Healthcare

"Americans can be counted on to do the right thing, after they have exhausted all other possibilities."   --Winston Churchill

The quality of medical care in the U.S. is believed by many Americans to be the best in the world. However, on many statistics rating different countries, the U.S. often fails to achieve top rankings. Further, costs are among the highest. This article attempts to propose major changes that would significantly improve the results for Americans and maintain and improve quality while ideally containing total system costs. Most of these ideas are not original, though they might not have been collectively articulated as they are here. This would need to be gradually introduced. 

The key concepts to be further discussed are:

• Universal coverage eventually for all Americans
• Outcomes and quality reporting by most hospitals and providers
• Clear posting of prices in an understandable manner
• Restructure world wide pharmaceutical pricing
• Individual states’ role in insurance reduced
• Better use technology and create "Smart Health Cards"
• Shift from defined benefits to defined contributions in 401k like "Health Benefit Accounts"
• Change malpractice to contain realistic limits

Among the major issues impacting health care quality and cost are availability and affordability. Many Americans do not have health insurance and many others are under insured. Varying estimates place about 15% of Americans without insurance. Many of the poor or underinsured still end up getting care at a near emergency stage of need. This increases cost. By law the hospitals cannot turn them away. The hospitals and doctors rightfully still need to cover costs, so the costs are shifted to those with insurance. This is an indirect tax. Note: This article uses the term insurance to also refer to self-funded and union plans.

Medicare and Medicaid in most cases pay substantially less than a patient walking in to a hospital or usually even less than managed care organizations. Why? Because they can by law and regulation. This too is cost shifting. The reality is the shortage is paid for by those with insurance and by those who pay their own bills. This too is cost shifting. This is also an indirect tax as the government has been unwilling to recognize the true cost.

The change that needs to occur is to allow everyone access to affordable care that is covered by insurance or some similar system. This is called "universal coverage." What is not being proposed is that only the government or other single entity pay the bills or control the system. That would be called a "single payer" system. The Canadian and most European systems are single payer. They suffer from long queues, hidden costs, and the wealthy going abroad, often to the U.S. to get quality, timely healthcare. By having universal coverage those that are healthy and typically young and have lower bills would still pay into the system and help fund it. Costs would not be shifted by uninsureds to those with insurance. Insurance would have to be available to everyone. This availability is called "guaranteed issue", that is anyone would be able to buy the insurance.

The Rand Corporation performed a health insurance experiment that showed when consumers paid for a share of their own expense to purchase health care, costs were reduced by about 30% and it did not significantly affect the quality of care. We should move our health care system to one that, like pension plans, is a defined contribution rather than a defined benefit. Call it the health care equivalent of a 401k. The Health Care Savings Account or HSA is the first small step in that direction. However, nearly all health care for every individual should go through a similar account. Let us call that account for this proposal an HBA or Health Benefit Account. The HBA accounts would be in the private sector just as 401k accounts are now. HBA contributions to a certain limit would be tax deductible, could grow tax deductible, and could be saved for retirement health care. Only health care items and insurance premiums including deductibles, coinsurance and copays could be paid through the HBA. Upon death, the HBA could be left to heirs. One would not be permitted to borrow from or encumber the HBA.

Government's role would primarily be to level the playing field and provide regulatory and review oversight. It is proposed that some of these regulations would be to define five standard plans. All of those five standard plans would be "guaranteed issue". They would cover from a relatively basic plan with high deductibles and high coinsurance but still very substantial catastrophic coverage through something more akin to a copay plan with limited deductibles. All plans would have reasonable copays and no deductible for vaccines, appropriate immunizations, and annual check up (including any lab costs). The idea being those who want to be sure to have an easily budgeted expense every month with full coverage would chose the later plan, and others would chose the plan with high deductibles or somewhere in between and save their funds in their HBA for future years or to pay the deductibles and copays. All of the plans would be administered in the private sector by insurance companies or similar organizations that also would be required to meet solvency and other rules as they do now. The insurance companies would therefore be competing to provide the best service, lowest cost, additional innovative plans and services, and highest quality.

