My experience in public policy tells me that in general anything that isn’t simple is a ripoff, and in the dark corners of back-door funding, money flows to power not to need. So what would I do about healthcare finance in the United States? Something like Senator Edwards proposed when he said “Health Care Markets will offer a choice between private insurers and a public insurance plan modeled on Medicare, but separate and apart from it. Families and individuals will choose the plan that works best for them.” And that’s all. People would be allowed to keep their current employer-provided insurance, but the back-door government subsidy for it via an exclusion from personal income taxes would be replaced by a front door subsidy that was equitable. Existing senior citizens could stay in Medicare as it now exists, but it would phase out and be replaced by the new “Medicare” as it would be. Medicaid would disappear, except for the custodial care of adults (mostly seniors and the severely disabled) with self-care limitations. And even in that case the continuation of Medicaid would be temporary, because the custodial care issue is massive and needs to be rethought carefully, and separately from health care for everyone else.
As Senator Obama put it, “in addition to the broad array of private options that Americans can choose from, they will be offered the choice of a public plan option similar to Medicare.” I would simply propose making everyone eligible for Medicare as it is, rather than something “similar to Medicare,” were it not for some of the flaws in the current program that I identified in my prior posts. I propose that every citizen and legal resident who pays whatever federal taxes they owe, and who does not choose otherwise, be automatically enrolled in a new version of Medicare, modified as follows.
First there is an insurance premium for the existing Medicare program, and with the exception of an income-related variation in Medicare Part B premium, neither premiums not co-payments are adjusted based on ability to pay. Instead, I propose that the new version of Medicare have no premium, since premiums do nothing to discourage the wasteful use of health care, because a premium payment is upfront no matter how much healthcare one uses. Instead, co-payments would be assessed, and would vary with income, to give healthcare recipients an equal disincentive to use healthcare services that were unnecessary.
As Senator Edwards said “new national standards will ensure that all health insurance policies offer preventive and chronic care with minimal cost sharing.” In my view there should be no co-payment for preventive care, for healthcare with social benefits (such as the treatment of potentially deadly contagious infection), and for health care on a government-approved schedule (ie. annual checkups). For other care, co-payments could range from a half-hour’s pay (or its equivalent for the retired and unemployed) for a doctor visit or prescription, to a day’s pay for surgery or a day in the hospital.
Second, Medicare currently requires that all healthcare providers accept whatever Medicare decides to pay as full payment, with no variation allowed for patients who choose to receive more or less complicated treatment, and no variation allowed between those going to the best healthcare providers and those that are merely adequate. This is why the healthcare industry fears a single-payer system. With no private health care costs to compare with, the government would simply be deciding what every health care worker was allowed to earn by fiat – or as a matter of political influence. And with no other customers available, healthcare providers would either have to accept whatever level of pay the government decided, or change careers.
I propose that only non-profit healthcare providers, and publicly owned healthcare providers, be required to accept the Medicare reimbursement rate as full payment. Other healthcare providers could charge more, but anyone choosing such a provider would be required to pay the last dollar of health care cost, to discourage the healthcare industry from just jacking up prices, as well as the first. Allowing healthcare providers to charge more would also make it impossible for the government to just decide to cut the standard of living of those working in the healthcare industry by fiat. Those providers could charge more and require their customers to make up the difference.
Take someone with a cold, who earned $15 per hour, for example. A trip to the doctor and a prescription would cost $7.50 each in co-payments, so that person would think twice about whether it was or was not really necessary to receive healthcare for that cold. If they chose to receive health care, they might have a choice of a physician who only charged the $60-per-visit fee paid for by Medicare, or a physician who charged $80, requiring an additional $20 out of pocket, or a total of $35. Obviously, the customer would think about whether the additional $20 was worth it, and the more expensive physician’s bill would not go unchallenged. One reason the health care industry is so rapacious is that it never has to confront the customer with what it charges. On the other hand, imagine that the Medicare fee for a doctor visit was set so low that only non-profit clinics, which have no choice, would accept it, and that such clinics were having a harder and harder time operating. The government would get the message that reimbursement rates had to rise. (Note that the State of New York has set the reimbursement rate for Medicaid unusually low for doctor’s offices, and unusually high for clinics, based on relative political power. That would be more difficult if more politically important people were being impacted by the decision.)
Third, the current Medicare program covers far too many services that have dubious value, and high costs. I believe that the public program should be limited to universal, basic health care, with people permitted to buy more without subsidy – with their own money in cash or ahead of time with insurance – if they choose. Basic healthcare is absolutely necessary healthcare services using equipment and procedures that have been around for some time and have a measurable track record of success. Basic healthcare is generic drugs, not expensive patented drugs. It is care that is absolutely required for people to get by, not life enhancements. If someone has a potentially life-threatening illness, basic care is treatments and therapies that have at least a one-third chance of success, based on a track record of experience. If only the most advanced technology treatment has a chance, and the chance of success is low, people should seek funding elsewhere. We have to accept that sometimes palliative care is the most reasonable choice. At the same time, some advanced technology cures and brand new drugs prove to be worth it in the long run. Those could be incorporated into the basic Medicare program.
A health care commission could decide what treatments and therapies merited inclusion in basic Medicare, and the total growth of the program could be limited to the growth of personal income in the country. As I mentioned in my prior post, this would provide a floor on healthcare expenditures as a share of GDP, and on the amount of healthcare everyone was entitled to receive, but not a ceiling. People could decide to divert more of their income on their own, without government coercion or influence.
