Limited Medical Separating Myth from Fact

December 30, 2010

Since 1998, my general agency has actively assisted health insurance agents in the implementation of hundreds of group limited medical plans aka “mini meds”. I would like to weigh in on the present and future role of these plans and cut through some mythology, confusion and outright distortions surrounding them.

The Group Limited Medical Plan industry encompasses a number of very different plans and carriers. These plans provide core medical insurance to a broad range of varied consumers. The potential member’s perception of value and interest in enrolling in a Limited Medical plan depends on a number of factors, notably:


  • The ability to afford your current health plan (high premium share)
  • The ability to afford family inclusion in your group plan (premium share)
  • The ability to afford to actually use your health plan (high deductibles)
  • Amount employer pays towards premium
  • Amount of acceptable out of pocket risk
  • Access to first dollar benefits
  • Length of probationary period (new hires)
  • Insured’s likelihood of illness or injury (preexisting condition)
  • Availability of supplemental benefits (Cancer, LTC, CI)
  • Existence of financial barriers that may discourage access to health care

Our firm has operated in this professional space for over 14 years. In that time, we have seen a slow but growing willingness by workers to “trade off” catastrophic protection in exchange for access to first dollar benefits. Although it is demonstrably true that many employees confuse limited medical plans with more traditional major medical insurance, when these plans are adequately explained and workers understand the risks and rewards (access in exchange for risk) the majority will take the limited medical option and fully understand it’s limitations.

From our own experience, most CEO/CFO/HR and Brokers have an opposite view of what their employees and their families actually desire, we attribute this disconnect to a tendency for all of us to apply our own perspective (lost in our own selfish view) to those we think we serve.

Two Categories of Limited Medical Plans

As mentioned above, there are many different types of Limited Medical plan designs, but only two categories, they are:

(1) Expense Incurred Plans – These plans are closely associated with the term “Mini Med” and are a derivative of major medical (traditional) insurance. These so called “Mini Meds” have been popular with employers and low wage workers for many years, because they have extremely low premiums and are generally offered on a low weekly payroll deduction basis, making them seem very affordable.

These low premiums are actually a result of highly restrictive monthly or annual limits or “caps” on benefits. These “caps”, along with other financial “barriers” such as: Pre-existing Condition limits, Co-Payments/Co-Insurance and Deductibles further reduce insurance company exposure.

An unanticipated (although many think it is by design) consequence of a “low cap” mini med, is the unfortunate tendency for it to be confused with Comprehensive Major Medical coverage, this has proven to be a very real problem for all parties concerned.

Since these plans are target marketed at low income, high turnover groups and often contain a preexisting condition elimination period, enrollees have often left their jobs before they are even eligible for benefits. Even when claims are incurred and filed properly they are, more often than not, rejected or delayed as a pre-existing condition (adverse selection due to chronic conditions is far more common with high turnover low-income employee groups)

To many of us, the good news coming out of PPACA (Health Care Reform) is that, as of November 23rd most of these (Expense Incurred mini med plans) will be tightly regulated under the “Cap Limit” rules. In our view, we will begin to see these plans exit the industry beginning in 2011.

Fixed Indemnity Plans (The Ones You Don’t Hear Much About)

(2) Fixed Indemnity Plans – (aka. Supplemental/Hospital Indemnity or Defined Benefit plans) Serve the same general purpose and also provide affordable benefits to the employer market, as the mini med plans described above.

Indemnity limited medical plans are filed, approved and thereby regulated differently than Expense Incurred (mini med) plans and are NOT subject to most the “cap limits” imposed on mini med plans. This very significant difference allows Indemnity Limited Med plans to continue to be freely marketed to new employers and in many cases to takeover (rescue) existing expense incurred mini med business.

