Friday, March 06, 2020

Employer-sponsored insurance is deteriorating. What about fixing it rather than replacing it?

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Medicare for All's main political liability, as the presidential campaign has made clear, is loss aversion: most Americans are insured,  most are reasonably satisfied with their coverage, and a significant minority consider their top-drawer coverage a major asset. Americans also have ample cause to doubt their government's capacity to completely remake the country's healthcare system and serve as the sole source of major medical insurance to everybody.

At the same time, Medicare for All speaks to a current reality: employer-sponsored insurance (ESI), which covers the majority of Americans under age 65, is deteriorating, and Americans know it.  Kaiser Family Foundation tracking poll results released last week neatly capture the core household worries related to healthcare:
About two-thirds of Americans say they are either “very worried” (35%) or “somewhat worried” (30%) about being able to afford unexpected medical bills. This is larger than the share that say they are worried about affording a variety of expenses, including other types of health care costs as well as other household expenses. About half of insured adults say they worry about being able to afford their health insurance deductible (49%) and four in ten (40%) worry about being able to afford their premiums. More than four in ten adults overall worry about affording prescription drug costs (45%).
The vulnerability to out-of-network billing -- and Americans' awareness of that vulnerability -- is staggering. 65% worry about unexpected bills! That fear also stems from the relentless rise of deductibles, which, as Kaiser CEO Drew Altman pointed out in an op-ed last April, "rose eight times faster than wages between 2008 and 2018" -- i.e., 212%.  Altman's conclusion has been a Kaiser drumbeat, reiterated in every tracking poll report:
it’s the candidates who can connect their plans and messages to voters’ worries about out of pocket costs who will reach beyond the activists in their base. 
Lawmakers could take substantial bites out of those rising costs with legislation that bans balance billing and empowers Medicare to negotiate drug costs for all payers (as in the House-passed HR 3), and Democrats should be promising loudly that they'll get those tasks done (notwithstanding that Democrats in thrall to healthcare providers have impeded balance billing legislation so far). But deeper structural change is needed.

The solution preferred by almost every Democratic presidential candidate who balked at a complete government takeover -- including Joe Biden -- is a strong public option available on an affordable basis to everyone, including those with access to an employer plan. The theory is that employer-sponsored insurance will either die on the vine or be forced to compete with a public plan that pays much lower rates to healthcare providers. The Medicare for America Act of 2019, a strong "Medicare for all who want it" bill, explicitly levels the payment playing field by stipulating that providers who accept the public plan must accept the same payment rates from private insurers.

Those seeking maximum results with minimal disruption, however -- that is, minimal increase in government spending and new program design and implementation  -- might argue that we're viewing the rising cost program from the wrong end of the telescope. Instead of vastly increasing the government's role as insurer, why not reform private insurance -- mainly ESI?

The first step is to eliminate surprise out-of-network billing, a huge financial exposure that undermines the very idea of insurance. That may happen this year. The broader challenge is to halt the relentless rise of costs borne by consumers for in-network services -- and that entails halting the relentless rise in the underlying cost of care.

According to Kaiser's 2019 Employer Health Benefits Survey, the average deductible in ESI is now $1700. Among small employers, it's $2,300. The average annual out-of-pocket maximum for an individual is $4,000. The highest allowable MOOP will be $8,500 next year. By international standards, that's a gargantuan exposure.

A September 2019 Kaiser report on large employer coverage found that health spending by families in large employer plans has grown twice as fast as wages over the past decade. The employer share of costs in family coverage (premium plus out-of-pocket) has downticked only slightly:  it was 68% in 2008 and 66% in 2018.  But families and employers alike are tapped out: total costs increased 67% over those ten years, while wages rose just 26%. The average family plan premium has topped $20,000.  That constitutes about a quarter of compensation for a median income family, as the employer share of the premium is also compensation.

Employers have been exhorted for decades to control healthcare costs. They've proved incapable; the lack the leverage of the federal government. commercial insurers pay hospitals about 189% of Medicare rates, according to a Congressional Budget Office estimate, and 241% Medicare according to a more recent RAND study. Commercial rates for doctors are about 128% Medicare, according to MEDPAC. And those are just averages. In high-demand specialties, and in areas where certain specialists are in short supply, commercial rates can be three, four, five times Medicare.

The dominant healthcare reforms plans deal with these runaway costs by expanding the footprint of public insurance, where cost control has been more effective. A lighter-touch alternative might be to regulate payment rates for private insurance.

Both a Trump administration proposal and H.R. 3, the sweeping prescription drug cost control bill that passed the House, use benchmarking as a cost control device: for designated drugs. H.R. 3 stipulates that the maximum price negotiated by Medicare not exceed 120% of the average price in Australia, Canada, France, Germany, Japan, and the United Kingdom.

Benchmarking commercial provider payment rates at, say, 130% of Medicare might finance mandated reductions in out-of-pocket costs in ESI plans. Imagine if the highest allowable out-of-pocket max were $3,000 (high by international standards, but we are what we are) and every employer offering insurance had to offer a plan with a deductible of $500 or lower.

Hospitals and doctor groups would fight commercial rate-setting tooth and nail, as they manage to kill or weaken every encroachment on the rates negotiated in our every-payer-for-itself market. For a public option in the ACA marketplace likely to be accessed by perhaps 2% of state residents, Washington state could manage no better than a 160% Medicare base rate, with upward adjustments allowable in rural areas. In Colorado, a just-introduced public option bill pegs rates at 155% Medicare. Provider lobbies have thus far stalled balance billing legislation that would hold out-of-network billing to prevailing commercial rates.

But if commercial rate-setting sounds politically impossible, it should be less impossible than Medicare for All or a strong public option paying adjusted Medicare rates and affordably available to anyone who wants it.

Reform of employer insurance would also require a regulatory overhaul. As of now, fully insured large group plans are not required to cover the ACA's ten Essential Health Benefits, and self-insured plans are exempt from much of the regulation to which fully insured plans are subject (as well as from almost all state regulation).  While most large employer plans offer good insurance by American standards, that's not uniformly the case, and plans offered to low-wage workers tend to be skimpier than those available to high-wage workers. A thoroughgoing reform of commercial insurance should also entail tighter controls on prior authorization rules and the rules and standards by which plans deny coverage for specific treatments.

Reform focused on commercial insurance should include improvement of the subsidy structure in the ACA marketplace, reducing enrollees' out-of-pocket costs as well as premiums. Capping rates would  partly finance those improvements too.

While Americans distrust government generally, they rightly trust government insurance programs more than the private insurance industry.  Medicare for All, or for all who want it, appeals because it promises expansion of a trusted program.  But effectively regulated private insurance can take on the characteristics of a public utility, as it has in many European countries. The sine qua non is uniform payment schedules -- which also reduce administrative costs. Rate-setting might be easier than massive public program expansion. Taming the insurance industry may be no more Herculean a task than taming hospitals and physician practices.


  1. All good ideas but why not simply make it possible for the states to regulate ERISA plans or,alternatively, to make employer plans non-ERISA. While we're at it,we could say that you can choose any insurance offered in your area, your healthcare costs can't exceed a said percentage of your overall compensation (Joe says 8.5%) and if your employer offers benefits, they pay at least 50% of that.

  2. The state of Maryland has had a uniform fee schedule for hospitals for several years now, but I do not think it has lowered the cost of health insurance at all.

    Maybe the schedule was set quite high, so that all hospitals would make money.

    Or, maybe the risk pool of insureds has a great effect on insurance premiums as well.