I have been asked increasingly over the past few weeks to provide my solutions for health care reform. They are just that multiple, independent reforms that by themselves will have an incremental effect of health care, but, if implemented smartly and as a package, could have an immediate and long-lasting effect.
I have divided my solutions up as follows:
- Rethinking the Delivery of Health Care
- Rethinking How Government Interacts With Health Care
- Rethinking How We Pay For Health Care
- Rethinking Medical Malpractice, Licensure, and Training of Doctors
What follow is my rather lengthy commentary on the state of the American health care system and my solutions to fix it.
Rethinking the Delivery of Health Care
Problem: Emergency room care needs to be improved.
The average waiting time in an America ER is over three and a half hours, according to NBC’s Tom Costello. What happens when you go to the emergency room? Well, you see a lot of people sitting around. Patients, orderlies, nurses, all seem to be waiting on the doctor. Why is this? Because only a doctor has the imprimatur (deriving from tradition more than anything) to remove the splinter from your daughter’s finger. However, what is usually ignored is the fact that, in any emergency room, there are two or three times as many nurses or physician’s assistants as there are doctors. Yet, a doctor’s signature is necessary to discharge a patient, resulting in a long wait until the doctor can get around to seeing the patient. No wonder modern health care seems to move at the same glacial pace as the old Soviet army! The officers are doing all the fighting and the enlisted men are just standing around!
Simple or routine procedures are a waste of a doctor’s time and do not use his education or training effectively. Registered Nurses (RNs) and PAs have all the training necessary to handle routine illnesses and injuries, from the common cold to simple fractures. Additionally, PAs have the pharmacological knowledge to dispense medications without a doctor’s say-so (i.e. they can write prescriptions). Therefore, I suggest that we implement nurse-centered emergency room care. How does this save money? Utilizing nurses and PAs to handle routine care without needing a doctor’s approval should reduce wait times in the emergency room, reduces the chances of expensive medical errors made by overworked doctors, and allow hospitals to see more patients quickly. Utilizing nurse-centric care in the emergency room should also reduce the costs of routine procedures to the patient (or the patient’s insurance company). Why? Well, a nurse costs roughly half of what a doctor does, so you (as the health care consumer) don’t need to pay for the doctor’s overhead. Also, because waiting times are reduced, hospital emergency rooms should be able to conduct more procedures in the same amount of time, meaning that supply has outstripped demand from the hospital’s perspective.
Problem: The care of chronic conditions is an enormous burden on the health care system
It is estimated by the CDC that 75% of all heath care dollars are spent on treatment related to chronic conditions. 88% of Medicare dollars are spent by patients with three or more chronic conditions. It is in this area that the greatest possibilities lay. And interestingly enough, the pharmaceutical industry has already pioneered a system that might well solve many of the issues related to the care of chronic conditions.
It’s called community-based pharmaceutical care services and it has been successfully demonstrated under the moniker “The Asheville Project.” The Asheville Project began in 1996 as an effort by the City of Asheville, North Carolina to provide education and personal oversight for employees with chronic health problems, such as diabetes, asthma, hypertension, and high cholesterol. You can read more about it here. The results have been promising. According to the Journal of the American Pharmacists Association, a diabetes study concluded that patients’ diabetes control improved markedly, along with other indicators, such as cholesterol and flu vaccinations. Moreover, direct per-patient medical costs dropped by almost $1200, a 40% reduction.
By using the community pharmacist to coordinate chronic care and ensure patient compliance with chronic care standards, Asheville and several other large companies and cities across ten other states have seen large improvements in the quality of care coupled with significantly reduced cost.
Implementing Nurse-Centric Emergency Care and Pharmaceutical Care Services
We have two revolutions in health care delivery waiting to happen. How do we get there? The answer was already suggested above. Medicare and Medicaid control vast sums of money related to hospital and chronic care. These two programs could be used to incentivize hospitals to adopt nurse-centered hospital care by penalizing hospitals for using doctors to treat routine medical problems. For instance, the Medicare and Medicaid reimbursement rates could drop for simple procedures like treatment of a simple fracture, while simultaneously increasing the reimbursement rate for treatment of more complex procedures, like heart attacks or strokes.
