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Annual Legislative sessions following the original passing of the affordable care act(ACA) changes have yielded limited or no success. Healthcare exchange programs are overpriced, under utilized, and poorly explained. The Healthcare Reform Bill passed in 2010 was supposed to lower cost, increase options, and allow people who liked their health coverage to keep it. This was according to the press and politicians. My primary role in the benefits business is to provide my clients with counsel on dealing with the risk associated with their benefit programs and help them navigate a complicated marketplace.

We still have not completed one renewal cycle under the new rules, and costs are still going up, options are being reduced, and health plans are being canceled outright or effectively canceled by cost increases.

I will continue to help my clients understand the convoluted journey to maintain their benefit programs. But it is time to provide some commentary on what is going on and what needs to happen.

The Solution By Jim Norland

One thousand nine hundred ninety-two pages of legislation, are you serious? Once again, our leaders have taken a sufficiently complicated issue and somehow complicated it even more with a proposed remedy. The best part is that the proposed remedy still doesn’t accomplish the originally stated goals.

The result is a legislative solution that isn’t a solution at all, but simply a reshuffling of the issues. Essentially, Congress has run out of gas, walked a distance to a gas station, only to return to their vehicle with only a candy bar, so they won’t go hungry waiting for help to arrive. The gas that they require is waiting for them at the station.

The solutions to the issues we face in health care are not simple and are actually a series of solutions to several different issues. There is, however, no need or utility to 1,992 pages that don’t even hit the mark.

In the following pages, I will outline my solutions for dealing with the issues that face health care in the U.S. The solutions are based on over 22 years of experience dealing with medical benefit programs and financing risks associated with those programs.

Goals: Before I can outline the cure, I need to first define the illness.

Universal Coverage: No individual on U.S. soil would ever enter a medical facility or other care providers without having a financial resource to help cover the expense of their visit. This is very different than Universal Access to Care, which our current system already provides. I am not going to enter the debate on what coverage or care individuals in our country illegally are entitled to.

The reality is that it would be far more costly to exclude illegal aliens than it would be to include them. This is the area in which the current government proposal misses the mark by the greatest margin.

  • Repeatable, Consistent Outcomes: Every geographic region of the country must have similar access to care
  • Predictable and Acceptable Cost: The cost of providing health care services to the population needs to be maintained at a growth level consistent with the rate of consumer inflation
  • General Health of the Population: Every individual on American soil needs to be encouraged to attain and maintain their optimal health level
  • Portable Coverage: The elimination of “job lock.”
  • Encourage Innovation: The medical care industry must continue to benefit from the financial rewards of innovation and improved care
  • Have the solution fit the need: We have to recognize that different people, regions of the country, and communities have different issues to address. There is no “one size fits all” solution
  • The language of Healthcare Reform: We need to adjust the language of healthcare reform to reflect what is really happening. Most of what we are debating on a national, state, and local level is not healthcare reform but healthcare insurance/payment reform
  • Everybody must participate in the solution: Surveys indicate that most Americans are happy with what they have for healthcare coverage now. That is great news, but it is also part of the problem. The incentive to fix what is broken is very low because most people who will do the majority of the fixing are happy with what they have. If your plate is already full, returning to the buffet line lacks appeal

Step 1 Single Set of Rules

The National Association of Insurance Commissioners must get together and develop one set of acceptable rules that apply to all states. Fifty different sets of rules benefit only the very few individuals that are charged with enforcing them. The ability to sell products in more than one state is not the issue; it is the multiple set of rules that a company has to comply with in order to do so.

Filing a product that has the same requirements in all states would not be a big undertaking. Filing products with 50 different sets of rules is a huge challenge and only rewards the very large companies. States would not be permitted to create different rules for companies not based in their state.

Step 2 Encourage Innovation

Encourage innovation by having a single set of rules and reasonable barriers to entry. Creative ideas seldom come from the boardrooms of very large corporations. The vast majority of innovation derives from individuals or small groups of individuals that have an opportunity to create a solution.

