Dan Munro

Writer

14 Reasons Why We Need To End Employer Sponsored Health Insurance (ESI)

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According to KFF — a definitive resource for healthcare policy, research and polling — over 158 million Americans paid for their health insurance coverage through their employer in 2023. This is most often referred to as Employer Sponsored Insurance (or just ESI) because employers heavily subsidize the total cost of coverage. With a population of about 336 million Americans in 2023 — that puts ESI at about 47% of the total population. If we subtract out the uninsured (about 26 million), ESI is closer to 51% of the insured population.

Here in the US, we have lived with ESI for about 80 years and given its totally opaque mechanics — not to mention enormous influence — it’s time we ended it. There may easily be more reasons why we should end it, but here’s 14 to start.

  1. Accidental Design: ESI was never the product of intelligent design. It is literally an accident of WWII history. In fact, there’s no clinical, fiscal or moral argument to support this unique financing model and America is the only industrialized country that leverages employment as the governing entity for direct health benefits.
  2. Not a core competency: Whatever business the employer is in — the vast majority aren’t in the actual business of healthcare, so they lack critical healthcare domain expertise. Attempts to acquire or build that domain expertise — even by large employers who have the fiscal resources — have all failed. This includes high profile ones by Walmart, Amazon/Berkshire/Chase (Haven), and Google (to name a few).
  3. Lack of scale: Large group purchasing models may build (or buy) component elements of healthcare for their employees, but any of those fiscal (or clinical benefits) won’t auto-magically accrue to other companies.
  4. Uncapped pricing: Unlike Medicare or Medicaid (where the government sets the price), commercial ESI pricing is effectively uncapped. It’s literally whatever the market will support — and what providers (who set pricing) can successfully demand. Healthcare is unique because unlike other markets, demand will always exceed supply — AND — there is no ‘demand elasticity’ for living.  
  5. Tax exclusion: While ESI started out as an accident of WWII — we then codified it into our tax code in the 1950’s. Today, Employers derive enormous tax benefits just for “providing” health benefits.” Today, this tax exclusion amounts to about $300 billion a year and represents the largest federal tax expenditure. This corporate welfare grows annually, and lives in perpetuity.
  6. Incentivized to fund rich benefits: Obamacare (aka the ACA) attempted to reign in this corporate welfare by putting a cap on the federal tax exclusion (called the Cadillac Tax), but business lobbied successfully and an appropriations bill in late 2019 killed it. The Cadillac Tax might have begun the weaning process off of ESI, but corporate America stopped it cold.
  7. Wage Tax: The employer “subsidy” for expensive health benefits is significant (at or near 60%), but it’s effectively an opaque (and unreferenced) tax on wages. The very real effect on wages, however, is far from opaque in this chart.



