I ISixty three years ago or so, Henry Kaiser established a hospital and clinic for the employees and their families at his steel making plant in Fontana, California. Had he not done so, they would have had no medical care at all. Unfortunately those who followed mistook Kaiser's expedient measure, necessary in the face of a pressing and immediate requirement, for a final solution. More they figured was better. Helped along by the youthful demographic of a rapidly growing population, their hands off approach seemed to work.
Over the ensuing 35 years employer funded, group medical benefits spread across the economy. Benefits grew from plain and simple hospital and surgical plans with set schedules of maximum payments for listed procedures to comprehensive plans covering "all customary, reasonable, and necessary" medical treatment on a largely unsupervised fee-for-service basis, with annual caps on the insured's out-of-pocket liabilities and lifetime maxima of a million dollars or more.
At the same time individually underwritten medical insurance plans languished. Their need to collect excess premium in the early policy years as a reserve against adverse selection, and to meet escalating claims as the insureds and policies matured meant they could not compete against employer provided group plans which simply charged the going rate each year. I can well recall the futility in the early '60's of trying to sell individual major medical insurance with a $500 deductible, a $25,000 per illness maximum benefit and a $25/month premium to a 25 year old when he could get coverage with a $100 deductible, and a $75,000 lifetime maximum for half that through his employer.
Freewheeling access to medical care fared well with a young population in America's luxuriant post-war economy. Not only did oceans of money permit doctors to idle away their Wednesday afternoons on our Nation's golf courses, they also encouraged the health care industry to develop new and expensive treatments, and the general population to develop new, expensive and often unreasonable expectations. Eventually the population aged. Healthcare costs surged. By 1979 it had become all too evident they were out of control. Something had to be done.
Initially insurers in company with employers who paid the costs organized groups of "preferred providers" (PPOs). These agreed to discount their standard charges in return for the promise of an increase in the number of patients. The scheme permitted insurers to stabilize their rates and offer incentives-nominal co-pays for routine doctor visits and prescription drugs, and increased co-insurance rates-to insureds using listed providers. Before long any medical provider worth his, her or its salt (Provider organizations could and did screen providers for capability and qualification. They discovered that the great majority were well qualified to practice.) signed on to whatever number of preferred provider organizations was necessary to preserve his, her or its patient load. Soon everyone who was anyone subscribed to provider organizations. No one got more patients, and everyone was paid discounted fees. Fortunately for those in the medical sector of our economy, preferred provider plans were easy to subvert. Doctors could simply order more visits and procedures (Often at laboratories they owned and shared profit in, or which gave them healthy "referral fees".) than were called for, even by the need to protect against malpractice litigation. Hospitals could "warehouse" patients before and after treatment to fill beds which would otherwise be empty. Patients willingly went along. Those extra visits, hospital stays, and procedures cost them next to nothing, and after all who were they to question the doctor's recommendations?
It took about four years for insurers and their client employers to recognize that unregulated preferred provider organization plans weren't working. Neither plans which increased benefits for using listed providers, nor those which reduced them for not using them were doing the job, and employers were now also stuck with prescription and doctor visit co-pays. Something had to be done.
It was in the late eighties that from a group of self-proclaimed social engineers meeting in the depths of Jackson Hole in the Grand Tetons of Wyoming, and smoking I know not what came forth the Word. Health Maintenance Organizations (HMO's) would provide the final solution to the Health Care Crisis. Doctors and hospitals were to be rounded up into "Independent Practice Associations" and "Multi-specialist Groups" (aka "clinics"). Patients were to be permitted access to non-emergency care only on referral by their named "Primary Care Providers". Primary care providers were not to be paid on a fee-for-service basis. Instead they were to receive blanket monthly retainers (Often at laboratories they owned and shared profit in, or which gave them healthy "referral fees".) for each patient who enlisted with them. They were encouraged to manage their specialist referrals smartly, and penalized if they didn't. As a further guard against abuse, third party managers were authorized to override a primary care physician's decision. By this process run-away health care costs would be successfully reined in.
HMOs were well accepted for a number of years until their inherent abuses of both the medical profession and patients had time to fester. Employers sensing trouble continued to offer preferred provider plans as an option. Annual open enrollment was the order of the day. Higher paid, and usually older employees chose to remain in control of their medical care. They weren't about to put up with the delay and distrust implied by a requirement for primary care physician referrals. They migrated to preferred provider plans. This aggravated the premium increment any rank-and-file employee would have to meet were he or she to elect transfer to his or her employer's preferred provider plan.
