Monthly Archives: November 2012

I Want to be Thankful for My Governor – An Open Letter to Tom Corbett of Pennsylvania

Honorable Tom Corbett, PA Governor

Governor Corbett, this holiday season I want to be especially thankful for my governor.  Governors are uniquely positioned to defend and protect a prime reason why America has thrived as it has.  The concept that in the United States a predominance of power would remain with the States and the People was central to our founding.  Violations of this concept are yours to resist and defend your state’s citizens against.  The notion of state and individual sovereignty in America must be fought for under any circumstances forever.

We currently stand at a point of decision.  Obamacare is upon us.  When I called your office and raised these Constitutional and Founding issues your staff agreed in theory, but then went straight to a strange position of passivity, an acceptance that Obamacare is inevitable.  I was even told that “come 2014 Pennsylvania will have an exchange”.  Governor Corbett this is not the kind of leadership I am looking for.  Yes, how setting up Obamacare exchanges will affect the finances of the state is an important consideration, but overriding that is Obamacare’s assault on freedom.  As Attorney General you brought PA into suits against this Federal power grab.  Where will you be now with things you still can do to protect us?

In the last few days two highly instructive articles have appeared on why states should refuse to set up exchanges.  One comes from Michael Cannon at the Cato Institute.  Another, written by James Capretta and Yuval Levin appeared in the Wall Street Journal.  Both suggest that the 30 Republican governors can gum up the works of Obamacare by simple legal acts of non-complicity.  Neither suggests any advantage for states or their citizens by setting up exchanges even if they ultimately become a reality.  Questions remain if the law itself provides the framework to be implemented without the cooperation of the states.  Almost 35 lawsuits remain to be decided.

Governor Corbett, the Federal Government has extended the deadline for states to make their decisions on exchanges and Medicaid expansion to December 14.  Twenty-one other states, so far,  have said they will not be setting up exchanges.  A majority of states standing in opposition is very possible.  According to the two articles I cited sufficient disruption may ensue to at least delay Obamacare if not cripple it.  Development of and having at hand alternative market based reforms, such as those suggested in other posts on this blog, may then find an opportunity to at least be demonstrated.

Governor Corbett, this is a time that requires exceptional courage.  By taking the side of freedom and liberty, on December 15 I will be able to say that I am especially thankful that you are my Governor.  Say NO to Obamacare Exchanges and the expansion of Medicaid also.  Thank You!

Happy Thanksgiving Sir

Todd Keefer

PA citizen and writer of

Why Employers Should Embrace a Requirement to Offer the HDHP/HSA Choice

Get around business people and mention requirements coming from government and chances are good that there will be a usually correct knee-jerk reaction against almost anything being proposed.  I’ve run into this with a suggestion to require every employer, public and private, who offers health insurance as a benefit, to include the choice of high deductible plans with health savings accounts.  Far too many employees still do not have this choice available to them even as evidence exists that such an approach is clearly win-win for the employer and their employees.  Most of this can be attributed to resistance caused by misunderstanding that has become very entrenched over time.  In this regard, even though employers are free to offer high deductible plans without any government requirement to do so, the requirement itself can be a benefit to many in providing cover for them in the face of employee, or especially union, resistance.

The proposal to require all employers to offer high deductible health insurance has the solid backing of a 30000+ person case study in the state of Indiana.  Starting in 2005, by way of the leadership of Governor Mitch Daniels, Indiana offered all its state employees the high deductible choice with health savings accounts, while maintaining the currently offered PPO plans.  Bucking initial resistance, the state human resources department backed the new choices with education.  From only 4% participation in the first year, by 2010 over 70% had moved to the high deductible choice, and today it is over 90%.  At the 70% level, when Gov Daniels wrote his March 1, 2010 op-ed in the Wall Street Journal he estimated that taxpayers in Indiana would save at least $20 million because of their high enrollment in high deductible plans.  Importantly this is after  the state shares the savings by partially funding health savings accounts, in the case of family plans, $2750 annually.  These savings are primarily due to employees spending their own money ahead of that of others, slashing overuse, unwise use, and incentivizing finding the most value.  Governor Daniels never doubted the free market or the critical importance of direct payment in the restoration of necessary market forces that have been disrupted by unnecessary third-party payment, and the overwhelming results should have precipitated a flood of followers both in the public and private sectors.  As noted in the op-ed though, “Due to the rejection of these plans by government unions, the average use of HSAs in the public sector across the country is just 2%.”  Adoption has been slow although has been accelerating in recent years.  Still after 9 years of eligibility HDHP with HSA represent only about 10% of the total health insurance market.  Total consumer driven plans, which include HRA accounts are close to 20%, but only HSAs represent the property of the employee, an important consideration in partially solving the portability problem.  Again, a requirement to offer HDHP as a choice provides cover against initial misunderstanding of how or why high deductible is most often in the best interest of both employer and employee.  All existing plan choices can remain, additionally easing concerns of those who may have doubts or face unusual circumstances.

