A simple fix for healthcare?

August 4, 2009

Stephen M Davidson

– Stephen M. Davidson, a Boston University School of Management professor, is author of the forthcoming book, “In Urgent Need of Reform: Saving The U.S. Healthcare System.” The views expressed are his own. —

Polls suggest the president is losing some popular support for his health care reform efforts apparently because people worry about some of the possible secondary effects. They fear that quality of care would decline, their out-of-pocket costs and taxes would increase, and they would not be able to choose their own doctor. The fact that there is little reason for these worries is beside the point.

Ordinarily, when a problem arises, we try to figure out what the cause is and fix it.  With legislation, especially something as complex as healthcare, we don’t do that. Instead, we impose constraints that are unrelated to the diagnosis. In this case, Congress is trying to fix the problems using private insurers, without raising taxes, and keeping a limited role for government. So, leaders try to fashion a bill that accomplishes at least the main goals of reform – reducing the numbers of uninsured and containing costs – are at a considerable disadvantage. Partly as a result, it is much harder to persuade the American people that the complicated plans they come up with will do the job without harming them.

The fact is that much simpler solutions are available.  For example, require that everyone contribute an income-related amount (that is, more for higher-income people) to a dedicated federal health insurance fund (HIF), which would be used to pay insurers and health plans. And then issue vouchers which entitle everyone to choose a health plan or insurance policy.

The contribution can be called a tax, which makes it a non-starter, even though it would probably mean that almost everyone would pay less than they do now. It would substitute for the premiums they now pay as well as for most of the taxes that go to health-related activities.  (If Medicaid were folded in, the savings would be even greater; Medicare is so popular with an important constituency that it would be harder to include it in a new plan.) The amounts paid could be based on a person’s income (like our progressive income tax), which means those with pre-existing conditions would not face unaffordable premiums.

Using our vouchers, we would choose our own insurance policies from private insurers.  Not only would the insurance cover the services we need, but instead of basing our choices on what we can afford (which might not cover what we need, which is the case for millions of Americans today), they would be based on the providers available and the quality of the insurer’s service. The insurers, in turn, could be paid risk-adjusted amounts from the HIF, which would protect them against the possibility that large numbers of people with pre-existing conditions and other risk factors would choose them.

The federal agency that administers the HIF would have only a few jobs to do:  estimate the total needed for the next year and set contribution rates to produce a large enough fund; certify insurers as capable of performing the necessary insurance functions and inform the public about those firms; and set the risk-adjusted rates to be paid to the insurers.

Insurers would negotiate compensation arrangements with providers for the patients who choose them.  Risk-adjusted payments would protect them to a considerable extent, but some might decide to transform themselves into prepaid group practices like Group Health of Puget Sound or find other ways to assure quality care at reasonable cost.  Plenty of models are available for them to choose.

This approach sounds radical.  But if you think about it – without the Congressionally imposed constraints – it is really quite simple.  The federal government already knows how to set and collect progressive taxes, private insurers and providers already negotiate with one another, and having a voucher assures coverage and simplifies the insurance choice process.  Most importantly, it would actually accomplish the two main goals of reform: providing insurance to everyone and containing costs.

11 comments

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Sounds great, except for one little hitch: the Government would be managing this account. Look at how well they manage Social Security. Do we really want to create another tax cash cow for the government to milk at their discretion?

Posted by Matthew L. | Report as abusive

I don’t see how this is much different that what we have except to add another level of administrative cost. What about the selfemployed, unemployed and off the books employed? How does this address the quality/cost savings problem?
Speaking of easy fixes. There has been much reference to an article in The New Yorker by Dr. Atul Gawande about a hospitals in Texas that spends more Medicare money per patient than any place in the country and about hospitals like Bassett Hospital in Cooperstown that spend the least. The difference between the two being at Bassett the doctors are paid only by the hospital and in Texas (and a vast majority of hosptials in the US) private practice physicians admit their own patients and bill insurance companies for every time they see the patient and they refer every little problem to a buddy specialist who also charges the insurance company for every test and time they see the patient. What evolves from this is groups of physicians in colusion with the hosptials that depend on admissions creating a whole practice culture based on abusing the system. Maggie Mahar calls it “Money Driven Healthcare” in her book.
The starkly simple solution to this is outlaw private practice internal medicine physicans from attending to hospitalized patients. Hospitals would hire salaried hospitalists to treat patients eliminating any motive to over or under treat.

Posted by CM nurse | Report as abusive

It was written:

“[People] fear that quality of care would decline, their out-of-pocket costs and taxes would increase, and they would not be able to choose their own doctor. The fact that there is little reason for these worries is beside the point.”

Sorry to disagree, but that *is* the point. Many people’s attitudes – or enough to make a newsblip on some hot-button survey – are driven by the utterly unfounded fear that the American corporate healthcare system could get even worse than it already is without provoking widespread riots.

And of course they’re completely mistaken about that, not because American people are stupid by nature, but because they have been systematically deceived into imagining any worse alternative to that which they already endure and thus assume they couldn’t have it any better, anyhow, ever, than the way things are now.

It is the perpetrators of such legends who should be locked up in a lunatic asylum; and the people who pay them to utter such falsehoods, well, expropriated and then locked up too.

I’m from a medical family, having been in many hundreds of hospitals here in the U.S. and elsewhere and traveled with medical people in quite a few countries of the first, second and third world persuasion but never yet having seen anything as lamentable as the widespread state of medical malaise in the United States, coupled with grossly inflated distortions about its alleged prowess.

