The Future of Health Care and Health Insurance

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The Future of Health Care (and Health Insurance)

• John P. Garven, CLU, RHU
• Benico, Ltd. john.garven_at_benico.com
• [phone], ext. 202

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This mornings agenda

• The history of health insurance in the United
  States (if you dont know where you came from,
  how can you know where you are going?)
• Health care spending in the United States
• The case for consumerism (CDHPs, HSAs, HRAs,
  etc.)
• Tax policy

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This mornings agenda

• Health cares future Health IT, performance
  measures, quality and price transparency, and
  payment reform (pay for performance)
• Health insurances future role of
  intermediaries, employment-based vs. a national
  individual market, and some recent health reform
  ideas
• Illinois-specific  What does the recently
  completed Adequate Health Care Task Force process
  mean in the near term for our state?

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History of health insurance

• When did it all begin?
• During the Civil War (1861-1865).  The earliest
  policies only offered coverage against accidents
  related from travel by rail or steamboat.
• Insurance companies issued the first individual
  disability and illness policies around 1890.
• The first modern group health insurance plan was
  formed in 1929 when a group of teachers in
  Dallas, Texas, contracted with Baylor University
  Hospital for room, board, and medical services in
  exchange for a monthly fee.

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History of health insurance

• Several large life insurance companies entered
  the health insurance field in the 30s and 40s
  as the popularity of private health insurance
  increased.
• In 1932 Blue Cross and Blue Shield entities,
  organized as non-profits, began offering group
  health plans.

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History of health insurance

• Wartime (1939-1945) wage freezes imposed by the
  federal government accelerated the spread of
  employer-provided health insurance. Unable by law
  to attract workers by paying more, employers
  instead provided additional tax-free compensation
  such as health benefits.
• Employee benefit plans proliferated in the 40s
  and 50s. Strong unions bargained for better
  benefit packages, including tax-free,
  employer-sponsored health insurance.

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History of health insurance

• Social Security was expanded in 1954 to provide
  disability benefits.
• The Medicare and Medicaid programs were
  implemented January 1, 1966 during LBJs
  administration.
• ERISA, passed in 1974 as a pension bill, has also
  served to reinforce the employers role in
  providing health benefits.

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History of health insurance

• During the 70s health insurance plan design
  moved away from basic hospital, medical, and
  surgical benefits with major medical wrap
  coverage toward comprehensive major medical
  insurance.
• The Federal HMO Act was legislated by Congress in
  1973, giving fledgling managed care entities an
  opportunity to petition employers to be offered
  as a point-of-enrollment option.

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History of health insurance

• During the 80s, 90s, and the first part of
  this decade managed care took hold as the
  prevailing form of health insurance PPOs, HMOs,
  and POS plans.
• In 1988 only 27 were enrolled in some form of
  managed care. By 2001 93 of private health
  insurance was of the managed care variety.
• Over the last 5 years the emerging trend,
  nationally, has been to move away from the
  strictest forms of managed care (like HMOs)
  toward CDHPs (consumer-driven health plans).
  More on this later.

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Health care spending in the U.S.

• In 2004 (the latest year data are available),
  total national health expenditures rose 7.9,
  over 3 times the rate of inflation. Total
  spending was 1.9 TRILLION, or 6,280 per person.
  Total health care spending represented 16 of the
  gross domestic product (GDP).
• Health care spending is expected to increase at
  similar levels for the next decade reaching 4
  TRILLION in 2015, or 20 percent of the projected
  GDP.
• During the 2007 SOTU President Bush talked about
  entitlement reform because the costs of these
  programs are not sustainable.

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Health care spending in the U.S.

• Yet because of third party payment, year after
  year consumers pay a smaller of their health
  care costs.

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Health care spending in the U.S.

• When the Congress passed enabling legislation for
  the Medicare and Medicaid programs in 1965,
  private sources still paid 75 percent of all of
  the health care costs.
• By 1995 individuals and companies only paid for
  about half of the nations health care bill with
  government programs funding the other half.  In
  2007 more than 53 is paid by government.

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Rates of health insurance coverage

• In 1940 the total US population was 127 million.
  About 12 million Americans (9.4) were covered by
  some form of private health insurance.
• In 2007 the US population is 300 million. About
  253 million Americans (close to 85) are covered
  by some form of public or private insurance.
  About 47 million are without.

