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"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."
Paul Zane Pilzer is a world-renowned economist, a former advisor to two White House administrations, and a bestselling author. His books include God Wants You to Be Rich, The Wellness Revolution, Other People's Money, Unlimited Wealth, and his latest, The New Health Insurance Solution. 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:
Why doesn’t Moore’s Law apply to healthcare? 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? 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 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? 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.
Pilzer: We have fundamentally changed the rules to the extent that your employer is the last person you should want to provide for your healthcare, from a privacy, financial, and value standpoint. 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? 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.
MCNews: Can you explain the importance of a health savings account
(HSA)? The HSA is like an IRA or 401K for healthcare. Either you or your employer put money into the account. Whatever you don’t spend rolls forward, but you own the account. About two million Americans have an HSA, while four million Americans have an HRA. If the current growth rate of HSAs continues, we’ll all have them in ten years. IRAs came out in 1985 and now 47 million families have them. 38 million families have a 401K. There are 110 million families in America, and anyone who’s smart enough to have a 401K or an IRA will be able to figure out that they shouldn’t don’t put another dollar into a 401K or IRA until they fully fund an HSA each year.
MCNews: Can you only use the money in your HSA for medical expenses?Pilzer: You can also use your HSA to fund your retirement. An HSA has every single feature of an IRA or 401K plus one monster feature: money taken out for healthcare is never taxed. It’s the only permanent tax escape vehicle the IRS permits. If you put money into a 401K or IRA, eventually you absolutely will pay taxes on it. And when you die it’s taxed as ordinary income on the day of death. If you put money into an HSA, you get the same benefits plus anytime you take money out for healthcare including Medicare supplements and death expenses, that money comes out tax free. You never pay income taxes on it.
MCNews: We’ve focused on company employees. How does your advice
apply to self-employed individuals? They may
not be aware that the individual health insurance market has become
more efficient and cheaper in the last few years. Now it’s a better
value than group insurance. Historically a self-employed person went
into a group plan because the group rate was half the price of an
individual policy. Anyone can go to ehealthinsurance.com or to my site and get a quote on individual insurance, including those who are self-employed.
MCNews: If you have just a few employees, what are the best options
for healthcare to make it economical for your business and the best
for your employees? Also, find a consultant to help your employees buy the right health insurance policies. And then separately, offer the HSA just as you offer the 401K. You could match their HSA contributions. So if employees put $2,000 in their HSAs, you’ll put in another $2,000. But you don’t even need to match contribution.
MCNews: And you’ll still save over the group rate as an employer?
MCNews: I’m sure you’ve heard this a million times, but what about
pre-existing conditions? That’s no longer the case. Most states now have guaranteed coverage for people with preexisting medical problems. To put this in context, we’ve always had guaranteed coverage for seniors called Medicare. We’ve always had guaranteed coverage for poor people called Medicaid. And starting in 2005, we have guaranteed coverage in all states for people who have preexisting conditions and are not poor and not seniors. Every state is different. That’s why I had to write a book with a 100-page appendix. But, in general, if you are rejected for health insurance or “uprated”—meaning charged a higher premium because of a medical condition—you become eligible for what’s called state-guaranteed coverage. If you have a pre-existing condition, or a family member with one, what you should do is put just that person in the state-guaranteed pool and the rest of the family in a regular policy. It’s best to look at each individual in your family separately. As of April 2005, 250,000 families were in state-guaranteed coverage. They’re not poor or elderly, but have figured out how the system works. I interviewed an official for one of the state-guaranteed programs who was concerned that I was going to tell people about this. But I feel that’s the state’s obligation, just like it’s your obligation to pay taxes and obey the law. No one is telling people about their rights and that was my prime motivation for writing the book.
MCNews: Last question: If you could give someone one piece of advice
about their healthcare insurance, what would it be? You can spend less for health insurance. It’s really amazing to realize that we have Home Depot, Pet Depot, and Office Depot, and yet the biggest expense in America is medicine and when’s the last time you passed Medical Depot? It’s incomprehensible, isn’t it? MCNews: This has been very helpful. Thanks for your time. For more information on Pilzer visit the Paul Zane Pilzer Web site, The New Health Insurance Solution book Web site, and Extend Benefits LLC.
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Currently,
300 million Americans don’t vote on the most important issue
in their lives, which is the healthcare of their families.
