How I Would Fix Healthcare – Step 6

This is a continuing series addressing the healthcare crisis in America and a possible alternative to President Obama’s healthcare solution.

Giving to Charity Benefits Me At Tax Time

When I give to an official 501(c)(3) charity, I not only reap the benefits of feeling very good about myself, I also get a healthy tax deduction between 25% and 30% of the value of the gift.

In other words, if I give the United Way $1000, about $300 is taken off my tax bill – pretty cool!

I can give as much as I want. However, only the donation amount below 20% of my income is tax deductible.

Ironically, the opposite tax rules are applied to deducting medical expenses.

Paying for Healthcare Hurts Me At Tax Time

As a business owner, my husband and I sometimes have bust years, where we get little work and few of our clients pay on time; and boom years, when we are awarded lots of contracts, everyone pays on time, and even those who have owed us money from the past pay in full.

One year, we were hit hard with dental expenses. Although we had dental insurance, it didn’t cover any work other than x-rays, cleanings, and a percentage towards fillings. I had to replace several old and crumbling fillings and my husband had to have dental surgery. These were all expensive procedures and we ended up writing checks to the dentist for over $5,000. Our health insurance premiums at that time were around $400 per month, so combined with the out-of-pocket expenses, we spent about $10,000 in healthcare that year. I felt fortunate that we had a good income that particular year and could afford to pay the high medical bills.

At tax time, I thought for sure that we would be able to deduct some of these expenses, but this was not the case. I’m not an accountant, and I really don’t think we make that much money, but my CPA said the expenses had to exceed a certain percent (currently 7.5%) of our “adjusted gross income” for that year in order to be deductible. They did not.

“What about last year?” I asked. “We only made about half as much money last year as we made this year.”

“You can’t go back in time,” he said, “But you should have had the dental procedures last year so that you could deduct them,” he explained.

“How could we possibly know that we would need this work done? And, why are we being penalized for having a good income this year?”

The Theories Behind Why Everyone Should Have Healthcare Insurance

President Barack Obama would like to make it mandatory for all Americans to buy health insurance, in the same way in which drivers are required to buy auto insurance. He noted that those who are healthy tend to not buy insurance on their own if their employer does not provide it for them.

There are two theories for why everyone should buy healthcare insurance:

First, the more people who are insured, the cheaper rates will be for all of us. The more people who pay into the reserves, but don’t need the coverage, the more money will be available to pay out claims for those who do need the coverage.

Second, should that day come where an individual who does not have health insurance suffers from some great catastrophic medical disorder, disease, or accident, they will most likely not have the money to pay their high medical bills and the burden of paying for their care will fall on the rest of us. When bills are not paid, they do not evaporate and are not absorbed by corporations or the government – unpaid bills result in higher prices and higher taxes for everyone who does pay.

Little Financial Incentive to Buy Healthcare Insurance

Other than the obvious argument, that not everyone chooses to drive a car and therefore, not all of us are required to buy auto insurance, health insurance is not cheap and when it comes time to decide where and how to spend your hard earned money, most of us would rather not spend it on something we might not need: health insurance.

In fact, when I have been without health insurance, I have always found it cheaper to simply pay out of pocket in full for doctor visits and medications, even minor surgery. Also, by paying my own way, I get to go to any doctor I please and am not limited to a “list of network doctors.” I don’t have to fight for referrals since I can make an appointment on my own.

In my early twenties, young and healthy, I was quoted insurance premiums of about $300 per month because I was of “child bearing years.” Although I made three times the minimum wage (about $3 per hour in those days), the premiums represented roughly one quarter of my take-home pay, far too much to afford. However, I considered buying the insurance anyway, because I had been having lots of ear infections and headaches and my doctor recommended ear surgery. I added up the costs of the surgery and doctor visits: about $2000; and compared it to the cost of insurance for 12 months: about $3600, plus a $1000 deductible, for a total of $4600; and decided that $2000 out of pocket wasn’t that bad after all. I put the surgery expense on my “new” credit card and paid over time.

Fortunately, many, many years later, my income is now much higher and paying for health insurance is easily doable. Plus, I am much older now and more likely to actually need the health insurance.

However, my actual medical expenses have rarely exceeded what I have paid each year in premiums, co-pays, and deductibles combined. It is easy to see why so many Americans prefer to opt out of buying health insurance entirely.

If Insurance is Tax Deductible, More Americans Will Be Motivated to Buy It

Just as charitable donations are tax deductible, I would like my medical expenses to be tax deductible, no matter my income. If I spend $1000 on health insurance co-pays, I’d like a $300 tax deduction. If I spend $10,000 a year on health insurance premiums, I’d like a $3000 tax deduction.

Which leads me to step 6 on how I would fix healthcare:

Step 6 – Healthcare insurance premiums and related expenses will be tax deductible
By Federal mandate, health insurance premiums are tax deductible at the rate of 30%, as well as related expenses, including: deductibles, co-pays, and expenses not covered under the individual’s health insurance plan (provided that this individual subscribes to a government approved health insurance plan).

Ideally, no “adjusted gross income” limits or maximums, or medical expense limits would apply.

Vanity medical expenses, such as unnecessary cosmetic surgery and cosmetics purchased at the drug store would not be tax deductible.

Medications and treatments, including those purchased off the shelves at the drugstore, such as Claritin and Monistat 7, would be tax deductible if a doctor writes a prescription for them.

The current medical expense tax deduction rules could be eliminated, which would further encourage individuals to buy a health insurance plan, rather than pay as they go.

What would a government approved tax-deductible health insurance plan be?

It would be a plan which covers all of the basics of a quality healthcare plan: preventive care and catastrophic care where the subscriber either pays nothing; pays a small portion of the overall medical expenses (such as 10%); or pays a small deductible before the insurance kicks in (such as $2000). What should not be approved is a health insurance plan designed to help people get a tax write-off – such as a plan with miniscule premiums, which only covers a small portion of expenses after a large deductible.

Consider making gym memberships and fees at least partially tax deductible.

If the goal is to help America become more fit, what better way to do this than to give them the financial incentive to play at the soccer club, take part in a jazzercise class, or swim laps at the pool? Just as charities must apply for 501-(c)(3) status, gyms could also apply for a similar tax-deductible status. Fees or memberships paid to these certified organizations could be given a small tax deduction, perhaps a 10% tax break.

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Step 6 – Tax Deductible Health Insurance Premiums and Related Expenses

Stay tuned for Step 7

How I Would Fix Healthcare – Step 5C

This is a continuing series addressing the healthcare crisis in America and a possible alternative to (or in this case, possible explanation of) President Obama’s healthcare solution.

Freedom of Choice Gap

One of our most cherished rights as Americans is our freedom of choice.

In choosing our mode of transportation, we Americans can either purchase a luxuriously expensive BMW; purchase a base-model economy Hyundai Accent; not buy a car and ride a bike or take a cab; take the subway or bus – a.k.a. government-funded public transportation; or, if truly destitute, we may get free bus fare from the government.

In choosing a place to live, we, as Americans, may purchase a luxuriously expensive mansion; purchase an older small affordable home; not buy a home at all and rent; qualify for a government-subsidized apartment; or, if truly destitute, receive free section 8 housing from the government.

