To the Congressional Staff-no time for a pig in the poke


To the Congressional Staff:

As you participate in the process to reform health care in America, I hope you will consider the realities of the system, and of the people who use health care.  Not all that is important is in studies and statistics.  What people say they want is not always what they really want or understand they are getting. 

Above all is the law of unintended consequences, which is a common pitfall of legislation.

In 1961, I began my career processing major medical claims; in the 1980s, I was on the Board of Directors of four HMOs, where one of my jobs was to negotiate contracts with physician groups. I also consulted for the federal Office of HMOs and have written and published over 200 articles on employee benefits, mostly on health benefits.  Since 1993, I have participated on the task forces of three of New Jersey’s governors to evaluate the employee benefits program for state employees.  I have been designing and managing health benefits for over forty-seven years.

What is the point of all this information? It is simply to provide a frame of reference for my position on health care reform legislation.

Allow me to address a few issues:

A government plan is more efficient

Medicare is cited as having lower administrative costs than private insurance and that is true, but it is also true that it is not an apple to apples comparison.  Many of the expenses associated with running Medicare are not included in its administrative costs (advertising, some salaries, and websites, etc.).  In addition, some experts argue that program costs should be higher, in part, so there is more oversight over fraudulent claims.

Medicare is providing coverage to the oldest and sickest segment of the population, which means more hospitalization and less high volume lower dollar claims such as pediatric care, obstetrics, etc.  In other words, Medicare is processing a different variety of claim allowing lower administration costs relative to dollars spent.  That will not be the case for a broader government option.

Some claim that the federal government will do a better job negotiating fees.  I never knew the government to negotiate at all when it comes to health plans, the fees are set, and often lowered to meet budget requirements.  Medicare and Medicaid payments result in higher billing to the private sector. In the absence of the ability to shift costs to the private sector, the government’s desire to control costs must result in some form of rationing.  It happens in every government run health system and it will happen in the U.S. as well.  The American people do not understand this; they also do not understand that eventually they will need to carry supplemental coverage as many people in the UK do.  That is not efficiency.

While there may be some initial savings in a government plan, absent doing exactly what the private sector does to control costs, a government run plan will continue to experience escalation substantially above the general rate of inflation. A government plan will be influenced by the political winds of the time and well meaning people will see their efforts subverted by political objectives and pressures, just as they are in existing federal and state run programs.  It happens in every function in which the government operates.  By the very nature of government, (politically driven decision-making) it cannot truly be more efficient than the private sector.

It is said that a government plan will introduce competition, but it will never be a level playing field.  More important, if there are insurance cooperatives to make it feasible for anyone to get coverage, an individual and or employer mandate and a level playing field among private insurers as proposed in pending legislation, there will be plenty of competition, real competition.

Also, see the next section.

Profit is bad

Everyone one of the HMOs on which I served on the Board of Directors eventually went out of business.  In large part, it was because they were all non-profit.  The mentality to run a non-profit or government organization is quite different from the real world.  There is far less reason to take needed action, to be efficient or to look for innovative ways to control costs (note that employers have been driving all the innovation in health benefits in attempting to control health care costs because they have a financial need to do so).

Let us look at NJ for an example of government in the employee benefits business.  New Jersey has one of the most inefficient, high cost health plans I have ever seen. Politics and the unions have driven costs higher and higher.  Recently, the State changed its rules to allow couples both enrolled in the State Health Benefits Plan to apply coordination of benefits.  So, the plan is now spending an extra $12,000,000 so that a relatively few married couples can enjoy benefits with little or no out of pocket costs while the rest of the participants and taxpayers pay more.  New Jersey still uses paper enrollment forms each year and until recently, they were not even scanned, but individually entered into a record keeping system.  Politicians in response to union pressure prevent automation, outsourcing and use of a website, which is common in the private sector. The plan is fraught with disincentives for participants to be efficient in obtaining health care. Virtually all retirees have free coverage, as do many active employees, all this while the State has accumulated a $50 billion liability just for retiree coverage.

This would not happen in a profit driven environment (the auto industry being the notable and quite similar exception) and if it did, the consequences would be dire (again the auto industry). In government, it simply means higher costs, higher taxes and budget deficits.  The CEO pay at Aetna or United Healthcare may make good press, but is not driving health care premiums higher; it is the cost of health care, just as those costs drive Medicare into insolvency.

Finally, keep in mind that nearly 70 million Americans are covered by self-insured employer health plans.  The administrator, be it an Aetna, United Healthcare or a Blue Cross plan has no profit motive to deny claims. They do not determine the co-pays and deductibles.  The employer and the collective bargaining process do. These are ERISA plans run for the benefit of participants.  There is no pre-existing condition exclusion or premiums based on health status. The administrator receives a fixed fee per employee per month to adjudicate claims on behalf of the plan.  No profit motive, but a strong desire to control costs on the part of the employer, and yet all these plans struggle with the cost of health care because the underlying cost of that care, the inefficient delivery of health care and the health status of Americans is what drives premiums.  Those three items must be the primary focus of health care reform.

