Health care, along with retirement planning, should be #1 priority for any nation’s current fiscal crisis. There are powerful market-based solutions to solve the fiscal problem that empower people to exercise their choice and own accountability for their decisions and consumption. The US national deficit is roughly $1.2 trillion/year so the tax revenues or savings presented below are for the United States.
The key solutions involve price & quality transparency; consumer accountability; free trade; and medical malpractice reform.
For those interested, you can dig into government health spend starting with this link: US Government National Health Care data.
- Health Savings Accounts: We should modestly expand pre-tax contributions to individual health savings accounts so individuals and families can purchase qualifying high-deductible health insurance policies. Current deductions, especially family deduction, may not be high enough to cover the premium cost for a high deductible plan. US Treasury: Health Savings Account. According to Kaiser Family Foundation survey (Survey PDF), the average 2013 individual employer contributions to High Deductible Health Savings Accounts was approximately $6,000 or 25% of an entry level annual salary for new college graduates. Employee annual contribution levels were @$900 so the employee can save $1-2,000/individual ($2-3,000/family) in what’s called ‘premium pass through’ to the employee. By the way, employer benefit managers should demand maximum premium pass through as they select health plans.
- Repayment of Student Debt: We should allow individuals and families to repay student debt from their health savings accounts using pre-tax dollars. $26,000 is avg. college debt/borrower so $1-2,000/year of HSA-related savings can help the young healthy worker repay their student loan.
- $155 billion/year: ‘My Medicare’ Accounts: add health benefits to the bi-weekly paycheck (after any selected HSA deduction for a high deductible plan), tax the benefits, and place a capped tax amount (up to $13,000 of tax revenue adjusted for consumer price index) into a mandated My Medicare health savings account available when people hit Medicare age. Consumers pay much more for health care because the reward system is to consume, consume. This proposed model (tax now, but it’s your money for future use) will motivate people to set up these personal savings accounts, choose lower cost plans, accept more responsibility for personal health consumption, and backstop Medicare when Medicare runs out of money. Win-win-win. If you don’t set up a personal account, your tax revenue goes to fund tax credits for the uninsured, etc. Keep in mind: we’re not taxing your money to give it to the uninsured. It’s your money when you need it in retirement when Medicare is under-funded or bankrupt. Government may need to means-test distribution from these accounts later to fund Medicare, but at least there will be money in the lock box when Medicare reserve funds dry up. I encourage everyone to read Nudge: Improving Decisions about Health, Wealth, and Happiness to learn about the power of default options, like taxing employee benefits and placing them into a personal Medicare account, on human behavior. In this model, many consumers will change their insurance coverage to higher deductible, lower premium plans to make more money after-tax and accept more responsibility for consumption.
- $77 billion/year: Insurance Mandate. There are two options:
1. No mandate: Hospitals and doctors have no requirement to care for uninsured who can’t pay. Uninsured could go to County hospitals and stand in line to get free care. Uninsured can pay a spot market price at the lowest transparent contracted provider price plus 100% for not having insurance coverage. This makes sure people have an incentive to take insurance coverage and pay some premium.
2. Individual mandate: People can use the current system. $145 monthly health savings account with $2,300 deductible x 45 million uninsured. The problem with any human mandate is 15-17% of a population will always avoid a mandate. Look at car insurance, health insurance or other legal mandates.
Transparency: US spends $2.2 trillion on health care at least 2.5x more/GDP than any other industrialized nation in a quasi-market based system. Under the new US ObamaCare law, spending should increase by 20%+ because of the new mandated benefits for the uninsured and under-insured. The US will soon spend 20% of the entire’s nation product output on health care and there is zero price transparency. The US health care system is like going to a restaurant and ordering from a menu without a price list. Even better (or worse), you only pay 10% of the bill when you walk out the door.
- $100 billion/year: ‘Medical Price Sunshine Act’. Of the $2.2 trillion spend, we spend $2.0 trillion on health care services and supplies. We pay at least 5% global higher prices because we have no idea what we’re paying for. Every worker in today’s health care system knows full well there is wide price variation for the same volume of goods and services within a single entity let alone across the country. People must financially accountable and empowered with transparent quality and price data to shop for health care like we shop for anything else. Every health care service provided in the United States and most world health care systems has a standardized billing code and name. We just need to make the information public so private businesses can offer the public easy to use price comparison shopping web sites.
1. all health plan premium prices need to be posted on employer’s web site and state insurance web sites. Age/sex experience rating should be allowed, but pricing should be transparent including to competitors.
2. all health plans must post ALL provider prices on-line and send a quarterly file to CMS for CMS web site by standard billing codes. Hospital, surgery center, physician, lab, radiology, blood bank, etc.
3. all hospitals must post their drug, device, anesthesia prices across all vendors on-line. Government can provide insurance companies and providers a simple Excel spreadsheet organized by payer name across the top and ICD-9 (hospital) and CPT-code (physician) in column A.
Health care free trade:
- Insurance carrier free-trade: $105 billion+
1. allow insurance carriers to compete across state lines and eliminate state insurance mandates. Let any carrier offer any competitive plan in any state. Let consumers decide.
