The following are highlights of a recent news release from the Kaiser Family Foundation on the rising costs of health care and the resultant shifting burden of costs from employers to employees:

• Family health premiums overall rose by 3% in 2010, to $13,770 per year
• An average workers’ share of those premiums increased by 14%.
• The percent of workers with deductibles of at least $1000 increased from 22% to 27%.
• Among smaller businesses (less than 200 employees), 46% of workers face deductibles of $1000 or more.

The Changing Paradigm…

The marketplace is responding to health care costs that have been increasing at rates far in excess of general inflation AND data that shows a significant portion of healthcare spending is wasted on unnecessary care, inappropriate care, and poor quality care.  For the last several decades (and still today to a significant degree), someone else was paying the bill.  Patients had little or no “skin in the game”, so why say “no” even if a service is either unnecessary or costs too much?

That, my friends, is changing.  We are witnessing is a gradual shift “from paternalism to shared responsibility”.  It is about aligning incentives between employers and their employees.  If you are one of those employees with a deductible of $1000 or more, you have “skin in the game”.  Now, before seeking care, you must ask yourself, “do the benefits justify the costs”?   Only if the answer is yes are you going to proceed with the care that you’ve chosen to purchase and receive.

How HSAs Help To ‘Save Costs Without Shifting Costs’

Clearly, a high deductible health plan (HDHP) is a cost-shift to the employees.  But, the impact can be partially or significantly ameliorated with an underlying Health Savings Account funded by the employer (see HSAs Work…Here’s Why).  HSAs are a model for properly applying insurance principles to health care.  In other words, insurance is means to protect you from large, unpredictable financial losses—it is not an appropriate financing mechanism to pay for smaller and more routine expenses.   You can be sure that those employees who are paying the first $1000 of expense are motivated to avoid services and expenses that are unnecessary, inappropriate, or may result in a poor outcome.

What’s missing from the Kaiser Family Foundation statistics, for those workers who are subject to high deductibles, is the amount of money contributed to an HSA by the employer.  We strongly recommend that employers take a portion (even a small portion) of what they save and/or would otherwise pay in premium and use it to fund an HSA, and thereby pay for some level of an employees’ primary care needs.  This, we believe, is the model for the future…

1. Before a plan can file a Form 5500 using EFAST2, the appropriate individuals must register at the EFAST2 website.  This process involves identifying the party who will complete the Form 5500 and any and all parties who will sign it.  One individual can register for more than one role.  All users are encouraged to register early to avoid last-minute errors.

2. Once an individual registers, he or she cannot go back to choose additional roles, so it is important to understand the roles each person will play before the registration process begins.  The five available roles are Filing Author, Filing Signer, Schedule Author, Transmitter and Third Party Software Developer.

3. The individual who completes the online Form 5500 must register as the Filing Author and the individual who will sign the online Form 5500 must register as the Filing Signer.

4. The credentials an individual uses to register are personal and are not linked to the company.  The registration process assigns a unique identification, personal identification number and password to each user.

5. The Form 5500 can be completed either by the Filing Author or a third-party administrator.  If your TPA typically prepares your Form 5500, verify that the TPA is properly certified to prepare and submit the filing.

6. The Internal Revenue Code permits either the plan sponsor/employer or the plan administrator to sign the filing.  However, the Form 5500 instructions state, “Any Form 5500 that is not electronically signed by the plan administrator will be subject to rejection and civil penalties under Title I of ERISA.”

7. Filings submitted under the EFSAT2 program will be posted on DOL’s website, so all social security information should be excluded from the filings. In addition, if your plan is a defined benefit plan and you maintain a company intranet, you must post certain information from the Form 5500 on the company’s intranet website.

8. Plans are no longer required to attach a copy of the Form 5558 (application for extension of time to file) to the Form 5500 filing. Filers who previously submitted a Form 5558 for the plan year now simply check the appropriate box on line D. Plans must retain a paper copy of the Form 5558, if any, with the plan’s permanent records.

