The political theatre over health care reform has quieted after yet another ugly show. A productive dialogue about big ideas seems impossible in our hyper-partisan climate. No matter which party holds power, any significant proposal is quickly met with fierce opposition from a variety of political and business interests.
So, for many decades, America has settled on incremental tweaks — mostly preserving a fundamentally broken system. It has become a persistent deja vu.
While insurance coverage rates have improved, many fundamental problems remain or continue to worsen, namely high costs. Despite the heated rhetoric, most Americans have a shared goal of access to quality health care for everyone that neither bankrupts families nor the nation. The current managers of health care dollars have, at best, failed to move the nation much in that direction. At worst, they are the cause of many current problems.
Setting aside scapegoats, imagine a radically overhauled patient-centered system that lowers costs, minimizes bureaucracy, and provides a universal safety-net. The following is a proposal to do just that. It will be presented in three parts:
- Universal Personal Health Accounts (PHA)
- Medicare-for-catastrophic-for-all (the “new Medicare”) and long-term care assistance reform
- Financing the system
The first part will likely go against the dogma one political side and part two the other; taxes perturb most everyone. However, this is the practical compromise that America needs.
If you prefer a summary of this detailed policy proposal (40 pages in total below), this executive summary provides a basic overview in 3 pages.
Part 1. Universal Personal Health Accounts
Putting patients at the center of care
When discussing health care reform, everyone espouses “decisions should be between patients and their doctors”. Despite this rhetoric, from a financial perspective, the American health care system has steadily moved away from this ideal. Our dollars have been increasingly filtered through third parties, including employers, private insurance companies, and government agencies.
The management of these funds inevitably leads to political quarrels over what should be “covered”. These debates involve specific medical conditions, treatments, and even people themselves. Protecting the poor and sick comes from a place of compassion. Protecting pocketbooks and budgets comes from a place of fiscal responsibility. Both of these considerations are reasonable and necessary. But, much of the partisan squabbling could be avoided if individuals could think outside of the paradigm that has been created.
An ever increasing number of layers has developed between patients and their providers. The complex business of modern medicine makes the goals of transparency, equality, and efficiency difficult to realize. For anyone who has studied the American health care system, untangling this web of competing interests seems like an impossible task.
For decades Americans have been given the false choice of having either a private corporation or government bureaucracy manage their care. If the goal is to put patients in the driver’s seat, they must given direct control over more of the money. Individuals and families managing only a 20–30% portion — approximately $2000 per year/person — would revolutionize the health care system around their basic needs.
(The other 70–80% will be addressed in Part 2., so please refrain from yelling “BUT WHAT IF A PERSON NEEDS ____________?!” while reading this part.)
To accomplish this, every single American should be provided a “Personal Health Account” (PHA), irrespective of factors such as age, socioeconomic status, health history, and current insurance plan. PHAs would be carried lifelong and would be fully portable. The money could be spent for immediate health care expenses or accumulated (saved) over time to be used for future needs.
STRUCTURE AND REGULATION OF PHAs
Funding PHAs from multiple sources
Unlike Health Savings Accounts (HSAs) — which arguably mostly function as a tax-reduction for people of higher incomes — PHAs would be funded from multiple sources, including individuals, employers, government programs, private charitable programs, and other social service organizations.
The basic categories of PHA funding would be as follows:
- People of average income or higher should fund the accounts themselves via routine individual and employer contributions. The PHA contribution would be mandated to total $2,000 annually ($167 per month) per individual.
- People of lower incomes (those currently on Medicaid or receiving heavy subsidies under the ACA) will need assistance in funding their PHA. Families under 400% of federal poverty level (FPL) should receive a means-tested PHA subsidy from CMS ranging from $250–2,000 annually per individual based on a sliding scale (per table below). This federal subsidy combined with individual/employer contribution will be mandated to total standard $2000 annually per individual just as it is for upper income individuals.
- Current Medicare beneficiaries (age 65+) and those nearing Medicare age (age 55+) should be given extra subsidies for their previous tax contributions to the Medicare program. Everyone age 55+ would receive an annual PHA subsidy of $3000 for a period of 10 years. During this period, the flat PHA subsidy would be provided regardless of income. In years 11–20, this age-based subsidy would be phased out gradually in favor of a fully income-based PHA subsidy (as described above) in year 21. The minimum annual PHA contribution would be mandated to total $2000 per person just as with younger people.
- Government programs that manage special populations including Veterans Administration, TRICARE, Indian Health Service and others could contribute to additional money to PHAs beyond any of the universal means or age-based contributions. Regardless, exemptions to the PHA minimum mandate should be given to individuals on these special programs.
- Social service organizations. A variety of local, state, and federal social programs — both governmental and private — have a vested interest in the health of their clients and population. They should be allowed to contribute additional amounts of money to PHAs if they deem appropriate.
Income-based PHA subsidy amounts
Eligible medical services & restrictions
Spending of PHA funds should be restricted to “costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.” This is the broad definition provided by IRS for “medical expenses”. Health Savings Accounts (HSAs) have a reasonable list of medical expenses that meet this criteria, but definitions should be expanded in some areas to allow for innovative payment models.
Licensed providers and facilities charging periodic payments (e.g. integrated health systems, Direct Primary Care, cooperative models) give consumers more choice in how to pay for their medical care. These types of models should be made eligible in addition to fee-for-service charges.
Expenses associated with long-term services and supports (LTSS), such as nursing homes, assisted living and special home-based needs, should be excluded from PHA eligibility. A full plan on how to better provide LTSS assistance at the state level is below.
For non-FDA approved therapies, such as “alternative” medicine providers, supplements and vitamins), requiring a “Letter of Medical Necessity” or prescriptions from a licensed provider for some items is reasonable. However, over-the-counter medications that are FDA approved should not require such letters or prescriptions to be eligible as was instituted by the ACA.
One source of possible misuse would be in licensed providers who offer cosmetic services. As with HSAs, there should be a firm restriction of PHA funds being used for non-medical care, including cosmetic treatments. Implementing hefty financial penalties for providers who attempt to do such is a reasonable safeguard.
Taxation of PHA funds and investments
To create a level tax treatment, any mandatory PHA contributions (to reach $2000) should be fully untaxed regardless of the funding source or mechanism.
Individuals and families should be allowed to contribute additional dollars (direct transfers from bank accounts, cash payments, etc.) to their PHA(s) to cover outstanding medical expenses (providers charges to PHA) or to help accumulate savings. In the digital age, transfers to these additional contributions should be tax-deductible up to $5000 per household per year. This tax advantage would encourage PHA savings and reduce utilization of the new Medicare program (see Part 2.) over time, but not serve as an unlimited tax shelter.
Any money spent from PHA on eligible health care services would not be subject to tax.
Monies within a PHA may not be withdrawn for personal or non-medical use at anytime. To do so in any manner would create an easy way to game eligibility for Medicare coverage and abuse of funds.
