Everybody has an opinion of what is wrong with the health care system. Most solutions that have been proposed just tweak the current system. I think that this is a naive view. Concepts like "Public Option" have been bandied about but not defined. To me the system is so messed up, there's no way to patch it into shape. A bold new change is needed.
During the Democratic Primaries in 2008, when the Obama and Clinton health plans were in the spotlight, I kept having a nagging feeling that neither plan was the paradigm shift we need. I found that I was having a hard time describing what I really wanted the country to do about it. As a result, I embarked on a journey to understand what was wrong with the health insurance industry and why I felt that way.
Step below the fold into my makeshift insurance tutorial classroom where I explain the system we have today and conclude with a radically different solution that totally redesigns how health care could be managed in the future.
[Disclaimer: The insurance business is extremely complex. I have intentionally simplified and/or omitted some parts of the process.]
I have had the dual ‘pleasures’ of working for medical insurance companies for more than a decade, as well as representing the recipients of health care during my 50+ years of life’s ups and downs. I’m not satisfied with my health care insurance and I don’t personally know anyone who is. We’ve all heard the horror stories, so I don’t need to repeat them here.
In order to posit a fix to the system, I realized that I had to understand what the current situation is first. What follows is a synopsis of what I discovered.
What we want:
Boiled down to its basic essence, all people just want to be healthy. And when we aren’t, we want medical care to restore us back to the best health possible for our situation. That’s it.
Instead, we are saddled with a complex organism that complicates health care in our country.
How it works – this is my interpretation. Here is another place to read up on it:
Premiums:
• If you are lucky, employers (or the taxpayers - in the case of Medicare) pay all or part of the premium to the insurance company. The percent of the population with this type of coverage has been declining for years. See my previous post for a case against employer-based health insurance here
• And/or You pay all or part of the premium to the insurance company,
• Or you do without health care coverage.
Reserves:
Premiums are used to pay claims and overhead. Any money left over is regarded as reserves. Reserves are used as a cushion against the times where incoming premiums are not enough to pay all of the incoming claims.
Profit:
In the US, insurance companies can be "for profit" or "not for profit". If the insurance company is "for profit", shareholders and / or owners get dividends from the profits. The media are full of examples where profits are used to make donations to politicians who are more likely to be grateful and vote for legislation supported or sponsored by the Insurance Industry.
Health Care Funding:
Other than the self-contained health insurance model (think Kaiser Permanente), the insurance company does not directly fund medical facilities or staff. The insurance company only pays claims. More specifically, they only pay however much they decide to pay on a claim.
Over the years, a game has developed. In the interest of saving costs, the insurance company developed "Usual and Customary" fee tables. The intention was to pay all providers the same fees for an equivalent service. Providers, feeling the pinch and dealing with the rising cost of providing the care, devised ways to bill for extras like bandages, aspirin, and other incidentals. Then the insurance company spent huge amounts of money to develop computer programs that detected these costs and removed them from the amount they would pay on the claim. Then providers started "bundling" those little costs into a generic cost for a procedure. Responding, the insurance company then spent huge amounts of money to develop computer programs to "unbundle" costs and remove the extras. Each side is spending vast resources in order to maximize their profit, none of which is a penny spent on health care. One has to wonder how much of these non-productive expenses are part of the "exploding" cost of health care!
Provider Services
Hospitals, clinics, labs, pharmacies all provide health care services. They are businesses that supply a portion of health care needs. In order to stay in business they need to make enough money to pay rent/mortgage, taxes (if applicable), buy and maintain appropriate medical equipment, and pay wages and benefits to themselves and their staff. They are not motivated to keep patients healthy, they are more motivated to generate invoices to insurance companies to generate income.
Provider Billing
Billing and Accounts receivable are a big part of the business. Providers have to conform to legal and insurance standards when billing. They need to understand and use proper codes to not only identify patient diagnoses, but to control co-pays, deductibles, down payments, insurance billing, etc. In addition to clinical/medical software to document patient health, there are many medical office software products aimed at medical business offices. This is an industry in itself, and it employs a lot of people.
Medical Services
[If you don’t have insurance or the ability to pay, you will most likely be turned away. (Heartbreaking examples can be found elsewhere in the media.)
Okay, so you are sick, hurt, or ready for your annual checkup and you go to a provider.
Here’s the familiar drill:
- Arrive early to fill out paperwork
- Check in at desk, showing proof of insurance.
- Pay co-pay or deductible if appropriate
- Fill out paperwork
- Wait for someone to escort you to the correct room
- Talk with Assistant about situation
- Wait for provider
- Provider visits, performs exam or service, etc.
- Provider optionally gives instructions for self maintenance, follow up appointments, prescriptions, etc.
