The Cruz-Sanders Debate: Possibly Something

1.  Towards Non-Employer-Based Plans

 

Is there anything that currently exists that might provide a basis for non-employment-based group plans?

 

Yes.  Under the Employee Retirement Income Security Act of 1974 ("ERISA")) (which also covers "welfare benefits," like health insurance), there exist a few things that might be a basis for these plans:

 

1)  Multi-employer Plans: these are Union Plans which cover employees within an industry, who may move around between employers within that industry while keeping benefits.

 

2)  Multi-employer Welfare Arrangements ("MEWAS"): these are Non-union Plans ("Typically, a MEWA will involve employers who are members of a professional, trade or business association that offers as a member service medical coverage to association members.") that cover employees of various employers not subject to a collective bargaining agreement,  One particular type of a MEWA is a Professional Employer Association ("PEO") (one example is Insperity, whose slogan offered "big company benefits').

 

MEWAs that are fully insured can preempt state insurance law like other ERISA plans, where ones that are not fully-insured may not, due to 1983 amendments to ERISA which put heavy record keeping and reporting requirements on MEWAs (such as maintaining and filing form 5500). 

 

It may be somewhat surprising, but there are unions that represent Independent Contractors, such unions generally being referred to as "Guilds" (see, e.g., The Screen Actor's Guild-AFTRA and the Writer's Guild of America).  These unions are heavily regulated due to anti-trust concerns.

 

2.  The Advantages of Self-Insured ERISA Plans

 

There are a number of advantages to self-insured ERISA Plans:

 

1)  ERISA Preemption and Plan Design: since they preempt state insurance law, they do not have to offer the "bells and whistles" required by the various state insurance laws (and raise the cost of coverage), they cover things of interest and utility to that population (For example, the WGA might not cover elective plastic surgery, SAG [terrible pun!] might.)  This might be a more consumer friendly (and workable)approach to the GOP trope of "buying insurance across state lines."

 

2) Portability: Plans of these kinds are designed for participants who move between employers or, in the case of Guilds, who are Independent Contractors.  They are intended to be portable. 

 

3) Stated Rights:  Participants and Beneficiaries have stated rights under the Plan  and the Summary Plan Description ("SPD"). 

 

4) Less Divided Loyalties:  As opposed to single-employer plans, the fiduciaries of the Plan do not have a divided loyalty between the participants and beneficiaries of the Plan and the owners of the business.  (A business may terminate its ERISA Welfare Benefit Plan, since these benefits do not "vest" in the same way that pension benefits do,  with proper notice, in the course of business.)  

 

 

Given this, and given the fact that group insurance gives individuals acting collectively more market power, it would seem to make sense to modify existing law (notably by relaxing the somewhat draconian record keeping and reporting requirements for MEWAs) to allow more people to be covered by these types of Plans.

 

3.  The Problems with Implementing Such a System and Some Alternatives

 

This would not be a panacea (there is, in my opinion, no "THE solution" to healthcare reform, there are, instead,  "THESE solutions").

 

People would have to comply with their Plans, not always an easy task with Guild Plans.  For example, Angela Lansbury was famous for employing older or ill members of the Screen Actors' Guild on Murder She Wrote, so they could keep their health benefits by working enough hours in the profession.

 

The problem of accruing enough money to self-insure the Plans is a difficult one.  Ronald Reagan, when he was the President of the Screen Actors' Guild used a settlement with the studios over residuals on films sold to TV to initially fund the health plan in 1959-'60.

 

Co-ops under the exchanges mostly all failed,  Although they were more like mutualized insurance companies than self-insured ERISA Plans, that demonstrates the difficulty of figuring out how to fund new models in healthcare.  The loan mechanism used to finance these ventures did not seem to work.

 

Finally, as one gentleman posted to Twitter in response to an earlier version of this essay:

 

"First, we're not going to be forming lots of new unions in the current political situation, and pipe   dreams aren't useful policy proposals.  Second, it's illegal to unionize independent contractors. The unions the article mentions were grandfathered in when the law was changed. But unless the law gets changed again, it's not merely a pointless proposal it's an outright impossible one. And if anyone thinks that federal labor law is going to get union-friendly any time soon, they're addled and not worth listening to." 

 

Obviously, as recounted above, the poster's second point is completely off-point, because of the existence of non-union MEWAs.  However his first point does have some (limited) merit.  Federal Labor Law, at this point, is not terribly pro-union.  But there are some notable weaknesses to this argument as well.  The obvious one is that non-employment-based group plans already  exist in the form of MEWAs.  A less obvious issue is that part of what the GOP has proposed is to allow small businesses to band together in "Association Health Plans."

