Likely Health Care Reform Will Not Reform the American Health Care System

Remember those Archway "Windmill Cookies?" They were a favorite when I was growing up.

Robert Pear's article in the New York Times this weekend reminded me of that treat my mother used to buy for us kids. His article also illustrated the crisis many families are facing in what looks like it will be the worst recession of our lifetimes.

Archway was a great American company--it was in business for 72 years. Great treats that were part of so many childhoods and the place a lot of people worked for most if not all of their working years. A company that took good care of its people.

Until Archway went out of business recently when its current owner--a private capital fund--shut off the financing in the face of big losses. Unfortunately another common American business story these days.

Archway had a self-insured health plan regulated under ERISA. ERISA health plans, unlike pension plans, have no funding requirements or backstop federal insurer. If the company can't fund its health benefit plan the benefits cease and the workers simply become another creditor if they have outstanding medical bills to be paid.

The employer-based ERISA health insurance system may just be about the best thing in our dysfunctional health care system. 175 million people generally have great health insurance because of it. The vast majority of employers voluntarily offer comprehensive benefits and do everything they can to cover their people--most paying 75% of the premium. You don't hear about age rating, guaranteed insurability problems, or limited benefits. Having a choice, I expect about every American would pick a typical corporate ERISA health plan over Medicare or Medicaid.

The problem is that the whole ERISA health insurance system depends upon the employer's goodwill and ability to pay the bill month to month.

With unemployment at about 8%, and likely headed to at least 10%, lots of people are being laid off.

Worse are all of the corporate insolvencies.

If the employer goes out of business there is no COBRA benefit continuation option because your ERISA plan is dead--the administrator is not on the hook to give you COBRA options or pay your outstanding bills even if it is one of the national health plans. Health plans generally pay their claims one or two months in arrears, so if you had surgery last month and the plan hasn't paid any of your self insured bills and then ceases to operate you are out of luck (you may have coverage for claims that have reached the plan's reinsurance point).

That is what is happening at Archway today.

Some advocates for health care reform use this kind of example to tell us this is a big reason we need to have a health reform bill passed in the Congress next year.

They are right--but they also may not understand that even an Obama campaign-style health reform bill will not come close to ending this problem.

For example, non-partisan health care analysts at The Lewin Group, have estimated the Obama health plan would only cover about half of the uninsured leaving 22 million still without coverage. The similar Massachusetts Health Law is providing no assistance for most families making between $52,000 and $110,000 a year toward the $10,000 to $12,000 cost of family health insurance in that state.

As I have said on this blog before, doing a halfway job on health care reform is hardly progress. Health care reform without effective cost containment is just destined to blow up. Saying we are doing access reform but leaving the system full of coverage gaps raises expectations but just gives us a more expensive and even more unaffordable system.

Stories like this are not a reason to copy the Massachusetts Health Law or even enact the Obama Health Plan. Neither will come close to giving workers health insurance security.

Only a health plan with tough cost containment, a comprehensive safety net that works from day-1, and a self sustaining means to pay for it all will solve this problem.

We don't need to do this in steps. Wyden-Bennett, as an example, gives us a self-financing comprehensive safety net that covers virtually everyone--and continues to allow for ERISA plans. Add to that some tough cost containment and we can really solve this problem.

But let's not kid ourselves that any of the plans that look to be on the table today are the answer to what the former Archway employees are going through. They are not.