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October 19, 2015
Christopher F. Koller
Jan 18, 2022
Jan 10, 2022
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Back to The View from Here
When I regulated commercial health insurance in Rhode Island, I would point out that the politically conservative notion of a free market for health insurance depends on the liberal principle of collectivism.
Health insurance only works if enough people come together so the many who are healthy can pay for the few who are sick—and if payments from insurers actually help improve the performance of the whole system.
In pulling healthier people out of the collective risk pool, and in the payments they do and don’t make, self-insured plans pose a threat to that vision. This coming year, in Gobeille v. Liberty Mutual, the Supreme Court will determine to what extent these plans need to join other payers in improving the health care system.
How Self-Insured Plans Work
In self-insured plans, large companies act as their own insurer, designing benefits, covering employees and their families, and paying a third party—almost always a commercial insurer—to administer the plan. Self-insured plans only work for large companies, those with enough healthy people to cover the few who are sick.
The Employee Retirement and Income Security Act (ERISA) of 1974 codified large employer benefit plans and pre-empted the state laws from regulating them. Sixty-one percent of Americans with private insurance (or about one-third of the US population) get it through self-insured employers. That number is reportedly increasing as smaller and smaller employers look for ways to avoid ACA requirements.
Self-insurance hurts those employers who instead purchase health insurance. It only makes financial sense for companies to self-insure if their pool of employees is healthier than the pool at large (“favorable selection”) or if they can negotiate substantial discounts from the fees third party administrators charge their commercial insurance accounts.
If you are a health care system—an accountable provider, a geographic community, or a whole state—you are working to improve the value of care for your entire population. Even if favorable selection is a political reality granted by ERISA, you want reasonable consistency in rules, payments, and participation from all the entities financing your efforts.
The Court Case
Along with at least 15 other states, Vermont has established an all-payer claims database (APCD). An APCD pools information on the services paid by every health care payer—including Medicaid and Medicare—in a common database. Once collected, the data can be used for policy priorities across the political spectrum: APCDs can support price transparency efforts to make markets work better, supply public reporting of provider quality and safety performance, and provide statewide efforts to measure, predict, budget and, even control, health care expenses.
Liberty Mutual has protested the requirement to provide data to the state of Vermont, arguing that it violates ERISA. The legal arguments in the case—to be heard by the Supreme Court in early December—will concern to what extent APCDs “relate” (to use the statutory language) to group health insurance. Liberty Mutual’s supporters will point to the ERISA-guaranteed ability of large employers to exempt themselves from state insurance laws. Supporters of Vermont’s position argue that APCDs are a collective effort, from which self-insured employers benefit, and are independent of group health insurance.
Vermont’s advocates have a strong case. APCDs “relate” to system benefits not employee benefits. When self-insured employers establish high-deductible health plans for their employees, workers will seek out provider price and quality comparison tools established through APCD efforts. When employers expect health care providers to improve the safety and quality of medical care, those providers will need APCD-enabled comparisons to understand how they are performing. When employers decry the crippling trends of underlying health care costs, it will take statewide efforts made possible by APCDs to assess and analyze those trends in order to reduce them.
The exclusion of information on about one-third of the total population in a community from an APCD can also compromise the integrity and accuracy of its information.
The Work of Improving the System
The establishment of APCDs, however, point to a more fundamental question: when is health care financing an effort of groups of individuals who are pooled together to share risk, and when is it a collective effort to pay for the care of a geographic population?
Even with a strong policy commitment to private health insurance markets, to the extent health care financing focuses on system-wide improvement, it should involve all of us.
In addition to APCDs, other health care reforms are helping to improve geographically-defined health care systems. Health insurance exchanges, at both the state and national levels, help individuals make purchasing decisions. Health information exchanges that transfer electronic health record information exist at the regional and state level. All employers benefit from these activities.
In fifteen states, vaccines are purchased collectively by public health departments, taking advantage of public sector rates and distribution channels—and often financed through charges to commercial insurers. Because of ERISA, national self-insured employers often cannot be included in this state-facilitated financing. Physicians and nurses administer these vaccines in their offices to all their patients, regardless of payment source or employer.
Finally, in 17 states, projects are aligning payers and payments that build stronger primary care capacity. Self-insured employers are often the last to these tables, trailing far behind even public sector payers. These primary care transformation efforts are producing positive results—lowering costs and improving care—from which self-insured employers benefit.
A favorable decision for Liberty Mutual could hinder collective efforts to improve health system performance like these, by giving self-insured employers even less need to participat e.
While much of the financing for health care is national, our health care systems are local. They involve many populations, many providers of care, and many services. The most effective things we can do to improve the health and longevity of populations have little to do with group health insurance benefits. They involve collective efforts to help people stay healthy and get high value, patient-centered care when necessary. We should encourage all those who finance care—including large employers—to recognize and participate in these local efforts, not give them free passes.
If this is about health, it is a mutual effort. We are all in this together.
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