Health Care Reform White Paper:
Author: Ron Howrigon
President, Fulcrum Strategies
OCTOBER 24, 2017
The idea of health care reform is not a new one. Going back to the creation of Medicare and Medicaid in 1965, we as a nation have struggled with how we provide for and finance health care for our citizens. For more than fifty years, this debate has intensified to the point where it has become the single most contentious disagreement between our two political parties. Elections have been won and lost over the issue of health care and health care reform, and if something doesn’t change, it will continue to be one of the most politically divisive issues in America. The purpose of this paper is to start a discussion on a balanced approach to taking a new course. It is my intention to present a clear and concise description of the problems and then propose real, actionable solutions. The solutions presented in this paper are designed to strike a careful balance between the key factors involved, the various populations served, and the stakeholders involved in this, the largest segment of the U.S. economy. If I’m successful in this endeavor, it should also produce solutions that are balanced, and equally liked and disliked by the two political parties that must come together to produce a viable solution.
Colin Powel, who has often been described as a “Liberal Republican,” and who is widely respected by both parties, put it best; “But just as they did in Philadelphia when they were writing the constitution, sooner or later, you've got to compromise. You've got to start making the compromises that arrive at a consensus and move the country forward.”
The Importance of Health Care Reform:
How health care is delivered and financed in this country may be the most universal and important issue we face as a nation right now. Everyone here, at some point or another, utilizes the health care delivery system. In addition, it’s now the largest segment of our economy and is growing at a staggering - and unsustainable - rate. Health care has dramatic impacts on government budgets at the local, state and federal levels. Health care for many employers is the second largest expense category next to payroll. The enormity of the problem and the statistics are truly staggering. Consider this:
Health care is rapidly approaching 20% of the entire U.S. economy, up from only 5% in 1960.
At the beginning of this decade, the total health care expenditures in this country totaled $2.6 trillion. If you compare that number to the total Gross Domestic Product for all other countries in the world, our health care market would rank as the 5th largest economy in the world, just behind the GDP of Germany and ahead of both France and the United Kingdom.
If health care in this country continues to inflate at the pace it has maintained over the last fifty years, more than 50% of the US economy will be devoted to health care by the year 2060.
In spite of this incredible inflation and the staggering amount of money we spend on health care in this country, we have not figured out a way to provide coverage for all of our citizens. For all the money we spend, some of our quality metrics don’t even meet the standards set by other industrialized nations.
Simply put, we are breaking the bank on a wild spending path that isn’t producing full universal coverage or significantly better quality of care. That’s not a very pretty picture.
The bottom line, and hopefully everyone can agree with at least with this much, is the status quo isn’t working and the trail we are on right now leads to our demise. Change will happen. The only question in my mind is will we control and direct the change to produce a positive outcome, or will it be forced on us like the housing crisis of 2008 - only much worse?
At the time of the writing of this white paper, the Republican controlled Senate and House have been unable to pass any bill aimed at repealing and replacing the Affordable Care Act. President Trump has threatened to start dismantling the ACA through various executive actions, but even that will be met with legal challenges. There seems to be an understanding that something needs to be done, but so far, there doesn’t seem to be a path to fixing the current system. Now more than ever, we need a plan that puts healthcare in this country on the right path and that can be supported by both parties so that it’s sustainable beyond the next election cycle.
If we endeavor to solve the problem of health care finance and delivery without balance, we will fail. Previous attempts at reform have failed because they lacked balance. They lacked political balance and bipartisan support. They lacked a balance among stakeholders and impacted parties. They lacked balance in the key requirements of cost, access and quality. Imbalance in a system as complex as health care causes catastrophic problems. Imbalance in any “cure” produces one that is ineffective and unsustainable. This is what we’ve seen with the ACA and its problems.
To produce a sustainable change to the health care system in our country, we are going to have to find balance. The truth is we simply can’t provide everything for everyone in whatever way they want to receive it. Everyone is going to have to compromise. No one is going to get everything they want. It’s no more possible to provide great free health care to every person in this country with complete, unfettered access, than it is to have every person in this country own a large house with a big yard and a white picket fence. Anyone who thinks otherwise needs to reassess his or her grip on reality.
However, we certainly can do much more than we have done so far. If we find the right balance, we can, and should, be able to cover more people. We can protect access and quality, and equally as important, we can control costs. This will make the system we create sustainable.
