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The Future of Health Care and Health Insurance


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Title: The Future of Health Care and Health Insurance

The Future of Health Care (and Health Insurance)
  • John P. Garven, CLU, RHU
  • Benico, Ltd.
  • (847) 669-4800, ext. 202

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

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

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

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

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

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

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

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

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

Health care spending in the U.S.
  • Yet because of third party payment, year after
    year consumers pay a smaller of their health
    care costs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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