Such is the case with most of our basic services in America, from buying clothing, to food, to education and childcare for our children.

However, there is an obvious gap when it comes to healthcare in America. If you are a high- to middle-high wage-earning individual, your healthcare is usually free or of minimal cost to you in relation to your income because your employer has generously provided you and your family with an excellent healthcare plan. The lower you are on the company totem pole, the less likely you are to receive a quality healthcare plan from your employer (unless you belong to a union that advocates for a quality health plan on your behalf) and the more you will pay out-of-pocket for healthcare when you need it. On the opposite end of the income spectrum, if you are truly destitute, you can receive free healthcare through the government.

What’s missing is an affordable healthcare option for those in the middle.

How do you obtain healthcare if you don’t have quality health insurance? You can pay out-of-pocket, but this can sometimes be completely unaffordable, especially when a diagnosis involves expensive treatments and medications. Just imagine the out-of-pocket costs for surgery!



Clinics Can Offer Quality Basic Healthcare

Clinics, also called community healthcare centers, are an excellent source of affordable healthcare for those who may have a job, but don’t have health insurance, or perhaps don’t make enough money to pay for out-of-pocket co-pays or other expenses.

Currently, the social stigma of a clinic is a filthy run-down building, located in a dangerous neighborhood, and packed full of sick and unkempt ne’er-do-wells. The only place I’ve ever seen such a clinic is on television.

While in college, every time I felt under the weather, I wandered over to the 24/7 free campus clinic and saw a doctor. I didn’t have to get an appointment, yet I was usually able to see someone within half an hour and I didn’t mind that I saw a different nurse and doctor every time. If I had an allergic reaction at four o’clock in the morning, someone was at the clinic to take me in. If I was seriously ill, the clinic transported me to the local hospital emergency room.

Some private insurance companies operate walk-in clinics as part of their managed health care plans (HMOs). These plans are typically much more affordable than traditional health care plans where patients see private doctors in that doctor’s office.

In addition, retail store pharmacies have begun to offer walk-in clinics as part of their services. Customers know in advance what they will pay because prices are clearly listed. Depending on their size, these clinics can offer everything from basic immunizations, strep cultures, blood tests, bone density screenings, eye exams, mammograms, and thorough physical exams.

However, not all cities are large enough to justify having a community health center. Many small towns do not have a clinic at all.

Clinics Can Operate Cost-Effectively

The National Association of Community Health Centers (NACHC) is a privately run, non-profit organization composed of representatives from both for-profit and non-profit clinics, doctors, universities, corporations, and other individuals throughout the United States. They regularly study and examine the costs, benefits, and impacts of community health centers on the general population.

Direct from the NACHC website:

“Community Health Centers have actually improved health outcomes and lowered the costs of treating patients with chronic illnesses, and have compiled a remarkable record of achievement in providing care of superior quality, with exceptional cost-effectiveness and efficiency. Their costs of care rank among the lowest, and they reduce the need for more expensive emergency room, hospital in-patient and specialty care. Both the Institute of Medicine and the General Accountability Office have recognized Community Health Centers as effective models for reducing health disparities and for managing the care of people with chronic conditions such as diabetes, cardiovascular disease, and HIV; and the White House Office of Management and Budget has ranked them as one of the 10 most effective government programs. The American Academy of Family Physicians’ Robert Graham Center recently found that the total cost of care for health center patients is 41% lower annually than the total cost of care for individuals served by other providers. Community Health Centers serve as living proof that providing high-quality, continuous care to people and communities without adequate sources of health care improves health outcomes, narrows health disparities, and generates significant savings to the health care system – up to $18 billion last year alone – while bringing much-needed economic benefits to the low income communities they serve. Once health centers reach the ACCESS goal of serving 30 million patients by 2015, the cost savings they generate for the health care system will double to $40 billion annually.”

Teaching Hospitals Offer Quality Catastrophic Healthcare

Some hospitals also operate as a “teaching hospital” by opening their doors to the public at extremely affordable sliding scale rates. While you are there, you will get the very best health care in the world: multiple doctors, a room full of eager and curious students; and the most recent technology and treatments available. Of course, you must be willing to be filmed or photographed – a small price to pay for excellent health care.

Sadly, few people live near a teaching hospital.

Step 5C - Government Run or Subsidized Clinics and Teaching Hospitals

Local, state, and federal governments currently fund and operate clinics throughout the United States. By expanding the network of existing clinics, both public and private, the federal government can help to ensure that every community, no matter how small, has access to a quality health clinic, community health center, and hospital that is open to everyone.

Contracts with existing clinics and hospitals

Private and county-run clinics, community health centers, and hospitals are usually found in large, metropolitan areas where they can serve the largest populations most efficiently. Where there is already an existing private clinic or teaching hospital, the federal government can contract with them to expand service to the general public.

Build new clinics in small and rural communities

To improve access to affordable healthcare in smaller communities, the federal government can explore the possibility of building a clinic and operating it themselves, or contracting with a private healthcare provider to do this.

No-to-Low Interest Loans and Infrastructure

To encourage private healthcare providers to build more clinics where there is currently a lack of them, the federal government can offer no- to low-interest loans for renovating, building, furnishing, staffing, and other start-up costs. The government can also step in to provide the necessary road and sidewalk improvements and other infrastructure. Public transportation to and from the clinic may also have to be created.

Access must be expanded to include everyone of all income levels

Many clinics currently are only accessible to individuals who are either considered low income, or to those with specific conditions, such as pregnant women or those carrying contagious diseases, where healthcare is provided for the welfare of the general public.

The past assumption of if you are earning a middle-class income, you do not need to go to a clinic because you can afford to go to a private doctor no longer holds true. Due to a lack of employer provided insurance, insurance policies which do not cover all treatments or costs, and the high cost of living, medical care has become unaffordable, even to those in the middle class.

Funding and Staffing

Funding for these clinics will come from a variety of sources:

Taxpayers

A portion of funding must come from the federal government, essentially from taxpayers. There is no way around this. Currently, clinics which are open to lower income and impoverished Americans are already funded by taxpayers. With proper budgeting and planning, the cost to American taxpayers should be minimal. The cost of building a clinic to serve the general public now will be cheaper than paying for the public’s expensive medical treatments down the road, after they file for bankruptcy.

Work Exchange Staffing

If you serve in the armed forces, you qualify for a college scholarship. The same work exchange system could be used to staff clinics.

Rather than take out a loan or rely on dear old mum and dad, students can go to medical school on the government’s dime. Within a few years of graduating, the student can then serve the same number of years in a community heath center or hospital as a nurse, doctor, surgeon, anesthesiologist, radiologist, or other medical expert.

Sliding scale payments

Patients can pay for costs on a sliding scale. For instance, a visit to a doctor could be the same as a co-pay which a middle-income patient would normally pay if they had quality health insurance coverage.

Public private partnerships

Private corporations may make donations of equipment and pharmaceuticals in exchange for generous tax breaks. Universities may offer their students to staff the facilities in exchange for the ability to do research using new diagnostic treatments, pharmaceuticals and equipment.

