By: Ron E. Peck, Esq.

Below I will parse out some of the statements made by Senator Elizabeth Warren in her recent policy paper, titled “Ending the Stranglehold of Health Care Costs on American Families.”  Note that my attempt in so doing is to provide a response to some of the comments made by Ms. Warren, based upon my own experiences, observations, and understanding of health care and health insurance; without discussing any of my own political attitudes or personal biases.  This is not meant to be a reflection of my own, or The Phia Group’s, attitude or position as it relates to Ms. Warren or her candidacy for President of the United States.

In her statement, Ms. Warren begins with, “In 2007 … my … research … found that the number one reason families were going broke was health care – and three-quarters of those who declared bankruptcy after an illness were people who already had health insurance … between 2013 and 2016, the number one reason families went broke was still because of health care – even though 91.2% of Americans had health insurance in 2016.”

I note immediately the interchanging use of the terms “health care” and “health insurance,” as if they are the same.  Note they are not.   As I have in the past¹ I want to address up front that health insurance and health care are not the same.²  Health care is literally care for your health.  Medicine, therapy, examinations, tests, etc.  Health care is provided by health care providers.  Providers of health care, or “providers,” are doctors, nurses, therapists, specialists, and other care givers, as well as the facilities where said care is often obtained (professional offices, hospitals, clinics, etc.).

Health insurance is a means by which we pay for health care.  It is not health care itself.

If you have home owner’s insurance, and a hurricane blows your house to the ground, you don’t move into your insurance policy (cozy).  Instead, insurance pays you an amount deemed to be the fair value of the loss (i.e. the value of the home lost, the cost to repair your home, or the price to buy a new home, as the case may be).  In any case, the insurance is not a home – it is a means by which you pay for a home.

Likewise, health insurance is not health care; it is a means by which you pay for health care.  In my example, if it would cost $100,000 to have a licensed contractor repair the home back to a pre-hurricane state, insurance will likely pay you $100,000.  If you “choose” to have a world-famous architect fly in from Venice, to build a new home – at a cost of $900,000 … you have every right to do so, but insurance isn’t obligated to pay that bill.  They will still pay the $100,000, and the other $800,000 will be on you, the homeowner.

Likewise, imagine I have a $30,000 Camry.  I total the $30,000 Camry in a collision.  Auto insurance pays me $30,000; fair compensation for the loss.  If I buy a $15,000 Yaris, I pocket the other $15,000.  If I buy a $60,000 Lexus, I pay the other $30,000 out of pocket.  Most people understand that this is how insurance works.  All insurance, except health insurance.

If I receive an appendectomy, as with the home and car, you’d think that insurance should pay the fair value for the service.  If I choose to travel to a world renown clinic in Beverly Hills, and they bill three-times the “fair price,” most people seem to feel that, unlike with home and auto insurance, health insurance should cover that price.

In addition to “how much” a plan or insurance carrier pays, when a service is otherwise covered, we must also consider claims that are excluded outright.  In such instances, how much the provider charges is irrelevant, regardless of how reasonable the fee may be.  This is because the claims are excluded for reasons other than price.  How many of the unpaid medical bills about which Ms. Warren is speaking, when she talks about medical debt, are actually services few – if any – private health plans cover, and Medicare would likewise certainly exclude?  Cosmetic procedures, experimental treatment not approved by the FDA, etc.  These are examples of medical debts a patient will incur, due to a lack of coverage, that Medicare-for-All would not address.  It’s notable that Ms. Warren does not discuss the schedule of benefits that would apply to her plan.  If Medicare-for-All would maintain the current list of covered benefits, payable by Medicare as it is constituted today, many treatments that are covered by private plans (in whole or part) would be excluded in its entirety.

Thus, when Elizabeth Warren states that: “… the number one reason families were going broke was health care – and three-quarters of those who declared bankruptcy after an illness were people who already had health insurance …” the knee jerk reaction is to assume that the insurance is worthless.  This is certainly possible, but Elizabeth Warren should also consider whether insurance is already paying fair amounts for services rendered, and whether the excess amounts – billed to the patients that are subsequently filing bankruptcy – might just be excessive and unreasonable, or something for which no plan (or Medicare) should pay?