And what about private insurance alternatives? There could actually be two types alternatives, exactly the same in reality but different in theory. In the public plan — let’s call it the Harry Truman Plan — a person would pay all federal taxes due to the federal government, which would pay for healthcare under the basic Medicare plan. Under what could be called the Hillary Clinton plan, a person would pay all federal taxes due and the federal government, which would forward a certain amount of money on to a private insurer on their behalf. And under what might be called the Barry Goldwater plan, a person or employer would forward a premium directly to an approved private insurer, which would electronically inform the Internal Revenue Service of the funds received, which in turn would grant permission to reduce federal taxes due by a specified amount. As foolish people measure it, if most people chose the “Goldwater Plan,” with fewer dollars making a round trip through the government and back to the same person in health insurance, the “size” of the federal government could actually shrink, particularly given the funding policies I’ll describe in my next post.
Private health insurers would have to cover at least those services the basic Medicare program did, with no co-payments for preventive and socially beneficial care, and would be financially regulated to ensure they had the resources to pay promised claims. Otherwise, they would be left alone. They would be free to charge additional premiums to their customers, to cover more advanced treatments and therapies, and to pay healthcare providers more than the government program, in order to attract more healthcare provider participants. The additional premiums, however, would be taxable income, not subsidized.
As I would like to see it, the government payment to private health insurers, and the amount that taxpayers would be allowed to deduct from federal taxes withheld, would vary based on age, sex, and medical history. The amount the government would pay would depend on the actual costs recorded for different types of people in its own program. Private health insurers would only be permitted to charge different rates to people in the agreed to categories, which all such private health insurers would adhere to. Thus the private insurers could decide, collectively, how much individual and community rating they would all be allowed. Of course, if a test could determine that a certain type of person would have higher average health care costs than other people their age, then other people their age could be assumed to have lower health care costs, and their reimbursements reduced. At some point the additional value of more accurately predicting individual healthcare costs, and adjusting federal payment rates (up or down) accordingly, would be less than the value of the tests. Community rating would only be retained, therefore, where it made economic sense, by common agreement.
Private insurers could add value, relative to the government program, by attracting customers who wanted to have more services and higher-charging providers available to them, without paying more out of pocket in the event of illness. They could also add value by more carefully tracking the health conditions of their customers in an effort to improve health. To provide an incentive, the government payment rate could be based on the expected level of future healthcare costs, based on a person’s health history when they signed up with a given health insurer. If a person was obese, a smoker, an addict, or had high cholesterol, the government would pay the health insurance company based on its own average basic Medicare costs for people with similar characteristics. If the health insurance company worked with a customer to change those characteristics, and the actual health care costs were therefore lower, the company would earn a “profit” from the savings. Private companies would suffer losses if its customers who were not smokers, not obese or did not have high cholesterol when becoming customers developed those characteristics at higher than average rates.
What if a private health insurance company sought to attract young, healthy people and push them out if they became sick? Well, the government reimbursement for young, healthy people would probably be pretty low, and competition would probably drive down any additional charges above the government rate for such people as well. For those with pre-existing chronic conditions, on the other hand, the government reimbursement rate would be much higher. And, if a private insurer charged too high an additional fee to someone with such an illness, they could very well depart to the government or a competing private plan.
With this plan in place, every person could choose either the basic Medicare plan or any competing private plan regardless of place or work. As Senator Obama put it “participants in the new public plan and the National Health Insurance Exchange…will be able to move from job to job without changing or jeopardizing their health care coverage.” One’s federal W2 and pay-stub would have a line showing federal taxes due (which would vary, of course, based on income), a line showing the value of federal health insurance or private equivalent one was entitled to (based on their characteristics), and the net transfer to those older, sicker and/or poorer (or from those younger, healthier and richer). If a direct payment to a private insurer were chosen, the second line — the value of federal health insurance or private equivalent one was entitled to — could be written off against federal taxes. Any health insurance payments beyond that amount, however, whether insurance paid by an employer, insurance paid by an individual, or payment out of pocket by an individual, would be taxable income.
A nice simple system. So who would be against it? And why do the candidates all include the additional complication of preserving all the existing flows from government for health insurance and health care?
First, those who benefit unfairly from the existing system would probably be opposed. This includes everyone who has a far richer level of health care financed directly or indirectly (through tax breaks) by the government, who would find that the cost of their health insurance beyond the basic level would become taxable income. Suddenly, unionized public employees with seniority, top executives, and others with high incomes and rich insurance, would find that the government was funding the same amount for their health insurance as for the less well off. Even if grandfathered into the existing Medicare program, today’s seniors might object because their generation is used to the idea of getting everything and not paying, while young workers pay (the Medicare payroll tax) and get nothing. Some of these, however, might actually care about their own children and grandchildren. The more rapacious parts of the health care industry might be opposed, because currently they have the ability to charge more and more money for more and more services while telling their customers that their care was “free,” and that if they can’t get unlimited care at an unlimited price it was an injustice by some faceless third party payer.
Second, federal politicians might object. This federal takeover of a large share of basic U.S. health care costs would cost the federal government a lot of money, but would save that much or (in the end probably) more for businesses that now provide health insurance to their employees, and state and local governments (who would no longer have to contribute to Medicaid and would save on the cost of employee and retiree health insurance). Mayors, Governors, school boards, and business executives would have more money to spread around, and look like heroes. The federal government would have to raise the money, and its elected officials would take the blame. This kind of cost shifting to other levels of government, and inefficiencies created by political games, have become more and more common since “layer cake government,” with the federal, state and local governments each responsible for different things, was replaced by “marble cake government,” with every level of government having a hand in everything, lots of money moving around under the table, and no accountability as everyone blames everyone else for everything. I’ll address this problem in my next post, when I describe how my healthcare proposal would be paid for.
But let me say again, the current healthcare finance system has zero moral standing. It is the worst in the world — inequitable AND expensive and inefficient. And the federal, state and local governments are already paying, directly or indirectly, as much as other countries pay for universal health care. We’re paying for it, so we deserve it.