No deductibles, no co-pays and no denied claims

Some proponents of a government run system make the point that with such a plan the claim denying and co-pay raising tactics of insurance companies will be non-existent.  Medicare and Medicaid do not deny claims or raise deductibles?  Of course they do and why not?  Do people think the Medicare deductible should be the same as it was in 1965, and if so who pays the increased cost?     

To have even the slightest hope of controlling costs; deductibles, co-pays and coinsurance must keep up with inflation, claims must be fairly and aggressively adjudicated and that means some claims will be denied (unless one believes that every doctor and every patient work together to provide the most efficient and necessary health care).

The truth is that patients demand the “best” in health care and they want what they want when they want it.  Health care providers are all too willing to provide those services and in addition have their own motives to do so.  Any semblance of controlling costs must include some patient cost sharing and oversight for the appropriate level and intensity of claims.  In short, is the care medically necessary; is the most appropriate level care being provided?  This is the root cause of many denied claims and that will not change under a government run system.

I once had a claim by a family with an eleven-year-old girl receiving IV treatment for Lyme disease.  The costs were several thousand dollars a month and went on for nearly a year. Finally, our plan administrator denied the claims as not medically necessary.  Our benefits committee heard the appeal after we requested an independent third party review.  I will never forget the comment by the independent reviewer that what they were doing to that girl bordered on child abuse.  Of course, with private insurance these are the stories that make good headlines.  The truth is that the vast majority of claims are valid (at least by today’s treatment standards) and paid by the health insurance plan.

Unintended Consequences

The greatest mistake we can make is to allow Americans to think that a government run plan, coverage mandates or low co-pays have solved the health care problem.  Without a visible and fair direct stake in the cost and utilization of health care, the cost to America will continue to grow out of control, but the true cost will be in hidden taxes, and in deficits and eventually in some form of rationing.  If we continue to let people think that coverage for 47 million Americans, (a questionable number) is the primary issue or that government alone can solve the cost issue, we are headed for a fiscal disaster down the road.

A final note

Today, we are caught in the moment focused on health care reform with a short timeline to change a major segment of the US economy and one of the most emotional aspects of personal consumption.  We know we have a cost problem, and a quality problem.  However, we also have another problem.  America is mortgaging its future.  The fiscal well being of the United States is the most important issue we face, more important than health care reform and more important than expanding coverage. The first priority must be to control our costs.  Legislation that expands coverage in the short term with unproven cost control measures effective only several years in the future will not serve the best interests of the Country.  Paying for something at the federal level by shifting costs in any form to the private sector does not solve the problem, but passes a burden within the economy.  Saving money by lowering what the government pays in Medicare and then using those savings to fund more entitlements does not help the overall economy.  This is all one health care system, not a public and a private system.  Savings, just like the cost must be shared equally. 

This is no time to buy a pig in a poke.


An employee benefits professional

A seasoned citizen

A taxpayer



  1. Dick

    Great points. The WSJ recently ran a good article on Medicare administrative expenses that claims Medicare admin costs are higher on a per person basis than private insurance. Also believe that Medicare costs are going up at a higher rate than private insurance. And Medicare price controls are costing private insurance $2,000 per head in added costs – far exceeding the cost of the uninsured. So, if the government wants to reform health care, how about starting with Medicare and Medicaid instead of screwing up the coverage for the majority of Americans who are satisfied with their health care.


  2. Good points all. The fundamental problem is the underlying structure of the delivery system. We do not ask the questions why does an office visist cost $250 or a sim;ly ten minute procedure $2,000? Or why there are so many centers for MRIs or other scanning.


  3. The mention of savings in health care is perceived to equal a reduction in services. Many people in Ohio do not have health care or very limited health care. They believe any health care would be welcomed but have little or no thought as to how or who would pay for that coverage. They would rather have health care than see the US acting as peacekeepers in the world. Although some of these thoughts are somewhat shortsighted, we do need to find better ways to deliver health care.

    Economies need to be generated in the procurement of supplies, recordkeeping and sharing of that information. Mention cancer and the costs automatically rise.

    Regional specialty care facilities should be explored and considered – for example would you take your Studebaker to a Nash dealer to have the transmission fixed? Finally, Mr. Goodwrench is getting the message.

    How often are you asked what medications are you taking or what is your SS #. How many times do you have to “just answer a few questions for our records. How fat is your medical file at your primary care physician’s office and how often do you have to remind them what major medical conditions you have because they do not have a summary page or the ability to search your record electronically. God forbid if you have several medical conditions and are being treated by more than one “specialist”.

    I, too, am a retiree with practical work experience in the health care area and now somewhat experienced in the world of Medicare.


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