In terms of implementing community-based pharmaceutical care services, the federal government need only dictate that this is the new standard of care for those covered under Medicare. As Medicare covers by far the largest percentage of chronic care patients, medical providers would have little choice but to adopt it for everybody.
Rethinking How Government Interacts With Health Care
Problem: Government mandates drive the poor out of the insurance market.
According to the Council for Affordable Health Insurance, there are roughly 1900 health insurance mandates in this country that add between 20% and 50% to the cost of basic health insurance premiums. What are these mandates? Well, a mandate is a demand from a state or federal government that insurance companies provide coverage for certain providers, certain benefits, or certain populations. Further, many states have begun to two new mandates, called guaranteed issue and community rating, that can have a massive impact on the cost of insurance. For instance, the state of Maryland requires insurers to not only provide mental health coverage, but the same level of coverage, adding between 5% and 10% to insurance premiums for all Marylanders. Maryland also requires health insurance coverage for massage therapists and marriage counselors. These mandates have a lower impact since the company only pays if you use the benefit (around 1% each), but not everybody with insurance is married and thus they could save a few dollars by dropping marriage counseling from their policy.
Mandates, in and of themselves, are not necessarily bad or evil, but each one adds to cost of providing insurance coverage, sometimes a little, sometimes a lot. Furthermore, many of these mandates are beneficial things that for which people might want coverage. What makes mandates bad is the cost that the sum total of all state mandates place on each individual. Our elected officials act as though a mandate has no cost … and it doesn’t to them. They come across as kind and compassionate people and improve their election chances. However, if each mandate only raised insurance premiums 1% and you went ahead and passed 20 or 30 of them, you’ve just priced a significant number of individuals out of the market. CAHI puts it best: health mandates create a situation where everyone must by a Cadillac, but, of course, not everyone can afford a Cadillac, so we do without. If you were a poor Marylander, you would gladly give up coverage for mental health services in exchange for … say … coverage for chronic or acute medical conditions, but the mandates won’t allow that and so you go without coverage of any kind.
Eliminating State and Federal Mandates on Coverage
Given that mandates have a disproportionate impact on the neediest in our society, it is important that we eliminate their impact on health insurance coverage! If we can agree that everyone needs health insurance to cover de minimus life-threatening illnesses and injuries, then we, as a society, must demand an end to insurance mandates on coverage. This can be accomplished by penalizing states that continue to mandate coverage instead of letting the consumer choose what coverage is best and most affordable to him. This can accomplished in several ways: limiting Medicaid block grants, providing additional pools of money to states that eliminate their mandates for things like road construction or improving public health services. The most elegant solution I think would be a requirement that the state must cover the increased cost of each mandate, thereby linking a discrete cost to legislative choices. As many (if not most) states have a requirement to balance their budget, a mandate would now involve a trade-off between the ideal and the practical. Indeed, this has already been done on a limited basis in several states through a requirement that a cost-benefit analysis be performed.
Rethinking How We Pay For Health Care
Problem: The uninsured conundrum
As we’ve seen from the discussions above, both the delivery of health care and coverage mandates placed on insurance companies by the states have combined to drive up the cost of insurance. The result is roughly 50 million Americans lack insurance at the some point during the year. There are three basic reasons why this occurs, some of which has already been hinted at. First, since health insurance is linked to employment, unemployment essentially means uninsured. Health insurance is not portable and that’s a major concern. Second, our system of state coverage mandates results in Cadillac coverage at a Cadillac price, even though most people don’t need Cadillac coverage. Therefore, they elect to do without. This is especially prevalent amongst young people. When the young and the healthy opt out of health insurance, it robs the insurance pool of its cheapest to cover members, increasing costs for everyone else. Finally, within this uninsured cohort, there are the “uninsurables,” a small but significant group of individuals with pre-existing conditions. Basically, when one is uninsurable it means that the cost of coverage for the insurance company is so extreme (or the pool is so small) that it does not make economic sense to provide insurance to that person.
