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Can’t Help Ourselves

Richard Quinn

I BECAME INVOLVED with employer health benefits in 1962. Back then, my job was to screen medical claims before sending them to the claims’ administrator for processing.

In the decades that followed, I designed, negotiated and managed health plans for a company with 15,000 employees and 4,000 retirees. My job was twofold: to make sure the health benefits were working correctly and to manage costs. The first goal was relatively easy. The second was nearly impossible. It appears that, as of 2022, not much has changed.

Over the past 60 years, I’ve seen many strategies that promised cost savings. In the end, none has actually worked.

Providing full coverage, along with paid time-off for second opinions and preadmission testing, were early cost-saving efforts. The idea behind these efforts: Much health care and surgery are unnecessary. But the policies were ineffective, even though unnecessary care is still a real issue.

Self-funding was supposedly going to save money for large employers—but very little, as it turns out. Nearly 60% of large employers are now self-insured. The often-repeated assertion that insurance company profits are a big driver of health care costs is simply not accurate. When you consider all the Americans covered by any number of government plans, plus all of the employees in self-insured plans, you find only a minority of Americans are actually covered by health insurance.

Requiring employees to pay more toward the cost of their coverage was thought to give them skin in the game, so to speak. To ease the resulting burden, the employees’ share of the premiums is typically tax-free—which most employees don’t even realize.

Starting in the early 1980s, health maintenance organizations promised cost savings by keeping people healthy. I was on the board of directors of four different plans. The problem was that the physicians thought they could continue with business as usual. It couldn’t work that way if you wanted savings. Attempting to manage a patient’s care is met with significant resistance from both patient and physician. Any effort to do that is still a major source of discontent.

Giving employees a choice among different types of coverage was supposed to help. It didn’t. It did, however, cause adverse selection because the highest users of health care services typically selected the most generous plans.

Many employers spend a small fortune on health and wellness programs under the assumption they’ll generate savings. They don’t. Companies sometimes charge more for those who don’t participate or make it appear they’re providing extra premium credits if workers take a health quiz or submit to simple screenings. It’s all smoke and mirrors.

Those supposed extra credits from wellness programs are already built into the premiums so employers can’t lose. More important, employees typically don’t stay with an employer long enough for there to be any cost savings realized. Also, the programs often leave out the employee’s family, which accounts for a majority of plan costs.

Somewhere along the line, we accepted the idea that competition was the key—that the more companies selling health insurance in an area, the better. That’s exactly the wrong strategy. Health plans rely on networks of providers. To win provider contracts, the insurance company promises to deliver many patients. The more insurers in an area, the less leverage a plan has, and so its ability to negotiate lower fees is weakened.

In recent years, the idea of the patient as a health-care consumer caught hold. Many people accept that patients will shop to save money on health care, and thus seek out the lowest cost option. Sure, shopping for a generic over a brand-name drug works. But for any serious and expensive health care, patients aren’t looking for the Walmart alternative.

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To support the consumer concept, employers have started offering high-deductible health plans. This is nothing more than cost-shifting. Of course, these do save the plan sponsor money—any increase in a deductible or copay saves them money. But it shifts costs and creates financial hardships for the insured, especially lower-income families.

To help with all this cost-shifting, we leverage tax laws that also naively embrace health care consumerism—things like health savings accounts and flexible spending accounts. But they help only those individuals who can afford to fund these accounts.

Why can’t we deal with health care in America? Okay, I know this may be a generalization, but it’s based on a great deal of experience. My contention: Americans don’t see spending on health care as their individual responsibility. We want the best, the most, the latest technology, and we want it all immediately—without anybody interfering with the relationship between us and our doctor. In other words, we want a blank check—drawn on somebody else’s bank account.

I recently saw a meme on Twitter promoting Medicare for All, claiming it would cover medical, dental, vision, hearing and long-term care with no deductibles or copays and would do so with “affordable” premiums. Have you ever seen affordable defined? A close look at the chart indicated some “government funding,” but no indication of where precisely that funding would come from.

Americans simply have no concept of the link between their demands for health care and the high cost of paying for it. Instead, we blame insurance companies and their CEOs’ pay packages. I saw a study showing the impact on the premiums charged by a major insurer if compensation for all its executives was eliminated. It lowered individual premiums by 83 cents a month.