 

However, a couple of approaches come to mind.

 

Medicaid, expanded under PPACA, is a very expensive proposition for the states, even for those states with austere programs that cover little more than the Federally mandated services. 

 

What if Medicaid were privatized into these Plans with a certain number of Medicaid clients assigned to these Plans and funded at, say, 2008 State and Federal levels for the given state?  If the Plan can ensure patient compliance and can reduce costs, any savings could then be applied to the general operations of the Plans. 

 

Participants and beneficiaries of the Plans should be able to pay for their coverage in pre-tax dollars as should employers who wished to do so. 

 

While this would be a significant loss to the public fisc, it would be considerably less expensive (and based on experience with Bismarck Systems, more clinically effective) than moving to a single-payer system like Canadian Medicare. 

 

4.  Conclusion

 

Another (more philosophical) argument for this approach is that it is built around private, not-for-profit organizations (run in accordance  with government law and regulation) instead of being government programs. 

 

They have a legitimacy from consisting of your neighbors with whom you are trying to accomplish something valuable instead of being a program run by a far-away government bureaucracy.  This goes back to the tradition noted in de Tocqueville's Democracy in America of using benevolent, eleemosynary or fraternal organizations to improve public life, something we are losing to our detriment in this day of "bowling alone"

 

This kind of program (and an expanded use of benevolent, fraternal and eleemosynary organizations generally) could form a bulwark and  bastion to the Federal, state and local governments and to markets, as thinkers as diverse as Drucker, Bennett & Lotus and Williamson have discussed.   

Comments

Utpal Patel Added Feb 10, 2017 - 4:00pm
I have no idea what something you’re referring to.  As Cruz pointed out, Obamacare has nothing to do with healthcare or insurance, it’s simply a means to tax the rich for the benefit of the poor.  The only something that should be considered is for government to get the heck out of the way and let the free market do its magic. Scratch that, let the government cover those that cannot cover themselves, but don’t charge everyone more than the market price for their insurance so that government can give it away to more people for free. 
Thomas Napers Added Feb 11, 2017 - 3:54am
There are two big reasons most get their insurance through their employer. 1)  Government mandates employers provide it to full time employees. 2) Any benefit provided by employers to employees is tax free.  In other words, we could buy the insurance ourselves but we would have to do so with our after-tax income.
John Minehan Added Feb 11, 2017 - 7:19am
"There are two big reasons most get their insurance through their employer. 1)  Government mandates employers provide it to full time employees. 2) Any benefit provided by employers to employees is tax free.  In other words, we could buy the insurance ourselves but we would have to do so with our after-tax income."
 
The crux of my idea is to change that, in particular by: 1) changing existing law to allow for expanded use of existing non-employer-based groups; and 2) changing law to allow individuals to pay for benefits in pre-tax dollars as well.  
John Minehan Added Feb 11, 2017 - 7:25am
"The only something that should be considered is for government to get the heck out of the way and let the free market do its magic. Scratch that, let the government cover those that cannot cover themselves, but don’t charge everyone more than the market."
 
But what market?   Evidence suggests it works best as a market competing group plans.
 
If that is the case, the government needs to amend existing laws to allow greater access to group health insurance in a time of a changing organization of work (the "Gig Economy").   
Mathew Marmen Added Feb 11, 2017 - 3:09pm
I agree with Utpal.  The most cost effective way for people to purchase any product or service is to allow the free market to work its magic.  In other words, perhaps your ideas are good, perhaps they suck, the point is that you don’t have to design anything, simply let the free market figure it out for you.  Among the many nasty details of Obamacare, perhaps the worst is the fact government mandates what type of insurance we must buy.  This caused millions of people who had plans they liked to not be able to keep them as they were deemed substandard.  Thankfully, all those nasty rules and regulations can be easily erased with Trump in the White House.  Once this happens, I think you’ll find more and more people purchase high-deductible catastrophic-only coverage. 
 
That really is the purpose of insurance, if the bills exceed what you can afford, insurance is used.  But like your car and all the minor things that go wrong, you pay for that stuff out of pocket until you crash your car.   
John Minehan Added Feb 11, 2017 - 3:34pm
"But like your car and all the minor things that go wrong, you pay for that stuff out of pocket until you crash your car."
 
Two things to consider: 1) Group auto insurance (like USAA) is vastly cheaper than the individual market; and 2) with people holding on to their cars longer in a weak economy and the costs of repairs, after-market warranties are a growing niche in car insurance.
 
"Oh! That proves my point, the market creates new products!"
 
Not to easily in a market  as regulated as health insurance or medicine.   You have to create the structure before anyone will try it.    

