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An Objective Analysis and Response to Elizabeth Warren’s “Ending the Stranglehold of Health Care Costs on American Families”

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.”

_________________________________________________________________________________________________

1https://www.sipconline.net/files/The%20Tower%20of%20Babel-Talking%20Heads%20Talking%20Past%20Each%20Other%20by%20Ron%20E_%20Peck.pdf

2http://passionforsubro.com/health-insurance-is-not-health-care/

3https://www.beckersasc.com/asc-coding-billing-and-collections/healthcare-related-lobbying-hits-555m-in-2017-6-statistics-on-lobbying-in-healthcare.html

4https://www.kff.org/other/state-indicator/total-population/?currentTimeframe=0&selectedDistributions=employer&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

5https://www.kff.org/report-section/2018-employer-health-benefits-survey-section-10-plan-funding/

6https://www.post-gazette.com/business/healthcare-business/2014/11/13/National-insurers-compete-for-foothold-in-Pittsburgh-market/stories/201411130178


Happy (Almost) New Plan Year!

By: Philip Qualo, J.D.

For employers who sponsor calendar year self-funded group health plans, the Fall season can be a very hectic time of year. This is usually the time of year that many employer plan sponsors begin reviewing their benefits in the context of the evolving needs of their workforce, and of course, plan costs. Based on my own experience in preparing The Phia Group health plan for the 2020 plan year, I have compiled several helpful tips for employer plan sponsors to keep in mind as they review their group health plans for the new plan year.

Know Your Workforce

Although U.S. job growth has been consistently strong in recent years, a low unemployment rate indicates there are more jobs than there are job seekers. Because of the limited pool of job seekers, and increasingly high quit rates, employers are reviewing their compensation packages, and more importantly, their benefit offerings, to assess what advantage they may have or need to attract and retain top talent. As such, employer plan sponsors should take the time to survey their workforce demographics and consider whether current benefit options are consistent with the needs of their current employees as well as future ones they seek to attract. For example, an aging or younger workforce may mean certain benefits are more or less important today than then they were a few years ago.

Costs

Employer plan sponsors should take the time to identify and analyze claim expenditures and benefit utilization for the current, and even prior, plan years. This allows employer plan sponsors to assess the financial health of their group health plans and identify benefits that are particularly costly or heavily utilized. By being proactive and identifying costly patterns, employer plan sponsors are empowered with the tools necessary to explore permissible cost-effective plan design options and cost-containment incentives to address high cost plan expenditures in the upcoming plan year.

Compliance

Federal rules applicable to group health plans are constantly changing, whether it is due to new legislation or Court decisions establishing new precedent. Thus, employer plan sponsors should take the time to review their benefit offerings, Plan Documents, and/or Summary Plan Descriptions to ensure their group health plans are still compliant with the most current regulatory landscape. Failure to maintain or update benefits, Plan Documents and/or Summary Plan Descriptions in compliance with federal laws may result in costly penalties.   

Nondiscrimination Testing

Internal Revenue Code (IRC) Section 105(h) prohibits self-funded group health plans from discriminating in favor of “highly compensated individuals” (HCIs) and against non-HCIs as to eligibility to participate and benefits available under the plan. If an employer’s group health plan treats all of its employees the same for purposes of health plan coverage (i.e., eligibility, contributions, and benefits are the same for all employees), the risk of violating Section 105(h) nondiscrimination rules is low.

For employer sponsored group health plans that vary eligibility and benefits among distinct classes of employees, Section 105(h) nondiscrimination testing should be conducted at least annually, preferably before the start of each plan year. A self-funded health plan cannot correct a failed discrimination test by making corrective distributions after the end of a plan year. If a self-funded health plan fails nondiscrimination testing, HCIs will be taxed on any excess reimbursements from the plan. Thus, depending on the plan’s design, an employer may wish to monitor group health plan compliance with Section 105(h) rules throughout the plan year to avoid adverse tax consequences for HCIs.

Stop-Loss

Employer plan sponsors that decide to make changes to their group health plan for a new plan year should make sure any relevant changes to the Plan Document are clearly communicated to the applicable stop-loss carrier. It is also advisable for all plan sponsors to review the content of their Plan Documents against the applicable stop-loss policy to identify and resolve potential gaps in coverage. Failure to communicate relevant health plan changes to the carrier or identify potential gaps between the Plan Document and the stop-loss policy may result in significant issues with stop-loss reimbursement in the new plan year.


