By Robert Koshnick, M.D.
In the early 1970s, Paul Ellwood, M.D., the “father of the HMO” convinced President Richard Nixon that physicians who owned their clinics were greedy entrepreneurs.
Ellwood’s solution, to have corporations manage people’s health care expenditures, led to the HMO Act of 1973. Health maintenance organizations (HMOs) were given the right to practice medicine and provide insurance without a license to do either.
What emerged was the profit-driven corporatization of medicine, one of the main reasons health care costs are at the staggering $4.5 trillion we see today (as of 2022).
People are incredulous when I tell them I made a good living in 1974 charging $6.50 for an office call. I delivered a lot of babies and did various surgeries in my single physician office in Perham, Minnesota, a town of about 2,000 people. I did not have to charge much to make a living, because my overhead was very low—office rent, a receptionist, malpractice insurance, and a licensed practical nurse—and documentation requirements were minimal.
Robert Kocher, M.D., one of the architects of the Affordable Care Act, published an article in 2013 in the Harvard Business Review, titled “The Downside of Medical Care Job Growth.” Kocher showed that 95 percent of the growth in health care system workers in the United States between 1990 and 2012 were non-provider workers, and the median cost of non-doctor expenses averaged $823,000 per physician in 2013. The 906 pages of the ACA added considerably more to medical care operational costs.
Third-Party Payer Mayhem
Under the current system, 90 percent of health care is paid by the government or a private insurance company. The government aims to control costs by outsourcing the management of care to third parties such as health maintenance organizations, accountable care organizations, and other corporate management entities such as Medicare Advantage Plans.
Anytime the government tries to control a market, the controlled parties will find workarounds. Health care is no exception. These organizations find ways to manipulate reimbursements, which drives up costs without producing better health outcomes.
There is a limit to what the government can pay out. The solution at that point is to ration care. That is happening right now: shrinking provider networks, longer wait times for appointments, and delays for “prior authorizations” (approvals providers must get from payers before a claim can be paid).
Over time, this financial pressure makes it difficult for practices to update their technology and maintain facilities.
Private insurance companies, such as those on the Obamacare exchanges, have an incentive to increase costs. Obamacare restricts administrative fees on plans to 15 percent but allows higher government subsidies when premiums increase.
HSAs to the Rescue, Maybe
One way Congress has tried to fix the third-party payer mess is by authorizing health savings accounts (HSAs). The idea is to reward consumers by allowing them to keep money not spent on unnecessary health care. These accounts can grow over a lifetime and be used for bigger health care expenses in the future or upon retirement after age 65.
An HSA, however, must be paired with a high-deductible, employer-sponsored insurance plan, making it incompatible with non-employer plans such as those on the Obamacare exchanges. HSAs are also not available for people on Medicaid or Medicare, and account holders face a 20 percent penalty for non-medical withdrawals.
A Better HSA?
In 2023, the Hoover Institution proposed Individual Health Accounts (IHAs), an enhanced HSA-type account that would be available to most individuals. Out-of-pocket individual contributions to the accounts would be tax-deductible above the line, reducing the tax filer’s adjusted gross income. Hoover suggests contribution limits could be increased to the average cost of an employer-sponsored insurance plan, which according to KFF was $23,968 in 2023. That is much more than what is allowed for HSAs.
Money withdrawn from the accounts would be taxable, but there would be no 20 percent penalty for early withdrawal as with HSAs. The only requirement would be that people buy some form of catastrophic medical care coverage with their account.
Employers would have several options. They could continue to manage their employees’ insurance coverage, contribute money to employees’ IHAs, or increase their employees’ pay in lieu of paying directly or indirectly for their health insurance. Employee contribution limits would be reduced by the amount of employer contributions.
The payroll tax exclusion for employer-sponsored insurance (ESI) costs taxpayers $299 billion a year (2022 figures) and incentivizes employers to purchase high-premium health insurance. Under IHAs, this tax break would shift to individuals when they make contributions to their accounts.
Integration with Government Plans
The Hoover Institution suggests states should be allowed to reform the ACA marketplace plans and related regulations with Medicaid and Medicare to allow integration with IHAs.
According to the Centers for Medicaid and Medicare Services, Medicaid expenditures per person vary by state, ranging from $7,522 (Utah) to $14,007 (New York). The 2023 Medicare Trustee report states the average Medicare expenditure is $15,727. The government could allow people to opt out of these programs and put that money in IHAs.
Exploding health care spending is pushing the nation into deeper debt and driving state taxation to higher levels. IHAs are a solution but deserve a more powerful and accurate name: Empowerment Accounts.
Robert Koshnick, M.D. (bob.koshnick@gmail.com) is a retired family medicine physician from Detroit Lakes, Minnesota, program director for the MN Physician-Patient Alliance (physician-patient.org), and author of the 2022 book Empower-Patient Accounts Empower Patients!
Internet info:
Lanhee Chen, Tom Church, and Daniel Heil, “Choices for All,” Hoover Institution, July 2023:
https://www.hoover.org/sites/default/files/2023-07/Choices%20for%20All.pdf
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