Eventually, HMO's began to collect their fair share of sick participants who could now no longer afford to transfer at open enrollment to their employers' more liberal preferred provider plans. The providers they had treated so rudely before, now that demands for service began to rise, were driven into bankruptcy, consolidation, or fee-for-service private practice. Insurers and employers found themselves no longer in position to divide and conquer. Just in time for the dot-com bust, health care costs resumed their skyward spiral. Steeper than usual this time to make up for past omissions and to reflect a sudden increase in the average age and decrease in the average health of their remaining insureds.
IIWhile all this was happening, our governments were happily making matters worse by doing good. From its inception in the late '30's the cost of employer funded health care has been completely tax exempt, as were the benefits paid by the plans to covered employees and their dependents. Initially any premium contribution required of an employee had to be paid out of his or her after tax income, but for the past several years, that has no longer been necessary. Employees too may now pay their share of costs with pre-tax income. By contrast until just very recently health insurance premiums paid by sole proprietors, partners and individuals were from after tax income until they along with other eligible medical and dental expense exceeded 7.5% of the insured's income for a given year. Now sole proprietors and active partners get a break, but individuals are still stuck with a potential for fully taxable medical insurance premiums in years they and their income are healthy. This inequity served to aggravate the trend away from stable, but more expensive individual and family medical insurance to unstable and initially cheaper employer funded benefits.
It took until 1978 for our legislators to realize how many votes they could buy at no direct cost to themselves by simply mandating added benefits to employer provided medical insurance. On 31st October of that year-an appropriate date-President Carter signed into law an amendment to the Civil Rights Act of 1964 stating in effect that employer sponsored health plans must cover the medical costs of routine pregnancy as if it were an illness. Their reasoning, such as it was, was obvious. To date, only women were known to have become pregnant, and to consider pregnancy a normal course of events, rather than a covered illness amounted to de facto discrimination by sex, and ergo, was illegal. This reasoning flies in the face of general understanding and much prior legislation which recognizes that there is almost always a man involved, and that he is expected to share the resulting financial burden, if not the experience itself. But not to fret. This amendment delivered a terrific freebie to the general public days before an election, and no new taxes were called for as somebody else would have to pay.
Next-and please accept my apologies for not being able to cite book, chapter and verse-legislation was passed mandating employer sponsored HMO's grant annual open enrollment without pre-existing condition exclusions, and that employers also offering preferred provider plans grant annual open transfer opportunities to their covered employees (Time served on the employer's HMO was credited to the PPO's pre-existing condition exclusion period. A new employee with say cancer or coronary artery disease could enroll in the HMO, and transfer to the PPO at the open enrollment period next following the PPO's coverage exclusion period.), and at the same time not charge the employees more for one plan than the other. The evils of equal charges have long since been sunsetted, but the rest of the difficulties foisted on us by this legislation remain. Just last week, I advised a young lady suffering symptoms which concerned me that her best chance for medical insurance was to wait out the few months of her employer's exclusion period, and enroll in the HMO if one was offered.
Over the years between 1st January 1983 and 1st January 1986, Congress transferred a significant portion of its Medicare obligations from the public pocket to that of employers. As matters now stand for employers with twenty or more employees, the employer plan pays benefits first for any covered employee or dependent 65 or older, and Medicare will pay a share of the remaining uncovered costs. Congress thought of everything. Employers were forbidden by this legislation from forcing employees to retire at a specific age, and were prohibited from charging them more for coverage than they charged their younger employees. This was very pleasant news for Congress, and the budget, and Medicare, but it was not at all nice for employers, especially colleges and universities.
By the middle '80's our economy had tightened to the point that employees leaving employment or reducing hours, spouses getting divorced, and children growing up were no longer readily able to find replacement coverage. Something had to be done, and it took the Consolidated Omnibus Budget Reconciliation Act of 7th April 1986 (COBRA) to start the benefit continuation ball rolling. The beneficiaries of this act did have to pay the full costs of their benefits, and with after tax dollars too. Active employees and employers still welcomed generous benefits. For employees they were tantamount to tax-free income. For employers, high corporate tax brackets meant somebody else paid most the cost. For COBRA continuants, out of a job, and for the most part on their uppers, continuation has a prohibitive price, unless that is the insured has a critical medical condition. Healthy insureds either free-load or take underwritten plans of insurance. This natural behavior soon enough became bad news for group insurance costs. Later, when our economy started down hill, it became bad news for everyone.
