Meet the MasterMinds: Paul Zane Pilzer
Checks the Pulse of Healthcare Insurance
Paul Zane Pilzer is a world-renowned
economist, a former advisor to two White House administrations,
and a bestselling author. His books include God
Wants You to Be Rich, The
Wellness Revolution, Other
People's Money, Unlimited
Wealth, and his latest, The
New Health Insurance Solution.
A former commentator on NPR and CNN and an adjunct professor
at NYU, Pilzer is also an entrepreneur and the cofounder
of Extend Benefits
LLC, a company that provides individual health benefits
to employees of Fortune 500 companies. He’s looked
carefully at the problems of the US healthcare system and
come up with innovative ideas that business leaders and
individuals can use to find affordable and high quality
health insurance.
MCNews: Healthcare issues are top of mind for many
business owners and individuals, mainly because of soaring
costs. What do you think is the root of the problem?
Pilzer: The underlying problem is that
the healthcare industry is indifferent to the economic and
entrepreneurial incentives that make America great. We have
a $10 trillion US economy based on free enterprise, and
we have a $2 trillion Byzantine economy called the healthcare
industry. It operates virtually outside of the US economy
with its own rules.
A good example is Moore’s Law, which says that computer
processing capability doubles for the same price in less
than two years. Ultimately, Moore’s Law drives more
than half of the US economy—improvements to automobiles,
computers, televisions, even the information you can access.
That’s what drives our economy, except in the healthcare
industry. If you think about it, we didn’t have a
healthcare industry until we had a microscope and technology,
so healthcare is high-tech. And Moore’s Law should
apply to healthcare, which means we should continually
be getting more for our money.
MCNews: Why doesn’t Moore’s Law apply
to healthcare?
Currently, 300 million Americans don’t vote on
the most important issue in their lives, which is the
healthcare of their families.  |
Pilzer: Technology cost savings don’t
happen without entrepreneurial incentives, starting with
the most powerful entrepreneurs in the world: consumers
who vote with their feet. Currently, 300 million Americans
don’t vote on the most important issue in their lives,
which is the healthcare of their families.
MCNews: Is that because most people are in some
kind of employer-sponsored healthcare plan and are not making
any substantial choices?
Pilzer: Yes. And it’s important
to understand that people are in these plans primarily because
of a 1944 decision that had nothing to do with healthcare.
It had to do with wage and price controls.
There was great fear of inflation after World War II, and
wage and price controls became sacrosanct. So instead of
allowing wage increases, the government said we’ll
allow companies to pay unlimited health benefits, not just
for workers but for workers’ families.
Originally companies loved this. By 1960 or 1970, everybody
was in an employee health plan. They weren’t that
expensive and more importantly, it was like a 3:1 benefit.
The employer could give you $3 in health benefits and it
only cost the company $1 after taxes. Employers got a huge
deduction in federal and state taxes for providing benefits,
and employees didn’t have to pay taxes on the benefits
they received.
But that created a system in which the basic consumer mechanisms
that have been with us since biblical times—shopping
for what you want at the lowest price—no longer functioned.
MCNews: And the employer cost of healthcare just
continued to rise?
Pilzer: That’s right. The employer
is stuck: what started out as a great benefit for employees
has become a nightmare. They now call healthcare The Cockroach
That Ate Cincinnati after the movie of the same name.
Here is the cold fact: Healthcare costs currently exceed
profits for the Fortune 500. Why be in business? If healthcare
costs go up 15% a year, even if a CEO can improve company
profits 12% a year, it’s not enough.
And it does not serve employees either because employers
are now in the business of telling everyone what kind of
care they can get. The system is at a breaking point where
nobody is served.
Most importantly, we’ve driven the cost of healthcare
in the US to three times that of any major nation. And even
scarier, we are the unhealthiest nation in the world. We’re
tied with Australia for that. I believe this is primarily
because we’ve lost track of the individual’s
responsibility for his or her own healthcare.
MCNews: Do you think employer-sponsored healthcare
plans will change in the future?
Pilzer: I believe employer-sponsored healthcare
programs will be out of business in twenty years.
Assume those programs will be phased out. They’ll
require higher and higher deductibles and premiums. Expect
that companies will terminate retiree coverage—no
matter what the retiree’s contract says.
