Uncategorized

It’s 2018; What is Fair and Good Health Insurance Coverage?

True or False: Health insurance premiums used to be affordable and 100% coverage for hospitalization was common. If your immediate reaction was to respond “True” you are correct. Go back 35 years and the vast majority of employers offered health insurance plans with no payroll deductions, plus 100% hospitalization coverage. In the 1980’s this was commonplace for workers, as were bell bottoms, hair covering the ears for men (think Sonny Bono) and big hair for women (not Cher then, but Farrah Fawcett for sure).

To further promote the point that I am referring to the 1980’s as a “time long ago”, my 24 year old daughter recently dressed up to attend a 1980’s retro-party. Ouch for me as I was her age back then!

This reference about historical standards for health insurance coverage offers a baseline to review what is good and fair coverage today. Health insurance is much more expensive due to medical advances and our population living longer. That tells only part of the story though, as government mandates for what must be covered have expanded drastically.

With the ACA (Affordable Care Act), the Federal Government has decided what is good enough coverage. Surprisingly it allows annual out of pocket maximum exposure of $7,350 per person ($6,650 with an HSA qualified plan) before insurance must pay in full at 100%. From my perspective, these maximum exposure amounts are too high for many of us. Add on top that the government allows employers to legally charge almost 10% of pay for single coverage, plus more when insuring dependents, and its no wonder there is ongoing discourse about a single payer government plan solution.

What is fair today from our perspective are plans with a $4,000 to $5,000 maximum out of pocket exposure each year. Many employers offer this greater level of protection than the government allows. In addition, more an more employers are offering pre-tax plan alternatives. I am referring to FSAs (Flexible Spending Accounts), HRA (Health Reimbursement Arrangement) and HSAs (Health Savings Accounts).

Since there are rules which differentiate each one of these tax favored programs because “one size does not fit all”, we recommend that employers offer the following:

  1. One HDHP plan with the option to select HSAs or a combination of an HRA and FSAs.
  2. An HDHP as noted above and a second, higher cost plan that includes first dollar copays for covered services
  3. Offer a third plan option that is an HMO

Charging payroll contributions to cover the entire cost of the premium for more expensive plans is also becoming a standard, as it establishes a baseline expense for the employer which is non-discriminatory, versus charging the same percentage of premium for lower and higher cost plans.

Will we ever get back to a time of 100% hospitalization coverage? Not like the 1980’s, but for the people who have invested in HSAs and built up savings over time, they achieve 100% coverage, at least from a cash flow perspective. As an example, if my out of pocket exposure is $6,650 and I have $7,000 saved in my HSA, there are enough funds to pay all of my out of pocket expenses if hospitalized. And only 11% of the population is hospitalized each year.

Building an HSA balance takes accepting risk, plus a type of savings discipline that is a challenge in current times, due in part to the opportunities we have to spend money on comforts like eating out, going to concerts and movies, plus purchasing the latest mobile device.

My last blog recommends increasing payroll taxes to make premiums more affordable. If you review it you may accept the reasoning as it follows the same concept that employers in the 1930s and 1940s used when offering insurance coverage to workers in order to make the cost of hospitalization affordable.

The only thing that is not “retro” about the 1980s is the music. How about that Rock n Roll!

Standard
Uncategorized

The 3% Solution – Making Health Insurance More Affordable

Initiatives to fix the United States health care system will continue as our lawmakers hold on to disparate philosophies. One side of the aisle has offered proposals with “one size fits all” as the best solution. Minimal out of pocket exposure to obtain care and a future of waiting in line to receive needed services, unless life threatening, is certain to occur, similar to the government health care systems in Canada and Great Britain.

The other camp has promoted coverage customization based upon one’s anticipated need for services, along with requiring states to manage capped funds from the government to limit federal exposure to rising costs to help impoverished Americans.

Both approaches are problematic. Our culture will pay for instant results when it comes to health care, and quickly litigate if delayed access caused by rationing causes harm. Reducing premium costs by excluding health care services and capping amounts provided to states, foretells adverse selection and coverage gaps, as expensive services are excluded from insurance protection. Concerns will always exist about mismanagement of federal funds provided to states required to balance their budgets. Again, more suffering than under the Affordable Care Act as it currently exists.

When it comes to expensive, chronic health care, our country’s hospital and specialty physician infrastructure is the best in the world. It is also the most expensive. Borrowing from the passage of Medicare back in the 1960’s, a viable compromise is to adjust payroll taxes on workers and employers to pay for chronic, high cost care. Totaling 3%, split 1.5% employer and 1.5% employee, a projected $250 Billion is generated annually, stripping from private health care plans the cost of multiple chronic care needs.

