To fix healthcare, we need to change the rules

I recently saw a news release that proudly proclaimed how a company "saved" more than $1 million in health insurance costs because it switched from a self-funded plan with some large ongoing claims to an individual coverage health reimbursement account (ICHRA). The expectation was that there would be "substantial savings … by transferring the risk of its high utilizers to the much larger individual market." 

An ICHRA provides employees with a stipend to purchase their own health insurance in the individual market. I put "saved" in quote marks because money really was not saved. The costs were actually transferred to others, who either directly or indirectly, bear responsibility for those ongoing claims. Some insurance companies are taking on the risk because the rules allow an employer to move a bad risk in the middle of a large claim to another insurance company on the individual health insurance marketplace. 

Imagine if you could change your homeowner's insurance after your house fire started. Others, those who buy insurance off the individual health insurance market, will indirectly bear the cost of that claim through higher premiums. This is exactly what is wrong with our healthcare system. It is the elephant in the room that nobody is talking about.  

Read more: How to attack the root cause of a broken healthcare system

For many years I have been stating that the No. 1 problem with our healthcare system is its financing system. In reality, the U.S., unlike most other countries, actually has multiple competing financing systems that cause market instability and increases costs. It disrupts people's lives when few high-cost claimants force an entire population of employees to change their insurance without a vote.  

This is not just the difference between picking different insurance companies. It is more like different football leagues that allow teams and participants to play by different rules. For example, college football requires receivers to have just one foot inbounds for a catch, while the NFL stipulates two feet. An NFL team that was allowed to use the college rule obviously would have an advantage that could change the game's outcome. 

In the health insurance game, teams are competing using different rules. This is unlike most other industries. Professional employer organizations aggregate risk into a single pool through associating different companies as do captives. They select who they want in their pool based on risk, often keeping out companies with an average older age or one with ongoing claims. Some brokers have employees fill out risk questionnaires to determine whether they should move to a self-funded or level-funded plan where they can get rewarded by having lower claims. 

Read more: Why price transparency rules won't fix healthcare

However, the small group market, individual health insurance market and health exchanges compete by a different set of rules. They need to take on the risk no matter what a person's health condition is or whether a large claim exists within a group. This is what happened with the employer referenced earlier. The ability to benefit while claims are good, but bail out when things are bad, causes market instability and damages the system as a whole. 

I do not blame an employer for playing by the rules and seeking a more affordable health insurance price. In fact, I would consider it a fiduciary responsibility to their employees. However, transferring the risk onto others shouldn't be celebrated and rewarded as if it were some great feat. Eventually these employees from the above employer will be part of the risk pool that will have to pay for the others who start playing the same game. The games will continue, and consumers will be the pawns in this system. 

The solution to this problem, which could fix healthcare in America, is to have all insurance companies playing the health insurance game by the same rules, which will level the playing field. To do this, we must eliminate alternative "leagues" that leverage bad rules to a competitive advantage at the expense of others in our society.  

Read more: Employer health insurance is a misplaced responsibility

Senators Chip Roy and Ted Cruz introduced the Personalized Care Act to do just that by enabling individual consumers to receive the same tax benefit for purchasing an individual health insurance policy as employers. It has garnered bipartisan support from nearly 75% of members in both parties.

Today employers have different rules when buying insurance. This rule advantage will disappear under this proposed legislation, which Roy says would allow patients to circumvent middlemen and bureaucrats by giving them "the power to make their own healthcare and coverage decisions, ultimately driving up competition to drive down prices."

Michael Cannon, director of health policy studies at the Cato Institute, proposed the same solution and argued in a lengthy article just how the current system drives up costs and is very disruptive to working Americans. 

I have made the case in the past that employers in the health risk business is a misplaced responsibility. They don't mind providing funds, but most of them want to be out of the middle. Solutions are now on the table to start fixing healthcare, which will allow employers to stop perpetuating a broken system and start learning about the reasonable changes being proposed in Washington. Employers have the power to make a difference, but they first must act.