Today, the healthcare market does not provide such opportunities because it is too expensive to get started. The family farm is disappearing not because mega-farms are more efficient but because starting a farm operation from scratch is virtually impossible.

That is also the case in healthcare. Innovation needs to be rewarded, not discouraged. The federal and state governments must allow companies and individuals to participate in the “risk” of providing healthcare without going through the challenge of becoming an insurance company or an HMO.

Self-Funded Multiple Employer Trusts (METs), Self-Funded Multiple Employer Welfare Arrangements (MEWAs), and Self-Funded Associations need to be encouraged with proper oversight not outlawed. Self-Funded METs, MEWAs, and Associations have been banned in many states because of the loss of revenue, significantly less premium tax, not because they were historically mismanaged.

Step 3 Address the Care/Cost Discrepancy

In healthcare, as in many other business areas, a very small percentage of the population spends a substantial percentage of the money. Depending on the source of data you use, the ratio ranges from 5% of the people who spend 95% of the money to 10% of the people who spend 90% of the money.

Medicare eligibility based on age might have been a good idea when Medicare first started, but it is no longer a reasonable way to base eligibility. In some cases, people become eligible for Medicare because of a disability or a specific condition. Again, a good start but no longer a good solution.

Medicare eligibility should be based on Lifetime Dollars Spent. Every individual would be granted Medicare eligibility once their Lifetime Medical Dollars Spent reached $750,000. This amount would be indexed every year by the percentage change in GDP.

Once individuals became eligible for Medicare, they could not be “indexed off” by the annual increases. The coverage provided by Medicare for individuals that exceed $750,000 as indexed would be bid to the commercial reinsurance market by each state.

Every individual on U.S. soil would be given access to a card and an associated Medicare ID number that tracks expenses. No facility would be permitted to provide care to an individual without that number.

Create a national database that tracks numbers and total dollars spent. If an individual presents themselves for treatment without a number, a number could be located on the database or assigned if they do not yet have one. The Medicare tax would increase by .05% to fund the creation of the database.

Step 4 Pricing Consistency

If consumers are ever going to be involved in the consumption decision on healthcare, the information needs to be available and straightforward. Medical care is not like purchasing other services, so comparing to an oil change or a tune-up is not reasonable or productive.

Most consumers will never be able to process the detail required to understand a medical procedure at a high level. Therefore, it is necessary to make things as simple as possible. All providers would be required to have two posted price sheets. Sheet one would be for public reimbursements like Medicare, and sheet two would be for all other reimbursements.

Providers could offer timely payment discounts and volume rebates, but the pricing would have to fall into one of the two categories. This would do three essential things:

  • It would make the information available to consumers
  • It would do away with the multiple payment arrangements many providers are used to dealing with
  • Furthermore, it would remove a relatively large expense layer from total medical expenditures

The difference in pricing between category 1 and category 2 would be limited to 35%. Medicare already has a schedule; all we need to do is make it available and require service providers to publish and stand by their pricing.

Step 5 The Uninsured

This number hovers between 30 million and 50 million Americans and is entirely unacceptable. To deal with this issue, simply requiring people to have coverage or penalizing those that don’t still will not provide coverage to all. There would still be numerous people that would not comply.

The solution is to provide care and coverage at the point of service. Suppose an individual enters a care/treatment/medical facility and does not have coverage, they would be immediately placed on their county of residence health plan.

Their home county would assign them to a patient advocate who would do a needs and health assessment. The assessment would determine the individual’s needs and ability to pay. A subsidy/scholarship would be applied to the individual, and the individual would be provided a needed care outline.

If the subsidy required to maintain coverage is less than 25% of the cost of coverage, then complying with the care outline would be optional. If the subsidy required to maintain coverage is greater than 25% of the cost of coverage, then complying with the care outline would be mandatory. This obviously limits choices in health care for subsidized individuals, but the goal is to create a better system, which would create a healthier system.

This is not a big budget increase item because the vast majority of the uninsured become the county’s problem when they seek care anyway. This would put them into a plan that offers far greater efficiency. The patient advocate position initially requires funding assistance, but the far healthier now covered population would more than offset the cost over time.