  8. Open Enrollment necessity: By linking ESI to the tax code — we’ve tied health benefits more broadly to the whole tax calendar with everything churning annually. This includes the uniquely American insanity of “open enrollment” — which has no correlation or applicability to human psychology, physiology or biology. We should all contribute (through taxation) to our healthcare system, of course, but a period of “open enrollment” (with a very specific number of days every year) serves no clinical or moral purpose — only a fiscal one. As a footnote, this whole construct also left the door open for Medicare+Choice (now Medicare Advantage) to lure seniors back into commercial coverage annually (which CMS then pays extra for over and above “traditional Medicare”).  
  9. Employee tenure: According to the Bureau of Labor Statistics, the average employment tenure is 3.9 years. This “churning” of coverage (and networks) for the employee makes continuity of health care delivery almost impossible. Sure, employees move and change careers by their choice, but getting their health data and history to move with them is a nightmare. Just changing insurance carriers at the same employer is a nightmare.
  10. Rise of Self-Insured Employer: Upset with the never ending and skyrocketing costs of healthcare — employers discovered a new way to control costs more directly and today, over 65% of workers who get health benefits through their employer are in “self-insured” plans. That means the employer — not the insurance carrier — is carrying both the fiscal and clinical risk — as unregulated insurance companies. The wallet card may say Aetna, Cigna, UnitedHealth or Blue Cross — but those big brands are only acting as Third-Party Administrators — not actual insurers. Yes, ERISA, COBRA, and HIPAA still apply, but self-insured plans are not regulated by state insurance commissioners. ERISA (largely a federal reporting requirement) has “fiduciary obligations,” but this is new ground legally for healthcare and has yet to be tested for applicability to health benefits. We can hold employers’ feet to the legal fire of “fiduciary obligation,” sure, but employers didn’t design this system, or set the wildly variable rates, so proving their negligence — while novel — will be challenging legally. I’ve seen a few lawsuits already, and there’s always the settlement door without admitting negligence — and that assumes the case survives preliminary judicial review.
  11. Billable episodes of care: This constant churning of benefit plans and provider networks annually is totally counter-productive because it supports fragmented, episodes of healthcare for billing purposes, but it’s not coordinated, long-term or designed to support preventative healthcare. One of the reasons employers are generally less concerned about lower cost preventative healthcare is because they know the tenure of their employees is short-lived (less than four years) and they’re naturally reluctant to have longer-term health benefits accrue to the next employer — potentially a competitor.
  12. Four party complexity: ESI represents a 4th party — the employer — in the management of a complex (and expensive) benefit over a long period of time. That function is administratively difficult for even 3-party systems (payer, provider and patient) in other parts of the world. So why do we need a 4th party to add to the layered and bureaucratic complexity? We don’t, but all the fiscal incentives are aligned to keep it this way — indefinitely.
  13. Employer making clinical and fiscal decisions: From recent events, the subject of insurer pre-authorizations and claim denials has reached a fever pitch, but the false assumption is that it’s always the branded health insurance companies that’s responsible for those decisions. With self-insured ESI, it’s (ultimately) the employer who decides both the fiscal AND clinical benefit.

    “Although the employer is responsible for paying their employees medical bills, when the plans are administered by a third-party insurance company it can seem like the third-party administrator is the party who should pay and should decide any appeals. But this is not the case, and the employer is at the forefront of any decisions regarding their employee’s medical coverage.” Adria Gross – CEO of MedWise Advocacy (30+ years of health insurance expertise)

  14. Lack of leverage: Self-insured or not – employers (large and especially small) simply lack the leverage to negotiate price. Mark Bertolini (former CEO of Aetna – now CEO of Oscar Health) highlighted this insurmountable employer challenge earlier this week on CNBC’s ‘Squawk Box” when he advocated for ending ESI. The question posed to him was simply “what would you do?”

    “What I would do is eliminate employer sponsored insurance. The ability of your employer to negotiate against the large insurance company – that has a much larger relationship with the provider community – is very stinted now. You can’t do it now. The companies have no leverage now. The foundation of our economy is small business and middle-market – they have none.” Mark Bertolini, CEO of Oscar Health

Now, employers love to complain openly — and often — about the high-cost of healthcare, but it’s a distraction because they also benefit from both the corporate welfare (tax exclusions) and depressed wages. The trifecta — as Mark highlights — is that they also lack the negotiating power to influence price so the cost of coverage can only go up.

There is no miraculous solution to this — no magic wand or fiscal calculation around this bouillabaisse of system design that keeps pricing spiraling ever upward because what we’re tinkering with is actuarial math (insurance) and for-profit commercial pricing — at scale. Employers (of every stripe and size) can certainly lobby for legislation to change this moral morass of tiered pricing, but they haven’t so far, they lack incentives to in the future, and it’s easy to see why. I’ve just listed 14 reasons (and I’m sure I’m missing some) but end this insanity we must.

Single-Payer Healthcare Isn’t Necessary – But Single-Pricing Is

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[first published in Forbes July 4, 2017]

Once again, our healthcare reform is mired in muck. That means we’re also knee-deep and grinding away at our circular healthcare debate, but it’s really a big distraction because it’s the wrong debate.

We keep debating the math of coverage and cost as if they’re independent of system design — and they aren’t. As Senate Majority Leader Mitch McConnell is finding out, there’s no solution to the Rubik’s Cube he’s playing with, because it’s the same one we’ve been fiddling with for decades — tiered coverage to support tiered pricing. The only way to lower the cost is to end coverage (how and for who are just the dials).