In order to achieve balance in any approach to solving our health care problems, we must understand the players involved. There are a variety of populations that must be served and stakeholders that must be addressed. Once we understand the parties involved, we can work to balance the three critical factors of cost, quality, and access.
Health care reform must address the elderly, the poor, the disabled, the transitionally employed, the employed with access to employer-based insurance and the employed without access to employer-based insurance. Any resolution to our problems needs to address each of these populations, and may have different solutions for different populations as they all present very different needs.
In order for meaningful health care reform to be sustainable, it must acknowledge the various stakeholders involved and strike a balance among them. No one stakeholder can be completely insulated from, or overly harmed by the changes proposed. This means the financing stakeholders, employers, patients, state and federal governments, all have to be addressed. In addition, the providers of care, including doctors, hospitals, pharma and biotech companies, must also be addressed in this balance. Finally, insurance companies play a significant role and must be included in the calculations. One of the reasons the ACA is not sustainable is that it didn’t evenly balance the impact that health care cost reductions have on the various stakeholders.
Proposed Reforms and Actions:
The prognosis for the health care system in this country isn’t very good, and we have some serious issues that must be addressed. Adopting a “do nothing” or “watchful waiting” approach isn’t going to work. The current environment is simply not sustainable. The Affordable Care Act didn’t fix our cost problems and may have even made things worse. Corrective action needs to be taken. If we’re going to avoid the coming collapse, something must actually be done. If you disagree with these statements, please put this paper down and pick up something else, fiction probably, because the first step to solving this problem is honestly admitting we have a problem.
Let’s begin with the understanding that there is no magic pill for this one. There is no simple solution to a very complicated problem. There is no single villain for us to thwart. This means we’re going to have to come to terms with the fact that the cure isn’t going to be instant or painless. We are facing a problem that is decades in the making and has become life threatening - both figuratively and literally. The first painful fact to acknowledge is we simply can’t provide everything for everyone. Let’s stop there and really let that sink in because that may be the most important, fundamental point. We are not going to be able to provide everything for everyone. I think any discussion of a cure for these problems begins and ends with a discussion of rationing health care in some way. You don’t have to like that reality, but if you’re going to develop a cure for our health care system, you do have to accept it. Let’s explore the idea of rationing and how we can employ it effectively.
Probably the most critical part of any solution to our health care woes is to figure out a way to ration care. Any time someone starts this discussion, very powerful emotions quickly boil to the surface. Images of people being left to die while life saving care is available, spring to our minds. We think of drugs being withheld solely because of price. We imagine surgeries not performed because some insurance executive or government official decided the patient was just too old to benefit from it. These and worse all come to the forefront. I agree that these ideas are disturbing and should be avoided if we possibly can. I ask you to consider, though, how much worse is life in those images than the one we already have in this country? We have people taking half their necessary medication so they can afford food. There are large segments of our population that receive care in clinics that most of us would find unacceptable. Elderly patients are going without necessary care because they can’t find a physician willing to see new Medicare patients. Are these situations really that much better?
Today we provide incredible care to many people, great care to most, and at least some care to all. This situation is going to break the bank and leave us with a scenario where only a few people are able to afford health care and everyone else will go without. Our mission, when considering rationing, is not to choose who gets their care covered and stop there, but to determine how to provide the best care we can to the most people without breaking the bank. How do we ration the financing of care so that the most people possible have access to it? Dealing honestly with the distasteful thoughts that rationing usually inspires is going to be integral to moving forward. With this understanding of “rationing” in mind, we can first focus our efforts in its use on two things: what services are we going to pay for, and how much are we going to pay for them? Let me examine these two concepts individually.
- Coverage Policies:
The first thing we need to address is a more logical and cost-effective way of deciding what gets covered. Every doctor I have ever met has a frustrating story about a service or drug being covered by one insurance company but not another. They’ll tell of services covered by Medicare that commercial insurance companies don’t pay for. They’ve been forced to jump through different hoops for different insurance companies just to get the same service covered for their patients. This process is confusing, illogical, and costly. Think about it for a moment; the care you receive and the services or medications that are available to you are dependent on the insurance company you have – or maybe how skilled your physician is at filling out forms. Why should one patient get one level of care while a patient with the same condition doesn’t get it just because of the insurance they have?
