote the first “living will” in 1975, 75% of people polled believed in emerging medical miracles and so they wanted heroic measures taken to sustain and prolong life; at that time, 25% did not want artificial or extraordinary measures taken. Now the polling is almost exactly reversed and75% of the people do not want heroic care. Presently patients have to use an advance directive to opt out of heroic care; otherwise they will be treated with every method and modality to sustain and prolong life. While some patients want this, a vast majority don’t. We could preserve and protect the individual’s right to choose, while saving tens of billions of dollars, by simply creating an “opt-in” system (in which the patient merely has to direct that extraordinary measures be taken). In the absence of an affirmative choice, the presumption would be that nature should take its course. This simple change would conform to the majority’s views and would dramatically cut end of life costs (a third of which are spent uselessly anyway); it would assure individual choice, while saving overall end-of-life costs that are a waste of Medicare dollars with the uncovered costs often wiping out the patient’s entire estate and saddling the family with huge medical bills. ;

    (g) We must reform our medical malpractice system. As one of the authors of MICRA (California’s 1975 tort reforms), I continue to be baffled by the failure of our country’s leaders to take the largest and easiest step that would save Americans billions of dollars. MICRA remains a model of tort reform, and we have had 41 years’ experience knowing it works. We should adopt it now. We could go even further, if we dared, to create a system of medical adversity insurance that would pay patients in the event of an iatrogenic adverse outcome. This insurance would be in lieu of malpractice insurance and would simply be a combination of accident, disability health and life insurance payable in the event of a medically adverse outcome. Providers would pay for the patient’s basic coverage and the patient could supplement the policy if he or she wanted a higher level of benefits. Patients who choose to retain their right to sue for malpractice would have to pay substantially more for their care. Such a system would not only reduce direct costs by lowering the insurance cost, but it would reduce the overall cost of care by eliminating the providers’ underlying fear that drives defensive medicine. Defensive medicine is estimated to inflate our health care costs unnecessarily by as much as 30 %.

    In sum, the next president must recognize that health care is the overriding issue of our generation. We must address it. We cannot continue to hurtle onward into the abyss of an aging America with an economically irrational health policy. Obamacare was supposed to increase the availability of health insurance in our country. Instead, deductibles have gone up, the scope of what’s covered has decreased, and the net result is that while some people have access to insurance they didn’t have before, the total amount of health insurance coverage in our country has gone down. And we are paying more for it.

    Nonetheless we are a resilient country that can use its collective wisdom to address big issues. Even issues as big as health care. This little manifesto has set forth 7 ideas that people can understand. As with all good manifestos it has ideas that will challenge the powers that be. If we implement these ideas, however,we could actually cut health care costs and save our country from a certain economic disaster when the health care bubble truly bursts. We owe that to our children and their children. They should not inherit our health bill, but a fiscally sound and prosperous future.

    I look forward to your comments.

    Charlie Bond

    • Devon Herrick says:

      You have many good ideas and make some great observations. Yes, I agree the most accurate way to characterize our health care system is a bubble economy. Effective health reform would be extremely painful, disruptive and cause upheaval for millions of people. That is, of course, no reason to avoid reform since it will only get worse. One place where we’re beginning to see the effects is how hospitals and clinics are dealing with high deductibles. If the average family cannot get ahold of, say, $5,000 to cover their deductible for a serious health concern, that suggests we as a society cannot afford the health care bubble we’re currently in. Of course, the real problem is that too many types of health care encounters cost $5,000. Any surgery does, many much less intensive problems do as well.

      As you suggest we need to attack high spending anywhere we can. As an economist, I believe the pain that comes from starving the health care beast is necessary. I do not believe hospitals will get a handle on their cost structures until most people walking into the hospital cannot pay their share of the bill and hospitals have no other choice. If hospitals are forced to compete for the small items where patients have a choice, maybe they will become a guide for ways to streamline the most costly procedures.

      • Barry Carol says:

        If one were to do a root cause analysis of hospital costs, there are several issues that need to be assessed. The first is the average occupancy rate. When Mount Sinai announced its intention to close its 825 bed hospital in Lower Manhattan, it said the average occupancy rate was recently between 50% and 60%. That’s too low to be sustainable. Lots of hospitals, especially academic medical centers, find themselves in a medical “arms race” to acquire state of the art equipment like surgical robots to ensure that surgeons will be willing to practice in their facility. If there is already more than enough capacity in the region, it doesn’t matter because each hospital feels that it needs the latest equipment to be competitive. Staffing ratios are another factor. If the number of employees per licensed or occupied bed is significantly higher than competing hospitals in the region, it’s likely that its total operating costs will be higher.

