REFORMING AMERICAN HEALTH CARE
The Economic Plan
By John A. Lanzalotti, MD
Economic Plan Needed -Reforming American health care will require both an economic plan as well as a political strategy for implementation without which reform will fail. Using a political agenda as a substitute for an economic plan will not work in the market, will not produce reform, but be only just another failing system. Our most pressing health care issues are inefficiencies and delivery disparities, out of control costs, and how to pay for our present Medicare and Medicaid liabilities plus future care for the baby boomer generation. Without resolving these issues our entire economy will remain subject to high financial risk.
Reform Three Main Areas - We must reform health insurance, redesign the health care market institution, and redefine and reposition the doctor-patient relationship as the focal point of the American health care market. Then, we need a strategy to tackle the government –health care industrial complex whose firmly entrenched stakeholders will fight change with a vengeance.
Current Insurance Issues - Our health care financing for both the public and private sectors is dysfunctional for the same reason, poor design of incentives, the lack of proper checks and balances, and a power imbalanced health care market. Because our system was designed by bureaucrats for political reasons, which violate basic economic principles, it is impossible for it to function properly in the market place. The resulting symptom is costs that are rising out of control. The current system has perverse incentives for consumers to over-consume, for providers to over-utilize and inappropriately utilize expensive high tech diagnostic and treatment options.
Premiums for health insurance cost too much because of these perverse incentives, and state mandates to cover certain benefits and providers, whose need is generated by third party payment. Poorly designed insurance that lowers the price of expensive medical treatment but not the cost and which also uses poor strategies such as guaranteed issue and community rating, also drives up costs. Conventional wisdom for dealing with these poor design features dictates having the consumer pay for part of his health care as deductibles and co-payments in out of pocket, post tax dollars in addition to paying hefty insurance premiums. Many Americans cannot afford to do this especially for non-discretionary care.
Limited Market Competition - The current system is procedure driven which has fragmented health care delivery. Medical decisions are no longer being made by physicians but rather by insurance companies whose only consideration is the company’s bottom line. The government has given the health care industry too much monopoly power. Ironically, government has made this monopoly power not subject to the anti-trust laws. Other laws also prohibit insurance from designing innovative risk spreading systems and proper high risk pools so that the insurance industry can manage its risks rather than transfer them directly to the taxpayer. Our entire insurance system is designed to ration and deny care, price control and micromanage providers while increasing the paperwork burden and administrative costs.
Expensive ‘Emergency’ Care - Many Americans can not afford to survive in this “fast lane” insurance system, so many go un-insured. They end up in emergency rooms for routine care, the most expensive venue. They are charged paymaster list price, from the highest price tier. This is yet another symptom of system dysfunction. The uninsured cannot afford to pay the bill so it is cost shifted directly to the tax payer. Cost shifting and other avoidance behaviors by the insurance industry cost the American tax payer over $500 billion a year. We are paying for this care in the most expensive way.
Least Expensive, most Efficient Care -The least expensive and most efficient way is to give each American equal purchasing power in health care by directly subsidizing the insurance premiums of the elderly, the poor and Americans with chronic illness. Let them participate in the same affordable market as all other Americans within properly designed high risk pools. This can be done at a fraction of the cost that we pay now. This will allow every American access to affordable insurance and equitable care. It will enable all Americans regardless of socio-economic level to pay reasonable market price in a competitive, functional market. We need to separate the financing for discretionary care, from non-discretionary care.
Restoring a Functional Health Care Market and Competition - The market institution of organic markets develop gradually only after a long period of time through trial and error. The government cannot design the market institution. The market institution must be deliberately and carefully designed by the individual participants and not the government because we are transitioning from an over-regulated system with firmly entrenched stakeholders who profit off the market dysfunction. This new design must be win-win; not the zero-sum game we now have. The power of all market participants in the new market place has to be leveled so that proper incentives with checks and balances will allow market forces to operate for all participants and so some participants will not dominate the market taking unfair advantage of other participants. This means that government provided monopolies, corporate welfare, stimulus funds, and other protectionist emoluments such as absolving unions from the laws the rest of us are subject to.This will allow proper competition which will lower costs and improve quality.
The Doctor –Patient Relationship-There is a perception that physicians will selfishly exploit every patient for financial gain. Ironically, most physicians truly desire and take pride in their ability to use their knowledge and skill to guide the patient through a complicated, oftentimes uncertain and expensive health care system appropriately and cost effectively. The negative perception has been created by the design of our current insurance finance system with its third party payment, fee for procedure system and perverse incentives. Change the design and the incentives and you change the perception and behavior. Unfortunately, our current system with its over regulation and micro-management thwarts the physician's genuine desire to help and provides perverse incentives that degrade the physician’s professional relationship with his patient.
We need to change the system to one in which the patient pays directly for all non-discretionary care health care expenses from a lump sum payment derived from the insurance. In addition the patient will pay for all discretionary care from money in a tax favored account derived from the premium difference from our current high priced health plan premiums and the new lump sum insurance plans. By doing this we will incentivize the physician to provide the patient with various price options within the context of appropriate care and enough information concerning marginal benefits and marginal prices so that the patient can choose the proper option within his budget with the doctor's help.
New Insurance System - If people had more opportunity to buy insurance only for major events and avoid using health insurance for every minor or routine health service, premiums could be lower as well as administrative costs. Under a reformed health care system an expanded personal and portable tax-free health care savings and asset account (ehsa) is established for every american individual or family using annual funding from a variety of sources. Twenty-five to thirty percent of the annual funding of the asset account is used by the patient to pay an annual premium for “protocol insurance” to any insurance carrier and premiums for disability and long term care insurance. The remainder of the funding rolls over from year to year and grows tax-free and can be used for discretionary and initial visit (any diagnostic procedures done before any determination has been made by the doctor concerning diagnosis) health care spending, as well as retirement income by the beneficiaries of the account.
All insurance carriers will use the same doctor designed severity rated protocols with complexity levels based on experience and empirical data to determine payment. A lump sum payment for each insurable event is a function of, or determined by the complexity level of the protocol. The sicker the patient, the more money the patient will need to pay his medical bills.
When a patient sees a doctor, the doctor examines the patient and prepares a computerized medical workup. Software downloaded into the doctor's computer evaluates the work-up and determines information about which established “protocol” and “complexity level” the patient’s condition corresponds to. An electronic transfer of this information from the provider’s office computer to the insurance carrier’s computer obviates filing claims and triggers a “lump sum payment” from the insurance carrier into the patient’s ehsa. This lump sum payment is represents all of the money the patient will need to pay all anticipated expenses related to the insurable event at fair market value. There are no deductible or co-payments.
Conclusion and Questions -With all of its money why hasn’t the insurance industry instituted better solutions to these problems already? The answer is-- no one really wants serious change in spite of the window dressing. Health care reform will continue on to be a big noise on the staircase in every four year election cycle with the only thing ever coming down being an even bigger bureaucracy with more opaque regulation and micromanagement unless we determine to change the system.