As a thirty-five year veteran of the debates and initiatives to reform the U.S. health insurance system, I am delighted that so much of the presidential campaign rhetoric, advertising, and general press coverage this month has included this subject. However, most of the rhetoric has focused on the “refundable tax credits” of Sen. John McCain and the “first-time taxing of employer benefits” line of Sen. Barack Obama about Senator McCain, and on competing estimates and criticisms of total budgetary cost. In my opinion, far too little has focused on the most fundamental question about our private health insurance system: Should it continue to be employer-based, supplemented initially by, and transitioning ultimately to, a new federally run system (Obama), or should it become more oriented toward personal choice, supplemented by expanded state-run systems (McCain)?

Let’s first evaluate recent trends. Employer-based insurance (EBI) is far less prevalent than in the recent past. Only 60 percent of all U.S. employers now offer any insurance plans (vs. 69 percent in 2000), and only 44 percent of employers with fewer than 100 employees offer any. Employers’ share of premiums continues to fall, and employees’ cost sharing continues to rise; the average employee’s share of their health benefits is now 40 percent. Employees’ premium contributions have doubled since 2000, while employers’ contributions, as a percentage of total wages and benefits, have increased 52 percent from 1998 to 2007 (6.5 percent to 9.9 percent).

For only those employers offering coverage and premium contributions, this percentage is 18.4 percent — higher than in other trade-competitive countries. This added business cost adversely affects their competitiveness and has led to an increasing number of layoffs, plant closures, and outsourcing to cheaper overseas labor. Given the now certainty of an economic recession, these trends will only deteriorate more rapidly.

Beside these trends are well-documented adverse characteristics inherent to EBI:

  1. The decision as to which health plan will be offered is made by each employer, denying each employee the choice of alternative options they may prefer.
  2. Virtually all EBI contracts are one-year contracts, and when employers change coverage and/or insurers (40 percent of smaller employers make such changes annually) there is usually disruption in the doctor and hospital networks.
  3. Health plans and insurers, knowing that employers may not renew with them over time, refuse to invest in valuable patient wellness programs and information systems that take years for the return on investment to be realized.
  4. Workers with EBI, especially those who have family members with pre-existing conditions, are forced into “job lock,” staying with their employer for fear of not obtaining comparable coverage, or even any coverage, if they leave.
  5. Larger employers (usually 100+) are generally “experience-rated” by insurers, creating a disincentive to hire workers who may be of higher health risk, including those with dependents compared to single workers.
  6. Employees who choose not to enroll in the EBI plan lose the value of their employer’s contributions to the premiums.

By comparison, personal-choice insurance (PCI), supported with equivalent federal tax subsidies as for EBI (however structured), would have the following consequences:

  1. Americans, employed or not, would have many more health plan options to choose from, as private insurers recognize the changing market; once a plan was selected, it would remain available to them as long as each wanted, regardless of changes in their employment, residency, or their health status (“coverage for life”).
  2. Health plans and insurers, once recognizing that the majority of their “customers” are now families and individuals, not employers or their administrative agents, would aggressively compete for their choice by offering “value-added” benefits, services, and systems that are “consumer-centric” and “patient-centric” with a more long-term health and wellness perspective (“customer for life”).
  3. Initiative and innovation would flourish. Health care practitioners and institutions would have the incentives and opportunity to work more closely and collaboratively, with health plans to implement administrative and information systems designed to foster appropriate and efficient prevention and treatment.
  4. Costs would be reduced, as all parties — patients, providers and payers — would have a direct stake in the processes and the outcomes

There is, however, one segment of the employed population that would be disadvantaged with PCI: those currently of high risk or with pre-existing conditions. Up to now there have been four strategies discussed to provide these families, and others who are currently uninsured, with more reasonable access to insurance: (a) subsidized, state-run, private insurance “pools”; (b) direct government subsidies to purchase private insurance; (c) a subsidized, federal-run insurance program (like the Federal Employees Health Benefits, or FEHB, program); and (d) a Medicare-like buy-in. The McCain proposal includes (a) and (b); the Obama proposal includes (c) and (d).