The National Association of Community Health Centers (NACHC) lists in its 2008 annual report a number of private and public partnerships in funding and operating community health centers throughout the United States. Covidien, a supplier of medical instruments, has offered $2 million over three years in matching grants to help renovate centers, and an additional $50,000 per year for training. Roche, a medical diagnostic and pharmaceutical company, has donated $1.75 million in Hepatitis C treatments. Pfizer pharmaceutical company has provided low-cost medications since 1993 through its “Sharing the Care” program.

Additional sources for this blog article:

Primary Care Access: An Essential Building Block of Health Reform

Income, Poverty, and Health Insurance Coverage in the United States: 2007

A few facts – food for thought:

While researching this article, I was able to find the following facts reported within the 2007 US Census.

Average salaries by earning level:

The total number of American households are divided equally into 1/5’s, called quintiles. The average salary per household in 2007 was $50,233. A household can be one person living alone, a family of four, roommates, or any group of people who live together and pool their money to pay the rent and utility bills.

The lowest quintile of households earn an average of $8,500 per year.
The second lowest quintile of households earn an average of $22,000 per year.
The middle level quintile of households earn an average of $36,000 per year.
The fourth highest quintile of households earn an average of $57,000 per year.
The highest quintile of households earn an average of $127,000 per year.

Total household earnings in relation to health insurance coverage in 2007:

24.8% of American households earn less than $25,000 per year.
Of these, 25% do not have health insurance of any kind.

24.8% of American households earn $25,000 to $49,999 per year.
Of these, 21% do not have health insurance of any kind.

18.2% of American households earn $50,000 to $74,999 per year.
Of these, 14.5% do not have health insurance of any kind.

32.1% of American households earn more than $75,000 per year.
Of these, 7.8% do not have health insurance of any kind.

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Stay tuned for steps 6 and 7

How I Would Fix Healthcare – Step 5B

This is a continuing series addressing the healthcare crisis in America and a possible alternative to President Obama’s healthcare solution.

Currently, health insurance companies charge higher rates for higher risks

One of the biggest complaints about America’s current healthcare system is that health insurance rates are based on risk factors, just as they are on most other types of insurance. Buy a house on the beach in Florida, and you will pay high premiums on home insurance to cover the possibility of hurricane damage. Get a few speeding tickets while driving and your car insurance rates will soar. Higher risk factors equal higher rates.

When buying health insurance, risk factors are also taken into account.

Are you a woman? Ka-ching!

Want to have children? Ka-ching! Ka-ching! Good luck even finding insurance to cover maternity expenses.

Family history of diabetes? Ka-ching!

Over 60 years old? Ka-ching! Ka-ching!

Had cancer when you were in your thirties? So sorry! You’re denied.

Healthy equals higher profits

An American who is labeled as high risk and cannot afford their higher than average health insurance rates will opt to not buy insurance at all. That’s perfectly fine with the insurance companies. They don’t want these potential “losses” on their books, anyway. They want healthy, “low risk” folks as customers. Healthy equals higher profits.

Even Healthy People are Penalized by Sex and Age

If you already have healthcare through your employer, you probably have no idea how people are charged for insurance. Even if you are extremely healthy and have low risk factors, you are still charged different rates based on your sex and age.

Aetna’s POS Open Access 1000 Plan

Aetna Insurance offers 30 healthcare plans and 2 dental plans in the state of Florida and will cover pre-existing conditions if the patient had “credible” prior healthcare insurance; or after 12 months of paying for the plan.

Aetna’s website includes a downloadable pdf of a brochure featuring plan descriptions and a brochure of current rates. A potential customer can easily compare each plan by perusing easy to read charts, and examining co-pays, items covered, and deductibles.

My favorite plan which Aetna offers in Florida, POS Open Access 1000, would allow me to go to a network doctor and only pay a 20% copay. If I had to go to the hospital or have outpatient surgery, this plan also pays 20% after an affordable $2000 deductible. Generic prescription drugs are $15, and brand name drugs would cost me $35 to $50 after a $250 deductible. With this plan, I can rack up to $5 million in hospital bills before I have to sell my car, mortgage the house, and file for bankruptcy to pay for the rest.

As a recent 22-year old college graduate living in Orlando, the POS Open Access 1000 plan would cost me $142 per month if I were a man. However, it would cost me $187 per month as a woman, even though the plan will not cover basic pregnancy costs.

(Keep in mind that a person earning minimum wage and living in Florida would not be able to afford even these wonderfully low rates, because they only bring home $1138.21 per month after Social Security and Medicare taxes are deducted, barely enough to cover food, clothing, transportation, and housing.)

Rates increase significantly from age 40 and upward, when a plan for a man would cost only $275 per month, but a higher $361 per month for a woman.

Women pay more for this plan than men until age 55, when prices are $563 per month for a man and $550 per month for a woman.

By age 64, before qualifying for Medicare, rates for this same plan are $819 per month for a man and $720 per month for a woman.

Who would have thought that your age and sex may make you “high risk?”

Poor health, age, and sex is not a matter of choice

Charging higher rates for higher risks makes perfect sense when determining prices for home or car insurance. As an American, I can choose to buy a house on the beach and pay higher home insurance than I would if I were to buy a house inland on higher and dryer ground. As an American, I can choose to drive like an impatient maniac, get tickets for speeding, possibly cause accidents, and see my car insurance rates raised through the roof.

Applying the same principals to health insurance rates is simply inhumane.

As an American, I did not choose to be born a man or a woman. As an American, I did not choose to inherit a gene which predisposes me to cancer, sickle cell disease, heart disease, osteoporosis, or diabetes. As an American, I did not choose to be in an accident and become disabled. As an American, I did not choose to catch hepatitis, pneumonia, or meningitis. I did not choose to suffer food poisoning, nor breathe in air pollution.

What is not a matter of choice, but is simply a matter of genetics or bad luck, should not be a factor in determining health insurance rates.

Insurance Companies Can’t Have it Both Ways

As long as health insurance companies practice the policy of charging substantially higher rates for those who are considered “high risk,” or denying coverage completely to those who are “too high risk,” there will always be multitudes of seriously ill Americans living within our communities who are without health insurance coverage. We as a country have no choice but to find some sort of solution to this dilemma.

President Barack Obama has suggested we solve this problem by having the federal government form a government run “public option” insurance to compete with private insurance. However, private insurance companies feel that this is unfair because the government will be able to charge lower rates and undercut them, driving them out of business.

Insurance companies have a choice: either change the way they evaluate customer risks or the federal government will have to step in.

Perhaps it’s time that healthcare insurance rates were based on services, not on pre-existing conditions, age, sex, or family histories.

Step 5B: Regulate Insurance Rates with Blind Menu Pricing

Rather than charge higher rates for people who are considered to be “high risk,” insurance companies should charge a flat rate. I call this “blind menu pricing” because the insurance company is “blind” to your pre-existing conditions, age, and sex.

Standardized Plan Menu

So that consumers can compare apples to apples, a federal government panel of representatives from the private insurance industry, along with available insurance commissioners, would help to create a list of standardized plans which will meet any American’s basic healthcare needs. Plans would range from the most expensive and offer complete coverage with a low deductible; to the least expensive and offer a percentage of coverage with a high deductible.

Every insurance company would list their prices for those standardized plans in an easy to read chart menu, similar to that published by Aetna, which potential customers could pick from.