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Cost of job-based coverage

• In 2006, employer-sponsored health insurance
  premiums increased by 7.7 percent - two times the
  rate of inflation. The annual premium for an
  employer-sponsored health plan covering a family
  of four averaged nearly 11,500. The annual
  premium for single coverage averaged over 4,200.

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Comments about job-based coverage
The current system of job-based insurance that
fit a post-World War II economy isn't working
well in the Information Age. The Labor
Department says there was more job churning in
2005 than since it started keeping records in
2000. It found that 55 million Americans, or four
out of every 10 workers, left their jobs in 2005,
the vast majority voluntarily, and there were
more new jobs created than workers to fill them.
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Comments about job-based coverage
Job churn among younger workers who are also
most likely to lack health insurance - is the
highest. They can expect to work for 10 different
employers between the ages of 18 and 38. Tying
health insurance to the workplace worked for the
20th century, but it's failing tens of millions
of workers now -- a fact that states considering
an employer mandate should recognize.
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The case for consumerism

• What are CDHPs?
• Consumer Driven Health Plans (CDHPs) are the
  outgrowth of the Consumer Driven Healthcare (CDH)
  movement, a fairly recent but rapidly evolving
  phenomenon in the United States.

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Why Consumer Driven Healthcare (CDH)?

• Many health policy analysts believe making
  consumers aware of the actual cost of health
  services will change the relationship between the
  consumer (i.e., patient) and the physician.
• Once consumers control payment for most services,
  they will become more inclined to shop for
  services and inquire about the cost and quality
  of that care, which in turn should lead to
  improved quality and increased patient
  satisfaction.
• The Medicare Modernization Act (MMA), signed by
  President Bush in December of 2003, created
  Health Savings Accounts (HSAs), which is the
  flavor of CDH that Apex Consulting has opted for.

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CDH adoption rates in the United States

• HSAs cover over 7.2 million beneficiaries _at_
  January 1, 2007 in 3.6 million accounts,
  according to the Consumer Driven Market Report.
• The other type of CDHP, health reimbursement
  arrangements (HRAs), cover 6.2 million _at_ January
  1st.
• The number of Americans enrolled in an HSA or HRA
  are a combined 13.4 million, up from 6.1 million
  _at_ January 1, 2006.
• Pure FSA enrollment is not tracked, but is
  estimated at over 12 million covered lives.

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Projections re health savings accounts (HSAs)

• In 2006 the Treasury Department projected 14
  million HSAs by 2010 based on (then) current law,
  but more than 21 million HSAs (covering 40-45
  million people by 2010) in the event of the
  enactment of President Bushs HSA expansion
  proposals.
• The average HSA established now will have a
  22,000 balance only ten years hence. Unspent
  balances in HSAs will help employees better plan
  for and afford health care in retirement.
• Comments
• Significant HSA expansion legislation the
  Health Opportunity Patient Empowerment Act of
  2006 - was signed into law by President Bush on
  December 20, 2006 as part of the Tax Relief and
  Health Care Act of 2006.
• While many Americans are saving for income in
  retirement, most are not prefunding their
  postretirement health care. An HSA is a
  tax-efficient vehicle that helps one take care of
  current unreimbursed expenses while also saving
  for health care during ones retirement.

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Some thoughts about the future of CDH

• HSAs clearly represent a sea change / paradigm
  shift in the way consumers purchase their health
  care.  
• Consumer-driven health plans (CDHPs) - HSAs, and
  HRAs - are to the middle part of this decade as
  managed care (PPOs and HMOs) was to the 25 years,
  an entire generation, following their
  introduction during the early 80s.  CDH is the
  current macro trend in the private health
  insurance market.
• HSAs are not for everyone, but they certainly
  represent a very good option for the vast
  majority of our nations citizens who are healthy
  or from time to time experience expensive
  episodic care.  With this statement we have just
  described 85-90 of our countrys population. 

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Some thoughts about the future of CDH

• In the big picture, HSAs and other tax favored
  account-based plans like HRAs and FSAs are
  helping to swing the pendulum away from third
  party payment, which has served to excessively
  fuel demand, the result being overutilization.
• CDH is a movement toward more of a direct payment
  model like that which the baby boomers grew up
  with as young children and was the prevalent
  healthcare financing arrangement in this country
  until Medicares and Medicaids introduction some
  40 years ago. 
• Once HSA enrollment in this country achieves
  critical mass (i.e., 21 million accounts expected
  by 2010), there will increasingly be a positive
  impact from such accounts on overall health care
  costs because they should help curb
  overutilization by suppressing demand. 