Clearly, we need something different in America. But first, we need a new mindset, realistic expectations and an understanding that all systems must use various methods to manage costs. Finally, we need honesty in explaining the cost of what we want and how it will be paid for. We have a long way to go.

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.

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BenefitJack
BenefitJack
16 days ago

Dick, thanks for the post. Sorry about the length of this post.

When asked, a super majority of Americans will confirm that: “I want the best health care YOUR money will buy.” Like you, I have spent the majority of my adult, professional life managing employee benefits at Fortune 500 employers. You do a great job confirming that many of the strategies many promoted as cost management solutions haven’t succeeded, including:
·     Second opinions,
·     Preadmission testing,
·     Self-funding,
·     Employee contributions,
·     HMOs,
·     Choice of coverage,
·     Health and wellness initiatives,
·     Consumerism.

My thoughts on each follow below:
 
How to curtail unnecessary care? Ensure that the plan design excludes such services or otherwise doesn’t pay for it. When people must spend their own money, they’ll be more judicious about non-emergency medical decisions.

Self-funding’s savings don’t come primarily from avoiding insurance company profits, but from avoiding the risk surcharge and state mandated benefits.

Many studies confirm overutilization is much more likely for those items marketed as “free” or “non-contributory”. See how utilization spikes once the deductible or out of pocket expense maximum has been satisfied.

Prior to 1978 tax code changes, only employer contributions were tax deductible to the employer and tax free to the employee. Why should employee contributions be treated as second-class? And, yes, the employer must adopt a plan – for comparison, Social Security for the employed and self-employed.

Keep in mind that while the incidence of employer contributions towards the cost of health coverage lands on the employer, the impact is always on employee wages.

HMOs gave us copays. Over time, American’s who used to pay 30% of the cost of medical services out of pocket, now pay less than 10% of those costs.

The value of choice is understated. Yes, you must load for anti-selection. Otherwise, you are asking workers in perfect health with no utilization to subsidize those whose utilization includes unnecessary services, abuse, etc.

For wellness, keep in mind that plans once only paid for treatment of illness or injury. As a plan sponsor, I preferred spending more on preventive and diagnostic services that might result in early detection and/or keep workers and their family members “well” (and, of course, able to work) than spending more to lower point of purchase cost sharing for those who are sick. 

Networks don’t work. Never did. Never will. One Wisconsin network used to collude with insurers and TPAs so that almost all providers in a geographic location were in-network – to be attractive to participants. The so-called network discounts were like a river that is a mile wide and an inch deep.  The solution was, is, continues to be reference based pricing – which we first introduced for non-network dental providers in the 1990’s.

Consumerism designs work so long as the individual is a consumer. They don’t work any better than other coverage once the individual becomes a patient. People will shop if their money is at risk. And, regardless of the size of the deductible, nothing works unless the participant is encouraged to save for out of pocket expenses which will come, sooner or later. Americans are woefully unprepared.

You conclude by confirming that “… we need honesty in explaining the cost of what we want and how it will be paid for….” You need to adjust that to add “who should pay”.

In response to posted comments, you suggest that every American should have equal access to care. They have always had equal access. I think you are suggesting that they should all have equal effective access. How do you propose allocating that burden? Why medical services, versus say housing, a Tesla, food, higher education, cell phones, etc.? If you argue that medical services are different, that they are a basic human right, do you believe everyone should pay the same dollar amount? And, if it is a basic, human right, what about the billions of humans around the world? 

Sabine Nooteboom
Sabine Nooteboom
17 days ago

Just a couple of comments: (1) one major advantage of a single payer system like the UK‘s NHS or large HMOs like Kaiser Permanente is simplification and cost savings in billing. If you enjoy podcasts check out Michael Lewis on this topic – https://podcasts.apple.com/us/podcast/against-the-rules-with-michael-lewis/id1455379351?i=1000555532510 – it‘s shocking, but also very funny. (2) shopping for a second opinion is very difficult if you don‘t want to damage the relationship you have with your doctor – inevitably some trust is lost. It‘s a bit easier if you‘re seeking a second option for your child (“I completely trust your competence and expertise, doctor, but I want to be able to tell my child that I did everything I possibly could to ensure all medical options were considered.”)

mytimetotravel
mytimetotravel
15 days ago

Thanks for the link! If that doesn’t convince people that fee-for-service is a terrible system, nothing will.