9. Schedule E and Schedule SSA have been removed from the Form 5500. The annual registration statement must now be filed directly with the Internal Revenue Service.

10. Plans will be required to retain a paper copy of the Form 5500, with all required signatures, for their permanent records.

EBN asks if the goal is to save paper and be more green/efficient, why is there a requirement to keep a paper copy?   I’m from the government and I’m here to help….

HSAs and Health Reform

Last summer, as the health reform debate was heating up, I met with a Democrat member of Congress (who happens to sit on the House Ways and Means Committee).  At the time, the big push was still for the “public option”, and I was told by this MOC that Democrats don’t like HSAs.  As the debate proceeded, I would continually make the point that the HSA model was the most successful innovation in health finance of the last decade, and there were success stories everywhere that you turned.  There were numerous success stories in the private sector among employers both large and small, and those with low, middle, and higher income people.  Very importantly, the concept also worked in the public sector (e.g., Indiana).

We all know about the process that lead to the passage of a bill in March of 2010—sausage making at its worst.  As the dust settles and we begin to assess how best to move forward under the new health reform laws, I believe that it is full steam ahead for the HSA model.  There were certain policy changes that may have a slightly negative impact, but they are minor.  The changes are as follows:

• Penalties for the use of HSA funds for “non-qualified” expenses will go up.
• The list of “eligible medical expenses” was pared back somewhat with the removal of over-the-counter (OTC) drugs, unless prescribed by physician.
• Contributions to an HSA will be limited to the level of your high deductible health plan.

Friends, it could have been much worse.  The private sector now has an opportunity to show the government what works, so let’s take advantage of it.

Where Do We Go From Here?

My hope, and expectation, for the future of health reform is that we keep the positive features of Obamacare (e.g., underwriting changes, health exchanges) and repeal the negative aspects (e.g., some new regulation, confusing tax credits).  In addition, we need to keep pushing for other changes that were not, but should have been, part of health reform such as:

• Increased competition (e.g, repeal of health insurer anti-trust exemption, allow competition across state lines)
• Transparency
• Tort reform

In short, we need to GET TO WORK.  The health care system remains an employer-based system, so employers need to roll up their sleeves and manage the heck out of their health benefits.  That means a move away from business as usual—give your employees appropriate incentives and ‘skin in the game’, developing a multi-year plan, promote wellness, and use competition to shift the balance of power away from insurance companies and to you, the purchaser of health benefits.  In most cases, there is a role for HSAs in your health benefits strategy.

Friedman says that health care can be universal and public—but “Free, no.” Doctors and hospitals don’t work for free, it’s just that the patient doesn’t pay them. “Treatment isn’t free, it’s just depersonalized. Everywhere there’s a schedule, a quota the doctors have to meet; next!…And what do patients come for? For a certificate to be absent from work, for sick leave, for certification for invalids’ pensions (i.e. disability): and the doctor’s job is to catch the frauds. Doctor and patient as enemies—is that medicine?”

Friedman’s answer—give people the option to purchase insurance with a very high deductible, i.e., a policy for medical catastrophes, which would be decidedly cheaper. The difference can be deposited in a special “medical savings account” that can be drawn on only for medical purposes. Mr. Friedman was talking about Health Savings Accounts before we called them HSAs. It is still the best way for employers to purchase health insurance to obtain the maximum value for your health dollars.

Medicare has 4 parts:

• Part A, Hospital (started in 1967)
• Part B, Physician and Other (started in 1967)
• Part C, Medicare Advantage (started in 1985 under a different name)
• Part D, Prescription Drugs (started in 2004)

When people talk about Medicare, they generally refer to ‘traditional Medicare’—Parts A & B & later D.  This is where the federal government ‘negotiates’ with providers, sets the rates of payment, and cuts the checks.  And, those who can afford it typically purchase a private Medicare supplemental policy to cover those services not paid by Medicare.  KEY POINT: this program is a financial disaster.  This is the program that is costing taxpayers 10X what was originally projected, and is the reason that thankfully the concept of a ‘Public Option’ was turned down as a part of Obamacare.  The government has no track record of success in the health insurance business.