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Recent press coverage of CDH

• The vast majority of press coverage of CDH was
  positive in 2006 despite some bumps in the road.
  It is estimated that over one thousand stories
  appeared in U.S. newspapers and magazines in 2006
  on the subject of CDH accounts. The overwhelming
  majority of the stories were positive.
• An AP wire service story out November 14th begins
  with the following Health savings accounts,
  often thought to be for the young and healthy,
  can also be a tax-efficient way to save for the
  worrisome cost of retiree health care. While not
  yet available to most Americans, health savings
  accounts, or HSAs, enable consumers to invest
  pretax dollars in high-earning years and withdraw
  that money in retirement for out-of-pocket
  medical costs.

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Tax policy

• The biggest tax break that the American people
  get is actually the invisible tax exclusion that
  protects the value of health insurance premiums
  from their income at work.
• In the Bush Administrations FY 08 budget
  proposal the economic value of the tax exclusion
  for job-based insurance is pegged at 160
  billion. Contrast this with the value of the
  deduction of mortgage interest, which is only
  89 billion.

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Tax policy

• The American Enterprise Institutes research
  shows the new numbers are for federal income
  taxes only and do not include additional tax
  savings from payroll taxes, state taxes, etc.,
  which will surely drive the number well over 200
  billion.
• As a society we are paying A LOT to subsidize
  job-based insurance. Gene Steuerle, a tax policy
  guru from the Urban Institute, recently told the
  House Ways and Means Committee that we may not be
  getting our money's worth. "The subsidy
  encourages insured people to buy more high-cost
  insurance, which encourages more use of high-cost
  health care, which helps drive up health costs,
  which, in turn, leads to a decline in insurance
  coverage."

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Tax policy

• For the past decade NAHU has advocated for
  redistributing the tax subsidy in the federal
  budget by providing advanceable and refundable
  federal health insurance tax credits for
  lower-income individuals, one of the primary
  demographics of the uninsured.
• Many of these citizens make too much to be
  eligible for government health programs and
  cannot afford health insurance even if it is
  subsidized in some manner by their employers.
  NAHUs position has been that such a credit
  should be available to purchase either individual
  market coverage or coverage through the
  employer-based health insurance system.
• For more information go to http//www.nahu.org/leg
  islative/uninsured/credits.cfm

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Bush Health Plan proposal (SOTU)

• In his State of the Union Address President Bush
  proposed a "standard deduction for health
  insurance. Families with health insurance will
  not pay income or payroll taxes on the first
  15,000 in compensation and singles will not pay
  income or payroll taxes on the first 7,500.
• The President's proposal purports to bring about
  tax equity and provide the same tax preference
  for health insurance for all Americans.

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Tax treatment will be part of debate

• Over the next couple years I believe there will
  be a significant national debate on tax policy
  related to health care, which is healthy.
• The current tax system is not fair because it is
  not equitable. Some get a tax break, and others,
  mostly the uninsured, DONT?
• The debate will center around whether we should
  focus on tax credits to help the principal
  uninsured demographic lower-paid and younger
  part of the workforce, something along the lines
  of the GWBHP proposal, or possibly even a hybrid
  of the 2 approaches.

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Health cares future

• The "four cornerstones of a modern 21st century
  health system, according to HHS Secretary Michael
  Leavitt, are information technology, performance
  measures, transparency, and payment reform.
• Secretary Leavitt is trying to ingrain these four
  cornerstones into the federal government's
  purchasing of health care, most notably through
  President Bush's Executive Order 13410, issued
  on August 22nd of last year which has to do with
  the federal governments procurement of health
  care for its workers.

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Health cares future

• Health Information Technology (HIT)
• Compared to every other sector of society, most
  physicians and other providers step back in time
  when they enter their offices, giving up
  computers and the Internet for pen and paper. We
  simply cannot deliver better quality, eliminate
  waste and improve efficiency without equipping
  doctors with the point-of-care patient
  information and decision support tools. And the
  technology must be interconnected, or
  interoperable, so that every IT system, no matter
  where it is, can deliver the right information on
  the right person at the right time.

