It’s Past Time to End the Employer Mandate

flying cadeuciiThe New Year always brings many changes.  In addition to soon to be broken resolutions, this particular year ushered in strict mandates requiring employers with more than 100 full-time employees to either provide health insurance to those employees or pay fines of between $2000 and $3,000.  We’ve seen many firms  publicly respond to this by cutting benefits to part-time workers.  Despite the criticism that often accompanies these decisions, in many, if not all, of these cases this move benefits employees. Without the offer of employer-provided insurance they get access to the ACA exchanges.

Part of the criticism stems from the implicit belief that firms “give” benefits to their employees out of some form of philanthropy.  These benefits are just a tax-preferred (though not really for low-income employees) form of compensation, and research shows that increases in benefit costs result in lower wages for employees.  The firms that have cut benefits will either increase wages or lose a lot of employees. (If they cut benefits, do not raise wages, and do not lose workers, then they must not have been profit maximizing to begin with; we highly doubt that firms like WalMart would have knowingly forsaken an opportunity to maximize profits.)

As the employer mandate has been phased in since the passage of the ACA, we have seen an increasing focus on the artificial distinction between full and part time employees.  Firms are only responsible for fines based on how many full-time employees don’t have access to insurance and a compilation of anecdotal evidence suggests that employers have responded by placing strict caps on the number of hours their employees can work.  Suggestive evidence of this being a widespread phenomenon can be seen in this analysis of CPS data, which shows an increase in the number of part-time hours working below 30 hours per week.  While there are many things that could be causing this shift, the timing strongly suggests that hand of the ACA employer mandate at work.

Most recently, news emerged that Staples has threatened to fire any part time employee that works more than 25 hours per week.  To be fair, Staples executives claim that this is simply a reiteration of a long-standing rule though the timing suggests that stricter enforcement of this regulation is likely related to the large fines that Staples would face for part-time employees that cross the artificial 30 hour barrier.  In a recent interview, President Obama was none too pleased about this announcement:

“I haven’t looked at Staples stock lately or what the compensation of the CEO is, but I suspect that they could well afford to treat their workers favorably and give them some basic financial security. It’s one thing when you’ve got a mom-and-pop store who can’t afford to provide paid sick leave or health insurance or minimum wage to workers — even though a large percentage of those small businesses do it because they know it’s the right thing to do. But when I hear large corporations that make billions of dollars in profits trying to blame our interest in providing health insurance as an excuse for cutting back workers’ wages, shame on them.”

Shame on you Mr. President. First, Staples is only doing this because of your policies.  And who can blame them for reacting like this. Staples isn’t earning “billions” in profits per year. They are competing in a world of online commerce where their competitors don’t have the same large retail workforce (though much of their business appears to be shifting out of the retail setting as they shutter hundreds of stores.) Finally, it should be noted that recent research finds that these larger employers are already offering higher wages than “mom and pop” stores.

These points aside, the President’s statement is either disingenuous or belies a willful ignorance of how and why private employers provide benefits to their employees. Benefits are not something that private firms owe to their employees, instead they are part of a compensation package that is determined in the marketplace.  These benefits are provided by employers because of the combination of a historical accident of post-WWII price controls, the tax-preferred status of these benefits, and the benefits of risk pooling in the employer setting in a world where people don’t have to purchase insurance.  Most economists believe that this employer sponsored insured (ESI) is inherently inefficient, and recent research by Garthwaite and his co-authors shows that is distorts the labor supply decisions of many Americans.

In this setting, what we are actually talking about is not just the provision of benefits but limits on how many hours employees can work because of a new explicit mandate in the ACA.  This is just further evidence that the employer mandate is causing far more harm in the labor market than good.

While we have been critical of many aspects of the ACA, one facet we clearly support is that it represents the first realistic opportunity to move away from the distortions of ESI.  By forcing people to purchase insurance and imposing an increasingly binding tax on “high dollar” benefits, the ACA limits the main benefits of ESI.  However, it then includes a counter-productive mandate that forces employers to offer benefits and distorts the number of hours that employees work.

Rather than lecturing CEOs that are acting in the fiduciary interest of their shareholders, the President should show the courage to end the employer mandate.  It will surely not be popular among many of his most liberal supporters, but it ultimately will make the ACA more effective.

The authors are economists at the Kellogg School of Management.

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50 replies »

  1. I see the advance directive issue as most important for the elderly as 75%-80% of all deaths each year strike the 65 and older population. Moreover, someone who receives a cancer diagnosis, for example, may have very different goals if it happens in middle age vs. old age.

    One piece of good news about this is that there is usually plenty of time to address the issue following a diagnosis of cancer, congestive heart failure, end stage renal disease, MS, Parkinson’s, Alzheimer’s and dementia. I think the medical profession could do a much better job, however, in drawing patients out about their hopes, goals and fears and to tailor treatment to meet as many of those objectives and concerns as possible. Atul Gwande addressed this in his recent book, “Being Mortal.”

    That said information and forms about completing an advance directive could be provided as part of the process of signing up for Medicare. Also, skilled nursing and assisted living facilities could make it a requirement in order to be accepted as a resident perhaps with a short exemption period for emergency admissions.