The precedent for this type of consideration was part of original Medicare as treatment for Kidney Dialysis and ALS, a nervous system disorder known as Lou Gehrig’s disease, are to this day covered by Medicare for under age 65 Americans with these chronic illnesses. It was deemed then that employer plans could not afford the cost of paying for such chronic care needs. That truth exists in the 21st century for many more conditions, thanks to medical advancements over the past 50 years.

When considering costly care that includes organ transplantation, premature infant care, complex cancer diagnoses and treatments for other dreaded diseases, pooling these conditions through an increase to the current Medicare tax of 2.9% will drive down private health care premiums, making those costs more affordable for all American workers, while preserving a customized system for regular care needs such as normal child delivery, scheduled surgeries, emergency care, tests and prescriptions.

Since the federal government has a good track record negotiating Medicare discounts, this approach may be just the right compromise to balance cost and value, righting a ship that continues to take on more water. Its tax impact is also progressive, with the highly compensated paying more, something that President George W. Bush supported in 2003 when he signed the Medicare Prescription Drug, Improvement and Modernization Act, increasing the cost of Medicare Part B for higher income earning retirees.

If this concept ever becomes reality, expect the Affordable Care Act .9% additional Medicare tax for earnings over $200,000 to be revisited.

Standard
Uncategorized

Follow up on The 3% Solution

How should an influx of new tax revenue to pay for chronically expensive health care services be distributed and what kind of premium reductions can be anticipated?

A little known fact is that there are no massive Medicare processing facilities staffed by government workers. Medicare claims are processed by private insurers who contract with the government. Blue Cross and Blue Shield, United Healthcare, CIGNA, AETNA and Humana are all in the Medicare Advantage business, while some of these companies process traditional Medicare Part A & B claims payments to providers. And it should be no surprise that many of these companies are also in the Medicaid business.

So the infrastructure is in place to administer payments once an additional 3% in payroll taxes is collected to pay for expensive, chronic medical care needs. Since payment of claims is tied to each individual patient, that should continue with tertiary care hospitals and insurers submitting applications for acceptance of patients to government plans developed to pay for high cost chronic care needs. Why would these parties be motivated to do so? Because private insurance plans for under age 65 Americans will implement coverage limitations for specified illnesses.

One of the reasons the ACA passed was that high risk pools existed in only 35 states. And many of those programs had pre-existing condition limitations. States had lost the ability to manage health care expenses for the very ill, who ended up with no employer insurance after exhausting $500,000 or $1 million maximum benefits. In time, they filed for bankruptcy after all personal resources were expended. Those who survived that trauma were then accepted under Medicaid. A very sad reality for the physically unfortunate, and it could have happened to any of us.

Although applauded by many, a problem caused by the ACA changing benefit levels to “Unlimited Lifetime Maximum Coverage” in private plans is that many hospitals have dramatically increased their charges for high cost chronic care. These cost increases, along with many patients who were in high risk pools transitioning to private insurance plans, has added to what we all know are unaffordable insurance rate increases.

Spread this high cost care risk across working Americans, and private insurance plan premiums should decline 25% to 35%, as multiple factors come into play relieving pressure in the proper payment for chronic, high cost care needs.

Standard
Affordable Care Act, Benefits, Flexible Spending Accounts (FSA's), Health Care, Health Insurance, Uncategorized

Scoring the Impact & Compromise for Passage

With a vote expected this week on the Republican proposal to end many Obamacare provisions, detractors have enjoyed great press about the “ills” of change. The most persuasive to leave well enough alone came surprisingly from the CBO (Congressional Budget Office) when they scored the bill. Headlines about 24 million Americans losing coverage over the next decade sounds a dire alarm.

For those who read the details though, assumptions by this non partisan group of futurists starts with 14 million dropping current coverage in 2018 because the legal mandate to be insured ends. Since there are 10 million now insured through the MarketPlace, the assumptions include Americans also dropping their Medicaid coverage. Since Medicaid requires no premium payment responsibility, the forecast for 2018 is puzzling.

While worrisome if the CBO projections come true, their track record forecasting health care change has missed the mark in the recent past as follows:

A. The CBO forecast that 26 million Americans would have health insurance through the MarketPlace by now, and the number is 10 million.
B. The CBO forecast Medicare Part D, which provides prescription coverage for senior citizens, to be 40% higher than the actual cost.

These misses show how very hard it is using assumptions to project value, cost, acceptance and rejection for insurance decisions and usage.