Hospitals Jump Into the Fray – New Lawsuits Against Opioid Manufacturers

By: Andrew Silverio, Esq.

In August, a $572 million Oklahoma ruling came down against Johnson & Johnson – the first major ruling against a drug manufacturer for its role in America’s ongoing opioid crisis.  The holding found that the drug manufacturer’s advertising and marketing helped flood the state with dangerous painkillers, and it dominated the news cycle as the first major “loss” for a drug manufacturer in a case of this type (many similar claims have been settled out of court.  It also sparked a firestorm of speculation about who will come out of the woodwork making such claims against various manufacturers, since the harm associated with the opioid crisis is so far-reaching.

Now, an unexpected plaintiff has jumped into the fight to claim their share of the payout – hospitals. Per Blake Farmer at NPR, “hundreds of hospitals have joined up in a handful of lawsuits in state courts, seeing the state-based suits as their best hope for winning meaningful settlement money” (see https://www.npr.org/sections/health-shots/2019/10/24/771371040/some-hospitals-sue-opioid-makers-for-costs-of-treating-uninsured-for-addiction.)  If this causes you to raise an eyebrow, you aren’t alone – many would argue, and this will almost certainly be raised as a defense, that hospitals are in fact complicit in creating this crisis through overprescribing of these drugs.

The hospitals’ main claim will be that they have been damaged in the form of all the uncompensated care they have had to provide resulting from the opioid crisis, emergency and otherwise, with most of this care being uncompensated as the patients are often uninsured and unable to pay for treatment.  This is certainly a legitimate complaint, however many hospitals have been unwilling to join in.  This is likely at least in part motivated by a desire to keep details private about the hospitals’ own prescribing practices (which will likely be scrutinized by the defense), as well as to avoid being required to justify their charges as they relate to the actual costs of care.

We will undoubtedly continue seeing new lawsuits in this area for years, but these will be important cases to keep an eye on. 


The Tower of Babel – Talking Heads Talking Past Each Other

By: Ron E. Peck, Esq.

As the 2020 Presidential Election draws closer, the topic of healthcare continues to dominate the airwaves.  Be it media or debate, this is one of the (if not the) issue about which everyone is talking; but pay close attention and you’ll notice they aren’t all speaking the same language.

Access vs. Care vs. Insurance

One word everyone can agree upon is “affordability.”  The issue, however, is that depending upon whom you ask, what it is that ought to be “affordable” differs.  Some people throw the term “access” around, while others seek affordable “care,” whilst still others focus (candidly) on affordable insurance.

Interestingly, for many, the term they use (access versus healthcare) matters little, as – once their position is better defined – a shrewd listener will note that the goal is ultimately the same; make insurance cheaper.  They seem to believe that insurance is healthcare, and cheaper insurance is thereby cheaper healthcare.  Further, they believe that the only “cost” of healthcare, incurred by an insured person is their premium, co-pay, coinsurance, and deductible.

This, then, is one misconception that continues to dominate political, regulatory, and economic discourse; that by attacking the cost of insurance for the general populace (i.e. premiums/contributions, co-pays, coinsurance, and deductibles), you somehow fix the problem of limited access and/or the high cost of healthcare.

Health Insurance is Not Healthcare

I’ve written in the past, and continue to argue today, that health insurance is not healthcare.  Health insurance is one means by which the risk of payment for healthcare is shifted from the consumer of healthcare to a third-party payer.  Changing who pays for healthcare doesn’t (on its own) address how much the healthcare costs.  For instance, before you argue that Congress should establish a funding mechanism to support the “cost of caring” for those with significant medical needs, ask first what it means to pay for care.  Are you referring to the cost of insurance, or the cost of the “actual” health care for which insurance pays?

Some might argue, however, that when a “new” payer is designated, (be it insurance, a self-funded plan, or the government), if they are large enough and possess enough clout, they can strongarm the provider into accepting lower prices for care – thereby reducing the actual cost of care.  Thus, while making insurance more affordable doesn’t in and of itself reduce the cost of care, by providing more lives (and this negotiation power) to the payer, those payers in turn are provided with more “power” to force providers into accepting lower prices.  Indeed, a single-payer would hold all the cards, and thus name their own price.

In a vacuum it makes sense, and if we were purchasing potatoes or tires it may work (in a truly free-market environment), however, in healthcare some features apply that are unique to this industry.