R Quinn
R Quinn
16 days ago

There are tradeoffs in all systems. I disagree with you regarding second opinions. No trust is lost. In fact, most doctors welcome a second opinion. The hesitation is on the patient for no good reason.

‘My wife got a second opinion on a serious eye injury. The second opinion doctor called the original surgeon. When we visited him, I knew he knew we had the second opinion so the first thing I said was. “Just wanted you to know, the second opinion said you did an amazing job”

UofODuck
UofODuck
17 days ago

Richard: You have stated more eloquently what I have thought for a long time: There is no magic solution in health care that will simultaneously lower costs and provide the same high level of health care that Americans have generally come to expect.

Health care in America costs X dollars, which is principally driven by Y, health care services demanded, and Z, the cost of those services (the largest component of which is labor).

Reducing expected service is not popular, especially when faced with a sudden emergency or life threatening medical event.

Reducing costs is equally difficult as it generally can only be accomplished by either reducing service, or asking key service providers (i.e., doctors, nurses, pharmaceutical companies, health insurance companies, etc.) to earn less.

In the end, I don’t think it much matters how we package our health care in America: fee for service, HMO, single insurer, Medicare for all, etc. Unless we are willing to either accept less healthcare, or providers are willing to earn less, the discussion will continue to mainly focus on how we pay for our healthcare: insurance premiums or taxpayer support.

One way or another, healthcare is going to cost X dollars, which we all pay for as both consumers and taxpayers.

R Quinn
R Quinn
16 days ago
Reply to  UofODuck

You have a good point, but the other issue is how we assure every American has access to care on a more or less equal basis.

Cammer Michael
Cammer Michael
17 days ago

Medical providers, both explicitly commercial and so called nonprofit, are required to turn a profit. Nonprofit hospitals may claim otherwise, but these usually are specious claims.
Insurance companies are in the game to generate profits.
Yet this article squarely blames patients for high costs.

A few years ago I got sick while traveling abroad. I was in the ICU for a few days and had lifesaving treatment including a battery of tests. At the hospital where I work in the U.S., the cost would have been between $10k to $50k per day. But the total bill was €4500.

Our system is broken.

R Quinn
R Quinn
16 days ago
Reply to  Cammer Michael

Yes it does. The use and intensity of use of health care are what drive health care costs. Profits, especially for insurance companies are a small part of the equation. Medical providers in any system must make a profit – in the form of salaries in many cases. I doubt the comparable bill in the US was based on profit, but rather costs down the line including the shifting of costs caused by Medicare and Medicaid payments.

Our system is indeed broken, but the point is are patients willing to accept the changes necessary to fix it. Making the entire system non-profit is not the simple answer IMO.

Jamie
Jamie
17 days ago
Reply to  Cammer Michael

I am going to make a guess from a position of complete ignorance… The capital cost of your visit (the building, the expensive equipment needed for the tests,etc.) plus the cost of the people taking care of you (salaries and benefits for doctors, nurses, lab techs, etc) plus the allocated costs (administrators, billing, etc.) totaled more than 4,500 euros. Your visit was subsidized by the government of the country you were visiting (i.e. by the citizens of that country).

R Quinn
R Quinn
16 days ago
Reply to  Jamie

Good point. In the UK at least physicians earn close to half of their peers in the US. Not sure how that would fly here. One problem we clearly have is so many different payers paying different prices for the same service. Nothing is real.

Will Wiener
Will Wiener
17 days ago

Thanks for the stimulating post.
you don’t mention the tort lawyer/
defensive medicine issue. Do you
consider it significant?

R Quinn
R Quinn
16 days ago
Reply to  Will Wiener

Analysis has shown it is a factor, but not a major one.