Due to inflation, stagnant PHA funds would inevitably lose value over time. Allowing PHA funds to be placed in low-risk, liquid investment vehicles (e.g. bonds, annuities, etc.) would be a way to hedge against inflation for those that were accumulating savings. This should be allowed if a person chooses, and gains should remain untaxed.
Transfer of PHA dollars within a family
One goal of this proposal is to promote the financial independence of families. Allowing flexibility of PHA dollars helps to accomplish that. In the event that an individual depletes their personal PHA (hits $0 balance in a given year), their family members (household only) should be permitted to transfer a limited amount of PHA funds to that person’s account. A person should be limited to gifting their PHA dollars to other family member(s) at a maximum of $1000 per person per year. These transfers would not be subject to taxes.
While there would be no requirement to donate funds, these additional PHA contributions could help a family pay for an individual’s expenses related to deductible or coinsurance responsibilities. If children are involved, parent(s) or guardian(s) shall be responsible for such transfer decisions.
To keep PHA fund truly personal, a PHA account should not be permitted to pay for another person’s medical expenses directly.
One issue that will inevitably arise with PHAs is a person’s death. To encourage savings, any remaining balance in a person’s PHA shall be transferred to a family member or person of their choosing via living will without penalty or taxation. If no person is designated, next-of-kin shall receive the balance of PHA in a manner similar to other savings upon death. If there is no next-of-kin or designated person, the PHA funds shall be contributed to general CMS funds.
PHAs EFFECT ON HEALTH CARE PROVIDERS & PATIENTS
Reducing administrative burden
Money filtered through an insurance (private or public) plan is effectively subject to a 20–40% administrative tax through multiple layers of business and bureaucracy. While the total of administering payments with private companies (profit or not) versus public is debated, either can add huge costs to provider operations. The time and effort of providers that is required in dealing with complex procedural coding (CPT, E/M, new schemes), documentation requirements, and billing systems drastically increases the cost of doing business.
This is the crux of the administrative bloat that everyone on the inside recognizes. Simple, direct payments from patient-managed PHAs would eliminate much of those business costs naturally.
Natural transparency in pricing
Although many experts recognize the importance of price transparency, achieving any amount of it in health care has proven to be a daunting task. In a climate of escalating deductibles, there are examples of providers offering upfront pricing, but this happening broadly seems far fetched.
Patient using PHA’s universally will inherently promote and require true transparency in pricing. Regardless of a patient’s eligibility for Medicare assistance, providers would be forced to do this based on patient demands or suffer going out of business.
The empowered patient
Do you spend hours at a grocery store inspecting produce to ensure you get fresh apples? Are you required to shop around to ensure you do not get gouged when buying a gallon of milk?
Unfortunately, this is what health care looks like for most Americans.
In this complex maze of payments, it is understandable why many people feel disempowered to take control of their health care. Even patients with coverage have confusion and anxiety about networks, out-of-pocket costs, lost time, employment, and technical language of their health plan. Too often these concerns dissuade people from getting the care they need.
Sure, patients need to be aware of costs when receiving care but most people will not have the patience or time to jump through hours of hoops to get a price. In a functioning market, the provider of service should be the one focused on quality, engagement, and transparency; not the consumer.
We will never have a “consumer-driven” system when third-parties are managing dollars and setting financial terms. However, patients’ managing PHA dollars — dealing directly and transparently with providers — would put them back in the driver’s seat.
Cost of care and value-based decisions
Individuals on all sides of the health care debate want patients and providers to be efficient stewards of health care dollars. Knowing actual prices is part of that equation, but alone this does not always lead to better value-based decisions. Given that both parties often feel like they are spending someone else’s money, this challenge should not come as a surprise.
There is not always a clear-cut answer in some financial matters related to health care. However, it should be clear that a person should choose a cheaper, generic medication if it works just as well as the more expensive brand name. Just like it does not make sense for a person to get an MRI for back pain just because they met their yearly deductible.
Under a PHA driven system, patients will be driven to ask their doctor, “Is there a less expensive medication that might work just as well?”. This situation will spark a different thought process from the provider rather than, “Does your insurance plan cover it?”.
Deductibles, first-dollars, and preventive care
In the current opaque system, patients with higher insurance deductibles often avoid routine care, screening tests, and management of chronic conditions. This is often at their own peril and worsening health down the road. If the goal is to promote preventive care and public health, hidden costs, high deductibles, and barriers to basic care are not ideal. This is the logical impetus for mandating that insurance plans cover preventive care at $0 to the patient.
However, preventive care takes many forms. It is more than vaccines, pap smears, mammograms, and screening for high cholesterol. In fact, managing known chronic problems (diabetes, hypertension, etc.) is a form of secondary prevention — avoiding complications, hospitalization, ER visits. This is much more important to health outcomes and downstream costs than testing for problems that are unlikely to exist. The use of PHAs for first-dollar coverage of both primary and secondary prevention through a vehicle like Direct Primary Care would be far superior to the current mandate for preventive care coverage.
Some preventive care issues, such as vaccines and infectious epidemics, are a clear matter of public health. Some of these issues, would be more logical and efficient to conduct as a government program, rather than mandating coverage. Removing things like vaccines as a personal expense would allow PHA dollars to go further. A detailed proposal for this is found in Section 3.
Networks and two-tiers
A reliance on networks has created many barriers for patients and frustrations for providers. A constant reorganization of players makes patient-provider relationships difficult to maintain. Patients are frequently forced to change doctors because of a change in insurance status, employment, or providers dropping contracts. This is particularly problematic in relationship-driven care.
A sizable percentage of providers do not contract with Medicaid, but this varies greatly by state and region. More importantly, many providers who are in Medicaid networks restrict the number of new patients with those lower paying plans. While some form of assistance is better than none for lower-income people, many Medicaid recipients do not have great choices of where to receive primary care in a timely manner. Not surprisingly, a disproportionately high percentage of Medicaid patients end up in emergency departments. Emergency room staff will all tell you that many of these visits are not true emergencies or could have been managed by primary care physicians. Most people would not prefer to go to a busy ER, but people often make decisions based upon the easiest access available.
Ultimately, many fear a segregation of lower income or sicker patients to specific pools (high-risk, Medicaid, traditional Medicare) will lead towards a two-tiered system for those people. Sadly, actual or perceived Medicaid stereotyping by providers damages already strained patient-provider relationships. A universal PHA-driven system would eliminate this growing chasm and stigma. Food assistance beneficiaries can shop at the same grocery stores as anyone else, and this is a good thing.
Patient-centered technology beyond billing
Health records and data have been held back in the digital age due to the current complex payment system. It has stifled much of the amazing promise that technology had of improving health care.
Provider operations have sadly been optimized for the purpose of maximizing billing and reimbursement, rather than actual patient care. Unfortunately, most health IT to date has only added a layer of complexity to a provider’s day. These distractions have become one of the main sources for physicians’ burnout.