  2. John, we all want the wishes of the patient met so your desired end point meets mine. For some reason when we talk about healthcare we stress coercion. A person’s personal healthcare is not the place to be coercive. The individual derives benefit when he is treated in the fashion he would want. Each individual state has its own laws as to what occurs should a patient be unable to respond to the desired question.

  3. allan, your questions are good ones and I don’t want to toss out glib answers. If my comment came across as patronizing, I’m sorry. My intention is simply raising awareness, nothing more. In the administrative and legal thicket of healthcare, advance directives are just another piece of grunt work that anyone can do. No need to over-think the .matter. Just get it done. Or don’t. A signed refusal to have a directive is no different from one that spells out every detail. And if the notion of a surcharge sounds offensive, forget it. I said that mainly to bring attention to a much needed issue, nothing more. I’m just trying to move the Overton window a bit.

  4. John, I didn’t see you stating an age earlier, but now that you say a senior on Medicare we can deal specifically with that individual. Should that form you want be filled out at the time of one of those wasteful wellness check-ups? Will an additional fee be charged? If the senior was in perfect health do you think that he might alter his desires on his way towards that all important bridge? Who should explain the intricacies of an advanced directive? Should we do a psych evaluation on all of them to make sure they were of sound mind and who should be in charge of making sure they understand what they signed?

    Why review them only every three to four years? How did you come up with that number? John, don’t worry about my becoming confused as to what an advanced directive is. I am very familiar with those things along with many of the legal aspects.

    Barry is correct that it is better for people to let their wishes be known especially their families. A good reason for an advanced directive is to protect the children from having to feel guilt over a difficult decision that had to be made. I just don’t find John’s desire for ” a surcharge for those who for whatever reason do not, have not or otherwise refuse to file and maintain advance directives” helpful.

  5. Barry Carol you have put your finger on exactly the right problem. I have seen it often, both in our own family and those of many seniors with whom I work. Even when someone near death knows and has accepted it, too often they cannot “get permission” from someone — typically, but not always, a family member. The result is protracted suffering for all concerned.

    I heard about one hospice counselor whose advice to a family waiting for the final moment was that it was okay to gather quietly around the bed, but best not to say anything or touch the dying person. It’s not necessarily a universal truth, but the thinking was that voices and touch in effect can be interpreted as soliciting a response, at the only time when the best response if none at all. In effect, that gives permission for the dying person to let go.

    A woman in my gerontology class whose mother had recently passed told about it with calm confidence that they had followed her mother’s instructions exactly. Her mother had done a good job of giving instructions ahead of time and no one had to guess what her wishes were. Those instructions were a great gift to her family.

  6. My primary care doctor tells me that here in NJ the end of life protocol is to do what the family wants if the patient can’t speak for himself or is not competent to do so. This is why I think it is especially important for elderly people to tell their spouse and adult children what care they want and don’t want in an end of life situation. If they feel that an actual conversation is too difficult or uncomfortable, they can write a letter or memo, sign it and give it to their family members or at least tell them where it is.

    I’m a big believer in living wills and advance directives as well but, as Allan notes, people do often change their mind especially when actually faced with a life threatening illness. Too often, however, adult children can’t let go, in part, because they haven’t yet come to grips with their own mortality. If there is no guidance from the sick family member, that path of least resistance may be to tell doctors to “do everything” regardless of cost or usefulness especially if someone else (taxpayers) will pay for it. End of life guidance provided by the sick patient can be a huge gift to the rest of the family because it eliminates the need for them to have to guess at what they patient would have wanted.

  7. No,, allan, our exchange here regards people who are getting old — anticipating complications at the end of life. A good age to make them obligatory might be Medicare eligibility. (Younger people with life-threatening or terminal conditions might also consider advance directives.) In any case they should not be a once-and-done event. Advance directives should be reviewed at least every three or four years for several reasons. Medical advances may have changed, appointed agents may have died, moved or changed their minds. The person who filed the document may have changed his or her mind. That is wasted time and energy for younger people not apt to need such planning,

    As for not understanding, take a look at actual documents. Do not confuse advance directives with DNRs. Advance directives for medical care may include a DNR, but are more detailed. I don’t know about other states, but Georgia has a very good suggested form, free to download, running nine or ten pages including instructions. It gets tweaked from time to time, and other states probably have similar forms.


  8. ” a surcharge for those who for whatever reason do not, have not or otherwise refuse to file and maintain advance directives can act as an incentive to cause those documents to be part of everyone’s medical record.”

    This doesn’t seem well thought out. Let’s take a 25 year old who is totally healthy and thinks he or she is invincible. Do you want that individual to set up and pay for a wellness appointment with a physician so the statement can be placed in the medical record? Should the 25 year old become ill do you think the advanced directive will necessarily remain the same? Who should explain the intricacies of an advanced directive? Many people sign advanced directives and then suddenly change their minds when they are faced with a real situation. In fact many people don’t understand what they signed.

  9. This comments thread has drifted way far from the subject of the post. It’s time to either close comments or get them back on track. It’s great fun, but as one of the worst offenders, I plead guilty of drifting so I’ll stop. Surely we all have other matters to attend.