Elizabeth Warren almost contemplates this, where she accurately states that, “Families are getting crushed by health costs …”  This would be accurate, if health costs include not only co-pays, deductibles, co-insurance and premiums… but also excessive hospital bills, drug costs, and provider charges.  The issue, however, is that she seems to equate “health costs” with “insurance costs.”  This attitude reveals itself when she states, “87 million.  That’s how many American adults in 2018 were uninsured or ‘underinsured’ – meaning either they have no insurance, or their so-called health insurance is like a car with the engine missing … inadequate health coverage is crushing the finances and ruining the lives of tens of millions of American families.”

I will freely admit that some health insurance carriers and policies are woefully inadequate.  I will freely admit that many people are paying for one thing and getting something else.  I will freely admit that many are bamboozled into securing inadequate coverage – a ticking time bomb, to be sure.   I will note, however, that insurance isn’t the only driver (and perhaps isn’t even the primary driver) fueling the extreme health care costs, and resultant debt.

Health care is expensive because health care is expensive.

Running with Ms. Warren’s metaphor of an automobile, I fear she is mistaken in her analogy.  Insurance is not a car.  Insurance is a means by which you pay for a car.  Inadequate insurance would pay for a bicycle, when you have an 80-mile commute down an interstate.  Adequate insurance will pay for a car that can get you from point A to point B, promptly and safely.  Ms. Warren and so many Americans feel that adequate insurance “should” pay for a private jet, and when they do pay for said jet, are shocked when premiums increase.

Imagine if a law was passed that required auto insurance to pay for fuel, wiper fluid, and oil changes.  Seeing an opportunity to dip into these newly accessible deep pockets, providers of gas, wiper fluid, and motor oil, raise the rates from a price that was set when money-conscious consumers with limited resources were forced to shop around and compare vendors (i.e. $3 a gallon), to $300 a gallon.  Further, these vendors stop advertising their prices.  Consumers – now that “someone else is paying” – ignore the higher prices and lack of transparency, opting to shop at the closest vendor regardless of cost (convenience trumps price, now that price no longer matters).  This is naturally what happens when the consumer is no longer the payer; it’s easy to spend someone else’s money.

The problem, however, is that insurance money is NOT someone else’s money.  It’s our money, pooled and set aside, to pay for our later expenses.  When the auto insurance carrier is forced to pay for $300 gas fill-ups, $5,000 oil changes, and the like … premiums will skyrocket; and, eventually, deductibles will appear and grow, as the carrier scrambles to slow the rate with which premiums are increasing.

If you want insurance costs to decrease, the cost of the “thing” for which insurance is paying must decrease as well.  The premium on my Ferrari’s insurance is more than the premium on my Camry’s insurance.

Ms. Warren goes on to state that, “No for-profit insurance company should be able to stop anyone from seeing the expert or getting the treatment they need.”  I agree.  I also do not believe any insurance carrier can dictate which provider you can visit.  They can adjust their payment, or refuse payment entirely, but the choice regarding with whom you treat remains with you.  Just as my auto insurance carrier can’t stop me from buying a $60,000 Lexus after I total my $30,000 Camry.  Yes, my insurance can limit their payment to $30,000 … but if I choose to buy a more costly vehicle, and expose myself to an out of pocket expense, that needs to be part of the decision-making process.

Most revealing, later in the document, Ms. Warren contradicts herself. “Let’s be clear,” Ms. Warren remarks, “America’s medical professionals are among the best in the world. Health care in America is world-class. Medicare for All isn’t about changing any of that. It’s about fixing what is broken – how we pay for that care.”  Ms. Warren then – almost as if she were responding to herself – later says that “As a group of health economists famously wrote, ‘It’s the prices, stupid’.”

This leads an objective observer like me to ask, is the problem “how we pay for care” … or … is it “the prices, stupid”?

I fear the only explanation is that Ms. Warren mistakenly believes that insurance carriers somehow set the prices for medical services; that the insurance – and not the hospital – drafts the chargemaster.  How else could we explain this glaring inconsistency?

Ms. Warren further states that, “Today, for example, insurers can charge dramatically different prices for the exact same service based on where the service was performed.”  As stated above, this can only make sense if Ms. Warren thinks insurance – not providers – set the prices for health care.