What will motivate the business community to back any requirement to do anything is substantial evidence that the regulation or requirement is indeed in their interest.  A quick back of the envelope calculation, making very realistic assumptions is rather eye-opening.  Let’s start with the realized savings on 30000 state employees in Indiana, make the assumption that similar savings would occur elsewhere, then extrapolate to a larger private sector population.  My state, Pennsylvania, has about 5 million private sector employees.  Since the regulation would only apply to employers who already choose to offer health insurance, this number needs to be reduced by that amount.  Latest figures show health insurance is offered by 61% of employers.  Since this is not employees and to err on the side of caution, I’ll use 50% as the factor not offered health insurance and reduce the potential pool by half to 2.5 million.  This then needs to be further reduced for the approximate 10% of the population who already have HDHP and HSAs, reducing the pool further to 2.25 million.  Since we are looking for similar savings at the 70% level as reported by Indiana with 30000 employees, dividing 2.25 million by 30000 gives us a projection factor of 75, which when multiplied by the assumed savings of $20m yields an expected annual injection into the private sector economy of $1.5 billion for Pennsylvania after attaining the 70% participation level, achieved by Indiana in five years.  Now, does that make a regulation sound better?  Keep in mind also conservative assumptions present the chance that even greater results can be produced.  This is one government requirement that business should request rather than resist.

While it is easy to claim that savings could be even higher without Indiana’s pre-funding of Health Savings Accounts, this sharing of savings directly to a HSA rather than, or in addition to, including in wages is important in two regards.  First, the incentive to take the high deductible choice is strengthened.  Second, studies have shown poor HSA funding habits by a significant percent of employees when left on their own.  Matching arrangements like those with a 401k could represent an additional way to incentivize employees to do what is right for their future and the future of market driven cost controled healthcare reform in general.

Prescription for Successful State Healthcare/Insurance Reform–Simple and Focused

Let’s begin with the question, What would be the single most effective thing any state could do legislatively to produce the most positive outcome in healthcare/insurance reform?  Is there such a thing?  Belief in the Pareto Principle or the 80-20 rule of problem solving would suggest such effective prioritization of effort should likely exist and in what follows I’ll make the case that not only does a simple focused solution exist but fits state based healthcare/insurance reform especially well.

While running for President, Herman Cain, as a career problem solver, would often say that the number one thing about problem solving is to make sure you’re working on the right problem, then caution that this is not as easy as it sounds.  Einstein is attributed to have said, “Not everything that counts can be counted, and not everything that can be counted counts.”  All three citations  say essentially the same thing, that knowing where to focus effort can and should result in greater efficiency and less wasted time in solving almost any problem.

Fortunately on the healthcare/insurance issue, in consideration of all the separately identified component problems, there exist a few select studies and one highly successful, sufficiently large real world example that, taken together, reveal proper focus that fits the significant 20 in the Pareto Principle, the right problem Herman Cain speaks of, or what really counts according to Einstein, leading to clear and simple solutions.

Any consideration of the healthcare/insurance issue that does not start with, or misses entirely, the 1994 CATO study by Stan Liebowitz, titled simply and directly “Why Healthcare Costs Too Much”, risks missing the stark reality that unnecessary third-party payment is the central culprit both in terms of cost and the disruption of a normally functioning marketplace that requires the direct interaction of provider and consumer, according to what one is willing to accept and the other is willing and able to pay, in order to efficiently set prices and allocate resources.  It is the illusion of free or almost free caused by low or non-existent deductibles and low copays that incentivizes massive overuse that Liebowitz estimated to be, including administrative costs, $333 billion in 1994, easily making unnecessary third-party payment the number one source of excess cost in the system.  The lesson of the Liebowitz study is simple.  The solution lies in focusing on methods that increase direct payment and reduce third-party payment.  This is the central issue and required for reconnection to market forces long abandoned prior to Obamacare or Obama.  The Executive Summary states, “The use of medical savings accounts needs to be promoted.  High deductible health insurance should be encouraged.”