  10. You make an interesting point. To be clear, I’m not “suggesting” anything. I’m saying in plain language that a surcharge for those who for whatever reason do not, have not or otherwise refuse to file and maintain advance directives can act as an incentive to cause those documents to be part of everyone’s medical record. Legal safeguards in most states protect those who cannot speak for themselves (which is the aim of advance directives) but safeguards against abuse (which is what you are describing) should be part of the protocol. I’m not a lawyer, so legal guardianship may be an exception to someone’s advance directive instructions. I don’t know about that.

    Tight controls would protect not only the ,patient but also the medical professionals involved with that person’s care. In some places agents named for medical decisions (and there should be at least three) should NOT, in fact, have POE. That is the way to avoid a conflicts of interest that estate settlements might present.

    No “savings” are involved. I have no idea what that means.

  11. John Ballard wrote
    Money is a good motivator
    And it might serve as an incentive for doctors and their staff to pursue more vigorously for their completion
    I was thinking of money as a motivator for the family of the very ill person
    Are you suggesting the providers get a cut of the savings?
    Don Levit

  12. @Barry Carol [I guess it’s a good thing these threads only allow three layers of replies — otherwise some would rattle on for years]
    Thanks for your reply. No need to chase the wage rabbit any further here, by the way.

    The dementia challenge is huge. Just two nights ago the evening news had yet another feature about sports-related traumatic brain injury — in this case with football but it has bigger implications. And that’s just a subset of the bigger problem.

    One of the odd wrinkles I sometimes think about is the famous nun’s study (Italy) which turned up exceptions to the rule that Alzheimer’s always presents as dementia.

    In several cases, pathology studies of brain tissue from the deceased nuns did not correlate with their performance on cognitive function tests. Sometimes the pathologist would score a brain as having signs of extremely advanced AD, only to learn later that the nun herself scored extremely well on all cognitive tests. Other times a brain would show only slight damage associated with AD, and the nun was characterized as exhibiting the signs of advanced cognitive decline and dementia.


    My layman’s observation — and I’ve seen it a lot — is that Namenda and Aricept are a waste fo money, but that’s just my bad attitude showing. No science to support it.

    I’ve been watching the assisted suicide trend closely for some time, ever since that Times Magazine article a few years ago “What Broke My Father’s Heart” about the proliferation of ICDs in old people. (Odd subject for Valentines Day, no?) At the time that was published there was not even a legal way to turn them off — they just keep working even in corpses. But that’s started to change, I think.

    There was a case a month or so ago of a young woman who wanted to refuse treatment for cancer, but because she was a minor the courts forced her family to do it anyway. I don’t know what the outcome was, but in digging into the backstory I came across the interesting fact that Belgium not only allows euthanasia, but the numbers are breathtaking. Something e=in excess of 1800 cases last year, a number which now includes terminally Ill children.

    These are ugly subjects to discuss, but no less ugly than the living Hell affecting many individuals and families. Once again I have to advance the argument for universal use of advance directives. A case can be made that they be made an obligatory part of all medical records,, perhaps coupled with a surcharge for those whose files are not complete. Money is a good motivator. And It might serve as an incentive for doctors and their staff to pursue more vigorously their completion.

  13. “The elephant in the room, of course, is long-term care.”

    I suspect that the longer term solution to the long term care issue will be disruptive innovation. Specifically, drug companies will eventually develop drugs that will either cure Alzheimer’s and dementia or at least significantly slow down or even halt its progression. Even if such a drug cost $100K per year, I would rather pay that than the cost of nursing home or assisted living care especially if the patient got a much better quality of life in the bargain.

    The other development I can see over the longer term is more frail elderly people choosing hospice care sooner rather than later and clearly communicating to their children, spouses and other family members what care they want and don’t want as the end of life approaches. We spend a lot on futile and marginally useful care now and there is lots of room to reduce that spending.

    I watched the PBS segment on Hanauer. I agree with him about his contention that tax rates on capital and investment income, especially carried interest, are too low as compared to ordinary income tax rates. I disagree with him about the minimum wage. His Wal-Mart example was way off base for reasons that I won’t go into here unless you want me to.

  14. In this case, Barry, let’s agree to disagree. I’m aware of the Euro fast food mechanization. Clark Howard described it some time ago. Besides, US-Euro comparisons have many more wrinkles than that. America will never be a welfare state or anything close, and I’m Yankee enough to be okay with that.

    I am impressed, however, with Nick Hanauer’s grasp of feedback loops as well as Thomas Piketty’s distinction between income and wealth. As I said, though, this thread is about health care. Macroeconomics and economic theory are best left aside. There are many links to both names for anyone who is interested. Here is one I picked at random.


  15. “I once bought the idea that increasing the minimum wage resulted in job losses, but if anything the effect is the opposite. Those at the bottom are not about to save or hold extra income for investments — their spending will accelerate the economy if anything, resulting in a more robust velocity of the money supply.”

    You were right the first time, John. If raising the minimum wage created jobs, then we should raise it to $25 or $50 an hour and really get the economy humming. It defies common sense. If you go to a fast food restaurant in Western Europe, you will find them heavily automated compared to comparable restaurants in the U.S. Moreover, there are fewer restaurants and fewer restaurant workers relative to the size of the population in Western Europe than in the U.S. Meals are much more expensive there as well. You get less food for significantly more money. That’s what happens when restaurant staff is paid $15-$20 per hour plus benefits. The workers make more money, there are far fewer of them, and menu prices are much higher. There’s no free lunch so to speak.