        The big profit centers for most hospitals are surgical procedures, cancer treatment and an array of outpatient services like imaging. That’s where the fight for patients is greatest. The long term secular trend is toward less need for inpatient care as more surgical procedures can either be done on an outpatient basis or when they have to be done on an inpatient basis, they can be done less invasively which means recovery times are much shorter than in the past. Moreover, better medical management of certain conditions like heart disease, diabetes, asthma, COPD, etc. are keeping more patients out of the hospital altogether, at least for longer periods of time.

        On the revenue, some hospitals have a much better payer mix than others. Even when providing the same services, if too many patients are uninsured or on Medicaid or even Medicare, revenue will be lower than for hospitals that have a much higher percentage of well-paying commercially insured patients.

        I don’t see how any of these factors will be significantly influenced by whether or not patients can pay their deductible.


  24. bob hertz says:

    Thanks for your thoughtful comments, Charlie.

    I am not wise enough to critique all of them, but let me offer two brief observations:

    a. The lack of care co-ordination does lead to high costs, as patients do go to multiple specialists and then hospitalists and then the ER.

    Mayo Clinic has conquered this. Kaiser Permanente has largely conquered this.

    But neither of these estimable systems seems to have saved any money. They are very expensive to enter.

    b. I do share your fear that future generations may suffer economically from what we spend today.

    But it isn’t just health care, it is long life spans in general.

    Look no further than any university campus….where tenured prof’s want to teach to age 70-90, and young graduates are basically jobless.

    Look at the car companies, steel plants, airlines, and local governments with large numbers of retirees. The resulting legacy costs play a large part in choking off new jobs.

    This problem would exist even if older persons like me were in spotless health. Life spans get longer but the amounts of money in our families does not get appreciably larger.

    • charlie bond says:

      HI Bob,

      Thank you for your reply.

      With the greatest of respect to both Kaiser and Mayo, they are only at the threshold of breaking down the silo-ization of medical care. Post-acute care, especially, is terribly skewed by perverse financial incentives that lead to overtreatent, undertreatment and wrong treatment by various providers. Only be coordinating this care and incentivizing the providers by sharing the savings they generate can we hope to bring down some of the most expensive and most wasteful health care costs.

      Similar gainshares can, and should, be put in place for patients with chronic conditions, i.e., the 5% who spend 90% of our health care dollars.) These patients can often dramatically affect their own outcomes and costs of care by their willingness to follow doctors’ orders and take care of themselves. To help them adopt should share directly in any savings they generate.

      You are correct in citing other examples (like the unfunded pensions of universities) where our society has been blind to the demographic imperatives of the Baby Boomers becoming the Baby Geezers. The first time I wrote that we would be facing a health care crisis when the Boomers reached Social Security age was 1977. I was not a prophet, merely a realist. No matter how many think tanks and panels I was on, very few people were looking at reforming health care delivery.

      The emphasis has all been on health care financing. With the largest lobbies in Washington and a majority of state capitals, Big Health has managed to divert national attention away from the fundamental changes that must be made in medicine and the delivery of care. We have thus achieved massive legislation in Obamacare “reforming” health care financing. That is not where the problem really lies.

      We spend twice what other countries spend on care; so there is enough money to fix the delivery system, but it will require bar-b-quing some sacred cow:
      –like medical education which over-emphasizes specialization;
      — like hospital revenues that profit enormously from over-treatment (especially at the end of life);
      — like physician fees and hospital charges that have no relation to any economic reality;
      — like the special protections of the pharmaceutical industry that cause this country to pay way more than any other country for our drugs;
      — like the bureaucratic idiocies that impede the coordination and collaboration of care;
      — like the wrongheaded payment rules that prevent the most cost-effective care for chronically ill and/or recently discharged patients;
      — like our perpetuation of a “sick care” system rather than a “health care system” whereby we now reactively treat symptoms rather than promote wellness;
      –like our narrow vision of care that fails to allow doctors to “prescribe” food, housing or other social needs that would improve outcomes and lower overall costs for the sickest of the sick;and
      –like our refusal to adopt straightforward, proven malpractice reforms to lower the billions of dollars wasted on the malpractice industry and the hidden costs of defensive medicine, just because our legislators do not have the spine to stick up to a few greedy lawyers, etc.
      The need for these changes is obvious, and they are all backed by studies showing their efficacy.