This comment jumped out at me, of course, because I know that insurance doesn't charge people for medical services or set the prices - providers do.   Yes, the insurance may have a hand in negotiating a discount, but the provider can nullify said discount by raising the price.  I then further noticed that this specific comment includes a link (a cite) to an article supposedly supporting the statement.  The article, however, is titled: "Hospitals Chafe Under a Medicare Rule That Reduces Payments to Far-Flung Clinics," and its primary subject matter relates to providers that cannot function while serving Medicare patients; that Medicare as a payer represents a major problem for the very rural clinics Ms. Warren says she wants to support.  This article explains that hospitals, not insurance, charge different amounts for the same service ... based on location, identity of the payer, etc., but it appears not to prove Elizabeth Warren's point (to which the article was attached).

Ms. Warren goes on to state that, “In 2017 alone, health industry players whose profiteering would end under Medicare for All unleashed more than 2,500 lobbyists on Washington.  Washington hears plenty from the giant health insurance and giant drug industries.”

I cannot tell whether Ms. Warren intentionally ignores, or simply forgot to mention, that the largest, most powerful lobbyists in the health care industry represent providers of health care (hospitals and drug manufacturers) – NOT the entities that pay for said care (insurance).  Specifically, the Pharmaceutical Research & Manufacturers of America spent $25.84 million, the American Hospital Association spent $22.06 million, and the American Medical Association spent $21.53 million on lobbying in 2017.³  Only Blue-Cross/Blue-Shield came close in spending to these individual entities ($24.33 million), though the combined force of the provider lobbyists well outweighed the spending by the payer community in totality.

All of this being said, I believe that, despite the time initially spent targeting insurance, once a reader reaches the later pages of the proposal, Ms. Warren reveals that the source of payment (insurance, Medicare, etc.) has less to do with the rising cost of health care than the actual cost of health care itself.

It is here that she drops the following bombshell, “Medicare for All will sharply reduce administrative spending and reimburse physicians and other non-hospital providers at current Medicare rates.  Medicare for All will sharply reduce administrative spending and reimburse hospitals at an average of 110% of current Medicare rates, with appropriate adjustments for rural hospitals, teaching hospitals, and other care providers with challenging cost structures … my plan allows for adjustments above the 110% average rate for certain hospitals, like rural and teaching hospitals, and below this amount for hospitals that are already doing fine with current Medicare rates.”

Presently, many private health benefit plans are attempting to disentangle themselves from contractual arrangements with providers by which providers are contractually empowered to increase prices without justification, so long as those prices are discounted.  These agreements center around (and their value is based upon) two forms of consideration to the payer – a discount, and an agreement not to balance bill the patient if the negotiated payment is made by the payer in full, and in a prompt fashion.  Discounts, however, are notoriously unreliable when no controls are placed on the prices against which they are applied.

The benefit plans seeking to shed the discount-based methodology are, in many cases, instead adopting a “Medicare-based,” “reference-based pricing,” or “reference-based reimbursement” pricing methodology.  These payers are paying providers utilizing Medicare payment rates, more-or-less ignoring the provider’s actual charges.  If Medicare would pay $10,000 for a service, the payer uses that $10,000 as a baseline regardless of whether the actual provider is billing $10,000, $50,000, or $100,000.

In other words, with traditional “network” plans, discounts are applied to the charges, making the billed amount relevant.  Reference-based prices (“RBP”) are based upon the actual services rendered, making the billed amount irrelevant.

Ms. Warren wants to apply a universal RBP methodology.  This isn’t a terrible idea; however, providers will say they cannot stay afloat in such a scenario.  Private payers using an RBP model currently represent a very small percent of all payers. Those RBP payers are in most cases offering 140%, 180%, and often more than 200% of what Medicare pays.  Despite this payment (far more generous than the 110% offered by Ms. Warren), the billing providers refuse this payment, balance bill the patient, and – when confronted – advise that they cannot accept 200% Medicare from even this small subset of the private payer market; as they need to cover the losses they suffer at the hands of Medicare.

I question why these same providers have not responded to Ms. Warren’s proposal – that ALL payments be based on Medicare +10% – with the same outrage they demonstrate when a struggling self-funded employee plan offers them 200% of Medicare.

Furthermore, I am curious to know how Ms. Warren proposes prices will be set for services Medicare currently doesn’t cover?  Many private health plans generously cover medical care that Medicare excludes.  Additionally, many forms of care (such as pediatric care) are generally not covered by Medicare.

