Health care options for America

(Sixth in a seven-part series: Medicare for All – Quality and Accessible Care for None)

Few Americans are satisfied with the current health care system. But actual medical care in America is not the problem, it’s second to none. What needs fixing is how we pay for it.

The health care payment system in the United States is clearly in need of major reform. Our challenge as a prosperous society is to compassionately provide necessary medical care to those who have difficulty affording it but also to ethically relieve those now burdened with the cost of care of others through considerably higher medical bills or insurance premiums.

One of out of every five Americans don’t pay anything for their care – but somebody does. Doctors and nurses don’t work for free. The people who pay for this care are the “neighbors” of those who got it free or subsidized. What makes this so unethical is that those “neighbors” who end up paying more than what they legitimately owe are mostly being charged extra without their knowledge.

When people don’t pay the cost of a service or product, they want all of it they can get. It’s not a criticism of them, it’s simply human nature. Demand skyrockets when something desirable is free. I’ve had ER physicians tell me they’ve often seen the same people, on Medicaid or without any insurance at all, show up in ER routinely for the most minor of injuries or ailments. Everyone should pay something even if its nominal. It would discourage frivolous use.

The better solution is to move toward a market-oriented system that still benevolently provides care for the truly needy but doesn’t allow others to abuse the system by showing up in ER every two weeks with the sniffles.

* * *

Medical insurance products don’t work like other forms of insurance. Auto or homeowner’s insurance exists for serious damage to a vehicle or something catastrophic to a home. We don’t use it for routine maintenance or minor issues.

This is not the way health care insurance works. It is expected to pay for (or subsidize) everything from routine check-ups to low-cost prescriptions. What would our auto insurance cost if our mechanic had to fill out oppressive paperwork for the insurance company or maybe even the federal government every time we got an oil change or rotated tires?

Our “health insurance” has evolved over the decades into mostly paid-for-in-advance medical care. This makes it not really insurance at all in the pooled-risk sense but more of a political instrument.

If a 25 year-old man wants to buy basic, catastrophic health insurance why should he have to pay for a mastectomy/reconstructive surgery mandate attached to his policy as he currently does in Pennsylvania? Or female contraceptives in New Jersey? With his auto insurance he doesn’t have to pay for a Tesla’s lithium-ion battery replacement if he drives a Camry.

The so-called Affordable Care Act (ACA) or Obamacare no longer permits insurance companies to offer cheaper insurance products to customers who would love to buy them.  Governments (federal and state) don’t want to deal with the political ramifications of their some of their constituents with oppressive medical bills or have to raise taxes to pay for this “charity” care. So they choose the more politically expedient option by forcing medical providers to overcharge all their other patients to make up for the non-payments or under-payments. Doctors and hospitals have no other choice if they want to stay in business.

Charity is a voluntary, sacrificial offering (time, talent or treasure) from the heart. “Charity care” isn’t really charity if the payer has no choice in the matter. Then it’s just another tax.

How we got here

As part of an employee’s total compensation package, many (especially large) employers “provide” health insurance. “Provide” is in quotations because it is the employee who actually pays for this out of his or her total compensation. This form of compensation began in 1942 with a U.S. War Labor Board ruling, was strengthened in 1943 by the IRS, and codified into law by Congress in 1954. It said employees did not have to pay income tax on health insurance premiums paid directly by their employers and the employer could still deduct the expense, just like monetary wages, for income tax purposes.

The net effect of this policy was that the government incentivized all involved (employee, employer and insurance companies) to expand coverage to encompass virtually anything related to medical care: (1) employees could get minor, non-catastrophic medical issues “paid” for with income to them that was not taxed; (2) tax deductibility made employers financially neutral to this form of employee compensation and employees loved it; (3) insurance companies saw a rapid expansion in the demand for their health insurance policies and (4) governments discovered they could hide new taxes by simply calling them coverage mandates forcing them onto insurance policies.

Creative options

One option acquiring considerable interest nationally is employers choosing to self-insure their employees. Many now realize that even though employers’ tax deductibility for health insurance premiums remains, the cost of  has grown so high that alternatives must be responsibly sought. (Ironically, the new corporate tax rate reduction has made the deductibility of health insurance premiums less valuable.) So unless a company has a very poor demographical employee pool (old and/or in poor health), it can make great financial sense for the employer to self-insure.

They can do this by dividing their employees’ medical costs into two groups: one for small, routine claims and the other for the large or unpredictable. The latter requires a pure high-deductible insurance policy much like other forms of business insurance that covers major or catastrophic events. These would apply to serious, expensive medical issues like cancer or an organ transplant. The former would be paid out-of-pocket; employers would pay their employees’ medical bills directly. This means that the payer (the employer) is extremely interested in the cost of this care. Exorbitant charges by a provider would get serious push back.