- You check out, and make next appointments, go to pharmacy if needed
Behind the scenes, the provider’s staff must carefully document your visit and handle your insurance coverage. They invoice the insurance company and hope for full payment.
When the insurance company receives the invoice, the billed amount is compared to formularies and rules to determine what they will pay. Then they send an "Explanation of Benefits" or EOB to the insured showing what was billed, what they consider the service is supposed to cost, apply deductibles (if appropriate) and indicate what they will pay the provider and what the insured is responsible for paying.
After the insurance pays the provider, the provider must then adjust the invoice for what the insurance company said was not allowable. If applicable, they subtract down payments, co-pays and deductibles and bill the patient for the remainder.
Occasionally, the Insurance company denies the claim altogether. They use excuses such as the service was experimental, or you weren’t the right kind of sick to receive the care being billed for. In these cases, you can appeal, but that is another (expensive and aggravating) story for another day.
In a nutshell, this is the process we all know and hate. In Sicko, Michael Moore takes you around the world looking at other ways to keep people healthy. After the whirlwind tour, I was left feeling validated that the US had the most unproductive way to keep people healthy. I also felt that there was no single model that stood out as the best solution. There were valid criticisms about each model. However, I was drawn to the models that applied to every citizen, not just the wealthy or employed.
In reviewing my analysis of the health care process, I was struck with the notion that the insurance industry has hijacked our health care system. They are the ones dictating what services are appropriate for specific diagnoses. They are the ones dictating what the service should cost. They have huge computer systems and departments of employees that process claims. Providers must have staff dedicated to submitting claims and adjusting payment based on the insurance’s desires. After a patient leaves, it takes staff an average of five times touching the patient’s accounts to fully account for the service. What a waste of energy! Our system is totally broken.
Insurance is defined in Wikipedia as:
... a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
Risk?? Loss?? Does this have anything to do with staying healthy? My interpretation is that the risk is whether or not you are lucky to stay healthy and accident-free or not.
What if there were no insurance companies involved in health care? I wonder.....
Above, I described the current unproductive Health Insurance model. Let us now explore what a health care system would look like if there was little or no insurance component. What if we can reduce or eliminate the need for health insurance? There would be no insurance companies calling the shots, the medical professionals would do it – as it should be.
We’ve all heard the straw-man arguments that use a hard-core smoker with cancer as their excuse not to support universal health care. Actually, each and every one of us is a coin-toss away from a catastrophic illness or accident. Perhaps cancer is lurking undetected in the "healthy" person using this argument. Despite the advances of medicine, we don’t know whether or when we may be struck down with a disabling medical condition.
Home insurance is a good example of insurance that follows the definition above. In any one period of coverage, the great majority of us will pay in but never need to make a claim. You can choose not to have insurance. But if something bad happens while you are uninsured, you either pay for the damage repair yourself, or you live with the un-repaired damage (if possible), or in the worst case, your house and belongings are lost and not replaced. It’s your choice to gamble or not.
Many argue that health care is more like maintaining your auto. It’s your responsibility to pay for oil changes and tune ups, or you suffer the consequences. I don’t agree. I think police protection is a more apropos analogy. We don’t need police protection every day, but when we do, it is available. If you have the misfortune that someone vandalizes your house one day, you need to file a police report. Would you file one if you had to pay a fee? If the police department assessed a fee only for services rendered, they are punishing the victims, not the criminals. In its wisdom, our society has evolved a fair way to provide Police service without punishing the victims - taxes.
I equate being healthy with being lucky not to have been violated by a crime. Most illnesses are not the fault of the ill person. Most accidents are not self-inflicted. Even people with healthy lifestyles sometimes are involved in accidents, or get very sick. Why must we gamble with our luck?
Why are we having to choose whether to have health insurance or not? Personally, I believe that health care is a right, not privilege. There is a lively debate here on Kos about whether this is true or not. My opinion is that if you don’t have the ability to get health care when you need it, then you are being denied the "right" to get it. I think it is unconscionable that in our country, people are turned away, or don’t seek care because they are not covered.
So if health care is a right, and it is practically luck that keeps one healthy, why are we using the insurance model?
There are several components of health care:
• Routine checkups (annual exam, mammogram, Immunizations, colonoscopy, prescriptions, monitoring an existing condition like diabetes or asthma)
• Urgent care (broken bones, stitches, appendectomy, flu, pneumonia, birthing)
• Acute care (heart attack, stroke, accident)
• Long Term Illness (Cancer, HIV, Lou Gehrig's Disease (ALS), multiple sclerosis, Alzheimer’s, organ transplant)
The odds are favorable that any person is likely to have the need for Routine, Urgent and Acute care at any time. Only a small percentage of the population is injured or is diagnosed with a long-term or serious disease. Yet it is this population that use up the most of our medical care funds. "In the US the 1% of the population with the highest spending accounted for 27% of aggregate health care spending in 1996" according to Wiki. The irony is that any person could end up being in that 1%. We all think it won’t happen to us. But ask any of those folks, and they will say that they didn’t ask for the expensive disease, they just got it. That’s the daily lottery we don’t like to think about.