      The system is sick; the symptoms are clear. So the question is at what point will our society understand that it is OUR health care (not the government’s, not the health plans, not the hospitals’ or doctors’). What will be the tipping point? Will it be more medical bankruptcies? When will patients and physicians recognize that we risk our own wellbeing and the legacy to our children by failing to act.

      I, for one, want a long lifespan. I have too many things I want to do. Those things represent an opportunity for me to create the kind of legacy I want future generations to have, not the shackles of paying for my care.

      As I frequently point out, this is a crisis of abundance–not shortage. We are living in an age of medical miracles that are multiplying at a dizzying pace–which is all for the good. We can take advantage of these miracles–if we don’t squander our resources on hyper-inflated and wasteful health care expenditures.

      While health care is BIG and its challenges daunting, I am an optimist. I continue to hope that America will wake up to the issues and meet the challenges with the same sense of spirit and innovation that has made it great thus far. I believe our hope lies in reforming health care from the bottom up, not the top down. Health care is first and foremost an individual responsibility; it is then an interaction between patient and provider; it is then locally organized in medical community and health care system. So health care is NOT national. To the contrary, health care, is organized community by community. There is no reason, therefore, it cannot be reformed community by community, person by person.

      Whenever I deliver this message in keynote addresses or public talks, the ideas and observations get a standing ovation. We simply have to get the word out, and get a few committed souls to begin the momentum toward the changes that must ultimately be made one by one, community by community. It is not too late, but time is not on our side.

      I look forward to your thoughts.

      Optimistically yours,
      Charlie Bond

  25. bob hertz says:

    Note to Ron Greiner:

    I also sell health insurance. I also talk every day with persons who lose their job and the group insurance that went with the job.

    1. Those who had a lower-paying job will have a low income for 2016, and they can often get generous tax credits to buy an ACA plan. Not perfect, but livable.

    2. Those who had a higher paying job and have some savings will sometimes stay with the employer plan through COBRA.
    As you note, the new ACA plans are sometimes so awful that COBRA looks pretty decent.

    3. Those who had a middle income job are the ones who really get the shaft. If the household income for a 60 year old couple exceeds about $63,000, which is not rich, then this couple has to buy an ACA plan that costs a lot and delivers next to nothing.

    Would an age-based tax credit help them? Yes, but the insurance policies for older persons now cost so much that the credit may not be enough. A $3500 tax credit for a 60 year old does not cover a policy that costs $950 a month for a single person, as in Wisconsin.

    How did we get here? The designers of the ACA had to know that when they mandated guaranteed issue in the individual markets, rates would go up. This only happened about ten straight times in state insurance markets over the past two decades.

    The designers of the ACA might have assumed that subsidies would protect the buyers in the individual market. Which they do, at lower incomes.

    I suspect there was some class bias at work. People in Congress and in the academic world who designed the ACA take their employer health insurance for granted. They have no sympathy for a self-employer well driller in Oklahoma.

  26. Ron Greiner says:

    Bob, you wrote, “The designers of the ACA might have assumed that subsidies would protect the buyers in the individual market. Which they do, at lower incomes.”

    The school district here in Tampa charges teachers $1,168 a month to add two children to the school’s insurance. This automatically disqualifies them from tax credits so low income teachers DON’T get tax credits on the Exchange. They did this to protect employer-based health insurance and they don’t care about the consumer.

    I think it was done to protect employer-based health insurance (Giant Special Interest) and you seem to think it is some accident from uninformed lawmakers.

    Granted, it’s hard defending Obamacare.

  27. bob hertz says:

    Ron, you are referring to the family glitch, which occurs when the middle-income employee gets a decent deal from his employer on health insurance, but the employee’s family gets no help from the employer and (as you say) no help from Obamacare either.

    I personally doubt if the designers of the ACA had the slightest notion that this would occur. Most of the designers had good family insurance from their college or government, and many of them had high-income spouses who had enough money to cover the glitch.

    Again there was a class divide.

    Liberals like Harold Pollack and Tim Jost have been suggesting fixes for this since 2011. No Republican to my knowledge have supported any fixes whatsoever.

    • Ron Greiner says:

      Bob, you wrote, “I personally doubt if the designers of the ACA had the slightest notion that this would occur.”

      See, that’s where you and I are different. I think they passed Obamacare because of the bribes from employer-based health insurance special interest groups and you think it is all one big accident that employer-based health insurance always wins.