For the most part, both the federal and state governments have focused on the problem of the uninsurables through mandates such as guaranteed issue and community rating. Guaranteed issue means that an insurer must accept all applicants, but it does not preclude the insurer from charging premiums based upon the cost to cover a person with pre-existing condition. Effectively, guaranteed issue merely makes a policy so expensive as to be unaffordable for persons with expensive medical issues. States then tried to correct this problem through the community rating mandate, which means that an insurer cannot charge premiums based upon risk. Since premiums must by definition be based upon risk factors, such as age, sex, race, medical history, etc., states with community rating mandates often see insurers flee the state and premiums for everyone increase dramatically. These “solutions” do absolutely to solve the problem and, in fact, only make it worse.
Reintroducing choice to health insurance
Many of the above proposed solutions alone would go a long towards making health insurance more affordable and, thus, provide insurance to more people. However, that insurance still wouldn’t be portable. Eliminating mandates would allow insurance to be sold across state lines for the most part, but decoupling health insurance from employment would introduce true competition into the health insurance (and ultimately health care) market. We can do this by eliminating corporate tax deduction for health insurance. This deduction is not really understood and it is unique among corporate benefits in its tax treatment. Essentially, a corporation is allowed to “write-off” the cost of providing health insurance to their employees; not just the cost paid by the company, but the portion paid by the employee as well.
How does this work? Let’s assume that your employer pays 50% of the premium and you pay the other 50%. The employer’s portion provides no special tax benefits to him as it is an corporate expenditure and companies are taxed on income received after expenditures (i.e. before tax profits). However, a company does receive an additional tax benefit on your portion of the premiums as well. As you are no doubt aware, if you are a W-2 employee, your employer pays half of FICA and all FUDA and SUDA (federal and state unemployment tax) on your income. Health insurance premiums are not pre-tax for you, but for your employer as well. If you make $1500 per paycheck and pay insurance premiums of $300, your employer pays FICA, FUDA, and SUDA as if you make $1200 per paycheck. That’s money that flows back to his bottom line. You, however, still have to pay taxes as if you made $1500 on that paycheck (your W-2 will reflect $1500 per paycheck, even if you’re paycheck doesn’t)!
Problem: Health insurance is not really insurance
Having health insurance is more like belonging to Costco or a labor union than State Farm. Unlike virtually any other type of insurance, health insurance typically does not have discrete limits. When you purchase insurance for your car, for instance, you are buying a specific amount of coverage. There are different types of coverage with automobile, such as collision and liability (or comprehensive when you buy both). You might have $25,000 of collision coverage and $100,000 of liability. You also have a deductible; a certain amount of money that you must pay prior to your insurance company paying for your claim. So if you own a $40,000 car and only have $25,000 in insurance on it, you will be responsible for the other $15,000 if you total it in an accident. In the same way, if you have $100,000 in liability coverage and the other driver has $250,000 in medical bills, you might be responsible for the other $150,000. Of course, you may never get into an accident that is your fault and may never need insurance. The point is that insurance is meant to minimize your risk of paying lots of money in the event of an accident or unforeseen emergency. Furthermore, even though you might want the best insurance possible, only you can decide how much you’re willing to spend on coverage. That’s what ultimately determines what you kind of coverage and how much you can afford.
Health insurance, however, normally cannot restrict how much coverage you have. If you have health insurance, then the insurer must pay for your treatment, be it ten cents or $10 million. Since health insurers cannot put an upper limit on how much they’ll pay for, they attempt to control their exposure in other ways. One way is to create different networks of health care providers. Providers within these networks have negotiated a discounted payment with the insurer for care. Typically, an insurer will also designate a primary care doctor whose job it is to ensure that you are provided only with the medical care you need through a referral process. This further ensures that you remain with an in-network doctor at all times and helps the insurer controls costs. This is how an HMO works. A PPO doesn’t have a referral system necessarily and their networks are usually much less strict, but you also pay a lot more for that freedom. Most PPOs add an extra layer of coverage for out-of-network doctors where you must a deductible plus 20% of the overall bill for your care.
