Tie contributions to wages, not benefits
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Where Does The Insurance Industry Stand On Health Reform Today?
By Bruce G. Bodaken, chairman, president, and chief executive officer of Blue Shield of California
Health Affairs
May/June 2008
Ultimately, if the new president puts forward a universal coverage proposal, his or her ability to attract health plan support—or at least to mute opposition and keep Harry and Louise out of the debate—will come down to the president’s approaching health plans with the following criteria in mind.
Respect the industry’s economics. Health plans will be willing to support additional regulations on our business, but only if they maintain our economic viability. Preserving the delicate balance that allows plans to offer affordable coverage for all while making it truly accessible to all is a difficult task. But it is also a necessary one if we are to reform health care on the private-sector model that most Americans prefer.
Understand the competitive dynamic.
Think through the transition.
Rely on our expertise.
Demand shared responsibility.
Stop demonizing health plans. I know as well as anyone that our industry is not popular, but attacking us will not solve the problem or help achieve consensus for reform.
http://content.healthaffairs.org/cgi/content/full/27/3/667
And…
Federal Employees Health Benefits Program
2008 Monthly premium rates
Blue Cross and Blue Shield Service Benefit Plan - Standard
Self - total premium - $448.91/month or $5386.92/year
Family - total premium - $1027.95/month or $12,335.40/year
http://www.opm.gov/insure/health/08rates/2008non_postal_ffs.pdf
Comment:
By Don McCanne, MD
Bruce Bodaken is one of the most respected executives in the private health insurance industry. His reputation is well deserved. He sincerely believes that absolutely everyone should have access to the health care they need without having to face financial hardship. He believes that the proper role of the private insurance industry is to help enable that access.
As the executive in charge of non-profit Blue Shield of California, he has faced significant challenges in his efforts to perpetuate the traditional role of the non-profit Blues as an insurer serving the interests of the beneficiary-patients. Blue Shield’s primary competitor, Blue Cross of California, converted to a for-profit insurer serving first the interests of its investors.
Blue Cross became the nation’s leader in introducing innovative insurance products with competitive premiums made possible by marketing and product design that allowed Blue Cross to avoid paying for health care services that patients actually need. If Blue Shield wanted to continue to serve its mission, it was forced to compete with the architect of the new plague of underinsurance, Blue Cross. To keep their premiums competitive, Blue Shield was forced to adopt similar anti-patient policies.
As if this nefarious competition weren’t enough, Blue Shield faced a much greater challenge. Like Blue Cross, Blue Shield’s market is the healthy workforce in the group market, their young, healthy families, and the healthy sector of the individual market able to meet underwriting standards. It is this healthy population to which they have applied policies that transferred more of the responsibility of paying for care to those who actually need care, and that ratcheted down reimbursement rates to the minimum tolerated by those delivering health care. Although the sponge has been wrung dry, the premiums they must charge for these underinsurance products for the healthy have become unaffordable for average-income families.
Mr. Bodaken says that we must “respect the industry’s economics.” But what does that mean? Let’s look at the economics of the private health plan premiums.
Many of the proposals today tout the Federal Employees Health Benefits Program (FEHBP) as the golden standard of health insurance (a point that is subject to challenge). The majority of federal employees, including members of Congress, select a non-profit Blue Cross and Blue Shield benefit plan. Keep in mind that this is a relatively healthy workforce with their young healthy families. Let’s look at the premium for family coverage, keeping in mind that those with health care needs also are exposed to significant out-of-pocket expenses, which we will not quantify here.
The 2008 FEHBP monthly premium for the standard Blue Cross/Blue Shield family plan is $1,027.95, or $12,335.40 per year. Policy analysts have recommended that premiums be limited to 10 percent of income. At this rate, the family would have to have an income of $123,000 just to pay the premium, excluding out-of-pocket expenses for health care. If the premium for a standard Blues plan for a relatively healthy population is no longer affordable, a premium for a plan that includes those who need health care (risk adjusted insurance pools in a universal system) you can forget about.
So what do those who continue to support a private insurance model propose? They contend that we must accept shared responsibility. Employers, the government, and individuals must all participate. But who is sharing what? Ezekiel Emmanuel, Victor Fuchs and others have shown that individuals are paying for employer-sponsored plans through forgone wage increases. Individuals also pay taxes to the government either directly, or indirectly through higher prices for services and products purchased. Individuals also pay direct out-of-pocket expenses for their share of premiums and non-covered health care costs. It is the individual who ultimately pays for health care. Fortunately, the tax component is progressive. Had it not been for this, our health care financing system would have already collapsed (though some might contend that it actually has collapsed because of the intolerable levels of uninsurance and underinsurance).
All serious proposals include tax subsidies to help pay the premiums. Even Sen. McCain recommends that his proposal for private plans competing in the marketplace be subsidized with a $5,000 tax credit for families. There could not be a clearer confirmation that premiums for standard plans are no longer affordable. But this brings up a crucial question. If we are going to use the tax system to finance health care anyway, then why should we continue to use an administratively wasteful, often inequitable, and sometimes nefarious model of private health plans to finance health care?
So you say that other nations have successful programs using highly regulated private plans. Well, first, OECD and WHO studies have shown that systems using private plans waste more resources and are more expensive, plus they continue to be challenged in their efforts to establish equity in health care. But the United States has another unique problem that these other nations do not face. We spend far more per capita on health care than any other nation. That translates into much higher private insurance premiums for us, especially if we are to include everyone - numbers that the Europeans couldn’t fathom.
This very high level of spending is the most important reason that individual private plans no longer work. We have been defining each individual’s share of our health care financing based on the premium that is determined by the benefit package of the plan. Private plans have had no choice but to shift more costs from the benefit package to the patients, and then market those benefit packages to only the healthy. As the FEHBP premiums demonstrate, that no longer works. Standard benefit packages are no longer affordable simply because the individual’s share is tied to the benefits provided by the insurance plan.
If we abandon a system of tying payments to benefits, then how can we determine what each individual should pay? Looking at the plight of small business in their attempts to ensure health care coverage for their employees is instructive. The majority of the uninsured are employed by small businesses. In most instances, it is not the greed of the employers that prevents them from obtaining coverage for their employees. It is simply that the margins for small businesses are not adequate to fund health benefit programs when the premiums are tied to the benefits covered.
What could small businesses actually afford? The compensation packages for their employees include income and payroll taxes that must be paid on behalf of the employee. Suppose we used payroll taxes and income taxes to finance health care. Since incomes for employees of small businesses are typically quite modest, taxes linked to the income of the individual, instead of being linked to the benefit package for the individual, would be much lower. The payroll tax would be proportional to the income, with lower income individuals paying less, and the income tax is progressive, providing even greater relief for small businesses in the financing of our health care system.
The take-home point: Instead of tying each individual’s contribution for health care to an unaffordable insurance package of health benefits, we need to tie that contribution to the individual’s income, based on ability to pay.
Yesterday’s quotes from the CEOs of the two largest for-profit insurers in the nation stated that they “would continue to protect their margins” and “would not sacrifice profitability for membership.” We are certainly justified in dismissing these greedy individuals from the health care equation.
On the other hand, we can accept Mr. Bodaken’s admonition to “stop demonizing health plans,” when his concept of health plans is to perpetuate the traditional public service mission of the non-proifit Blues. We should thank him sincerely for his personal efforts, and invite him to become an advisor in the process of establishing our own single payer national health program. Although the old model of private insurance plans is now obsolete, that doesn’t mean that we need to abandon the public service mission of the traditional Blues model. We just need to abandon their model of individual private plans.