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"Paul Zane Pilzer Checks the Pulse of Healthcare Insurance," by MC News, Management Consulting News, February 2006.

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The New Health Insurance Solution:

"The underlying problem is that the healthcare industry is indifferent to the economic and entrepreneurial incentives that make America great. We have a $10 trillion US economy based on free enterprise, and we have a $2 trillion Byzantine economy called the healthcare industry. It operates virtually outside of the US economy with its own rules."

"Healthcare costs currently exceed profits for the Fortune 500. Why be in business? If healthcare costs go up 15% a year, even if a CEO can improve company profits 12% a year, it’s not enough."

Meet the MasterMinds: Paul Zane Pilzer Checks the Pulse of Healthcare Insurance
 

A former commentator on NPR and CNN and an adjunct professor at NYU, Pilzer is also an entrepreneur and the cofounder of Extend Benefits LLC, a company that provides individual health benefits to employees of Fortune 500 companies. He’s looked carefully at the problems of the US healthcare system and come up with innovative ideas that business leaders and individuals can use to find affordable and high quality health insurance.

MCNews: Healthcare issues are top of mind for many business owners and individuals, mainly because of soaring costs. What do you think is the root of the problem?
Pilzer: The underlying problem is that the healthcare industry is indifferent to the economic and entrepreneurial incentives that make America great. We have a $10 trillion US economy based on free enterprise, and we have a $2 trillion Byzantine economy called the healthcare industry. It operates virtually outside of the US economy with its own rules.

A good example is Moore’s Law, which says that computer processing capability doubles for the same price in less than two years. Ultimately, Moore’s Law drives more than half of the US economy—improvements to automobiles, computers, televisions, even the information you can access.

Currently, 300 million Americans don’t vote on the most important issue in their lives, which is the healthcare of their families.

MCNews: Why doesn’t Moore’s Law apply to healthcare?
Pilzer: Technology cost savings don’t happen without entrepreneurial incentives, starting with the most powerful entrepreneurs in the world: consumers who vote with their feet. Currently, 300 million Americans don’t vote on the most important issue in their lives, which is the healthcare of their families.

MCNews: Is that because most people are in some kind of employer-sponsored healthcare plan and are not making any substantial choices?Pilzer: Yes. And it’s important to understand that people are in these plans primarily because of a 1944 decision that had nothing to do with healthcare. It had to do with wage and price controls.

There was great fear of inflation after World War II, and wage and price controls became sacrosanct. So instead of allowing wage increases, the government said we’ll allow companies to pay unlimited health benefits, not just for workers but for workers’ families.

Originally companies loved this. By 1960 or 1970, everybody was in an employee health plan. They weren’t that expensive and more importantly, it was like a 3:1 benefit. The employer could give you $3 in health benefits and it only cost the company $1 after taxes. Employers got a huge deduction in federal and state taxes for providing benefits, and employees didn’t have to pay taxes on the benefits they received.

But that created a system in which the basic consumer mechanisms that have been with us since biblical times—shopping for what you want at the lowest price—no longer functioned.

MCNews: And the employer cost of healthcare just continued to rise?
Pilzer: That’s right. The employer is stuck: what started out as a great benefit for employees has become a nightmare. They now call healthcare The Cockroach That Ate Cincinnati after the movie of the same name.

Here is the cold fact: Healthcare costs currently exceed profits for the Fortune 500. Why be in business? If healthcare costs go up 15% a year, even if a CEO can improve company profits 12% a year, it’s not enough.

And it does not serve employees either because employers are now in the business of telling everyone what kind of care they can get. The system is at a breaking point where nobody is served.

Most importantly, we’ve driven the 

Employees with families should get the family, meaning spouses and children, off the company plan. In most cases, that will save them money.

cost of healthcare in the US to three times that of any major nation. And even scarier, we are the unhealthiest nation in the world. We’re tied with Australia for that. I believe this is primarily because we’ve lost track of the individual’s responsibility for his or her own healthcare.

MCNews: Do you think employer-sponsored healthcare plans will change in the future?
Pilzer: I believe employer-sponsored healthcare programs will be out of business in twenty years.

Assume those programs will be phased out. They’ll require higher and higher deductibles and premiums. Expect that companies will terminate retiree coverage—no matter what the retiree’s contract says.

Employees with families should get the family, meaning spouses and children, off the company plan. In most cases, that will save them money.

They should look for individual or family plans from a major insurance company, starting with the “Blues” in their state. Blue Cross or Blue Shield is a marketing name for seventy-six different companies. They are really good and the toughest to get into, so try to get a policy for your spouse and children with one of those.

You can probably get them the same coverage they’re getting through your employer for half the price in most states. Or, depending on how much your employer is paying for your family, it might be a wash for you to get private insurance for your family. But if you lose that job, they still have insurance. And, most important, you’re locked into a rate. That rate can never be raised because of illness.

Around 30% of employers contribute nothing for a spouse or children. Others may pay all of that cost. So how much money you can save depends on what percent of the cost your employer is paying for your family’s healthcare.

MCNews: In addition to their families, should employees also consider buying private health insurance policies for themselves, instead of staying in the employer-sponsored plan?
Pilzer: That’s the next step an employee should consider. Analyze whether you should move yourself to a private policy. And that’s really tough because most employers pay 90% of the cost for the individual worker. You need to find out what percent your employer pays for your healthcare insurance.

Now separately from that, you should go to your employer and say, you’re paying $8,000 a year for healthcare benefits for me and my family; give me a tax-free allowance in that amount and let me buy my own health insurance.

The response may be, but that’s illegal. That’s a big change you’ll see nationwide this fall—a new option employers will be able to use. And large employers, with 10,000 and up employees, are going to offer this option.

So the first thing is move your spouse or family off the company plan, and then consider moving yourself off. And most important, ask your employer if you can opt out of the company plan and get the money to use for healthcare.

MCNews: If you’ve decided to opt out of an employer-sponsored health plan, what should you consider about getting your own health insurance?Pilzer: If you’ve decided you want to opt out of the company plan because you want permanent health insurance, the question is—what kind of health insurance?

You need to decide whether or not you should have a high-deductible health insurance policy. And if you choose a high-deductible policy, you should almost always have a health savings account (HSA).

Another choice is a health reimbursement arrangement (HRA), which is a subset of the HSA. The employer puts money into the plan and the employee can be reimbursed for medical expenses, like insurance deductibles. You’re not taxed on the benefit.
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