ARISE ERISA

Levity in the time of Coronavirus

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I wrote a coronavirus thing two weeks ago and there’s enough good coverage so I don’t want to go too much deeper. I thought this was a good read on the subject and why we should be taking active measures today, if you’re interested.

Coronavirus: Why You Must Act Now

I don’t want to trivialize this situation - it is in fact very serious. But just to add a little levity to an otherwise dark time, here are some coronavirus related jokes and insanity that it’s brought out in the world.

Tito’s, explaining that you can’t use their vodka as hand sanitizer.

This paper, which has the most scientific breakdown of a “dap” that I’ve ever seen. It concludes that you shouldn’t do a “prolonged” fist bump for longer than 3 seconds, which any socially competent person would have told you to stop doing anyway.

And finally, this tweet from Ice-T

Okay onto the actual thing I want to talk about.

The Parallel System

Last week I talked about how we got into a situation where your company is paying for your healthcare, and why it’s bad. This is a good primer for what I want to talk about today.

There are actually two parallel insurance systems that exist in the US and are governed by different laws. Unless you’re in the healthcare industry, you probably don’t know about them.

When you think of health insurance, you probably think of it like this:

UnitedHealthcare has tens of millions of people that they cover - if a few of them get sick, UnitedHealthcare won’t go bankrupt because that risk is spread out across a lot of people.

So let’s say you go work for a company with 100 people. Your company needs to provide insurance to its workers. They go to someone like UnitedHealthcare and say “whatup, add our 100 employees to your risk pool and we’ll pay you”. If your company wanted to be their own insurance and 1 of the 100 employees got really sick, the company would go bankrupt. UnitedHealthcare will also handle negotiating prices with the hospital, figuring out who owes what, sending bills to those people, etc.

But if you’re Amazon with 750K employees, you probably have enough people that you could spread the risk out yourself. Why are you paying UnitedHealthcare to be a part of their risk-pool?

Or let’s say you’re a smaller company with 500 people and they’re all young and healthy. Why are you paying to subsidize the sicker people in UnitedHealthcare’s pool? Maybe it’s worth it to just be the insurance yourself and take the risk.

This is the difference between “Fully-insured” and “Self-insured”. In a fully-insured plan, your company pays the health insurance company to take on the financial risk of employees. In a self-insured plan (sometimes known as a self-funded plan), your company is taking on the financial risk of its employees. So if you suddenly get very sick and your company is on a self-insured plan, the money to take care of you is coming directly out of the company piggy bank.

In a self-insured plan, Amazon is FINANCIALLY at-risk for all of its employees, but Amazon still goes to UnitedHealthcare to do the administrative stuff like dealing with hospitals and figuring out the total bill amounts for each person, which is why you’ll still deal with an insurance company if you’re an employee of Amazon.

Most self-funded plans are in this kind of arrangement. Instead of paying UnitedHealthcare to both provide insurance and do the administrative stuff of an insurance company, Amazon ONLY uses UnitedHealth for the administrative stuff. In this case, Amazon uses UnitedHealth care as a Third-Party Administrator (TPA). Actually if you’re counting they’re technically like a Sixth-Party Administrator but that doesn’t quite roll off the tongue.

But here’s the very, very important difference. Fully-insured plans, where the health insurance company is financially at-risk, are governed by regular laws from the state and federal government. So when the government makes mandates like “all coronavirus testing must be free” or “health plans must cover X procedure”, the health insurance companies have to obey.

THIS IS NOT THE CASE WITH SELF-INSURED PLANS! If your company is taking on the risk of its employees healthcare, it’s governed by a completely different law called ERISA (Employee Retirement and Income Security Act of 1974) which actually takes PRECEDENCE OVER THE STATE LAWS because we love corporations and nothing could possibly go wrong with that plan.

You know this law treated healthcare benefits as an afterthought when it’s not even in the damn name. This was a law designed to make employers have minimum standards for pensions and employee benefits, which now includes healthcare. Ah yes, pensions and healthcare in one bill, I’m sure this will end well.

All of these headlines like “state removes copays for coronavirus testing” actually don’t apply to your employer if they’re under ERISA. I mean that’s alright, it must be a tiny number of people that are under ERISA right?

The Department estimates that in 2016 there were about 2.2 million ERISA-covered group health plans covering approximately 135 million people.

- Department of Labor Report

So just to be clear, there’s an entire parallel healthcare system with different laws that apply to over 1/3rd of the country.

I want to really hammer this point home because it’s important: we cannot reform the healthcare system as long as employers have their own system for healthcare. This is a massive distortion in the industry and it needs to be rectified.

Honestly, maybe if a law has “of 1974” at the end we should probably re-evaluate like, all of it?

An Opportunity To Change Things

My general belief is that there are only two times where the US decides to pass sweeping healthcare reform: during a war or recession. We nearly have both.

This situation has two unique aspects: it’s driven by a healthcare pandemic instead of a financial liquidity crunch. And it’s during an election year. That’s the perfect opportunity to finally make a big change.

The coronavirus is exposing just how fractured and broken this entire healthcare system is and we actually have an opportunity to pass sweeping reform to fix things. Specifically:

1. Patients are worried about their bill. They’re wondering if the coronavirus test and stay is at a hospital that’s in-network or out-of-network and aren’t sure what it’s going to cost. This is causing delays in care, general unease, and confusion about if it’s “worth” getting tested. We need a system that has transparent, single pricing for each procedure/test/service at a given location. And get out of here with this “in-network hospital but actually the doctor is out-of-network” shit. None of that.

2. The entire insurance and payment landscape is a mess because there are so many parallel systems and a Gordian Knot of legislation has made it impossible to actually pass sweeping changes. We need laws to apply to every form of health coverage at once, no loopholes or safe havens. Employers should be removed from the health coverage process completely, and DEFINITELY not be able to supersede the state laws.

3. We need to stop clinging to this notion that the most sacred relationship is with “your doctor”. This is a topic for a separate post, but every healthcare debate is about how do we make it so people can keep seeing “their doctor”. BOOOOOOOO - for commodity healthcare services (like getting tested for infectious disease), you should get it literally anywhere - price and access are the only things that matter there.

   

4. For many cases we can assess severity of patients via telemedicine and at-home testing but we’ve been dawdling on figuring out how we should pay for it. Figure it out.

5. The high deductible concept is broken (a bigger topic to tackle in a future newsletter). The deductibles are causing people to avoid seeing a doctor completely and potentially get tested. This concept has always been super dumb because it hopes that patients will become “healthcare shoppers” even though they can’t see any prices. Cool, that makes sense.

Coronavirus is making it so clear just how broken this healthcare system is and I’m hoping this next election cycle will focus on making this the #1 priority to fix, just like the last recession fixed…the financial…system? Uh oh.

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That was Out Of Pocket #3! Hope you enjoyed it, and please do share it/get peeps to sign up here!

*There are actually situations where you can be in a fully insured plan and under ERISA, but that’s getting way into the details.