A Non-Market Market

In any other market, a vendor of goods or services can set any price for those goods or services.  Supply, demand, and competition will then force the vendor to increase or reduce their price or fail.  This allows the “free market” to naturally set prices at a level both the seller and buyer can live with.  In healthcare, however, providers leverage things like technology, reputation, rankings, and sponsorships to compete for “customers” (a/k/a patients), rather than the price.  Providers compete for these other things; if and when price is a matter over which there is competition between vendors (providers), it’s a competition to see who can charge the most.  Indeed, one of the big pushbacks against transparent pricing in healthcare is that some providers will see that other providers “get away” with charging higher prices for the same services … and will increase their rates to match.  Imagine if that same argument applied to every other industry; that the cost of bananas couldn’t be transparent, because grocers will compete to raise prices faster than the competition.  Welcome to a world where the consumer has no skin in the game, and no price-based incentive to pick the lower cost options exists.

In healthcare, where patients don’t know, or (they think) pay the price of healthcare (at the time the care is consumed), and the consumer doesn’t appreciate the impact of higher healthcare prices on insurance costs, providers are able to freely raise prices without the negative repercussions vendors in other industries would immediately suffer.  Additionally, even if patients know the price, if they (at least in their mind) don’t think they are the ones paying the price, then higher prices will – at best – not dissuade them from consuming care, and – at worst – will steer them away from reasonably priced care to higher cost providers, thanks to an (inaccurate) assumption that higher price equates to higher quality. 

Quantum Meruit

At the same time, contract law states that a customer who agrees to pay a certain price for a service or product has entered into a contract with the vendor.  This preemptive agreement between the customer and vendor, regarding what will be paid, and what will be received by the customer, is titled a “meeting of the minds.”  If the customer later fails to pay the amount to which they’d previously agreed, this would be deemed a breach of contract.  Even if objectively, one could argue the agreed upon price is excessive, assuming the customer had the requisite capacity to enter into such a deal, the contract is binding.  If, however, someone receives a good or service but there was no meeting of the minds (agreement about what would be provided, and a specific price for said goods or services), the customer will be forced to pay an objectively reasonable price – determined by an objective third party, using objective pricing parameters – and NOT whatever price the vendor chooses to collect.  This concept, called Quantum Meruit, ensures vendors are adequately compensated based upon objectively reasonable parameters, and customers are not unjustly enriched (don’t “get something for nothing”) but also aren’t forced to pay a price they never agreed to (and which is excessive by all reasonable, objective measurements).

In healthcare, however, rarely can we say there is truly a meeting of the minds.  It is rare indeed to see a provider (the vendor) and patient (the consumer) agree upon a price prior to the provision of services.  Yet, despite this, Quantum Meruit – applicable to other commercial exchanges – has no place in healthcare, and rather, the provider is allowed to balance bill the patient whatever amount it wants – usually the amount that exists between the provider’s “charge master” price, and what it already received from the applicable carrier or benefit plan.  Note that the only prohibition on this billing practice is the prior existence of a contract between a payer and the provider, by whose terms the provider agrees to accept the payer’s payment as payment in full.  This agreement, many argue, is the greatest value a network offers.

Given that the law protects a provider’s right to charge whatever they wish – with no limits based in reasonableness, meeting of the minds, or Quantum Meruit – and limited only by pre-negotiated contracts, payers generally negotiate from a weak position.

As such, simply ensuring everyone has insurance will not drastically reduce the cost of healthcare itself.  Further, people – whether they are insured or not – will pay the cost when healthcare is too expensive.  Be it balance bills for the uninsured, or rising premiums and deductibles for the insured – the money needs to come from somewhere.

Compounding the issue further is that fact that Americans generally suffer from a lack of long-term vision.  We are, as a society, driven by a need for instant gratification.  People use credit cards to buy things now, that they can’t afford later.  People purchase homes and take out mortgages now, that they can’t afford later.  Likewise, people obtain healthcare now that they can’t afford later.  Make no mistake; even those with insurance pay the cost later, in the form of higher premiums, co-pays, deductibles, and co-insurance.  Therein lies the rub – people are quick to target out of pocket expenses at the time care is received, and the cost of insurance in general, but they do so without asking why insurance is expensive or addressing that root cause.

Until people understand that – with or without insurance – patients will ultimately be responsible for the actual cost of care, then the issue will not be resolved.  In other words, focusing on the rising out of pocket expenses, such as premiums, co-pays, and deductibles – without also focusing on why these expenses are increasing – addresses a symptom without diagnosing the disease.