Note – Indemnity plans are not easily confused with traditional insurance because they do not use traditional insurance terminology such as: Deductibles, Coinsurance, Reasonable and Customary and Coordination of Benefits (less confusion)

General differentiating features of Fixed Indemnity plans versus Expense Incurred mini meds:


  • First Dollar Benefits
  • Terminology – No use of traditional insurance terms (deductible, co-insurance, copayments)
  • No pre-existing condition limitations on outpatient services
  • Easier to explain and understand (fixed dollar benefits for covered services)
  • Claims can be more easily adjudicated (no pre-ex)
  • Similar premium amounts compared to mini meds
  • Generally higher payouts for hospital surgical claims
  • Not subjected to Federal Law restricting annual or lifetime caps
  • Direct assignment of claims to providers (not reimbursement to member)


As a side note – Often these plans are confused with so-called “Work Site Benefits”. (Payroll deducted specified illness plans such as offered by AFLAC, Colonial or Allstate) Limited Medical Plans differentiate themselves from Voluntary Worksite products in three ways; They are guaranteed issue, have one rate (not age banded for rates purposes) and are more likely paid for by employers. Limited Medical and Work Site plans operate well, side by side, but are not the same thing.


It is our view that, Fixed Indemnity Limited Medical plans offer a viable alternative (or improvement) to group Expense Incurred mini meds. These plans are clearly less restrictive and confusing. The Indemnity model has the additional advantage of being flexible enough to be offered as a supplement (first dollar foundation) for high deductible major medical plans.

We hope that this information will prove useful as new (to many) or clarifying information (to others) to counter myths and the confusion brought about by recent political and media portrayal of the products under the heading Mini Med.

William C Hammett


Hammett Marketing Group, LLC



Limited Medical’s Life Preserver

November 19, 2010

By Elizabeth Galentine
November 1, 2010

When news leaked recently that McDonalds had notified federal regulators that it may have to drop its limited medical health care plan in response to health care reform, the resulting media blitz brought national attention to the “mini med” market. The fast food chain denied any such intent to drop coverage; just that it was seeking more information on how its plan would be affected by medical loss ratio requirements. Even so, within a few days McDonalds (along with at least 28 others) received a waiver from the Department of Health and Human Services, saving the company’s plan from the Patient Protection and Affordable Care Act ax for at least a year. Plan sponsors must apply for the waiver annually until state health care exchanges go live in 2014.
Although final regulations had yet to be released at press time, in the weeks since the McDonalds commotion it has been widely publicized that HHS intends to be flexible with these plans. Still, questions abound about the future of limited medical.
Plenty of renewal contracts are coming out with language like this carrier’s fine print: “This renewal proposal is for illustrative purposes only and is subject to withdrawal or modification.”
Not to mention the fact that waivers only apply to existing plans. All new plans will have to comply with PPACA’s provisions that major medical plans are required to offer annual benefit maximums of at least $750,000 for plan years beginning on or after September 23 of this year – and that number will grow to $2 million by Sept. 23, 2012.
“I think the government wants to be flexible. I don’t think they want to see anybody losing coverage. However, it just sort of speaks to that they really don’t know the market. They really don’t know what’s out there, and so they get [employers] like McDonalds saying they’re going to drop coverage because they don’t have options,” says Tom DeNoma, associate vice president, Nationwide Specialty Health. “They do have options.”
Here, carriers share how the limited medical market will remain a viable alternative for post-reform plan sponsors, employees and the brokers who serve them.