The cost for adding a spouse and each dependent would also be standardized.

Insurance Companies Set Their Own Prices

Each insurance company would set their own prices based on what they feel they could afford to charge. Companies would compete to offer the best prices for the same plans.

Rather than charge a 23-year old man $142 per month and a 64-year old man $819 per month for Aetna’s POS Open Access 1000 Plan, everyone of any age, sex, or health status would be charged the same rate. This plan could be averaged to cost about $400 per person per month and an extra $200 per month for each dependent.

Pay a much higher deductible, and rates are much lower. For instance the Aetna POS Open Access 10,000 Plan has a $10,000 deductible and a $1 million cap and costs only $29 per month for a 23-year old man and $194 per month for a 64-year old man. This plan could be averaged to cost about $100 per person per month and an extra $50 for each dependent.

Standardized Plans Cannot Discriminate

None of the standardized plans should be written in such a way that they would discriminate by age, sex, or condition. For instance, a standardized plan must include ob-gyn and maternity care, or it would exclude women. Similarly, a dental plan must include dentures, or it would exclude older Americans. A plan must include access to standard treatments, or it would exclude sufferers of specific diseases, such as dialysis for kidney patients, and chemotherapy for cancer patients.

Add-On for Optional Insurance

Each insurance company would then be able to offer special add-ons or special options available through their particular company. For instance, optional insurance could offer free name-brand prescription drugs instead of requiring a co-pay; much lower cost healthcare insurance with no deductibles through a specific clinic, hospital, or medical facility run by that insurance company (such as in the case of an HMO); experimental treatments; healthcare coverage while traveling to other countries; and special sports packages including massages and physical therapy.

Penalties for Irresponsible Behavior

True, it does make sense that people who smoke, don’t go to the doctor for preventative care, and don’t follow doctor’s orders (such as not filling prescriptions) should indeed be charged a higher rate for health insurance. Likewise, a person who practices risky behavior, such as getting a traffic ticket for a DUI, being arrested for soliciting a prostitute, or having a hobby like ski jumping could be required to pay a higher rate for healthcare insurance. However, these are all behaviors which would be easy to quantify and evaluate subjectively.

What should not be considered as irresponsible behavior are conditions such as high blood pressure, high cholesterol, high blood sugar, or obesity, because these conditions can be the symptoms of disease, and not a matter of choice.

An example of “Blind Menu Pricing:” AAA roadside assistance insurance

Currently in America, we have an excellent example of insurance based not on risk factors, but on services.

The American Automobile Association, commonly known as AAA (Triple A), offers three types of memberships based on the services you would like to receive. Plans are listed here and costs are listed here. AAA Classic starts at $64 per person per year and includes emergency assistance (think of this as catastrophic health insurance for your car) in the form of towing up to 5 miles, battery service, flat tire service, and fuel delivery for when you run out of gas. The deluxe membership, AAA Premier, costs $122 per person per year and includes a rental car for one day (think of this as a hospital stay for your car). Motorcycle and RV drivers (think of them as people who are “high risk” by choice) can pay an extra $30 to $80 per year for this coverage. Additional drivers (your spouse and dependents) each cost an extra $30 per year for the classic membership and an extra $63 per year for the premier membership.

In addition, AAA offers trip planning and free map books (think of this as preventative healthcare maintenance) for all of their plans.

AAA also offers additional add on packages for specific services. You can buy additional travel insurance to cover everything from lost luggage to cancelled trip reimbursements.

The reason AAA can afford to provide road service assistance for such an affordable price is because they have enough members paying into a large pool which is used to pay for assistance when it is needed. Rates are set at a reasonable enough level that consumers are willing to pay for the “peace of mind,” even if they never need the insurance.

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Stay tuned for steps 6 and 7

How I Would Fix Healthcare – Step 5A

This is a continuing series addressing the healthcare crisis in America and a possible alternative to (or in this case, possible explanation of) President Obama’s healthcare solution.

Step 5A – Institute a Public Option

The Obama administration has proposed a public option for health care. What is a public option? It would be a government run health insurance company which would offer health care coverage to those people who either cannot afford private coverage, or who have been denied coverage completely. Subscribers would pay into the plan, just as they pay into private healthcare insurance. Ideally, subscribers will pick their own doctors. When patients go to the doctor, the plan would most likely pick up part or all of the tab, just as with private insurance.

Florida’s public option insurance –

created by Republican leaders

There is currently a very similar program in place in the state of Florida, called Citizens Property Insurance Corp., a not-for-profit, tax-exempt corporation formed by the state of Florida, which primarily covers homeowners for potential wind damage from hurricanes. Subscribers pay about the same rate they would pay to a private insurance company, but pay into a large government pool instead of to private insurers. Until 2007, in order to qualify for Citizens Insurance, you must first have been denied coverage from a private insurance company. While covered by Citizens, the government has the right to shop your policy around to private insurers. If they can find a private company to take on your policy and not charge you substantially more than Citizens charges, your policy will automatically be switched. In addition, Florida Insurance Commissioner Kevin McCarty keeps an eye on private insurance companies, requiring them to justify rate hikes and show them the books when gouging is suspected.

A complex list of requirements, rules, and regulations on how Citizens is operated can be found on their website: www.citizensfla.com.

Florida first began to provide government run “public option” insurance to their citizens in 1970 under Republican Governor Claude R. Kirk, Jr., when it was discovered that no one could qualify for a mortgage to buy a home in the Florida Keys because they could not get home insurance coverage. To boost the economy and help out the real estate industry, the Florida legislature formed the “Florida Windstorm Underwriting Association – the Florida Windstorm pool” to cover wind risk in the Florida Keys. It’s purpose is to "provide Florida citizens adequate wind and hail coverage, when it is not available in the insurance market place; and pay insured claims when losses occur.” The FWUA primarily covered vulnerable homes located along Florida’s coast. (source: www.floridadisaster.org)

On August 24, 1992, Hurricane Andrew, a category 4 hurricane, made landfall in the United States and caused unimaginable devastation inland throughout south Florida and Louisiana, destroying over 125,000 homes and causing $27 billion in property damage (source: NOAA). As a result, 11 small insurance companies went bankrupt and could not pay out claims. Larger insurance companies stopped writing new policies. Once again, the real estate market was in danger of collapsing because no one could get a mortgage to buy a home without the promise of home insurance.

In December 1992, the Republican-controlled Florida Legislature, under the leadershop of Democratic Governor Lawton Mainor Chiles, Jr., responded by forming the Florida Residential Property and Casualty Joint Underwriting Association to provide residential property insurance coverage "for applicants who are in good faith entitled, but are unable, to procure insurance through the voluntary market." This new public insurance expanded homeowners insurance coverage throughout all of the state of Florida.

In 2002, the Florida Windstorm Underwriting Association - the Florida Windstorm pool and the Florida Residential Property and Casualty Joint Underwriting Association merged under one name, Citizens Property Insurance Corp. (source: Sun Sentinel).

However, the home insurance industry was not truly reformed until current Republican Florida Governor Charlie Crist took office in 2007 and reined in the out of control insurance rate hikes which had been unfairly hoisted upon Florida homeowners so that home insurance companies could make larger profits.