Adding to the injury of inequity, we have the insult of waste and the administrative cost that comes with it. Every physician group has a person, or in the case of medium or large groups, a team of people, doing nothing but getting authorizations for the services they want to provide. Each of these people has a counterpart at the payers whose job is to review these requests and approve or deny them. Every day hundreds of thousands, maybe millions of requests for authorization or pre-certification are sent from providers to payers to be reviewed and approved, denied or returned with a request for additional information. None of this activity is necessary for the actual provision of care, but it consumes precious health care dollars. What if there was a way to eliminate all of this nonsense, create a single source for coverage policies, and reduce costs all at the same time? Wouldn’t that be a good step toward fixing the problems we face? Of course it would, and here’s how I think we do it:
The Omnibus Budget Reconciliation Act of 1989 created, among other things, the Relative Value Update Committee, also known as the RUC. The RUC is a committee of 31 people, 21 of whom are selected representatives from the national medical specialty societies. This committee makes recommendations to CMS on RVU changes and RVU assignments for new CPT Codes. My suggestion is to broaden the committee’s role to help us combat the problem we just discussed. The RUC could be tasked with developing and maintaining a set of national coverage policies and criteria. These policies and criteria would take into account not only clinical value but also the cost effectiveness of treatment options, new drugs, procedures, et-cetera. The committee would also be tasked with setting recommended clinical pathways. These coverage policies and clinical pathways would be enforced for all payers, governmental and commercial. This would of course require a change to the current federal Medicare legislation, as well as the federal ERISA legislation that governs self-funded plans, not to mention the Affordable Care Act to cover fully insured plans. Medicaid could be handled by tying federal funds to the adoption at a state level of RUC recommendations for the states’ Medicaid population.
These coverage policies should cover the vast majority of care delivery situations and patients. Understanding that no set of policies is going to cover 100% of the patients or situations, we’d need to retain existing appeal mechanisms to handle exceptions. This way, if a patient or their physician felt there was a strong argument to be made for an approach that differed from the national policy, they could appeal for an exception and have it paid for. These mechanisms are already in place for all governmental and private payers. Further, these policies would be considered a minimum level of coverage. No plan could deny a treatment that followed the national policy. If, however, a self-funded employer wanted to provide additional coverage, they could do that since they are fully responsible for the cost. If a commercial insurance company wanted to offer a plan with expanded coverage beyond the national set of policies, they could do that as well. The coverage policies would be designed to limit those services that could be denied, and remove most, hopefully all, of the pre-certification and prior-authorization process.
Speaking of prior-authorization and pre-certification, an article in Medical Economics Magazine in 2014 referenced a 2011 study in Health Affairs that calculated the total cost of the process to physicians in this country at $69 billion per year. If the payers, who have to review and decide on all of these requests, pay a similar cost, then eliminating the process saves almost $140 billion per year. To put that into perspective, in 2015 the federal government spent $69 billion on Medicare physician payments. By eliminating the administrative expense of prior-authorization, we could potentially save twice as much money as the federal government currently spends on Medicare payments to physicians. While this doesn’t solve our whole problem, you know what they say, a billion here and a billion there eventually adds up to real money.
In addition to setting the policies for what will be covered, the RUC could set policies for when and under what conditions specific care would be covered. This gets us to the heart of how we employ rationing. For example, a brain MRI is obviously something that should be covered. The question is, under what circumstances? A patient with a mild headache and no other symptoms or presentations should probably not be approved for an MRI. A patient with a severe headache and other presentations and symptoms that could indicate a tumor would be covered for an MRI. Again, appeal and exception processes would need to continue to account for the unusual situations that do present themselves.
This model would require us to decide how to handle increases in costs driven by RUC coverage decisions, as well as what to do with any savings created by these decisions. I have a suggestion for how we deal with these issues. At the end of each year, the RUC will have made several coverage and clinical pathway decisions. Some of these decisions will save Medicare money while others will increase costs. If the net of these RUC rulings produces a reduction in medical expenses, I would propose we keep those savings in reserve. If the RUC rulings drive an increase in cost, the law would have to force Congress to use one or more of the four possible funding mechanisms to ensure that this increase in cost doesn’t impact the overall federal deficit.
The funding mechanisms available to cover any projected cost increases are:
- Any accumulated surplus generated from RUC decisions that reduce Medicare expenses
- Increases in the Medicare tax rate
- Decreases in Medicare benefits
- Reductions in the payment levels to physicians, hospitals etc.