However, technology itself is not the problem. A system oriented around PHAs could not only be a vehicle for finances, but also personal health data. Combined with a common clinical health data standard such as FHIR, patient-controlled data would unlock a world of fantastic innovation. Patients could easily share their medical records with a provider securely when required. If providers were being paid in a simple, transparent manner, technology could be focused on improving clinical issues, patient experience, visualization of data, fostering relationships, and management of a population.
Quality of providers and care
Some will claim that allowing patients to control money without strict oversight would be reckless, prone to misuse and inappropriate care. They should be reminded that the current epidemic of waste, fraud, and overtreatment has progressively worsened while health care dollars have been managed by third-parties, including traditional Medicare.
If third parties are not managing every decision, who should ensure quality care?
State medical boards already have licensure criteria and mechanisms to ensure competency of health care professionals (physicians, nurses, dentists, optometrists, pharmacists, etc.) and facilities (pharmacies, hospitals, nursing facilities, etc.). The FDA already evaluates specific medical interventions (medications, treatments, testing) for safety and efficacy.
Private professional organizations have created standards of board-certification for specific professions and specialties through education, training, and testing standards. Health care facilities can be accredited through a variety of private organizations such as The Joint Commission and Leapfrog Group. Some of these organizations have received legitimate criticism in recent years and have not necessarily improved quality of care in many cases. But, people should be free to choose additionally “certified” providers and facilities if they choose.
No system can ever ensure that all medical providers or their decisions are of the highest quality. However, these basic standards and safeguards are the best approach to ensure that health care providers and treatments are reasonable without creating unhelpful administrative or transactional burdens.
Paying for performance or quality
In recent years, there has been some push for “value-based” payments in an attempt to reward quality over quantity. Measuring quality of care or good outcomes in most areas of care is murky at best. This is particularly true in primary care, management of chronic diseases, and among sicker patients. When attempted, “pay-for-performance” incentives have lead to a check-box mentality and sometimes outright fraud. In most circumstances, these programs actually reward optimization of paperwork instead of quality care.
Besides being misguided, pay-for-performance efforts can also be fraught with moral hazards. Unhealthy people are not necessarily the result of poor health care or vice versa. It is a fact that 30% of health outcomes are driven by medical care — the rest of the determinants (genetics, socioeconomics, lifestyle) are completely outside the control of the providers. Difficult or disadvantaged patients may not have great outcomes even with the best care. But, they are exactly the people who need help the most and providers should not be discouraged from taking care of them.
Under PHAs, provider-perpetrated fraud would be much more difficult to accomplish due to a limited amount of funds from each patient’s account. Currently, single providers defraud Medicare for millions over a number of years. No one knows for sure, but some estimate that there is $272 billion in fraud per year across the American health care system. Medicare and Medicaid alone likely pay out $60 billion per year in fraudulent payments which is nearly 10% of their total budget. And even this might be an underestimation of the total costs when mitigation and fraud prevention efforts are factored in.
Food assistance programs are great examples of how this direct aid is practical and efficient. There is some small degree of fraud involving food assistance beneficiaries and businesses — approximately 1.3% in SNAP — but it pales in comparison to current fraud conducted via Medicare claims.
PHAs would be digital transactions like a debit or EBT card so monitoring for fraud among patients or providers would be very feasible. Algorithms similar to those now being used by banks and credit card companies could trigger audits and investigations when warranted. Patients who routinely exhaust PHA funds would also likely be utilizers of Medicare (described in Part 2). Additional review of utilization of PHA funds could be conducted in those circumstances.
Requirements to use PHA funds
There should be no legal requirement for patients or providers to utilize PHA for a charge or transaction related to health care. They may freely use cash or another form of payment. However, to keep a uniform accounting of health care dollars, only PHA dollars will be considered for eligibility criteria and coverage standards.
TYPE OF HEALTH CARE
Primary care as the vehicle for PHA dollars
How could a patient possibly decide if they need an MRI or to see a cardiologist or which medicine to choose? And what is a fair price for each of those?
Patients working solely with their providers to manage their care could do much better than the current system of micromanaging from a 30,000-foot-view of paperwork after the fact. The best vehicle to assist patients in spending their PHA money wisely already exists. It is called primary care. If properly supported and reimagined, primary care can and should serve as the foundation of the health care system.
The current state of primary care
After decades of being undervalued by numerous forces, the very nature of primary care is being eroded. Hospital, specialist, and pharmaceutical interests have garnered an increasingly large proportion of influence and money (namely through manipulation of AMA’s RUC — see below).
Currently, only 5% of health care dollars are spent on primary care. This is less than half of what most developed nations spend. In general, third-party payers provide low reimbursements for things that require time, such as counseling, education, and coordination. They tend to heavily compensate services like procedures, testing and treatments. Primary care physicians, particularly when owned by a larger health system, generate more revenue by increasing patients volumes and reducing the scope and depth of care they provide.
These perverse incentives have slowly evolved the art of primary care into a high volume, rushed practice. The average PCP now has a panel size of 1500–3000 patients and sees 15–30 patient per day in clinic. Given the complicated nature of comprehensive care, it is easy to understand how overburdened PCPs have been reduced to writing quick prescriptions, ordering tests, and making referrals (specialists and emergency rooms) for anything remotely complicated. More importantly, PCPs struggle to develop strong relationships with their patients under this type of volume. While it is difficult to measure the influence of a quality patient-provider relationship, many experts recognize it has a profound effect on outcomes.
The current state of primary care in America makes a foundational role difficult to imagine. Sadly, many Americans — including policymakers — no longer recognize the important role a long-term relationship with a primary care physician could play. If properly valued and freed from transactional pressures, primary care can serve a much broader scope and depth of health needs than what most people realize.
Direct Primary Care and other innovative models
A growing movement of primary care physicians around the U.S. have adopted the Direct Primary Care (DPC) model. They have demonstrated what primary care could be when structured exclusively around patients’ needs and a simpler payment model. Nearly 1000 DPC physicians nationwide are now providing affordable, transparent care that far surpasses the service of traditional models.
Most people falsely presume paying “cash” directly for routine and minor care would be very expensive. The DPC movement and several other direct-payment models in health care have proven the exact opposite is often true.
By reducing administrative burden and streamlining the business of medicine, most DPC practices charge $40–100 per month per person. For slightly more than the average gym membership, DPC practices are providing enhanced primary care and many ancillary services and savings. Membership typically includes clinic visits and communications (telemedicine) covered without additional fees. Being member-supported — rather than funded “per service” — most practices offer people huge discounts on lab work, radiology, procedures and generic medications. These items are often a large share of people’s expenses, particularly when they have a chronic disease.
The direct cost transparency and savings of the DPC model is not its main selling point though.