Republican participation

Florida’s Citizens Insurance is a wonderful model for a public option for health insurance, should the Federal government choose to go this direction.

Despite Florida Governor Crist’s highly public criticism of Barack Obama’s health care plan, I imagine that he would be happy to help formulate a similar healthcare plan based on his successes in Florida, if he is invited to the table. Crist, who has announced he is leaving the Governor’s office, will be running for a soon to be vacated Florida U.S. Senate seat in 2010. Crist has appointed his former chief of staff, George LeMieux, to temporarily fill the shoes of Florida Republican U.S. Senator Mel Martinez, who is stepping down. In addition, perhaps former Governor Claude Kirk and his son-in-law, Ander Crenshaw, a Florida legislator in the House of Representatives, might be instrumental in helping to engineer a public option for healthcare insurance similar to what they created for home insurance.

Have to be denied affordable coverage to qualify

Health insurance companies don’t want the government to form their own “public option” health insurance company because they feel that their rates will be undercut and they will be out of business. Likewise, many Americans who currently have quality private health insurance through their work or retirement don’t want the government to get involved in selling insurance plans because they feel that their employer will pick this plan over a better private plan.

Originally, Citizens Insurance solved this problem by requiring that only home owners who were denied coverage from private sources and could get new, replacement coverage elsewhere could subscribe to Citizens Insurance.

In 2007, the requirement for participating in a Citizens home insurance plan, versus a private plan, was expanded to include homeowners who were being charged exorbitant rates for home owners insurance far and above what was necessary for an insurance company to recoup their losses.

The current requirement for being a Citizens Insurance customer states that if a homeowner can find private insurance costing no more than 15% more than that of a Citizens policy, the homeowner must switch to the private insurance company.

In other words, if you are currently charged $4000 per year for home insurance at Brand X insurance, but a Citizens policy is only $2000 per year, you qualify to purchase the Citizens policy instead of the private policy.

However, if Citizens finds that you can get a policy with Brand Z insurance for $2300 per year, they will automatically sell your policy to Brand Z and you will owe the extra $300.

By doing this, Citizens ensures that they are not competing with the private sector.

The goal is to move policies back to private insurance

Public insurance was formed to cover the uninsurable. However, the goal of Citizens is to find homeowners an affordable private insurance policy in the private sector. They call this process, “depopulating” (source: Annual Report 2008).

Currently, 14 private insurance companies participate in Citizen’s depopulation program. In this program, private insurance companies are allowed to take over existing policies currently written by Citizens.

Self-funded

Republicans don’t want the government to take on the enormous cost of running their own health insurance company because they believe it will raise taxes.

However, Citizens Insurance solves this problem by having subscribers fund the program by paying into a large pool, instead of relying on taxpayers. In fact, there is no income tax in the state of Florida.

Catastrophic Fund

In addition, a special catastrophic fund, the Florida Hurricane Catastrophe Fund, or “Cat Fund,” was created in 1993 as a way to save additional money to pay for damages over and above what should regularly occur. All insurance companies, both public and private, pay into the pool and the money is not taxed. Money may not be withdrawn to pay claims except in the event of a catastrophic disaster.

The Cat Fund is invested in interest bearing accounts and the Florida Legislature pays for hurricane education and storm mitigation from interest earned on the fund.

Most coastal homeowners have both private insurance and Citizens Insurance

Today, most Florida coastal homeowners have their wind policy through Citizens, but have their fire and theft policies through other private insurers.

Currently, about $421 billion in property is covered by Citizens Insurance through over one million policies.

Applying a similar public option to healthcare

Just as a public option has supplemented home insurance, “public option” insurance can supplement health insurance.

If you have been denied insurance because you are considered too “high risk,” you may be eligible to buy “public option” coverage, instead.

Perhaps you can only afford private insurance to cover preventative maintenance or future conditions, not pre-existing ones. “Public option” coverage could be purchased to cover these medical costs.

Lots of questions on President Obama’s proposed “public option”

Because few details have been released on how a public option insurance plan will work, many of us have a lot of questions.

1. Who will be able to subscribe to the public option?

2. Will employees be able to opt out of their employer’s plan for a more affordable “public option” plan?

3. Will the plan compete directly with private insurance, or will the goal be to resell public policies and negotiate a better price for private coverage?

President Obama has suggested that by offering a public option, or government run insurance, this will create competition within the insurance industry by lowering premiums across the board. If a government plan is cheaper than a private plan, there will be no incentive to buy the private plan. In order to win back customers, the private plan will have to lower their premiums. However, this theory assumes that the private plan is gouging the customer and can afford to lower premiums.

Because a “public option” is government funded, it will have the advantage of being able to offer substantially lower rates than private insurance because it will not be run as a business, will not have overhead costs, and will not have to make money or even break even.

4. Will all rates be averaged, so that a person who is quite healthy would pay a higher rate than a person who is not?

If this is the case, there is a good chance that a person who is healthy will opt to buy the cheaper, private insurance, while a person who is considered “high risk,” will opt to buy the cheaper, public option insurance. The public option will end up being purchased by only those who are “high risk.” The costs will be high, and if the plan is not supplemented by other funds or taxpayer money, most people will not be able to afford even the “public option” premiums.

5. I assume that subscribers to the public option can pick their own doctors. Or will patients choose from a network or be appointed a physician, much as they are with many private insurance run HMOs?

6. Will the “public option” keep prices low by dictating how much the plan will cover in medical costs and prescriptions? Will doctors be forced to lower their costs? Or pharmacies be forced to cut prices for prescriptions? Will they be paid from a list of fees, much as car repair people are paid by a list of fees set by an auto insurer?

7. What about a person who cannot afford to buy even public option insurance? In the state of Florida, a person earning minimum wage at $7.25 per hour only brings home $1138.21 per month after Social Security and Medicare taxes are deducted. Any insurance policy over $50 per month is unaffordable. How will they get access to healthcare if their employer does not provide it?

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Stay tuned for steps 6 and 7

How I Would Fix Healthcare – Step 5

This is a continuing series addressing the healthcare crisis in America and a possible alternative to President Obama’s healthcare solution.

Step 5: Improve Healthcare Access for All Americans

The reason that the United States is in crisis over healthcare is because over 7 million Americans, about one fifth of the population under age 65, currently do not have healthcare insurance. (see sources below). Only 57.8 percent of children were covered by private insurance in 2005, down from 64.9 percent in 1998, and that downward trend is continuing as fewer and fewer employers offer healthcare coverage to their workers.

I Have Good Healthcare. Why Should I Care?

We should all be concerned with these numbers. People without healthcare insurance tend to not get immunizations or other preventative healthcare and not seek treatment during the early stages of disease when they have a better chance of being cured and when costs for treating their illnesses are the lowest.

Contagious diseases

We as a country have been fortunate to have not experienced a serious, widely spread epidemic of a highly contagious disease in nearly 100 years. In 1918, the Spanish flu (a form of the H1N1 virus) killed about 15 percent of those who caught it, over 500,000 people in this country alone. Although the Swine flu (also a form of the H1N1 virus) has not proven as deadly so far, the clock is ticking. Another disease is bound to develop which could spread quickly throughout our schools and towns, tragically killing millions, and devastating our economy.