So, if the RUC makes a coverage policy decision or a clinical pathway decision that reduces costs, the surplus goes into a reserve account to help pay for other decisions that increase costs. When the RUC makes a policy or clinical pathway decision that increases costs, Congress must offset that increase by using one or more of the options listed above. In Washington terms, the “Do-For” must have an offsetting “Pay-For.”
Let’s take a look at how this process could impact areas like drug pricing. Drugs account for almost 10% of all health care costs, and in 2014, the overall price of drugs increased by more than 12% compared to the previous year. Pharmaceuticals account for a large portion of health care costs and have been inflating at a rapid pace. Keep in mind, too, that the current system really doesn’t provide any incentive for drug companies to develop cheaper drugs. Rather, there is an incentive to focus solely on the development of drugs that are clinically better, because if they do, drug companies can charge almost whatever they want for them! A perfect example is the drug Solvaldi for Hepatitis C, which hit the market in 2014 with a price tag of $1,000 per pill. Medicare alone spent $3.1 billion in 2014 on that one drug. I wonder if the drug would have been approved in my RUC scenario? With those things in mind consider the following:
A drug company develops a new drug that is almost as good as Solvaldi for Hep C patients. They show that for 95% of the patients, their new drug is just as good as Solvaldi. They also price the drug at $500 per pill. The company presents their new drug to the RUC. The RUC agrees with the clinical findings and has CMS evaluate a policy adoption along with the pathway that identifies the 5% of the people that really need Solvaldi and allows them to continue with their medication as prescribed. CMS comes back with a savings of $1.475 billion and the coverage policy and pathway is approved. One decision by the RUC and the manufacturer of Solvaldi looses $1.475 billion in Medicare revenue along with 95% of their non-Medicare Solvaldi revenue. What do you think the manufacturer is going to do? I think they’re likely to approach the RUC with Solvaldi again, only this time with a price tag not set at $1,000 a pill but rather $400 per pill. This is quickly adopted by the RUC and we get another $275 million in savings. What we’d have is an efficient marketplace where price drives consumption. We’d have something that acts more like a free market economy, which is very effective at controlling unnecessary inflation. The entire pharmacy industry, along with others, would now focus on producing more cost-effective and less expensive drugs because they know it will drive market share. Just think about how much this could impact overall health care expense. If this item alone produced a 10% reduction in pharmacy costs, it would drop total health care expenditures by 1% all by itself!
We need to talk about end-of-life issues. Start with the facts: Medicare covers about 80% of the people who die every year. About 25% of the total money spent by Medicare each year is spent in the last year of someone’s life. That means Medicare spends over $150 billion every year paying for the last year of life. If we do the math using 2014 as our basis, the average amount spent by Medicare per beneficiary in the last year of life was $34,539. That’s four times the average cost of the same year for the remaining beneficiaries. It’s interesting to note the cost of a Medicare recipient’s final year does not continue to increase with the age of the patient beyond a certain point. The peak cost happens at age 73 and then declines from there. This suggests that as a society we get more comfortable with death as the patient gets older, more often choosing palliative care over more expensive and invasive services.
Before anyone gets upset, I am not suggesting that we withhold care for seniors. What I am suggesting is that there may be a better way to handle end-of-life care and decisions. In our current environment, we put families and physicians in a terrible position. We ask family members to make decisions about their loved ones that they are not equipped to make at a time when they’re not in a good position emotionally to make them. We put physicians in the role of trying to advise family members without sounding callous or uncaring. The whole situation is set up to produce the kind of wasteful spending that needs to be addressed. The question is how do we address these situations in a caring, compassionate way that provides good care to the elderly, but without so much unnecessary spending? In my opinion, the solution could be found in the proposed enhanced role of the RUC. In addition to coverage policies and care pathways, the RUC could be charged with creating coverage policies for end-of-life care. Like the other coverage policies, we would still have an appeal process for those cases that don’t fit the standard guidelines. This approach could also be used in some of the very expensive beginning-of-life decisions involving what care should be provided for premature infants with extremely poor prognoses.
If this approach produced just a 10% savings in end-of-life costs for Medicare, it would add up to more than $15 billion saved per year. I tend to think that the actual savings would be significantly more, but $15 billion is nothing to sneeze at.
