So let’s start with an article in yesterday’s Chicago Tribune, a wire report from AP, that took me by surprise:
“Employers start sending workers shopping for health coverage.”
The article described a new form of employer healthcare provision, the Individual Coverage Health Reimbursement Arrangement or ICHRA. This approach takes the well-established Healthcare Reimbursement Account, which combines a high-deductible healthcare plan and a reimbursement account, money provided by the employer which can be used to offset some healthcare costs while meeting the deductible, and adds a twist: the employer can provide money which individuals can use to purchase health insurance — and they can do so with the same tax advantages as if they were providing the insurance coverage directly.
To be sure, there are limitations that mean that the government’s forecast is that only 11 million employees will benefit: the employer must not offer group health insurance already (that is, employees can’t select this as an alternative to group health insurance), or can only offer the ICHRA to categories of employees to whom it doesn’t otherwise offer insurance (like part-time employees). Also, an employee buying insurance through the Obamacare “exchange” can’t “stack” the employer benefit and the premium credits, and can’t pay for the additional costs in a pre-tax manner, but that is possible if an employee purchases insurance outside of the ACA exchange. And, of course, a “regular” employer-sponsored healthcare plan is still preferable for employees when they benefit from group rates and don’t have to wade through a potentially overwhelming number of plan choices.
(For lots of detail, see “New Final Rule Lets Employees Use HRAs to Buy Health Insurance” at SHRM.)
Now, it turns out, this isn’t new. This was a rule issued by the departments of HHS, Labor, and the Treasury issued the rule enabling this on June 13 of 2019. And, yes, this is a “rule” — an administration interpretation/implementation of existing legislation, so in principle Biden could simply issue a new rule which overrules this (with the applicable comment period and other bureaucracy). It seems likely that two other Trump “rules” — one allowing “association health plans” and the other allowing low-cost short-term insurance — will be sent to the circular file, but I have a hard time imagining that Biden will oppose this one (though perhaps my imagination is faulty).
But I do believe that this small regulation, over time, could have a very outsized impact on the healthcare system.
Bear with me for a minute here:
Remember the staff model HMO?
That was supposed to fix our healthcare system. Rather than the existing expectation of “consumer-driven healthcare plans” that we healthcare customers will work with our healthcare providers to ensure that our medications are the lowest-cost options possible, that no unnecessary procedures and tests are performed, and that such tests and procedures as are necessary, are done by the most cost-effective provider (e.g., through look-up tools at insurer websites), the staff model HMO’s providers did all that as professionals.
And back in the day — well, not only is my own family’s current health plan a high-deductible one, but our choices are high deductible, or very high deductible. You likely have the same (unless you’re a public sector employee). When my first son was born, we paid a $10 copay. That was it. Oh, and a $300 upcharge for a private room. Later, when he needed speech therapy, we paid copays, then were issued a refund check, because, it turned out, there was a no copay, it was first-dollar coverage.
But let me backtrack: the original HMO concept was staff-model. Its name, Health Maintenance Organization, was adopted because of the focus on preventive care, in a manner that wasn’t the norm in traditional insurance, which, at the time, did not necessarily cover ordinary annual check-ups and the like. HMOs came about in the 1970s as doctor practices which were affiliated with particular hospitals; they were also called “prepaid healthcare” and the idea was that they were not an “insurance” product but you simply paid in advance for all your healthcare from that particular healthcare system.
What happened to them? Some time ago, I tried to figure out the story and there is no good book on the matter. Perhaps that’s now changed.
In the 70s and 80s, they became popular — not mainstream, necessarily, but popular. In some cases, they became too popular — doctors filed lawsuits in areas (e.g., small towns) where an HMO dominated medical practice, and pushed for “any willing provider” laws as their medical practice was limited to the portion of the population not a part of that HMO. I vaguely recall that that it wasn’t just about losing clients to the competition but that they ended up with the less-desirable customer base.