When you are in the grocery store, imagine that one out of five people who visited the store before you does not have health insurance. That person handled your cart, picked up that same piece of fruit to see if it was ripe, touched that moist milk carton you are now buying, and handed that dollar bill to the cashier that you are now getting in change. Guess what! You have now have been exposed to their germs. When you bring home your groceries, your family will also be exposed.

Wouldn’t you feel better knowing that everyone living in your community has had good preventive healthcare?

We all share the financial burden, anyway

It is estimated that 62 percent of all personal bankruptcies are due to an inability to pay medical bills. Of those who filed for bankruptcy, 80 percent had health insurance, but that insurance did not cover all of the costs.

When someone files for bankruptcy, it may seem that their troubles do not effect you. However, bankruptcy effects everyone. Credit card bills are not paid, so the credit card company raises everyone else’s interest rates and fees to make up the difference. Mortgages are not paid, banks fail, and the Federal government must use our taxpayer money to bail out the banks. We live in a circular interdependent economy. When one person cannot pay their debts, the rest of us end up paying their debts for them, one way or another. We might as well bite the bullet and pay for their healthcare now, before a major epidemic hits.

Employers must do their part

I believe the first step in providing healthcare to everyone is to require employers to pay at least a portion ($300 per month) toward each worker’s healthcare insurance policy. (see Step 1)

However, there will still be numerous people who will need healthcare coverage, perhaps because their premiums are too high to afford, because they have lost their job (perhaps due to illness), are dependents, students, or are self-employed.

Three ways to improve access to healthcare for all Americans:

There are several ways to provide health care for everyone. It is possible that one or all of these methods will have to be instituted to completely solve our healthcare crisis.

A. Institute a “public option,” which is essentially a government run health insurance plan. This is the favorite among many Democrats and is what has been proposed in President Obama’s plan. Health Insurance companies and Republicans are adamantly opposed to this option. (I will discuss this method today in another blog installment);

B. Regulate health insurance rates by instituting blind menu pricing where rates are based on services, not pre-existing conditions or risk factors;

and/or

C. Provide free clinics at the cost to the government, similar to the healthcare systems in Europe and Canada. Many Americans who currently have good healthcare are opposed to this idea because they feel it might delay and/or reduce the quality of care.



Statistical Sources

U.S. Census 2008 facts:
304,059,724 total population
38,919,645 population are under age 65.

Study from the Medical Expenditure Panel Survey:
18.2 percent of the “noninstitutionalized” population under age 65 is not insured.

Based on these statistics, approximately 7,083,375 of Americans under 65 are without health insurance. (No figures were given on the number of people who are institutionalized.)

Study from the Medical Expenditure Panel Survey
Children’s Health Insurance Status, 1996-2005

National Coalition on Health
Statistics on filing bankruptcy due to healthcare costs.

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Stay tuned for steps 6 and 7

How I Would Fix Healthcare – Step 4

This is a continuing series addressing the healthcare crisis in America and a possible alternative to President Obama’s healthcare solution.

Step 4: Preventative Healthcare Maintenance Schedule

With all of this talk of America’s failing healthcare system, we have put all of the blame on price-gouging insurance companies and greedy pharmaceutical manufacturers. However, some of the blame for high healthcare costs rests on the shoulders of ignorant or irresponsible patients who don’t go to the doctor for annual checkups or patients who do not take their medicine, nor follow doctor’s recommendations for diet and exercise. A poorly disorganized and overworked general practitioner’s office can exacerbate the problem by failing to call or write with reminders that it’s time to schedule that yearly checkup. I get more notices from the vet to bring in my cat in for annual shots than I do from my own doctors.

Most of us start out quite healthy as young adults. For that reason, we tend to shirk off our yearly physicals and don’t worry about our lack of health insurance. Then, one day, twenty years later, we may go to the emergency room with chest pains and hear, “Surprise! You have had a heart attack.”

Perhaps you don’t go to the eye doctor because you can see “perfectly well,” until one day when you find you can’t see to drive at night, and go to the eye doctor to discover that you have advanced glaucoma.

Sore on the leg that won’t heal? “It’s too late. We’re going to have to amputate. Oh, you didn’t know you had diabetes? You feel fine, do you?”

I blame insured American’s disinterest in going to their doctors for annual checkups on three fundamental problems: a lack of health education, forgetfulness, and difficulty in getting appointments that fit into busy work or school schedules.

Both my husband and I consider ourselves to be quite sharp and well educated, each with college degrees. However, neither of us knew that we should both get our first colonoscopy by age 50. Unlike my new car, I was not born with a book on scheduled maintenance. Instead, my parents, “back in the day,” only took me to the doctor for either A: broken bones or B: required school physicals. I had the mumps, pox, flu, strep, and who knows all what else, without ever once seeing a doctor, despite excellent health insurance. That’s just the way it was done.

“Back in the day,” the idea of going to the doctor for a yearly physical was a sign of being a hypochondriac. Even when I began to go to a primary care physician in my late 20’s, he never gave me a blood test to check my cholesterol, thyroid or blood sugar. It wasn’t until I got a new health plan in my late 30s that my doctor recommended that I take a blood test every year, at which point it was discovered that my blood sugar was a wee bit too high. If I had known that I was supposed to get these tests yearly, I would have demanded them.

Despite my newly found knowledge that I should schedule an appointment once a year, it’s easy to skip a yearly physical exam when I have other things to do, especially when I feel completely fine. Unless my doctor reminds me, I’m not likely to call.

We may be a country without healthcare, but we are also a country of patients and primary care physicians who simply aren’t doing their part. Why should health insurance pick up the tab for a major illness, such as progressive breast cancer, when the patient didn’t do their part and have regular mammogram screenings at the appropriate ages, despite having health insurance which covered it?

Little problems turn into big expensive problems over time. Untreated diabetes and high blood pressure, two very common and easy to detect disorders, both lead to organ failure. It’s much cheaper to take your insulin than it is to have a leg removed and buy custom-fitting prosthetics.

I think it’s time the patient took responsibility.

But, what is it we should be doing?

Most of us have no idea what schedule we should follow when it comes to healthcare maintenance. I get more advice on healthcare from TV’s Dr. Nancy Snyderman and Dr. Oz, than I do from my own doctor.

Many professional healthcare websites use the words, “get regular checkups.” But what is “regular?” Once a month? Once every six months? Once a year? Once every two years? The word, “regular” is far too vague.

The US Department of Health and Human Services has published its own list of recommended tests at each age online at www.hhs.gov

However, some doctors and research centers feel that this list is inadequate.

The Memorial Sloan-Kettering Cancer Center has published a schedule including additional recommended cancer screenings at www.mskcc.org.

Lab Tests Online has published a list of recommended blood tests and screenings online at www.labtestsonline.org.

The Vision Learning Center lists recommendations for when to get eye exams on their website, www.preventblindness.org.

It is clear that Americans need a consolidated list of what doctors they should see, when they should see them, and whether or not their insurance covers these visits.

Step 4: Preventative Healthcare Maintenance Schedule

A Federal government appointed advisory panel of health and medical experts shall determine what annual physicals, tests, and screenings everyone should have, at what age and at what risk level. The advisory panel shall create charts and checklists for patients and doctors to follow which are readily available online and handed out in printed form at health clinics, hospitals and doctor’s offices.