Peter Blanchette
Peter Blanchette
17 days ago

I am not sure anybody of a serious worth blames the health insurance companies for the high cost of healthcare. They are both a victim of having to pay the outrageous costs of hospitals, clinics, doctors, drug companies etc and a beneficiary in the sense that they do their mighty best to pass those costs on to the healthcare user even to the point of refusing to pay as they have in the past. The US pays much more in overall health care costs than many of the developed nations. Sometimes, we in America, do not realize that we do not always do things in the smartest manner. I know that’s a bitter pill to swallow. Healthcare is one of them. Oh yeah and the products and services you consume carry the very high cost of our healthcare system.

https://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_per_capita

R Quinn
R Quinn
17 days ago

Many – most – Americans see their health care costs as their premium. Not sure how you define – serious worth – but in my experience there are also a number politicians who see it that way.

Peter Blanchette
Peter Blanchette
17 days ago
Reply to  R Quinn

People of “serious worth” are people who have actually “studied” the issue of rising health costs and realize that rising health insurance premiums are a manifestation of those rising health costs.

R Quinn
R Quinn
16 days ago

I agree.

evan rayers
evan rayers
18 days ago

Great OP Rich,

Consider:
Stop & Shop(RDS-AHOLD), an initial private operation. Same as a Publix or WinnDixie was started by the Rabinovitz-Rabb family. It was then transferred in various %’s in different economic times to a Royal Dutch Shell holding. It was also a self-insured operation since its inception.
Different times of course,1950s iirc.
That’s company hutzpah being self insured.(imo)

That’s both winning the game as an immigrant family in two generations, and taking chances with the areas weather additionally governing the grocery chains well being & inventory. I do recall the inheritances court disputes w/local media attention for years.

There were 3-4 union operations under that one entity. Truckers, workers, mgt. etc., all had different policies, guidelines & terms.

They were DBAs pensions, supplied by an insurance co. in MI.? area I’d never rely on.
Particularly having dealt with them.
My memories somewhat challenged.

Your OPs are always thought provoking Rich!
Good luck & Best wishes…….

George Counihan
George Counihan
18 days ago

I wouldn’t pretend to know enough to enter this discussion but I will state this – Any kind of transparency in healthcare costs in my neck of the woods is laughable to anyone who thinks about “shopping”. It certainly is a mess.

Ginger Williams
Ginger Williams
18 days ago

Employer sponsored health care isn’t a system; it’s a disorganized mess. I’d happily pay more in taxes to have a health care system like the UK or Canada or France or many other developed countries. The lack of system in the US results in many people avoiding preventive care due to cost, ignoring early symptoms due to cost, and stressing over finances when they finally realize those early symptoms are getting worse. It also results in people staying in jobs that are harming their physical and mental health because their healthcare is tied to employment.

R Quinn
R Quinn
18 days ago

Except for near universal coverage, those are different systems, but in terms of lack of such coverage you have a good point. I’m sure many people agree with you that they would rather have the costs burried in taxes than deal with premiums.

I think you also illustrate my point about individuals not seeing paying for health care as a normal expense of life. Aside from the poor – who generally have coverage – why won’t people spend their money on preventive care? They surely spend the same money on lots of non- necessities.

You are certainly right we need a better system.

Dan Malone
Dan Malone
18 days ago

Great summary! I have two observations to add from personal experience:

1) There is an alternative to healthcare insurance, and it isn’t taking on the financial risk of a medical calamity. It is a healthcare sharing plan, which operates very similarly to health insurance — but without state regulation and at a much lower cost. I use Christian Healthcare Ministries (CHM) which has been in existence for over 30 years. CHM doesn’t offer “full coverage” like Obamacare, but the coverage is sufficient for me (no mental health benefits, no recovery if not wearing your seat belt or DUI, no abortions, etc.). The monthly premium when I started with CHM 5 years ago was $172, which had not changed in 10 years. My CHM plan pays 100% of each “incident” (defined term) that exceeds $500; I pay all the little bills below $500. The CHM Guidelines explain all the details, but CHM has paid several significant healthcare bills for me in the last 5 years, both 4 and 5 figures. The monthly premium went up to $205 in 2022, plus $20/mo. to extend coverage for any incident past $1 million. So $225/mo. and they pay all bills for covered incident above $500. I could write an entire article why healthcare sharing is the best kept secret in healthcare: http://www.chministries.org/default.aspx?mem=316358