At the same time, major insurance companies established their own version of “HMOs” which promised customers (and employers) that they could have their cake and eat it too — medical care with the low cost-share requirements of a staff-model HMO, but with thick booklets of participating providers rather than specific medical clinics to visit. We were for a number of years in the late 90s and early 2000s enrolled (via our employer) with HMO Illinois, a Blue Cross Blue Shield of Illinois “product.” We had to choose a primary care physician and women choose an OB/GYN, and an “Independent Practice Association,” a collection of doctors and one or more affiliated hospitals. (In-between my first and second child, the doctor’s practice I was at, switched from an IPA associated with the hospital down the street to one a half-hour away, which was a nuisance; later, they left the HMO entirely as the networks shrank and, in our last year in the HMO, I had an annual exam with a doctor whom I had picked somewhat randomly from the provider listings.) This worked on the basis of “capitation” — the IPA was paid a fixed fee per patient, but rather than resulting in a focus on preventive care and health maintenance, each visit consisted largely of handing out referrals to specialists to churn patients out. This wasn’t sustainable. (Why didn’t it work? These weren’t groups of doctors who had come together to provide managed care, but were purely financial arrangements — and specialists and hospitals were not a part of this system in any case so shunting a patient to a specialist was a financial gain, not a loss.)
The end point of this pathway was the movement from HMO to what was called HMO-POS, where the POS was “point of service” and it referred to the creation of an out-of-network reimbursement level, and to the PPO, what we’re now generally used to today, with networks but with the requirement for referrals having been abandoned. Was it planned, or foreseen, when BCBS and other providers set up their HMO competitors, that this would be the outcome? Surely not.
And traditional HMOs have not entirely disappeared — Kaiser still remains, having built itself up during the 70s and 80s to such a point that laments about “the provider list is too narrow” are not relevant. I, again, tried to dig into their story more as well at some point, to understand why there are not dozens of other competitors with their business model, but concluded that it’s just not possible for a plan to become a truly-integrated staff-model HMO in this environment.
in the meantime, we are witnessing the ever-increasing consolidation of hospitals and doctors’ practices. Locally, my nearby hospital has a growing list of urgent care centers, sites for lab work, and affiliated doctors’ practices. They had been a wholly-independent hospital but are now themselves merging with a large hospital chain in the area. There are many similar networks, and growing numbers of them. As I had watched this trend, I had thought that this would make it possible for a new type of staff-model HMO, one in which alongside their usual roles in the community as medical care providers to anyone who showed up, with any sort of insurance or none at all, the entire network could offer a prepaid/self-insured “medical care product” in which care within that system would be coordinated, with doctors and hospitals alike sharing the objective of providing the best and most cost-effective care — with care while travelling or for rare circumstances requiring even greater levels of specialization being managed through a re-insurance product. Over time, if coordinated care produced the best outcomes for patients, more patients would switch.
But there was a missing piece. Employers want to offer their employees medical care that’s reasonably one-size-fits-all. If you have employees scattered across the country, or even across a wide metropolitan area, it adds one more layer of complexity to your process of providing employee benefits. In order for the way health insurance works to change, the relationship between employers and health insurance has to change.
And yes, finally, I get to why I think that the ICHRA has the power to reinvigorate health insurance — if increasing numbers of workers are “shopping” themselves, and without the constraints of Obamacare plans which are obliged to use a very small number of tools in their toolbox (high deductibles, narrow networks based on doctors willing to accept low reimbursements), then we might eventually get to the point where a hospital network might find it financially feasible to offer a coordinated care product.
Yes, that’s a big if. I’m not an expert, and I suspect that, even if somewhere, someone is looking at taking that step, there are likely too many regulatory hurdles in the way. But it’s a start.
Image: http://www.dodlive.mil/2017/10/03/usns-comfort-how-the-hospital-ship-helps-during-disasters/(U.S. Air Force photo by Staff Sgt. Courtney Richardson)