By Federal mandate, once a year, health insurance companies must send each of their covered patients an age-appropriate generic checklist with notes indicating whether or not these services are covered, and to what degree the patient will pay out of pocket (if at all).

Once the patient goes for a checkup, a customized schedule should be issued from the doctor’s office itself which is updated to reflect any changes in the patients health. For instance, if a patient has a family history or a diagnosis of a specific disorder, they will be “at risk” and need to undergo additional or earlier tests and screenings related to that disorder. Likewise, doctors should also be required to clearly inform their patients in writing when they are expected to return for follow-up visits. This should apply not only to primary care physicians, but also to eye doctors, dentists, and every other doctor the patient is seeing.

At the very minimum, patients should be given this information in a standardized printed form by each of their doctors, in a manner which is easy to read and understand. Patients could then check off completed exams, much as they would check off and date oil changes in a car maintenance book.

Ideally, this information will be consolidated so that all appointments appear on the same chart. This might serve an additional benefit by helping doctors diagnose previously undetected problems. For instance, a primary care physician might note that one of their patients with arthritis has also had cavities filled at the dentist and eye drops prescribed by the eye doctor, an indication of Sjogren’s syndrome.

Here is an example of a possible health maintenance schedule which has been custom tailored by an HMO for a young woman who is sexually active and nearsighted:

Patient reminders

Recently, my husband’s employer switched healthcare plans to Blue Cross Blue Shield. I was pleasantly surprised to receive a letter reminding me to come in for my mammogram. What a novel idea! Send a letter – so simple and so inexpensive, yet so effective.

Doctor’s offices should be required to send out reminders to their patients that it’s time to schedule their annual checkup and screenings. With all of our modern technology, it seems such a simple task for a doctor’s office computer to generate an email, snail mail, or automated telephone message, at the very least. If the patient does not respond, the doctor’s office should be required to try again, using a different method of communication.

Annual checkups should then be scheduled on an easy to remember date, such as every year within the same month as your birthday, but with flexibility to fit into patient’s busy schedules.

Healthcare insurance plans who assign doctors to patients, such as HMOs, should make sure that their doctors are adequately staffed to handle the workload of all of their assigned patients responsibly showing up once a year for their appointments.

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Stay tuned for steps 6 and 7

How I Would Fix Healthcare – Step 3

This is a continuing series addressing the healthcare crisis in America and a possible alternative to President Obama’s healthcare solution.

Step 3: Protect Health Insurance Surplus Coffers

By Federal mandate, insurance companies must reserve anticipated surplus in a special government insured and managed, tax-free, health care savings fund (with no maximum cap) to be used to pay for policy holders’ insurance covered medical costs when premiums fall short.

What Insurance Companies Really Do with Your Money

Have you ever wondered what insurance companies do with the money you give them for premiums? When you buy insurance, you assume that your insurance company is collecting premiums and saving them securely in a large pool, only to be paid out for claims.

What do they really do? It all depends on individual state regulations, whether the company is for-profit or non-profit, and each company’s policies. In some instances, insurance companies invest the money in high risk ventures and then pay out the profits to their stockholders and CEOs instead of adding it to their surplus coffers. It almost makes one think that perhaps insurance companies are really in two businesses: the business of paying claims for health care (when they have to); and the far more lucrative business of investing with the advantage of being able to not only keep all the money, but also not be regulated in the way an actual investment firm would be.

Who can blame them? Must be nice to have all that free money.

However, having money leftover after paying out claims can be a double edged sword.

In years where claims (losses) are lower than expected, for-profit insurance companies have to pony up and pay income tax on what’s left over. That’s not fair either. No wonder so many companies are turning non-profit. Something has to be done.

In order to fix health care insurance, insurance companies must be able to save for a rainy day with no tax penalty to them. Likewise, customers must feel confident that insurance companies are not taking their surplus and investing it foolishly, or worse, taking it as profit instead of rolling it over.

The following case illustrates how some insurance companies are really in business to make money off your premiums; not in business to pay out claims:

The Case of the Hurricane Gougers

In January of 2008, the state of Florida called Allstate Corp. on the table over home insurance premium rate hikes averaging 42 percent in the fall of 2007. Governor Charlie Crist contended that insurance companies were taking advantage of Florida residents by charging extraordinarily larger premiums than necessary to cover hurricane damage, and padding their pockets with the leftovers rather than rolling them over year to year. While Florida did suffer a great deal of damage in bad hurricane years, there were many more good years which passed without hardly any damage payouts at all. Governor Crist suspected the worst – price gouging. He suspected that insurance companies were setting rates based on the worst case scenario each and every year, so that in bad years, the premiums would fully cover the damages for that year, and in good years, the leftover premiums went to pure profit.

Florida Insurance Commissioner Kevin McCarty noticed that no implementation of fines could keep companies such as Allstate from refusing to turn over the company books to prove that they were not gouging Florida policy holders. Instead, he took the radical step of prohibiting them from selling new policies until they came clean.

Allstate worked around the legislation by forming a new company called the Royal Palm Insurance Company where only Allstate agents may write policies. In April 2008, my own personal Allstate insurance agent told me that the real money is in auto policies, anyway, so Allstate was happy to stop selling new home insurance policies and instead, focus on the more profitable business of auto insurance.

In May 2008, after failing to turn over their books, Florida insurance regulators shut down all of Allstate’s 10 Florida companies for one day as punishment for not cooperating in the investigation. That did it! Allstate finally complied and promised to turn over the books. The ban was lifted: Allstate may resume selling new policies in exchange for paying a $5-million fine; writing at least 100,000 new homeowner policies over the next three years; lowering existing premiums; and not increasing rates for at least one year while the government investigates rate hikes.

Florida Insurance Commissioner Kevin McCarty and Governor Charlie Christ were correct in halting Allstate insurance sales for a day. Perhaps a radical approach such as this is what’s needed to keep health insurance companies from doing likewise. Unfortunately, the effort to keep an eye on companies has taken far too much time and still not resolved the issue. An easier way to keep an eye on insurance companies is to require them to deposit their surplus into a federally managed and protected savings account, where they can roll over surplus funds tax free.

This leads me to step 3 on how I would fix health care in America:

Step 3: Protect Health Insurance Surplus Coffers

By Federal mandate, insurance companies must reserve anticipated surplus in a special government insured and managed, tax-free, health care savings fund (with no maximum cap) to be used to pay for policy holders’ insurance covered medical costs when premiums fall short.

Terms:

Each company will have its own, separate account within the fund.

Deposit anticipated surplus at the end of each fiscal period
Companies may deposit anticipated surplus at any time, but must do so by the end of each fiscal period when they will also report this same amount on their taxes.

Tax free
Money deposited into this account will not be taxed by any government entity: federal, state, city, or county.

Roll over
Surplus money will roll over from year to year in perpetuity.

Used for medical costs only

Money deposited into this account must be used to cover policy holders claims for medical costs only, such as reimbursements to doctors, hospitals, equipment suppliers and pharmacies and may not be used towards insurance company administrative costs, be taken for profits, or go towards malpractice suit damage payments, legal costs, bad debts, taxes, fines, payroll, other insurance payouts, or other non-medical claim related expenses.