By focusing on patients only, DPC physicians are able to offer a much higher level of service. With a reduced volume of patients, most DPC practices are able to offer same-day visits, after-hours care, and even house calls. Clinic visits can be extended when needed beyond the traditional 10 minute office visit. All of these things are something to desire in order to improve access, reduce barriers, and enhance the patient-provider relationship.
This enhanced access is not merely a convenience for patients. Improving the function and scope of primary care is one of the most effective ways to reduce the usage of the expensive, downstream parts of the health care system. This is true for patients at all levels of health, but particularly those with chronic diseases.
The biggest concern that arises about scaling DPC is that some patients cannot afford to pay cash for their routine care. Nationwide, the median DPC membership fee is around $900 annually. This will vary by practice and region, but some fees are significantly lower than this (range $300–1600). Most DPC practices also give some type of child or family discount rate. Adequately funded PHAs would allow any patient to choose DPC or a similar enhanced model of primary care. At these rates, there would be plenty of money left in the PHA for use on ancillary services or savings for a rainy day.
While the Direct Primary Care model is the best functioning example of what patient-driven care would produce, a variety of new models would likely emerge to serve patients’ needs. Historically, several great examples of this exist. Prior to the adoption of managed care organizations, provider-owned health care cooperatives (typically small and local) were widespread in America. Mark Twain’s family physician in 1840 in rural Missouri was paid a flat fee of $25 per year to take care of his family needs, just as DPC physicians operate today.
Specialty or hospital care
Although high functioning primary care can serve most people’s needs, there will always be a need for some specialized or more labor-intensive care. Much of this too could be more efficient and affordable if freed from the current managed-care mess.
In several DPC practices, providers use a web-based service called RubiconMD when a patient requires the opinion of a specialist. This platform provides physicians with advice from a broad panel of specialists within 12–24 hours. Using this service, physicians can share stories, pictures, and results with a specialist and then converse with them about the case. This particular service charges a reasonable monthly fee to the physician and, most of the time, is utilized at no additional cost to the patient. These are the types of creative solutions that could fulfill a big percentage of specialty care if things were driven by patients and their primary care providers.
For things that cannot be handled remotely, specialists can and would become more transparent in pricing if droves of patients with PHAs were looking for care. The same would be true of minor surgical procedures and lower levels of inpatient care (e.g. few days of IV fluids for dehydration or treatment of uncomplicated pneumonia). None of these things inherently need to cost $10,000 or $100,000’s. Again, the current managed-care driven system has determined that anything remotely serious must cost a million bucks — it does not have to be this way.
Some other providers, such as radiology centers, have catered to patients that prefer to pay outside of the insurance system. MRIs have been found to cost as little as $300–500 which is about 50–70% cheaper than the rates most insured people pay. Transparency services such as Clear Health Costs and MediBid are proving that bringing transparency to the health care marketplace is possible.
The total cost of prescription medications has steadily escalated in recent decades. Some of these higher costs are due to spending on newly developed medications, but that cannot explain the rising prices of many older medications. There are a variety of forces at play here, but government policies, pharmaceuticals, pharmacy benefit managers (PBMs), pharmacies, and provider-patient behavior are all playing a role.
On the demand side, engaged patients with PHA dollars would help restore transparency and encourage value-based decisions among patients and providers. Pharmacies would naturally be forced to provide easier access to prices. Many transparency tools, such as GoodRx.com, have already started this process as high deductibles have left many patients scrambling to find fair pricing.
The supply side of the equation is much more complicated.
Unless willing to socialize pharmaceuticals, companies in this industry must be allowed to make a fair profit. Development of a new medication is an expensive and lengthy process. Reducing the financial burden of development and FDA approval would help lower resultant prices of new medications. Companies who develop a new drug should be granted intellectual rights (patent) for some period of time. This time is currently set at 20 years, but many games are played by pharmaceutical companies to extend their exclusivity and sometimes reacquire rights to older medications. Lowering the total market time (date of first sale) to expiration of patent to a total of 15 years could help reduce prices.
Most importantly, it should be easier and quicker for generic equivalents to come to market once exclusivity (patents) has expired on the original drug patents. Thankfully, the new head of the FDA has promoted such a strategy and approach.
WHEN A PHA IS NOT ENOUGH
As structured above, an estimated 70–80% of people’s health care could be financed solely with their PHA in a given year. This percentage of self-sufficiency would grow over time as younger people progressively saved up more funds. However, this does not account for the truly expensive things in health care. A one-time event (e.g. needing intensive care in a hospital) or ongoing needs (e.g. expensive medication for chronic disease) could deplete a person’s PHA quickly.
Some form of financial stop-loss and true safety-net is necessary for these matters.
Part 2. Medicare-for-catastrophic-for-all
A simplified public safety-net
THE NATURE OF INSURANCE
Insurance, even in the strictest definition of the word, is a very complicated financial arrangement. In American health care, the word “insurance” has taken many connotations beyond “just in case”. Insurance for health care is utilized much more broadly than it is for automobiles, homes, or mistakes (liability). Nobody uses auto insurance to cover gasoline, tire rotations, and oil changes; or expects to save money or come out ahead by using these insurance products.
People often use the words “health care” and “health insurance” interchangeably. Even the phrase “health insurance” is a bit of a mislabel with a serious psychological effect. It creates a feeling that health and wellbeing itself can be insured or guaranteed. Blue Cross or Medicare cannot protect people from terrible diseases and horrific accidents. Technically, the best term for this financial arrangement would be health care insurance or medical insurance, not health insurance.
Terminology aside, all Americans, regardless of income, can and should have some form of a safety-net to protect them from undue financial harm that results from medical expenses.
Medical insurance through private companies
In a private market, any insurance product must take into account the history of the insured product or person. Most physicians would say that the health of a person and medical care they will require is very difficult to predict. So, creating a business around insuring those potential costs is infinitely complex. The matter of “pre-existing conditions” highlights this fact.
Pooling people into large groups helps mitigate or spread this financial risk to some degree. However, even some large insurance companies are currently leaving markets with millions of potential customers due to concerns about losing money. Providing medical insurance universally through private companies (whether for-profit or not) has proven extremely difficult and contentious.
A publicly financed safety-net is a more workable solution than a rotating door of heavily regulated private insurance companies in the arena of health care.
A SIMPLIFIED PUBLIC SAFETY-NET
The public options: Medicare or Medicaid
The most natural vehicles to provide a public universal safety-net for medical care would be at the state level. Unfortunately, Medicaid has evolved into a partially-funded, heavily regulated hot potato. A long history of market distortion and state politics would make transitioning to 50 state-based safety-nets very difficult. A solution to fixing Medicaid is not obvious at this point. Eliminating it as a state-administered program in favor of subsidized PHAs and a reformed federal plan is the best option to create a nationwide safety-net.
The new system can be called Medicare-for-catastrophic-for-all or the “new Medicare” and it should cover all ages.
