Comments about Health Reform Debate

Personal Responsibility and Choice are Essential Components for Health Reform

The comments below were written by Peter Sorensen in a letter to the editor:

I’ve closely followed the health care reform debate. The problems pertaining to better controlling costs (affordability) are very complicated.

A properly designed consumer-driven health plan is one way to substantially lower health benefit costs. Some believe that these CDHPs are purely a "cost shift" to participant/patient since the deductible is higher than a "traditional" plan.

There is no need to shift costs to participants. Health carriers overcharge for "first dollar" or low deductible health coverage. They justify this "overcharge" with proof that the cost of claims warrant the premium charged.

Here is a typical and actual case:

A small group is currently paying approximately $41,000 per year for a health plan with a deductible and coinsurance providing an "out of pocket" risk exposure of $3,250 per year to the participant. The group is able to purchase a $3,000 deductible with 100 percent coverage after the deductible for about $24,000.
This is a 42 percent reduction in premium, a $17,000 per year savings.

This savings is enough to fund a health reimbursement arrangement (HRA) or a health savings account (HSA) for 100 percent of the deductible for each participant. This will reduce the participant's out-of-pocket risk exposure to zero from $3,250.

Not all cases will save this much money, but we have been able in all cases to reduce risk and improve coverage through plan design and purchasing the proper amount of insurance.

The problem of "first dollar coverage" is a tendency to treat the coverage as "use it or lose it." Health providers complain that often these CDHP “high deductibles” are not funded and participants do not have money available to pay for office visits. The government could help solve this by requiring these plans be funded.

A potential problem with the HSA (health savings account) is an employer may help fund it, but the participant can take the money out as reimbursement for other allowable expenses not covered by the health plan or any other reason.

A solution is providing an HRA linked to the health plan so only claims applied to the deductible are reimbursed by the plan. One way to positively affect behavior is to encourage wise use of an HRA (health reimbursement arrangement) by allowing a carryover of unused dollars so participants treat this as their own money. Another tool to help pay the deductible is a flexible spending account (FSA).

The question many may be asking is: Why can a health plan carrier charge so much less for a plan that actually provides less out-of-pocket risk exposure to the participant?

The answers are many. Here are a few:

1. Cost versus price. Ron Schiemann in his commentary (R-E, Oct. 7) pointed out the difference between cost (claims) and price (premiums).
   The price of premiums charged for coverage is the result of the cost of claims incurred. More specifically, there has been a disconnection between the price of care to the consumer and the cost charged to the health carrier. This disconnect started years ago when health plans took over negotiating so consumers were unaware of the true cost of care. When the price to the consumer for doctor visit is $10 or $20 and the cost to the plan is $100 or $200, the result is higher utilization.
   The only medical procedures that have come down in price are those not covered by insurance (i.e., many cosmetic procedures). This is because the consumer will ask and know the true cost of the procedure.
2. Insuring versus budgeting: Insurance companies are very good at spreading risk against possible but unaffordable and unforeseeable events. They are very poor at administering expense reimbursements for claims that should be budgeted and not insured.
   As the case above illustrates, individuals and groups typically buy too much insurance. It has been shown not to be economical to buy insurance for the first few thousand dollars of claims each year.
   It was common to have a deductible of $100 or more 50 years ago. Inflation is why it is necessary for deductibles to be increased. Individuals and groups that cannot budget for this amount may need assistance from government or other sources. Higher deductibles do not mean reduced benefits for those covered. It just means we do not use insurance carriers to provide the coverage under the deductible. HRAs, HSAs, or FSAs are tools that can provide this coverage.
3. Self- or partial-self-funding versus fully insured health plans: Fully insured plans are subject to state benefit mandates. Self- or partially self-funded plans are exempt from these mandates. Minnesota has many mandates for procedures and benefits not normally covered by self-funded plans. This is a disadvantage to individuals and small groups that must pay for coverage they may not want.
   This is where reform could help "level the field" to allow for small groups and individuals to select plans exempt from the mandates. Regardless, higher deductibles lower pricing for these mandates.

There have been proposals for small business to pool their participants in association groups to better negotiate rates. This may seem to make sense, but the problem with association group plans is that the healthier groups will not stay in the association plan. We already have big pools for small groups in Minnesota with several carriers.

We have been told that health care costs make up 16 percent or more of our economy and are much more than other developed countries with a single-payer system. We are not any healthier and in many cases the statistics show our outcomes such as infant mortality are not as good.

Some of the reasons health care is a larger percentage of gross domestic product the U.S. than other countries may be:

• Those of us insured pay for the research and development for treatments and pharmaceuticals used and enjoyed by the whole world.
• When people are sick and are refused treatment or made to wait for treatment in other countries, often they come here.
• Our population may be aging more quickly than other countries.
• Our population may be choosing more unhealthy habits such as poor diet, exercising too little, excessive alcohol, tobacco and drug use.
• Those without insurance go to the emergency room and end up with more expensive care.
• First-dollar or low-deductible plans give a perception of "use it or lose it" and has proven to encourage over utilization.
• Pharmaceutical companies have been very successful marketing directly to consumers in addition to physicians about their latest and newest drugs. These new drugs may not be any more effective than older-less expensive treatments. Most people insured still have copays for prescription drugs and do not know the actual costs of their options. Another example disconnecting price from cost.
• Fraud, it appears we have massive fraudulent claims abuse in the system. Especially in Medicare and probably Medicaid as well.

We are fortunate to have high quality care in our community with Fairview Red Wing scoring high as one of the top hospitals in our state for quality and satisfaction. This is a great accomplishment since Minnesota is considered one of the best states in the country for health care treatment and outcomes.
I know work is under way to attempt to change the way providers are compensated to encourage quality over quantity. There is a need to use knowledge, tools and encouragement to improve wellness for participants.

There is controversy about whether it is considered discriminatory to penalize unhealthy lifestyles through higher costs. A different and more positive strategy may be to reward those that choose healthier lifestyles. In Minnesota many health plans do just that by paying part or all of health club memberships.

The need for health reform is obvious. There are changes that can be made to make coverage more affordable and accessible. We need to attack fraud and claim abuse. Electronic medical records will improve efficiencies. There are already "smart health debit cards" to reduce HRA, HSA, and FSA participant complaints about paperwork.

If our government passes a health reform program that becomes purely a new entitlement without requiring or encouraging personal responsibility and choice, I believe as much as reform is needed today, many will end up yearning for the "good old days."

Peter Sorensen CLU, ChFC, RHU, LUTCF
Sorensen Flexible Benefits, Ltd.