In the case of HMO's (health maintenance organizations) where the insurance company doubles as the health care provider, money deposited may also be used to cover all hospital and clinic staff and all medical building operation expenses run by that HMO, including administrative staff, accounting and legal fees, malpractice claims, bad debts, fines, payroll, landscaping maintenance, etc., as would be ordinarily necessary. However, surplus money deposited in this tax free account may not be used to cover the business of running the insurance side of the company, such as managing plans, selling insurance itself, legal fees, fines, bad debts, office expenses, taxes, etc. related to the insurance side of the business.

Withdrawal after 35 days
Money deposited may not be withdrawn for at least 35 days. This will allow the government specialists who manage the fund ample time to invest and benefit from the deposit.

Withdrawal no more frequently than once monthly
Insurance companies may withdraw money from their account to supplement claim payments no more frequently than once monthly. This is designed to decrease paperwork.

Company Mergers
In the case of a company merger or acquirement, any money leftover in the account will be merged or acquired into the appropriate company’s surplus fund account and/or used to pay off any remaining medical claims.

Company Closures
In the case of company closure, bankruptcy, etc., the account will be closed and any money leftover in the account will be absorbed by the government to be used towards health care for the uninsured and to pay off any remaining, yet to be filed medical claims.

Interest Bearing Accounts
Interest earned on the entire collective fund will be kept by the government to help pay for managing the fund and for health care for the uninsured. This will serve three purposes: First, it will prevent insurance companies from being tempted to double as an undercover investment firm. Second, the government will guarantee the security of these investments so that the insurance company and their customers can feel secure that the money will be there when they need it to pay out claims. Third, the interest earned will provide revenue for health care for the uninsured.

Federal Government agency
An overseeing Federal government agency will control the surplus fund by forming a small office of accountants and investment specialists to manage and invest the fund itself. Interest earned will be paid into a national uninsured health care fund, perhaps Medicare.

Public information
The exact amounts of surplus in each company account will be public information because companies that are publicly traded must divulge this amount to their stockholders in annual reports, as well as file this information with the U.S. Securities and Exchange Commission (SEC). Non-profits must also divulge this information.

Sources for What Insurance Companies Really Do with Your Money:

United Health Group
Annual financial reports and SEC filings.

Investor Guide:
Annual Reports are linked at the bottom of the page. Search for the company you want to see SEC filings for, such as:

• Aetna
• Wellpoint
• Cigna

Sources for The Case of the Hurricane Gougers:

Article in Jan. 14, 2008 South Florida Business Journal

Article in Jan. 17, 2008 Chicago Tribune

August 16, 2008 St. Petersburg Times

January 10, 2007 Washington Post

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Stay tuned for steps 6 and 7

How I Would Fix Healthcare – Step 2

This is a continuing series addressing the healthcare crisis in America and a possible alternative to President Obama’s healthcare solution.

Step 2: Maximum Non-Medical Costs Per Policy

By Federal mandate, insurance companies may retain no more than $40 per enrollee's health care insurance policy for administrative costs and profits.

Covering the extra costs of healthcare

Walk into an insurance company to buy health insurance. Where does the money that you pay for premiums go?

When you buy health insurance, you are buying more than just healthcare. The individual who sells you the policy receives commission on the sale. The company who brokers the policy receives their cut. The insurance company hires administrators to decide how your healthcare is managed, approving this test and that procedure, this referral, and that prescription. These administrators are overseen by highly paid executives. Staff is hired to assist. Buildings are built and maintained. Advertisements are bought in newspapers, magazines, TV and other venues. Events are sponsored to further advertise services as well as improve community relations. Indemnity insurance is purchased to cover malpractice lawsuits. Lobbyists are hired to go to Washington. After everything it paid for, anything left over is profit to investors and stockholders if the company is a for-profit insurance company.

According to a November 2008 study by the California Department of Managed Health Care (DMHC) and the Center for Medicare and Medicaid Services (CMS), health insurance companies on average retain anywhere from 14 to 18 percent of insurance premiums to cover administrative costs and profits. The average California enrollee in 2006 paid $3,565 per year for their policy, which averages out to only about $300 per policy holder per month. On average, insurance agencies gleaned anywhere from $42 per month to $53 per month to cover administrative costs and profits, or $500 to $641 per year.

Nationally, policy holders paid an average of $3919 per year, about $326 per month, and insurance companies retained 11 percent, or about $36 per policy per month, or $431 per year to cover administrative costs and profit.

The state of California is considering regulating the health insurance industry in their state so that insurance companies may not charge more than 15 percent per enrollee for administrative costs and profits.

This appears to be a fair number. However, where it falls apart is in the percentages.

Flat fees vs. percentages

If you are diagnosed with a serious disease, your insurance company can raise your premium. How high? As high as they want. The higher the better, in their minds, since higher premiums not only bring in more money for medical care, they also equal more money for profits and administrative costs.

In a system where commissions and profits are based on a percentage, prices are bound to go up. Why would I want to sell you an affordable $300 health plan and get $45 a month, when I can tack on risk factors, raising your premium to $2000 and getting $300 a month? I wouldn’t. I’d sell you the $2000 plan – every time.

By taking percentages in profit, rather than a flat fee, insurance brokers are motivated to sell higher priced policies.

However, convert this figure to a flat fee per “enrollee” and you suddenly have no incentive to artificially raise premiums. If an insurance agent understood that no matter how much your policy cost, he would still walk away with only $40 in his coffers, he has no incentive to pad the policy with unnecessary costs. Quite the contrary, he will offer you the absolute lowest priced policy he can which will suit your needs so that you don’t go to “Brand B” to buy your insurance instead of from him. In addition, he might even be inspired to shave off some of his commission so that he is more competitive. He will do better selling 100 policies at $300 per month per policy, than he will do selling 80 policies at $1000 per month per policy. He will be motivated to give you good service and keep his customers happy so that he can get referrals and win over even more customers.

Win-win for insurance companies

Since insurance companies nationwide currently glean about 11 percent on average from insurance policies, or $36 per month per average $3919 policy, limiting their potential profit to $40 per month per policy will essentially feel like a raise.

Only companies who are garnering significantly more for profits and administrative costs will feel the pinch. This regulation will inspire them to cut corners, pare down unnecessary administrative costs, and perhaps even slash a few salaries to highly paid executives.

Although this regulation will not solve the problem of increases in premiums for high risk policy holders, it will reduce one motivation for these increases – the one of profit. Healthcare costs will continue to rise as always, but will be based on actual medical costs, and not on the cost of operating the insurance company.

Reporting and regulation

Insurance companies will be required to submit monthly reports to an overseeing agency within the Federal government, listing the numbers of policies they have sold, the revenue they made, and how much was paid in non-medical vs. actual medical costs. Government accountants will audit each insurance company's books once a year.

Each year, the overseeing government agency will also re-evaluate the maximum $40 per policy per month maximum and adjust it for inflation or deflation, as the case may be.

How I Would Fix Healthcare

Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.

Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.

Step 3 – Protect Health Insurance Surplus Coffers

Step 4 – Preventative Healthcare Maintenance Schedule

Step 5 – Improve Healthcare Access

A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers

Stay tuned for steps 6 and 7