 
Cuckoo o'clock Added Feb 11, 2017 - 8:52pm
I have no idea why anyone would think: oh, abolish annual and lifetime spending limits on health insurance? what a terrible idea! Yet many do!! wake up people! obamacare will keep you from financial ruin. you think you'll never get sick? your brain must be on another planet! here in massachusetts, i don't have to worry because we already don't have annual and lifetime caps - but for all of your non-mass residents, wake up!!
John Minehan Added Feb 11, 2017 - 10:06pm
"I have no idea why anyone would think: oh, abolish annual and lifetime spending limits on health insurance?"
 
Maybe because you don't want one or two people to sink a company insuring thousands?
The Other Side Added Feb 12, 2017 - 2:56am
I think if, as part of standard high school or college curriculum, students were required to participate in meditation and self-awareness, it would help. Understanding that all is impermanent would go a long ways towards calming down the foaming at the mouth health care fanatics who want to keep grammy alive after her second hip surgery and liver transplant.
 
We're not intended to live forever, and indeed we don't. Deal with it.
Utpal Patel Added Feb 12, 2017 - 7:44am
Not to easily in a market  as regulated as health insurance or medicine.
 
Didn’t Ted Cruz essentially make the argument that it should be deregulated?  Just think of what you’re saying, the government can’t reform healthcare because of government imposed regulations.
Utpal Patel Added Feb 12, 2017 - 7:44am
"Not to easily in a market  as regulated as health insurance or medicine."
 
Didn’t Ted Cruz essentially make the argument that it should be deregulated?  Just think of what you’re saying, the government can’t reform healthcare because of government imposed regulations.
John Minehan Added Feb 12, 2017 - 8:10am
"Didn’t Ted Cruz essentially make the argument that it should be deregulated?  Just think of what you’re saying, the government can’t reform healthcare because of government imposed regulations."
 
I think Cruz (and everyone else) is starting to see that PPACA blew a big hole in the individual health insurance market nationally by turning every state into a guaranteed issue state at the stroke of a pen. 
 
Additionally, it savaged the small group market by letting employers (good people all for trying to do this) drop insurance for their employees that was a burden to them (outside the core of their business).
 
It makes no sense, at that point, to say, "OK we screwed this up enough, make do."
 
Don't create a new government program, remove legal and regulatory barriers to entry and facilitate better approaches from some things that exist now.   
John Minehan Added Feb 12, 2017 - 8:14am
"Understanding that all is impermanent would go a long ways towards calming down the foaming at the mouth health care fanatics who want to keep grammy alive after her second hip surgery and liver transplant."
 
I think part of the issue here is "Legitimacy."
 
the Big Insurance Company or the Government (Medicare, Medicaid, etc.) just don't have enough legitimacy to dictate (by denying reimbursement) who will live and who will die. 
 
However, if you are part of a Plan and have input into what is covered and what isn't and you share the benefits and burdens of the Plan with other people . . . then you have that kind of Legitimacy, 
Dino Manalis Added Feb 12, 2017 - 11:26am
Market reforms are needed to make health insurance affordable, like buying auto; homeowner's; or life insurance.  It shouldn't be the employer's choice, anyway, it's a personal health choice!
Stephen Hunter Added Feb 12, 2017 - 11:32am
Nice work John in flushing out some facts. Thank goodness that we have Bernie to initiate these discussions. 
It really does boil down to one's opinion on; "Is Healthcare a right or a privilege one earns? 
And if you look at the life span data by region, the poorer areas have a lower life span NOW. So I guess that as it stands at this moment in time, Healthcare is a privilege that you earn. 
John Minehan Added Feb 12, 2017 - 11:56am
"Market reforms are needed to make health insurance affordable, like buying auto; homeowner's; or life insurance.  It shouldn't be the employer's choice, anyway, it's a personal health choice!"
 
I tend to agree.  in a real sense we need better buyers, healthcare is a tangential issue for a car company (to pick one example) or the federal government but isn't so tangential for a family or an individual. 
 
On the other hand, insurance works better with group buying power.  Your talk about auto insurance but remember, group auto insurance from USAA is much cheaper than an individual policy thorough one of the national carriers.
 
The government is not in the health care business anymore than the car company is as this indicates from Sec. Gates in 2010:
 
And then, no matter what base or post or port I visit in the United States, I hear a very different story from every soldier, sailor, Marine and airman that I talk to. And I hear an especially different story from their spouses. And let me tell you, the spouses are never afraid to speak up. (Laughter.)
And it is a concern to me, because I hear a lot of complaints about TRICARE. I hear about long waiting lines; I hear about bureaucracy; I hear about having to travel significant distances to get appointments with specialists; the difficulty of getting appointments, and so on.
By the same token, I would tell you health care is eating the Department alive. We will spend $47 billion on health care in the Department of Defense in FY '10.


