Monthly Archives: August 2009

A Foundation for a different health reform option

Although HR3200 may be dead, we are at an important crossroads that calls for reform activists to try again.  As a fervent Capitalist, I’d like to propose the foundation of what I believe is the cornerstone for healthcare reform that will control costs without limiting choice.

The primary reason that HR3200 and virtually every other bill that is being crafted will bring nothing but complaints is because it perpetuates the single most flaw in our US health care system, Hyrdraulic funding.   For the past 30 years, the primary goal of Medicare, Medicaid and Private Healthcare companies was to obtain “discounts” from the cash price.  This elimination of this system is the contingent and primary pillar of my reform proposal.    

Do away with discounted hydraulic funding of healthcare models.   Under my reform proposal, provider can charge what he wants, within standard deviation averages, and must charge that same amount to the member or insurer regardless of the type of insurance the member has or doesn’t have.

Using existing Medicare Pricing models and PPO network data, all providers are assigned a rate category based on the rates that they charge for a procedure.  Rate Categories are separated into 6 rate tiers with additional sub-regional adjustments.    The provider would be given notice of their rate tier as determined by their current charges.   The provider would be notified of their preliminary tier 90 days prior to the effective date of the program.  The provider would have 30 days to review their tier and request a change of tier.  If they do not request a change, the provider will have that rate tier starting 90 days later.   Forty five days prior to the beginning of the rate period, providers will be sent their final charge scale which will recalculate the scales based on provider tier change requests.

 Percentage of Providers will be divided into rate tiers in the following ratios:

·         Tier 1: 25%, Tier 2: 20%, Tier 3: 20%, Tier 4: 18%, Tier 5: 15%, Tier 6: 3%.


Providers priced in Tier 6 will not have any pricing limit or average charge, but will be classified as Private Healthcare providers.   If the provider is a tier 6 provider for the following year, similar to the Section 4507 declaration as provided under the 1997 Balanced Budget Amendment, the provider may not accept reimbursement from any insurer.  In this plan, the rule would extend from Medicare only, to all public or private insurers, except under emergency situations.  To see a Tier 6 provider, the consumer must sign a private contract with the provider acknowledging that no insurance will pay any part of charges from that provider.  A provider found to be in Tier 6 may elect, at any time, to be a Tier 5 provider.  If that election is made, the provider may not revert to Tier 6 for a period of three full years. 

A provider would be able to request a mid-year rate tier change at any time, with a 90 waiting period.   A provider may only request a change of tier once every 5 years.   No more than 25% of providers in any tier may change from their tier from in any given year to prevent pricing model manipulation.   Each provider would be required to prominently post their rate tier.

Under this new system, both Public and Private Insurers would have fee-certain levels to insure and members would clearly understand their obligation and share of costs. 

Medicaid and Medicare reimbursement rates would be set at 100% tier 1 levels.  Any member on Medicare or Medicaid would be able to see level 1 provider and receive 100% reimbursement for services provided, eliminating the need for providers to collect any additional funds from their members and reducing their cost to provide service.    This would allow all consumers on Medicare to be able to choose cost effective providers and receive 100% coverage with no deductible to 25% of providers.  If a low income Medicare recipients did not have a supplement, they could have thousands of dollars of out of pocket costs even if they tried to go to lower cost providers.  This puts additional burden on not only the member, but the provider who must make up the lost revenue on others.       

Medicare would reimburse Tier 2 providers at 80% after a small deductible, similar to current Medicare structure with declining percentages of reimbursement and increased deductibles, based on the rate tier of the provider, through Tier 5.  Members could then purchase supplemental insurance, based on their needs and desires to have insured benefits.  Medicaid eligible individuals would then be able to purchase for little or no premium, depending on % of Federal Poverty Level (FPL) a Medicaid policy covering level 1 providers.    Insurers can compete for Level 1 policies with reimbursements similar to Medicare Part C exchanges. 

Private insurance companies would develop products for members based on reimbursements at levels of providers.  A plan might be $5 copayment at Tier 1, up to $50 at Tier 5.   Deductible might be $100 at Tier 1, to $2500 at Tier 5.   

A governmental health board would set maximum out of pocket limits for insurance policies  to make sure that insurance companies are forced to provide benefits that do not leave providers with large receivables. 

Why this would work.

Currently insured members have no direct control to seek out cost effective providers.   Under a posted number system, a member could seek out, and directly benefit from, seeking out lower tier providers.   If a member needed an MRI, they might have to wait a couple of weeks to get a level 1 scan on a non-emergency basis, but could get a level non-emergency scan that day.  The insured member has control and Medical providers could decide on priority.    