Eligibility for the new Medicare
A person of any age, not just those 65+ or with certain disabilities, would be eligible for the new Medicare. Two factors should be used in determining eligibility and coverage responsibilities: 1) depletion or major usage of PHA, then 2) an income-based Medicare deductible. These would both be calculated on a calendar year (Jan. 1 — Dec. 31) basis.
1) Usage of PHA funds would be per individual, regardless of income or household size. Two triggers would meet this criteria.
- a) The total amount of the individual’s PHA funds reaches a $0 balance. If this occurs, the person will enter into a period of Medicare eligibility for the remainder of that calendar year.
- b) If PHA spending exceeds $30,000 in a given year regardless of the ending balance. This stop-loss would be helpful to encourage people to save up larger PHAs over the years.
People who meet either of these triggers will still be required to fund their PHA ($2000 per year) as usual within a given year. Any PHA contributions made after depletion would not count towards the eligibility standards and could be used to pay for any medical expenses, including Medicare deductibles or co-insurance responsibilities. Some chronically ill people with expensive ongoing needs may repeatedly deplete PHA to a zero dollar balance each year. These people would be eligible for Medicare on an ongoing yearly basis.
Once one of the PHA criteria is met for an individual, a household (regardless of size) would be responsible for some “out-of-pocket” amount (could be additional PHA funds if available) until new Medicare coverage would begin. This would logistically be more of a donut-hole than a traditional first-dollar based deductible, but it will be called the “Medicare deductible” for simplicity of terminology. This deductible should be calculated per household as medical expenses (beyond that individual’s PHA dollars) equal to 5% of income with a ceiling and floor:
2) Medicare deductible (per household)
- For people with income lower than 100% of Federal poverty level (FPL) would be immediately eligible ($0 deductible) once PHA funds were $0
- For people with income at or above 100% of poverty level, expenses totaling more than 5% of annual household income would be eligible for new Medicare coverage.
- For people with income above $150,000 would be made a flat $7,500 deductible.
A few examples of the new income-based Medicare deductibles (started now for those under age 55, and eventually for all ages) based on household income:
- $11,880 (< 100% FPL) = $0
- $17,000 = $850
- $28,000 = $1,400
- $60,000 = $3,000
- $100,000 = $5,000
- $150,000 = $7,500 (max)
Family of 4
- $22,000 (< 100% FPL) = $0
- $35,000 = $1,750
- $52,000 = $2,600
- $90,000 = $4,500
- $150,000 = $7,500 (max)
Capping the deductible for those currently on or nearing Medicare for a 10 year period
People aged 55 and older should be provided an option for a flat-rate deductible or the aforementioned income-based (excluding social security income) deductible (whichever is lower) for a given period of 10 years. This flat-rate $500 deductible option should be phased out in years 11–20 in favor of the fully income-based deductible described above.
A $500 flat-rate deductible is slightly higher than the Part B deductible currently ($183), but is a smaller amount than the total amounts paid out-of-pocket when considering all Medicare parts (A, D or C) on average. Currently, these combined parts can easily reach hundreds-to-thousands for inpatient care or medications. Those in true poverty (only receiving social security income) would ultimately be paying less of a deductible than the current Medicare program.
Unifying the new Medicare
Currently, traditional Medicare’s multiple parts each have their own terminology and rules (deductibles, maximums, etc.). This can be quite confusing and complicated administratively. Unification of inpatient (A), outpatient (B), and medication (D) coverage under a single plan would simplify a new Medicare for everyone involved. An integrated, single Medicare could span the full spectrum of “health care”, rather than compartmentalizing it based upon setting or type. This would simplify determinations of needs, patient responsibilities, and provider payments.
Compared to traditional fragmented care, Medicare Advantage (Part C) has provided some flexibility in choices, innovative payment models, and networks. In some cases, Advantage plans have shown to improve outcomes and lower costs versus traditional Medicare. However, in other ways Advantage has been ripe with fraud and muddied the waters even further. Under a new Medicare plan, the Medicare Advantage option would end. Given medications will be covered under a new Medicare, Part D (subsidized prescription programs) would also be eliminated.
Patient responsibilities and maximums on Medicare costs
In 2010, people on Medicare spent $4,734 out of their own pockets on average for health care that includes premiums, supplemental plans, and costs (20% co-insurance). Because there is no out-of-pocket maximum in Medicare a sizeable number of people spend much more than this. In 2010, the top 10% of spenders averaged more than $9000 per year in out-of-pocket expenses.
Once eligible for the new Medicare, a cost-sharing (coinsurance) of 20% of medical bills would be reasonable for all except those living in poverty. While co-insurance serves some utility, having no “out-of-pocket” maximum — which is currently the case for most of Medicare — is not truly a firm safety net. A hard stop-loss point should be included in the new Medicare. Similar to the deductible, the maximum to coinsurance responsibility should be based on a percentage of household income. If a family’s co-insurance payments totaled more than 5% of household income, Medicare would then cover everything at 100%. A floor and ceiling should be added, so that:
New Medicare yearly coinsurance maximum:
- Income lower than 100% of Federal poverty level (FPL) would be automatically covered by Medicare at 100% with zero coinsurance responsibilities. Effectively they would be paying $0 out-of-pocket on either end.
- Income at or above 100% of poverty level, the maximum co-insurance amount would be 5% of annual household income.
- Income above $80,000 would be made a flat $4,000 coinsurance maximum.
No lifetime or annual limits of benefits
Another contentious issue in the insurance reform debate has been capping of yearly or lifetime health insurance benefits. While this practice may have lowered the total groups premiums, it is just not a feasible solution to a person who has lifelong, complex medical needs. The ACA prohibited such lifetime caps for private health insurance plans. The new Medicare would not place any yearly or lifetime caps on the new Medicare (expenditures) for an individual or family.
Medicare’s determination of value: a new payment board
Once Medicare becomes involved, the most important matter is what process determines the value (price paid) for a given medical service. For the past 25 years, most Medicare payments have been based on “relative value units”. This value is effectively set by the the American Medical Association’s RVS Update Committee (RUC) — officially, CMS only takes RUC’s recommendations, but they are approved 90%+ of the time. The makeup of the RUC is heavily weighted towards specialty and procedure-based care. It is no surprise then that specialty and interventional care (surgeries, testing, etc.) have steadily become more “valuable” per hour than primary care.
Despite RUCs misappropriation of value, there must be some system or group of people that determines the value of care being provided to set value of a particular service. This group and process should be a fully public committee under the supervision of HHS and CMS. This type of group was part of the ACA and given the name Independent Payment Advisory Board (IPAB), but it was also given broader authorities in overall Medicare budgetary matters. The IPAB received political opposition from the beginning on both sides of the aisle, so it has yet to be enacted. This type of independent payment board made up of physicians, economists and health policy experts should be used in lieu of current RUC. However, Congress should retain power for setting the total Medicare budget. Budgetary matters are discussed more in depth in Part 3.