2) Closely related to the healthcare sharing is price shopping and similar concepts advocated by the Free Market Medical Association. You can read more about physicians who believe in posting their pricing and competing based on quality and value at http://www.ffma.org and medical providers like these who transparently post their pricing, with or without insurance: https://shophealth.fmma.org/web-search?search=

Personally, I believe these two concepts are the future of healthcare because it gives me incentive to shop for healthcare — seek out the preferred providers, and then ask for pricing and negotiate if needed — just like all other major purchases. It is how I intend to manage the risk of my healthcare costs until I become Medicare eligible.

Sabine Nooteboom
Sabine Nooteboom
17 days ago
Reply to  Dan Malone

Unfortunately healthcare sharing plans often have exclusions for pre-existing conditions and certain illnesses (e.g.,mental health conditions)

An
An
18 days ago
Reply to  Dan Malone

What? You believe the 2 concepts you shared are the future, but at 65 you want to use the old concept that Medicare uses?

Dan Malone
Dan Malone
18 days ago
Reply to  An

Necessity requires just that to manage risk in the most efficient way possible. CHM offers plans starting at age 65 at a much lower monthly amount ($106/month, called SeniorShare), but this plan requires coverage in Medicare Part A (free) and Part B ($170 – $578/mo. depending on income).CHM is not “magical” just because they embrace free market concepts. To the point of Richard’s article, there ain’t no free lunch on medical expense increases as we age.

mytimetotravel
mytimetotravel
19 days ago

Employers should not be in the health care business. For-profit insurance companies should not be making life-and-death decisions. Health care should be a right, not a privilege, and people should not forgo care or risk bankruptcy because of the cost.

Other industrialized countries deliver better care for, roughly, half the cost. It is beyond ridiculous that the US cannot do the same. However, I am well aware that the current non-system is not going to be replaced root and branch any time soon. Meanwhile, expanding Medicare is likely the best hope for improvement.

I grew up in the UK with “socialized” medicine. I am tempted to move back. Even though I am on Medicare, and even though my former employer kicks in $3,000 a year (having done away with retiree medical insurance) my medical expenses last year were around $10,000. In the UK, they would be a few hundred. (Please don’t mention wait times. In my area, with two university medical centers and plenty of other doctors, the wait for a rheumatologist is four months, and for a hematologist over twelve.)

R Quinn
R Quinn
19 days ago
Reply to  mytimetotravel

Employers would love to get away from health care benefits, but the tax structure makes that undesirable to unions and workers – thousands of dollars tax-free a year.

Unless you equalized populations it is not accurate that others deliver better care or outcomes.

You say your OOP in the UK would be a few hundred dollars. I don’t doubt that, but what has been paid in taxes by you and on your behalf to get there?

yes, there are areas in the US with waiting times as you mention, but mostly not compared with the Uk

when it comes to care, some entity will make decisions of what will be covered or paid for in any system. In the US the profit margin for health insurance companies is about the same as for regulated utilities

Physicians are paid nearly twice as much as in the UK. Access to facilities and high tech equipment is greater in the US – at a price.

Having said all that in the scores of discussions I have had with UK citizens I have yet to find one who didn’t like their system.

Last edited 18 days ago by R Quinn
Will
Will
17 days ago
Reply to  R Quinn

 I have had with UK citizens I have yet to find one who didn’t like their system.”—–that says al LOT right there. We don’t have to create a new system; they are all around us to copy. (I had to wait 4 months to get to see a neurologist—- in the U.S.)

mytimetotravel
mytimetotravel
18 days ago
Reply to  R Quinn

“Unless you equalized populations it is not accurate that others deliver better care or outcomes.”

Disagree. What counts are the rates or ratios. For instance, the maternal mortality ratio puts the US in a shocking tie for 57th. (https://en.wikipedia.org/wiki/List_of_countries_by_maternal_mortality_ratio ) Life expectancy puts the US way down the list, too (https://www.worlddata.info/life-expectancy.php ).

