Transforming American Healthcare

By John A. Lanzalotti, MD 

EXECUTIVE SUMMARY 

The way we are financing and delivering healthcare in America is not working and we need transformational change. Everything we have done in the past to make incremental changes to the market has failed to control costs and failed to improve quality care. We have made significant errors. Can we learn from those errors? All previous reform attempts have expanded the bureaucracy, increased regulation and price controls, and have resulted in more stringent third party rationing to the patients. Our dysfunctional market can be characterized by information failures, inefficient moral hazard issues, distorted incentives, inflated hospital and pharmaceutical pricing, and cost shifting. There are costly, inefficient and opaque administrative and regulatory procedures and central organizational overgrowth, with un-necessary and in-efficient micro-management of physicians as well. At $2 trillion per year, the U.S. health-care system suffers much more from inefficiency than from lack of funds. The system wastes money on unnecessary premium care workups, and inappropriate use of expensive technology. We also use medicines and technologies that cost a lot for little or no marginal health benefit. The current paradigm also provides strong financial incentives to preserve such inefficiency.

In our quest to transform American healthcare into an efficient, cost effective and coordinated system we must do three things. First, redesign health insurance to eliminate third party payment, and our procedure driven delivery system. Second, expand Health Savings Accounts to give every American consumer an opportunity to save for health care expenses and directly control of all of their health care dollars by  providing consumers with more control and responsibility for all of  their health care decisions. Third, redesign the market to make it operative at the doctor -patient level by creating proper incentives with checks and balances in a level playing field for everyone participating in the medical market place. Doing these three things will eliminate all of the problems mentioned in the first paragraph.

 Temporary and expedient remedies are no longer enough. The country needs comprehensive and fundamental market based reform. We need to create a basic plan to cover important insurable events one that is coupled with tax advantaged expanded Health Savings Accounts for events not covered by the insurance- that would be available to and give comprehensive coverage to all citizens. We must improve health insurance design to make it more efficient, cost much less, address very high hospital costs, and provide incentives for proper, win-win market  behavior by all participants. We must create incentives and designs with checks and balances for functional market competition based on value and transparency.

  Here are the essential changes:

• Create new designs and incentives to make the individual health insurance market work and make insurance affordable for every American:
  • Make insurance personal and portable.
  • Convert all persons on Medicaid and Medicare to this system using the current premium as a defined contribution to the individual.
  • Abandon Third Party Payment and our procedure driven system
  • Establish industry standard risk categories
  •  Establish high risk pools with creative risk spreading arrangements
  • Make risk pools work by reducing administrative costs associated with the individual insurance market.
  • Give every American the President’s $15,000.00 standard tax deduction for purchasing health insurance and funding a Health Savings Account
  • Create the least expensive access to insurance coverage and health care for the poor. To do that, use refundable tax credits paid to the uninsured working poor to give them both tax  and purchasing power equitable to that of Americans who have more personal assets and resources. Provide assistance to low-income households so that all will find insurance affordable.
  •  Use refundable tax credit subsides to help the elderly poor, the disabled and those considered uninsurable to give them equal purchasing power with all other Americans.
  • Shift from employer based health insurance to individually underwritten insurance by using  defined contributions paid into their health account from which they can purchase their own insurance instead of the current system of defined benefit.
• Improve health insurance design to make it more efficient, cost much less, address very high hospital costs, and provide incentives for proper behavior. Replace third party payment with true catastrophic  insurance lump sum indemnity payment. This payment would be determined by a computerized severity rated system itself based on  protocols that derive from medical experience and broadly accepted standards by the medical community of what constitutes good health care and that define episodes and the relative value of that care.
• Design health insurance protocols to remove inefficient moral hazard and other inefficiencies so that all deductibles and co-pays can be eliminated.
• Use the resulting premium difference from today’s much more expensive health plan to fund every American’s tax favored Health Account to provide a “self insurance” to pay for all care not associated with an insurable event with pre-tax dollars.

·        Make all patients self pay via an electronic debit card from their insurance fortified health account so that they can pay directly for all their health care needs, creating true price transparency in value based pricing.

• Establish a non –governmental and  independent Institute for Pharmaceuticals, Technology, and Outcomes Assessment to systematically evaluate new drugs and technologies and quantify their health benefits in relation to their costs to provide legitimate information. Make these evaluations available to all practicing physicians at the point of service through computer access.
• Re-design the doctor- patient relationship through incentives to create a new model where 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 so the patient can make informed decisions for his care. The physician, with the best interest of his patient at heart, must guide the patient through our increasingly complex and expensive health care system so that the patient can get the best quality care at the lowest price.
• Establish computerized communication protocols to allow appropriate individuals within the health care system to communicate effectively and efficiently for the patient’s benefit only. These communication protocols will eliminate the need for the physician to file claim forms with the insurance company for individual procedures, and reduce the risk of medical mistakes and system error.

These measures would improve efficiency and provide cost control for the health-care system. These measures will provide all of the benefits of both a single payer system and a managed care system, with none of the problems, at a significantly reduced cost. Through the use of insurance protocols, we can significantly reduce administrative costs that have risen to over 25% currently as well as wasteful benefit costs. These same protocols allow us to introduce proper and positive incentives for all health care market participants in a win-win fashion and create the checks and balances that will give us a functional market based on value. Only comprehensive market change of our broken system can provide universal, portable access, reduce inefficiency, control costs, and secure and stabilize health care for all Americans long into the future.