Part C or Medicare Advantage is an effort to deliver Medicare benefits through the private sector.  It is justly being criticized today for payment excesses, but it used to be a VERY successful program.  At the outset, private plans were compensated based on a formula that approximated 95% of what the government would normally pay per capita.  Because of better ‘managed care’ leading to efficiencies, the plans were able to add benefits in order to attract membership.  That is why Medicare Advantage is popular.  SO WHAT HAPPENED?  Under the watchful eye of our elected representatives, capitalism and a lack of transparency allowed this program to be bastardized by the insurance companies (sound familiar Wall Street?).

So, the demise of Medicare Advantage under Obamacare (except for the deals cut in certain states) is misplaced—let’s not throw out the baby with the bath water.  Let’s fix what is wrong with the Medicare program , and go back to the Medicare Advantage basics of the 1980s.  How do we do this?

• Allow only PPOs and HMOs to participate in Medicare Advantage
• Limit the number of plan choices to foster competition.
• Return to rates of payment to private plans approximately equal to what the government would pay under traditional Medicare.

Obamacare can be fixed.  Big government control and over reliance on regulation in health care will reduce quality and innovation, and be a financial disaster.  We can do better.

I’ve worked in this business for 32 years and honestly, I’m not sure what to do next.  Do I join with the forces crying ‘foul’ and work for repeal of a bad bill that was rammed through our legislature with little mandate, aided by arm twisting, unsavory deals, and outright bribery?  Or, do I say to myself that we needed health reform and now that we have health reform, let’s work to fix what we have?  What do you think?

The Road Ahead…

Truthfully, our options today for fixing what is wrong with health care in this country are the same ones we had a year ago.  They are:

1. Massive new debt and deficit spending.
2. Government rationing of healthcare services.
3. Increasing efficiency (i.e., cut the 30% of wasteful spending).

The President and Congress have chosen Option 1.  The bill signed into law two days ago (and the fix still being debated) will insure tens of millions of new people into a broken health insurance system.  There was little done in the way of meaningful healthcare cost containment, which is my business.  That is why I was arguing against “throwing good money after bad”, but that is, in fact, what was passed into law.  Health reform was passed AFTER our annual deficit spending was tripled.  Therefore, “reducing the deficit” over ten years by $130 billion or so is of little consolation, and it is not even true (it is what CBO had to say—simply add back in the cost of the doctor ‘fix’ and we are increasing the deficit).

In time, when the levels of massive federal debt become unacceptable, we will inevitably move into a phase of massive rationing by government (Option 2).  It is the only way to contain the unbridled demand for healthcare services at someone else’s expense.  It may come first in the form of price controls.  It may come in the form of fewer hospitals, waiting lists for certain services, less choice, and less control by the patient/consumer over their health care—this is how a truly socialized, single payer system works.  But make no mistake—it WILL occur because it is the only ‘regulatory’ alternative to massive deficit spending.  (NOTE: this approach can be described as “lowest common denominator” care available to everyone.  It is a viable option, as in Canada, and a public policy position some people advocate, but let’s have an honest debate about where this type of health reform may take us.)

Or, we can seek a return to basic American principles and values represented by Option 3—massive increases in efficiency.  It is a fact that approximately 30% of what we spend on healthcare in this country is wasted on unnecessary care, inappropriate care, and poor quality care.  The country’s annual spend on healthcare is approaching $2.5 trillion, so just imagine what the possibilities if we could move towards good economics in healthcare.  We can maintain cutting edge innovation in the best system of health care in the world, and still have money left over to subsidize those unable to purchase healthcare services on their own.