- Tort Reform:
Another place we should look for savings, though not specifically related to rationing, is Tort Reform. Everyone in the industry agrees that “defensive medicine” exists. The challenge is to determine its impact on the cost of health care and then find a way to eliminate it. In 2014, a study lead by the Cleveland Clinic was published in the Journal of the American Medical Association that examined defensive medicine and its financial impact. The study noted that 28% of the 4,200 physician orders studied were at least “somewhat” defensive and 2.9% were “entirely” defensive. The Cleveland Clinic study estimated the annual cost of defensive medicine to be $46 billion per year. Other studies, not to mention the American Medical Association itself, put the cost significantly higher. For now, though, let’s use the conservative Cleveland Clinic number of $46 billion. Tests and services performed for defensive reasons don’t have any real clinical value; they don’t change the course of treatment. With this in mind, we begin to understand just how staggering that $46 billion figure really is. To help put it into perspective, $46 billion is about the annual revenue of companies like FedEx and Disney. That’s how much money we’re wasting on defensive medicine. That doesn’t even include the cost of malpractice carriers defending frivolous lawsuits or the actual malpractice payouts. In 2013 there were $3.7 billion in malpractice payouts. Finding good data on the cost of defending cases is difficult. However, I did speak with an executive at a large medical malpractice carrier who told me his company spent more money successfully defending cases where no additional money was awarded than they did in all of their payouts for losing cases put together.
- Common EMR Format:
Another area of potential cost savings could come from the creation of a common national electronic records format. Right now there are several physician and hospital EMR systems. While individually they work fairly well, none of them talk to each other. A recent study showed that 1 in 5 radiology tests done in a hospital was a duplicate effort and could have been avoided if the hospital had access to previous studies done elsewhere. This issue alone increases health care costs nationwide by over $20 billion per year. What I propose is the creation of a common format and translation for all commercial electronic medical records. This common format would allow for an easier exchange of data and records. Secondly, I propose the creation of a common data interface and exchange system be developed and managed by the federal government. Compliance could be incentivized by offering hospitals and physicians an increase in Medicare reimbursement for being on a system that is certified as complaint with the national standards, as well as for connecting to the national data exchange. This would allow a hospital in Florida, for example, to see the records from a patient traveling from Texas if something happened while they were vacationing in the Sunshine State. It would also have other benefits, such as reducing prescription drug abuse, since hospital ERs could see prescriptions for that patient from other hospitals in the area - or even around the country.
The final areas we need to attack reside at the very core of insurance and how it works.
- Finance Changes:
The current system provides no incentive for individuals to take an active role in the financing of their health care. This is left entirely up to the government or their employers. The only incentive for individuals is actually a penalty through the individual mandate. One way this lack of participation can be addressed is through an expanded use of HSAs and how they’re funded. My proposal follows the same overall operating premise as the 401(k) and would promote savings on health care expenses, patient responsibility, participation, engagement and consumerism. Employers, individuals, and the Federal government can fund these individual HSA accounts. All federal subsidies under the current ACA formula would be deposited into the individual HSA accounts. To qualify for a subsidy, individuals must file an income tax return and must purchase health insurance. Citizens may also elect to make pre-tax deposits into their HSAs, without limitation. The individual mandate would still apply.
Individuals qualifying for the means-based subsidies have the following options:
- Utilize subsidies to purchase health insurance through the Marketplace
- Subsidize required employee contribution through employer group policy or individual or dependent coverage
- Receive the net balance of the subsidy remaining after health insurance premiums are paid, to be deposited into a taxpayer directed HSA for additional medical expenses
Funds in the individual’s HSA accounts are eligible to be used for medical expenses, including health insurance premiums, for the individual or their immediate family as defined by the Internal Revenue Service Code. HSA accounts remain active until the death of the individual, and upon death of the individual, the funds remaining in the HSA are transferred to immediate family members’ HSA accounts. If left undesignated, or there are no qualified immediate family members, then funds are transferred back to the federal Medicare and Medicaid fund.