Meanwhile back in California, the small group market and small employers were taking a bath. Over the years several generations of Association Plans had creamed the market. Associations of one sort or another would arrange with insurers to provide group medical and other benefits for their members. Naturally coverage was subject medical qualification. Because claims take a while to come home to roost, and because the initial insured population was perforce relatively healthy, a new association group plan could underprice everyone else. After a time though its experience became more normal and it had to pass around stiff premium increases. As employers with healthy insureds left to seek shelter elsewhere its book of business became progressively sicker. Once it got bad enough the association closed down, moved to a new address, and set up shop with a new name, a new insurer, and a new low price. This left its remaining sick insureds with basically nowhere to turn. Something had to be done, and it took California's AB-1672 passed into effect in January of '93 to do it.
All employers having between two and fifty employees were deemed "small employers". Each insurer writing group medical benefits in this market was required to lump all these accounts into one book of business, and to charge no one account more than 22% above its lowest book rates. Issue was to be guaranteed to companies in business with a minimum of two eligible employees for at least half of the prior calendar quarter. Well intentioned and politically correct as this piece of legislation was, it eroded the quality of coverage available to small groups and increased its price, while at the same time attacking the ethos of the general population. I'll say this for it though, AB-1672 drove free-wheeling association plans out of the market.
As time passed and the economy worsened, COBRA continuation lost its influence. Insureds exhausted benefits, or had them cut off or precluded because their sponsoring employers went out of business or terminated their plans. The sick and unhealthy who depended on them were being thrown overboard. Something had to be done, and on 21st August, 1996, Congress voted into effect Public Law 104-191, commonly known as The Health Insurance Portability and Accountability Act (HIPAA). Amongst its myriad provisions this act stipulates that any insurer offering individual or family medical insurance plans on an underwritten basis must guarantee coverage under its two most popular plans to any applicant, otherwise uninsurable by it, who had at least 18 months of prior medical coverage, and who had exhausted any available COBRA continuation coverage, and who at the time did not qualify for any other employer sponsored plan, and whose most recent insurance had been either employer sponsored, or a COBRA continuation.
That is where we stand today. Armed with dual choice, AB-1672, COBRA and HIPAA there is ample reason to risk waiting until you develop symptoms of an expensive illness before seeking medical insurance. Albeit this would be at a higher price than you would pay had you insured yourself while you were healthy, but presumably you would be paying premiums for a shorter period. All you need be able to do is get a job with medical insurance benefits and hang onto them for at least 18 months, either whilst employed or as a COBRA continuant. Clearly, something must be done to stem the abuses these privileges foster.
IIIAs background for his proposals, Bodaken offers three hypothetical examples. There's "Sarah who sells advertising for a travel magazine based in San Jose." Her employer subsidizes the cost of health insurance for his employees, but she has always declined it. She can count on the fingers of one hand the number of times since college she's been to the doctor. She prefers to spend her money on snow boarding vacations. Last winter she broke her leg in three places snow boarding at Tahoe. The billed charges for the surgery, hospitalization and physical therapy came to over $50,000. Sarah had to liquidate her modest 401(k) account to pay part of her debt. Her new economic reality-if she still has a job-means she won't be going skiing anytime soon.
That's Bodaken's world. In my world, Sarah would have subscribed to an individual Blue Shield Preferred Savings Plan at considerably less cost than her employer wished her to pay for the company plan. After her accident her billed charges still would have been $50,000, but the "allowed" (i.e. negotiated) charges, which is all she and her insurer would have to cover, would probably have been less than $20,000. And she would have only been responsible for $1,750 plus 30% of the difference. Also in my world Sarah would have used some of her premium savings to pay for professional snow boarding instruction. She would have had a whale of a time at Tahoe and not broken so much as a toenail-snow boarding that is.
It wasn't only money, and a prior history of good health which fostered Sarah's feckless decision, and made her into a "free-loader". It was also the knowledge that she probably could afford to wait to develop symptoms before signing on for insurance. "Get a job with coverage." I tell the Sarah's of this world, "or start a small company with your spouse or domestic partner as the second employee, or simply sign on to your existing employer's plan at open enrollment." Too bad that in Bodaken's world, Sarah had an accident first. (Illness is eight times more likely than accident.)
Joe works a press at a printing company. He has participated in the company's health plan since he joined four years ago. No wonder, his son Danny has moderate asthma and requires continuous medical care. After facing back to back 40% premium increases (Primarily the result of insurer and employer abuses in the heyday of HMO's) amidst a sluggish economy, and unwilling to trim back his plan, Joe's boss pulled the plug on the company's health insurance. This left the firm's 16 employees and their dependents to fend for themselves.