The vast majority of traditional Medicare payments to providers are now done on a fee-for-service basis. This would continue to be the case, but alternative payment models (e.g. bundled payment for hospitalization or episode of care) should be implemented where appropriate.
Rethinking assistance under Medicare: charges, subsidies and payments
Once eligible for the new Medicare, a person’s medical expenses could be subsidized or shared in a variety of ways.
PHAs should continue to be used as the main transactional vehicle even when a person is being covered by Medicare. Having providers always apply charges to a person’s PHA would help keep patients at the center of their care; as well as maintain a uniform system of accounting. This would promote transparency to coverage status, charges and responsibilities and be far superior to current opaque third-party billing systems.
There should be no legal requirement for patients or providers to utilize a PHA, but only those transactions would be eligible for Medicare coverage.
Medicare should provide subsidies to directly a person’s PHA accounts when feasible. The amount of these subsidies could be done on a global or generalized basis (e.g. a flat $500 subsidy to help cover primary care services) or to cover a particular service or product. These Medicare subsidies should be based on standard values determined for a particular service as determined by the Medicare.
These additional subsidies (deposits) should be earmarked and then flow to provider as payment in a timely and transparent manner.
It is estimated that this 5% of people account for over 50% of health care dollars in the current system. “Super-utilizers” is a term used to describe these chronically ill patients who have frequent ER visits and inpatient care (hospitals, nursing facilities). Most of them have very poor socioeconomic situations, getting them efficient care while reducing costs is a challenge. This is not a fully static group of people but many are persistently heavy utilizers year-after-year.
A technique called “hot spotting” has proven useful in identifying and helping these people but current economics have made it difficult to expand and duplicate such projects. Several provider organizations, such as Camden Coalition of Health Care Providers (which coined hot-spotting), CareMore, and Chen Senior Medical Centers, have demonstrated success in organizing care models around these patients. Enhanced primary care, mental health care, substance abuse treatment, and social work have been the common themes among them. Supporting these intensive types of outpatient, team-based programs is not cheap. More high-needs patients (including those being supported by Medicare) could freely choose these type of programs. CMS should also flag these super-utilizers and provide extra support (financially, social workers) to make sure they are enrolled in appropriate outpatient services to maximize the value of health care dollars. Additional support could be provided by CMS grants to state or local organizations to provide extra social supports in areas of high need.
New, creative solutions would likely emerge when providers are freed from the administrative burden of Medicare billing rules.
Donut holes & supplemental private insurance plans
The 3-layers of coverage 1) PHA funds, 2) out-of-pocket (deductible), 3) Medicare coverage would create a “donut hole” for some people; progressively increasing with higher income. The maximum per family would be capped at $7,500 deductible and $4,000 coinsurance per year. This is lower than many current insurance plan deductibles and maximum out-of-pocket limits. However, if people prefer to eliminate such a donut hole or liability in their coverage, they would be free to buy private “gap” or “supplemental” insurance plans if desired (as is currently done by many Medicare beneficiaries).
LONG-TERM CARE SERVICES ASSISTANCE
The most vulnerable and expensive group of people in terms of health care in this country are those that require the needs of long term care services and supports (LTSS). This includes disabled people living in nursing homes, assisted-living facilities, and those receiving home health care services. The majority of disabled people are elderly, but these type of needs span all ages and incomes. Although not traditional medical care, assuring these people have appropriate and safe living situations has an enormous benefit to a person’s health and resultant medical costs.
Currently, 10% of health care dollars (50% of Medicaid budget) are spent on LTSS. Despite this, many disabled people are still not getting what they need in an affordable and efficient way. Including this form of living assistance within traditional medical care plans has proven to be difficult and makes reform more complicated.
Federalization of LTSS assistance, inequities and incentives
The history of Medicaid and Medicare program involvement in LTSS is long and complicated. While some responsibilities have been retained with states, federal Medicaid regulation has driven many aspect of the types of assistance provided to people and the industry itself. In recent decades an increasing amount of the Medicaid budget has been consumed by elderly people in need of LTSS. These people on both Medicare and Medicaid are called “dual-eligibles”.
Historically, there have been many perverse incentives built into federal laws governing coverage of LTSS. There has been some attempt to align these patients needs under a more streamlined system, yet, inefficiencies and waste abound. For many decades federal Medicaid rules have encouraged inpatient LTSS in facilities by mandating their coverage, but often not covering home-based assistance services. This has encouraged many families to choose expensive long-term care facilities when they may have been capable of living at home if receiving adequate support. Some states and the ACA have tried to equalize coverage of home-based services, but those efforts could be furthered if state and local programs were freed from Medicaid restrictions.
Returning control to the states and transitional funds
Given that this proposal eliminates the Medicaid program in favor of universal, catastrophic Medicare, there must be an alternative means of assisting people with these special living needs. Long-term care assistance should be exclusively funded, structured, and regulated at a state level. Freeing it from federal bureaucracy would allow for more innovation and flexibility to meet the needs of that state’s unique population.
There are a variety of mechanisms that states could use to provide such assistance, but states would likely fund LTSS assistance programs with a state-based tax. Ultimately, those decisions should be left up to each state. Because states currently rely heavily upon federal funds, a federal grant should be provided to each state to ease that transition. This would give each state a few years to devise an LTSS assistance plan of their own.
LTSS and PHAs
Most LTSS needs will far surpass PHA funds, but these are not traditional health care or medical needs. Allowing PHA funds to be used for LTSS would complicate determination of the new Medicare eligibility, so these expenses should be excluded from PHAs altogether.
Part 3. Financing the system
Who pays what & making public health efforts truly public
If a loaf of bread mysteriously inflated to $78 next year, the government would probably not try to solve this issue by merely expanding food assistance programs. Unfortunately, this is how the current health care debate goes in America., Most of the constant consternation revolves around continuing to fund a bloated, inefficient system. The financing and tax issues must be addressed in an equitable manner, but it is not the chief problem to be solved.
Collectively Americans spend an average of about $9,000 -10,000 per person per year or $28,000 per family per year on health care. Some estimate that the average middle-class individual will contribute $1.5–2.0 million dollars to the health care system over their working life. There is clearly enough money to finance a quality system.
The question is how to efficiently organize the money to promote delivery of quality care; and what role the government serves in achieving that goal.
A health care system that is driven mostly by individuals (PHAs) and a streamlined, new Medicare for the big stuff should reduce actual costs all around regardless of who is paying the bills. This would occur first with lower costs (prices for patients) per service. A 25% reduction in actual health care prices on many things due to reduced administrative burden would be anticipated. In essence, $3000 would look more like $4000 in today’s health care prices.
More importantly, if the management of chronic issues is improved through primary care in the PHS system, an enormous cost saving will be realized downstream. Reductions in unnecessary testing, ER visits, and hospitalizations could be realized quickly. The larger savings would come from long-term realizations of improved health outcomes (fewer heart attacks, kidney disease, etc.).