    The long term care problem defies easy solutions. It’s one of the unfortunate byproducts of the miracles of modern medicine that have transformed diseases that were once fairly quick death sentences into chronic conditions that can be managed for years giving people more time to contract Alzheimer’s or dementia or just to become frail from old age so they can no longer perform some or all of the normal activities of daily living and need someone to take care of them.

    That’s a role often performed by family members as you note but at considerable financial and emotional cost. If Medicare covered long term custodial care beyond the 100 days of coverage it now offers following at least a three day inpatient hospital stay, the cost would be astronomical and likely well beyond taxpayers’ ability to pay for. I think that’s why Medicare doesn’t cover it and why Medicaid LTC benefits are strictly means tested.

  16. You understand perfectly, Bob. Just last week I heard a farmer here in Georgia trying to behave like a good conservative but admitting that those middle-aged guys he hired to replace the migrants run off by our tough employment requirements — those guys just couldn’t cut it and he was losing money using them.

  17. Yeah, Barry, the “illegal immigrant” trope is among several widespread explanations for low wages but the simple fact is that wages are subject to the same laws of supply and demand that affect prices. When supplies increase and/or demand drops, prices go up — and vice-versa. In the case of wages, during times of high unemployment (like we just went through) many job seekers accept lower-paying jobs just to get by, bumping others further down the scale, with those at the bottom finding that even full-time work often is not enough to cover food, shelter and transportation. Temp jobs become more available, payday and title loans flourish and those at the bottom wait helplessly until times get better.

    Meantime, until better times arrive, wages at the bottom get driven down to the lowest legal level in a feedback loop that would drop even further without a legal minimum wage. It’s no accident that a number of states have legal minimums higher than the federal minimum, some of which now have automatic provisions for annual adjustments for inflation or other indexes.

    I once bought the idea that increasing the minimum wage resulted in job losses, but if anything the effect is the opposite. Those at the bottom are not about to save or hold extra income for investments — their spending will accelerate the economy if anything, resulting in a more robust velocity of the money supply.

    Meantime, the wealth and income gaps keep spreading. Thomas Pikkety’s book is stirring up a little interest and some venture capitalist named Hanauer gets it. But these are economic issues better discussed in other places. This thread is about health care.

    Regarding seniors, the universe is pretty well established. Those with enough resources get the best of care (CCRCs, fo example and long-term care insurance), those with less go with assisted living,and the rest rely on family, neighborhood and community resources. The VA has a range of helps (respite care allowance, durable medical equipment, handicap assistance — and a few long-term care facilities) for those who qualify. (VA is means-tested also.) And finally, local family services sometimes have weekly housekeeping, visits from social workers, meals on wheels, etc.

    The elephant in the room, of course, is long-term care. That is usually finessed by Medicaid when the Medicare coverage ends at 99 days. but with the failure of the CLASS Act portion of ACA that remains an expensive part of senior care no one wants to discuss.

  18. Note to John Ballard:

    Thanks for your heartfelt reflections.

    If everyone had a basic income, then difficult jobs would pay more than easy ones. Changing bedpans or picking crops would pay $30 an hour. while teaching art history would pay $5 an hour.

    The free market would actually create justice if this happened.

    Instead, the employers of cheap labor have gone out and found desperate workers. This is the great injustice of our time.

    When migrant workers were kicked out of Alabama for a time, local farmers tried offering $15 an hour but had few takers. They were so spoiled by years of prison labor that they would not offer more.

  19. America is hardly the first nation in history to have old persons who need daily care. Other nations have handled this through servants, slaves, and unmarried daughters.

    To handle this through paid employees is very challenging as everyone points out

  20. John,

    I think one impediment to higher wages for the people you refer to is the large number of illegal immigrants in the country who are willing to work for comparatively low pay. This problem could be mitigated by enforcing the e-verify system and cracking down on employers who hire illegals. We could also alter the birthright citizenship provision of the 14th amendment to require at least one parent to be a citizen for the baby to be a citizen. This is the way virtually every other developed country in the world handles it. Under current law, anyone born here is a citizen even if both parents are not and, when they turn 21, they can sponsor their parents, siblings and other relatives to bring them into the country as well.

    On the negative side, there is a limit to what people who need custodial care or their spouses can afford to pay. Nursing home employees are not especially well paid but the cost to stay in one or an assisted living facility is still well beyond the means of most people as they quickly deplete their savings and have to go on Medicaid. Long term care insurance is prohibitively expensive for most people as only about 8% of the older population has it. Moreover, insurers underpriced their policies issued in years past and they are now raising premiums. My own premium increased 60% this past April to be phased in over three years. It’s not a pretty picture.

  21. Thanks for this. My working life in food service management gave me a deep sympathy for the working poor. They live daily with dental, medical and other challenges that would cripple others with much higher income. I sometimes wonder how they do it — but I really already know. When there are no other options, we all do what we have to do to survive.

    I’m still waiting, but I look for the realization that the one category of work that will never be exported is the service sector. Many jobs are highly compensated because they are require a lot of training and experience. But a day will come when service jobs are better compensated simply because they are totally essential.

