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ERISA
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In 1963 the Studebaker automobile company went bankrupt, leaving half its employees without anyone to pay the promised pension benefits. Congress soon resolved such things should never occur again and convened a Congressional task force to devise a law which would make employee benefits survive, even after the parent company went under. Negotiations took almost ten years and were said to craft a law that could not be amended, thus assuring employees their pensions would be independent of the fortunes of the company itself. Somewhere near the end of this long process, someone asked why it could not extend from pensions to health insurance as well. Almost as an afterthought, health insurance acquired some new features which had never really been considered in the past. ERISA (Employee Retirement Income Security Act) was enacted, signed by President Ford in 1974 and almost immediately began to change the whole discussion of health insurance. The suggestion I would make is that this legislation takes care of interstate health insurance, and seems to have created very little dissension. It might, therefore, contain some features which peacefully solve the same problem of reconciling a mobile and itinerant population with the Tenth Amendment.
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Interstate Commerce Commission Seal
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Because the Constitution provided for only a limited set of powers for the Federal Government, and the Tenth Amendment repeated the point for strong emphasis, every power not expressly given to the Federal, and not expressly forbidden to the States, was to be a power of the States. And that included health insurance. The Court-packing uproar of 1937 considerably strengthened the power of the Federal Government to extend its ability to regulate commerce. Indeed, advocates of this movement have been at pains to describe the Interstate Commerce Clause as merely "the Commerce Clause", as if to pretend it had never said anything else. However, the authors of ERISA (the Employee Retirement Insurance Security Act) expressly included pre-emption clauses which rather unnecessarily provide that Federal Law and Regulation should supersede state powers in that area.
There was a conflict here, in which ERISA apparently had to behave as though the Tenth Amendment did not exist. The conflict was never resolved by the Supreme Court, probably because it was so evident that business was delighted to have a thousand mandated benefits in state laws undermined by Federal pre-emptions. Concerted efforts by labor lobbyists had succeeded in putting everything they could imagine into health benefits packages, which were then exempted from income tax. Health insurance became "first dollar coverage", greatly increasing its scope. Because it included many low-cost items, its insurance administrative costs were unduly high; and because it included birth control, it was even a welcome respite for the Court system from the excited lobbyists on both sides of that inflammable issue.
Unfortunately, much of the behavior in the health insurance world is political rather than economic. Consequently, big businesses were mainly interested in is having one fifty-state insurance umbrella rather than in winning arguments in public. The use of federal regulation allowed them to have nation-wide insurance with uniform benefits, and it probably allowed them a wider set of insurance choices at lower prices. Moreover, it helped the Human Resources departments of the major corporations to have their way unhampered, and get rid of such nuisances as obstetrics for male employees. In the original negotiations, labor unions were bought off by allowing them to run their own "independent" health plans, but eventually, they went back to searching law books for loopholes. And the conflict between the "supremacy clause" and the Tenth Amendment was certainly a logical one to pursue because one mandated Federal regulation, and the other precluded it. Twenty-six states place taxes on provider institutions and most of them use the tax money to draw down federal matching money at anywhere from 1:1 to 1:4 levels, which is then returned to hospitals as "disproportionate share hospital" reimbursement. Other states use tax incentives to force third-party administrators to restructure benefits in a way that mirrors regulation.
By far the commonest set of dodges take advantage of judicial opinions that the states could regulate what was insurance, whereas the Federal regulation mostly applied to "self-insurance". The feeble distinction was whether lump sums were paid to an insurance company to distribute, or whether the parent employer distributed the money directly. By extension of this principle, reinsurance was taxed, payments to hospitals were federally regulated. The principle of risk-sharing was dragged into discussions which relegate state regulation of stop-loss arrangements, especially those with low attachment points, as indistinguishable from pure insurance; while self-insurance and experience rating are state regulated. What to do about "pure" insurance with a high deductible is less clear. (This may be one subtle reason why first-dollar coverage, in some ways the least desirable insurance form, is treated as a default, while Catastrophic coverage, which ought to be the basic protection, is relegated to a status bordering on outlandish. By treating huge costs as the responsibility of local charity, this arrangement tends to make them remain so.) That is, by inserting a fictitious intermediary, the regulation supposedly changes from federal to state. The model for this would seem to be one-bank holding companies. Consequently, trial lawyers have taken to suing the fiduciaries of trustees, leading to the comment that "You would have to be a lunatic to agree to be a fiduciary." The longer all of this goes on, the more tangled it will probably become, so the Supreme Court is probably under heavy pressure to pick a suitable case, and decide it.