Joe, as Bodaken notes, loses his health insurance because his employer, "is no longer willing" to provide the coverage. Actually Joe's employer no longer has to afford the coverage to hire the Joes of this world, otherwise he, she or it would have kept it in force.
In Bodaken's world, Joe makes too much money to qualify for Medi-Cal and could not afford to buy a family insurance policy which has high rates for people with pre-existing conditions. While Joe is perfectly healthy, according to Bodaken's story, he has struggled to secure treatment for Danny's asthma, which had been held in check with an inhaler and regular pulmonary tests. But without insurance, Joe has not been able to keep his son on the program. Now he routinely takes him to the emergency room when he has an acute attack, and he is being hounded by collection agencies to pay bills he can't afford.
In my world, Joe would subscribe Danny to a guaranteed issue medical insurance plan with Blue Shield at a cost of about $187/month. He would subscribe to a Blue Shield Preferred Savings plan for the remaining healthy members of his clan, keeping the plan or dropping it later depending on his fortune in finding another job.
Anna, according to Bodaken, cleans offices in a downtown high rise. Her employer does not offer health insurance. She's eligible for Medi-Cal, but when she tried to enroll once, she couldn't figure out how to do it. (I wonder why?) She hasn't seen a doctor since her last child was born. She hadn't been feeling well for months, so she finally went to see a physician at a community clinic. She was referred to a gynecologist's office where she was ultimately diagnosed with advanced cervical cancer. Had she been insured, Anna could have had an annual Pap smear that would have identified the cancer long before it became life-threatening.
In my world insured or not Anna would have not gotten a biannual pap smear. In fact, not without good reason, she fears clinics and hospitals. Having insurance would probably have made no difference to Anna.
IVWe have reached an "end game", as Bodaken notes, where the insured population becomes sicker and more demanding, and available technologies, by-and-large become broader in scope, and more expensive. Anna and Joe and Sarah should not be held totally responsible for their plight. It is in a large part the natural outcome of six decades of well intentioned health care schemes and legislation, capped by a final phase of economic decline.
Bodaken's way out of our quandary is based on a mix of mandated employer benefits, Medi-Cal participation for "eligible" Californians, and mandated, guarantee issue individual coverage for "other" uninsured Calif-ornians, where "those who couldn't pay the full cost..." are subsidized by the rest. His solution carries with it the same problems of selection and government involvement which got us into trouble in the first place.
I understand how mandated employer benefits would work, but I'm not sure how much leeway could be allowed. Should it be possible under Bodaken's scheme for employers with healthier, better paid staff to take a less expensive plan with few first dollar benefits, or should it be a one-size-fits-all affair? Employer plans overall would insure the large majority and predominantly healthy segment of the population. If those of the remaining minority who couldn't pay the full cost for guaranteed issue individual coverage were be subsidized by the rest of this book of insureds, who then will qualify for Medi-Cal? Since this plan apparently lets the vast majority consisting of employed individuals and their dependents off the hook, how fair is it, really?
The potential lack of fairness in Bodaken's proposal may be addressed by requiring the entire population to subsidize those who couldn't pay the freight on their own. But that still leaves the ticklish issue of how much subsidy is to be provided. In my travels I have had the opportunity to observe both deserving and undeserving poor.
VFar from fair for me it is to freely criticize Bruce Bodaken's proposal without being willing to offer one of my own. The Goldeen Plan is what I would like to see established. It avoids the dilemma we now face of bankrupting the economy in a futile and unsustainable attempt to deliver every available treatment to every living citizen regardless of the cost or the patient's chances for survival, or establish a Kafkaesque, hypocritical, government run process to ration and delay benefits similar to the one Anna encountered in her attempts to get Medi-Cal coverage. My plan consists of three parts: 1) government funding limited to entry level care, 2) individual or family insurance, and 3) community charity. How we get from where we are to what I propose I leave to the Bodakens of this world.
Any person at any time while in California for any reason, be he or she citizen, visitor, or legal or illegal resident would be entitled to free entry level care at a State run clinic. Each clinic would serve either a substantial population, say 100,000 in built up areas, or a reasonable area in rural areas. Gerrymandering would be frowned upon, and each clinic would be preferentially located among the most impoverished in the community it serves. Care could be delivered on a walk-in or appointment basis. Covered treatments would include only those which could be performed in one visit to a doctor's office.