Non-compliant individuals would be required to seek care at county facilities only and receive little or no comfort assistance.

Step 6 Tort Reform

The legal system argues that they are not enough of a cost item to worry about, but quantifying the true cost would take a crystal ball. The major point here is that EVERYBODY needs to participate in the solution, including the legal system. Medical practitioners need to be permitted to be human beings especially when they are attempting complicated, experimental, and challenging procedures and treatments.

Being medically wronged is a terrible thing, but the system cannot support a system that provides a reward so great that being medically wronged dramatically changes the lifestyle of the wronged individual and or their family. Reasonable reward limits need to be placed on medically related lawsuits.

A formula that produced a present value of expected lifetime earnings times two, would be a good place to start. The “you can’t place value on human life” argument is not an argument at all in the medical business because the medical profession places values every day. If you are told that you need a $75,000 procedure to save your life, then your life’s value on that day is $75,000.

Step 7 Addressing Efficiency in Payment Options

Rural areas in most states have a dominant claims payer that is also the administrator for that state’s Medicare and Medicaid programs. In Iowa, Wellmark administers Medicare and Medicaid and also administers more than 70% of the private paying customers. That accounts for more than 90% of a typical medical provider’s cash flow in rural areas.

Continuing to treat, then bill, then collect from a third-party payer, and then balance bill the patient is hugely inefficient, especially when the same payer is processing the third-party piece for 90% of the patients. Wellmark could simply establish an annual budget for every rural provider, divide it by 12 and pay that amount every month to the provider. Quarterly, Wellmark would provide an accounting of actual services rendered and adjust the next month’s payment to “balance” the provider’s account.
In non-rural areas and states without a dominant payer, the two-price system outlined in Step 4 would add efficiency. This step also helps the provider because it levels their cash flow.

Step 8 Stop Rewarding Failure

In the medical business, a failed outcome receives the same payment as a successful outcome; sometimes, a higher payment comes from a failed outcome because additional care is needed to remedy the failure. Rather than continue to reward failure, and because Step 6 does away with much of the defensive medicine argument, cap payments on failed medical attempts at 50% of the cost of successful procedures.

Steps 1 through 6 remove the need for medical providers to make allowances for non-paying customers. Providers would be permitted to require patients to pay 10% of the difference between a successful procedure and an unsuccessful procedure. This step would reduce the number of unreasonable procedures recommended by medical professionals and reduce the number demanded by consumers.

Step 9 Addressing Job Lock

Much of this concern would go away because the uninsured would no longer be uninsured. However, placing the uninsured on the county plan portion of Step 5 is not intended to use that program. COBRA has been a good and successful program for a long time. The problem is that their employer largely subsidizes an employee working, and when they are no longer employed, paying the “full freight” of their healthcare cost can be unmanageable.

The same patient advocate outlined in Step 5 would be made available to individuals losing their coverage for any reason to remedy this situation. The patient advocate would do a needs analysis and determine a subsidy level for the individual to help them pay COBRA premiums.

Step 10

No program would be allowed to contain a pre-existing condition exclusion. Eventually, the continuity of coverage created by Steps 1 through 8 would make this a moot point, but it would need to be addressed initially.

Step 11

Paying for it all is the challenge that trips up the entire debate. The efficiencies and creative solutions that are developed as a result of the above steps would fund a percentage of what is outlined but not all of it. A 1% national sales tax, a 3% tax on all “fast food,” and an additional 1% tax on all tobacco and liquor products would fund all of the initiatives above.

Norland Inc
Norland Inc

Things I Left Out

Hazardous activity coverage: Individuals who elect to participate in hazardous activities that would be excluded from their coverage would need to purchase a supplemental policy to have coverage for the activity.

Uninsurable risk pools that now exist in many states would be rolled onto the county plans and have the same $ 750,000-lifetime benefit expenditure maximum.

Oversight of Self Funded METs, MEWAs and Association plans would be handled at the state level.

Population differences need to be addressed at some point. America has always been a country that frowns on defining differences in groups of people, but it needs to occur in healthcare.

