Ideas for a New Health System

I previously published an article on the influences that shaped my thinking about healthcare and laid out some goals we should pursue in the design of any new system. In that article, I defined the following goals for a new healthcare system:

1. People with pre-existing conditions should be able to purchase health insurance.
2. Health insurance should be affordable independent of income, employment status or the condition of your health. If you are poor, unemployed, or have a chronic pre-existing condition you should be able to acquire health insurance.
3. Provision of health insurance should NOT be so tightly aligned with employment status.
4. Health insurance markets should be able to offer a range of options to the market from cheap, high deductible plans to more expensive “first dollar” plans that cover most care. Health insurance markets regulations established under Obamacare should be loosened.
5. Healthcare costs should be better controlled either through market mechanisms or government intervention or both.

Here is a broad roadmap for a system that could reasonably meet these objectives.

1. Universal Catastrophic Health Insurance Program — Create a universal catastrophic health insurance program. The program could be administered directly through a government run provider network and social insurance program. Since Medicare is just such a program, it may make sense to allow Medicare to administer the program. In addition, private networks and insurance programs would be allowed to evolve alongside the public programs.
2. Very High Deductible — The catastrophic health insurance program would have very high annual deductions, maybe along the lines of $25K or greater.
3. Repeal the Employer-based Tax Exclusion — The new system would repeal the tax exclusions currently to given to employer provided health insurance. This would generate billions of dollars a a year in new tax revenue for the new healthcare program.
4. Encourage or Require the Use of Health Savings Accounts — HSA’s would either be mandatory or strongly encouraged through the tax code and the use of a payroll deduction. The money would be deposited into the wage-earners own account for their own use for medical expenses.
5. Tax Credits for the Poor for HSA’s — Tax credits, similar to a negative income tax, would fund the HSA’s of the poor.
6. Market Driven and Patient Directed Primary Care — Patients would pay for most primary care and outpatient procedures via their HSA’s or out-of-pocket.
7. Chronic Conditions Coverage— People with chronic conditions such as asthma, diabetes and other conditions would be granted a waiver for the annual deductible for medical supplies, medications, etc. Costs could be controlled through deductibles, co-pays or other cost sharing mechanisms. Subsidies could be provided to help pay for care for the poor if necessary.
8. Deductible Waiver Based on Episode of Care — Annual deductibles would be waived, after the initial deductible is paid, for single episodes of care. If a treatment regime is required after an accident or illness over multiple years then the initial deductible would apply.
9. Medicaid Would be Replaced by the New System — Medicaid recipients would be enrolled into the new program and would receive means tested HSA subsidies via tax credits based on income levels.
10. Medicare Would Transition to the New Program — The traditional Medicare program would, over a period of 20 years or more, transition Medicare enrollees into the new high deductible program.
11. Medicare Bargaining Power — The government, as the insurer/provider of last resort, would be free to negotiate prices for drugs, medical devices, procedures, with vendors, providers, etc.
12. Healthcare Stakeholder Advisory Panel — An advisory board would be assembled with members and experts from all stakeholder areas and with a decade long term. The board would be selected to develop cost effectiveness/value matrices of different therapies, procedures, drugs, etc. Strong deference would be given to recommendations from the advisory panel.
13. Complimentary or Supplementary Insurance Products — Two types of insurance products, probably more, would likely evolve alongside the new healthcare system. 1) “Gap” insurance products to help cover expenses up to the annual deductible. In fact, this market could be tapped to provide and manage the health of those with chronic pre-existing conditions with subsidies provided by the public health insurance system as described in bullet #7.
    2) Private catastrophic insurance programs that would provide additional benefits beyond the public program.
14. Preventative Care Services — If it makes actuarial sense to do so, preventative care services should be incentivized through subsidies or other means.

What would likely be the outcome of the implementation of this new system?

• It would alleviate or eliminate the administrative costs for most primary care providers. Revenue would likely fall but so would costs. Quite possibly net wages would likely rise for primary care providers alongside a much more satisfactory work life.
• It would move the country strongly away from the employer based health coverage paradigm. Wages would rise as the provision of wages would achieve parity, from a tax standpoint, with the provision of health insurance.
• For primary care and outpatient services, the cost of care would fall and quality would rise for primary and outpatient care services as patients shopped for care. Pricing for healthcare for these services would become much more transparent. It is likely that there would be an explosion in new and innovative services for primary care and outpatient services such as, for example, boutique providers with annual fees and high access, after hour specialty services such as mammography or stress test providers, luxury knee and hip replacement services.
• Costs for expensive services paid out of the catastrophic system would also fall as the government negotiated and bid on high volume medical care services and products.
• Gap insurance would be very reasonably priced because the risks, from a medical underwriting standpoint, would be capped at the catastrophic deductible amount. Pre-existing conditions would also be likely be a non-issue because of the limited high-end risks as well as the presence of the subsidy program for chronic conditions.
• It is likely that a two tier system of care would evolve as new insurance products came onto the market. The care provided via the catastrophic health insurance system would be high quality but no-frills. Privately purchased insurance would provide those with the means to purchase it access to services with shorter waiting periods, better amenities, coverage of non-standard services, etc.

Let me know your thoughts.

Steve