      But you can keep spreading the lies about the good intentions of Obamacare. Your propaganda is really hard to swallow. You can keep your doctor but we will only give you HMOs with skinny provider networks. And, the average family will have their premiums go down $2,500 a year unless Blue Cross of TEXAS raises your premiums 58% a year.

      Obamacare is really hard to support but you just keep up the good work Bob. Everybody should let some uninformed employer choose the health insurance on their children.

      Bob, don’t you think parents should choose the health insurance on their children instead of some uninformed employer looking for the cheapest deal?

  28. bob hertz says:

    Charlie, I have worked on claims for some of the 5% who account for 90% of our health costs.

    This is hardly a scientific observation — but in most of the cases I have seen, these people are close to dead when their treatment starts, and the surgeries et al they undergo are not due to their own non compliance.

    The heart surgeries and cancer drugs and HIV drugs are simply our best effort to combat lethal conditions, which were fatal not 35 years ago.

    I once wrote that day to day health care is not very expensive, or at least should not be. It is the prevention of death which is terribly expensive.

    American attitudes toward fighting death are morally just fine, but economically ignorant When it comes to fighting death, we are collectively a bunch of boastful Texans.

  29. Barry Carol says:

    Charlie and Bob — Actually, most insurers will tell you that, in any given year, the sickest 5% of members account for 50% of medical claims, not 90%. The sickest 10% account for 65% of claims and the sickest 1% account for 20% of claims. For the most part, they are NOT the same people from one year to the next.

    Medicare did a study a number of years ago that ranked beneficiaries by both one year claims and cumulative five year claims. That study showed that the sickest 5% of members account for 41% of claims during one year but only 27% of claims over five years because some died along the way and others had one very expensive procedure like heart surgery and then recovered.

  30. bob hertz says:

    Ron, I cannot agree (so far) with your theory that the ACA was a conspiracy to protect employer-paid health insurance.

    1. Between 50 and 70 million Americans are enrolled in self-funded plans sponsored by large employers.
    The insurance companies either supply stop-loss coverage and/or provide administrative services only.
    I do not think that this enormous community could care less about the ACA, other than wanting to be left alone by it.

    2. One could say that ’employer insurance always wins,’ but that is because employer insurance has more money behind it. People naturally prefer having someone else pay for their insurance, given the tax advantages of employer payment.
    The ACA did not threaten the tax advantage of employer insurance at any time. No conspiracy was needed.

    3. I am not a ‘cheerleader’ for the ACA, when all I do is to point out some of the problems it was trying to correct.
    I have many criticisms of the ACA.

    4. The ACA has destroyed the incomes of any health insurance agent who worked in the individual market. I can remember when World Insurance paid 20% first year comp and 8% renewals. And there were renewals, too! My uncle put 5 kids through college while selling individual plans.
    Commissions on small group insurance are shrinking also.

    I think that was intentional from the designers of the ACA, and the insurance companies went along. There is your conspiracy.

  31. Ron Greiner says:

    Bob, you are confused.

    1. Self funded plans are now free to terminate their liabilities, employees too sick to work, and Individual Medical must now pay these expenses. YOU don’t think this helps employer-based health insurance. See why I say you are confused? (They just want to be left alone – lol)

    2. The ACA didn’t give people with Individual insurance a tax deduction because that would of been competition to employer-based health insurance which the ACA protects. See why I say you are confused?

    3. YOU are a cheerleader for the ACA and say that Republicans refuse to fix it. Here again, see why I say you are confused?

    4. YOU are finally correct that the ACA has destroyed the Individual Medical (IM) market and all agent incomes, including mine. This of course helps employer-based health insurance by eliminating IM competition

    AHIP wrote Obamacare to prolong employer-based health insurance and eliminate Individual Medical as competition. Humana’s stock has went from $19 a share in 2009 to $181 a share this year and you think this was not the goal. YOUR belief of the so-called good intentions of Obamacare is possibly you being suckered by the lying propaganda of the Democrats, media and Obama.

    You are always a cheerleader for Obamacare. I admit that you will say it has problems but that is obvious and you have no way to defend this fraud.

  32. bob hertz says:

    1. I may have this wrong, but to prove your point about the unholy alliance of employer insurers and the ACA, I think you would have to prove that employers terminated more sick people after 2009 than they did before.

    I am not sure you can do that, I know I cannot.

    2. You have also asserted that Individual Medical was (and is) a competitor to employer coverage.

    I am not so sure.