What Does This Mean for Us?

Many candidates and their supporters are proponents of the so-called “Medicare for All” plan, yet even many who support those candidates are beginning to hesitate, worrying that under Medicare payment rates (forced down providers’ throats by a single-payer monopoly), some hospitals struggling to stay open might close.  Here, then, we see the opposite issue – ushered in when a monopoly is in place.  A single-payer with too much power can force opposition into accepting unduly low, unfair rates.

Is there a happy medium?  Some have argued that a so-called “public option” may be one such “middle ground,” but this idea cannot live in harmony with private benefits for long … resulting in the demise of private plans, and eventual monopoly that is a single-payer, and which (as already discussed) most agree needs to be avoided.

Consider as “Exhibit A” the State of Washington.  Washington is set to become the first state to enter the private health insurance market with a so-called “public option,” at rates supporters say will be 10% cheaper than comparable private insurance.  Almost as if the lawmakers read my article above (before I even wrote it), they claim these savings will be achieved thanks to a cap on rates paid to providers.

Without going into too much detail regarding the pricing model (spoiler alert – it’s a percentage of Medicare), if this public option is indeed available to all residents, and if they can “force” providers to accept these payments as payment in full (thereby preventing balance billing), why would anyone sign up for a private plan?  If, then, all private plan members are steered by sheer common sense to this public option, private plans will cease to exist and – in this way – a single-payer emerges from the exchange.

It was this threat that caused a public option to be removed from the proposed PPACA legislation, but now it’s back, at the State level as well as in proposals presented by Democratic candidates for the Presidency.

In the end, unless private plans and providers can achieve a meeting of the minds … and make healthcare affordable long term … this may be the future sooner than we think.


Don’t Get Bit: Avoid Falling Into the COBRA Snake Pit.

By: Kevin Brady, Esq.

Similar to a number of my millennial counterparts, my introduction to “COBRA” coverage did not occur during a college class or work project, but rather as a 26 year old kid who had to face the reality that relying on my parent’s health care coverage wasn’t going to last forever. Although a bit more expensive for me, COBRA was relatively simple from the qualified beneficiary’s perspective. Unfortunately, COBRA is lot less simple when looking at it through an employer’s eyes, especially when that employer self-funds its group health plan.

Even at a first glance, employer responsibilities under COBRA do not appear overly complicated. Put simply, if an applicable employer offers a group health plan to its employees, and an eligible employee experiences a qualifying event (such as termination, a reduction in hours, or a dependent losing coverage due to age or divorce) the employer must provide continuation coverage on the group health plan coverage for that individual, in the same manner that was available to them before the qualifying event.

Upon deeper inspection, COBRA administration is actually a lot more complicated. There are various responsibilities imposed on several of the participating parties when a qualifying event occurs.   Employers, qualified beneficiaries, and plan administrators all play important roles in ensuring COBRA is offered, and administered, correctly; but employers who self-fund their health plans bare the majority of the responsibilities as they are likely to be considered both the employer and the plan administrator in regards to COBRA’s regulations. It follows then, that employer sponsors bare the majority of the risk in the event of a failure to satisfy COBRA’s nuanced requirements.

One issue we see quite frequently involves the required “employer notice of a qualifying event.”  When an employee experiences certain qualifying events (termination or reduction in hours) the employer must provide notice to the plan administrator. Once the plan has notice of the qualifying event it must then offer continuation coverage to the qualified beneficiary within 14 days.

In the self-funded world, the notice responsibility can sometimes be a bit confusing as the employer sponsor is playing multiple roles in the COBRA process.  Employer sponsors should have processes in place to ensure that notices under COBRA and the resulting continuation coverage are properly administered or they risk inadvertently continuing coverage for individuals who are no longer eligible under the terms of the plan.

Employer sponsors risk both stop-loss reimbursement issues and fiduciary responsibility concerns if they continue to offer benefits to ineligible individuals. Employers risk direct liability for medical expenses incurred by an individual in the event the employer fails to provide notice to the plan administrator in a timely manner or not at all. On the other hand, as the plan administrator the sponsor could be liable for ERISA statutory penalties if the employer fails to offer coverage to a qualified beneficiary.

When employer sponsors offer group health plan coverage to their employees, they should be cognizant of the potential pitfalls that could arise when dealing with the various nuances that come with COBRA continuation coverage. A prudent employer sponsor will make sure it understands its role in the COBRA process as both an employer and a plan administrator.