Riding the waiver
In the 24 years John Foley has been in the insurance industry he’s never seen anything as confusing to the public as health care reform – “especially as it relates to limited medical. There’s a lot of people every day that I talk to who have been misinformed or confused,” says the senior vice president of domestic markets for Pan-American Life Insurance Company.
Pan-American has sold both of types of limited medical plans – fixed indemnity and expense incurred – but just stopped selling its two-year-old expense incurred plan, CommonSense, effective in September to be in compliance with PPACA. The company’s indemnity plan, PanaMed, has been on the market since 1990 and remains available. Such fixed indemnity plans qualify as a supplemental plan under health reform and therefore are not affected by reform. “So we’re totally focused on our indemnity product and our ancillary products,” says Foley.
For the Pan-American customers on the CommonSense reimbursement plan, the carrier convinced a number of them to shift to a September 1 plan year “to basically speed up their renewal so that they have a chance to wait for all of the rulings to be clear,” Foley explains, “so that most all of the impacts from health care reform don’t impact them until their renewal next year.”
About 30% of Pan-American limited medical customers are on the reimbursement plan, “but a significant number of those have actually already chosen to go to our indemnity plan upon their renewals,” says Foley.
CIGNA Voluntary is primarily in the expense-incurred camp, although the carrier does have a few fixed indemnity clients. According to Mark Bailey, senior vice president, CIGNA Voluntary received a waiver for its entire book of business – about 1,700 employers and 250,000 customers. “The response by the Secretary [of Health and Human Services] to grant the waivers was really in recognition of the fact that we need to make sure that these people don’t get shoved out of the insurance pool and into the ranks of the uninsured until we have the exchanges and the subsidies built in 2014,” says Bailey. “So it really was recognition that there was probably a timing problem between when the limits should kick in and when other options for these people are going to be available.”
Before CIGNA Voluntary received its waiver, Bailey was hearing a lot of concern from brokers. After the waiver was announced, “we were getting a lot of phone calls, e-mails, shout-outs saying, ‘You got that? It looks like we can continue to offer it to our clients,'” he says. “I think getting that waiver went a long way to making them feel better about things.”
When he first heard that waivers might be coming, David Fry, vice president of select benefits and group senior actuary for Symetra Financial, thought the process to receive one would likely be somewhat difficult. As a carrier offering only fixed indemnity plans, “before all the waiver information was released, we saw a much bigger opportunity” to gain new clients deciding to switch from an expense incurred plan, says Fry. “We still think there’s a big opportunity there, it just seems the waiver process is much easier than we anticipated it would be.”
Health and Human Services’ Office of Consumer Information and Insurance Oversight is in charge of the waiver application process. In a September memorandum, OCIIO stated waiver applications must include the terms of a plan seeking a waiver, number of people covered by it, a brief description and supporting documentation of why compliance would result in a significant decrease in access to benefits or significant increase in premiums, and an attestation signed by the plan administrator certifying these facts and that the plan was in force prior to September 23.
“I just think that it’s being granted pretty liberally at this point,” says Fry.
The availability of waivers “went a long way to give employers some confidence and some assurance that they can continue to offer the plans,” says CIGNA Voluntary’s Bailey. “Especially since we’re in the fall and it’s open enrollment time and they’re starting to produce all their publications and go through all the process of open enrollment. They just want some certainty that I’m going to enroll people and these plans are still going to be around.”
Still, Symetra is hearing from employers who don’t want to worry about the annual reapplication process for the waiver and would rather switch to a fixed indemnity plan. “The employer is worried about, ‘What is the process over the next three years? This removes the questions that I have to deal with so I can focus on 2014 and how to put myself in a good position for that,'” says Fry.

Indemnity and beyond
In the vernacular of insurance, most people refer to all limited medical plans as “mini meds,” but Tim Adkisson, national sales vice president, Select Benefits Distribution with Symetra, says it’s important to draw a distinction between the two, “because the fixed indemnity product is so different and distinct.”
Adds Fry, “the major med obviously are expense-based plans and I think the title ‘mini med’ came from that. It very much looks, acts and feels like a major med plan where you have coinsurance, you have deductibles. So if you have a $10,000 bill they’ll pay an expense up to a limit. And they’re called minis because they have much lower limits than major med plans.”
With fixed indemnity plans, the payment structure is based on the benefit level a client chooses. The client receives a predetermined payment for hospital visits, doctor’s appointments and other health-related events, regardless of the final bill amount.
The expense reimbursed product has been viewed highly by CIGNA Voluntary clients “because it’s designed to cover the expenses of the medical event as opposed to simply reimbursing a dollar amount for a specific activity,” says Bailey.
However, the fact that it is a major medical lookalike program is also why it’s a health reform target, while fixed indemnity plans are not, says Nationwide’s DeNoma. “Frankly, the health care regulation really did not affect the limited medical indemnity market. That remains untouched,” he says. “So the good news is employers still have options to serve that mix of constituents.”
Nationwide offered both types of limited plans, but the carrier’s expense-incurred option didn’t have much time to get off the ground before health reform took place. Only one group had enrolled in the plan before PPACA. “Unfortunately, with the new regulations we really didn’t get enough time to launch it,” says DeNoma. “That was the complexity of the new legislation; it really wiped out that segment of the market and now employers and brokers and everybody are scrambling on how to address that need.”
Although the fixed indemnity product has a different structure than the expense incurred, both limited medical plans serve the same needs of the transitional or part-time worker, says DeNoma. It’s an ever-growing market, thanks to rising health care costs that have led employers to raise eligibility requirements for major medical plans. Employees who used to qualify for major medical at 20 hours a week typically now must work at least 30. “That whole workforce has exploded over the last 10 years,” says DeNoma.
One point about fixed indemnity plans that Symetra’s Adkisson likes to emphasize with brokers and employers is that they pay a first-dollar benefit – an important consideration for low-wage, hourly, part-time and seasonal employees that are not necessarily poor, but are often cash poor. “Someone in that situation, $10/$20 co-pay, $100 deductible, that could be a barrier for them wanting to go to the doctor,” says Adkisson.
Also, because employees know they’ll be getting a fixed dollar amount up front, they are much more consumer-oriented when it comes to choosing health care providers, Adkisson adds.
It’s akin to the movement toward consumer-driven health care plans in the major medical market. “There’s a lot more clarity in the system when you have it spelled out. And that’s probably been one of the problems with our system, because nobody really knows the true cost of health care,” says DeNoma. “The good news is a lot of proactive employers and brokers are saying, ‘I can reach the same result with an indemnity-based limited medical plan.’ And we’ve seen a lot of switching into that segment of coverage.”