    Before the ACA, a number of smaller companies asked me if they should disband their health plans and just help their employees buy individual plans.

    Some did this and were happy. But in quite a few cases, the owner or the owner’s brother was uninsurable in the individual markets of that tiem, so nothing was done.

    The companies involved were a tiny fraction of employers, and many never went ahead anyways.

  33. Barry Carol says:

    I don’t understand why Ron keeps harping on the Blues and other large insurers wanting to protect employer coverage, most of which is self-funded these days. Any insurer will tell you that their potential profit opportunity from selling a full risk health insurance policy is five to six times higher than what it can earn from an ASO member. That assumes it can properly rate the individual or group.

    As for employees losing their coverage after they get sick, somehow, I’ve never seen it in my 40 year career. I’ve seen employees die from cancer, heart disease and AIDS and none were terminated due to illness. They probably went on disability insurance, which was another benefit, many larger employers provide and were able to continue their employer coverage. The most common way, by far, that employees loser their employer provided health insurance coverage is if they get laid off due to an economic downturn or other reverses in that particular company.

    Even if they had individual medical coverage, most people still need the cash flow from their job to cover the premium. I seriously doubt that age-based tax credits would be nearly enough to cover the premium for most people, especially if they need family coverage. We didn’t get tax credits for IM because they cost too much and there were budget constraints. For the same reason, Medicare Part D has a donut hole. It’s all about CBO scoring constraints.

    As for Humana’s stock price increase, all of the managed care stocks were extremely depressed in 2009 due to a combination of the financial crisis which was costing them members as employer customers laid off millions of people, their bond portfolios were taking a huge hit as credit markets seized up and the prospect of a public insurance option as the ACA was being debated threatened the existence of their business model. Regarding Humana in particular, their core business and the source of the vast majority of their revenue and profit is their strong position in the Medicare Advantage market. They’re not that strong in the employer market which is one of the reasons the prospective merger with Aetna makes sense.

    The managed care stocks have done well in the last few years because the increase in medical trend came in somewhat lower than what the companies priced for several years in a row. Also, the economy recovered and jobs came back, interest rates declined dramatically restoring the value of the bond portfolios and the public insurance option never made it into law. The ACA exchange plans were losers for these companies. So, the stocks did very well since 2009 DESPITE the ACA, not because of it.

  34. Ronald Greiner says:

    Bob Hertz, Barry wrote, “As for employees losing their coverage after they get sick, somehow, I’ve never seen it in my 40 year career.”

    Bob, you sell employer-based health insurance and you are licensed so lets help Barry understand the truth. Bob would you answer this ONE question for Barry?

    If an employee, a 28-year-old woman, gets ovarian cancer and can no longer work anymore for one of your employer groups, will her insurance be TERMINATED?

    Barry, pay very close attention to what Bob’s answer is.

  35. Bob Hertz says:

    If the 28 year old woman works for a firm with over 20 employees, she must be offered COBRA. This has been true since 1986. If she accepts and files large claims during her 12-18 months on COBRA, the employer group plan will take a claims hit just as if she was still on the job.

    The take up rates for COBRA are very uneven. Hewitt Associates did a study in 2010 that showed a 7% take up rate in heavy industry, 34% in banking, and 55% in electronics.

    When the recession hit in 20008, the government offered to pay 65% of the COBRA premiums, and this raised the takeup rates quite a bit.

    For those who are not offered COBRA, the ACA may be an improvement. If their income after layoff exceeds 138% of poverty, they will get subsidies that the people on COBRA no longer get. If their income is zero after layoff, they will get Medicaid in the 27 states that expanded Medicaid to childless adults.

    Health insurance is now and always has been a terrible problem for people who laid off, for any reason. But I would have to agree with Barry that the ACA did not make this worse.

    The ACA did charge the cost of sick people to other individual market purchasers. Ron is right about that.
    One could argue that a federal risk pool charges the cost of sick people to all taxpayers.

  36. Ronald Greiner says:

    Bob, remember you have a license and are required by law to give Full and Proper Disclosure and anything short of that is a SERIOUS Ethics Violation.

    So, I will let you try again to answer the question.

    Bob, If an employee, a 28-year-old woman, gets ovarian cancer and can no longer work anymore for one of your employer groups, will her insurance be TERMINATED?

    Bob, the answer to this question is either a 3 letter word or a 2 letter word.

    Again, Barry, pay very close attention to what Bob’s answer is. Bob will do better this time. Pretend Bob that I am asking you as a worker for one of your groups that you are getting paid on. Remember Bob, you are licensed.