Providers who want to be busy will feel pressure to lower their operating costs without reducing service.    The argument that the “free market” system hasn’t worked is flawed in that we do not currently have a free market system.  We have a system dominated by insurers’ public and private who cannot incent members to choose less costly providers.  Low income and Medicare members are guaranteed to have at least 45% of all providers available at coverage levels at or better than current levels.   

Our current hydraulic funding of healthcare with phony pricing schemes designed to maximize reimbursements has driven providers to have more finance people than medical people on staff.  Anyone who has ever had an inpatient hospital expense where the bill might be $20,000 to start and is then discounted to $4000 by Medicare or private insurers, knows that this system is broken.

Guaranteed Access to Individual coverage.  Individual Pre-existing Condition elimination, No Mandate.  Incentive and Tax Penalty based:   Both are implemented conditionally.  

We currently have an estimated 12 million uninsured that are entitled to free or minimal cost subsidized healthcare.   It is not reasonable that all individuals purchase insurance or enroll in low income programs.   Additionally an additional, 7.3 million uninsureds earn in excess of 400% of FPL. (Source: US Census Bureau)    Without a single payer system financed by taxation, a system must address the 3-4% of the population that will continue to be uninsured or may try to beat the system, even with tax penalties.    >>

As a result, the program would offer all uninsured’s an opportunity for guarantee to issue insurance with an initial 24 month pre-existing condition clause.  A waiver of the preexisting condition clause can be elected at the initial enrollment period by selecting the preex waiver fee.    The preex waiver fee is a 24-month rate surcharge of 15% above standard rates.  The 15% preex waiver fee is only available during the initial year of the program and applicable only to those without current insurance.  

Each person will be offered a once in a lifetime waiver of their pre-existing condition clause.   If an individual does not obtain individual insurance or is enrolled in group insurance after the initial period, and if they find themselves uninsured in the future, they exercise can elect the once-in-a-lifetime waiver.   The waiver cost starts at 5% in the first month after their initial enrollment period.  If in the future, if the member is uninsured and attempts to get insurance, electing the preex waiver, they pay a 5% surcharge plus additional 0.5% surcharge for every month they were uninsured,  starting at the initiation of the program, continuing for 10 years. 

The member does not have to elect the preex waiver and can wait for an underwriting decision before electing the waiver.  The insurance carrier may offer coverage without a preexisting condition clause without the waiver election.   If coverage is offered to a previously uninsured member, the carrier may not rescind coverage as they can now, but may retroactively assess the surcharge if the member misrepresented their prior health history.  If the member rejects the assessment, the carrier may rescind coverage under the same two year period that they can now.  >>

If someone was uninsured at the initiation of the program, enrolled in coverage, and wanted insurance with no preex clause at the program initiation, and if standard premium was $100, they would pay a $15 surcharge for 2 years.   If that same person waited for 2 years and wanted a waiver of coverage, you would be 24 months after the initiation period, at 0.5% per month; you would have 12%+ base 5% or 17% surcharge for 10 years.  The surcharge would follow the individual even if the individual changed individual carriers.  If the member obtained group coverage and remained continuously insured during the term, the surcharge would not extend to the employer policy, and the time would continue to accrue during that time.  If and when the individual loses their group coverage during that 10 year period, the surcharge would continue until the 10 years is up.  Pricing for individual policies can range from 5% above or below standard pricing, based on medical underwriting, exclusive of uninsured, time-surcharges.  An individual may bypass underwriting by electing the maximum medical rating of 5%. >>

Every year an individual will be allowed to elect new coverage without evidence of insurability during an annual open enrollment period.  The annual election period would be based on the surname of the individual to spread out the enrollment month.  If you wish to change carrier in between your annual open enrollment period, you may, but you would be subject to the underwriting 5% rate up or discount. The insurer may decline you except during your open enrollment period.   In addition, an insurer may decline your ability to buy enhanced coverage but must offer you comparable coverage.   State insurance boards would decide what is considered comparable coverage between carriers. >>

Individuals losing group coverage may elect comparable coverage, with no preexisting condition clause or being subject to time-surcharges, unless previous time-surcharge exists, as long as they elect coverage within 63 days of the loss of coverage.   Coverage would be retroactively effective to the day following their loss of group coverage.  >>

Uninsured Income Tax Penalty:  Individuals without insurance would pay a 4% surtax on every dollar of income earned, per person in the family, up to 8% of income to the Federal Health Pool.  If you are uninsured during part of the year, the surcharge would be of .5% per month, per person, up to 8% maximum.     