What Can You Do?  What Should You Do?

If you’re like me, you’re going to take a break from the political wars, but it will be a short break.  Constitutional challenges to certain provisions of the bill are worthwhile.  Since outright repeal of the bill that has passed is unlikely, we have to keep working on fixes that will achieve the objective of Option 3, and in effect obviate the need for Options 1 and 2.  We should focus on promoting HSAs, competition across state lines, tort reform, pooling for individuals and small groups, and other similar approaches.  It can be done.  It must be done.

Please join me in this effort.  Sign up for my newsletter.  Comment on this blog.  Get involved.

Obamacare (In A Nutshell)

Former Reagan speechwriter Peggy Noonan, writing in the Wall Street Journal (3/6/10, “What A Disaster Looks Like”) characterized Obamacare thusly:  “His (Obama’s) essential mistake was to choose health-care expansion over health-care reform.”   In other words, Obamacare does not fix what is broken; rather, it merely insures more people into an already broken system, thereby throwing good money after bad.  The following is my condensed version of Obamacare and its impact:

• A 2000+ page bill with a significant amount of new regulation, bureaucracy, and cost.
• An estimated cost of $1 trillion, but actual cost that will total trillions.
• A no-win situation where the ONLY way to avoid massive deficits is with massive rationing of healthcare services by a government bureaucracy.
• Promises from government to cut wasteful and unnecessary healthcare spending that will not happen—there has never been the political will to do so for Medicare and Medicaid.

Health Reform Done Right

The healthcare industry is complex and some would argue its problems intractable, but it doesn’t have to be that way.  There are successful models for reducing healthcare costs to guide our efforts:

• First, break health reform into smaller, manageable parts.  Address pre-exiting conditions, portability, insurer anti-trust exemption, and competition across state lines.
• The State of Indiana has a successful example of health reform.  Read Governor Mitch Daniels account called “Hoosiers and Health Savings Accounts”.
• Let’s build health reform around consumer driven health care and personal responsibility.  Reward healthy lifestyles, as in the example of Safeway Corporation.

Successful health reform is not about the government forcing its citizens to do it a certain way.  It’s about learning from success and encouraging widespread adoption of best practices.  Trust the states and the American people to do the right thing.  We should no longer subsidize the financing of our healthcare the old and inefficient way, as Obamacare does.

Send a Message To Your Elected Representatives

The prevalent argument for Obamacare is that we must do something now.  We agree, but let’s start by defeating Obamacare.  Contact your Members of Congress with the following message—on February 24, 2010, there was an overwhelming bi-partisan vote (406 to 19) to strip health insurers of their anti-trust exemption in the House of Representatives.  This is a small, but important, first step.  So, the message is as follows:

Senators:  The Senate should pass a similar bi-partisan legislation already approved by the House to remove the health insurance industry’s anti-trust exemption.  Any efforts at reconciliation (or the nuclear option) to pass Obamacare should be resisted.  Health reform is critically important legislation that should require a super-majority (60 votes) in order to pass.

Representatives:  The Senate Health Reform bill is a bad bill and should not be passed by the House. It contains the Cornhusker kickback, Louisiana purchase, and other irresponsible deal-making needed by Senate leaders to pass a bad bill.   If your Representative is a Blue Dog Democrat, encourage the entire caucus to oppose this bill.  If they claim to be fiscal conservatives, they must vote accordingly.

What do you think about the future of Obamacare?  Please post your comments.

Your choices about lifestyle are a matter of life, death, and health.  The evidence shows that lifestyle decisions are a more important determinant of your health than which doctors and hospitals you visit and the services they provide to you.  Do you:

• Smoke
• Manage your weight
• Exercise
• Get the right amount of sleep
• Minimize stress
• Live happily

When you make good lifestyle decisions, you are healthier.  That translates into less use of the healthcare system and lower costs, both for you and whoever may be paying for healthcare on your behalf (e.g., employer, union, government).

