Real Health Care Insurance Reform (and it does not take 1,000+ Pages!)

The whole Health Care debate in Washington is making me sick. Really, out of the whole Congress, all they have managed to do is come up with ideas to really screw up the system for good.

Like many other people I think the Democrats are planning to wreck the health care system so that they can force a Government-run single-payer system.

Don't think that I am happy with the Republicans either. They have done little to stop this train wreck called 'Reform'. See CNN's article '5 freedoms you'd lose in health care reform - If you read the fine print in the Congressional plans, you'll find that a lot of cherished aspects of the current system would disappear.' for more on what the Democrat's planned health insurance reform is going to cost you. They say that these are not the actual bills as the bills floating around have to be amended. But do they plan on amending everything in these Bills? And if they need amendments, how can all these Congressmen running around telling us how great this as yet unwritten reform legislation is? Especially given that this is Legislation that nobody has read.

In short, the Democrats appear to be planning to force all of us into Government-mandated HMO plans, not that HMO's worked at cutting expenses the first time around. (They did however make lots of American's appreciate the ability to choose which doctor you wanted to see!)

Given the lack of any real discussion on behalf of those leading the country on the specifics of reforming health insurance, I started thinking about how the health care system can be made better and cheaper.

It took all of five minutes to come up with a plan that changes how we get health insurance. One of the problems is that most of us get our health insurance through our employer. We need to move the relationship between the health insurance companies from the employers to those who are being insured. Here is a simplified illustration of a typical arrangement:

In terms of fixing health care insurance, part of the solution I think involves improving Flexible Spending Accounts. They are a part of many current medical insurance packages offered to employees.

A flexible spending arrangement (FSA), or Flexible Spending Account, as they are commonly called, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings.

The most common FSA, the medical expense FSA (also medical FSA or health FSA), is similar to a health savings account (HSA) or a health reimbursement account (HRA). However, while HSAs and HRAs are almost exclusively used as components of a consumer driven health care plan, medical FSAs are commonly offered with more traditional health plans as well. An FSA may be utilized by paper claims or an FSA debit card also known as a Flexcard. - Wikipedia

These Flexible Savings Accounts have some major problems:

Use it or lose it - One major drawback is that the money must be spent within the coverage period as defined by the benefits cafeteria plan coverage definition. This coverage period is usually defined as the period that you are covered under the cafeteria plan during the "plan year". The "plan year" is commonly defined as the calendar year.

Any money that is left unspent at the end of the coverage period is forfeited back to the company; this is commonly known as the "use it or lose it" rule. It should be noted and called out for emphasis that under most plans your "coverage period" generally ceases upon termination of your employment whether initiated by you or your employer unless you continue coverage with the company under COBRA or other arrangement. An unfortunate possibility, especially in the case of unexpected, immediate layoff, is that should you have unused contributions in your FSA and no additional qualifying claims during your coverage period you will have the added insult of "losing" these funds.

A second requirement is that all applications for refunds must be made by a date defined by the plan. If funds are forfeited, this does not eliminate the requirement to pay taxes on these funds if such taxes are required. For example, if a single person elects to withhold $5000 for child care expenses and gets married to a non-working spouse, the $5000 would become taxable. If this person did not submit claims by the required date, the $5000 would be forfeited but taxes would still be owed on the amount.

Also, the annual contribution amount must remain the same throughout the year unless certain qualifying events occur, such as the birth of a child or death of a spouse. - Wikipedia

There has been lots of talk about saving people money when it comes to health care. So, if they are serious about saving people money, then how about making the following changes to how Flexible Spending Accounts work.:

• De-link FSA's from the employer. Make them linked to the employee so that the employee does not lose the benefit and their savings because they are changing jobs or have lost their job. We already have Savings and Checking Accounts with the bank, so why not also having a Health Care 'Flexible Savings' account with the bank as well.
  
• Remove the 'use it or lose it' rule. It is a pain to have to guess how much money to put aside each year. Congress can't figure out how to run 'Cash for Clunkers' just a couple weeks and yet we are expected to guess our medical bill costs for a whole year, each year. And not for anything, but President Obama is all bent out of shape about how many unnecessary medical tests and procedures are performed each year. How many of them are merely people spending leftover cash in their FSAs that they would otherwise lose. This would also allow people to save up during good years for when they might need the money for medical expenses later on.
• Eliminate the limit on how much money you can put in your FSA account. Who cares how much money people put away in their FSA. If there has to be a limit, how about making it high enough to cover all of a family's health care expenses, including health care coverage. Oddly enough, it is employers who place a limit on these accounts to reduce their liability. However, limits actually punish people who already know that they have lots of incoming medical bills.
  
• Allow people to deduct money from the account. It is possible that these accounts become overfunds for the needs of the account holders. So they should be able to withdraw excess funds without penalty. This would reduce the hesitation of people to fund the account in cases where they are not sure of a need for additional money to meet medical bills or a fear of having too much money trapped in the account. In order to prevent abusive parking of the money to avoid taxes by putting money into the account to withdraw the following year when income is reduced, have the tax rate applied to the withdrawn funds equal to the highest rate paid over the last three years. if the money is not withdrawn in the year that it was earned. (And no, there is no need to have a withdrawal penalty like with IRA's and 401-K's)
  

These changes will save Americans money and as a result reduce the cost of health insurance as well as health care, given that medical bills will be paid through these accounts with funds excempt from taxes.

