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A Prescription for the Healthcare Crisis
"Health insurance" is something of a misnomer. In the United States, what we really have is collective, prepaid healthcare. The vast majority of our premiums are consumed not by catastrophic injury or disease, but are spent on everyday services including elective procedures.
If car insurance operated the same way, you'd pay a $1 co-pay at the gas pump. While that might be nice when the gauge is on empty, wait until you see the premium! The cost of car insurance, gasoline and oil changes would skyrocket; much as the costs of healthcare and insurance have in recent years. While this kind of system is laughable for car insurance, we accept it as the only solution when it comes to health insurance. So how can we resuscitate our failing system?
The first step is to put power back in the hands of the patients - those directly impacted by insurance and care options and costs. Today, most health insurance decisions are made by employers. Companies cannot possibly select the best plan for every individual and they often put cost control above the healthcare needs of employees. Putting individuals back in charge would get employers out of the health insurance business.
How would this work? Take, for example, United Widget (UW). UW, like most employers, contracts with a large insurer like Aetna. Annually it pays Aetna $5,460 per employee. Aetna then pays all employees' covered healthcare expenses and the employees pay only small co-pays.
This "use it or lose it" system provides no incentive to compare services or economize the cost of care. Patients only ask "am I covered?" If ‘yes,' most patients will opt for the maximum testing and treatments, regardless of necessity or cost. It creates an all-you-can-eat buffet of services. Once you've paid in, eat up! But Americans' overeating (both figurative and physical) drives premiums making insurance unaffordable for too many!
But what if there was a different option? Rather than send $5,460 of employee wages to Aetna, UW could deposit that money directly into each employee's Health Savings Account (HSA). The $5,460 remains tax-deductible for UW and the employee, just like the old payments to Aetna.
The employee has control over the account but money can only be withdrawn for healthcare costs. With each dollar being spent from her account, the employee is less likely to opt for elective or non-essential services. Better still, when the employee changes jobs, the HSA goes with her. With HSAs, employees have more power over - and more interest in - the cost of their healthcare.
Everyone still needs catastrophic insurance for major injuries or disease but premiums would be much lower and could be paid from their HSA. This still pools the risk side of insurance without pooling elective healthcare services.
After insuring against catastrophes, the employees can cover everyday care in one of two ways: fee-for-services, or prepaid health plans that cover routine doctor visits and medical expenses. Individuals could form voluntary cooperatives to research and negotiate insurance and prepaid care plans. The staff of this voluntary cooperative (not unlike Hilary Clinton's proposed mandatory cooperative) could also provide preventative healthcare information.
United Widget is now out of the healthcare business. That's good news for UW and better news for the system as a whole. UW's 65,000 employees are now 65,000 cost-control centers. Statistics show that higher co-pays for services decrease utilization. The reason is simple: when ‘someone else' is footing the bill for say, an MRI, there's no reason not to get one; even for a problem as simple as a sore knee. But when patients pay directly, they tend to balance the cost of expensive procedures against the benefits of a simpler approach -- like icing and resting the joint to see if it heals on its own.
Patients are also more likely to shop around for services, creating healthy competition among providers. Voluntary cooperatives could help by exchanging information on costs and outcomes. The staff would know, for instance, the best place to get a heart transplant. Under the current system, patients rarely know what a given procedure should cost, or which facilities and physicians produce the best outcomes.
This approach also reduces costs by encouraging hospitals to specialize in particular procedures, rather than stretching budgets too far by attempting to provide the full range of specialties. Healthcare technology and cost has made a ‘one hospital providing all services' model unworkable.
HSA accounts also decrease the costs of "defensive medicine" and malpractice insurance (a major component of skyrocketing costs). If a patient defers a test advised by his or her doctor (as opposed to an HMO making the call), it becomes harder to successfully sue the doctor or HMO. HSAs restore the relationship between the doctor and the patient. Doctor advises - patient decides.
Another great benefit is the portability of HSAs. This ends the problem of people stuck in the same job because they are fearful a career move jeopardizes their healthcare coverage. Employer paid coverage is also dependent upon the financial status of the employer. This means employees and retirees can lose benefits through the abrogation of contracts under bankruptcy laws. HSAs stay with the individual, regardless.