The good news is that ‘single-payer’ healthcare isn’t necessary to solve our healthcare cost crisis. The bad news is that ‘single-pricing’ is, and that will require systemic change.

Lost in our debates (often intentionally) is a critical design component called universal health coverage. Here the landscape is littered with artifacts and variations of the term, but they’re often used in a way to disguise, confuse or obfuscate the core principle of universal coverage. There are many good definitions, but this one from the World Health Organization captures the general intent well:

“Universal health coverage is defined as ensuring that all people have access to needed promotive, preventive, curative and rehabilitative health services of sufficient quality to be effective, while also ensuring that people do not suffer financial hardship when paying for these services. Universal health coverage has therefore become a major goal for health reform in many countries and a priority of WHO.” 

Terms like ‘universal healthcare,’ ‘Medicare for All,’ and ‘single-payer’ are typically substituted for universal coverage as if they’re interchangeable and all mean the same thing. They don’t, and the enormous distinctions are critical for any debate. Payment and coverage are definitely connected, but that connection can and should be simple and transparent — not complex and opaque. Universal coverage is that simplicity AND transparency.

What the U.S. has is tiered coverage designed to support tiered pricing. It’s not just complex for everyone, it’s totally opaque. Medicare, Medicaid, VA, Indian Health Services, employer-sponsored insurance, Obamacare and the uninsured are all different tiers of coverage — with different pricing. That works well to maximize revenue and profits, but the sacrifice to this design is safety, quality, and equality. A big myth surrounding the debate is that our system is just broken. It’s not. It’s working exactly as designed, and we need a different design based on the core principle of universal coverage.

Obviously, how universal coverage is paid for (either single or multi-payer — delivered through government or privately owned industries) is a critical debate, but who qualifies for coverage (and under what terms) shouldn’t be. There are only three big arguments against universal coverage — clinical, fiscal and moral — and they all fail. The clinical evidence alone isn’t dazzling, but it is compelling. As MedPage Today noted last week:

“There are a lot more studies covered in Woolhandler and Himmelstein’s paper, but they all suggest the same thing — that insurance has a modest, but real effect on all-cause mortality. Something to the tune of 20% relative reduction in death compared to being uninsured.”

That’s just the clinical evidence, but healthcare is really expensive, so health coverage is inseparable from payment — which, of course, is the fiscal or economic argument. As a country, we’ve been arguing, fussing and fighting over the economics of healthcare for decades — and are likely to for years to come — but this one chart is the only proof we need that we’re not just on the wrong clinical trajectory, we’re on the wrong fiscal one as well.

Our system design is the death spiral — not Obamacare. Of course, policy wonks and politicians love to confuse the debate with a heavy focus on the y-axis of life expectancy. The general argument here is that the data around life expectancy is too variable around the world, so it’s all wrong. By extension, the argument goes, the whole chart must be wrong, but I’ve seen no dispute with the x-axis because the math is bone simple. Take our (estimated) National Health Expenditure for 2017 ($3.539 trillion, from CMS) and divide that by our current population (325,355,000, from the Census Bureau). The result is a whopping $10,877 per capita spending — just on healthcare — this year (the chart only goes to $9,000 in 2014). [NHE now over $5 trillion and $15,000 per capita in 2024]

The argument that universal coverage is just too expensive for Team USA also falls with this chart because all of those other countries have some variant of it. Our debate swirls endlessly around economic options of tiered group (and now individual) coverage — but it’s all the science of actuarial math. The largest single group is always an entire country, and that’s also where the actuarial math is fully leveraged. As we can see from the chart, our decades-long battle with actuarial math has been epic, but the cost battle using tiered coverage (or some variant) is unwinnable.

All of which brings us to the final argument — the moral one. Germany was among the first to recognize the moral imperative of universal coverage with their Health Insurance Bill of 1883. We’ve argued this imperative as well — perhaps none so eloquently or succinctly as Dr. Martin Luther King, Jr. in 1966:

“Of all the forms of inequality, injustice in health is the most shocking and the most inhuman because it often results in physical death.”

He’s right and we know it.