    Somebody will always need to cook, wash dishes, take away garbage, stock shelves, move the pallets. And the day is already here for workers (like me, now) paid by the hour to take care of old people — making sure they don’t fall, get lost, have their disposables changed and lots more. It’s not hard, but it’s also not optional.

    Sooner or later policy maker will be forced to come to terms with how best to deliver basic medical care to the lowest rungs of the employment ladder.

  22. Bob,

    If it were up to me, I would get rid of the employer mandate but keep the individual mandate as guaranteed issue without regard to pre-existing conditions won’t work unless there is a mandate to buy insurance. Otherwise, people would just wait until they get sick to buy insurance. If both mandates are repealed, the only approach that would work would be a one-time opportunity for those with pre-existing conditions to sign up. After that, if you can’t show that you were continuously insured, you have to pass underwriting or join a high risk pool if there is one.

    I prefer subsidies to tax credits even though subsidies are more complex to administer. Policies with identical coverage can easily vary in premiums by 100% or more in different areas of the country. I would rather use a circuit breaker approach that would cap any individual’s contribution toward the premium at around 10% of income with no income eligibility cap and subsidize the remaining cost for the equivalent of a silver plan.

    France is not a country I would want to try to emulate. Government spending accounts for more than 50% of their GDP. Their economy is stagnating and young people coming out of college are having a hard time finding career track jobs. There is way too much rigidity in the labor market which adversely affects hiring. While their strong unions may be appreciated by the people who benefit from them, they’re hurting young people and the economy generally. Their low income immigrants stuck in the banlieues are a whole separate issue.

  23. As Barry points out, numerous large industries in the US are built on a cheap labor model.
    High turnover, low wages, no benefits, etc.

    ACA subsidies and the expansion of Medicaid, for all their flaws, are the first federal attempt in years to help these workers.

    The employer mandate backfired, because the workers in these sectors have virtually no bargaining power. In a nation like France, the unions would have said, ‘OK, make us work 29 hours a week but pay us for 40.”

    It is a matter of the least bad solution.Putting all the restaurants and dry cleaners out of business for labor violations might feel good for about two days, but it is not a real policy. Incrementalism is better.

  24. Perry,

    Thanks for taking the time to respond to my questions. Since I’m not a doctor and have never even worked in the medical field, I especially appreciate the opportunity to get the perspective of and learn from real world practitioners.

    I spent my career in the money management business so I’m especially interested in the financial side of medicine and its implications for resource allocation across the economy. To the extent that we can make the system more cost-effective without sacrificing quality, it could free up resources for other worthwhile and important priorities both public and private.

    Thanks again for your insights.

  25. John,

    Thanks, I have read Rob’s writings on here also, and agree he has some good insights and experiences. I went a different path a number of years ago in to Occupational Medicine, but I still have close ties through friends and colleagues to Family Practice and Primary Care.

  26. My thanks as well for your candor and insights. I look forward to your thoughts about Barry Carol’s questions. As I read your comment I was reminded of a couple of doctors who just broke with the system and followed their own path. Dr. Rob Lambert has shared lots of posts here at THCB about his experience. And Dr. Lumi St. Clair hit early burnout and shifted gears a few years ago. In both cases the outcome has been a tough slog but deeply rewarding overall. Dr. Lumi’s blog has few enough posts to be read in a short time. Her writing is clear and upbeat. I don’t recall how I came across the link but I’m glad I did.


  27. Barry,
    No reply below your comment so I’ll reply up here:
    To answer you first question, I would say there should be some type of consensus on reasonable costs or charges for certain services, how this is done, I don’t know. I know the charge for a CT at my wife’s hospital is $4000, and the insurance company barters for almost half of that off, so what does it really cost? An MRI in the city hospital where I practice is about $1400, in the outpatient Orthopedic center is about half that. Of course, like Macy’s vs Target, the same item may have a significant difference in cost, but for health care we need at least some general reasonable figures.
    From a provider’s standpoint, simplification involves getting rid of extraneous documentation that is not pertinent to the case at hand, looking at EHR systems that will actually be easy to use, and helpful for care, and maybe payment or coding as well if possible. Additionally, much time is spent on prior authorization for tests and treatnments, which takes valuable time away from patient care and should be left to the physician’s discretion. But, because the insurance company is bearing the cost (through the patient’s premium) of course they will want to have some input as to how that money is being spent. This is the conundrum of the current system.

    Regarding the legal issues, there has been a lot of conflicting evidence for or against the impact on medical care. I would say we really need to look at what the system is designed to do, just pay lawyers and patients, or compensate patients fairly while making sure that incompetent doctors or facilities are properly handled. Addtionally, reviewing what the root cause of the “incident” is and correcting that, rather than just suing for damages and leaving it at that. Unfortunately, bad outcomes and mistakes will happen, and while doctors try to do what’s best frequently we overdo just to CYA, and that’s not good medicine. We see this mainly in the ER where docs are seeing patients they don’t know, and may never see again.
    By trying to move care in to primary care and away from ERs this will help some. If we are going to have practice guidelines and no changes are made in the tort system, no jury is going to have mercy on a physician who is following the guidelines to “save money”.

    Much of what we deal with in this country is patient expectation, whether a minor or major illness. This is true especially for end of life care. This will be a long process to educate both physicians and patients in alleviating suffering without doing more and more futile treatments. Yes, the financial costs are great for this type of care, and in reality it cannot continue without breaking the system.