Tying Financial Incentives To Lifestyle Decisions

Your level of health, and the cost of your healthcare, can be impacted both by good decision-making and by good luck.  Though we cannot do much to impact our luck, we have control over our personal decision-making and lifestyle.  Therefore, we would argue that people who make good personal decisions about their health should also derive certain financial benefits.

How do we do this?  By giving people ‘skin in the game’.  By emphasizing the importance of personal responsibility.  And by rewarding success for living a healthy lifestyle.  These are the essential elements of the Consumer Driven Health Care movement.  It’s worth learning more about this concept because I believe it is the key to maintaining a private health care system in the United States (and preserving the delivery of the best healthcare services in the world).

How One Large Corporate (Safeway) Does It

Supermarket chain Safeway is held up by President Obama and others as a model for controlling healthcare costs through prevention and wellness.  Safeway uses a consumer driven model of health insurance for their employees, in this case a Health Reimbursement Account (HRA).  A major contributor to their success in controlling healthcare costs has been a system of financial rewards for employees who make good lifestyle decisions.

Safeway’s approach is to establish premium differentials for employees based on certain healthy lifestyle measures, including tobacco usage, healthy weight, blood pressure, and cholesterol levels.  The results of these tests are used to establish premium “rewards.”   Safeway employees who pass all four tests have their annual premiums reduced by $780 ($1,560 for families).  Since the idea is to help employees succeed and save money, individuals who fail one or more tests can be tested again in 12 months.  The program has been a ‘win-win’ for Safeway and its employees.

What Can Your Company Do?

Much depends on your company’s size and resources, but it all starts with a commitment to prevention and wellness.  Engage a Wellness Coach to develop a plan for your company.  You can start with educational seminars and a newsletter, health fairs, discounts for the gym memberships, testing of body fat and cholesterol levels, and so forth.

Once you’ve establish the basic programming, we can begin to think about tying financial incentives to employee decision-making and behavior.  Contact us.  Our Wellness Coach can visit with you and make recommendations.  It works and it saves money.

Governor Daniels’ Mission

Mitch Daniels, a former Director of the U.S Office of Management and Budget (OMB), assumed the Indiana governorship in January of 2005. Gov. Daniels knew that he would have to immediately begin to address the State’s annual $600 million budget deficit if he was succeed in his mission to improve quality of life in the Hoosier state. Indiana has over 30,000 state employees, and one of Daniels’ early decisions was to offer an HSA option to these workers.

The HSA Model for Indiana

The principle behind the HSA concept is that individuals spend their own money for routine expenses, and they are “insured” above some pre-determined, high deductible level. If they incur high expense due to a serious illness or injury, they have full insurance coverage above the deductible. But otherwise, they are spending their own money and they are therefore more likely to be concerned about the cost and value of the services they are receiving. For those Indiana workers choosing the HSA, it works as follows:

• Employees have a choice between a traditional PPO model and an HSA.
• Depending on whether the employee chooses single or family coverage, the state will deposit money into an account controlled by the employee, used to pay for all health bills (average deposit in Indiana is $2750 per employee per year).
• After the deductible, the state and employee share costs up to an out-of-pocket maximum, after which the employee has 100% coverage.
• Employees pay a share of their premium for PPO coverage but there is NO PREMIUM paid by the state worker for their HSA coverage.

In the first year of the program, 4% of Indiana workers signed up for the HSA, and there has been a steady growth in participation since.

Financial Results

Today, over 70% of Indiana workers participate in the HSA and the financial impact has been impressive:

• In 2010, Indiana will save at least $20 million in its state budget from this program.
• Workers choosing the HSA option save an additional $8 million compared to workers in the traditional PPO plan.
• The average balance in the HSA bank accounts is $2000 and growing rapidly, thereby adding to a worker’s take home pay.
• HSA participants spend an average of only $65 in medical costs for every $100 incurred by traditional PPO plan participants (e.g., for prescription drugs, costs are $18 lower per script).