An additional critical role of government will be to require reporting of outcomes information and prices in an understandable manner. Publishing these results will encourage less variation in costs and procedures. Physicians then will want to practice in a manner to yield the best results, in the right place, at the right time, and at an appropriate cost. The physician journals will start reporting on practice techniques and methods that have immediate impact to patients. This is in part sometimes referred to as "evidence based" medicine. Consumers would now have available data about best physicians, best procedures, best medicines, best hospitals, and other care givers. They would also have cost data on this. More organizations would end up reporting on this and explaining it to consumers. The media would be able to compare quantifiable, risk adjusted data. Consumers would be able to make educated choices. Providers and drug companies would compete on cost and quality. Surely there would soon be those organizations independent of government who would find a way to also measure and report customer (patient) satisfaction.

The method of pricing also needs to change, at least for the inpatient and surgical settings. Now a patient upon discharge is presented with an unintelligible list of charges. If the patient had asked for a quote in advance it would not be all inclusive and likely have no relationship to actual charges. Something similar to the DRG method (Diagnostic Related Groups) which is similar to a "case rate" method of pricing should be used. However, it should be expanded to include all inpatient services including the hospital based physicians such as anesthesiologists.

This is doable, in fact common, for those who seek care abroad such as in India or Mexico. In other words, the pricing system needs to be simplified so the consumer can get an advance quote, understand it and make comparisons. Establishing the standard methodology would be a government role (as in good part it is now). Patients should also be able to have their care abroad covered as this will put quality, service, and price pressure on the U.S. health care system

Those eligible for Medicaid would have an account set up for them through a gradually reducing means based method. They also would have some specific plans that are more tailored to the Medicaid population. These plans would be similar in concept to and follow many of the managed care precepts that existing managed care Medicaid plans now successfully employ. For those that would fall into this category, their accounts would be vouchers or a credit on their Smart Health Card rather than cash. This would also likely pick up a good number of the uninsured. No longer would the state government dictate reimbursement to physicians. Rather varying insurance companies would negotiate the rates as they do now for many plans. Medicaid would need to continue to be funded by the government as it is now. However, the level of funding into the Health Benefit Account should be determined by some actuarial method based on the private sector managed care costs, age and severity risk adjusted. Unused amounts in the HBA would carry over to when the individual has an insurance plan through an employer.

Those eligible for Medicare would similarly have an HBA. It would be somewhat different though. Each individual would have a "Retirement HBA" account. Funds would be collected through the Medicare tax as they are now, but those funds would then be collected by the government in a dedicated pool. This pool would be required to be actuarially appropriately funded. It therefore would not be a general obligation of the government. Rather it would be required to be appropriately funded just as retirement plans by corporations must be appropriately funded. Independent auditors not part of the government would have to audit the national account(s) and attest to the proper funding. This should keep it out of the political process and not result in the issues now facing the social security system. This may result in adjustments up or down of the tax each year.

Insurance companies that wished to participate in this system would have to agree to provide the five defined plans and agree to guaranteed issue. Insurance companies could be in any one or all of the three markets: Medicaid, Medicare, or the rest of the insured population. They would have to be in a minimum to be defined number of states. Rates would be required to be filed with the state insurance commissioner only for the five plans and any additional plans would not be subject to rating oversight but would be guarantee issue. The rates would be age and sex adjusted (as most are now). Rates could be adjusted within a band or corridor for health risk. This would encourage healthy life styles. For example smokers would be charged a premium. Workers compensation insurance would remain separate as it is now. Auto insurance would be required to cover medical costs from accidents and on a no fault basis. This means those with bad driving records would pay more and not impact the health care costs for all others. This would result in more timely payment of auto health claims and would cut administrative costs.

All employers of a to-be-defined number of employees would be required to offer insurance. The number is not defined here in order not to have that be a basis of rejection or acceptance of this entire proposal. The amount the employer offers would have to be at least 75% of the cost of the middle tier of the 5 plans. That cost would be for the employee only that would be required. They could offer to pay more and for family members. This then would become a competitive tool for recruitment. Individuals would receive a tax deduction for premiums paid for their entire family up to 75% of the cost of the middle tier. Company payments would be tax deductible. This would help encourage companies to also cover families.

