Podcast interview with Jack Rovner of Neal, Gerber & Eisenberg LLP (transcript)

This is the transcript of my recent podcast interview with Jack Rovner.David E. Williams:  This is David Williams, co-founder of MedPharma Partners and author of the Health Business Blog. I'm speaking today with Jack Rovner. He's co-chair of the Health Law Practice Group at Neal, Gerber & Eisenberg LLP in Chicago.Jack, thanks for being with me today.Jack Rovner:  It's my pleasure.David:  Jack, let's talk about the McCain and Obama health care plans. What do you consider to be the major strengths and weaknesses of each one of them?Jack:  I'd like to start by saying that there's one aspect that both plans have that are strengths of both, and that is that they're focusing on promoting better implementation of health information technology in the health care industry, which I think is an important national policy that's being pushed. It's something that does promise to improve quality, reduce cost and improve efficiency in health care delivery.I'm pleased to see that in both platforms on their health care reform proposals they also are promoting preventive care and wellness, which is a very good thing generally, so we can improve the general health of our population.

After that, I think they diverge rather radically in several ways. In many ways, McCain's plan is the more radical of the two. On the McCain side, the positive aspect is that his proposal would eliminate a hidden reduction in wages, introducing tax equity, in the sense that follows: because health benefits are not taxed when an employer provides them for the employee, you have a form of wage reduction that the employer otherwise may pay in wages. That tax exemption for that has the effect of benefiting those who are higher income than those who are lower income, because it's greater tax savings for those with a higher income.Beyond that, I think that the McCain plan on the negative side has many, many negatives. It would essentially eliminate the health care delivery system as we know it today, good or bad, it would eliminate employer based group health plan coverage, and go to the individual market. The problem with the individual market is one of affordability and underwriting, which would result in many people not being able to get health care. If they could qualify in terms of not being excluded by underwriting principles, they could not afford it because even with this $5,000 tax credit, most family coverage today costs (from an employer) between $11,000 an $15,000 a year, which would far exceed the tax credit that is in the McCain plan.He's arguing to improve competition among health plans by allowing consumers to purchase their individual coverage across state lines. That, I think, would undermine the states' ability to control the quality of health benefits through their regulation of health insurance. It would probably lead to the lowest common denominator, not a particularly attractive policy  --insurers relocating to states that have the lowest regulatory overlay and the least mandates.I think there are a lot of problems with the McCain plan, in terms of its goal of trying to expand coverage. I think it would have the effect, in fact, of making coverage harder to get for many, many American families.

On the Obama side, I think his plan has the promise of delivering greater opportunity or options for health care coverage, because as I envision it, he would essentially have a Medicare type program available for all Americans by having a baseline insurance product with a certain benefit package to be offered through this federal connector. This would allow both employers and private insurance companies to overlay that product much as a Medicare Advantage plan overlays Medicare's Part A and B. It would offer a variety of different packages at different price points to try to attract a business.