The clinical, fiscal and moral arguments against universal coverage all fail, so what’s left? All we really need now is the logic behind our obvious and longstanding political intransigence against it. Why don’t we just implement universal coverage? Here’s the simplest and best answer I’ve seen from the legal mind of Harvard Law Professor Lawrence Lessig:

“You know, when Bernie was talking about single-payer healthcare people rolled their eyes. Not because it was a bad idea, but because there’s no chance to get single-payer healthcare in a world where money dominates the influence of how politicians think about these issues.”

He’s right and we know it.

Much of our ‘healthcare debate’ isn’t really a debate at all. It’s a huge distraction from our fatally flawed system — the status quo. We’re just grinding away at the math hoping for an undiscovered calculation to solve our Rubik’s Cube. Politicians and heavily entrenched incumbents love to debate the variants of tiered coverage (and opaque pricing) because it continues to support the enormous revenue and profits for the healthcare industry. At almost $11,000 per capita per year [over $15,000 now in 2024], our healthcare system is a gigantic monument to the priorities of ‘shareholder value,’ inequality and injustice — at scale.

No one group is to blame for our healthcare cost crisis because each segment of the industry is complicit, and they each have a fiduciary obligation to their shareholders. Payers, providers, pharma, suppliers, educators, software vendors and medical device manufacturers are all harvesting enormous profits from our $3.4 trillion ‘medical industrial complex’ [now over $5 trillion in 2024]. Naturally, they also lobby heavily for legislation to support those profits, and they have the war chests to do that effectively.

Again, a payment mechanism for universal coverage is the only real debate because there are many options and enormous ancillary benefits as well. Two of the biggest are single pricing (versus the opaque, tiered pricing of our current system) and the elimination of annual enrollment. I’ve never seen a clinical or economic argument supporting annual enrollment in health insurance because there aren’t any. That’s just not how healthcare works. It’s just another artifact (like employer-sponsored insurance) in a system that’s been optimized for billable episodes of care — not health — marching to the drumbeat of a tax calendar.

Single-payer is certainly one payment option, but it’s not the only one–and it’s easy to argue that it’s not a good cultural fit for Team USA. That’s OK because we don’t need single payer to get to single pricing. As one of the wealthiest countries on the planet, we can easily afford any healthcare system we choose — except one. The one we have.

Millions Of Patient Health Records Now At Risk Through Unregulated API’s

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Over the course of about a year, a single ethical hacker was able to access millions of patient health records and expose systemic risks in software that are effectively outside the legal jurisdiction of the Health Information Portability and Accountability Act of 1996 (HIPAA).

Application Programming Interfaces (API’s) are considered infrastructure (not application) software because they typically work below the application presentation layer as a way to bridge data requests between different (often competing) software applications. The end-user (or consumer) would see the result of an API request in a front-facing application, but not the API itself.

Of the five FHIR API implementations I tested in phase two of my research, three contained pervasive vulnerabilities that allowed me to access over four million patient and clinician records – often using a single login. The other two were built by Electronic Health Record (EHR) vendors and I found no vulnerabilities in either of them. 

Alissa Knight
Ethical Hacker
Author of “Playing With FHIR”

The white paper, titled “Playing With FHIR,” is a word play on the underlying specification called Fast Healthcare Interoperability Resources – or FHIR – which is a kind of blueprint for building API’s used specifically in healthcare.

In fact, many of the vulnerabilities Alissa identified were easily avoidable and some of the techniques she used were very basic and in common use by entry level security testers globally. At least some of the vulnerabilities may have been caused by software developers who were overly eager to cash-in on a freshly minted regulation called the “information blocking rule.” The new rule went into effect earlier this year and it’s now clear that some developers (either intentionally or out of ignorance) didn’t adhere to critical security specifications that are clearly outlined in the FHIR blueprint.

The basic intent of the new rule (which is exclusive to healthcare) is to threaten incumbent EHR software vendors and providers with penalties if they intentionally “block” access to their datastore from 3rd party requests. In reality, however, the rule is really more of a theory because there’s no hard evidence of intentional blocking to date and there are reasons to believe that attempts at enforcing the new rule would be legally challenging – at best.

