What’s Next on Health Care: Single Financier, 326 Million Payers
Dr. Jennifer Kohn is a Republican from New Jersey, an Associate Professor of Economics and Business, a wife of 20+ years, and the mother of two teenage sons, one with Autism. Prior to entering academia, Jennifer was the Senior Administrator for the Division of Cardiology at New York Presbyterian Hospital-Cornell Medical Center and a Consumer Advocate for the New York City Department of Consumer Affairs and Department of the Public Advocate.
Note from the Editor: Dr. Kohn developed this policy idea through her professional and personal experiences. These opinions are hers and do not necessarily reflect the views of RWFP or its affiliates.
Now that the partisan Republican health care effort appears over, perhaps we can go back to the drawing board and think anew about both policy and process. As Susan Collins said in her statement effectively killing Graham-Cassidy, “This is simply not the way that we should be approaching an important and complex issue that must be handled thoughtfully and fairly for all Americans.” Few can disagree with Senator McCain’s statement on the floor of the Senate: “Our health insurance system is a mess. We all know it, those who support Obamacare and those who oppose it. Something has to be done.” But there is clearly no bi-partisan consensus about what should be done. The time seems right for something new.
In the spirit evoked by Senators Collins and McCain and many others, I offer this proposal for a single financer, 236 million payer health care reform as a starting point for truly bipartisan political dialogue. This may please no one, but may nonetheless provide a more satisfying and financially solvent health care system for the American people.
First, some often forgotten truths about health care:
1. Health insurance is not the same as health care, as the debates over mandated services and coverage caps vividly illustrate. People care about health care. They care about health insurance merely as a means to afford health care.
2. By definition, insurance — including health insurance — is for uncertain events. Much health care spending, whether for maternity care or so-called “pre-existing conditions”, is not uncertain. At the end of the day, we are all certain to die and will most likely will spend a lot of money on health care along the way. The uncertainty is not if, but when. We should design a system that provides insurance for what is uncertain and other financing mechanisms for what is not.
3. Health care decisions are not easy. Health care is as much art as science. Individuals, their families, and health care providers should be making health care decisions, not insurance companies or the government. That said, decision rights follow the money. So, in order for patients to make decisions, we need to put money in their hands.
4. Our current spending on health care is not sustainable. We cannot spend 100% of GDP on health care, so health care spending cannot increase faster than the rate of GDP growth indefinitely. Something has got to give. Like global warming, the sooner we address the fundamental underlying issues, the easier the transition to sustainability will be.
The premise of the following proposal is that we can reduce health care spending by eliminating third-party payers, requiring more price transparency from providers, and making individuals more directly involved and accountable for their health care purchases. We will save money on non-care bureaucracy (government and private), and patients and providers will be free to make better decisions.
Proposal
1. Eliminate the government-medical industrial complex as we know it. Eliminate Medicaid, Medicare, the Veteran’s Health Service, CHIP, Worker’s Comp and the billing and coding industry (dominated by Medicare). Really. These bloated bureaucracies provide health insurance, not health care. Conservatives should like this.
2. Establish Lifetime Health Accounts (LHAs) for every American. Upon registration of a birth certificate and/or social security number, every new born and naturalized American gets $X deposited in their LHAs and a debit card to pay for health care. Liberals will like this because it is like “single payer” — but conservatives should also like it, because individuals, not the government, would make medical care decisions. Individuals should be allowed to contribute more to their LHAs tax-free, like health savings accounts. Insurance companies will hate this. But there will be other opportunities for private industry to make money — read on.
The money for LHAs should come from federal general taxation and the savings from eliminating everything in section 1, along with the bureaucratic infrastructure needed to support it. Yes, we have a social and moral obligation to take care of each other. We also have a self-interest in the health of our neighbors, important to both prevent disease and the fraying of the social fabric. Sure, we’ll fight about what $X is — but it should be based on reasonable projections of the present value of median lifetime spending without extraordinary health issues (see section 3, below). Progressives should like this.