Renewed communication
When advising brokers on how to prospect for business with the product, Symetra asks if they receive a full census of employees or one with only the major medical eligible population. “If it’s just the eligible population, you’re probably missing out on some coverages that can be offered to that employer,” says Adkisson. “What I’ve found in this industry is many employers want to cover and even pay for coverage for these employees. No one has shown them a less expensive alternative for them to use.”
Pan-American’s Foley understands this is a challenging time for brokers in helping clients comprehend health care reform. “It’s also a time, because of that, where the value of a broker is really emphasized,” he adds. “So I think in some ways almost counter-intuitively it’s a great time to be a broker.”
Symetra distributes its product through brokers, and the biggest message the company continues to send is the difference between the expense incurred and fixed indemnity plans. “But even more fundamental than that, a lot of brokers still cringe when they hear ‘mini med’ and limited benefit plans,” says Adkisson. “I think it really needs to continue to be brought out that these plans are there to cover folks where it’s just not feasible from a cost standpoint to provide them major medical.”
Foley has spent the last six months meeting with brokers and large accounts to communicate the fact that Pan-American’s PanaMed fixed indemnity plan is still available. Through luncheons, Web seminars, phone calls and meetings, Foley works to not only get the message across but also reinforce the difference between the two types of limited medical plans. “What we found most useful was to actually give them real examples,” he says. “Somebody had this medical challenge. Here’s how it would work with a reimbursement plan and here’s how it would work with an indemnity plan.”
Because brokers are naturally familiar with the expense-incurred structure of co-pays and deductibles that mimics major medical plans, a challenge for Foley has been to get them to embrace the fixed indemnity format. “They look at ours and they would consider it confusing. But then when we get to the employee or the employer level, the exact opposite happens,” he says. “You have someone who’s never had coverage. So do you think it’s easier to understand co-pays, deductibles, maximum out-of-pockets, or ‘I get this if I do that?'”
People who haven’t been on an indemnity plan most often want to know if they’ll still get the network discount of a PPO, which they do with the PanaMed product, Foley adds.
According to Foley, Pan-American is in the process of developing a relationship with a partner company that will allow customers to check out a Web site listing medical facilities in their area and the price structure for medical procedures at those locations. In their talks with participants during enrollment and over the course of the year, Symetra finds that many in the limited medical demographic are already used to shopping for care. “They know which clinics and which providers offer which services for the price,” says Adkisson.

