Obamacare is proving to be very effective. Just not for the reasons Obama hoped it would.
There is a revolution taking place among businesses all over the country. Small businesses especially are serving as “laboratories” – experimenting and innovating with new technologies and new processes – and doing away with the rules of arcane institutions that have controlled the health care industry for decades.
These business laboratories have found new freedom through the self-insurance exception in the federal health care law. As a result of this discovery, they are in the early stages of demonstrating how free-market principles can revolutionize health care.
And these businesses laboratories are using health care to transform their own profitability.
In its current form, health care in America is untenable. It makes up 17.5 percent of our nation’s gross domestic product, and it’s expected to reach 23 percent within a decade. Many economists see this as an extinction-level event for job creation. For business owners, health care is one of the biggest expenses on the P&L.
Those companies experimenting with health care and transforming their profitability are having a much better result. How are they doing it, and how can other businesses escape the trap of today’s health care system? For companies that are not self-insured, it requires a few shifts in mindset:
- Mindset Shift #1: Get out of the system. With traditional health insurance, even if you reduce claims and save your insurance company money, you don’t see any benefit.
Traditional insurance companies use “insurance pools” to determine risk and calculate rates. It doesn’t matter if your company is working hard to reduce claims. It doesn’t matter if you have no claims at all. Your employees are mixed together with tens of thousands of other people, and the whole group is priced as one “pool.”
But insurance is not health care and health care is not insurance. A self-insurance plan meets all of the mandates of the ACA, but there are no “pools.” Employers can cut the waste and inefficiencies rampant in today’s system and cover the vast majority of common health services at nominal costs. Combined with stop-loss insurance for accidents, chronic illnesses and complex conditions, your risk declines dramatically and health care expenses plummet.
- Mindset Shift #2. Health care doesn’t have to be expensive. But it gets very expensive if you skimp on care for people who need it the most. Those people may wind up in a hospital, where costs can be 5-30 times higher. Instead, make it free, or almost free, for your employees to access care outside of a hospital. Remove the deductibles, co-pays and even the premiums. This can all be done at about $100 per month, per employee, and puts a company into compliance with Penalty A of the ACA.
Paying for your employees’ basic health care also will help eliminate fraud on workers’ compensation complaints.
- Mindset Shift #3: The Health care system isn’t broken. It works exactly like it should – for massive public health care companies and their shareholders. It just requires really high premium increases year after year. Don’t believe me? Consider this: we hear all the time how badly companies have been hit by Obamacare. It’s killing the bottom line of businesses everywhere. Meanwhile, health insurance, hospital and drug company stock prices have tripled the DIJA and even Google over the past five years. It’s the best sector in the world for investors.
The health care system is working just fine – but it was never meant to work for you and me.
Another example? When hospitals hire a family doctor, they expect to lose $165,000 every year. The cost climbs to $300,000 for every specialist. Why would they do that? Perhaps it’s because having doctors on staff makes it easier to fill beds and direct patients to overpriced hospital services.
By law, insurance companies are required to spend 85 percent of the premiums they collect in the pools on health care – or they have to pay it back. What happens if a public company pays back revenue? This can’t be good for the CEO making
$20 million a year. In fact, paying money back simply isn’t tolerated. It might seem counter-intuitive, but this means that insurance companies benefit from paying higher hospital bills. The incentives are not in our favor.
How can government help? The benefits of self-insurance are plain to see, but there are many who will fight for the status quo. For this health care revolution to take hold, it will have to spill out of the business laboratories and into the mainstream:
- Be wary of incumbents and status quo players. In Arizona, Gov. Doug Ducey has embraced and encouraged disruption that strengthens our economy and improves the business environment, but status quo health care players will lobby for new rules and regulations that snuff out solutions like self-insurance.
- Empower the private sector. Today’s businesses are disrupting entire industries, from the auto and taxi industries to banking and even traditional government domains like space travel. The world’s biggest problems – like cancer and world hunger – will be solved by the free market. Government must turn the private sector loose on the problem of health care in America. Self-insurance is one option, but there are limitless possibilities.
Remove the friction. While rules are necessary in any civilized society, too many rules impair businesses and put a cap on their potential. Self-insurance is managed through a national standard, but health care incumbents in many states are trying to change that
- Their proposals would require more state oversight – and more friction – but would only serve their own interests.
Government leaders who clear a path for the health care revolution will aid businesses in solving our country’s problems and creating wealth, economic prosperity and new jobs. And that’s good for everyone.
Paul Johnson is the CEO and co-founder of Redirect Health, which helps entrepreneurial companies build health care plans using a partial self-insurance model.