MCNews: Any advice for those who are covered by
company-sponsored health insurance?
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Employees with families should get the family, meaning
spouses and children, off the company plan. In most
cases, that will save them money. |
Pilzer: We have fundamentally changed
the rules to the extent that your employer is the last person
you should want to provide for your healthcare, from a privacy,
financial, and value standpoint.
Employees with families should get the family, meaning
spouses and children, off the company plan. In most cases,
that will save them money.
They should look for individual or family plans from a
major insurance company, starting with the “Blues”
in their state. Blue Cross or Blue Shield is a marketing
name for seventy-six different companies. They are really
good and the toughest to get into, so try to get a policy
for your spouse and children with one of those.
You can probably get them the same coverage they’re
getting through your employer for half the price in most
states. Or, depending on how much your employer is paying
for your family, it might be a wash for you to get private
insurance for your family. But if you lose that job, they
still have insurance. And, most important, you’re
locked into a rate. That rate can never be raised because
of illness.
Around 30% of employers contribute nothing for a spouse
or children. Others may pay all of that cost. So how much
money you can save depends on what percent of the cost your
employer is paying for your family’s healthcare.
MCNews: In addition to their families, should employees
also consider buying private health insurance policies for
themselves, instead of staying in the employer-sponsored
plan?
Pilzer: That’s the next step an
employee should consider. Analyze whether you should move
yourself to a private policy. And that’s really tough
because most employers pay 90% of the cost for the individual
worker. You need to find out what percent your employer
pays for your healthcare insurance.
Now separately from that, you should go to your employer
and say, you’re paying $8,000 a year for healthcare
benefits for me and my family; give me a tax-free allowance
in that amount and let me buy my own health insurance.
The response may be, but that’s illegal. That’s
a big change you’ll see nationwide this fall—a
new option employers will be able to use. And large employers,
with 10,000 and up employees, are going to offer this option.
So the first thing is move your spouse or family off the
company plan, and then consider moving yourself off. And
most important, ask your employer if you can opt out of
the company plan and get the money to use for healthcare.
MCNews: If you’ve decided to opt out of an
employer-sponsored health plan, what should you consider
about getting your own health insurance?
Pilzer: If you’ve decided you want
to opt out of the company plan because you want permanent
health insurance, the question is—what kind of health
insurance?
You need to decide whether or not you should have a high-deductible
health insurance policy. And if you choose a high-deductible
policy, you should almost always have a health savings account
(HSA).
Another choice is a health reimbursement arrangement (HRA),
which is a subset of the HSA. The employer puts money into
the plan and the employee can be reimbursed for medical
expenses, like insurance deductibles. You’re not taxed
on the benefit.
MCNews: Can you explain the importance of a health
savings account (HSA)?
Pilzer: What we’re talking about
here is consumer-directed healthcare. You or your employer
put say $5,000 a year into a tax-free vehicle. You get a
deduction when you put the money in, and then whatever you
don’t spend of that each year for healthcare rolls
forward.
The HSA is like an IRA or 401K for healthcare. Either you
or your employer put money into the account. Whatever you
don’t spend rolls forward, but you own the account.
About two million Americans have an HSA, while four million
Americans have an HRA.
If the current growth rate of HSAs continues, we’ll
all have them in ten years. IRAs came out in 1985 and now
47 million families have them. 38 million families have
a 401K. There are 110 million families in America, and anyone
who’s smart enough to have a 401K or an IRA will be
able to figure out that they shouldn’t don’t
put another dollar into a 401K or IRA until they fully fund
an HSA each year.
MCNews: Can you only use the money in your HSA
for medical expenses?
Pilzer: You can also use your HSA to fund
your retirement. An HSA has every single feature of an IRA
or 401K plus one monster feature: money taken out for healthcare
is never taxed. It’s the only permanent tax escape
vehicle the IRS permits.
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An HSA has every single feature of an IRA or 401K plus
one monster feature: money taken out for healthcare
is never taxed. It’s the only permanent tax escape
vehicle the IRS permits. |
If you put money into a 401K or IRA, eventually you absolutely
will pay taxes on it. And when you die it’s taxed
as ordinary income on the day of death. If you put money
into an HSA, you get the same benefits plus anytime you
take money out for healthcare including Medicare supplements
and death expenses, that money comes out tax free. You never
pay income taxes on it.
