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Richard (RJ) Eskow Headshot

I'm the Guy Who Cut Your Health Benefits. Trust Me.

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Over twenty years ago I sat in the office of one of the most famous CEOs in the world. He had gathered a group together to redesign the health benefits for 100,000 employees. A lot of ideas were being thrown around: cafeteria plans, increased out-of-pocket costs offset by savings accounts, multiple plan options. He was famous for both his brilliance and his nastiness, which may be why I was the only one who asked exactly what he was trying to accomplish.

"Simple," he said. "I want to give them less and make them think it's more."

Part of my job back then was to analyze health care costs and model ways those costs might change under different plan designs. I'd written a textbook chapter on the way medical information and financial incentives affect doctors and patients, but this work wasn't theoretical. Business people wanted answers. I worked for health insurers and large employers. They wanted to know what they were buying for their health care dollars, how much those dollars were likely to go up in the next few years, and what they could do about it.

Predicting's a tricky business, but I had a reputation for being good at it. A big part of the job was knowing which proposed changes would really affect costs and what wouldn't, which would keep employees healthy and happy and which would affect their health adversely. (Even the most hard-nosed executives don't want absenteeism to go up. It's bad for productivity.)

I've thought about those days a lot as I've watched health reform work its way through the political process. A lot of the theoretical arguments for some of the more specious aspects of reform are retreads from those old days in the 1980s. Like big-hair bands, they're a part of that decade that just won't go away.

Those ideas didn't work then, and there's no reason to believe they'll work now. Then, as now, people had far too much faith that we could design a health plan so efficient that it would, in effect, manage itself and reduce its own costs. Instead, here's what really happened in the 1980s: HMOs and other managed care techniques created a sharp, one-time reduction in costs (much of which wasn't really reduction at all, but a shifting of those costs from insurers to individuals). But the pace of health care inflation continued as before - sometimes slowing, sometimes increasing, but always racing far beyond what we could afford. We thought we were improving the system, but in many cases we were only adding to the problem.

Take the excise tax, which people claim affects only "Cadillac plans": The idea that it will "bend the cost curve" is based on studies that were new and exciting back in the Duran Duran days, but have since been seriously challenged. (I'll be writing more about that.) The excise tax will actually cut benefits - mostly very standard benefits, the kind most of us enjoy - from plans that have older or sicker members, people in certain industries, or members in the wrong part of the country. And they won't reduce overall costs at all.

Which gets me to another aspect of my old job: If we made a change and people didn't like it, we got a lot of angry phone calls and insurers lost customers. So we developed a very good sense of what people will and won't accept. I see a lot of ideas, especially in the Senate bill, that may look good on paper in Washington but will be very unpopular out there in the real world. (Surveys confirm that suspicion.)

Then there's the "to catch a thief" principle: If you don't know how insurance companies can work around regulatory obstacles, you have no idea how fragile or even counterproductive some ideas can be. Take the Senate proposal to hold insurance company profits and administrative costs to 15 cents on every dollar collected. It sounds great, but as I told David Dayen of Firedoglake , it wasn't hard to come up with five ways the insurance companies could get around it.

As David writes, those ideas included tinkering with the "incurred but not reported" cost reporting system the industry uses, and re-labeling some administrative costs as "medical" in nature (which is already being done by some workers' compensation insurers). Nationwide companies could move more of their corporate expense load (including executive pay) to divisions and regions of the country that are already ahead of the Senate's target (like these Florida HMOs). An even simpler approach would be to simply pay more in medical costs than they are paying today.

I see something else that reminds me of the old days, too: I see the footprints of people wanting to "give them less and make them think that it's more." We've seen that behavior in the actions of some small-state Senators with big insurance contributors.

These aren't abstract or ideological concerns. They're based on real-world experience. If Congressional leaders and the White House leadership are serious about creating effective reform, they need to pay more attention to how some of these proposals will play out in the rough-and-tumble arena of medical economics. They'll need to fix what's wrong in these bills, and then turn their attention to an area we've haven't discussed enough: oversight and monitoring of the health insurance industry.

I tried to be a voice of reason in the old days. But if I had anything to do with cutting your health benefits back then, apologies won't be enough. So consider these suggestions an attempt to make amends. Because, if there's one thing I know, it's that ideas that sound good on paper can cause real problems when they're carried out.

Trust me on that.
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RJ Eskow is currently working with the Campaign for America's Future to stop the health excise tax. He blogs at:

No Middle Class Health Tax
A Night Light
The Sentinel Effect: Healthcare Blog

Website: Eskow and Associates