Employers and Group Health Insurance –  Employers of all sizes are required to contribute to employee insurance benefits.  No exceptions.  The minimum wage will be lowered by $0.50 per hour.   Employers are mandated to contribute the greater of 5% of gross earnings, or $1 per hour, towards healthcare benefits for their employees up to maximum $500 per month, per employee.   An Employer is not restricted from providing more than $500 per month in employer subsidies.   This benefit level is applicable for all employees working more than 20 hours per week, or earning at an annual rate in excess of 125% of Federal Poverty Level.  

For employees working less than 20 hours, the employer must contribute 5% of their income into the federal health pool. 

Where group insurance exists, and is not elected by the employee, regardless of reason, a tax surcharge of 2% of that employee’s income must be paid into the federal health pool.

(Example 1:  Full time employee, 170 hours per month, earning $2,000 per month:  5%=$100,  $1 hour=$170,  employer contributes minimum off $170) 
(Example 2:  Full time employee, 170 hours per month, earning $20,000 per month: 5%=$1000 per month, but maximum required is $500.  Employer must contribute at least $500, but may contribute more.) 
(Example 3: Part time employee: 10 hours a week, $8 per hour, 43 hours per month:  Employee not eligible for benefits, employer pays $17.20 into health pool)
(Example 4:  Full time employee: Group plan exists, waives coverage for any reason, earns $2,000 per month:  Employer pays 2%, $40 per month into federal health pool).


Employers who do not provide health insurance benefits pay the greater of 5% of gross earnings or $1 per hour towards healthcare benefits for their employees up to a maximum $500 per month.

Group Health Insurance can be underwritten by carriers with a plus or minus 7.5%maximum rating based on medical conditions within the group.   A group medical plan may have no more than a 6 month preexisting condition clause. The preexisting condition clause is not applicable for those that had prior coverage, with less than a 63 day gap of coverage.   Individual and group coverage is creditable towards that 6 month preex period. Employers may not have a waiting period for coverage in excess of 60 days plus the time period to the next monthly period that the employer has coverage.  >>

Subsidies:  Individuals and families are eligible for direct to insurer subsidies in declining scale up to 400% of Federal poverty level.   Those subsidies are available to employees who elect employer or individual coverage.    >>

Age Band and gender pricing applicable to groups and individuals:  No more than a 150% price difference may exist for the lowest cost individual to the highest cost individual based on age and gender, per plan.   If a 20 year old male was $100 per month, a 64 year old male would be no more than $250 per month.   If the 20 year old male was $200 month, the same plan could not cost a 64 year old more than $500 per month. >>

The Public Option: Form an Agency of the US government in corporate structure like Fannie Mae.  Must operate and provide benefits in all regions.  The plan pays a 5% of premium for members, to the residential State of the member to offset regional costs and loss of employment costs.   Contingent on the existence of mandated pricing tiers, the government option can write their own rules and plan benefits competing on a level playing field with private insurers.   As a privately owned government backed corporation, it would have a profit requirement.  >>

Health Insurers whose claims payments average less than 77% over 24 months pay a tax surcharge equal to 35% of the difference to a 77% loss ratio.  >>

Plan limitations and regulation:  Each state can mandate their own coverage requirements.  Maximum out of pocket exposure for price level 3 providers may not exceed 10% of the FPL per individual.  Dependent children who are unmarried, are eligible for parent coverage until age 26 regardless of student status.   >>

The Federal Health Pool:  Will reimburse provide additional revenue to Medicare and Medicaid recipients.    

I believe that the net effect of this plan would be:>>

·         Lower cost healthcare.>>

·         Simplified pricing by providers. 

·         Reduction in provider overhead due to simplified filing and reduced collections cost.

·         Protection to insured employees from an employer selecting plan benefits that they can neither afford premiums or afford to pay their out of pocket expenses to providers.

·         Incentives to the consumer for choosing more cost effective providers but the opportunity to see any provider.

·         Incentives to providers to choose their market and charge a fee structure of their choosing.

·         Guaranteed access to insurance for individuals and employers. 

·         Reasonable protection to those that make a mistake or are unintentionally uninsured.  Penalty to those that try to beat the system.

·         Insurance funding for the poor spread out.

·         Incentives to employers to not only offer insurance but incentives to get participation and offer cost effective plan options.   If benefits are too rich, participation may suffer, and the employer will pay additional taxes as a disincentive to offer excessive benefit programs. 

·         Reduced cost structure for employers who already offer benefits to employees. 