Moving on, Ms. Warren states that she will, “… appoint aggressive antitrust enforcers,” “… crack[ing] down on anti-competitive mergers that lead to worse outcomes and higher costs,” and that “… more competition between providers creates incentives to improve care.”

This seems like a very odd approach from someone who is also promoting the elimination of private insurance carriers and health benefit plans, and the creation of a single payer (a monopsony).  If indeed, as Ms. Warren says, “competition between providers creates incentives to improve” should we not foster competition between payers, to improve the payer community as well?

Finally, and perhaps most disconcertingly, it appears Ms. Warren does not understand what self-funded health coverage is, or how it works.

Indeed, she later explains that – to pay for her program – employers will, “… calculate their new Employer Medicare Contribution,” by determining, “… what they (the employer) spent on health care over the last few years and divide that by the number of employees of the company in those years to arrive at an average health care cost per employee at the company.”

This would treat employers fairly if they all paid a fixed premium to a carrier, however, this is not the case.  If a self-funded employer with 60 employees has one employee endure a premature birth, costing the plan (the employer and employees) $300,000, that $300,000 divided by the 60 employees is $5,000 per person.  If the same employer has 600 employees, that per-person spend drops to $500 per person.  By identifying and applying a per-person fee, based upon prior spending divided by the population count, we punish smaller self-funded employers that generously paid for costly care on behalf of their employees and their families.

Ignoring self-funded health plans is a big, gaping, unforgivable hole in this policy.  This is because ignoring self-funded plans means ignoring almost 50 million Americans. 

Half of all Americans receive their coverage through their employer⁴ and of those people, 61% of people are participating in a self-funded plan.⁵  This means that, for more than half the people receiving health benefits through employment – which represents half of all insured Americans – their plan is self-funded.

Ms. Warren remarked that, “No for-profit insurance company should be able to stop anyone from seeing the expert or getting the treatment they need.”  She also states (incorrectly) that, “… doctors, hospitals, and care providers send the bill – to a collection of private insurance companies who make billions off denying people care...” and that “… powerful health insurance and drug companies [that] make billions of dollars off the current bloated, inadequate system...”

Self-funded health plans (representing more than 61% of people with employment-based coverage, a group that represents half of all covered Americans) receive benefits through a program that is not a “for profit insurance company.”  Despite her assertion that medical bills are sent to (and denied by) “a collection of private insurance companies who make billions off denying people care,” 61% of people with employment based coverage have their bills sent to a plan that – if it denies a claim – keeps the money in a trust fund established solely to pay for medical expenses; lining no one’s pocket except – perhaps – the employees and middle-class American families that fund the plan with contributions.  In fact, Federal Law places a fiduciary duty upon the plan administrators to stringently manage those assets, on behalf of the employees funding the account, and to avoid paying for claims that are not absolutely covered by the terms of the plan.  

Furthermore, focusing on claim denials is not advisable for someone promoting Medicare-for-All as a solution.  This is because, amongst payers, “Medicare most frequently denied claims, at 4.92 percent of the time; followed by Aetna, with a denial rate of 1.5 percent; United Healthcare, 1.18 percent; and Cigna, 0.54 percent.”⁶  Looking at this data, if reducing denials is our goal, then removing people from Medicare would be the most effective solution.

Unless and until a Medicare for All policy such as this stops demonizing one segment of the industry (insurance), addresses all of the issues (including prices set by providers), and acknowledges the huge segment of people that do not access insurance – but rather – enjoy robust coverage via a not-for-profit self-funded health plan, I cannot support such a position.

Additionally, my final remark is to note that even if the cost cutting measures presented in Elizabeth Warren’s proposal were feasible (forcing providers to accept 110% of Medicare rates, eliminate health system mergers, etc.), I fail to see how or why a single payer (Medicare-for-All) is necessary?  Assuming these cost-cutting measures work as Ms. Warren proposes, if implemented, I imagine they would allow private insurance carriers and health plans to reduce the amount they must collect from policy holders and participants.  In other words, why not try to address the cost of health care before eliminating how we presently pay for health care?  Why change “how we pay” for health care when, frankly, it appears that the issue is not about the “how” we pay, and rather, is about the “how much” we pay?

Or, as a distinguished Senator put it: “It’s the prices, stupid.”

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