Some large employers have come up with creative ways to incentivize their employees to shop for the best values themselves. A couple of years ago, the California Public Employees’ Retirement System (CALPERS) began doing just that. They calculated average prices for medical care by adopting a “reference pricing” approach. CALPERS noticed a tremendous difference in the amounts charged by various providers. For example, at the time they found hip and knee replacements varied in price from $15,000 to $110,000 so they established a benchmark price of $30,000 for the surgeries.

Near the low end to be sure but CALPERS considered twice the lowest price to be fair – and their employees agreed. So the clear message sent to the employee was if you need a procedure done and you still want to go to the higher cost provider, that’s fine, but you’ll pay the difference.
Ironically, this free market approach by a California union, one of the largest public unions in the country, caused their employees/patients to rush to the lower cost, higher value providers. Equally predictable was that the number of California hospitals charging $30K or less for this procedure increased by over 50% over the next few years.

So-called “concierge” medicine has been growing in popularity especially since the passage of Obamacare back in 2010 (but not actually put into effect until 2014). Fear of cuts to reimbursements (Obamacare cut $716 billion in Medicare payments) has forced doctors to get more creative in shoring up their revenue stream while keeping their obligations to their patients.

Concierge practices charge their (mostly wealthier) patients a monthly fee for almost on-demand access to the physician’s services. Such physicians continue to rely on insurance reimbursements in addition to the fees charged. This allows such practices to make ends meet with far fewer patients but more personalized service.

Direct primary care is another creative (original) way for paying for care that doesn’t deal with insurance (including Medicare) in any way. The only source of revenue to the doctor is directly from the patients who also pay monthly fees for access and care. Without the significant administrative costs of complying with insurance or Medicare red tape, such practices can charge lower fees but generally have a much larger patient pool. That makes access not nearly as prompt as what pure concierge practices can provide.

More recently, hybrids of concierge and direct primary care practices have begun to appear. These are trickier for physicians to effectively manage as they require quite a balance between cost and demand. But this is exactly what the free market wants, offers and rewards.

Late last year, President Trump issued an Executive Order directing the Labor Department to allow small businesses to team up to form large groups that would have greater negotiating clout to lower premiums with health insurers. The Executive Order allows for the organization of trade groups to form risk pools even across state lines. Another aspect of the order allows for a worker between jobs to buy basic, catastrophic coverage for up to a year – and with a broad insurance network.

President Obama had issued an order just days before he left office that limited duration for such a plan to just 90 days. His administration took the position that a plan that lasted longer and did not contain “minimum essential coverage” was worthless and should be banned.

One of the most important issues cited by voters going into the recent election has been “health care.” The core item of most concern for over 80% of these voters is insurance protection for so-called “pre-existing conditions.” There are ways to deal with this national demand and still have a mostly free-market health care system.

Realistically, Medicare (government involvement) became part of everyday American life five decades ago. That won’t change. But keeping popular programs like Medicare while restoring many free market elements to the medical payment system yet still protecting those with such pre-existing conditions can be done.

We need to establish a national fund for higher-risk patients. We know that such patients cost about $32,000 annually so even adjusting for anticipated inflation with a likely pool of about 400,000 to 500,000 enrollees, the national cost to taxpayers would be about $20 billion annually.

This would be considerably less than the current method of demanding that healthy (mostly young) people subsidize (pay the same high price) as the high-risk insured. It would be a worthwhile compromise. Even with a new national high-risk insurance pool, government involvement would be dramatically reduced with the elimination of Obamacare (ACA). People would be protected from a catastrophic illness or medical bill and yet become far more involved in medicare care price vs. value decisions like they are when they choose what supermarket to shop in or what car to buy.

If the private sector is to have any real chance to compete, if entrepreneurs are to have a chance to develop new systems, technologies and health care pathways, if consumers are ever permitted to make informed, cost-conscious, free market decisions about the value of their care, then the government needs to be far less involved in national medical care.

In sum, these changes by the federal government would do to wonders for reducing our national medical care costs:

  • Repeal Obamacare
  • Initiate this high risk fund for enrollees with pre-existing conditions
  • Expand Health Savings Accounts (HSA) to make patients far more market (value) conscious
  • Change tax laws to give individuals the same the tax deductibility that employers have had since the 1940s making the insured far better consumers

Just initiating the above suggestions would stir the marketplace to force providers to compete on value. This would reward those high-quality / low-cost medical providers as free markets do and force high-cost providers to shape up or close.

The only way health care costs will come down and with adequate availability is in a freer market in which medical prices are known in advance of treatment and not deeply concealed. I was on the board of a hospital system, St. Luke’s University Hospital and Health System headquartered in Bethlehem, PA, that started a very consumer-friendly website a few years ago that gives complete, actual prices for various procedures, lab services, imaging and testing. This spring the Philadelphia Inquirer did an article on this previously inconceivable strategy.

The St. Luke’s site itself is worth a look: https://pricechecker.slhn.org/

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