    I am writing this between patients so it may be somewhat scattered, but I appreciate the opportunity to give some insight from a physician’s perspective.

  28. Perry,

    Thanks for the excellent summary of how we got to where we are.

    My two questions are (1) what can we do about bringing prices per service, test, procedure and drug outside of Medicare and Medicaid into closer alignment with prices paid in other developed countries and (2) what would you recommend that we do to simplify the system in a way that works for both providers and patients?

    I’m especially interested in your view or perception of the impact the U.S. litigation system has on overall healthcare costs from malpractice premiums to court awards to tests intended mainly to help the doctor cover his or her butt in case of a lawsuit for an unfortunate outcome or a failure to diagnose a disease or condition at the earliest possible time.

    I’m also curious about your view about the extent to which futile or marginally useful but very expensive end of life care drives up U.S. healthcare costs as compared to other developed countries.

  29. John, here’s a physician’s point of view.
    From 100 years ago, before we had all these medical institutions and the health industrial complex, there were pretty much just doctors and patients. Most doctors just wanted to treat and help patients and be able to pay their bills and feed their families. Many took on charity cases or treated for minimal payment, or bartered. Those patients that couldn’t afford medical care for chronic serious diseases often died or
    if lucky received treatment from a charity facility.
    Of course, we know what happened mid-20th century when EPI came on the scene, and health insurance became a large part of the salary package. Then, science and technology have escalated the types of diagnostics and treatments that have taken doctors from being bedside coaches to actually being able to “fix” and or successfully treat chronic disease.
    Unfortunately, along with these great advances, has come escalating costs, removed from the patient, and somewhat from the physician. Add in increased bureaucratic burdens, documentation/coding and medical legal costs and we have the current situation. The bottom line is people cannot afford expensive medical care and many can barely afford insurance. Most doctors would rather just go back to treating patients and it’s certainly more rewarding now that we have loads of technology and advances in medication to actually make a difference.
    However, the above burdens, along with the stresses of running a practice have made practicing medicine a much less enticing field, even for the most altruistic of us. Just look at Medscape on the burnout physicians are experiencing.
    I write this because I still love what I do, and think most physicians do also in terms of patient care. But for both doctors and patients the system, while holding many promises for treatment and cures, has become a monster that is going to be difficult to tame or control. In the end, it is not the politicians, policy makers, insurance companies, pharmacies etc. that care about your health. It is you and your doctor.
    I agree, it is time to greatly simplify this system.

  30. Those who have seen this before, please forgive me, but I just have to put it up again. That last string of special interests can’t pass without notice. “…no one wants to be worse off, not patients, not the government, not hospitals, not insurers, not providers.”

    Certainly not, but don’t stop there. The footprint of most health care systems in America is often as big as an industrial park. There are so many clinics, labs, private practices, specialty centers, agencies, imaging centers, retail outlets selling durable equipment and disposables, pharmacies, the list is endless… And that doesn’t take in to account the ancillary non-medical businesses from window-cleaning, landscaping and waste removal to uniform sales, food service outlets and parking garages. It takes your breath away to think of it. And every dollar supporting this is in one way or another the cost of health care in America. Every dime feeding this monster begins with a charge for someone’s medical bill.

    Healthcare systems should not be much bigger than a good-sized hospital. And they should be scattered far and wide, like grocery stores, in proximity to the places where health care is needed — NOT in the most affluent parts of the metroplexes where they are now concentrated. A more robust system of community health centers should be part of that picture. And that, too, was once part of the vision of ACA.

    Many smoke screens are erectd to distract from embedded toxic systems already in place. Ike’s military-industrial complex has not only grown, but has been amended by similar toxic tax-money-to-privatization schemes involving prisons, education, medical care and prescription drugs.

    The sooner our health care system gets streamlined and simplified, the better off we will all be. It’s time to watch this video once again.


  31. James, ESI has only been around since the post-WWII period and on reflection, while beneficial at the time, has only served to help put us in the mess we have now. The sad part is that even with the ACA,many people can still not really afford insurance or medical care. I fear anything that is done from here on out will only worsen the situation.
    Tackling healthcare and doing it appropriately without causing extensive complications and confusion is a long, drawn out process that has to take in to account many consequences. Also at stake, huge amounts of money to be made from healthcare and numerous special interests. As Saurabh said, no one wants to be worse off, not patients, not the government, not hospitals, not insurers, not providers.

  32. Barry:
    Thanks for the article about Walgreens switching from self insured to fully insured on the exchsnges
    One of the reasons cited was to provide more certainty in their exposure by moving to fully insured
    Walgreens may be interested in shifting their exposure of the first $50,000 to National Prosperity Life and Health
    We can guarantee a 35 percent annual return on contributions to individual HRA accounts – excellerating the lowering of Walgreens exposure to NPLH
    To learn more go to nationalprosperity.com
    Don Levit, CLU, ChFC

  33. The problem and the controversy around part-time vs. full time hours and whether health insurance is offered or not exists mainly in three industries – restaurants and bars, hotels and hospitality (including tourism), and retail trade. Wages are generally low in these industries and to the extent that employers offer health insurance at all, the coverage was often comparatively skimpy prior to the ACA.