Residents with any wherewithal, which includes most of us, would be given ample opportunity to purchase individual or family insurance contracts. Once the Goldeen Plan is fully functioning, issue for these contracts would be on a guaranteed basis at birth, and during the two month windows preceding an individual's 20th, 25th, and 30th birthdays. Any individual or family could change or purchase an insurance policy at any other time subject to providing evidence of insurability satisfactory to the issuer. All contracts would accrue non-refundable reserves in their early years. These would be used to cushion the expected increase in claims in later ones, and to cover losses which would otherwise be the result of adverse selection.
A wide spread of contracts would be possible. To help applicants with their choices, the State could establish a number of discrete classes, as it does with life insurance, into which each contract would fall. There could be contracts with basically level annual premiums, and those with premiums stepped upwards in five year brackets. There could be inexpensive low level care only contracts with low annual deductibles, and low lifetime maximum benefits for those who did not fancy or could not afford fancy care. There could be other low cost contracts with high deductibles and a range of higher maximum lifetime benefits for those willing to "self-insure" day-to-day costs. There could be contracts with benefits terminating at age 65. There even could be HMOs. Instead of Medicare, there could be plans with benefits tailing off after age 65, or terminating at later ages, or running for the insured's lifetime.
Buyers could tailor coverage to fit their pocketbooks, and satisfy as best they could, their appetites for treatment. Healthy habits, and a healthy practice of questioning doctor recommendations would be encouraged, especially among the lower earning segment. Those at the lower end of the income scale and those not interested in receiving big buck treatments would no longer be forced to subsidize, as they now do through benefit mandates and employee contributions, the fancier appetites and greater needs for care of their older, wealthier compatriots. An individual who found fortune in life would have a reasonable chance to switch from skinnier to fatter contracts should he or she wish.
For tax purposes, premiums would be lumped with other qualified medical and dental expense. The deductibility threshold would be reduced from 7.5% to 3% of adjusted gross income. Any such premium paid by an employer would be considered as ordinary income to the insured individual. The State's minimum wage would be adjusted so that anyone working a 40 hour week could reasonably be expected to afford an inexpensive low level care plan.
Charity, as it has always been, would be the last resort for the deserving poor. (Well off individuals who had chosen to go uninsured would accordingly not be granted funds for treatment.) Each public clinic would have a fund as an adjunct. Any person or business, or even the State could make tax deductible contributions when it could afford them. The board of the fund would consist of members appointed by the clinic, and members appointed by the various local elected governing councils in the area served by the clinic. In providing benefits the fund would balance its need for continued solvency, against the value of a given treatment to both the individual recipient and to the community it serves. Any other charitable organization could also set up a tax exempt fund for medical treatments. To avoid the temptation to launder medical costs, the value of any benefits received by an individual would be subject to tax as any other income.
Here's what would result with Bodaken's three hypothetical individuals. Although with the Goldeen Plan Sarah could buy coverage for accident only to meet her snow boarding protection needs, she would probably be able to read the writing on the wall and purchase a reasonable plan of individual insurance while she could still qualify and while the premiums were basically lower. Joe would probably have taken out one of the lower cost low level care contracts, which would have been more than adequate along with free clinic care to cover the costs of Danny's asthma treatment. Anna, pending an adjustment in her minimum wage, would qualify for walk in care. Knowing that if something bad turned up, treatment was not out of the question, Anna would have probably gone to her neighborhood clinic for an earlier pap smear and doctor's office treatment of her problem. On the other hand, there would no million dollar multiple coronary artery bypass for John, a convicted, imprisoned murderer (strangely not one of Bodaken's examples).
With the Goldeen Plan the now persistent cognitive dissonances between the payors and recipients of care would be resolved. Employers-business, education, government-would be relieved of onerous, non-productive, administrative burdens imposed by both COBRA and HIPAA. Governments and employers would no longer be stuck with back-breaking fiscal liabilities. Regulation would still be required to keep matters from getting out of hand, but there would be little temptation for politicians to mandate vote buying benefits, because the self-same voters would be expected to foot the bill.
Total fairness and total freedom do not go hand-in-hand. Balance is a critical issue. We seek a happy medium. The Goldeen Plan, though admittedly not absolutely fair, would avoid the worst evils of an underfunded, one-size-fits-all approach to life that inevitably accompanies government largesse. In an as yet relatively uncorrupt, quasi democratic society, it would bolster the moral fiber of individuals and the community.