> >

Who will probably object to this plan.  >>

·         The Government –  By no longer being able to pass on mandated, significant provider reimbursement discounts, Medicare will no longer have private insurance subsidizing their costs.     (They will cover those additional costs by additional Health Fund Revenues)>>

·         Those that believe that the government should have no rules except Constitutional requirements.  >>

·         Uninsured Wealthy individuals. >>

·         Ultra High income / Net worth seniors who may find their Medicare supplement costs increase. >>

Moderate Republicans and Democrats need to have an alternative.   I look forward to my subscriber’s criticisms and input to improve this broad outline. 

RIP HR3200 (June 2009- August 2009)

The White House appears to be backing away from the formerly ‘must-have’ provision of a pubic option health care plan.

 Since the introduction of HR3200,  the politicians have been chopping away at health care reform mandates, upping the exclusions to the majority of small businesses,  reducing the amount that an employer must pay for employees,  cutting subsidy levels to the poor, balking at other provisions to help those with real issues, get a mandated correction.   Even AARP has publicly turned their back on HR3200 saying that they do not support HR3200. 

The Public Option has been a lightning rod of controversy, and in our opinion, deservedly so.  We saw it as the half-truth that was going to create savings to finance other, fundamentally flawed, ideals.  Without it, no front-loaded savings exist to pay for the costly parts of reform.

The likelihood now appears that the bill that will hit the Senate may be nothing more than a tax increase for all to finance the permanent removal of Medicare reductions to providers that are scheduled to kick in January 1, 2010.     A promise to create a co-op for individuals to purchase individual health insurance will probably be years away and could be revised, delayed, or killed by either of the next two Congresses or whoever is in the white house in 2013.  Major Medicare Reform passed over the past 8 years will be revised, rescinded and rolled back.  We expect both the Republicans and Democrats to claim victory, while in reality, both have lost.   

The best bill may be no bill at all.   

Health Care Reform starts to show it’s ugly side

As we end week 7 of the public debate on health care, the tone has changed.   Neither the Republicans nor the Democrats are pushing forward with clear explanations of who specifically will benefit, or who will be hurt by reforms offered.   The tone has changed to finger pointing and mis-information.   

As the public support for HR 3200 dwindles, the push-back has gotten nasty.   House Majority leader Nancy Pelosi has accused the insurance industry of “IMMORAL” Profiteering.  Democratic leadership has also accused Republicans of organizing “
Angry Mobs
” to disturb town hall meetings.      Republicans are pulling out some ‘cold war’ terms to demonize the Democrats.  

Profiteering is a pejorative term for the act of making a profit by methods considered unethical. Business owners may be accused of profiteering when they raise prices during an emergency (especially a war). The term is also applied to businesses that play on political corruption to obtain government contracts. (source: Wikipedia)

I encourage readers of this blog to keep focused on the issues at hand.   You are encouraged to be informed of cost and value while promoting intelligent discussion of ways to improve our nation’s health care system without vilification.  

If you are ready for a good read, you are encouraged to view the
44 page summary of HR3200 and committee notes, as prepared by the Kaiser Foundation.   It makes no judgment or editorial on the plans, but rather it points out the complex tax and benefit structure that each ideology outlines. 

The “Public Option” Flash Point

The most controversial point of health care reform centers on the need ,or opposition to, for the “public option”.   Current bills and committee notes in the House and Senate have various versions of the “public option” with the Republicans favoring no option at all.  Almost all other components of the legislation need only tweaking to get passed.   This issue is the proverbial ‘line in the sand’ on both sides of the aisle in Washington.    The truths, falsehoods, and half-truths should be openly discussed.    All progams have pro’s and con’s. 


With nearly 50% of Americans covered by some sort of government plan already (Medicare, Medicaid, VA, Government employees) it’s admitted difficult to fully understand the arguments of something that already works for half the people already. 

Red Dog Democrats (Liberal) argued during the last week of July that they would not support health care reform without a public option where the public plan members get Medicare reimbursement rates from providers.   Liberal Democrats claim that this is the most important way to reduce health care costs and make health care affordable to those on the public option.   They aren’t wrong.   It will reduce the insurance costs for those participants.  It just doesn’t fit into a sound byte as to why it’s a bad option.    

Currently Medicare and Medicaid reimburse providers at a dictated fee.  If a provider wants to participate and treat ANY Medicare or Medicaid provider they must accept that fee schedule.    In browsing Medical organization group websites, virtually all of them indicate that Medicare reimbursements do not cover the actual cost to provide the service.   If that’s the case, why would the provider continue to do business with Medicare recipients at all?   Businesses know that some customers are more profitable than others.   Businessmen also know that if you have a larger market to spread out your fixed costs, you can become a lower cost provider.  By accepting Medicare patients, you spread out your fixed costs and make up additional profit on your private insurance customers.  