A New Strategy For Protecting High-Risk Consumers: AmeriCarePlans

Health Affairs published several articles online in September and a follow-up blog commentary that quite thoroughly discusses the merits and demerits of these four strategies. Here, I instead offer an alternative that I believe can eliminate the disadvantages of EBI, support the success of PCI, and ultimately assure that all Americans would have access to insurance coverage at affordable rates. I call this “AmeriCarePlans” (ACPs).

AmeriCarePlans would be personal-choice health plans (direct-to-consumer and through their employers or civic groups) that become federally qualified by including the following features:

  1. Guaranteed initial issue and lifetime renewal, including when eligible for Medicare.
  2. No “health status” or “class” rating, but specified variations (developed by the National Association of Insurance Commissioners, or NAIC) such as family size/composition and discretionary lifestyle factors would be allowed.
  3. Minimum and maximum levels of beneficiary cost sharing to both encourage personal responsibility and assure financial protection — for example, require 20 percent coinsurance for the first $5,000 (as minimum) of covered expenses and $10,000 maximum out of pocket.
  4. Participation in a new federal reinsurance fund (handled by the U.S. Treasury, as for Medicare Part D) to reimburse the ACPs a percentage of covered “catastrophic” expenses (for example, 80 percent of $50,000+ per patient).

This new federal catastrophic reinsurance subsidy should be perceived as a reasonable and sufficient “quid pro quo” for private health plans to participate. The reduction in personal premiums due to the catastrophic subsidy and insurance tax credits (or mandated use of employer contributions), combined with lifetime portability, should be sufficient for most Americans to participate. Increasing the number of Americans with insurance (both high and low risks) would reduce total costs by (a) reducing uncompensated care, (b) reducing “delayed” care, and (c) increasing cost-consciousness of patients by their premium sharing and cost sharing. Employers would be expected to welcome the new subsidies and coverage options and continue their interest in the good health and financial security of their employees; thus, they would be more likely to continue to contribute to their employees’ premiums (with or without a mandate) and to facilitate their enrollment and payment processes. (Self-insured employers could still continue to offer their current plans, and their employees could continue with them, but they would not get the catastrophic reinsurance subsidy.)

Obviously, this proposal would also require additional federal funding, as would every other proposal to reduce the number of uninsured people. I believe, however, that the structure proposed here has both a greater chance of long-term acceptability and stability as well as efficiency, and could be easily implemented by the private sector with little added government. Clearly, pooling the financial risk of catastrophic expenses at the national level would be the most efficient method. Based on recent estimates of personal cost distributions, the federal share for the reinsurance subsidy would be about 10 percent of the total insured cost for those covered.

This AmeriCarePlans proposal is a high-performance hybrid of the McCain and Obama proposals, building on their respective strengths and responding to their weaknesses. The personal-choice and tax-credit-subsidy features come from McCain’s proposal; however, that proposal has also been appropriately criticized for not doing enough to assure health insurers’ participation or to help those of high risk or with pre-existing conditions. The catastrophic reinsurance and guaranteed issue features come from Obama’s proposal; however, that proposal has also been appropriately criticized for perpetuating employer-based inequities and building a new, complicated, costly, government-regulated system as the alternative.

It is also notable that the Obama plan would “lower costs for businesses by covering a portion of the catastrophic health costs they pay in return for lower premiums for employees.” This would be more complicated to administer, and would do nothing for those not covered by employer health plans. (Interestingly, Senator Joe Biden’s own proposal also included federal reinsurance, but his limited it to employers that self-insure, cover all employees, and apply “qualifying” methods of chronic disease management, and private insurers that offer individual coverage and “demonstrate” they have “effective” high-cost case-management systems.)

I hope that after the election, the issue of health care reform, including health insurance, will remain high on the president’s and Congress’ agenda, and that this proposal will be of some use to those who will be participating.