Clarity is key
The limited medical field has run into problems in this past with the expense incurred product looking like a major medical plan but not having the same coverage levels. For that reason, the fact that expense incurred plans have the same structure as most major medical plans is both a positive and negative feature. “I think a lot of employers for whatever reason really wanted that lookalike for their employees of a major med,” Nationwide’s DeNoma adds.
The potential for confusion is one of the reasons CIGNA decided to keep CIGNA Voluntary separate. Both the sales force and account management teams are separate and the claims and calls to CIGNA Voluntary are handled in a self-contained operation in Phoenix, according to Bailey. Another reason for the separation is that many of the people using the product have never had health insurance before. “So they’re not necessarily equating it to major medical,” says Bailey, “but they don’t know what a network is and they don’t know what a co-pay is and they don’t know, ‘Why do I go to the doctor as opposed to the emergency room?'”
In accordance, CIGNA Voluntary call center representatives are trained extensively on how to understand the demographic “and talk to them in the terms that they would understand,” says Bailey. For example, terms such as “provider” and “co-pay” translate into “doctor” and “the share that you’re going to pay.”
At every turn, CIGNA Voluntary reminds participants that it is a limited plan – in print materials, phone interactions and at “It’s not fool-proof, it’s never going to be fool-proof, but we take very painstaking steps to make sure people understand how this plan works, what’s covered, what’s not covered and where their limits lie,” says Bailey.

Opportunity in exchange
Foley has had many discussions with brokers wanting to know if the commission structure of Pan-American’s fixed indemnity product will be changing. Because it’s excepted from PPACA, it hasn’t changed at all. “I think there is likely to be pressure [on commission levels] and already has been from some carriers as they try to meet the minimum loss ratio requirements and that’s a great concern for brokers,” says Foley.
Medical loss ratio requirements that up to 80% of premiums be spent on medical costs and not administrative expenses are particularly disruptive for limited medical plans that experience extremely high turnover and require a greater amount of educational material. CIGNA is fortunate that its large book of business will likely keep the final MLR regulations from hurting CIGNA Voluntary’s limited medical business, but Bailey is still grateful that HHS Secretary Kathleen Sibelius has “worked very closely with the industry to understand why the particular percentages don’t necessarily translate to a limited medical program.”
Then there’s the issue of the role limited medical plans will play in state health exchanges come 2014. “There was a lot of ‘the Secretary shall determine’ language in [PPACA],” says Bailey. “So as those become clearer we’re able to analyze it. But we are certainly looking at what it would take to operate in the exchange.”
Symetra is thinking post-exchange as well. “We see that our plan will continue to be a very viable piece of the solution or the package offered to employees,” says Fry. “We’ll still have part-time workers, we’ll still have the high deductible plans where we fit underneath and we very much plan to keep going in the future.”
In fact, Symetra is currently in talks with brokers and state commissioners about how a fixed indemnity plan might be included with other services in the exchange. In the last couple of years Symetra has seen an increasing number of employers offer their fixed indemnity product underneath a major medical plan to supplement the increased out-of-pocket costs for employees. “There might be some opportunities there where we’re not the only solution but we’re part of a broader solution,” says Adkisson.
DeNoma agrees that the market will remain viable. “However, we still don’t know where the gaps of coverage are going to be in the future,” he says. “I think the limited medical indemnity-type platform will give us a better basis on how to address future gaps.”

Limited medical by the numbers
Average percentage of those eligible who enroll: 10% – 15%
Turnover of this population: 100%
Approximate employee cost: 1 – 2 hours of pay/week
Amount average American pays/year for health care: less than $2K
Typical range of coverage amounts per year:In-patient care e $2K – $5K
Outpatient care $1K – $2K
Emergency room care $500 – $3K
Prescription drugs $300 – $1K

A Case For Limited Medical

August 9, 2010

Benefits Selling Magazine – Published 8/1/2010

It seems many believe the Patient Protection and Affordable Care Act is the death knell of all limited benefit medical plans. Not true. The new law does trigger the phase-out of certain types of limited benefit medical plans — often referred to as “mini-meds” or “expense-based plans” — due largely to the prohibition against annual limits within group health plans. However, many fixed-indemnity limited benefit medical plans are not affected by PPACA because they represent a different category of product.
A well-vetted, fixed-indemnity product continues to serve an important market niche and should be part of any broker’s portfolio. Here’s why:

1) Whether expense-based “mini-meds” will continue to be available for new business and renewals remains to be seen. The U. S. Department of Health and Human Services indicates annual limits cannot be less than $750,000 as of Sept. 23. This, in theory, would put mini-meds out of business.
HHS has also said, however, that insurers and employers who wish to postpone compliance can attempt to “win permission” from the federal government. How this will play out is unknown.
If limited group health plans do go away, employee groups covered by them will need a quick, effective alternative. Brokers with limited benefit medical clients should make sure they are affiliated with sustainable programs. If not, they should move their clients to product platforms that comply with the law in the near term and that can transition as future benefit strategies develop.

