Critical Condition

The Common Carrier Reform

As a small-business owner, I’ve been selecting group health-insurance plans for a quarter century and living, day to day, with the actual impact such choices have had on my company and employees. In observing this process, I’ve come to the conclusion that two simple changes would both significantly increase access to health insurance and make it more affordable: Require insurance companies to offer their group plans to all companies, and require health-care providers to charge all patients the same rates. 


The first measure addresses the problem of access to group health insurance. The very poor are covered by Medicaid and the retired by Medicare, so the problem lies mostly in the working poor and lower-middle class. Oftentimes, these Americans’ employers don’t even offer insurance. 


Why wouldn’t every employer at least offer plans, giving their employees the chance to buy health insurance tax-free? Because typically, an insurance company will not allow a business to offer insurance to its employees unless 80 percent of eligible employees sign on. It is virtually impossible for a business to get to that number without offering some financial incentive, such a premium subsidy. This blocks many companies, especially small businesses, from offering health insurance.


The government should simply require health insurance companies to do away with these minimum-enrollment requirements, and to offer the same rates to all businesses. Today, much administration is done on the Internet, so it would be relatively easy for insurance companies to offer their business plans online. So the owner of Joe’s Garage could go to an insurance company’s website, sign up for a plan, and offer his employees health insurance at no cost to Joe. If employees want it, they can go online and sign up, and the cost is deducted from their paychecks. This one simple change will lead to employers virtually universally offering health insurance. 


There will still be obstacles. People with preexisting conditions still won’t be able to find insurance. And, of course, many will find the cost of health insurance too high and elect not to buy it.  


Also, the insurance companies will scream. They use the 80 percent rule for a reason: to make sure it’s not just high-risk employees who are signing up. It is clear, however, that though this selectivity is acceptable in other kinds of insurance — no company should have to give arson insurance to a guy with a history of arson — it is no longer viable in health insurance, in which we are striving toward universal coverage. 


Although the plan would restrict insurers from changing rates or refusing business on a company-by-company basis, there is no reason they can’t offer differentiated rates based on controllable behavior; Safeway has had some success in this. The insurance companies could charge more to employees who smoke, skydive, or hang-glide. They could even charge different prices for different age brackets, thus avoiding overpricing plans for the young. 


Of course, offering a group health plan to nearly everyone would be progress, but thin progress indeed if few bought the plans because they were so expensive. So we also need to have a mechanism that actually reduces cost. 


It is important to realize that reducing the cost of health insurance and reducing the cost of health care are not the same thing. When pressured to reduce costs, most companies wind up increasing deductibles and co-payments. This reduces the amount paid to the insurance company, but mostly just pushes the cost onto employees. 


It is crucial, therefore, to reduce the cost of health care, not just of health insurance. Though reducing health-care costs by restricting access is questionable, everyone would like to reduce the amount spent on administration, reinsurance (basically, the insurance that insurance companies buy), and profit. One way to do this is to make sure that health insurance is not used to reimburse predictable expenses. It is impossible, for example, to insure against an annual checkup. This insight was behind the move to Medical Savings Accounts, the idea of which is to allow people to save money tax-free to pay for predictable levels of health-care spending. 


It’s a good idea, but the MSA plans for sale typically do not lower the actual administrative cost very much, because all the bills still go through the insurance company and the company network. Individuals do this, even though they are paying their own bills out of the Medical Savings Account, because this is the only way to access the benefit of the pre-negotiated network rates. 


This benefit should not be underestimated. At my company, more than two-thirds of the benefit employees get from health insurance comes not from the payments the insurance company makes, but from these pre-negotiated network discounts. 


But these discounts are phony. The “official” rate is barely paid by anyone. Anyone with any kind of insurance — group, private, Medicare, Medicaid — gets a discount. Even without insurance, articulate and educated consumers operating in non-emergency situations can negotiate discounts in return for payment in full. In a perversity of fairness, the only people who are billed full-rack rates are the uninsured, especially those who are inarticulate or unable to negotiate for themselves. 


The solution: Let health-care providers charge what they will for their services, but require them to post these fees publicly and offer them to all comers regardless of insurance. This is standard practice in industries such as ocean shipping, where common carriers predominate. Shippers aggressively work to get common carriers to demand low rates for their type of cargo, even though the negotiated rate will then be available to all. 


The benefits would be instantaneous and substantial. First, the uninsured would instantly get a significant benefit. Second, it would open the way for genuinely less expensive insurance tied to medical savings accounts.  


Fire insurance is cheap because after they buy the policy, most people live their entire lives without bothering the fire-insurance company again. In order to provide inexpensive health insurance, we need to structure things so that deductibles are high enough that most people, most of the time, pay for their own care and leave the insurance companies out of it. There is no need to have insurance companies involved in day-to-day medical expenses.  


Many insurance holders would go their entire lives without submitting one bill to an insurance company. This would drive administrative costs way down. Medical savings accounts and similar devices would offer large savings, and the insurance component would provide only catastrophic coverage. 


We can, once again, expect insurance carriers to object; setting up complicated networks, processing claims, and handling disputes are at the core of what they do today. Without these functions, many new competitors could offer low–cost, high-deductible insurance at significantly cheaper rates. 


The carriers would claim that their negotiations are crucial to getting hospitals, doctors, and pharmaceutical companies to offer bargain rates. But providers offer discounts to insurance companies to get business. In a system where most people are paying out-of-pocket or via savings accounts, medical providers will still compete for business; the rates will just have to appeal to customers rather than insurers. 


Initially, at least, we would have to exempt government programs — which simply tell doctors what they’re willing to pay — from this system. Many providers would drop Medicare if keeping it meant giving everyone Medicare rates. Exemptions could also be allowed for charity work and barter. 


The Left is sure to object that this solution is not comprehensive enough; it does not ensure that every single individual in the country has full insurance. The Right will complain that it does not break the antiquated connection between employment and insurance and does not eliminate the many distortions to the free market caused by government intervention in the health-care market.  


Both critiques are accurate. But the plan is liberal in that it makes insurance widely available and less expensive, and in that it moderates a rough edge of capitalism on which hospitals charge the uninsured and inarticulate multiple times what they charge the insured. And it is conservative in that encourages people to examine options, such as medical savings accounts, that will let them be almost always autonomous in their health-care choices.  


After what happened to President Clinton’s health care proposal, President Obama should be wary of allowing the “perfect” to become the enemy of the good. These two simple changes — requiring health-insurance companies to provide any business with their plans at the same rate, and requiring health-care providers to provide care at posted rates — amount to a commonsense reform for much that ails the health insurance system. 


– Jim Prevor is the founder and CEO of Phoenix Media Network, Inc.


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