Making “insurance” insurance
Obviously, eliminating coverage mandates will help bring competition and innovative thought back to the health insurance industry. However, it does not necessarily flow that concepts such as discrete (or finite) coverage will follow. But, it is important that such coverage exist. Defining the limits of coverage accomplishes two things: first, it limits the insurer’s exposure, which lowers premium costs. Secondly, it entices competition amongst doctors. This has been visible in the dental and vision insurance fields for a long time. While individual consumers may not be conscious or aware of the limitations of discrete insurance, dental and vision providers are! They know that if a filling or a crown costs significantly more than insurance will cover, then the patient will opt not to perform the treatment. So dentists and vision specialists (especially Lasik surgeons) are constantly trying to find new and innovative methods to keep overhead low and quality of care high. For the most part, they succeed using a long-term model of relationship development and customer service to get and keep patients.
The biggest argument against a discrete model (and it’s a very valid one) is that, unlike a car or a house, medical care can be uncertain! With property and casualty insurance, the concern is almost always having too much. In the health care realm, it’s not having enough! How do we balance this concern and still implement a discrete system? There are two ways to address this concern. One is to adopt a concept that often used in disability or long-term care insurance: the rider. In disability insurance, the rider works something like this. Say I buy a disability policy right out of college when I’m 22 years old. The policy is going to be based on my current salary, which is probably the least that I will ever make. If I need more as I get older, I would have to purchase a new policy, which will cost a significant amount more because I am older and, therefore, statistically more likely to need it. Or, for a slightly (and I do mean slightly) higher premium I can look in my age forever and purchase more coverage as I need it. In other words, when my salary has doubled at age 35 and I need more coverage, I can purchase it as if I were still 22.
Applied to health care, the rider would look something like this. I could purchase a basic, cheap policy (say one that provides a total of $10,000 of coverage per year) to cover my routine medical costs. For a little more premium, I could buy a rider that would allow me to either purchase more coverage at a locked-in rate or provide a one-time exception to the coverage limit for a catastrophic illness. This would be an ideal policy for a young person who is relatively healthy, but would be difficult to manage as you got older and needed higher levels of insurance. Nevertheless, it’s utility to the young “invincible” should not be underestimated! If the premium were cheap enough, basic coverage should be an easy sell, particularly if the insurance is portable as young professionals will change jobs several times over the course of their first decade after college.
The longer-term, and I think, more enduring idea is one that is around right now: catastrophic health insurance. At it’s most basic, a catastrophic policy requires that you pay for your medical care up to a certain dollar amount, usually between $5000 and $10,000. After that, the insurer covers your medical expenses. This requirement that you pay for what amounts to routine care provides moral hazard protection to the insurer. In other words, the insurer has some assurance that you will not “waste” or squander your coverage with needless medical procedures. There are two other advantages to a catastrophic insurance policy. One is that virtually all of the policies out there cover and, indeed, require a yearly check-up. When you stop and think about it, it’s in an insurance company’s best interest to require this because they don’t want to pay out if they don’t have to and they want to pay as little as possible. A ounce of prevention is worth a pound of cure as they say! By the way, the results of the check-up typically (except in very limited circumstances) cannot be used to cancel or preclude coverage.
The second advantage is that these policies require you to set aside a certain amount, typically $2500 to $5000, in a health savings account. This isn’t a flexible spending account where if you don’t use the money, you lose it! This is an interest-bearing (typically money market) account just like any other FDIC-insured account at a bank! The great advantage of this is that once the balance in the account reaches your deductible level, you typically only need to refill what you take out. This means that you might high short-term costs, but in the long-run you will save a lot of money. Another advantage is that you don’t have to stop making deposits simply because you’ve reached the deductible limit. You can continue paying into the account forever if you want. A doctor friend of mine with one of these accounts suggests that if a healthy person had one of these accounts their entire lives, they would reach retirement age with roughly $3 million in the account and would no longer have need for insurance. The account is also a tool for retirement, since any money in the account past retirement age can be used for anything, not just medical needs.
Seeing these advantages, it is imperative that we encourage every American under the age of forty to purchase a catastrophic health insurance plan. As an incentive, we should provide a tax credit worth $5000 over five years for the purchase of said coverage. This will help to defray some of the up-front costs, which frankly may already be lower than what we have in place now (a catastrophic policy costs between $50 and $250 per month). Those unable to afford such a policy should be required to purchase a basic coverage policy with a one-time rider. These policies should not be available to anyone making over 200% of the poverty level.