According to, a media organization serving the needs of the emergency medical industry,    in 2007, the average cost to provide an ambulance ride to a patient was $415.  Medicare reimbursed providers $390.   What is not factored in the true cost to provide the service is the uncollectible portion of the patient portion.   Even conservative accounting would dictate that it would cost another $20 to collect the 20% balance from the patient.  Let’s use this EMS industry as a microcosm exam of how the public option would work.   For this example, I am going to use EMSR data and assume a 5% profit margin for the provider to illustrate and prove the Red Dog Democrats point in advocating a public option. (Or am I?)  


Example:  As a provider, you give 1000 ambulance rides throughout the year with an average cost of $415 per ride to provide the service, your collection costs are 5% with a 5% profit margin.    50% of your clients are under Medicare reimbursement rates.   What do you charge the Private sector riders?


Cost to provide 1000 Rides

($ 415,000)


Cost to Collect balances 5%

($   20,750)


Profit Margin

($   20,750)


Total Revenue needed



Revenue from 500 Medicare Recipients

$  195,000


Balance Needed from Remaining Rides



Charge per non Medicare rides  (500)

$     523




Under the current system, with 50% getting Medicare reimbursement rates, the private sector would need to pay 32% ($523 v. $395) more for the provider to remain in business.  


In this example, if you were under a Public option with mandated Medicare reimbursement rates, that insurance would be able to charge you 25% less premium to cover the same service as private insurers.    So what’s the problem?    I like the idea of paying 25% less.   Doesn’t everyone?


Even if you are fundamentally opposed to Government Health care, you can assume, and most agree that the public option would be attractive enough to add 40% of those currently insured privately into the government health plan.  With that in mind, let’s revisit our Ambulance Company with now 70% of their riders in the Medicare Rate tier.


To be as fair as possible; let’s assume that this ambulance company did not have to pay any additional taxes (which isn’t reasonable) to insure the uninsured.  Many will argue that the taxes will be offset by the government insurance option, so let’s give them the benefit of the doubt.  


Cost to provide 1000 Rides

($ 415,000)


Cost to Collect balances 5%

($   20,750)


Profit Margin

($   20,750)


Total Revenue needed



Revenue from 700 Medicare Recipients

$  273,000


Balance Needed from Remaining Rides



Charge per non Medicare rides (300)

$     611



Since the Medicare reimbursement rate has taken 40% of profitable clients into a loss position, additional money must be made from those paying privately.   As a result, the 32% difference from Public to Private has now jumped to 54% difference. ($611 v $395)    Our theoretical insurance public insurance company now charges 36% less than private insurance to cover the same services. 


Over a few a years, with escalating differences for private insurers to cover the same services, it’s reasonable to assume that all reasonable businesses and people would choose the government health plan.   This once and for all PROVES that the government run health plan would be better.  Right?   Wrong!  Getting someone else to pay your share doesn’t make it cheaper.  This example proves that the Public Option would allow people to insure themselves for 36% less than private insurance, yet the provider received no less revenue.  

The same shows that while the average cost to provide the service is $415, the range of cost varies from $100 to $1200 depending on provider.   Under the government reimbursement rates, higher cost providers would most likely close.  (Let me just state for the record that this coming conclusion sounds like fear mongering, but I have no other reasonable conclusion.)  


The fixed cost to provide ambulance service and staff are the most important factors in looking at the variations of providers.   If your ambulance is equipped with the latest technology and you have a low volume of needs, your cost will be the highest.    If you are in a high density area, you must be prepared with services that allow for twice the normal high load period that might also be 10 x the capacity for low load times.    In rural areas, you would most likely either have to wait much longer for an ambulance to come or not be able to keep the latest technology in your area.   In an urban area, your resources would be stretched much thinner in a small crisis mode.    This example can be extrapolated throughout the entire medical system, from Hospitals and Cardiologist, to Radiologist and Ambulances.  Experiments in State insurance reform in Kentucky, Massachusetts and New York expose the flaws in the assumptions of a true public option. 


The public option with Medicare reimbursement rates will save money and allow for more affordable health care options.   It will come with significant costs in other areas.  Without specifically rationing health care, it’s a virtual certainty that capacity will be reduced and care will be rationed.   With Medicare reimbursement rates schedules to be cut 20% in 2010 and then from 4-6% each year thereafter, the public option is push is a desperate attempt to cover the tracks of governmental mismanagement by delaying disaster a few more years and dragging more American’s into the morass.  


There is a better option.