As mentioned in my last posting, the greatest challenge to assuage enough politicians to agree to support the bill referred to a AHCA, comes down to Medicaid funding. Another hurdle is that insurance will become more costly for seniors. Since available tax credits will be tied to age, this is likely not as major a cause for concern as postulated. And, returning to the pre-Obamacare five tier rating system will make health insurance lower in cost for younger Americans who incur fewer medical expenses.

Besides eliminating Obamacare taxes and bureaucratic obligations imposed on American businesses, the AHCA is trying to accomplish a radical new funding approach for Medicaid. Per capita block grants will place more cost pressure on states than the current percentage of expense sharing approach. Since the politicians are elected by the citizens in their state, it is not a surprise that some believe it is critical to get it “right” now. Reality is that adequate funding will continue to be a moving target, and will vary state to state.

With adequate compromise this week, expect the House of Representatives to approve the AHCA bill. It is then up to the Senate.

Standard
Affordable Care Act, Benefits, Flexible Spending Accounts (FSA's), Health Care, Health Insurance, Uncategorized

Scoring the Impact & Adequate Compromise for Passage

With a vote expected this week on the Republican proposal to end many Obamacare provisions, detractors have enjoyed great press about the “ills” of change. The most persuasive to leave well enough alone came surprisingly from the CBO (Congressional Budget Office) when they scored the bill. Headlines about 24 million Americans losing coverage over the next decade sounds a dire alarm.

For those who read the details though, assumptions by this non partisan group of futurists starts with 14 million dropping current coverage in 2018 because the legal mandate to be insured ends. Since there are 10 million now insured through the MarketPlace, the assumptions include Americans also dropping their Medicaid coverage. Since Medicaid requires no premium payment responsibility, the forecast for 2018 is puzzling.

While worrisome if the CBO projections come true, their track record forecasting health care change has missed the mark in the recent past as follows:

A. The CBO forecast that 26 million Americans would have health insurance through the MarketPlace by now, and the number is 10 million.
B. The CBO forecast Medicare Part D, which provides prescription coverage for senior citizens, to be 40% higher than the actual cost.

These misses show how very hard it is using assumptions to project value, cost, acceptance and rejection for insurance decisions and usage.

As mentioned in my last posting, the greatest challenge to assuage enough politicians to agree to support the bill referred to a AHCA, comes down to Medicaid funding. Another hurdle is that insurance will become more costly for seniors. Since available tax credits will be tied to age, this is likely not as major a cause for concern as postulated. And, returning to the pre-Obamacare five tier rating system will make health insurance lower in cost for younger Americans who incur fewer medical expenses.

Besides eliminating Obamacare taxes and bureaucratic obligations imposed on American businesses, the AHCA is trying to accomplish a radical new funding approach for Medicaid. Per capita block grants will place more cost pressure on states than the current percentage of expense sharing approach. Since the politicians are elected by the citizens in their state, it is not a surprise that some believe it is critical to get it “right” now. Reality is that adequate funding will continue to be a moving target, and will vary state to state.

With adequate compromise this week, expect the House of Representatives to approve the AHCA bill. It is then up to the Senate.

Standard
Uncategorized

Just Another Replacement Proposal or the “Real Deal”

Our new president promised to move quickly to repeal and replace the Affordable Care Act, known as Obamacare. Proposed legislation just released is quite interesting in how reversionary it is, comparing to the time before 2010.

It is only a proposal and that needs to be understood in that negotiations to achieve enough votes for passage will necessitates changes and compromise, plus “scoring” by the CBO (Congressional Budget Office). Americans with coverage through their employer will appreciate the following:

1. Eliminating the FSA (Flexible Spending Account) tax deductible deferral maximum of $2,600, plus allowing Over-The-Counter medications to again be paid using FSA dollars
2. Increasing the HSA (Health Savings Account) tax deductible deferral maximum to $6,550 single and $13,100 with dependents, which equals the current maximum annual out of pocket exposure, plus allowing Over-The-Counter medications to again be paid using HSA dollars
3. Allows new HSA account owners to deduct health care expenses incurred in the 60 day period prior to opening their HSA
4. Allows both spouses, if age 55 or more to make catch up contributions to the same HSA; these amounts are currently capped at $1,000 for the account owner
5. Maintains coverage for pre-existing conditions. In order to address adverse selection costs, if not insured for more than two months then up to a 30% penalty may be added to normal premium rates when applying for coverage
6. Maintains coverage eligibility for children on their parents plan until age 26
7. Returns the adjusted gross income threshold to 7.5% for tax deductible health care expenses which Obamacare increased to 10%

Changes that businesses and higher income earners will appreciate include:

