The American Health Care Plan
ECONOMIC AND LEGISLATIVE POLICY SUMMARY
The way we finance and deliver healthcare in America is not working and we need transformational change. The U.S. health care system needs comprehensive, patient centered market reform. After a century of innovation, the technology of our health care is the envy of the world. Yet the system is in deep trouble. Costs are out of control and rising rapidly, the number of uninsured is at an all-time high, and public satisfaction is sinking because many simply cannot afford the highly inflated price of American health care. Last year for a family of four, annual health care costs rose to $13,382.00. All attempts at reform and lowering costs have failed to date. The reason is that we have maintained a third party payment, procedure driven system. Any new attempt to reform the system must replace third party payment procedure driven medicine if it is to succeed.
The American Health Care Plan is a comprehensive market based plan. This innovative plan not only eliminates third party payment but uses design changes that will make all of the goals of free market, patient driven health care using an insurance that is affordable, renewable, portable and accessible to all Americans possible. There are no mandates with this plan. Our goal is to move from today's dysfunctional zero sum game market to a win-win functional market. This proposal involves an alternative to third party, procedure driven medicine as a means to get to a functional market. Once we have a functional market, the market will develop additional insurance designs. A good place to start a market based plan is in the private sector market. This can be done immediately without the need for any new legislation under the self insurance provision of the ERISA law. . However before this plan can be instituted in the public sector and address the problems of the working poor uninsured we will need some new legislation to correct the problems with our current system.
Strategy for New Legislation: The first step to solving these problems must include reforming several very poorly designed current policies. I suggest three areas for immediate attention: the tax treatment of health expenses, the design of health insurance, and the creation of proper incentives and checks and balances in the health care market.
Tax reform. A simple change to the tax law would cut unproductive health spending, reduce the number of uninsured, and promote greater tax fairness. Make all health care expenses—employee contributions to employer-provided insurance, individually purchased insurance, and out-of-pocket spending— tax free. This would be available to all Americans as either a deduction above the line or equivalent refundable tax credits for a total of $15,000.00/year for each American family as suggested by President Bush..
The most important effect of this tax treatment would be to reduce unproductive health spending. Under current law, medical care purchased through an employer’s insurance plan is tax free, whereas direct medical care as well as deductibles and co-payments paid by patients must be made with after-tax income. Many Americans can not afford this. This tax preference has given patients perverse incentives which in turn leads to cost-unconsciousness. over-utilization of high tech procedures and wasteful medical practices.
Using tax free money for all health care expenses has two other important benefits. First, by making health care more affordable for uninsured persons, it will reduce the number of people who are uninsured. This will eliminate a major source of cost shifting, a major cost driver. The un-insured are charged pay master list price, the highest rate for care, 5-7 times what the insured pay, for care they receive in our hospital emergency rooms the most expensive venue. Since they cannot afford this care it is cost shifted raising the premiums of health insurance and adding an additional burden to the American taxpayer. Last year the American taxpayer paid 30 billion dollars for this cost shifted care. Second, it will make the tax system fairer and more progressive. It will give all Americans equal purchasing power in health care regardless of their socio-economic level. This is the least expensive and the most efficient way to eliminate cost shifting due to the uninsured. Current tax law penalizes workers whose employer does not offer them health insurance, making them buy insurance with after-tax dollars. For many this is not affordable or sustainable. Moreover, percentage tax reductions from deductibility for low-income households are much larger than the same reductions for high-income households, despite the fact that a one-dollar deduction benefits a high-income taxpayer more than a low-income one because low-income taxpayers are more likely to have high levels of out-of-pocket spending.
Health Insurance design reform. Under current law, funds from an HSA cannot be used to purchase insurance. Under our proposal, funds from an HSA could be used for any qualified health care expense including the purchase of health insurance, long term care insurance and disability insurance. We are also concerned that the high-deductible requirement under current law might serve as a barrier to the widespread use of HSAs. We propose that the law be changed so that every American can purchase Protocol Health Insurance that has no deductible or co-payments as well as any other insurance product. The purpose of these proposed changes is to make the HSA law less prescriptive and thereby encourage greater use of HSAs by all Americans and provide for true portability and affordability and a mechanism that allows Americans to pay their premium expenses whether they are employed or not.
The perverse incentives associated with third party payment and our procedure driven system are responsible for our dysfunctional health care sector and almost all of the cost drivers and lead to the compromised quality of U.S. Health Care.