That having been said, my elderly uncle is currently in Critical Care at an extraordinarily good medical facility in Northern California, next to which every other American hospital I have ever seen comes across as a mediaeval dungeon. I would give out its name publicly but fear that, by doing so, the anticipated long-term “cure” for this situation would amount to its being marginalized and shut down by the appalling mass of third-rate pollster-addicted so-called medical competition which dominates the ailing American commercial health marketplace, instead of rising to the occasion and operating per sworn oath to Do No Harm, not even for profit.

The survey I expect to see next will show that the profit motive in post-Reagan, post-Thatcher Western healthcare has claimed more victims in this country, this century than the Black Plague ever did. And, more’s the pity, it will be absolutely on the money.

Posted by The Bell | Report as abusive

CMnurse doesn’t understand how my proposal would differ from the present. Here are some of the ways: everyone would be covered; with their vouchers, all would choose plans not on the basis of their cost, but the available providers and quality of the plans’ service; all plans would cover the same comprehensive set of services; plans would be paid risk-adjusted amounts; insurers’ income would be determined by the numbers of people who choose them and the risk-adjusted amounts associated with those people; in order to attract and then, retain subscribers, they would have incentives to negotiate arrangements that ensure good quality care and contain expenditures; the amount spent by the health care system would be the fund determined by the HIF to be needed for that year (not the sum of all the bills for all the services provided). Yet, to achieve all these good results would be simple administratively even though providers of care would still receive their payments from private insurers.

Posted by Steve Davidson | Report as abusive

Why not just outlaw insurance for healthcare? Force healthcare facilities to charge for their own services.

Posted by Matt | Report as abusive

As soon as the President, Congress, the Senate and all other government officials agree to put themselves and their families on the same healthcare they propose for the American people, then I think alternative healthcare to what we have now can be considered. Until the powers that be realize that what is not good enough for their families is not good enough for ours, we will remain in a stalemate on healthcare reform. Healthcare reform would have happened decades ago if the President, Congress, Senate and all government were in the same situation for healthcare as are the American people. Who could trust anyone who would put a healthcare in place and plan to administer it but will not put themselves or their own families on it?

Posted by Shelby | Report as abusive

Shelby you nailed it!
I would add the easiest fix is to make healthcare tax deductible for all and get the government out of the way.
The government beauracracy is too big to succeed as evidenced by Medicaid and Medicare and the USPS, Amtrak ,etc.
Where are all the journalists who should be picking apart this proposal. All i ever read is how congress is working it out . How about the media do it’s job of investigative reporting on the plan?

Posted by Sally | Report as abusive

The approach proposed in this article is similar to what the federal government currently does as an “employer” for all federal employees and members of Congress; negotiates rates with private insurers and offers employees a cafeteria plan from which to choose. Sounds like a winner to me!

Posted by Dave | Report as abusive

The proposed approach, as well as covering all U.S. residents, would help to contain costs, and maintain quality of care that is at least as good as the current system. Costs would be contained by reducing overhead such as by streamlining the collection of premiums. Quality would be maintained as the major change proposed is one involving payment and not provision of health care and may, in fact, be improved by giving providers to join together in more in more integrated, better coordinated organziations such as Group Health of Puget Sound and Cleveland Clinic. And the government is quite capable of doing this and doing it well as is demonstrated by Medicare, an enormously successful and popular government program for almost half a century.

Posted by Joseph R | Report as abusive

What do we do with those who do not file tax returns and pay no taxes, hence don’t contribute to the fund? We don’t have guts to deny them coverage and throw them out — we know that.
Once the tax is instituted, it’ll be prone to be increased gradually over years because of the rising costs. Government rarely decreases in size. Why don’t we create Government pension plan for everyone by imposing a pension tax? What about Government-run supermarkets, dealerships, restaurants, etc? It’ll decrease overhead, will streamline the process and should decrease costs, right? It looks great on paper and in books.Utopias do not work.
I am for required individual coverage just like it is mandatory to have car insurance in Mass, but not through the Government. No insurance — no service in the hospital. It should persuade people to buy health coverage for themselves and problem with everyone participating is solved. We all know: not going to happen. United Soviet States of America…

Posted by Paul | Report as abusive

The problem with healthcare is the cost. We have 50 years of experience proving that insurance does NOT lower the costs. In fact, the more insurance introduced into the system, the faster healthcare costs seem to rise.

People receive a service that someone else (insurance) pays for. Most don’t even pay directly for the insurance, their employers do. They do pay, just through lost raises in their pay.

Insurance has no desire to lower the cost of healthcare. They pass the costs on. Higher costs mean more people must have insurance.

The healthcare industry has no desire to lower cost. They don’t compete based on cost. They don’t advertize. People rarely know what services cost before they receive them.

This is already a socialist system. Putting the Government in charge will not improve it. It will just replace the insurance company with Congress (who will ultimately legislate savings through lower quality or rationing).

The solution is to return the healthcare industry to free market controls. Rather than having 100% insured, better to have 0% insured (albeit perhaps for catastrophic insurance). Simple fee for service. You get surgery, you pay for it. Doctors/hospitals would then have to compete based on price. They would learn to become more efficient. They certainly won’t stay in business if they charge more than most people can afford to pay.

Insurance is about spreading risk. It assumes that only a small number of the insured will need healthcare service and that the cost can be spread over a large body of people who won’t need any service. But everyone needs healthcare services. When you spread a 100% risk, you are really just morgaging the cost over time. People can do that without the added overhead of an insurance company.

Posted by Jeff McQuinn | Report as abusive