2) While employer benefit coverage strategies will continue to evolve, it appears that the need and opportunity for supplemental offerings is likely to grow. Quality, flexible fixed-indemnity limited benefit medical plans can help address immediate needs, but most importantly, they can be a key tool in helping employers build comprehensive health care coverage strategies.

In theory, PPACA “mandates” comprehensive coverage for all by Jan. 1, 2014. But the term “mandate” is somewhat misleading. Compliance requirements apply principally to the plans themselves. Insurers must satisfy myriad provisional requirements to continue offering their products. Employers, on the other hand, must “play or pay” — they are not mandated to provide coverage. Similarly, individuals are not required to buy coverage. Non-compliance for both employers and individuals, however, will result in financial penalties.
In other words, while carriers must comply with the rules for product provisioning, employers and individuals will continue to make benefits and health care coverage-related decisions that are in their best interests. Employers will evaluate their options within the context of their business philosophies, employee relations concerns and economic realities. Individuals will make their health care coverage choices based on personal need and financial situation. At the end of the day, insurers will do what they have to do, as will employers and individuals.

For many employers, PPACA represents business as usual. Other employers need help determining the best approach going forward. The opportunity for benefit consultants and brokers is clear. Employers without plans that meet PPACA requirements will look for a trusted adviser to provide ideas and options. The task is to understand each client’s circumstances and business goals. With that knowledge, combined with an understanding of the legislation, you can develop an array of options and facilitate next-step strategies.
For employers who are not in compliance with PPACA, it all starts with a single question: What is the lowest-cost approach to meeting the “play” requirement? Knowing that, you can then begin to define the eligible population to meet affordability limitations or enrich a plan to meet additional benefits offering objectives.
Options might include:
• A high-deductible, high co-insurance plan. A health reimbursement account, a health savings account, a limited medical plan to fit below the deductible, or a combination thereof, may make sense. High-deductible options also help create more cost-conscious health care consumers.
• Limited benefit medical configurations that supplement a primary plan. When considering supplements, think critical illness, hospital supplement or accident coverage. It is important not to undermine important cost-containment elements of the primary plan, such as by offsetting office visit co-payments.
• A limited benefit medical plan with high limits as the primary plan. This approach gives employees a reasonable option of electing catastrophic-only coverage on their own.
• A limited benefit medical plan with low or modest limits as the primary plan. This gives employees the option of electing a high-deductible plan on their own.
And, of course, another option is to provide different benefit offerings based on various employee classifications, such as job category, tenure and hours worked. There are fixed-indemnity-style limited benefit medical products in the market today with flexible architecture, low participation requirements and broad eligibility rules that can be structured as voluntary, employer-paid or shared-cost offerings. With them, you can create a variety of coverage scenarios to meet the goals of the employer and the expectations of different employee groups within the company.
Employers do not have to do it all. Many cannot; others simply won’t. As you work with your clients, keep in mind the continued opportunity for fixed-indemnity limited benefit medical plans to help bridge the gap and prepare for the new medical benefits era set to begin in 2014.

Reform – Ahhh Sure

July 22, 2010

First, let’s remember what was called “healthcare reform” had very little to do with healthcare. It was foremost a move to shift the payor mechanism. If anyone doubts that, play back the rationale to reduce the federal deficit through healthcare reform. Regrettably, before the legislative session recessed for summer, Congress had already passed the so-called Doc Fix that the Congressional Budget Office opined would eliminate any federal savings. So now, we have reform that has little to do with health care and no favorable effect on the federal budget. What then are we left with out this legislation.

1. A larger federal administration with new departments responsible for insurance oversight.
2. Government designating minimally acceptable benefits. Remember the models are the Mass. reform effort which is awash in red ink and Medicare, which has doctors and hospitals opting out at unsustainable rates. Alongside that, if the Medicare model makes such great sense, why does even the government recommend a private insurance supplement?
3. Increased taxes on medical devices that will ultimately be passed along to purchasers.
4. Reduced tax benefits with the cap on Section 125 benefits.