Individuals not covered by a company plan, Medicaid, or Medicare would be required to set up an HBA and purchase insurance through the HBA. They would receive a tax deduction for their medical expenses. They could contribute into the HBA up to the highest cost of the five benefit plans for the area where they live. This number would be published by the state insurance commissioner. To the extent they were employed, this would be a required deduction from their paycheck. Obviously there will still be some percentage that does not end up with insurance. As the system is implemented, the number and reasons would be reviewed and further plans developed to have them covered for health insurance.

A "Smart Health Card" or SHC would be issued to each individual. It would be a "smart card" that had key insurance and coverage data, list special health risks such as pacemaker, drug allergies, etc., and keep track of deductibles. Some insurance companies now offer something close to this. Providers would be required to convert to electronic medical records over a prescribed period of time. National standards would be developed so that varying systems could "talk" to each other. This is no different than the standards that exist for many other items in our increasingly technical world. In other words, we must bring our high technology processes to health care. Hopefully other efficiency aspects would take place since competition, and comparative cost and quality information would be widely available. For example, dynamic scheduling of expensive high tech equipment such as an MRI might take place. Imagine a system where you indicate you would fill in for a last minute cancellation and received a text message to be there in 1 hour. Downtime gets reduced and costs get reduced and patients can be treated sooner.

Many recommendations have been made on in hospital procedures such as using sophisticated drug delivery and monitoring systems, and wrist bands with bar codes and key information, just as is done at the store checkout counter. What if physicians all had a specialized PDA that could pull up your medical record, had all your drugs in it and could prescribe through a dynamic system that warned them of any issues with other medications, but also advised them of some lower cost alternatives? A Rand Corporation study found that when physicians knew the cost they often varied their recommendation. This was where physicians had no financial incentive to do so, but they had made a cost benefit decision. Consumers could also raise similar questions. These are just some small and limited examples of bringing technology into the process and business side of health care delivery to achieve better results.

High malpractice costs and defensive medicine are another cost factor. At the same time patients need redress in the courts for true errors. Bad outcomes do occur. A balance needs to be found. Some states have already placed some limitations on pain and suffering and influenced the malpractice market. Colorado is one of those states. A comprehensive review needs to take place and a balance found.

An issue often raised is why are drug costs for the same drug less in Canada or many other countries? First most of those countries do not allow or limit consumer advertising. At one time this was the case in the U.S. We should go back to that. Second is those foreign governments dictate or in some way heavily influences the prices. The result is the U.S. pays substantially higher prices and funds much of the world's R & D. This is in spite of the fact that a number of very large pharmaceutical companies are not U.S. companies. Unfortunately, the only way to level the playing field is for our government to also enter the pricing fray for the industrialized countries pricing practices. The U.S. should threaten to set a price that resembles the average prices of drugs for the industrialized countries. This will cause an appropriate outcry from the pharma industry and from those countries. An international group should then be called to the U.S. to develop a fair pricing method. The fair price would include enough to continue to fund research and development (but not advertising) and would have all industrialized countries participating in that cost. This second pharma item may well be the hardest to implement.

The greatest argument is going to be the funding and costs. The premise here is that the under payments by Medicaid and Medicare already cause many distortions in a truly competitive system. Further that the costs of the un- and underinsured are grossly understated. Receiving care too late or not at all in the wrong setting has also increased costs for the health care system. It also results in a less productive population. Change all this, and ideally the net costs will not increase, though obviously there will be dislocations as it is gradually implemented.

This can not all be implemented at once and should not. The American public only liked revolution in 1776, they now prefer evolution. A number of these items are easy to implement quickly. Some would be cutting pharmaceutical advertising, setting five national standard plans that all insurance companies had to offer, establishing a method to compare prices, and so on.

This proposal is not an attempt to define every detail of each item. Rather it is to define a framework on which to further discussion, refinement and ultimately those details. Does every piece work here in an integrated affordable realistic manner? Likely not, rather it needs further refinement. Hopefully these proposals have initiated some fresh thinking.

Vic Lazzaro is the former CEO of United Healthcare for the Mountain States and currently is managing director of a health care private equity fund. He has investments in and serves on the boards of a number of health care companies. An extended biography can be found here.