    There are a few cases where coverage is reasonably generous but there are reasons that can’t be replicated by competitors. Examples include Starbuck’s which provides decent insurance to employees who work at least 20 hours a week but that company commands high prices for its products. Costco provides good pay and health insurance as well but it’s a much less labor intensive business than supermarkets are. The typical Costco store stocks only about 4,000 SKU’s as compared to around 25,000 in a typical supermarket and several times that in a Was-Mart supercenter. Whole Foods commands higher than average prices and has a comparatively young workforce so it can more easily afford to provide health insurance. I’m not sure what the minimum hours one must work for those companies to qualify for insurance though. Mom and pops, fast food franchisees, and the like can’t make it work within their cost structure without significantly raising their prices to the point where demand would decline materially. If providing good health insurance through the employer were easy across the board, it wouldn’t be an issue. It’s not easy and it is an issue.

    Separately, high deductible policies were indeed gaining traction with employers for several years before the ACA was enacted. However, it’s kicking into a higher gear now. My own former employer, an old line company that always offered comprehensive low deductible coverage, just switched to a high deductible only plan for 2015. The move toward private exchanges will result in higher out-of-pocket contributions toward the premiums plus higher deductibles for more employees than not. It is also likely to be a more contentious issue in union negotiations where very generous coverage is the rule. Much of this is an attempt by employers to get ahead of the Cadillac tax which takes effect in 2018. They are determined to not have to pay it by increasing deductibles and co-pays and / or moving to a defined contribution approach or both. Finally, according to IRS rules, the minimum deductible allowed for policies that come with an HSA attached is $1,300 for single coverage and $2,600 for family coverage in 2015.

  34. Chill, guy. Mid-terms are over. The residents now run the asylum — both houses. They mean well (I hope). They’re just trying to attack expenses from a different angle. Don’t blame Matthew. He’s just the host, trying to be polite to everybody. Pull out your copy of Desiderata and remind yourself of that line about “…even the dull and ignorant; they, too, have their story.”

  35. You and I gave been down this road before, Mr. Levit. Surely we need not go there again.


    I am something of an evangelist for advance directives, spreading the palliative care/ hospice gospel everywhere I go. I’m more concerned here (as at the link) with health care than insurance. Rather than repeat that other drill, it’s best we agree to disagree,

    To be clear, this discussion is more about politics than health care or insurance. Let’s not get distracted.

  36. I completely agree with what the writer is saying in this piece. I agree because it is wrong how different companies, businesses, and firms pretty much just scam the their employees by only hiring part-time employees. Remember that with the ACA movement in effect, full-time employees who do not have enough money for insurance and health care are provided these things by their employer. The Affordable Care Act (ACA) provides Americans with better health security by putting in place comprehensive health insurance reforms that will expand coverage, hold insurance companies accountable, lower health care costs, guarantee more choice, and to enhance the quality of care for all Americans. I also like it when he says that instead of lecturing CEOs about ending employer mandate in order to look out for their shareholders, the president should show them the courage to end employer mandate.

  37. “Shame on you Mr. President. First, Staples is only doing this because of your policies.”

    Jesus, do the authors of this tripe even have any idea who was the money guy for Staples? Do I have to strap you atop the family station wagon to help you figure it out? Staples did what Staples did for more reasons than “only” ACA.

    Matt you have GOT to get someone to occasionally weed out some of this crap, or risk your own reputation at the hands of goobers like these Kellogg hacks.

    And for the clods who imagine that somehow employers are going to “get out of the health care business entirely”, I have investment advice for you – if you hold shares of any service business that isn’t doing what it can to support its employees being as healthy as they can be, if not being healthier than its competitors, SELL. NOW.

    Health will if anything be a LARGER share of astute employers’ strategic thinking over time, whatever happens with ACA. And astute political leaders will find ways and rationales to support those efforts. It’s really not hard to figure out why, if you think before engaging your keyboard.

  38. John
    Actually palliative care should be a well paid option with financial incentives for those not choosing costly care which provides little quality of life regardless of the quantity
    I presented this idea at a recent conference which was received well by the stop loss insurers
    Don Levit

  39. Yes, I read about private exchanges a couple years ago but haven’t heard much about them since. The idea struck me as one whose time has come, and I’m surprised there hasn’t been more discussion about them. There’s no reason that the private sector shouldn’t come up with a constructive alternative to the systems now in place, considering the tons of money and tax-advantaged arrangements sloshing around. Look how economical drugs get when places like Walmart and Target get hold of them. It didn’t occur to me that an employer contribution would get anywhere, but if you say so… No reason why not, other than that old penny wise and pound foolish attitude about so many things.

    Private exchanges are a totally good idea. But as I said, I can see where they might become (especially in an ESI-free environment) available only for a select subset of employees.

    I also read about the Vermont failure. Really too bad. I didn’t follow the fine points but it might have been too doctrinaire an approach — pure single-payer instead of some combination of public and private sectors working in tandem. I thing the big difference between the Canadian model vs England’s NHS is a flourishing private insurance market in the UK — but not permitted in Canada.

    I was an enthusiastic single-payer advocate at first until Maggie Mahar pointed out an obvious pitfall. Without the private sector (see UK above) the single-payer has no competition.

