Evan -

Here is an article that ran last month in the Washington Times on the groups in health concept - developing programs is always the biggest hurdle but the pain that exists for small and mid-sized employers would make it very possible. Groups like this, more insurers - would seem to be the way to go. Health insurance is one of those fields where competition, in our current "free market" system, is restrained. In some ways it is not surprising that big insurance and the pharma lobbies threw in with the Dems on the current bills.
This article does mention my company because of the connection to Charlie Abowd but the concept is the thing. By the way, Charlie is a Democrat who had his restaurant decked out in bunting on Inauguration Day.

Sunday, November 8, 2009
Let smaller firms compete


Jean H. Card

Charlie Abowd is a restaurant owner in Carson City, Nev. He thinks it is his responsibility as a business owner, and a moral person, to provide health insurance for his employees. He does so at great cost and, as a result, suffers a competitive disadvantage to national restaurant chains that have more affordable coverage for their employees.

Mr. Abowd is worried that he won't be able to continue offering health insurance for much longer, as his rates have increased 125 percent since he began offering it 12 years ago. As of this week, reports indicate that premiums are expected to increase an average of 15 percent this year for small businesses like Mr. Abowd's - about double the rate of last year's increases.

Mr. Abowd's story is terribly typical in the small-business community.

His employees are also insured, through his restaurant, for workers' compensation in the event of on-the-job injuries. For that coverage, Mr. Abowd has been able to join with other restaurant owners to self-insure against claims as a member of the Nevada Restaurant Self-Insured Group. His workers' compensation plan is affordable, and the coverage is excellent - comprehensive, with fast servicing of claims.

So now Mr. Abowd has a question: Why hasn't anyone in Washington proposed to let him cover his employees for health care in the same affordable way he can for workers' compensation? He asks an excellent question.

The ability to create genuine insurance co-ops (entities, like Charlie's workers' compensation group, that are started, run and owned by the businesses or individuals joining them) would be a godsend for small business. With state-level workers' compensation self-insurance groups (SIGs) having proved themselves so effective, it seems ridiculous that Congress would not want to replicate them nationally for health insurance.

Here's how the workers' compensation SIGs work: In states where the regulatory structure allows it, smaller businesses have come together to pool their financial resources and self-insure against workers' compensation claims. Claims are paid directly out of that pool of money. Groups hire companies that specialize in designing and managing self-insured group programs. (In Charlie's case, it's Nevada-based CHSI.) On behalf of the group, the companies hire claims professionals, build safety programs and support member employers.

If the group has pooled more money than is necessary to cover all claims, that extra money eventually is returned to the businesses' bank accounts because it still belongs to the group - versus adding to the profits of an insurance company.

The incentive for fewer claims and for the speedy processing of claims is incredibly straightforward and powerful: Fewer injured workers means money back. Quickly processed claims mean the money comes back sooner. (In comparison, with traditional insurance, an open claim means the insurance company's capital remains invested and working for the insurance company - not for the insured.)

Because of this strong incentive, the businesses in these self-insured groups have begun to take an interest in worker safety like never before. Education, training, safe and healthy work environments - these are rapidly moving to the top of the priority list for these employers.

Imagine the power of small and midsized businesses pooling their money to self-insure against health claims. Imagine the ownership they would take over the issue of their employees' health. No longer surrendering huge sums of money to mammoth insurance companies, these smaller firms would be in charge of their own health-related finances. If their employees collectively remain more healthy than not, they'll get money back. Talk about an "everyone wins" scenario.

Self-insurance is consumer-driven health care coverage. And here's the best part: Self-insured small-business groups would be extremely fierce competition for big, traditional insurance companies. Aren't those the things the president and both sides of the congressional aisle claim to want the most?

So why are small-business purchasing groups still missing from the legislation and from the debate? The idea is not even new; it has been proposed under different names in the past - for example, Association Health Plans (AHPs). Creation of AHPs has passed out of a small-business-friendly U.S. House over and over in years past - but the insurance lobby has brought out its big guns when AHPs have gone to the Senate ... and they have shot down this would-be competitor time and time again.

This time, the Senate should stand up to the big insurance lobbyists and deliver some real competition in the free market. They should give small businesses the slingshot they need.

Call them self-insured groups. Call them small business co-ops. Call them Association Health Plans. Small business owners like Charlie Abowd won't care what you call them. If Congress delivers this for small firms, they'll be able to affordably cover their employees, which is what they want to do. They will then reward Congress with job creation and with their votes. Can big insurance really compete with that?

Jean H. Card is a writer in Alexandria. She has served as a speechwriter for U.S. secretaries of Treasury and labor as well as the attorney general and is a former senior official at the U.S. Small Business Administration.