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Health cares future

• Performance measures
• Today it is nearly impossible to determine, in
  any reliable way, who delivers the best quality
  care and at what cost. Government and industry
  are working to standardize common measures to
  enable us to gather and measure performance and
  cost in a common way, so we can compare apples to
  apples.  

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Health cares future

• Quality and price transparency
• Currently, the health-care system keeps consumers
  in the dark about the cost and quality of the
  care they receive. Try finding out which doctor
  has the best results for treating patients with
  asthma or diabetes. Try finding out how much a
  knee replacement will cost. Sites like
  FloridaCompareCare.gov and MyFloridaRX.com, which
  contain a wealth of quality and cost data, have
  proven to be incredibly valuable to
  consumers. Additionally, with the right privacy
  and security protections, the federal government
  should release the data it has to let the public
  see which doctors are delivering the best care.
  Wouldn't you like to know who has the best track
  record for delivering high-quality care? You have
  the right to know this information, and the
  federal government should release it. 

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Health cares future

• Payment reform
• In our current system, hospitals and providers
  that deliver better care are reimbursed, for the
  most part, at the exact same rate as those who
  provide poorer care. That is like paying the same
  price for a new Cadillac as you would for a used
  Yugo. This egregious approach must change so that
  better performers are rewarded.
• This is where pay for performance would come
  into play. 

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Health insurances future

• Will job-based health insurance anytime soon
  become extinct?
• Many employers see health insurance as an
  important part of their employee benefits
  package, and they absolutely should be able to
  continue their offerings. However, the
  job-based system is not a viable option for a
  growing number of the uninsured.
• With our mobile, 21st century workforce, creating
  new options for citizens to obtain portable
  private health insurance is critical, lest we
  slide into a system where government runs the
  show - and tells citizens and employers how much
  they must pay and for what benefits. The
  president's health reform plan would move in that
  direction, as would a system, for that matter, of
  advanceable and refundable tax credits.

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Health insurances future

• What about a national individual market?
• Many, particularly a significant of the
  Republican members of Congress, favor
  disconnecting health insurance from employment
  and moving the distribution of private health
  insurance toward a national individual market.
  Many of these same folks advocate permitting
  citizens to purchase health insurance across
  state lines.
• U.S. Rep. John Shadegg (R-Arizona) sponsored
  legislation in the House of Representatives
  during 2004-2006 called the Health Care Choice
  Act, which, if ever implemented, would serve to
  create such a market.
• In his SOTU speech last month President Bush
  called for permitting the purchase of health
  insurance across state lines. His reasoning for
  such is that Americans should be allowed to buy
  the best health insurance for themselves, based
  on their own circumstances, instead of being
  limited to only the policies available in their
  State.

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Health insurances future

• What about the future role of intermediaries,
  such as agents, brokers, and consultants?
• I predict that the role of the advisor is
  actually going to become more important in the
  years to come as the boomers move into their
  retirement years and Gen X and Y become
  increasingly challenged with career, family, and
  other pressures including caring for their
  boomer parents.  
• This is not to suggest business as usual, though.
  Regardless of what the politicians do, to
  survive (and prosper) intermediaries will be
  increasingly challenged to both add and
  demonstrate value. I am sure we will also need
  to reinvent ourselves as needs for our products
  change and the products themselves evolve.

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Health insurances future

• During the next decade I believe the growth areas
  for those engaged in the sale of health insurance
  and employee benefit products are going to be
• Long term care
• Worksite (voluntary, employee-paid) benefits and
• Benefit communication and enrollment.

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Recent health reform ideas

• America's Health Insurance Plans (AHIP) suggests
  one way to preserve a competitive market under
  such a program would be for the federal
  government to create universal health accounts
  (UHAs).
• Like the increasingly popular health savings
  accounts (HSAs), the new UHAs would allow pre-tax
  deposits to be made by employers and employees.
  Employees would own the UHA funds, so a person
  who loses a job would continue to have access to
  all of the funds in the account.
• Individuals with UHAs would be allowed to
  purchase insurance coverage in the group and
  non-group markets. This provision enhances
  portability, because a person who loses a job
  need not also lose employer-provided health
  insurance. The UHA could be paired with any
  health plan--or none at all, if the UHA owner
  opted not to purchase insurance.

