How to attack the root cause of a broken healthcare system

More than half of Americans have reported medical debt of some kind, lamenting that it affects other financial goals. As a result, many are delaying care. So it's not surprising that employers, with the guidance and support of their benefit brokers, have been trying virtually every trick in the book to control costs — with little to no avail. 

Some will claim that they have slayed this high-cost dragon, but I would argue that they have not, because most cost-savings solutions are only treating symptoms and not the disease. Individual short-term wins at controlling costs do not have any impact on the system as a whole, leaving the majority of Americans struggling.

There is one solution, however, that is different, because it attacks the root cause of the inflationary aspects of health insurance and the healthcare system. The individual coverage health reimbursement account (ICHRA), a tax law passed in 2020, shifts the purchasing power from employers to tens of millions of consumers in the health insurance purchasing process. 

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Rather than purchase health insurance for their employee population, employers can now give employees the same money, and they can purchase the insurance they want. It is unlike almost all the other cost-savings strategies that I have seen that try to reduce costs. Through consumer empowerment, ICHRAs attack how healthcare is financed. Most others try to control either healthcare utilization or fees. Without addressing the root cause, the problems will continue to emerge in other places, need I say, like some virus.

I have written in the past that most industry insiders would claim that the reason health insurance is so expensive is because the cost of healthcare is expensive. This core belief has them deploying programs for employers that attempt to drive down costs at the healthcare provider side. I disagree with this core belief. The reason healthcare is so expensive is because of our financing system. Easy access to capital through employers, who also purchase insurance for employees, drives up the costs. Similar to college education and home costs, easy access to capital drives the underlying market for the product or service. 

If you look at college education, we loan 18-years-olds, who often have no job and little money, as much as $50,000 per year with no guarantee of payment. Most of them have no idea what this debt looks like. "Everybody is taking loans, so why not me?" they surmise. According to an analysis by My eLearing World, college costs have ballooned by multiple times the rate of inflation for the past five decades.

The housing crisis and crash of 2008 had similar core characteristics. In prior years, the U.S. made it easier and easier to obtain a mortgage. According to Wharton's Susan Watcher, "we had a trillion dollars more coming into the mortgage market in 2004, 2005 and 2006. That's $3 trillion going into mortgages that did not exist before."

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A large industry has grown up around health insurance to control costs and improve clinical outcomes. In the '80s HMOs were born to drive consumers through a primary care physician. In the past decade, wellness programs entered the employer market, but their return on investment is highly debated. More recently, referenced-based pricing programs that shadow Medicare reimbursement schedules have hit the market. 

All sorts of alternate vehicles have been used from self-funding, captives and PEOs, while level-funded plans are being implemented by smaller and smaller employers. The one thing all these programs have in common is they treat the symptoms. In all cases, the employer is choosing the insurance program and controlling the majority of the funds used to purchase insurance. In all cases, the employer is still making the insurance purchase for all employees. 

Saving some money in the short term can happen using these methods, but there is no statistically valid data that would show there is any long-term impact. Any risk can run better for a few years until they get a bad break. While admittedly all these programs are necessary without other options, they are not the long-term solution for a society that continues to suffer because of a broken system. If squeezing costs down for one individual or employer increases it somewhere else, then it isn't a societal solution. 

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ICHRAs actually the next step of Obamacare, which is a "compromise" position between those supporting the current system and those who want a single-payer financing system. This is similar to the Bismarck System used in many other countries, which is that everyone must have insurance and the underlying healthcare is delivered through private markets. The individual is always the buyer, creating a true consumer market. If an employee is working, employers may give him or her money to make the purchase, as is the case with an ICHRA. If they are less fortunate, the government may provide funding much like the subsidy program under Obamacare. Either way, it is consumer choice. 

The last step to fixing this problem is eliminating the employer's choice as to whether they provide this tax break for the purchase of an individual insurance product. Why should anyone need an employer's permission to get a tax break for health insurance? Congress needs to act and move beyond just an ICHRA by extending the tax break to anyone who buys health insurance, whether they are working or not.