The Best-Kept Secrets of Healthcare Reform

Health care 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%. (Excludes private HMOs.)

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, Chrysler?

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 backwards.

Here's another 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 insurance).

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.

Self-funding is 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 million.

Both options, self-funding or HMO, provide one-time savings of 30-45% from the switch, with future savings from better management.

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 workers.

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 coverage.

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 account.

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 now.

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 dumb?

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 described.

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 it.

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. ...

SOURCE, 1993 Statistical Abstract: Table 150 for total health-costs. 162 for Medicaid, 156 for Medicare, 841 for private insurance (subtract "loss of income").

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