The Best-Kept Secrets of Healthcare Reform
Copyright 1994-2010 by Michael J. Hihn and Liberty Issues. All rights reserved.
Personally, I love a system that eliminates both the
government and the insurance bureaucracies.
represents 1/7 of our economy, approaching one trillion dollars a year. Of that
total, what percentage would you say is paid by insurance companies? Insurance
companies are the major villain in health-care reform. How much of the mess is
their fault? In round numbers -- 60%, 40%, or 30%?
The correct answer is less than 15% of health-care costs
are paid by private insurance. And I apologize for the trick question. In 1990,
insurance companies paid $90 billion of the $675 billion total, or 13.3%.
below. Excludes private HMOs, because we're looking only
at actual third-party insurance.)
Government insurance spent nearly twice as much, $174
billion, for Medicare and Medicaid alone. And costs for these government plans
are increasing nearly twice as fast as private plans. That's the first
well-kept secret: government plans dominate the health-care market, and do the
worst at controlling costs.
We keep hearing the private sector has failed. But if the
auto industry is in trouble, do we blame the smallest supplier,
In autos as in health care, the largest supplier (GM) is
the least efficient. For health care, the evidence suggests the private sector
should be taking over the government plans. We're doing it
well-kept secret: Three major proposals, including the President's, will
require higher local taxes for many schools and cities.
When I was a school board member, we saved tens of
thousands of dollars per year by self-insuring employee health costs. We
reimbursed expenses ourselves, up to a "stop-loss" maximum (high-deductible
Do your city and schools self-insure? If so, your local
taxes could increase, when the President makes these savings illegal for
employers of fewer than 1,000.
A May 19 Wall Street Journal op-ed piece reported that
405,000 small-medium businesses now self-insure their employees. Administrative
costs average only 6%. The Independent Grocers Association manages a
self-funded plan for IGA grocery stores, providing coverage for 37,000
families. But because each store is an independent small business, that
coverage would be banned.
only one way employers have cut costs without sacrificing quality. The other is
a big switch to HMO coverage. From 1980 to 1992, when insurance rates were
skyrocketing, HMO enrollments more than quadrupled, from 9.1 million to 37.2
Both options, self-funding or HMO, provide one-time
savings of 30-45% from the switch, with future savings from better
Meanwhile, employers who provide traditional
low-deductible, third-party health insurance have failed to control rate
increases. Instead, those employers have shifted more of the burden to
Cost increases are much less in private health plans. But
look deeper, and we see two opposing factors. Traditional plan rates are still
skyrocketing. But cost reductions are occurring in those workplaces, both
public and private, that replace or reduce traditional third-party
That's why Medical
Savings Accounts (MSAs) deserve a closer look. MSAs, and how they work, are
another well-kept secret. My family already has a restricted MSA, the Flexible
Savings Account now used by millions of Americans. (Flex accounts are another
cost-saver the President would repeal.)
Personally, I love a system that eliminates both
government and insurance bureaucracies. Our family has HMO coverage. Our flex
account self-reimburses the copayments (tax free). We fully self-insure (pay
cash for) the optical needs of three people, also from the tax-free flex
Reimbursement is simple, from my wife's employer. I attach
cash receipts to a simple form that contains her name, employee number and
signature. We get the same tax treatment as employer-paid insurance, without
paying insurance overhead.
If I could, I'd cancel the HMO, buy insurance for only
major expenses, pay cash for everything else, and let the savings accumulate
for our son when we're gone. But Congress won't let me.
One proposal, by
Senator Phil Gramm, would have your employer place your full insurance costs,
up to $4,500, into a tax-free MSA. It would then be your money. You could
self-insure (pay cash) to whatever extent you want, and buy insurance for large
expenses only. You could switch to an HMO, or do nothing and keep what you have
However, there is a strong incentive -- cash in your
pocket -- to either self-insure or join an HMO. Each year you could withdraw up
to $1,500 of any savings, as taxable income.
Self-insuring would save the most. But the Senator may
have oversold that option, while doing nothing to help you do it. His critics
claim most folks are too dumb to shop for insurance. Are you too
The critics have a
point, though. If the Senator wants to encourage self-insurance (paying cash),
he could have made it a lot easier. Two simple changes would do that. First,
help more small employers to provide self-insured plans, by allowing
small-business and trade associations to manage them ... like IGA.
For those who individually self-insure, Gramm's plan
already transfers the money to your own account. If banks are then allowed to
offer debit cards on those accounts, we can even eliminate that simple form I
You'd have two health care cards. The catastrophic
insurance card is there if you need it. The debit card would pay instant cash
to your doctor, charged against your MSA, with no paperwork for either of you.
Common sense. But Hillary's secret panel of 1,000 "experts" missed
One card or two?
With one-card plans, we start by repealing proven cost-savers, then add a huge
new bureaucracy and more insurance reimbursements than now. Add the second card
and we slash insurance involvement, avoid more government, expand what already
works, and give you several options to increase your take-home pay.
If we did the same for government plans, the savings could
pay all or most of the costs for universal coverage. That's the final best-kept
secret. The real obstacle to genuine reform is ... partisan politics. It's
Democrats who most want universal coverage. But it's Republicans with the best
way to pay for it, by cutting costs for the currently insured.
SOURCE, 1993 Statistical Abstract: Table 150 for
total health-costs. 162 for Medicaid, 156 for Medicare, 841 for private
insurance (subtract "loss of income").