By Thomas R. Wade
Insurance for the last few decades has been primarily been funded through employers. Graphically it looks similar to the picture below. This plan restricts the employee from choosing his or her own insurance company. The employee is limited to the choices made by the employer unless they want to buy their own insurance with their own money.
Limited Choice Employer Based Plan
In the last decade, we have seen where the health savings account has developed, but this is a short-sighted band-aid to a real problem. There are some good features to the health savings accounts, but they are minor to the real savings we can achieve for everyday Americans.
The plan described below combines many good ideas that are in the news today. The plan allows the employer to make direct deposit to a health savings account owned by a married couple rather than to the individual’s health savings account. The couple can then purchase the insurance plan they want.
Individual Based Plan with Freedom of Choice
The principle is for the employers to make a tax deductible contribution to a health savings account just like they do for your paycheck. Then, in the situation above, the couple uses the clout from two employers to buy one insurance plan for the family. There are thirteen basic advantages this plan has over the conventional health care company based plan we have been using.
First—The individual and maybe the spouse if there is one get to pick the insurance company and not the employer. The man’s employer under the old system may have United Health Care and the woman’s employer may have Humana. The family may want Anthem Blue Cross. With this plan the couple has freedom to choose the plan that is optimum for their own family. They can still get one of the plans the company has negotiated for them or they can go directly to an insurance company or they can go through a network like Costco or the church or some civic organization.
Second—The married couple gets to share an account. I cannot remember a time when it was not more affordable for my spouse to get her insurance through her employer and for me to get my insurance through my employer, and then we would have to pick one or the other for the children. So normally, I would not be on the same plan as my children. This was the least expensive way for my family. When you look at the numbers though, if I was able to use the contribution from my employer and combine it with the contribution from my wife’s employer and buy one insurance plan, we would have had extra funds every month instead of having to further supplement both plans.
This is the most important point so I am going to try to give an example that is understandable so cost savings are understood. With numbers from 2012, under the old plan, an employer would contribute $900 for a $1350 plan covering her and the two children, and my employer may contribute $400 for a $533 single plan for me. The total contribution from us to the two plans would be $550 per month. With my plan, the employers make the same contributions to the health savings account instead of to an insurance company. Now the family only pays $50 a month instead of $550 per month. The family saves $6000 per year.
Let us also take a worst case scenario so that we can see the range. With numbers from 2014, under the old plan, an employer would contribute $700 for a $958 plan covering her and one child, and my employer may contribute $383 for a $486 single plan for me. The total contribution from us to the two plans would be $361 per month. With my plan, the employers make the same contributions to the health savings account instead of to an insurance company. Now the family only pays $305 a month instead of $377 per month. The family saves $864 per year. There are several websites online that reveal average numbers and using the numbers from any one of them ends with a positive savings from this plan. There is a loss of scale by buying insurance individually, but that can be made up by buying insurance with an organization, such as Costco or the church or civic organizations.
Third—Also very important is now the family has only one deductible to meet each year so there is going to be savings here as well.
Fourth—The family can now start saving money in the account for insurance in retirement.
Fifth—Loss of employment. If the family can save a few thousand in the account and one of the couple loses a job, then there are some funds to help pay for the insurance during unemployment.
Sixth—The family learns how to become more responsible for their own health and the costs associated with it. The couple will be more demanding from doctors in what tests are really necessary and what are frivolous and stop relying on insurance companies to negotiate lower rates when all it does is drive up costs. In case you did not know, doctors give discounts when you do not use an insurance company.
Seventh—Either one of the couple can move from job to job, and the couple can keep their insurance company. I think without too much convincing, I can really say, if you want to keep your doctor, you can keep your doctor. You can quote me on that if someone has not already beat me to it.
Eighth—Pre-existing conditions are no longer a concern. Pre-existing conditions have only been a concern because an employee transfers from one job to the next changing their insurance plan—once again because the employee is locked into what the employer offers. With this plan, the citizen gets to keep their insurance plan as they move from job to job so pre-existing condition concerns become extinct.
Ninth—The employer does not have to have a person or department dedicated to negotiating and administering the insurance for their company. This is a real benefit that you may or may not choose to exploit. Companies, like DuPont, probably have hundreds at all their plants that take care of this nuisance. These are non-productive jobs in our society. Sorry folks.
Tenth—A child of the couple can start working at age fifteen and start their own health savings account that may accumulate a few thousand by the time they get through school and their first year or two on the job. The child could transfer the savings to their parents account and then stay on their parents insurance or just save the money for when they are on their own and still stay on their parent’s plan. There would be no age limit with this plan, because the entire idea revolves around the individual family and the insurance company.
Some insurance companies may decide to offer multigenerational policies as part of an aggressive marketing plan. Age limits have been installed so insurance companies can set offer packages to employers for the employees. If a couple chooses to buy insurance other than what the employer offers, age restrictions would not apply.
Eleventh—I forgot to tell you that the woman’s employer is the Catholic Church, and they no longer are responsible for buying the insurance and they do not know what insurances the employee gets. They do not know if the woman is buying birth control, and it is no longer an issue.
Twelfth—I also forgot to tell you the woman used to be in the Army and might now get a monthly stipend to help pay for insurance from the VA. Now we can direct the Veterans hospitals to administer care only for wartime injuries, including PTSD. The Veterans hospitals can focus and become specialists in wartime injuries. The Veterans Administration no longer has this huge burden of providing normal health care to veterans, and the waiting period at a Veterans hospital will go way down.
The first eleven ideas can be implemented immediately without too much coordination, and, of course, number twelve will take quite a bit of work but should be still easy. And now for number thirteen, which will take quite a while to implement.
Thirteenth—Medicare can also be built right into this plan with contributions from employers going to a sub-account within the health savings accounts instead of to the government. The end result will be beautiful, but the road to get there will be difficult. This may take 50 years to phase in as we also take 50 years to phase out benefits.
Adding to this comment, we have always tried to solve problems overnight instead of providing a guideline for the problem to work itself out. As an example, we gave someone right out of the box a social security check for which no donations had occurred over the course of a lifetime. We could have provided for a 401K-type of system and let the problems work itself out over time. Instead, a leader took advantage of power with no foresight—a common problem among leaders.
Congress will have to lay out guidelines on transferring savings from one HSA to another, like from a teenager to an adult or from a passed away parent to the child, or from an ex-husband to an ex-wife for alimony. Rules will also have to be laid out for record-keeping and maintaining tax records.
This will restore confidence of the American people in their leaders by providing a guideline and pathway for citizens that are easy to follow and the least expensive to implement. This by itself does not necessarily wipe out the Affordable Care Act. It does however provide a path for American citizens to forge their own futures with a little independence from their employer and government intervention.