    …I worry about single-payer being the only game in town during
    periods of time when Washington is ruled by conseratives–especiallly conservatives who distrust science.
    [Yeah. Me, too…and they’re getting more numerous.]
    One reason palliative care doctors and teams are so poorly paid by Medicare s because many in Congress–and in the administration– object to the idea of Not “doing everything possible.” They will pay a fortune for chemo that will give the average patient an extra 3 weeks of poor-quality life, but will pay very little for a palliative care team willing and trained to spend hours with patients and their families, explaining their options, and letting the patient make the choice.

    Meanwhile, some private insurers (even for-profits like Aetna) have
    recognized the value of palliative and hospice care and actively promoted their use. Aetna figured out that some patients live longer if they choose hospice care over continuing invasive treatments– and their end of life care is still less expensive.


    And your point about incentives for innovation is also well-taken.

  40. Barry
    Hopefully no private exchanges offer individual policies
    If so those defined contributions have to be post tax according to Tim
    Jost who spoke at a convention I attended this week
    Don Levit

  41. One option for employers that’s starting to gain some traction in the market is offering health insurance to their employees through private exchanges. The exchange could include several carriers and several options within each carrier which would give employees a broad range of insurance choices. The employer would provide a defined contribution which would likely be sufficient to pay all or most of the cost of the least expensive plan. Employees who wanted a richer plan would pay the difference in the premium out-of-pocket.

    If employer provided insurance somehow went away due to tax reform or some other approach, pretax salaries would likely be increased by roughly the amount the employer previously spent for health insurance. While this may not happen immediately, it would probably take place over a year or two at most due to some combination of market forces and politics. Thus, there would likely be little or no impact on the cost structure of most companies and no net effect on their competitive position vs. foreign companies where health insurance is provided through the tax system.

    Regarding single payer, John may want to take a look at the Vermont experience so far. It’s a small state with only 14 hospitals and it would probably be easier to implement a single payer system there than in any other state. Yet, they’re finding that the cost of implementing the single payer system their state legislature authorized would far exceed what their economy could bear.

    There would also likely be a significant adverse effect on innovation. Medicare works as well as it does, in part, because there is still a significant private sector that providers, especially hospitals, can shift costs to. In short, Medicare benefits from what economists call the fallacy of composition. Be careful what you wish for.

  42. No doubt. Like so many obvious needs, I don’t expect to see this one met during my lifetime. (One of the under-appreciated benefits of aging is getting a realistic view of the future. The real long view runs way out past when we’re gone.)

  43. Oh, I very much agree. And I’m not winning any friends by saying what I have aloud (especially now that I have matriculated safely into the Medicare ranks). But at some point the public must come to terms with the outrageous costs of health care in America. It’s bitter medicine for sure. But sooner or later it’s gonna have to happen,. The arithmetic is pretty clear that a huge chunk of the costs are incurred during the last year of life. I wish I had some idea how best to make that reality better understood, but that is a big part of the cost curve for sure.

  44. My broader point, John, is that getting rid of ESI will be a pain for a certain segment of the population, some of who vote GOP and some of who vote Democrat.

    This is not an insignificant consideration for reformers and one that means that ESI will be here to stay for the foreseeable future.

  45. It’s not the same as forbidding it and it need not be forbidden for it to be widely loved, including by the universal healthcare at low cost brigade.

  46. Making ESI optional is not the same as forbidding it. I’m sure select groups of employees would retain it and companies would not dare retracting it. At least not right away.

  47. Not sure faculty at Harvard would be pleased with getting rid of ESI.

    Nor will others.

    It will make some people worse off, at least initially. No one wants to be worse off, not even for a nanosecond.

    So, good luck!

  48. I agree. I’ve been an enthusiastic advocate for ACA from the beginning, but only because it was under relentless attack from so many ignorant opponents. Many of us were disappointed all along about (1) no single-payer allowed from the start and (2) no public option when arguments were being made and lost. There was so much animosity that it needed all the support it could get. SCOTUS dealt a savage blow, but by doing so they laid bare the insensitivity of many states to the plight of their poor, uninsured people. The outcome of King v Burwell will be the final nutty attempt to destroy the project, but I can’t imagine they will deliberately torpedo subsidies for millions of insured people, so I’m guardedly optimistic that ACA is getting out of the woods.

    All that said, part of the long-range taming of the health care monster will be uncoupling employment from health care. I’m sure businesses will always have perquisites for upper compensation levels including Cadillac health insurance coverage along with club memberships, stock options and golden parachutes — but the idea that group insurance for line employees should be a tax-advantaged feature of employment needs to come to a merciful end. In the global economy it’s just not logical that US companies should compete with others from countries with universal health care as a right of citizenship — and certainly not funded by additional payroll burdens.

    The president may or may not agree, but even if he might he’s in no position to say so publicly. Part of uncoupling employment from health care will eventually require a union epiphany — and I’m not sure how that might happen. That part of the process may fall on the shoulders of the usual suspects — probably the Libertarian/ Tea Party fringe of the GOP. (I think of them as the American Snipers of politics — taking out the weakest of their political opponents.)

    In the absence of Medicare for all, I’ll settle for any alternative to the train wreck which is health care in America. It’s like treating gangrene. Sometimes the only option is taking off a limb.

  49. Another great argument to get employers out of the health care business entirely.