  37. Barry Carol says:

    Thanks Bob. I would add that today, employer provided insurance covers 150-155 million lives including family members. I would love to see data on how many people, including family members, lose employer coverage in any given year because they get too sick to work and don’t have disability insurance, which many large private employers and public sector employers provide which would help to cover the COBRA premium. I’ll bet the number is pretty small. Most people who become eligible for COBRA coverage were laid off or retired before age 65.

    In Germany, most people are covered by sickness funds (insurers) which they get through their employer and pay for via a payroll tax. If you lose your job, the unemployment insurance fund pays your premium. If you retire, their pension fund (like our social security) pays your premium. If you’re too poor and can’t work, presumably the government / taxpayers cover your premium and general federal revenue is used to insure all children.

    In Switzerland, everyone has to buy insurance which is basically one size fits all except for some leeway to choose your deductible up to a maximum of $2,500 per person. Everyone over age 25 pays the same community rated premium in a given canton (like our states). Roughly 45% of the population qualifies for a subsidy. Of course, in both countries, effective tax rates are higher than they are in the U.S. Personally,

    I think the Swiss system would be the best fit with our culture though I would prefer a much higher maximum limit for the deductible. If we had a federally funded high risk pool and were paid for by a surcharge on insurance policies in each state to cover the high risk pool members in that state, the total premium cost would likely be significantly higher than the underwritten rate though probably not as high as ACA exchange premiums. The unhealthy and already sick people need to be covered somehow and their insurance premium needs to be paid for somehow. I haven’t yet seen any good or credible proposals for how to accomplish that.

  38. bob hertz says:

    All right, OK, yes, the group insurance will terminate for the person with cancer after she leaves work, unless she is offered COBRA and accepts it.

    She can then go see an ACA navigator or a kind insurance agent for help on what to do next. (the insurance agent has to be kind, because he or she may not be paid for their work)

    She has 60 days from the end of her group insurance to buy a new guaranteed issue qualified plan. The net cost to her is a complex question that depends on her household income and the state where she lives.

  39. Ronald Greiner says:

    Barry, did you see what Bob wrote? It was like pulling teeth but finally Bob said, “All right, OK, yes, the group insurance will terminate for the person with cancer after she leaves work, unless she is offered COBRA.”

    Bob knows that COBRA is short term and is TERMINATED too. I had a client that it took 4 years for her to die with ovarian cancer. She is so lucky that I was her insurance agent instead of Bob so she wouldn’t lose her insurance when she had no hair. Bob is an Obamacare lover because then the people who get sick have some hope when Bob TERMINATES their insurance.

    What is wrong is that Bob didn’t admit that his people lose their insurance when they get too sick to work. Bob has a responsibility to disclose this information and it is a serious ETHICS violation when he refuses.

    So Barry, the fact that you think people don’t lose employer-based health insurance when they become too sick to work just means that you don’t understand that 100% of Bob’s clients lose their insurance when they are too sick to work and Obamacare has turned Bob into a little bit less of a KILLER!

    How do you look at yourself in the mirror Bob? PLUS, you let people like Barry believe your lies. Millions of people have died because of agents like you Bob. It’s not too late for you to become honest and now you should give your future clients Full and Proper Disclosure like the law has always required.

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  41. bob hertz says:

    Ron, people with individual insurance could also lose their coverage when they were too sick to work– namely, by being unable to pay premiums. You and I have both seen people who were too poor for COBRA (or not offered it), and then too poor to pay for whatever individual insurance was offered them.

    I will maintain firmly that ACA subsidies have helped laid-off sick persons, first through guaranteed issue and through either tax credits or the expansion of Medicaid.

    But right away I need to say that this does not make me a total cheerleader for the ACA. I am very open to arguments that there might have been better ways to accomplish what has been cited in the preceding paragraph.

    You have a bias against the ACA, but you seem determined to state that it has done no good whatsoever. That I protest.

    • Ronald Greiner says:

      Bob, you write, “you seem determined to state that it has done no good whatsoever. That I protest.”

      That is not true. I have said that Obamacare makes employer-based health insurance that you sell less deadly.

      I shutter to think of all the people who have been destroyed financially or died because you wanted to make a buck and refused to give them Full and Proper Disclosure which you are required to do.

      You know when you sell a small business owner and he or she gets sick and has to close the business that there is no COBRA. You need Obamacare so that you can fool yourself but you will never fool me.