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Recent health reform ideas

• Moreover, the UHA plan described by AHIP would
  allow contributions to be made into the accounts
  by the federal government. For persons with
  incomes less than 300 percent of the federal
  poverty level, the federal government would make
  matching contributions up to 1,000 for
  individuals and 2,000 for families. AHIP
  suggests the federal government should also
  create rules to allow states to contribute to the
  UHAs as well.
• UHAs would help uninsured people buy health
  insurance on a pre-tax basis.

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Recent health reform ideas

• An unusual partnership including Wal-Mart, labor
  unions, ATT, and several policy groups recently
  announced four principles to create "a new
  American health care system by 2012." They call
  for universal coverage and say that "businesses,
  government, and individuals all should
  contribute."
• No talk of individual mandates or employer
  mandates, and the second principle recognizes the
  importance of our responsibility to take care of
  our own health. This is a huge component that is
  often missed in the health reform debate.
  Personal choices - sedentary lifestyles, poor
  diet, overeating, smoking, and alcohol and drug
  abuse - have a much bigger impact on our health
  than a doctor's visit or even insurance coverage.
  
• The Wal-Mart campaign offers a vision not a plan,
  but it seems a sensible place to start,
  especially with their commitment to a health care
  system more in step with a mobile, 21st century
  workforce.

41
Health insurances future

• Illinois-specific  What does the recently
  completed Adequate Health Care Task Force process
  mean in the near term for our state?
• Chicago Sun-Times editorial (Health insurance
  needs fix, but we can't afford this one) Dec.
  13, 2006
• For the state panel that last week offered a
  proposal to bring universal health care to
  Illinois, the timing couldn't have been worse.
  Just two days after the Civic Committee of the
  Commercial Club issued a sobering report on the
  state's finances, the Adequate Health Care Task
  Force pushed a plan that would cost billions
  more. If the Civic Committee is right that the
  state isn't coming close to meeting its current
  financial obligations, then we can't afford a
  massively expensive new one.
• Illinois must find a way to pay for its current
  obligations before it starts taking on new ones
  -- even new ones as critical as health insurance
  -- or it will simply be passing on the day of
  reckoning to future generations.

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Health insurances future

• Chicago Tribune editorial (Health insurance
  needs fix, but we can't afford this one) Dec.
  18, 2006
• The report came just a day after a prominent
  business group warned that Illinois is headed
  toward "financial implosion." The state has 106
  billion in debt and unfunded liabilities, about
  8,800 for each resident, the Civic Committee of
  the Commercial Club of Chicago said. Unless
  something changes dramatically, that massive gap
  will continue to grow quickly. Piling on an
  expensive new health-care initiative would make a
  horrendous situation worse.

43
Health insurances future

• Spring 2007 legislative session in Springfield
• Emil Jones, President of the Illinois State
  Senate, recently introduced SB 5, a title only or
  vehicle bill which is widely expected to be the
  legislation that will carry Governor
  Blagojevichs Universal Access proposal and
  potentially other components of the Illinois
  Adequate Health Care Task Force Hybrid proposal.
   
• While it is too early to predict exactly what the
  legislation will contain, it is significant since
  it is one of the first five bills introduced by
  the Senate President, preceded only by title
  bills regarding education funding, school and
  transportation construction and stem cell
  research.

44
Health insurances future

• Spring 2007 legislative session in Springfield
• Our Governor promised a universal healthcare
  coverage initiative toward the end of his
  reelection campaign last October.  Certainly not
  to be outdone by Republicans Mitt Romney (former
  Massachusetts Governor) and Arnold Schwarzenegger
  (current Governor of California), he is expected
  to provide more details regarding his Universal
  Access proposal during his State of the
  State/Budget Address on March 7th.
• ISAHU is working with a number of organizations
  to refine our proposals for introduction in the
  General Assembly. Senator Bill Haine, Chairman of
  the Senate Insurance Committee, and
  Representative Frank Mautino have agreed to
  sponsor our initiatives which include Consumer
  Choice (mandate light small group policies), tax
  incentives, premium assistance programs and
  authority for innovative pilot programs.

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The End

• Thank you for your time and attention. Also, our
  best wishes for a healthy and prosperous 2007!