In addition to the points noted above, the new law requires a minimum employer contribution to the total insurance premium cost. Dependents are included in the mandate. For employers who paid for single coverage and required employees to pay the costs of dependent coverage, this will be a significant financial hit. The mandated minimum contribution and the “Cadillac Plan” tax may well also turn out to be added factors pushing employers toward minimum effective benefit plans.

Having said that, some elements of reform were needed. Removing the pre-existing conditions exclusion in the individual insurance market (which was largely done in 1986 for the group market) was long overdue. However, if it is a good idea, why was it only enacted for children in 2010. Adults must wait until 2014. Wellness benefits are largely a good idea, but I have reservations they will be effectively implemented. Take that, however, as a personal worry and not a political one. Others will almost certainly disagree with me on that point, and I respect their right to do so.

My take is this remains an issue whose time had come; however, Congress fired its arrows and missed the target with most.

Four Fatal Flaws of Obamacare

May 21, 2010

Four Trojan Horses
Of all the criticisms that have been leveled at “ObamaCare” over the past year, the four worst features of the legislation have been almost totally ignored — by Republicans in Congress, by the national news media and even by serious economists. So you’re seeing it here first:
1. People will be required to buy a product whose price will be rising at twice the rate of growth of their incomes and they will be barred from doing many of the things needed to control these costs.
2. A bizarre system of subsidies will disrupt the entire labor market — causing massive layoffs and, ultimately, a complete restructuring of industrial organization.
3. A health insurance exchange will give health plans perverse incentives to attract the healthy and avoid the sick; and after enrollment, to overprovide to the healthy and underprovide to the sick.
4. A weakly enforced individual mandate will give people perverse incentives to game the system — remaining uninsured while healthy and obtaining insurance only after they get sick; choosing limited-benefit plans while healthy and scaling up to richer plans after they get sick.
The Ever-More-Costly Mandate. President Obama did not create the underlying problem. Health costs per capita have been rising at twice the rate of per capita income for the past 40 years. Nor is this a uniquely American problem. On the average, the same trend is in place for the entire developed world. But here is the bottom line: If you have to buy something whose cost is rising at twice the rate of growth of your income, that mandated purchase will consume more and more of your disposable income with each passing year.
To make matters worse, the normal consumer reactions to rising premiums are going to be disallowed. For example, most people would react by choosing a more limited package of benefits, or going to catastrophic coverage only or relying more on Health Savings Accounts. But these and other responses are limited or barred altogether under the new law.
The Bizarre Subsidies. Look at it from the employee’s point of view. The new law says that an employee must have insurance costing, say, $15,000 for family coverage in 2016. Remembering that employee benefits are a dollar-for-dollar substitute for wages, that implies that a previously uninsured $30,000-a-year worker will get a 50% cut in pay. Further, the only help this worker will get from Uncle Sam will be the ability of the employer to pay the premiums with pretax dollars. That’s worth about $2,000. On the other hand, if this worker can get the same insurance through the newly created health insurance exchange, the federal government will pay almost all the premium and reimburse most out-of-pocket expenses to boot. That’s a total subsidy worth more than $19,000.
It follows that every worker in his right mind at this income level is going to want to work for a firm that does not offer health insurance and pays cash wages instead. Yes, this employer will have to pay a $2,000 fine. But the fine is well worth the opportunity to obtain a $19,000 benefit.
Now consider a $100,000-a-year worker. This employee will get no subsidy in the exchange. But insurance premiums paid by the employee will avoid a 15.3% payroll (FICA) tax, a 25% federal income tax and, say, a 5% state and local income tax. So at work, Uncle Sam is prepared to pay almost half the cost of this employee’s health insurance. It follows that any worker in his right mind at this income level will want to work for a company that does offer health insurance.
In competition for labor, therefore, companies and entire industries will reorganize. Low-income workers will congregate in companies that do not provide insurance; high-income employees will work for firms that do provide it. Firms that ignore these worker preferences will not survive.
This implies two bad results: (1) much higher burdens for taxpayers as millions more take advantage of the subsidies than the Congressional Budget Office (CBO) has predicted and (2) an entire economy whose structure is based not on sound economics, but on gaming an irrational subsidy system.
Perverse Incentives for Health Plans. We have heard much from the White House and Congressional leaders about how insurance companies are abusing people. You haven’t seen anything yet. Inside the health insurance exchange, no insurer will be able to charge a sick person more or a healthy person less. So insurers will try to attract the healthy and avoid the sick — even more than they do today!
Furthermore, after enrollment the perverse incentives will not end. Health plans will tend to overprovide to the healthy (to keep the ones they have and attract more) and underprovide to the sick (to discourage the arrival of new ones and the departure of the ones they already have). Of course, there are countervailing forces: professional ethics, malpractice law, regulatory agencies. But ask yourself this question: Would you want to eat at a restaurant that you know does not want your business? You should think the same way about health plans.
Perverse Incentives for Individuals and Families. A poorly reported development in Massachusetts is the growing number of people who are gaming the system. People remain uninsured while they are healthy and get insurance after they get sick. Then, after they receive care and their medical bills are paid, they drop their coverage again. This behavior is more likely, the lower the penalty for being uninsured and more weakly the individual mandate is enforced.
Under ObamaCare, the fines for being uninsured are low. When fully phased in, the fine is $695 for individuals who do not pay premiums of $5,800 and $2,085 for families who do not pay premiums of $15,200. Further, the IRS is indicating that it has no plans to enforce even these fines.
Individuals gaming the system could be the death knell for private insurance — leading to what many in Congress wanted all along; a single-payer private public plan.
John C. Goodman
President and CEO
Kellye Wright Fellow