INDIVIDUAL CONTRIBUTIONS & RESPONSIBILITIES
PHA mandate & penalties
While a mandated PHA contribution might seem authoritarian, this proposal collectively would not function without such a requirement. Given eligibility for Medicare coverage is first based on lack of PHA funds, people would quickly realize having no PHA funds would be a way to game the system. Currently, laws require much larger sums of a person’s payroll be handed over to private managed-care companies or government agencies. Many would much rather the money be controlled by the individual and family.
If an individual fails to meet their minimum contribution to their PHA, the IRS could be used to withhold money from regular taxes to be redirected back to their PHA. Given that penalties and ramifications of unpaid taxes already exist, an added tax-penalty directed at PHA mandates would not be required.
Funding PHAs: payroll, self-employed & subsidies
While it would be best to move away from employers’ involvement in medical insurance and health care altogether, a pre-tax payroll deduction is best suited for the task of funding PHAs among employed persons. The breakdown of employer versus employee contribution is really irrelevant. Most economists agree that any employer contributions to health plans really just result in a wage reduction for the employee. So, it is a bit of a false notion to say employers are sharing costs. Ultimately, employees themselves are paying 100% of the contributions. Payroll should reflect this fact.
The self-employed would be required to manage PHA contributions themselves. To have a level playing field, these people must also be offered the same pre-tax advantage.
For people receiving PHA subsidies from the government, payroll or self-contributions could make up the differential to reach the mandated $2000/year. As the subsidy would be based on previous years income (or estimated this year), the calculation of this differential would be simple enough.
Rollover of existing savings accounts
There are a myriad of existing savings accounts that are used for health care expenses, but each of them have some major flaws. These include health savings accounts (HSA), flexible spending accounts (FSA), and health reimbursement accounts (HRA). Any money that has been saved in these accounts should be allowed to roll over without tax penalty into the newly formed PHAs.
Funding CMS and new Medicare via individual taxes
Currently, public insurance programs (Medicare, Medicaid, and Children’s Health Insurance Program) are funded by both state and federal (income and FICA) taxes and contributions from Medicare beneficiaries. With the expanded role of CMS managing PHA subsidies and more people on Medicare (at least initially), the total budget to operate CMS would need to be increased from current levels.
Employed individuals now pay a 2.9% tax (employee + employer) to fund Medicare, but other tax contributions are significant and varied. A streamlined system would make calculations of adequate financing more straightforward: a simple increase in FICA tax to fund CMS (pay for PHA subsidies and new Medicare). The exact percentage of tax required initially to create a neutral budget would be difficult because of the many factors involved. A flat-rate Medicare payroll tax (total across income span and ages) should be the bulk of funding for the CMS budget. A target of 7% tax seems reasonable; especially given that LTSS responsibility will be returned to states.
The 7% Medicare payroll tax would be taken on taxable income up to $200,000 per household (individual or couple).
This tax percentage may need to be slightly higher in the beginning until long-term cost reductions are realized. If a deficit or surplus was ongoing, this tax rate could be adjusted in the future to keep the CMS budget-neutral.
Social security withholding in lieu of Medicare premiums
Medicare beneficiaries currently pay monthly premiums for access to parts B, C and/or D coverage. Part B premiums are done through withholding of Social Security payments, but most seniors now also pay separate premiums for Part D (drug plan), Part C (private advantage plan), or Part G (gap or supplemental plan). Total premiums somewhat dependent upon income, but average nearly $200 per month.
A simple 7% withholding of Social Security payments should be used in lieu of the various current Medicare premium payments. This withholding would average less than the current Medicare premium rates for most seniors of low-moderate incomes. The withholding amount would adjust over time with changes in cost of living (COL) index and inflation.
Seniors who make additional income above Social Security would be taxed at the standard 7% rate on that income.
Programs for specific populations, such as veterans, native americans and others, should be allowed to contribute to those people in the way they see best fit; including contributing to PHAs or using private medical services. In certain situations, these organizations may prefer to provide in-house care (VA hospitals, clinics on native reservations), but giving flexibility to meeting these people’s health care needs is a good idea.
EQUALITY, AGE & INCOME
With any systemic change, it is inevitable that some people will pay less and some people will pay more. Even predicting costs for a single individual in different years can be difficult, so guarantees about universal savings for every person under any system is impossible. Trade-offs and redistributions of some type are inevitable.
Beyond the temporary subsidies for those aged 55+, one’s age would not be a factor in this long-term proposal. Age is one issue that has become a constant political battle regarding fairness of the current system. When there is a private company managing a pool of patients, age is a large predictor of liability, but this would not be the case with a universal, national safety-net program. Also, the premise that older people need to have all of their medical care micromanaged (as is currently the case in Medicare) is not consistent with the goals of universal PHAs.
In an effort to reduce costs in middle-aged people, ACA regulations have shifted some costs to younger people who have moderate levels of income. There are some potential downsides to this strategy for sure. Young people are not seeing a short-term improvement in their care or costs. This age-fairness controversy would be much improved if younger people were investing in their PHA and watching it grow, rather than subsidizing private insurance companies exclusively.
Many scenarios for people based upon age, income, and health expenses (detailed in Addendum 2) have been considered in this proposal. The average out-of-pocket expenses for most Americans will be lessened while fairly distributing costs with graded means-testing at several levels. In these scenarios, it is presumed that no family members are sharing PHA dollars, but these shared dollars could significantly lower a family’s out-of-pocket costs when available. By income, this proposal would lead to the following estimated costs:
- Extremely low incomes (< 100% FPL) would have fully subsidized PHAs and essentially pay nothing beyond the 7% payroll tax if Medicare should be required. Those in true poverty would pay no more under this proposal, but would receive more equal access than Medicaid networks typically provide.
- Lower middle income families (FPL = 150–250%), especially those aged 45–65 years, would likely benefit most from this proposal. Their total out-of-pocket costs for routine care would be lowered under PHAs versus current deductibles and limits. Also, their total liability — maximum costs if very expensive care is needed — would be slightly less compared with current ACA limits.
- The “average” middle income American family (2 adults and 2 kids with $80,000 household income, FPL = 325%) would be better off under most scenarios. Under this proposal, the upfront costs (PHA and taxes) would be $12,600 which is higher than average subsidized silver plan premiums under the ACA ($7752). But, when factoring in FICA taxes, the current upfront total for this family is now $10,072. For the average family, this proposal would be superior for several reasons including: a) ownership of more than half of the upfront dollars, and b) PHA first-dollar coverage is much better than a nearly $5000 family deductible using an ACA silver plan. If a family member exceeds PHA funds, a deductible (donut hole) of $4000 prior to Medicare coverage is less exposure than the initial $5000 out-of-pocket. This is not factoring in ability to use family member’s PHA funds (savings would increase over time) for those expenses. The total amount of possible expenses (upfront and out-of-pocket) under this proposal would be $21,200 per year; lower than the ACA silver plan maximum of $24,000.
