Imagine that you own a company with 100 employees.  Your company has provided traditional health insurance to your employees at a cost of $45,000/month until about 3 years ago when you discovered that you could “self-insure.”  You made this move because for many years in a row, the dollar amount of the health claims submitted by your employees didn’t amount to the dollar amount of your insurance premiums.  You realized that had you paid for your employees’ health needs out of your operational revenue, you would have been financially better off.  Very simply, you now pay this $45,000/month to a fund/trust you set up within your company, out of which health related expenses for your employees are paid.  You back this “fund” up with insurance that kicks in for catastrophic claims.  

This catastrophic claim deductible (called an attachment point) amounts to your liability or exposure for any given employee’s health needs.  This catastrophic insurance is commonly referred to as “stop loss” insurance.  As a result of your decision to do this, you now have $1,000,000 in this “fund” or “trust” that would have otherwise been paid to an insurance company.  Rather than have an insurance company say what is or is not “covered” you can help your employees with their expenses more personally and more efficiently, having eliminated the insurance company middleman. 

Let’s say that your attachment point is $30,000.  This means that if an employee has $28,500 of health claims in a year, you pay every dime out of your “fund.”  If they have $90,000 of claims, you pay $30,000, the stop loss insurance paying the rest.  This is oversimplified, but you get the idea.

Actuaries make their living by applying mathematical models to help self-funded health plans “guess” what their loss experience will be.  This information helps determine what the attachment point should be and also helps determine what sort of cash reserves a company should keep on hand.  What is the statistical likelihood that one of your 100 employees will develop cancer?  What is the statistical likelihood that 5 of your 100 employees will incur claims of over $30,000?  These are the types of things that, although uncertain, are predictable within limits. 

Part of the problem that actuaries have with their calculations, however, is that one never knows what a cardiac surgery or a hip replacement or a gall bladder removal or a tonsillectomy will cost.  There has been simply no way for actuaries to get this information in advance.  You can see where this is going, can’t you?

The significance of transparent and upfront pricing that we have embraced and that more and more physicians and facilities are embracing is revolutionary for the self-funded plans, as employers taking this approach can now with much more certainty, ascertain the “risk” their plan must endure.  Furthermore, as the costs of healthcare have skyrocketed over the last few years, smaller and smaller companies are venturing down the “self-funded” path, making this decision based on cost savings and partly to maintain some autonomy. 

To quote Jim Epstein from Reason Magazine:  “Enter Obamacare!”  This central planner’s dream catcher has made the risk-benefit proposition of self-funding an even better decision, as self-funded plans are not subject to many of the provisions of this legislation.  I have maintained all along that Obamacare was meant to fail, a Trojan horse meant to introduce chaos and even higher prices into the medical economy, just the nightmare the state needs to justify rescuing us with the sequel…single payer. 

“That’s crazy,” many of you have said!  The Unaffordable Care Act was meant to reduce costs and protect patients and make sure that everyone had “coverage!”  Keep dreaming.  Uncle Sam doesn’t want you to have “coverage.”  Uncle Sam wants you to buy approved coverage, that is, coverage from their crony pals.  That is the purpose of the exchanges.  The price of insurance has already risen, with up to 100% increases in premiums expected (that’s right, doubling) for January renewals.  Residents of states that have embraced Medicaid expansion will (an expansion pushed for hard by none other than the big hospitals) soon hear these same hospitals whining about all of the new Medicaid patients that are not covering the costs of the care they receive and using this as their excuse to continue to aggressively “cost-shift” to others.  Translation?  The charges and costs everyone will see at these big “not for profit” hospitals will escalate, particularly in the states where Medicaid expansion and exchanges are embraced!

Back to the self-funded bunch.  The government can’t just let these businesses stay on the sidelines, refusing to wade into the price whirlpool, can they?  70% of private insurance claims are paid by these self-funded trusts.  The government has made promises to their crony buds in the hospital and insurance industry.  This self-funded bunch must be reigned in or the scheme to mandate the purchase of health insurance through exchanges that will operate under government oversight (rationing) will fail.  As a bureaucrat, how would you devise a plan to stop the growth in the number of companies “seceding” from the system by self-funding and possibly even bring some that are already self-funded into the drowning pool?

The answer is here, here and here.  If the National Association of Insurance Commissioners is successful in destroying the “stop loss” industry in each of the states, few-no companies will take the self-funded risk, as they have no effective “back-stop” for catastrophic losses.  Bingo!  Everyone is now drowning together!  Crisis complete.  There is no doubt whatsoever in my mind that this attempt to destroy or hamstring the stop-loss industry proves that a single payer system is the goal of the statists, a system that will allow the medical industrial complex to extract wealth even more directly from the taxpayers, rather than profit by providing a service to consumers/patients. 

If the state insurance commissioners move (some are already doing this) to raise attachment points or otherwise hamstring this stop-loss industry, you will know that those state commissioners are playing on Uncle Sam’s team.  This stop-loss industry represents the biggest obstacle in this country to a Soviet-style single payer system, in my opinion.  The efforts to crush this industry are not something the “state” wants you to know about, as this will make their ultimate goal even more ridiculously obvious. 

G. Keith Smith, M.D.