Following Liebowitz in 2001 Milton Friedman wrote “How to Cure Healthcare“, which featured a cartoon depicting unnecessary third-party payment via employer-provided health insurance as dumping money down a rat hole.  The conclusion was the same, again pointing to the basic need to increase direct payment relative to third-party payment, which today represents about 5 of every 6 dollars spent on healthcare services.

The two cited studies alone clearly identify the single source of greatest waste, the acceptance and growth of unnecessary third-party payment.  Neither argues against the proper use of insurance to protect assets against expenses that would be unaffordable otherwise.  In addition, achieving more direct payment coincidentally lessens the effects of other identifiable problems, namely largely negating the considerable costs of coverage mandates so long as they conform to a high deductible, curbing the use of defensive medicine by raising questions of necessity, bringing consumer demand for pricing transparency, lessening the opportunities for fraud, and restoring the doctor-patient relationship as nothing else can.  It also provides partial portability as the health savings account component always remains the property of the insured employee.  These positive effects on other component problems not addressed lends confidence that the focus on unnecessary third-party payment is the 20 of Pareto, the root of the overall problem.

Following Liebowitz and Friedman, in 2003 Congress passed the act that established Health Savings Accounts with the requirement that they be associated with High Deductible Health Plans (HDHP).  Starting with 2004 such plans became available, alone setting the stage for significant reform with their adoption, but there was a problem.  Widespread adoption did not happen.  Years of embracing the false comfort of third-party payment along with limited understanding of personal finance and economics and the disconnect from cost caused by employer provision had conditioned the majority of the public to not see the advantages of high deductible plans.  Employers were slow to offer as employees and unions were quick to resist.  By the start of 2012 after 9 years of availability less than 10% of Americans were covered with high deductible plans that included health savings accounts, although as the reality of Obamacare approached and costs continued to soar these plans have been increasing in recent years.

Fortunately there is one glowing exception to the slow adoption of the high deductible approach that should be the model for the entire nation, both in its simplicity and results.   When Mitch Daniels took office as Governor of Indiana following his 2004 election, such was his understanding of and faith in the free market that he had no concerns that the path he decided to take would work.  All 30,000+ state employees were offered high deductible health insurance plans alongside the existing PPO plans most employees are routinely provided.  Then the state made the commitment to back the new choices with education.  Human resource personnel met with employee groups to explain how the high deductible approach would be to the benefit of most who chose it.

The results speak for themselves.  In the March 1, 2010 Wall Street Journal, Governor Daniels laid it out.  By that time state employee participation in high deductible had reached over 70%, up from 4% only five years earlier and the state estimated taxpayers would save in excess of $20 million.  More importantly, this projected annual savings is after the state funds health savings accounts  $2750 each year for family plans and proportionally less for individual plans.  As compared to the PPO plans, spending in the high deductible plans was only  65 cents on the dollar.  Emergency room use was down 67%, showing that even the insured will use an emergency room for non-emergency when the out-of-pocket cost is low enough and it is a situation of convenience.  Importantly, satisfaction was high, with only 3% going back to the PPO plans after choosing high deductible.  Since 2010 the situation has improved even more, with the participation rate in the high deductible plans now in excess of 90%, all by free choice of the employee.

There is no reason to believe that the Indiana results cannot be replicated everywhere.  This could be accomplished by legislation in any state to simply require all employers, public and private, who choose to offer health insurance to their employees, to include the choice of high deductible plans with health savings accounts.  No current offerings would have to change.  In Indiana they remained as they were.  It was individuals coming to the realization that the high deductible choice is in their best interest that led to the changes and the savings and the satisfaction.

Business normally resists regulation but should consider embracing this requirement.  In a world where third-party payment has been so widely accepted and its evils to the marketplace so little understood by so many, an external requirement would give managements cover to put before their employees that which may likely be, and often is, resisted at the outset due to lack of understanding.  The key is choice rather than coercion, and results are clearly win-win, with the potential to slash costs for employers and empower employees with spending their own money ahead of that of others who then gain control in the transaction.

Indiana accomplished so much by doing so little.  All they did was a justifiable function of government to assist the proper working of the free market by insuring each consumer information and choice, both necessary to market efficiency.  If all this seems too simple, think Pareto, Herman Cain, and Einstein.  Think also Ronald Reagan who said in a 1964 stump speech, “There are no easy answers, but there are simple answers.”