2. no denial for pre-existing conditions
3. limited catastrophic illness carve-out to state pool funded by insurance tax at state level
4. option to purchase insurance through existing government health benefit program of all PRIVATE insurance options. About 30 million Americans are covered by individual insurance policies, therefore have zero negotiating power, and consequently pay at least 100% more than an individual policy purchased through an employer group.30 million x $3,500/year premium difference = $105 billion of annual cost savings for individuals to buy through state or federal government programs.
- Private Medicare HMO for all Medicare beneficiaries: $15-60 billion
1. Medicare HMO pricing model: 95% of historical county cost guarantees cost savings. Reset pricing bar annually not to exceed CPI index. Federal government spends $420 billion/year growing at 20% per year, clearly unsustainable. 20% or 8 million Medicare recipients are enrolled in private Medicare HMOs and love it. They pay less out of pocket, receive richer benefits, and have same choice of providers. Why? In part, Medicare under President George W. Bush administration subsidized private Medicare at 115% of Medicare per capital county cost. In the 1990s under President H.W. Bush, Medicare funded HMOs at 95% of per capital county cost and Medicare HMOs and providers did very well. Bill Clinton cut private Medicare reimbursement dramatically in 1997 and the HMOs dis-enrolled all of their population back to government program. Solution: make private Medicare benefits comparable to public Medicare and pay at 95% of last 5-year Medicare per capita cost per county. Medicare recipients will still be able to pay less out of pocket than traditional Medicare, will have privately managed benefits and more coordinated care than Medicare, and have same choice of providers.
2. Privatize Medicare: require all 40 million Medicare recipients to join a private HMO just as they do today for their prescription drug benefit. If government were to receive 5% guaranteed savings and cap cost growth rates in negotiation with private carriers, Medicare would save at least $20 billion and possibly $60 billion/year (assuming a 5% per member per year inflator).
3. Prior Authorization: If we don’t privatize Medicare management, then we should at least require all Medicare and Medicaid beneficiaries to require prior authorization from private insurance companies for major surgical, testing, or prescription drug benefits. Right now, there is zero control over Medicare and Medicaid utilization, hence 20%+ annual cost increases on a growing patient population. Government’s current solution is to reduce unit price which only results in provider and drug company cost shifting to private sector employers and to all tax-paying, working Americans like you.
- Privately managed Medicaid: $15-$45 billion savings1. Federal and state governments spend $320 billion/year on Medicaid. The same logic for Medicare applies here. There are very successful Medicaid HMOs that guarantee state governments cost savings below traditional Medicaid spend for comparable or better benefits. 5-15% annual savings under a private Medicaid model would generate $15-45 billion of savings to state and federal government.
- Medical malpractice: $100-$180 billion/year.
1. Limit non-economic damages (pain & suffering) to $350-500,000 (as some states like CA, IN, and even MS have done) and federalize any class action suits to a court of health experts. This eliminates lottery size awards given out by juries in Jefferson County, Mississippi, the favorite venue for national class action trials. Mississippi: From Worst to Nearly First in Medical Malpractice Reform. Physicians will stop ordering extra, very expensive tests just to pad their medical file in event of suit. Mark McLellan (former HHS secretary) did a recent study quantifying savings north of $100 billion.
2. Allow consumers/employers to buy health plans that waive right to sue for non-economic damages. Hospitals and providers will charge less if they don’t face frivolous lawsuits. Currently, we all pay for everyone’s right to sue, which has increased our own health costs 7-9% as suggested in the book ‘Nudge’ noted above.
3. In exchange for medical malpractice reform, require health providers to report all medical errors to a national HHS database similar to the National Transportation Safety Board for the US transportation industry so consumers can learn from provider mistakes. Currently, US providers have zero incentive to report errors for fear of suits, etc.
In sum total, there is roughly $700-800 billion of annual cost savings we could achieve through market-based reforms. The rough cost of the 44 million uninsured population is $140 billion though many of this population can afford to buy insurance if offered and accessible through state or federal benefit programs of private insurance options. The math works.
This framework requires a sea change of increased individual and corporate accountability from top to bottom in the health care value chain (health care buyers, insurance carriers, providers, vendors, and consumers). Mandating more benefits without any cost control features will dramatically increase costs and re-allocate money from national investment priorities to wasteful consumption we can not afford. The only way for a distant government to reduce expense in a national health program is to reduce unit price and coverage. This decreases provider supply over time, which means wait lists for care and denial of service, and reduced coverage. Single payer health care results in a two-tiered system in which the rich buy supplemental coverage or pay providers directly and the masses receive far worse quality care from a less motivated provider base than today’s current system. If anyone believes conventional wisdom that Europeans and Canadians receive higher quality health care and live longer, please read this incredibly researched book by Dr. Scott Atlas: In Excellent Health: Setting the Record Straight on US Health Care.
All we need to do as a nation is simply accept accountability for our consumption, and demand price transparency and free and fair trade as we shop for health plans and health products and services.
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