3. Deposit additional lump sum payments into LHAs from federal general revenues based on age and medical diagnosis. Here’s the key: the amount of any additional government contributions to the LHAs decreases with age. Decreasing insurance with age turns our current health insurance system on its head, but makes sense if we remember that insurance is for uncertain events. Childhood cancer is truly an unpredictable event and should be covered by insurance. Everyone should be in this risk pool, so the pool should be federally funded. However, as we age, our chance of living with a major health issue increases, whether it be cancer, or heart disease, or Alzheimer’s. As the probability increases, the insurance should decrease.
With federal insurance comes personal responsibility to prepare for likely health events later in life. The more individuals save up their health care resources earlier in life — including staying healthy by eating well and exercising — the more resources they will have later in life when even the healthiest among us will succumb to inevitable aging. Furthermore, individual LHAs may put pressure on fiscal policymakers to return to a saner interest rate environment where we can once again realize the miracles of compound interest. However, such a radical change in the timeline of insurance needs slow and careful implementation — you cannot change the rules of the game mid-life. Liberals will like this because everyone contributes in “solidarity” through general federal taxation. Conservatives will like it because individuals, not the government, are doing the actual paying. The government is a more efficient aggregator of resources than a fractured private insurance market, but individuals are better decision makers over their own health care decisions than either government or private insurers.
4. Focus regulatory and private efforts on the market for health care, not health insurance. If we want every American to have health care, we should throw in the towel and admit that regulating health insurance is a losing battle. Adverse selection and moral hazard are as close to economic laws as the physical laws of motion. Rather than obsess about the market for health insurance, let’s turn our attention to fostering a competitive market for health care. We can use technology to create information platforms for health care services, including pricing and outcomes. We need to be careful not to re-create the billing and coding bureaucracy and to allow for flexibility, creativity and transparency in medical care pricing. We should have a principle of one-price — like restaurant menus — but allow for transparent discounting to encourage efficient capacity utilization (e.g. peak load pricing) and reward loyalty.
Of course, the LHA comes with strings attached that no one will like; but, with rights and resources comes responsibility.
5. Individual LHA accounts should be audited (like tax returns) in order to: a) detect fraud; and b) uncover usage patterns that may prompt additional decision-making support. This would be similar to how credit card companies monitor credit card spending to detect fraud and help card-holders budget. For example, if the LHA is used for a medical expense that is unusual, someone (either private or government) should call the person to see if everything is OK and talk about options for support. Similarly, government should audit the accounts for provider abuse — e.g. if there are unusual substantial expenses associated with particular providers. Privacy advocates won’t like this, but remember, with funding and decision rights comes responsibilities.
The government and the medical research community (NOT employers, private investigators, marketers) should have reasonable (e.g. protecting individual identification) access to the “big data” that will be generated by the LHAs. One benefit to medical research is to better track the links between spending and outcomes in the community, which can be very different in terms of patient behavior/compliance than randomly controlled trials. Providing universal LHAs and accessing the data should allow us to eliminate the Medical Expenditure Panel Survey (MEPS) and re-coup those costs while getting access to better data. Perhaps individuals can get paid by private research firms and/or the government for providing additional linked data (e.g. from exercise apps, grocery swipe cards, credit cards etc.).
6. Providers who receive funds from the LHAs need to post prices in advance that are available to the public. Eliminating third-party payers (and their differential bargaining power) should reduce (if not eliminate) price discrimination. Eliminating billing and coding should allow for more rational pricing based on recovering the predominantly fixed costs of health care services. Moreover, when patients, not third-party payers, are paying the bills, providers will have a greater incentive to compete for their business by providing greater price and quality transparency.
Finally, providers who receive funds from the LHAs can only bill the accounts for medical services, not “hotel” services such as room and board. This is only relevant for hospital and long-term care services, but these currently are among the most expensive services — and much of those expenses are hotel expenses.
Conclusion
This proposal is for a health care system, not a health insurance system, where the federal government is a single financier and the 326 million individual Americans are payers in the system. Are there important details still missing — sure. Let the debate begin. But let’s stop the partisan game-playing over an issue so intimate and financially critical to every American and to America as a nation. Let’s have a meaningful, transparent debate that goes beyond Democratic and Republican winners and losers, and instead searches for a system that can work for the American people with honesty and humility.