African Americans have different health issues than Native Americans, so plans need to be allowed to have different requirements based on real need and not be considered discriminatory.

Tax treatment of all money dedicated to medical benefits needs to be an above-the-line deduction for all businesses and individuals. Limits on funding to Health Savings Accounts should be based on an income test rather than the size of the deductible to encourage savings for future expenses.

Physicians and other medical professionals willing to serve in rural and inner-city markets should receive a Federal tax exemption on the first $25,000 that they earn.
Prescription drugs should be allowed to apply for U.S. Patten protection only once.
Individuals that serve eight or more years in the military should receive benefits for life.

The devil is in the details, but this is a far simpler approach to the problem than is being considered on any state or national level. Please contact me if you would like greater detail on why my approach would work and cost very little. We cannot compare the United States to other countries and their solutions because there is no other population in the world as diverse as the United States. We have also always been a country that does not rely on our government; our government relies on us. Thanks for reading.

Healthcare Reform Chapter Two

The constitutionality of what is called Obamacare is being debated in the Supreme Court. It is interesting because they are arguing about a mandate component that is virtually non-enforceable. States that have mandates for automobile coverage only have a marginally better rate of uninsured drivers than states that don't.

Politicians almost always assume compliance, but it never translates to reality. In previous writings, I have stated that the only way to get 100% compliance or universal coverage is to create a system that forces / allows enrollment at the time and place of service.

One of the many hot topics in healthcare reform is consumerism. It is thought by many that adding a financial component to the purchase decision when making healthcare purchases will make us all better consumers.

Logically that makes sense, but in practice, the argument is simply a cost shift that has very little downstream effect on overall expense. There are two major reasons for the lack of impact. The first is that increases in out-of-pocket expenses do exactly what they are supposed to do, reducing the use of medical services. The problem is that they reduce necessary and unnecessary services at exactly the same rate. That means that the necessary expense you defer often leads to a greater expense in the future.

The second is that the kinds of expenses that are being deferred are not typically expensive. The decision to take a generic medication or skip a semi-needed trip to the doctor's office has little impact. Consumers are not negotiating prices or services; they are doing them or not doing them.

The final problem with consumerism is that expensive patients and expensive services still make up the lion’s share of total healthcare expenditures, and consumerism actually increases that differential. Once consumers hit a certain expense threshold, it doesn't matter if the expense is $7,000 or $70,000 because the average consumer doesn't have either amount. They are unlikely to dispute a number they cannot fathom.

One component of healthcare reform that has driven up expense is the mandate that health plans have unlimited lifetime maximums. Initially, this added expense was a small component of total cost because high dollar claims are typically born by reinsurers that take risks beyond that of the carrier with the name on the insurance card.

Reinsurance carriers did not drastically increase their charge for taking the high dollar risk, but that is starting to change as uncapped services have shown little ability to restrain themselves. The simple fact that the carriers taking and pricing the high dollar risk piece of the healthcare puzzle are not "retail" carriers or names helps them avoid the scrutiny placed on retail insurance carriers.

We are at a crossroads on healthcare that definitely needs a new direction. The fork in the road that takes most of the public down a busy, crowded street filled with numerous known potholes with detour signs everywhere is exactly where the government will lead us. The problem is that they keep returning to the same group with the shovels.

The giant insurance carriers that have no better solution. Their goals remain the same, and they are profit and market share. The new purchasing pools and insurance exchanges are simply further ways to line their pockets. Who do you think will be doing the administration on the majority of those things? It will not be creative small companies, but the same elephants have been crowding out creative ideas since the beginning.

The road less traveled is an opportunity to create a real solution. All the stakeholders need to participate. Edicts on insurance carriers while leaving providers and attorneys alone will go nowhere. Profit is not a bad thing because it encourages innovation with the proper incentives. Technology needs to add efficiencies and reduce costs, not the other way around. Drug companies need to be encouraged to offer reasonably priced alternatives earlier in the process. A significantly reduced tax burden for the patent's released ahead of schedule would be a good start.

Thanks for reading.

Norland Inc