Health Care Reform – Price Controls Fatal Flaws

March 2, 2010

The following are excerpts from a spot on analysis from Scott Howard on March 1st 2010 (Fox News Online)

Obamacare creates a new entitlement program that we can’t afford. Ostensibly, it does this by slashing reimbursement rates for physicians and hospitals, and then using the “savings” to subsidize insurance for low and middle class uninsured. The expectation is that if we just inflict more price controls on providers, the health care sector will suddenly become much more productive and health care prices will fall.

Price controls never seem to go out of favor, no matter how often they fail. Medicare started out paying physicians and hospitals directly for their costs and that didn’t work. Spending exploded. To try and rein in costs, Medicare shifted to a “diagnosis related group” (DRG) system – a type of price control — that bundles payments for procedures (like a heart bypass operation). Hospitals learned to game that system by doing more, and more expensive, tests and procedures to make up for lower payments for some services. Spending exploded again.


Price controls don’t control spending, but they do affect access to care. Medicaid pays docs just a fraction of that offered by private insurance; about half of all physicians won’t see Medicaid patients because the payments are so low. Medicare pays more (about 80 cents on the dollar), but the number of doctors who don’t accept Medicare is rising. The Mayo Clinic, which the president which Obama holds up as an example of what he’s trying to achieve, recently declared that it’s no longer accepting Medicare patients at its Glendale, Arizona clinic. (In late December, Mayo reported that it lost $840 million treating Medicare patients in 2008 alone.)

What is the value of insurance if you can’t get access to physicians and hospitals? This will shortly become more than an academic question for the 15 million Americans that the legislation forces into the Medicaid program.

As access problems increase, policymakers will just throw more money at the problem – exploding the deficit and driving up taxes.

Health Care Reform – Removing Risk

March 1, 2010

What has never been adequately discussed, is the certainty that millions of currently insured individuals will cancel their policies when risk is removed from the equation.

 If I can buy insurance after I get sick, why would I pay premiums to protect myself against this risk? The so-called “mandate” will not stop this from happening as the penalty is not more than 15% of what most annual premiums cost.

 If, as I surmise, millions of health insured’s drop their coverage, the only ones left are those with current health issues, who need insurance to leverage their “nickels into dollars”. How long will insurance companies remain interested in a line of business that collects a dollar and pays out two?

 When you remove risk from insurance, it becomes dollar trading and no longer makes sense to anyone in the private sector. It may survive, but only with massive amounts of public (tax) funding to offset losses.

 I suggest that this is the “Trojan horse” that ushers in a government run single payer system and it is the intention of those who would like to see this happen, that the “reforms” they propose will fail as they must, resulting in the real goal of government run health insurance to take place.