So, it appears that the best approach might be to reform existing laws to form non-employer based groups.
 
PPACA blew a big hole in existing individual health insurance markets by making the whole country guaranteed issue and in the small group market by creating the Exchanges and  expanded Medicaid, which encouraged a lot of small companies to drop insurance plans.
 
Because of this, it is not enough to just repeal PPACA. 
   
John Minehan Added Feb 12, 2017 - 12:09pm
"It really does boil down to one's opinion on; "Is Healthcare a right or a privilege one earns?"
 
As always, a very perceptive comment.
 
And, as always, let me offer a slightly different take: Healthcare is neither a "right" nor a "privilege:" developing a system of public health is a duty of all governments.
 
In advanced industrial societies that duty probably goes beyond making a rule that people always defecate down stream of where you draw your water. 
 
The government does not need to provide care, you don't need  a British NHS or a Canadian Medicare, BUT there probably have to be legal structures available to let people come together to get care. (And laws that restrict such relationships should be amended or repealed.)
 
The left doesn't like the Citizens United case . . . but it should! 
 
If people can come together to advance a political cause as a group embodying their individual rights, then there should also be a right to purchase care as a group from a doctor or group of doctors (or institutional providers, as the case may be).
 
 
Syte Reitz Added Feb 12, 2017 - 4:18pm
Despite the fact that we would love to live in a Utopia where all the basic needs of all people were provided, we don't.
We have limited $$$ with which to help those in need, so we cannot provide everything.  

My biggest struggle has been to understand the priorities that people fight over--
Demanding free birth control and free abortion when Tylenol and fertility treatments are not free?
Demanding free health insurance when food and housing are not free?


In our desire to help everyone, defining essentials and determining who pays for them might be our most difficult task.


If we took the 8 richest men who own half the wealth in the world, and distributed that wealth to the poorer half of the world, each poor person would get $119 apiece.  Those employed by the 8 rich people would no longer have jobs, and the next year, we would not have 8 rich people to fleece.
So, demanding that all governments provide all sorts of wonderful services for all people is akin to demanding that everyone has a fairy godmother.

All our well-meaning philosophers need to check whether there is enough $$$ to accomplish their stated dreams.  
 
John Minehan Added Feb 12, 2017 - 4:50pm
"Demanding free health insurance when food and housing are not free?"
Cost of medical care is relatively higher than the cost of food or even housing and, in some cases, health care is literally a life or death issue.
 
In my opinion, a lot of the reason that health care costs so much is that it is over-regulated. 
 
But, on the other hand, if you had structures in place to do non-employment based groups you could also level the playing field between participants and beneficiaries and payers and lower those costs, somewhat on the model of Sam's Club or USAA.
 
Stephen Hunter Added Feb 12, 2017 - 5:10pm
I agree John, one should be able to buy any level of HC that they want to. That is one thing that should be allowed in Canada. However we are free as a bird to fly to the Mayo clinic or wherever we want)
However layered into that I agree there should be a level of HC purchased with the one buyer with the most buying power- and that happens to be the Federal Gov't. 
John Minehan Added Feb 12, 2017 - 5:36pm
"However layered into that I agree there should be a level of HC purchased with the one buyer with the most buying power- and that happens to be the Federal Gov't."
 
I think you wind up limited by the fact that HC is NOT the Federal gov't's "core business," as Sec Gates was talking about in 2010.  
Ari Silverstein Added Feb 13, 2017 - 8:44am
Regulations certainly play a part in why healthcare is so expensive, but one could impose regulations that drive costs down, just as easily as we do that drive costs up. 
 
Another reason healthcare is expensive is because of technological advancement.  From drugs which can keep HIV from being deadly to neonatal intensive care units that resemble NASA, progress is can be expensive.
 
Another reason healthcare is expensive is because the person paying for it is often a third party source such as Social Security or Medicaid.  How many more bananas would you eat if bananas were free? 
John Minehan Added Feb 13, 2017 - 3:02pm
"Regulations certainly play a part in why healthcare is so expensive, but one could impose regulations that drive costs down, just as easily as we do that drive costs up."
 
That is my basic point, you need a solid regulatory and legal foundation to do something like this because health care is so regulated.
 
Back in the 1980s, legislation was passed by Congress to save S&Ls (the Garn-St. Germaine Depository Institutions Act) by deregulating them.  The problem was S&Ls were really a creature of statute. They existed based on having a legally created niche that had ceased to exist and having examiners come in and see which ones could survive as savings banks would have been a better idea (which is what happened due to the S&L crisis.) 
 