Of course, like any system, HSAs have their drawbacks. One is covering those with pre-existing conditions. Such health problems can cost far more than the funds in their HSA account, and insurers do not cover "burning barns." One solution would be to require each voluntary pool to accept a reasonable percentage of individuals with pre-existing conditions. For example, if UW has 65,000 employees, they would be required to welcome into their pool 65 "burning barns."
Another problem is those who don't have an HSA - or a decent job - to begin with.
Current laws mandate that no one can be denied care at any emergency room. In the year 2002, AARP reported $38 billion in uncompensated health care. This problem is particularly pressing in Border States due to large numbers of uninsured illegal immigrants. We need a solution which can provide for those in need without driving up costs across the board.
Mobile medical clinics and free clinics can help fill this gap. Lynn and I have sponsored medical vans in six cities that provide primary care. In Jackson, Wyoming, retired doctors serve without pay at a newly established free clinic. Special laws exempt these clinics from malpractice suits, allowing uninsured Jackson residents to receive free primary care.
Ideas like HSAs and special laws regarding non-profit clinics demonstrate government action facilitating private healthcare solutions. Consumers choosing the care and plan that best fit their needs optimizes the cost of insurance and care for all. (Remember our car insurance example). Through public acts and private charity, we can begin to cure America's health care crisis.
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A couple brief but relevant articles follow:
National Center for Policy Analysis/ John Goodman:
Health Savings Accounts (HSAs) are having an enormously beneficial effect on the design of health insurance in this country. Instead of an employer or insurer paying medical bills, more than one million people are managing some of their own health care dollars. Instead of relying solely on third-party insurance, people can now partly self-insure through these accounts. Yet despite their many advantages, HSAs can be made even better.
DARK Daily is an e-briefing service providing up-to-the minute news of relevance for anyone working in diagnostic medicine. Enrollment in Health Savings Accounts (HSAs) continues to increase in the United States. However, in South Africa, HSAs have been prominent for more than a decade. Laboratories in this country have already developed successful ways to deal with the billing issues created by HSAs. Peter Cole of Lancet Laboratories in South Africa presented at the Executive War College in Miami, FL this year on how his laboratory adapted its business to successfully serve, bill, and collect from patients with HSAs. His laboratory serves 15,000 patients daily and has learned important lessons on how to serve HSA patients and successfully collect for these lab testing services.
60% of South Africans have HSAs. The South African healthcare system has evolved to form a risk pool of HSA-insured beneficiaries. This risk pool is used to cross-subsidize different HSA plans to offset the effects of adverse selection and other underwriting concerns. A limited portion of member contributions may be paid into an HSA. These funds are typically used to pay for day-to-day discretionary expenses. In 2005, U.S.$5.2 billion was paid into risk pools, while about U.S.$0.5 billion (10%) was paid into HSAs.
Lancet Laboratories found a number of advantages to HSAs:
1. Consumers are more likely to question health care expenses that previously were not scrutinized
2. Tax-free HSAs accumulate money over several years and turn into a sizable health care nest egg for healthy people with low medical expenses
3. High Deducible Health Care Plans (HDHPs) linked with HSAs tend to be cheaper for patients
Lancet Laboratories also recognized several disadvantages:
1. Shopping for health care was difficult for HSA holders, because the South African health system has yet to produce the detailed information needed to support comparison shopping
2. HSA holders bought more alternative medical products (massages, acupuncture, etc), sometimes depleting the amount in their HSA available for medical necessities 3. Schemes with HSAs have administration costs 33% higher than schemes
4. Laboratories experienced risk-shifting to HSAs over time. The first impact was in outpatient tests. The second impact was increased patient bad debt
1. Insurance companies and for profit hospitals raise costs. In your list of great hospitals, few are from for profit hospitals. Having a single payer or simply a single set of forms and policies would save lots of money.
2. Being ill sometimes refelcts "poor choices by people" but often represents the luck of the genes and the environment as much as personal choice. Chronic illness can be managed much more economically when outpatient coverage is encouraged. When the uninsured can't see an outpatient provider, they wait until they are VERY ill and go to an emergency room.
3. Lack of coverage for psychiatric and chemical dependence problems raises the cost to employers, business (lost productivity and absenteeism .. by billions. Depression costs more than almost any oher illness and is poorly covered in most plans.
jl