The employer mandate would continue as currently designed, with the addition of a requirement for employers to provide an employee the option to select whether to participate in the group health insurance policy or have an equal amount deposited into the employee’s HSA. Employers would have the following options:
- Provide a group policy to employees
- Deposit an amount for each employee equal to the cost of a bronze plan into employees’ HSAs
- Pay the fine related to employer mandate
Expanded use of HSAs addresses one of the problems with the ACA as currently written. Right now, if an employer offers qualified coverage to an employee, it removes their ability to access any Federal subsidy in the exchange market. This often hurts low-income employees who would be better off if their employer didn’t offer any insurance.
- Insurance Reform:
Alain Enthoven, and almost every other economist that studies health care, all agree that part of the problem with health care costs is the “free riders,” those that benefit from the US health care safety net, but don’t participate in the insurance pool. In order to have an efficient insurance market, we need the vast majority, preferably all, of the people in this country to participate. The reason why this is important to cost control has to do with the fundamental principle upon which insurance operates. Insurance, by definition, is the spreading of cost over a large number of people or over a period of time. Insurance is designed to pool small amounts of money from a large number of people and then use that money to pay for the significant costs generated by a small portion of the population. This is critical in health care, given that the top 5% of consumers of care account for 50% of all health care spending. The healthiest 50% of the population consumes less than 5% of the total. This skewness makes it critical that the healthiest 50% of the population doesn’t opt out of purchasing health insurance. If this happens, there is no way the other 50%, especially the top 5%, who really need it could ever afford coverage. This problem in particular plagues the ACA and the exchange marketplaces right now. Many of the people that have joined the exchange have more clinically severe health problems, and not enough of the healthy population has been attracted to the new marketplace to offset the cost of caring for them. The healthy people are choosing to go without coverage, diminishing the revenue pool. This situation demonstrates why one of the most important aspects of health care cost control is making sure that everyone pays for some level of coverage. The ACA’s individual and employer mandates are not enough to force full, or even close to full, enrollment. This gives us another task to undertake, how do we encourage, or force, large-scale participation? I would keep the current exchanges, as I believe they create a useful marketplace for individuals who want to purchase insurance. I would, however, propose the following enhancements to help support the exchanges and push for more widespread participation:
- Pass legislation that requires all insurance companies, and those companies administering insurance-like products (i.e. self-insured plans), to also sell both fully-insured and exchange plans to individuals and small groups in every county where they offer their other products. This would mean companies like Cigna, Aetna, and United would be required to offer and sell individual and small group policies, as well as exchange policies, everywhere they offer their self-insured products. Simply put, if they want to sell the “good business” - large employer products - in an area, they will have to take all This would include the small group, individual, and exchange members. This would help give all consumers more choice.
- Pass legislation that all small group and individual commercial products must be community rated with rates approved by the state Department of Insurance commissioners.
- Change the current COBRA laws to remove the premium increase for COBRA coverage. In addition, treat short term COBRA coverage like unemployment insurance. Charge employers a small tax, then provide short-term coverage free to people who loose their job under the same rules as unemployment insurance. This coverage would extend for no more than six months. Studies show that 45% of the uninsured population is uninsured for less than four months. As such, this one move would solve almost half of the uninsured problem in this country by fixing the issue of the transitionally uninsured.
- Finally, the employer penalty and the individual penalties need to be increased. The employer penalty for companies with over 50 employees needs to be increased. Right now it is significantly more expensive to provide health insurance for employees than it is to pay the penalty. It’s a little bit like having a $5 speeding ticket. That won’t deter much speeding. The individual mandate also needs to be strengthened to provide more incentive for individuals to pursue coverage.
- Personal Accountability:
The last thing that we need to address is another difficult one. We need to add some personal accountability to the process. Right now, the only lifestyle question asked when a person is enrolling in one of the ACA exchange plans, is “do you smoke?” To my knowledge there is no way for the carrier to check your answer, so I’m not sure why anyone who smokes would answer that question honestly. You could be an obese diabetic, eating a full box of Krispy Kreme donuts while sucking down a Big Gulp Mountain Dew for breakfast, right before you drive to McDonalds for your super-sized double Quarter Pounder lunch, while you enroll in the exchange and it wouldn’t affect your rates one bit. Furthermore, there is no way for your insurance carrier to change your rates once they find out about your unhealthy and potentially expensive lifestyle. Compare this situation to auto insurance. Everyone knows and accepts that if you get four speeding tickets or a DUI that your auto insurance company is going to find out and your rates are going to increase dramatically. We seem willing to accept the idea that we should pay more for auto insurance if we choose to drive fast or drive drunk. Insurance companies hold us financially responsible for our driving style and we agree to it largely without protest. However, we are not okay with the idea of paying more for health insurance if we choose to make unhealthy life style choices.