The success of Indiana’s health benefits program is a model for other states as well as for private sector employers—it is a ‘win-win’ for both the employer and their employees.

Impact on Employee Satisfaction and Consumer Behavior

More good news!! As the enrollment in the HSA model has steadily grown, the participants seem highly satisfied—only 3% have chosen to switch back to the traditional plan. The state reports that workers are visiting emergency rooms and physicians 67% less frequently than co-workers with traditional health care, and they are admitted to hospitals half as frequently. Most importantly, there is no apparent evidence identified by the state or its consultants that HSA participants are neglecting to receive needed healthcare services in order to save money. Indiana employees are satisfied; they are receiving good health care and it is costing less.

Implications For Business

At RMP, we’ve been setting up programs like the one in Indiana longer that any other health insurance advisor in the area. My article, called HSAs Work, Here’s Why was published in the Philadelphia Business Journal in 2006. RMP client case studies, particularly from those who have been with us for a few years, can attest to this fact. The concluding words from Governor Daniels best sum up this story:

The prevalent model of health plans in this country in effect signals individuals they can buy health care on someone else’s credit card…. What seems free will always be overconsumed, compared to the choices a normal consumer would make. Hence our plan’s immense savings.

Our conclusion—it IS possible to get equal or better healthcare for less money. If you are buying health benefits for your employees, or otherwise purchasing healthcare services, you can most likely do better. Call us at 610-975-4415 if we can help.

FACT: IT WAS AN OVERWHELMING, BI-PARTISAN MAJORITY VOTE OF 406 TO 19!!!

Wednesday’s (2/24/10) Action in the House of Representatives

I am an advocate for effective, bi-partisan health reform that can be accomplished by breaking the large problem into smaller, manageable parts.  The viability of this approach was demonstrated by Wednesday’s vote to repeal the exemption from federal anti-trust laws.  Certain partisan obstructionists tried to stop it—for example, Republican House Minority Leader John Boehner (Ohio) opposed the measure.  Yet, there was constructive Republican leadership from Minority Whip Eric Cantor (Virginia) who encouraged Republicans to support the measure, which they did overwhelmingly.  It the end, it’s not about right vs. left; it’s about right vs. wrong.  In this case, doing what is “right” for the American people prevailed.

Thursday’s (2/25/10) Summit Meeting at Blair House

On the other hand, yesterday’s bi-partisan summit to discuss health reform, convened by President Obama, was mostly for show.  The President’s supposedly new, health reform proposal, which was announced on Monday, is more of the same.   The President’s plan mirrors the existing legislation with one addition: a new federal government agency to regulate health insurance premiums.  The President is not unaware of the role currently played by State Insurance Departments, but I guess he thinks the Federal Government will do it better.  Though the Summit was marked by partisan rancor, I believe that the Republicans demonstrated that they are not obstructionists and that they support viable steps to reform health care that do not spend the country into oblivion.

Where Do We Go From Here?

First, encourage your Senators to take action on the bill passed in the House this week.  The Senate should pass similar legislation to remove the health insurance industry’s anti-trust exemption and SEND A BILL TO THE PRESIDENT’S DESK FOR SIGNATURE.

From an overall policy perspective, bi-partisan action to reform healthcare is not impossible—we should focus on those aspects of health reform on which reasonable people agree (see After Massachusetts: NOW WHAT?)  From a political perspective, it’s much more difficult because so many of our elected representatives believe that partisanship is more important that serving the best interests of the American people.

Yet, the House of Representatives proved on Wednesday that bi-partisanship is possible, but it’s only a small first step.  I encourage you to send your Members of Congress, Democrat and Republican, the following message—start over and pass meaningful health reform NOW (as demonstrated in the House of Representatives) or pay the price at the polls in November.