Health Exchanges: Taking Paul Ryan’s Approach to Health Care

There’s a growing wave of companies doing their level best to contain health care costs while also providing their employees and retirees with quality health care insurance.

To achieve both of these goals, the companies are kicking employees and retirees to the curb.

Well, not literally… but they are forcing them out of company-sponsored insurance programs and instructing them to find insurance on the new health exchanges. The reasons for doing this are obvious: it’s easier, and in the long run it should be less expensive.

Health care benefits are a pain. It takes an incredible amount of resources for a company the size of IBM or Sears to manage these benefits.

At the same time, the future cost of health insurance is an unknown. Will rates go up by 3%, 6% or 14% next year? No one knows.

With the rollout of health exchanges, now companies can get rid of most of their administrative headaches associated with providing health benefits, and also get some sort of handle on future costs. They do this by providing employees, retirees or both with a voucher for buying health insurance instead of providing the insurance itself.

By simply providing the monetary benefit, these companies are ridding themselves of the infrastructure necessary to manage the health benefits. At the same time these companies are setting up a showdown in the future when they’ll tell employees and retirees that the value of the health benefit voucher will not increase at the same rate as the cost of insurance.

This is the only way to bend the health-cost curve without actually changing the way our system provides care. In short, companies are paving the way for having employees and retirees kick in more for their own care.

An interesting point about this trend is that it sounds a lot like Rep. Paul Ryan’s plan for Medicare that he floated during the last election. Under that plan, the U.S. government would solicit bids for the provision of Medicare services, and then provide to recipients a voucher equal to the second-lowest bid.

Recipients could then buy the lowest cost insurance or the second lowest cost insurance without spending any of their own money, or they could supplement the voucher with their own funds to buy a higher-priced policy.

There were wild screams and shouts from people who claimed that Ryan was taking something from them, when that was hardly the case. Would it have changed in the future, where the government switched to a voucher for only the lowest cost, or perhaps simply froze the value of the voucher while the cost of the premiums marched higher? It sure seems likely.

Unfortunately all of the recent upheavals in health care – the Affordable Care Act, moving employees and retirees to health exchanges, the proposal for Medicare – are centered on who bears the cost of insurance, when the real elephant in the room is the wildly inflated and almost indiscernible cost of care.

When a simple survey of the cost of a standard procedure like a knee replacement can vary from $11,000 to $115,000, then there’s obviously a problem. None of the changes mentioned above does a single thing to fix the problem, it only changes who gets the bill.

Rodney

P.S. We’re currently offering a $200 discount on seats at our November 6 to 8 Irrational Economics Summit in La Jolla, California. To take advantage, click here.

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.