Problem: The government-run health insurance system is bankrupt.
As you have no doubt already noticed, I am using the government’s influence as the single-largest health insurance provider to apply pressure to adopt new delivery practices and end state mandates! So, it might seem illogical that I would propose to retard that power by back on Medicare and Medicaid spending, but the simple fact is that we must! These two programs are currently running a $50 trillion deficit if we change nothing. Furthermore, Medicare’s actuaries warn us that the period of no-return is rapidly approaching. That is to say, we are swiftly reaching the point where the options to balance Medicare and Medicaid will become politically unfeasible. If we adopt all of the reforms that we have presented so far, we should be able to buy ourselves a little more time, but the system is is dire need of long-term reform.
Here is my idea of a what long-term reform would look like. The emphasis is on turning Medicare and Medicaid into a de minimus social safety net, instead of the end-all and be-all of government health care policy. First of all, we must admit that anyone 55 years or older must receive the benefits promised to them at the current level they are now. By cutting the overall cost of care through new delivery practices and ending state mandates, we should be able to reduce the overall impact of this age cohort. For the second cohort, those 40 to 55 years old, their benefits will be means-tested and they will be expected to pay the equivalent of 6%-10% of their income towards their medical treatment up to 400% of the poverty level. Over this, they will not be eligible for coverage under Medicare. This can be accomplished simply by adding a new line of the standard 1040 form. Again, this will lessen the impact of this age cohort. The final cohort (anyone under 40 years old) will not receive Medicare or Medicaid except under certain very particular circumstances. For this cohort, the government-run insurance programs will form a backstop to the health insurance industry by becoming an “insurer of last resort.” Under this program, you will have to prove that you have been denied insurance or that the insurance premiums were too much of a burden to qualify. At this point, the government can do three things (preferably in this order): negotiate a more affordable rate with a private insurer, offer a subsidy for you to purchase your own insurance, and, finally, provide a basic coverage policy with rider with premiums equivalent to 6%-10% of your salary. Hopefully, this will eliminate the long-term insolvency of Medicare and Medicaid by limiting coverage. Within 20 to 30 years, Medicare as we know it will not exist (Medicaid even sooner). It will have been replaced by a sustainable system. Instead of FICA, I would propose a 10% sales tax on health care services, which could be adjusted downward as less federal tax dollars were needed to support Medicare and Medicaid.
Rethinking Medical Malpractice, Licensure, and Training of Doctors
By the time he is certified to practice medicine, a doctor has undergone on average fourteen years of training. By the time this training is complete, he has more than likely wracked up between $500,000 and $750,000 in student loans, according to CNNMoney.com. Add the ever-increasing premiums associated with malpractice insurance to that and you get a staggering debt load, even before your doctor has made a single penny to live on!
There is a great deal of controversy over what the true cost of medical malpractice is. The Tillinghast study maintains that in 2003 the cost of medical malpractice was $233 billion. Other sources dispute Tillinghast saying that it arrived at its number only by measuring premiums paid for medical malpractice, not actual payouts to plaintiffs. The critics say that the GAO numbers place the actual payouts much lower. The Government Accounting Office has maintained that the payouts account for only 2% of the total spent on health care in this country. Using the generally accepted total spending number of $2 trillion that comes to $40 billion. These critics maintain that the insurance industry is padding its premiums because their investments are going south and they want greedy profits!
My take: the critics suffer from a fundamental misunderstanding of how insurance works (as usual). Both the Tillinghast and GAO numbers reflect reality. The GAO numbers are raw numbers paid out in that year. However, many (if not most) malpractice suits involve multi-year and sometimes lifetime payouts. Therefore, $40 billion could very easily a small piece of a much larger pie. Insurance company premiums are based on a term called an accident year. When underwriters calculate your premium, they are attempting to estimate the chance that you will injure (or kill) someone this year. Since medical malpractice claims have no statute of limitations, it is entirely possible that you might be sued in twenty years over something that you did this year. The actuary must take this into account when configuring your premium. Furthermore, the longer you practice the more patients you will see and the greater the chance of a claim (in fact, the chances of a claim approach 100% after only a few years in medical practice). Therefore, your premiums will increase every year you practice, even if you don’t have a claim! Therefore, I tend to believe that the Tillinghast numbers, while probably inflated, are far more reflective of reality.