At first, I thought that we could divide up health care into two pieces, Long Term Care could still be insured, but the rest would not be insured, but be treated as ordinary cash flow based business. But the more I think about it, I think that all health care can be provided under the same operating plan.
My idea is to eliminate the insurance component. If the entire population is in the pool, the risk is totally evened out. In this model, medical providers are on staff and are responsible for keeping their patients healthy. There is no more incentive to provide health care based on how much money can be paid for the service.
Here’s how it might work. Actuaries should be able to reliably predict the average cost per person to provide Routine, Urgent and Acute Care in a given period. Providers get a reasonable salary which is, not based how much care they actually give. Instead they are paid per person they have responsibility to treat. To illustrate the idea, let’s say a provider gets paid $100 per month per patient, and assume they can only see 100 patients a month. However not every patient comes in every month. Let’s say a patient comes in 4 times a year. Assume that the provider can handle 1200 patient visits a year. Divide this by 4, and the doctor can handle a pool of 300 patients. At $100 per patient per month, 300 patients would generate a regular income of $30,000 per month to the provider and their staff. This is reliable income. If the provider can keep their patients healthy so that they don’t need to come in as often, the provider does not lose any money. Instead, they could take an extra day off to take a class and keep their skills current.
My point is that this or a similar approach to funding health care would involve no insurance. It’s more like a co-op. Everyone in the co-op can use the services they need when they need it. Every citizen will be in the various co-ops. Every citizen can get health care whenever they need it without paying anything to get in the door.
So who would pay the providers? How would it be administered? Given my position that no one can take their good health for granted, I believe that taxes should be collected from every citizen on a progressive sliding scale from 0 to some percentage of wealth based on ability to pay. It would be free for children, the disabled, and people living at or below the poverty line. Since businesses benefit from healthy employees, there would also be a business tax on a sliding scale for businesses based on their profit.
To keep medical costs in check, there would be a non-profit board (consisting of Medical Professionals) created to regulate and monitor costs in the system. This board, not the government would regulate the system. The sliding scales must remain adjustable. New technology will affect costs as well, but this board will be tasked to keeping costs and fees balanced and reasonable.
In normal times, it would be unimaginable to suggest that we tear down an institution which provides employment to so many people. I believe that’s why Obama and Clinton were not promoting it during their campaigns. I am reminded of the old Chinese saying that "in chaos lies opportunity". We have an economic crisis which needs government money to stimulate it. And we have a need to totally re-structure our Medical Care system. There seldom are such times where the status quo can be changed radically. The moment is right. Why don’t we use government stimulus money to complete a total restructuring of the medical care business? Although many jobs would be eliminated, many new ones will be created.
Yes, I am recommending that insurance companies be replaced by a totally new Health Care Management system. As in other foreign countries, they can stay in business by selling supplemental insurance. However, with my plan, the average citizen should not need to have supplemental insurance, because the system I outline below will cover them just fine.
I don't presume to have a new plan all designed out. Below is one possible process for creating the new Health Care Management plan that will use stimulus money to design the new Health Care system by Blue Ribbon committees filled with individuals whose only agenda is to develop an excellent US Health Care plan. They will be charged with the following tasks:
• Design an equitable way to assess payment from all citizens and businesses to fund public health care. (Allow the ability to purchase additional health care, if one wants to – but the base system must provide reasonable health care options to all citizens without any "gaps")
• Design an equitable way to pay providers a reasonable wage that is dependent on incentives to keep patients healthy and out of the hospital. But it must cover the unfortunate people that have the severest conditions with the highest cost of care. After all, we are all one statistical moment away from being extremely sick. And no one should be consigned to death or misery because of their condition or wealth status.
• Design a reasonable step-by-step plan to phase out the current insurance coverage and migrate to the new one in less than 10 years
• Target the uninsured first, and then migrate the rest out of the current system.
• Provide legislation that facilitates the changeover.
• Use Stimulus money to pay for the changeover which conceivably will take many years to fully execute.
• Use Stimulus money to retrain insurance professionals that no longer have a job due to the changes. Society should provide new opportunities for those it displaces in the name of better health care.
• To prevent bloated government, I propose that we can find a way to regulate the new industry without having the government actually running it. Perhaps by peer groups or other methods used by countries with successful health care systems.
I don’t claim to have all the answers now, but this proposal outlines a plan for creating a 5-star health care system with the additional effect of stimulating the economy. It will not leave people unemployed when their current function goes away. In the end, people will have their wish, to stay healthy, and if not, they get the care they need without dying, going bankrupt, and/or becoming homeless.