By fixing these FSA accounts and making them available to all Americans regardless of employer or employment, you can then better use them as part of an improved Health Care System as explained below.

By shifting the health care plan from a group plan offered by an employer, this new arrangement removes all links between the employer and the insurance company. Instead of paying fees to provide you with health insurance through a company group plan, the employer instead pays a similar amount directly into your FSA account. You then pay for your health insurance coverage through the FSA account. The impact to the employer should be negligible and they probably would benefit since they would be removed from having to find and oversee a health insurance program as well as look at finding less expensive coverage when the group rates go up when it comes time to renew the following year. (Why would they pay into an account? Why do they provide you with health insurance?)



Quit or lose your job and your relationship with your insurance company does not change under this arrangement. This provides the 'continuity of coverage between jobs' that the President and Democrats (and everyone else) is looking for.




Of course if you lose your job your old employer will no longer been contributing to your insurance costs, but they also won't be paying you for anything else either. (This is why changing FSA rules is so important to permit you to save extra for medical expenses.) And when you find a new job, you won't have to change your insurance company because your insurance policy is between you and your insurance company.

Now the insurance companies are going to have to deal with lots of clients with different types of contracts. This should not be a problem in the age of computers. Given that many states have their own requirements, the insurance companies already have many plans to deal with already. Individual plans can be grouped together and classed in terms of levels of coverage as a way for insurance companies to reduce administration costs for providing insurance.

Insurance companies can even offer plan holders in each level a new 'level plan' to consolidate those in that level to an identical plan or those with these plans can be grandfathered in and all new people getting coverage be offered a standard plan at each level. In doing this you have now grouped people into potential groups of millions across the country with the same type of insurance.

By standardizing plans in terms of level of coverage, it would give consumers a better way of shopping for health care.

Insurance for those who are unemployed

Let's look at the situation for people who are unemployed. They are no longer getting a salary from an employer nor are they getting an employer contribution into their FSA. They are however getting unemployment insurance. For those people, they would need to elect how much of their unemployment insurance money they would like to go directly into their FSA account. The Government can set some minimum percentage that must go in as an incentive to keep their health insurance current.

In this case unemployment insurance takes the place of the employer in terms of providing funds to the person's Flexible Savings Account.

The 'Public Option'

Some are demanding that the health care overhaul include some sort of Public Health Insurance Option.

Many others claim (and I think with good reason, given the President's own words in the video linked here) that Democrats want a 'public option' as a means of eventually moving to a single payer system given that the public option will not be under any sort of need to actually operate in a way that revenue covers expenses.

I think the only way that a public option might be viable is to turn Medicare into a health insurance company in the form like the private firms I explain above. Make it run under similar rules like the US Post Office. If the post office does not make a profit, then it has to raise rates.

By having Medicare operate like the other health insurance companies, you now also permit those currently under the 'public plan' Medicare to switch from Medicare to a private plan. Given that some people are demanding an option of a public plan, there should be a private plan option for those already under a public plan like Medicare.

Forcing Medicare to compete against other insurance companies would better fit another Administration goal of fostering competition be forcing the public plan to compete to keep those that use their insurance satisfied. If done right it could even provide Medicare with additional funding by attracting young healthy people who pay for insurance but collect little from it.

It also permits those under Medicare to search out plans that better meet their needs. Some doctors do not take Medicare patients. This permits those under Medicare to switch to a insurance plan that their doctor will accept. If the 'public plan' were truly forced to be competitive, then they would do what is needed to get more doctors to take their insurance, such as improving compensation for doctors. (Other than forcing doctors and hospitals to take their insurance through legislation.)

So if there is going to be a 'Public Option' then there should be a way for those already stuck in the 'Public Option' of getting out of it into a 'Private Option'. Because if the flow is only towards the public option, eventually everyone will be stuck in that program.

Also, as the diagram above illustrates, retirees can also direct a portion of their Social Security payments to their Flexible savings account. Isn't this one reason we have Social Security?

Summary

The suggestions above on their own would be a major change to how health insurance is provided in the United States. That is what the Democrats claim to be searching for. So here it is.

My suggestions do not solve all the problems. Nor do they directly address the issue of cost but then again, neither do the bills the Democrats are offering. For that, there needs to be a serious look at reducing the expenses that health care professionals have to deal with. The Democrat's plans only address reducing the income of doctors while exposing them to the same risks. This has been done in other countries with the result being a shortage of doctors and nurses. This then results in the importation of health care professionals from the third world, creating huge problems in the countries where their services are desperately needed. In the case of the US, I doubt that there are enough medical providers in the world to make up for a loss in American interest to become doctors and nurses.

One other point concerning rationing. Our economic system runs on money. You can look at money as the rationed item. It is not possible to properly (and fairly!) address the health care needs of 'the poor' without taking the whole situation of the poor into account. After all, if they are willing to spend money on expensive sneakers, drugs and other personal items, but are not willing to pay for a doctor's visit, then I do not see why the rest of us should pay their healthcare related bills.

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