The problem with rating health insurance on lifestyle choices is it requires some exchange of information between the physician and your insurance company. This exchange opens up a whole new can of worms about privacy and how insurance companies could use that data. It’s not as straightforward as auto insurance, where the police inform your insurance company after you’ve committed a traffic crime. The challenge will be to change our mindset from looking at rate adjustments as penalties for bad behavior to seeing them as rewards for good behavior. Rather than increasing the rates for our overweight diabetic above, we would price everyone using community rating guidelines, then offer premium reductions for people whose physicians certify certain healthy lifestyle choices. Your doctor certifies that you’re a non-smoker every two years during your wellness visit? You get a reduction in your rates. You’re not overweight and your blood pressure and cholesterol are under control? You get another discount in your rates. You are overweight but following a physician-monitored weight loss program? You get a discount. You can see where I’m going with this. This would not only incentivize good behavior but would also incentivize regular visits to your primary care physician, as these discounts would need to be re-certified every two years. Since most people with insurance have it provided by their employer, though, my plan would require these discounts be given directly to the employee, and that this revenue be tax-exempt. Think about that for a minute. This would provide a direct, tax-free income incentive to the employee and their family to get involved and lead healthy lifestyles. It also helps the people who may need it most, as many studies show a direct correlation between unhealthy practices and lower income levels. The people in this category are the ones who could be most helped by this increase in income and who can have the most impact on health care costs through lifestyle changes. The employers win through reductions in their premium renewals as their companies become healthier, along with a reduction in workdays lost from illness and disease.
That’s it, my prescription for curing our worsening condition. I don’t underestimate how hard some of this would be. Many aspects of the cure are not easy, and I won’t say they won’t require significant changes in how things are done currently.
Summary and Conclusions:
The US healthcare system is a product of who and what we are as a country. It’s a combination of a nation that is blessed with prosperity that the rest of the world can only envy, combined with a very generous people who time and again open their hearts to help those in need. An economic environment and a “no challenge is too big” culture that has pioneered many of the most amazing technological advancements in history influence it. It is without a doubt the very best healthcare delivery system in the world . . . if you can afford it.
The problem with our healthcare delivery system is the same problem we have in other areas, like our federal deficit. We are a nation that doesn’t have a very good track record of fiscal responsibility. We have close to $20 trillion in national debt, yet we are the first country to give aid to another in need. We will extend benefits to our own citizens, the elderly, the poor, the unemployed, when we don’t seem to have an ability to finance those commitments. Hell, we’re the country that invented the term “unfunded mandate” to describe the commitments we’ve made (and can’t currently pay for) to our elderly in the forms of Social Security and Medicare. We will even extend benefits to people who are not our citizens and are in this country illegally.
This is what makes us a great nation, but it can make us the victim of our own charity and fiscal irresponsibility. How many nations sent us money after the housing crash of 2008? How much money did China send the United States to help all those people who lost their homes, jobs, or retirement? Many countries sent us thoughts and prayers after 9/11, but did any send money to help rebuild New York? I’m not asking for other countries to fix our financial problems; I’m pointing out that there is some truth to the statement that charity begins at home.
I’m happy we are a charitable people. I hope we never lose that about our country. It’s truly what makes us great. The fact that U.S. soldiers were on the beaches in Normandy and that our hearts and checkbooks are extended to those in need both inside and outside our borders is what makes us who we are, and we need to protect that. In protecting that American quality, we also need to realize that, just like the housing crisis of 2008, if healthcare melts down, no one else is going to help us. No one is going to send billions of dollars to make sure our citizens get the care they need or help us with the incredible unemployment that will result. We are in this alone and we alone need to fix our problem.
The problem is daunting, the challenges great, and the decisions difficult. If it were easy, we would have already done it. However, the consequences of doing nothing are much worse. This is one can that we can’t afford to kick down the road. Compared to the housing crisis, a meltdown in healthcare will be like cancer compared to the flu.
It is clear to me that we need to act, and it needs to happen now. Blindly following the same trail we’ve been on for the last 50 years is going to result in some very unpleasant results when this market makes its own adjustment.
We can await our fate or we can blaze a new trail.