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Affordable Care Act
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Shortly after the Affordable Care Act was passed, big business employers were given a one-year deferral of mandated coverage. The tangle with insurance exchanges for small employers (fewer than 50 employees) does somewhat justify getting that part straightened out, before taking on the much larger issue of employees in the large groups. But there is probably much more to it than that since large employers have the ability to hire assistance in the technicalities, and could probably quickly do many things small employers could not contemplate. Since it was elected to do the more difficult job first, this explanation is unconvincing. We are left uncertain: whether a big business has walked out, is bluffing its intention to walk out later, or has some other use for the extra delay. A secret Republican promise to offer more favorable terms, in exchange for help in the 2014 elections, would probably not be difficult to obtain. Meanwhile, uncertainty whether state mandates for low-cost medical items apply or not hangs over the surprisingly high deductibles being placed on insurance plans in the exchanges. For Catholic voters, it is critical whether they will be compelled to include birth control pills; for Health Savings Accounts, eliminating low-cost state-mandated benefits is important for high-deductibles to work. And for Obamacare, if state-mandated low-cost issues must be covered, it is hard to see how high deductible policies could work, how alternative co-payments can be avoided, and therefore how lowered costs can be imagined.
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Henry Kaiser
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Pre-empting state-mandated benefits is not the only issue that could be used for trade. Everybody has been curiously silent about the egregious unfairness of the Henry Kaiser tax exemption for employee benefits, with no deduction at all for the self-employed. The solution seems quite simple: preserve tax neutrality by lowering the tax exemption for employees by about a quarter, but extend the result to everyone. There are so many more employees than self-employed, that the exemption for self-employed could be paid for with quite a small downward adjustment of the exemption for employees. For this tax inequity to persist for seventy years, somebody is being pretty stubborn.
Note: Later in this book we discuss investment returns, and ERISA regulates huge dollar amounts of employee pensions, many of which are in trouble because they are underfunded. Most of the investment is subject to 1-2% fees of one sort or another, which would disappear if the investment switched to index fund investment without fees of more than 0.25%. Rather than let the City of Detroit, or the States of New Jersey and Rhode Island, go bankrupt because of unfunded pensions, it would seem worth-while for some politician to sweep out the investment advisors and purchase index funds. If it seems like a lot of trouble, just imagine what might happen if your political opponent in the next election, suggested it first.
Short Summary for Book Jacket:
This book presents a physician's viewpoint on a specific healthcare Reform. Much of the hidden economics of healthcare, a major topic of the first book, was omitted. In its place is an expanded description of Health Savings Accounts as they stand right now -- a dual provision linking medical advances with the expanding need for retirement income, the need for which is mainly the consequence of better health care. It is put to the public in two different ways: take care of your health or you won't get much retirement. Alternatively, invest your healthcare savings wisely, or you will never be able to afford retirement.
Most people don't really like to save, they like to spend. And to a degree, what you save reduces the income of those who need to help you. They aren't evil, but they will take your money if you offer it to them. Because of these two obstacles, I have come to feel spreading present Health Savings Accounts is all that can be accomplished in a decade. But improving the Account system could probably generate much more savings than the present one. Having some idea of where it all would lead, would greatly enhance the incentive to do some things the public ought to do, anyway. So a second section is added, for future generations to modify its future if they please, and if the whims of circumstance permit.
Once again, I express my gratitude to John McClaughry, the former Republican leader of the Vermont legislature and Senior Policy Adviser in the Reagan White House, for suggesting basic features. The flaws in such future features are all my own.
But remember, the classical form only needs a little tweaking. All you have to do is buy it and urge Congress to tweak its tax exemption to be level with every other plan. Removing small mandated benefits (which reduce the market power of high deductibles) might also help.
By far the hardest part of healthcare to find a way to pay for, is the newborn child. There is no opportunity for pre-funding, the cost is considerable, and the parents are in marginal financial shape, themselves. No one has proposed a satisfactory solution, except those who say the cost is negligible, which is not true at all. Accordingly, I have proposed we take advantage of another feature of increasing longevity.