Why? Because there’s no precedent for this kind of rule (either in healthcare or other industries) so it’s legally novel and untested. Beyond that sizable hurdle, the rule has no less than eight exceptions which can be relatively easy to claim as a viable defense against allegations of data “blocking.”

In fact, Alissa’s research may well have undermined the entire rule because one of the eight exceptions is specific to security. With the kind of vulnerabilities she identified, EHR vendors could easily deny (or “block”) any 3rd party request for data simply by citing the security exception as their justification – and their defense would likely succeed based on this one exception alone. I’m not an attorney and I don’t think EHR vendors would hide behind that defense but given these new risks (and new liabilities), they very likely could.

For one thing, no one really knows how many FHIR API’s are in production today — let alone how many have basic security flaws. Regulations other than “information blocking” (most notably HIPAA with detailed protections around the use of personal health information) would not apply because many of the companies developing (or using) these new API’s would not be considered a “covered entity” or “business associate” and those legal identifiers are the binding requirement for HIPAA’s jurisdiction.

’Playing with FHIR’ highlights how a rapidly expanding ecosystem of consumer- oriented mobile apps and data aggregators may open new security vulnerabilities for patients and healthcare providers. EHR developers and the healthcare organizations they serve follow specific HIPAA requirements to protect health data. But when non-HIPAA regulated entities hold that same data, those requirements fall away. Strong privacy and security protections should extend to anyone who holds patients’ health information. 

Judy Faulkner
CEO & Founder, Epic

Given the unusual and unique wording of the “information blocking rule,” a cynic could argue that the entire rule was an intentional end-run around HIPAA – promoted by commercial interests eager to capitalize on lucrative health data (in a host of new directions), but who’s to say? One big takeaway is that Alissa found no vulnerabilities in the two API’s she tested from the EHR vendor community.

Cerner believes patients have the right to access their healthcare data in any manner they choose, and Cerner undergoes strict standards to protect data in our systems. However, we share concerns over the lack of consistent regulation of third-party developers. Cerner has been involved in industry and government conversations for years. We believe security and privacy protections should be extended for any entity working with identifiable health information and welcome industry conversation. 

David Feinberg
CEO & President, Cerner

There’s no immediate fix because again, the number of FHIR APIs in production today is unknown and opinions vary widely on next steps.

By CHIME’s estimation, what is needed is a national privacy law that gives consumers protection around how their health data is used when released to third-parties not governed by HIPAA. Further, the Federal Trade Commission (FTC) must be adequately resourced to address the burgeoning industry of third-party apps. To date this agency has only received 5 reports of breaches which we know does not represent the true state of things. We applaud the FTC for the recent guidance they issued indicating they will be paying much closer attention to these issues as they explicitly state that third-party are included in the definition of personal health records. 

Mari Savickis
VP, Public Policy
College of Healthcare Information Management Executives (CHIME)

Alissa’s research is the kind of sunlight that not only exposes technical vulnerabilities, but also the regulatory failings of government (Congress, HHS, ONC, etc…) to get this first attempt at legislating new access to patient data correct. As it is today, it’s just too easy for developers to avoid the time and considerable cost of securing their API’s. Not all the API’s are vulnerable, of course, but it’s relatively easy to find the ones that are so the proverbial barn door is now wide open to bad actors and the risks to protected health information (PHI) is significant with very limited legal recourse.

The final takeaway is this. FHIR is a great standard for APIs in healthcare, but until there is industrial strength certification and binding regulations that assert real penalties, software developers are effectively rewarded for taking the path of least resistance to revenue and the exposure can be measured in the millions of health records. We can’t expect — nor should we — voluntary compliance to security with something as critical as personal health information.

In the meantime, whatever happens — or doesn’t — the advice from Theresa Payton demands everybody’s undivided attention.

Criminals always go where the action is. As API’s continue to be the solution of choice for transformation efforts, the attackers will perfect their tradecraft to attack them and Gartner estimates that by 2022, API attacks will stand out as the most frequent attack method to compromise web applications. If peer reviews and red teaming are not on the top of your priority list now, read Alissa’s research and then reprioritize. 

Theresa Payton
CEO Fortalice Solutions
Former White House CIO
Author of Manipulated

[This article first appeared in Forbes in October of 2021]