“yes, there are areas in the US with waiting times as you mention, but mostly not compared with the Uk”

Data please. Plus, there are many areas in the US much less well-served than mine. Look up hospital closures.

“Physicians are paid nearly twice as much as in the UK”

But it costs much less to become a physician in the UK. To start with, you don’t need a bachelor’s degree before going to medical school, which saves four years plus a bunch of money. Also, tertiary education is still much cheaper. In my day it was free, and it still is in much of Europe. (Looks like medical school fees are currently capped at around $11,500/year in the UK.)

“Having said all that in the scores of discussions I have had with UK citizens I have yet to find one who didn’t like their system.”

And how many Americans have said they hate our system? The UK may not be the best comparison, I have usually seen France ranked as having the best system.

Will
Will
17 days ago
Reply to  mytimetotravel

Thank you for the facts here.

corrupt
corrupt
18 days ago
Reply to  mytimetotravel

What counts are the rates or ratios. For instance, the maternal mortality ratio puts the US in a shocking tie for 57th”

You are presenting a simplistic view which totally ignores cultural differences in health and things which effect health regardless of the quality of health care. The US @nd UK are dissimilar in many ways (eating habits for instance, or violent crime rates) which drive the differences in health care mortality rates, NOT the quality of the healthcare system.

Harold Tynes
Harold Tynes
19 days ago

Richard, as a former CFO I’ve seen all these “cost savings” methods fail.The lack of transparency in healthcare cost, even for corporate buyers,
is astounding so my efforts to pierce the veil were unsuccessful. I was also the guy who had to tell the CEO that we could not afford to keep doing what we had done before and get our owners the returns they required. I always wanted to get the employer out of the healthcare business as I felt like I was playing God with the decisions of who gets care or not .Maybe your idea will work or maybe its Medicare for All or some variation.

R Quinn
R Quinn
19 days ago
Reply to  Harold Tynes

My job was to set the benefits budget each year, including health benefits. I’d meet with the Chairman and explain all the factors. He would challenge everything, all the assumptions. In the end I would politely say, I’ll use any percent of increase you say, but I’m confident we can’t do better based on trends.” In the end, we always went with my projections and always was unhappy. Needless to say all our plans were self-insured.

William Perry
William Perry
19 days ago

Thank you Richard for trip down memory lane of the health plans options I have experienced in the fifty plus years of employer health plans and then changing to Medicare coverage. As you illustrate there has been no silver bullet to date to control premium costs.
It is my understanding a surge in employer health plans occurred during WWII as the result of government imposed wage controls and that by providing health plans employers could effectively circumvent the wage controls.
The reality is that we will all die and no health insurance plan changes that outcome. We all have different health needs at different life points and the basic concept of insurance is sharing that risk.
The one thing on the cost side I would suggest to our law makers is to make tax code more equitable where all get the same tax treatment regardless of our different circumstances. Premium costs currently paid under a pretax employer plan, self pay as an employee, self employed, no coverage, Medicare, Medicaid would not matter. Premiums paid by an employer or the government would be fully taxable to us and everyone would also get in effect an above the line standard deduction for health costs including premiums up to some cap. Medical expenses for those who itemize on schedule A would go away and are currently meaningless to the majority of taxpayers who do not itemize or lose their medical itemized tax deductions to the 7.5% of adjusted gross income limitation.
Let’s get employers out of the position of having to jump through hoops so their employees have affordable, portable health care and free employees from having to work for a certain employer to be able to buy and retain affordable health insurance.
I doubt there is the political will or motivation to make this happen so I will continue to make the best use of the current tax code as it exists and continues to change. There is no alternative (currently).

R Quinn
R Quinn
19 days ago
Reply to  William Perry

I agree, if there are going to be tax breaks, they should be the same for everyone regardless of how or where they obtain coverage. Why should only workers with a cafeteria plan -Section 125 – have pre-tax premiums?

Guest
Guest
19 days ago

Thank you Mr. Quinn. Certainly an enlightening history for this reader.

B Carr
B Carr
19 days ago

Cheap, Fast, Good. Pick only two.

R Quinn
R Quinn
19 days ago
Reply to  B Carr

Maybe only one. I’ll take good.

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