The grandparents, who were little more than a theory in 1900, have aged to the point where they often overlap by a generation. I propose we overfund Medicare at birth so that it grows to the size of a considerable inheritance at death. We can then take advantage of the extra 21 years of longevity thus included in the family. Thus an extra $28,000 bequest can be generated from investment income and put in trust for a grandchild as a dwindling asset, sufficient to cover the first 21 years of life. This is the present limit of the statute of perpetuities, and need not disturb it.
Although the details are complex, they follow the pattern of the death benefit, and will not be repeated here, The estimated extra cost is $42 per child, which seems to bring it within the boundaries of what the average person can afford, and/or the government could subsidize, with a considerable margin for error.
Although it is possible to imagine many extensions of the ideas in this short paper, I would caution against going too far without some experience to support it. In fact, what is proposed here, should e tested in an incremental manner.
The first graph is a family of curves, showing what we are already spending per person for healthcare, compared with the revenue could be projected by investing the same amounts at several rates, and not spending any of it for health. The graph shows the revenue as it enters the system, at various interest rates, from birth to age 90. It's unrealistic because it assumes no cost for health, all of the money going for retirement income. But it's the theoretical maximum to be achievable for retirement alone at present, at the longevity predicted, by the time you reach it. It's pretty convincing we have enough money for retirement if we don't get sick. The second graph chooses 6.5% compounded quarterly as the present achievable maximum net after inflation, imagined as a more realistic maximum, and subtracts present levels of health expenditure at various ages, produced by the Secretary of Health. The third comparison is the recirculation of a $400 subsidy at birth, assuming the Affordable Care Act or its replacement is cost-neutral from age 25 to 65, adding the present level of withholding tax for Medicare during the working years, and no premiums thereafter. All of those graphs are designed to show what we have to work with, under various assumptions, all of them including the present cost of Medicare. The final two graphs show the addition of the first and last year of life subsidies at $400 at birth compounded at 6.5%, with and without current levels of spending (the addition of 3% revenue inflation is in theory offset by a 3% inflation of costs).
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George Ross Fisher III, M.D.
829 Spruce Street., Suite 308
Philadelphia, Pa 19107
Dear George:
I have just had the pleasure of reading the nice write-up of Harry Schwartz on pp 46 of Private Practice for May 1983. Dr. Schwartz is quite fulsome in his praise of a person whose merits I have known for quite a while back.
In looking through my 82-83 Directory of PMS officers an staff I find your name under AMA Delegate,, PMSLIC TAsk Force, Council on Medical Economics and I am sure there must be a lot of other assignments in organized medicine. I have always been impressed by your caim and Thoughtful approach to things.
Schwartz's article brought back some memories of Officer's Conference planning sessions and presentations where we sat together. Your panel on Medical School Admission comes to mind. Because we had good staff work at 20 Erford Road we got people like Harry Schwartz on the program. The Old Secretary -Editors Conference was first attended by me in 1948, the Centennial Year of MSSP?PMS and I have always found it a very rewarding meeting. I have missed very few down thru the years.
At the Pa Bl Sh Corporation meeting our encounter was too brief because Scotty Donaldson & Don Cooper were monopolizing my frau. About all I am mixed up in at present is membership on Judicial Council, which never meets. We are really 'farmed -out' to pasture in that assignment. The Blue Shield Corporation membership enables me to serve on Medical Review Committee where we deal mainly with cheaters in a kind of Peer Review way.
My health at age 70 is gradually deteriorating. Had another spontaneous collapse of an osteoporotic lumbar vertebra in January an am only now forcing myself into more activity. I put an 'ad' in the local paper this past week announcing that my office is open for business as it has been since Nov 16, 1946. Dr. Ronald P. Monseart of Geisinger Medical Center gave me a good work up in 1979. HE is in Endocrinology as you may know and Jim Collins urged me to see him down there; his studies included biopsies if iliac crests which were handled improperly in the lab and had to be repeated. My basic problem is nutritional (alcohol) excess) for plus 50 years. Most of what I read on osteoporosis deals with postmenopausal estrogen dose which does not seem very germane.
I note you were born in Erie in 1925. I practiced in Corry, Erie County for 1 yr prior to when a patriotic bug put me in the Army Medical Corps in 1942. Elmer Hess welcomed me into the Erie County Medical Society in 1941.
Anyway George I wanted to say hello. Cannot think of you as Ross somehow. Best regards from Loreen & Myself, Sincerely,
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