A. Elimination of the penalty for employers with 50 or more employees that do not offer health insurance to fulltime workers, which means no more excessively bureaucratic Section 6055/6056 reporting
B. A return of to tax deductibility the subsidies employers who provide retiree prescription benefits receive from the government; known as RDS (Retiree Drug Subsidy)
C. Elimination of the 2.3% Medical Device Tax which is scheduled to start in 2018
D. Elimination of the 10% Tanning Parlor Tax, which is an easy one to forget
E. Delay of the 40% Cadillac Tax through 2024; in the author’s opinion excess premium amounts should simply be subject to income taxation
F. Elimination of the .9% Medicare tax increase for higher income earners
G. Elimination of the 3.8% net investment tax for individuals, estates and trusts

All of these changes increase incentives to save for future health care needs as the cost of coverage on top of Medicare becomes increasingly expensive. Changes thankfully also simplify the tax system.

Smart move that the current subsidy arrangement for lower income earners will remain in place until 2020, and yet what may be most controversial is changing how to help pay for insurance protection. The bill replaces subsidies for premiums with advanceable tax credits. On its face upfront tax credits sound reasonable, and the amounts available scale between $2,000 to $14,000 for people with incomes up to $75,000 or $150,000. Amounts are available to individuals and families who have no access to coverage through an employer, COBRA, or a government plan. Hard nose conservatives will consider this just another entitlement. Concerns will also be raised about people falling through the cracks because they earn too much to qualify for Medicaid but receive too low a tax credit. The size of the credit is sensitive to age and income.

The issue of paying for Medicaid is also filled with challenges as just 31 of the 50 states approved the expansion of Medicaid benefits under Obamacare, and federal government funding changes to a system that supports the states are proposed to move to a per person, or per capita basis.

I often am asked if I supported the passage of Obamacare. I actually did because of the risk faced in America by people who became too ill to work and then had to bankrupt themselves to qualify for Medicaid. That is just not right and yet growing in understanding about the complexity of the current law makes me a supporter for change. It will be exciting to follow the process, and nothing changes to the current system until a new law is passes both House and Senate, then signed by the president. Eerily familiar to the Democrats controlling the Congressional majority seven years ago with a Democratic in the White House. The PPACA, known as ACA and Obamacare was signed into law on March 23, 2010. Any bets on a signature on new legislation in April 2017?

Standard
Uncategorized

What Does “Access” to Health Care Mean?

At the crux of repealing and replacing Obamacare is reducing health insurance premiums without cutting benefits. Supporters of the current law wonder how this can ever be accomplished while continuing to pay health care costs for Americans who are chronically in need of very expensive care.

What Obamacare put in place was rolling the cost of pre-existing condition care needs into premiums paid for by those not enrolled in government insurance – Medicaid, Medicare, CHIP (Children’s Health Insurance Plans) and the Military . Before the Affordable Care Act, in 35 states there existed “High Risk Pools” for the seriously ill. Government funded, less than perfect programs existed with waiting lists and pre-existing condition limitations. Besides these problems, Americans living in 15 states had no “High Risk Pool” option.

Anticipate with Repeal and Replace that “Access” to health care for the seriously ill will have their care paid by newly minted High Risk Pools in all 50 states. Carving out these costs from private insurance plans accomplishes to things:

1. It extricates hundreds of millions of dollars of costs from private insurer risk pools, allowing underwriters to price and develop lower premium, comprehensive plans

2. It provides the government with another lever to negotiate favorable pricing deals with hospital networks providing expensive, tertiary care services. Government leverage about price is how Medicare and Medicaid work.

Expensive care is provided to approximately 500,000 Americans annually and needs to be paid for. It is reasonable to cover the expense by increasing the Medicare tax all workers pay from earnings, matched by their employer. How much of an increase above the current 2.9% tax merits study. With current Medicare taxes generating $300 billion and annual American health care spending of $3 trillion, a tax increase of 1.5% generates an additional $155 billion; an average of $310,000 per high cost patient. The monthly tax increase per worker translates to about $30, matched by $30 from their employer. Stated another way, the new “Health Care” tax becomes 4.4%, with 2.2% paid by workers and 2.2% by employers.

Back in the 1960s when Medicare was started, the most expensive care resulted from senior citizens convalescing in hospital rooms. That has all changed with technology and life saving services original Medicare planners could not contemplate. Older Americans are no longer the only patients with high cost care episodes. And serious pre-existing conditions expense is a predictable liability, impacting just 1.5% of our country’s privately insured population annually.

Spreading this cost to all workers through payroll is an alternative to the Obamacare approach, which has failed to convince enough healthy individuals to voluntarily buy and maintain health insurance. It is also a slam dunk if regular income tax rates can be reduced as part of fundamental tax reform.

Standard