MCNews: We’ve focused on company employees.
How does your advice apply to self-employed individuals?
Pilzer: Many self-employed people are
making the mistake I did when I became self-employed, which
is participating in somebody else’s group plan. I
had a friend who told his wife to continue working three
days a month to get the family healthcare. Many people participate
in a group plan in one way or another, thinking they are
getting a benefit, while in reality they’re not.
They may not be aware that the individual health insurance
market has become more efficient and cheaper in the last
few years. Now it’s a better value than group insurance.
Historically a self-employed person went into a group plan
because the group rate was half the price of an individual
policy.
Today that’s exactly flipped. Individual insurance
is half the price of group. What changed? Over the last
two decades, HIPPA and other laws mandated that groups must
take anyone without discrimination of any kind regarding
their medical condition and history, which has led to higher
costs for the group plans.
Anyone can go to ehealthinsurance.com or to my site and
get a quote on individual insurance, including those who
are self-employed.
MCNews: If you have just a few employees, what
are the best options for healthcare to make it economical
for your business and the best for your employees?
Pilzer: Don’t offer a group healthcare
plan. Hands down the best choice would be an allowance program,
an HRA, which you would start with roughly whatever you
are currently contributing or would contribute to a group
plan. Every employee gets an HRA allowance to spend on health
insurance and other health items, and whatever they don’t
spend rolls forward.
Also, find a consultant to help your employees buy the
right health insurance policies.
And then separately, offer the HSA just as you offer the
401K. You could match their HSA contributions. So if employees
put $2,000 in their HSAs, you’ll put in another $2,000.
But you don’t even need to match contribution.
MCNews: And you’ll still save over the group
rate as an employer?
Pilzer: Right. The employer could also
offer a salary redirection plan. So, in addition to their
HSA contributions, employees could direct the employer to
take another $2,000 from their salaries and add that to
their HSAs. The employer saves on FICA taxes because it
comes right off the top.
MCNews: I’m sure you’ve heard this
a million times, but what about pre-existing conditions?
Pilzer: The recent changes regarding pre-existing
conditions are the whole reason this thing works now. In
the past, 10-20% of your employees had one family member
with a preexisting condition that would not allow that person
to qualify for an individual policy.
That’s no longer the case. Most states now have guaranteed
coverage for people with preexisting medical problems. To
put this in context, we’ve always had guaranteed coverage
for seniors called Medicare. We’ve always had guaranteed
coverage for poor people called Medicaid. And starting in
2005, we have guaranteed coverage in all states for people
who have preexisting conditions and are not poor and not
seniors.
Every state is different. That’s why I had to write
a book with a 100-page appendix. But, in general, if you
are rejected for health insurance or “uprated”—meaning
charged a higher premium because of a medical condition—you
become eligible for what’s called state-guaranteed
coverage.
If you have a pre-existing condition, or a family member
with one, what you should do is put just that person in
the state-guaranteed pool and the rest of the family in
a regular policy. It’s best to look at each individual
in your family separately.
As of April 2005, 250,000 families were in state-guaranteed
coverage. They’re not poor or elderly, but have figured
out how the system works. I interviewed an official for
one of the state-guaranteed programs who was concerned that
I was going to tell people about this. But I feel that’s
the state’s obligation, just like it’s your
obligation to pay taxes and obey the law.
No one is telling people about their rights and that was
my prime motivation for writing the book.
MCNews: Last question: If you could give someone
one piece of advice about their healthcare insurance, what
would it be?
Pilzer: Take total control of your health
insurance, maximize your tax advantages, and take control
of your healthcare. When you take control of your health
insurance and maximize your tax advantages, you will end
up with an HSA or other vehicle that allows you to save
tax-free for tomorrow what you don’t need today.
You can spend less for health insurance. It’s really
amazing to realize that we have Home Depot, Pet Depot, and
Office Depot, and yet the biggest expense in America is
medicine and when’s the last time you passed Medical
Depot? It’s incomprehensible, isn’t it?
MCNews: This has been very helpful. Thanks for
your time.
For more information on Pilzer visit the Paul
Zane Pilzer Web site, The
New Health Insurance Solution book Web
site, and Extend
Benefits LLC
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