We have designed a series of electronic communication and insurance protocols that will correct this. These protocols will make it possible for all Americans to have affordable, accessible, and portable health care and insurance in a functional market. These protocols were developed in conjunction with Milliman U.S.A. data and obviate physician micro-management, claim form filing and processing, and third party payment by the insurance plan. These insurance protocols which can be used universally by all insurance plans allow patients to be paid in a lump sum based on the severity of their insurable event. Their premium is a fraction of the price of today's inflated health plans because of their efficient design. Patients will be able to pay for all health care services directly requiring transparency in pricing; and together with an expanded Health Savings Account will give all Americans equal purchasing power in the market place so every American can have health, disability, and long term care insurance and be able to pay for all of their care at fair market value on the day of service.
These protocols solve three very important problems in insurance design. First, they obviate the need to use very expensive legal contracts that have precluded the use of lump sum payment in health care insurance in the past. Second, they also solve the problem of very high administrative expense usually associated with the individual insurance market. These protocols can reduce administrative costs to less than 2% in the individual market. Third, These protocols allow us to bifurcate the source of the payment for all health care expenses making financing extremely efficient and the insurance actuarially sound. All non-discretionary costs are paid from funds derived from insurance. All discretionary costs and inefficient moral hazard expenses are paid from money saved in the account from the premium difference from today's much more expensive health plans.
Another advantage of these protocols are that they obviate the two types of state regulation—“mandated benefits” laws and “any-willing-provider” laws—that currently drive up the cost of health care and increase the number of uninsured in our third party procedure driven system. The Congressional Budget Office estimates that mandated benefits laws—which require that health plans cover particular types of persons, services, or providers (e.g., alcoholism treatment or chiropractic services)—increase health insurance costs by 5 percent, and possibly as much as 15 percent, beyond what they would be if consumers were free to choose the benefits package they most preferred. New research finds that “any-willing-provider” laws (which require that health plans reimburse for care provided by any doctor, hospital, or pharmacist who is willing to accept the plan’s terms and conditions) increase health care costs by 1 to 2 percent, by weakening the cost-containment effects of current managed-care plans. For this 1 to 2% cost containment, managed care has put a lot of experienced and well trained doctors out of work, a terrible waste of scarce and expensive resources.
These protocols also obviate the need for managed care. Managed care has failed to control costs and has disrupted the practice of medicine. The protocols will give patients choice of physician, hospital and treatment plan option provided by the physician. Savings will far exceed anything claimed by managed care. These protocols will level the playing field and allow insurance companies to offer their plans on a nationwide basis, free from costly state benefit mandates and excessive regulations. Government regulations should be confined to enforcing the rules of engagement to ensure a functional market place. The benefits of nationwide insurance are considerable. Health insurance will become more portable because people could switch jobs across state lines without their insurance being canceled. All people, but especially the uninsured, would have access to lower-cost insurance options.
Applying market principles to health care. We have also designed a series of incentives and checks and balances that are win-win for all market participants that will give us a functional, free market on a level playing field that will generate wealth rather than spend our wealth inefficiently. Dr. Lanzalotti has also re-defined the doctor- patient relationship through incentives to a new professional model that is more consistent with the way physicians were trained to function. This is important because managed care moved the focus of the market to the corporate level. Dr. Lanzalotti has returned the focus of the health care market to the patient/physician axis. This will allow doctors to elect to practice in solo practice once again. The market should allow all choices. If there is a level playing field, there will be no power imbalances that force doctors into practice patterns they choose not to be in.
These new incentives and checks and balances will eliminate the hostile and nightmarish, Hobbesian economic climate that characterizes our current health care market, making our health care system fragmented, inefficient and expensive. Rather than our present free-for-all health care sector with physicians and hospitals competing with each other to survive in a hostile economic climate where they struggle for scarce health care dollars while insurance carriers constantly seek to reduce payments to providers and their financial obligations to sick patients, these new incentives and rules of engagement will create a new marketplace. A marketplace characterized by creativity and cooperative competition that will allow all market participants to re-group to focus on and support the patient during his time of need.
In our vision, the doctor not only diagnoses and treats the patient but is working for the patient directly and exclusively. The physician needs to provide the patient with enough information and price options so that the patient can make informed decisions for his care. The physician, with the best interest of his patient at heart, will be able guide the patient through our increasingly complex and expensive health care system so that the patient can get quality care at the lowest price.
Only comprehensive market change of our broken system can provide universal, portable access. Only a new paradigm in health insurance, one that replaces third party payment and our procedure and money driven system of finance and delivery, with the protocol insurance design will reduce inefficiency, control costs and secure and stabilize health care for all Americans long into the future.