I think that the Obama plan has more promise, certainly more in line with the way we're delivering and paying for health care today. It preserves, if not encourages continued employer-funded and employer-delivered group health coverage employees and their family. That offers an option for everyone supposedly to have affordable health care that they would be able to buy through subsidies.I think for both plans, the great unknown and the real difficult problem is the cost and the figures I've seen show that both plans will be exceedingly expensive. The Obama plan in particular, as it's being touted now, presents a great question about its affordability. The base benefit that the Obama proposal talks about is essentially in line with the Federal Employee Health Benefit Program that Congress and Federal employees have.That's actually a very rich benefit package and if you start with that as the baseline the affordability of that package and those that would overlay it for private industry is somewhat questionable, which raises the question about how then do you --through subsidies or credits or otherwise-- make the products affordable to people.David:  Jack, as you say, the McCain plan is actually pretty radical in eliminating the tax deductibility for employer-sponsored health coverage. I'm wondering what would happen in the case of McCain victory and a Democratic congress, maybe the compromise would be just to have a cap on deductibility as opposed to eliminating it completely. Would that have a more moderate impact?Jack:  I'm not sure that capping it or otherwise changing the pretax nature of benefits for employers would preserve the current system as we know it, which is primarily that most Americans get their health care through their employers and through health plans. I think that anything that would eliminate the tax benefit would then essentially put the employer back in two positions, which would tend to have them, other than probably the largest employers, stop funding and providing group coverage.One is, I think that the translation from the elimination of the tax credit to an increase in wages would not work, in that employers are likely not to increase wages to the full extent of the tax benefit that currently exists, because the payments for group health coverage are of course, pretax for the employee and an expense for the employer.But if you're going to increase wages for the benefit of the pretax amount that goes into the health benefit payment, then you'd actually have to increase wages more than the dollars that are paid out for the health benefit to adjust for the tax amount that the employee would then be paying. I think anything that does that would tend to drive the employers, particularly small and midsize employers, out of the health care financing business.The other problem with it is that whether you were to cap the amounts or however you would essentially change this tax structure that exists today, you end up driving even more people that you want in the risk pool, primarily the young and the healthy, who today would get insurance through their employer, to drop coverage. This would then increase the cost to the employer for the experience rating of the risk pool and tend to drive up the employer's cost for providing health care to a point where I think more and more employers would drop out of that and leave their employees to the individual markets and the tax credits on the McCain plan.David:  You mentioned up front that both candidates are in favor of health information technology and prevention and wellness as a way to improve quality and to reduce costs. The cynic in me wonders whether those are just things that they're saying so that they can justify the expense of their plans with the hope that it will be offset by some cost savings, or whether those savings will be real. Do you think there really is promise in health care IT, in particular?Jack:  I believe the promise is clearly there. It's an area we do a lot of work in, and I think if you look at the analogy of what happened in the financial industry (I don't mean in terms of the financial industry economic collapse; I mean the efficiency that has overtaken the financial industry in terms of managing transactions)  we do not have that today in health care.Yet, you can go anywhere in the world now with your ATM card and get your money. You cannot go to a doctor's office with your health insurance card and have him swipe it in a card reader machine and have the entire transaction handled automatically like you could with a credit card today through your health insurer and your funding. The cost of manually handling transactions is tremendously more expensive than the cost of automated transactions.In addition, automation would not only improve efficiency, it will help route out a major problem in our health care system which is fraud. Not only the processes will allow better oversight for things like claims and care delivery and so forth, but it will also allow better data analysis in two critical areas: fraud, which I believe is a major problem in the US, and its quality of care. That's another thing both candidates certainly agree on and pretty much everybody agrees on: that we need to improve the quality of our health care delivery in the United States exponentially.It's been a vexing problem that we haven't been able to get our arms around. I believe technology, better data analysis and better data gathering gives us the promise of being able to better determine outcomes and set what expectations can be and better apply evidence based medicine.David:  As you mentioned, the Obama plan is likely to be successful in increasing coverage, but the details are fairly complex. There's a baseline program, as you mentioned, that's federally sponsored, there are mandates for children, there is a promise to regulate medical loss ratios in places where there's not competition with private insurance, there are subsidies for small business, there's no discrimination based on preexisting conditions, etc.Do you think it would be simpler to just have a single payer system instead?Jack:  Or a single mandate. The Massachusetts plan or Hillary Clinton plan where everybody is mandated to have coverage. One can argue that ultimately like other industrialized nations in Europe or in Canada we should move to a single payer system. I personally am not a big fan of a single-payer system. I think it has problems. We've looked at the Canadian system. It has significant drawbacks in terms of its ability to adopt and introduce new technologies and better techniques.I think that there's a great benefit, if you look at the Medicare program, to having this government benefit package, which is administered by the government, of Medicare Part A and B, and then overlaying that with a variety of private insurance options at different price points and different benefit packages. I think it keeps the whole system honest, because it keeps the whole system competing for the dollars of the employers who are going to be out in the market trying to buy benefit coverage. I think a single payer has problems in that you really have nothing to measure its performance against.A government payer that has to do business along with a variety of private market options gives you a method by which you can measure the quality of the government's performance as well as the quality of the private markets' performance.David:  I think in the single-payer systems there actually is some accountability. I know that in the NHS, for example, on its website you can see what the wait times are for an appointment, and they have targets and they measure people against them. In Boston it's actually hard to get an appointment as well, except there are no real statistics that are kept and it's not really anybody's responsibility to make sure that people can get in to the doctor on a routine basis. Just an interesting observation.But let me change the topic a little bit and ask you about the role of the states. Certainly the states have played an important role in the past several years for health care reform. What do you expect to happen over the next couple of years?Jack:  I think it's actually quite interesting. The states have historically been the key regulator of health insurance. The major exception to that was enacted by Congress in 1974 when they enacted ERISA, the Employee Retirement Income Security Act, which allowed employers who self-fund benefit packages for their employees to be exempt from state regulation. Instead they're regulated at the Federal level by the Department of Labor.

I think that under the McCain plan, if McCain were elected and was able to institute his plan, I think there would be an enhanced role and need for states to come up with their own initiatives, because I think the result of the McCain plan would be to make health insurance less affordable to people, certainly quality health insurance. He also proposes high risk pools, which historically have been an option that states have tried and usually have failed because you don't do very well when you put the sickest people all in the same risk pool. It just sends cost up beyond affordability.But I think that under the Obama plan, interestingly enough, I think you'd see more of a Federal controlled delivery of health care financing, Federal regulation of the insurers that would be offering the private market plans to overlay the Federal plans, much as you have today with ERISA, much as you have today with the Medicare Advantage plans, which are not subject to state regulation.

I still think there will be a role under any of the plans for states in regulating the conduct of agents and brokers and, depending on what Congress were to do in its enacting of any reform, it may still be a significant role for the state insurance regulators to oversee the delivery of health insurance within their states.David:  We've been talking a lot about McCain and Obama's health care plans, I wonder with the huge economic and financial crisis, whether health reform even matters?Jack:  Actually this is quite interesting. Because of the current economic crisis and the financial markets, and with credit, it almost appears that health care, which had been a major campaign issue, has taken a back seat. I think that a solution to our health care delivery problem is probably going to emerge again as a number one issue in the new Congress and the new Administration as part of a need to find solutions to the current economic problems that we're facing in the financial and credit markets.The reason for that is that as the economic problems exist, and I saw the reports just came out for the third quarter of the year, we're now definitely in a recession because we've had negative growth. I just saw some unemployment numbers that came out of the business review showing, for example, Rhode Island, which is leading the nation, has over nine percent unemployment now.My point is that as the economic conditions worsen before they start getting better, people are going to start getting laid off, they're going to start losing their jobs, when they lose their jobs they're going to lose their insurance from their employers. They're going to find that they can't afford COBRA. COBRA may give you continuation coverage for 18 to 36 months, but you have to pay the full rate. Your employer doesn't make a contribution anymore.A lot of people, especially after losing their jobs, are going to find that not affordable. I think that the number of uninsured  including particularly the middle class who used to have employer coverage  is going to go up significantly. That is going to intensify the pressure on Congress and the new Administration  --whoever it is--  to find a solution to our health care delivery system and make it affordable as part of the need to find a solution for our current financial and credit crisis.David:  I've been speaking today with Jack Rovner, co-chair of the Health Law Practice Group at Neal, Gerber & Eisenberg LLP in Chicago. Jack, thanks for your time today.Jack:  It was my pleasure. Nice to talk to you, Dave.