Interesting and educational dialogue for me, a self-insured group Comp guy with interest in this area but not with your experience and perspective. What do you think about the idea of Association Health Plans as part of the competitive mix? Efforts to make them possible have been stopped in the Senate before - I am told by the health insurance lobby.

I recognize that group health costs are much more volatile than Comp and that makes the concept of AHP's scary. But the principles that apply to self-insured groups in Comp could also apply on the health side - employers getting together, maximizing service, customizing programs, returning every possible dollar to the program and members following actuarial review.

Hi, Joe,

I think you're right that the concept of the self-insured group from comp would be very sensible in the group health context. But to do that you need to get a whole bunch of employers together to pool their resources in creating a brand new mutual insurer, which is difficult to do-- absent some kind of a crisis (as we saw in comp in the not-too-distant past).

I think it would be a good thing if these kinds of arrangements could be made more easy by government action. Or, more broadly, why not encourage the formation of all kinds of new insurance companies to serve these markets. The smaller employers who actually have to buy health insurance are not getting as good of a deal as they could in a competitive market. The savings for them could be a very big number if we could make something like that happen.

Hi Gregg,

Of course I wholly agree with your last point about how we're asking the wrong questions. We have to get health *care* right. This endless fixation on ever-more clever ways to pay for it interferes with good quality medicine and helps drive costs and needless suffering.

As to the insurance market - it's the mandates and the lack of competition that make insurance so expensive.

What we see today is exactly what you would expect to see when big companies dominate a market. It's not good for the consumer.

So rather than waiting until 2013 or whenever to cover the uninsured, open up the insurance market to competition right away. It would make a dent in those numbers, especially if you gave people subsidies so they can afford coverage. If you still can't afford it, why not let people go on Medicare? And for those who buy coverage the competition will do what it always does, which is lead to better products and lower prices.

Still, there is much work to do on the health care side, and making sure people are able to be served well by a system that is very broken indeed.

Thanks again for coming by Gregg, I always enjoy your insights!

Evan

Evan:

Thanks for kind words and ditto! Though I must disagree with your claim that '...competition will do what it always does, which is lead to better products and lower prices.'

I simply don't see evidence where competition in health care has done either. From the point of view of health insurance, the building of a better mousetrap (to gain competitive advantage and drive share increases) would be: (1) to lower the cost of health care or (2) provide more benefits for the same or less cost.

From what I've seen, no health plan or insurance carrier has delivered such results. Rather, as a giant cost shifting charade they float their premiums with what the market will bear and typically shadow price in order to maintain a target margin specific to individual business line whether HMO, PPO, POS, or HDHP.

If health insurance companies (aka health solutions providers since they don't insure much anymore) actually 'competed better' i.e., negotiated better rates & terms, all that means is they walk away leaving a larger gap to cost shift on to the least able to bear the retail pricing burden - the cash patient or aka the uninsured.

Clay Christensen writes in the 'The Innovator's Prescription' that contrary to other industries competition in health care actually increases rather than reduces health care costs. So far I don't see any basis to challenge his claim.

Gregg:

I want to make sure we're talking about the same thing, because these concepts get easily conflated. We've got health *care* and health *insurance.*

I agree competition in health *care* doesn't seem to work like other markets. But I think competition in health *care* is so distorted by the insurance market that it is difficult to draw conclusions. Still, it's clear that competition in health care delivery may increase rather than reduce health care costs.

As for health *insurance,* I don't see why the market for insurance in health care ought to function any differently than the market for insurance of any other kind of risk. In places around the world that have much freer and competitive markets for insurance, people end up better insurance and are better served by insurance companies than us Americans.

Competition works in insurance, and it's one thing we do not have in the American market in any meaningful way. One thing I liked in the House reform bill is the idea of a national exchange, which would help foster that kind of competition.

Unfortunately, the bill would also saddle participants in it with the same kinds of mandates that create all the trouble at the state level, so you would just have a bigger, national version of the problem we have today at the state level.

Evan, maybe missing the point; but lets assume best case scenario wherein the individual market is tweaked per McCain-esque 'solutions' (sales across state lines, exchanges, capped community rating, etc.); which in the aggregate bring the performance of the individual and small group market up to its large case or group health brethren's medical cost and premium trending book. So what? Group health premiums are beyond the reach of many, and it seems the only way to retain a large case client these days is to push back risk via increased deductibles, coinsurance, and non covered services. So where is the net gain?

The system is failing and need be completely redesigned. Absent risk shifting to fully integrative physician delivery systems we can not squeeze out the excess in the industry driven by decades of cost plus, or otherwise volume driven, charge based third party reimbursement.

The debate frame of reference need be the "Mayo or McAllen' question. Just who wIll be the anchor tenant of American medicine? We are not asking the right questions thus far. The debate has focused on health insurance reform, not redesigning the conflicting network of business model malpractice upon which our health care delivery industry currently relies.