The critics are right on one point: 5% of doctors are responsible for more than half of all medical malpractice claims. Some of those claims are bound to be baseless and many are probably based on debatable medical evidence, but, even if only half are legitimate, that is still a staggering statistic. And it largely results from the lack of oversight and enforcement from state medical licensing boards. These licensing boards are a lot like teacher certification boards. They rarely discipline because they are rarely independent of political influence. The members are often political appointees or members of the AMA (the largest doctors’ union in the country). They have vested interest in not rocking the boat. Further, even when a doctor loses his license to practice in one state, he can get another one in another state as individual state licensing boards rarely do background investigations.
Enforcing Accountability, Reducing Training Time, and Compensating Fairly
Malpractice reform is obviously necessary to combat the $200 billion spent every year on insurance premiums. But, so is accountability for the profession itself. Doctors will make mistakes, probably more than once. It is asking too much that any human be right and accurate 100% of the time. Therefore, we must acknowledge that malpractice claims are a necessary evil for our health care system. However, we need to limit punitive damages and compensate victims for real damages. Limiting punitive damages might reduce a trial lawyer’s compensation as he gets paid off these damages, but it also incentivizes him to be realistic and give his clients an honest opinion, instead of hoping for a big payday.
Possibly the easiest method to reduce medical malpractice would be to remove these cases from the state court system to the federal system. However, this is neither necessary nor prudent. Instead, we must approach reform on a two-pronged approach. First, states should set-up either a special malpractice court or a pre-hearing panel to certify the validity of the medical evidence in each case. Only cases certified by this expert court would proceed through the court system. The federal government could simply make it an unfunded mandate, much like speed limits and seat belt laws.
The second prong of reform is to give licensing boards teeth or to force them to use the ones they have to keep bad doctors from practicing medicine. The federal government can assist this process in two ways. First, they can set-up a centralized database to track the licensure status of every doctor and require states to check it prior to issuing or renewing a license. States whose licensing board is autonomous (i.e. run by the local chapter of the AMA) could be threatened with RICO prosecutions for operating a conspiracy to defraud. I believe that the RICO statute is broad enough to support such an interpretation and the very threat of an expensive investigation should be enough to make recalcitrant licensing boards enforce reasonable standards of conduct.
Finally, there is no good reason why a doctor needs to study for 14 years. A Doctorate of Medicine is a professional degree, like a law degree or an engineering or architecture degree. Unlike other professional degrees, however, an M.D. requires you to get a Bachelor’s degree first and sometimes even a Master’s degree. Most doctors I know consider these degrees to have been superfluous to their medical training. Indeed, many future doctors don’t even necessarily have an undergraduate or graduate degree in science. Therefore, it would be possible to cut between four and seven years off the educational burden for a doctor. How do we get there as most medical schools are unlikely to change and fourteen years worth of tuition probably sounds great to a university!
The best way would to conduct a pilot program using grant money from NIH at several prominent medical schools. Once it is proven that the pilot program doctors are equal to those twice as much debt, there should be a great deal of impetus for change from prospective medical students. Since competition amongst universities is cutthroat, it would only be a matter of time before some university decided to use the prospectus of less debt and a quicker time to saving lives as a recruitment slogan!
Conclusion
Reforming our health care system is less about handing more control of our lives over the federal government and more about using smart regulations and the existing influence of the government to propel change. Many of the solutions above are not novel or even new, but there is an enormous ideological divide between the parties that seems impossible to bridge. Conservatives see government interference as the biggest problem and it is a problem, but only one of many! Liberals see corporate greed as the biggest issue and while it may play a role in our ballooning health care costs, it is clearly dwarfed by the costs imposed by government on “private” health care. What I have attempted to do is provide evidence and a reasonable solution to solve each problem. The beauty of the solution is that it can implemented as a unified program or on an ad hoc basis. It satisfies what in my mind are the key requirements of health care reform: reduce the cost of health care itself where appropriate, reduce the cost of insurance coverage and make it possible for everyone who wants to insurance to get it, and increase competition and choice within the health insurance and health care industries.