Self-insured ERISA Plans (like GE, Krogers & Whole Foods) tends to work well both clinically and economically.  However, they arise out of express contract based on a "complex and reticulated" statute, NOT out of pure market exchange.  Expanding these Plans requires some legal and regulatory crafting, some de-regulation and some new approaches.
 
"Another reason healthcare is expensive is because the person paying for it is often a third party source such as Social Security or Medicaid.  How many more bananas would you eat if bananas were free?"
 
Hence the idea of expanding the use of Health Savings Accounts ("HSAs") to deal with routine care ("rule out strep" or "stitch up the wound") and creating Plans that people participate in to give them Taleb's "Skin in the Game."
 
 
  
Utpal Patel Added Feb 13, 2017 - 8:53pm
Cruz and the rest of the Republican Party new before the bill was passed that it wouldn’t work.  Just think of how it was pitched, if you like your plan you can keep your plan, the uninsured would receive coverage regardless of preexisting conditions and the whole thing would be revenue neutral.  These promises were simply impossible to keep. 
 
To fix the many wrongs of Obamacare Trump should pass one healthcare law and that’s a law stating that that catastrophic healthcare plans are allowable and those plans would not have to be purchased in an Obamacare exchange.  Everyone in the individual market that pays out of pocket would surely choose that over an overpriced Obamacare plan, seeing that Obamacare plans overcharge paying customers for the benefit of non-paying customers. 
Peter Corey Added Feb 15, 2017 - 11:50pm
>Thank goodness that we have Bernie to initiate these discussions. 
 
I don't think so. See below:

http://www.bostonglobe.com/opinion/2017/02/15/what-obamacare-drafters-could-have-learned-from-hairdresser/4qQLCwTHsrqCo8uIebuKHK/story.html
 
"The subject was the burden imposed by the Affordable Care Act on small businesses — especially those with fewer than 50 employees, the threshold at which the law’s employer mandate kicks in. Audience member LaRonda Hunter, the owner of five hair salons in Forth Worth, posed a question [to Bernie Sanders]:
 
'We employ between 45 and 48 employees,' she began, explaining that she wanted to open more salons and employ more people. 'However, under Obamacare, I am restricted, because it requires me to furnish health insurance if I employ more than 50 people. Unfortunately, the profit margin in my industry is very thin, and I’m not a wealthy person. . . . My question to you, Senator Sanders, is how do I grow my business? How do I employ more Americans without either raising the prices to my customers or lowering wages to my employees?'
 
Here was a real-world example of Obamacare’s impact. By compelling companies with 50 or more workers to offer health insurance to everyone they employ, the law creates a powerful disincentive for business owners to expand beyond 49 employees. A business owner like Hunter faces an impossible dilemma: Either give up on growing her enterprise, or try to make ends meet by charging customers more and paying workers less.
 
The onerous employer mandate is one of the Affordable Care Act’s worst defects. The Obama administration repeatedly delayed its effective date; Republicans want it repealed altogether. Sanders must know Hunter’s predicament is not uncommon, and the CNN debate gave him the chance to explain how Democrats propose to address it. But his explanation amounted to: Tough.
 
'Let me give you an answer you will not be happy with,' Sanders said. 'I think that for businesses that employ 50 people or more, given the nature of our dysfunctional health care system right now, where most people do get their health insurance through the places that they work, I’m sorry, I think that in America today, everybody should have health care. And if you have more than 50 people, you know what? I’m afraid to tell you, but I think you will have to provide health insurance.'
 
Hunter tried again: 'How do I do that without raising my prices to my customers or lowering wages to my employees?' Sanders: 'I certainly don’t know about hair salons in Fort Worth. But I do believe, to be honest with you, that if you have more than 50 people, yes, you should be providing health insurance.'"
 
* * * 
 
In other words, Mr. or Ms. Employer, TOUGH.
 
And not only TOUGH on the employer, but TOUGH on the potential new employees who could have been hired had their potential employer not had precious capital drained away from her by government.
John Minehan Added Feb 16, 2017 - 5:24pm
Which is why there should be employer-based group insurance, such as MEWAs and PEOs (which are a form of MEWA), in my opinion.  
John Minehan Added Feb 27, 2017 - 1:23pm
Sorry!  "Which is why there should be NON-employer-based group insurance, such as MEWAs and PEOs (which are a form of MEWA), in my opinion."   
John Minehan Added Mar 28, 2017 - 3:03pm
This is an approach to what I am talking about.