- Higher income families and individuals (e.g. >200k annually) may pay more, especially if under age 55. This would most likely be the case for those that have moderately large medical expenses within a given year. However, there would be advantages for low or extremely high medical expenses. The total maximum amount paid would be capped at $27,100 (including PHA contributions, taxes, deductible, Medicare co-insurance). So, this may save an upper-income family that had extremely high costs. Also, the total amount upfront (PHA and taxes) for upper income earners would be $16,000 which is lower than the current average family’s unsubsidized health insurance premium of $18,142.
Under this proposal, people who are aged 55 and older will certainly have less costs when considering the extra PHA subsidies and lower Medicare deductible. It is necessary to provide this extra subsidy to older people due to the fact they have not had the opportunity to save for such a system — not to mention their several decades of contributions to the Medicare program. As mentioned above, these additional age-based subsidies will be phased out after a period of 10 years.
Cost scenarios under this proposal
Those age 54 years and younger (and all ages after age 55+ after subsidy phased out). Arranged from lowest to highest income.
Those age 55 years and older. Includes extra PHA subsidy/flat deductible for 10 years then phased out over 10 years. Arranged from lowest to highest income.
OTHER SOURCES OF REVENUE & SAVINGS
Special taxes related to health care
A sizable portion of the funding for government health care programs comes through a patchwork of complicated, targeted federal taxes and penalties. These taxes apply to individuals, employers, pharmaceutical companies, medical devices companies, insurance companies, importers, tanning beds and many more. These special categories of taxation serve a purpose in raising revenues for government programs, but have also been a source of political battles and cronyism.
A simpler system of taxation to fund the health care system should be the goal. This would make adjustments to tax rates to achieve neutral budgets more transparent and easier to accomplish. Many of the special individual and employer taxes and penalties related to health care coverage would be made obsolete by this universal proposal.
Any private company in the health care industry, including providers, facilities, pharmaceuticals, devices — who is not of a true and fully charitable nature — should be taxed at normal corporate tax rates and mechanisms levied upon other industries. To accomplish this goal, many of the current special tax laws, including additional taxes and exemptions (created under ACA and otherwise), must be repealed.
Equal taxation of hospitals, and true charitable care
Historically, there was some basis for allowing hospitals that provide a large amount of charitable care (not charging patient nor reimbursed by a third-party) a non-profit status. Principally, this status keeps these entities from paying most taxes. That rationale has been blurred in recent decades as many of the large, not-for-profit health systems have revenues and budgets in the $100’s of millions or billions. In areas where insurance coverage rates have achieved 90–95%, revenues have seen a massive boost while the amount of charitable care has drastically diminished as a percentage. Some executives of these non-profit systems have compensation packages on par or exceeding for-profit companies.
Rightfully, many people are now questioning the continued tax-exempt status of these institutions. Given this proposal would universally cover all (98%+) Americans through PHAs and the new Medicare plan, the amount of charitable health care will be diminished even further. Revoking the tax-exempt status of these large hospitals and health systems would be warranted. Taxation of private hospitals would generate a significant amount of revenue for local, state and federal governments. Based on a 2011 study, $25 billion or more in tax revenues would be raised, particularly at a local level, if these hospitals were paying taxes on an even footing.
There will always be some need for providers and hospitals to care for the true indigent (homeless, undocumented) without compensation. Organizations that are specifically and exclusively geared towards such a mission should retain their tax-exempt (non-profit) status. If a private, tax-paying organization provides a large amount of uncompensated care to an indigent person, specific tax-deductions for that case could be allowed without allowing for the entire company’s operation to go untaxed.
Eliminating insurance company subsidies
Currently, a massive amount of federal subsidies are paid to private health insurance companies. The ACA requires insurers to offer plans with reduced patient cost-sharing (e.g., deductibles and copays) to marketplace enrollees with incomes 100–250% of the poverty level. Subsidies help offset this cost, but some funds also hedge against total losses in the name of “stabilizing the insurance market”. The latter subsidies have been decried as a form of “bailouts” and are an ongoing source of controversy.
Under a system of universal coverage, the justification for either of these subsidies would be effectively gone. Private health insurance companies may continue to offer supplemental or gap insurance plans, but would no longer be mandated to offer reduced prices or automatically cover individuals. Eliminating these subsidies would be warranted, and would result in a large savings for the federal budget.
PREVENTIVE & PUBLIC HEALTH PROGRAMS
The importance of preventive care and public health cannot be understated in the discussion of a revitalized health care system. Some medical interventions would be categorized as both but if purely personal in nature, these are best left to the traditional private mechanisms (PHA or Medicare). However, governments clearly have a role to play in promoting public health in some areas, including a few that also directly affect personal health, such as infectious diseases.
Monitoring and preventing the spread of serious communicable diseases (outbreaks) is clearly a public health service. From a medical standpoint, vaccines are the largest part of that effort. The government role in this realm is long-standing; George Washington decided to mass inoculate his soldiers against smallpox during the Revolutionary War. Mandating that vaccines be covered by medical insurance is seemingly a good thing, but it merely adds an unnecessary administrative layer and financial cost.
A more efficient approach is for governments (federal, state, and local) to purchase and distribute recommended vaccines. Vaccines could be administered to individuals at private medical clinics, health departments, pharmacies, primary care offices, social service organizations, and community health centers at no cost to the patients. A good example of this is already functioning in the CDC’s Vaccines For Children (VFC) program.
Treatment of infectious epidemics
Some epidemics of infectious disease cannot yet be prevented with vaccinations. Although infections have obvious personal health consequences, there is a vested interest in limiting their spread among citizens. Some treatments are relatively cheap now (treatment of most STDs), and these should be left up to individuals (PHAs) or Medicare coverage when required. Unfortunately, a few novel treatments for serious communicable diseases come at an enormous cost.
Two recent examples of this would be Human Immunodeficiency Virus (HIV) and Hepatitis C Virus (HCV). It is now possible to effectively manage HIV and cure HCV with medications in most cases. This drastically reduces the transmission and prevalence of these infections in the population. Both treatments can cost in the $10,000’s. A single course of new antiviral medications for HCV can cost $40,000 — $80,000. The government should purchase and help distribute (via physician practices, pharmacies, or health departments) these treatments to people in need of these crucial medications at no cost.
Other infectious epidemics in the future are inevitable. Multi-drug resistant tuberculosis and ebola are a few examples of that potential. While it may never be possible to completely eradicate these infectious agents with vaccines or no-cost treatments, it is a worthwhile public investment and effort.
Effect on PHAs
If the government directly purchases vaccines and treatments of selected epidemics, it would take a large burden off of these individual’s PHA accounts. This would be particularly true for children (vaccines make up a huge percentage of costs of care in the first years of life) and high-utilizers, such as people with HIV and HCV.