I’ve been having a rather unproductive conversation on Twitter with some well-intentioned folks, doctors, and specifically, Dr. Neu, who wishes to fix healthcare by granting the majority of the healthcare financing mechanism to the Federal Government, partially filtered through individuals in the form of a Personal Health Account (PHA). The plan is a hybrid, which gives money to Americans, on a sliding scale of income, to spend on healthcare, appeasing Conservatives. It’s kind of like an HSA, but not so much, in that it requires all Americans to save a minimum of $2k per year for healthcare expenses; savings is not optional. When or if that money gets exhausted, a high deductible Medicare for All plan kicks in, with a sliding scale deductible, appeasing Liberals. The basic idea behind the plan is that Americans will demand price transparency, and spend their Personal Health Account more wisely than any insurance plan, driving down overall healthcare costs, while greater access to primary care will ideally stave off high healthcare costs down the road. Dr. Neu counts on the theory that individual’s mandatory $2k of savings per year will build up, eventually replacing the need for people to dip into Medicare for Catastrophic for All. My experience with HSA savings suggests that $2k per year will quickly be used for prescriptions and claims realized by heavy utilizers. That’s not to say that PHA won’t prevent some from the need to dip into Medicare, but, in my opinion, the subsidized $2k per year is probably not enough for the heavy utilizers, while the mandatory $2k is far too much savings for the bottom 50% of utilizers who rarely seek care (see chart below). Individuals will be forbidden, under Dr. Nue’s plan, from utilizing their lifetime of PHA savings for Long Term Care services. Dr. Neu’s plan is a universal plan, covering all Americans based on a sliding scale of income.
Here is a link to Dr. Neu’s plan:
Below, I will comment on my opinions of the above mentioned plan, trying to remain as non-partisan as I possibly can. Please note that these comments address solutions for those who cannot obtain health insurance via an employer and people who obtain coverage via small group employers. Large employers operate insurance plans differently, and there are already solutions in this realm that are doing a phenomenal job of lowering healthcare costs.
We’ve had Health Savings Accounts (HSAs) in existence since 2003. The hope was that consumers would demand transparency during the high deductible phase of their compatible health insurance plan. Unfortunately, price transparency has never been realized, due to secret contracts between health insurance plans and healthcare providers (networks). Frustrated consumers have struggled to access healthcare pricing information, so they might be able to make informed decisions about how to spend their saved healthcare dollars.
Dr. Neu’s proposal predicts that PHAs will solve the transparency problem…that consumers, having control over a Personal Health Account, will do the best they can to spread those dollars as far as they can go. With catastrophic “insurance” being controlled by government, or as Dr. Neu calls it, “Medicare-for-Catastrophic-for-All”, insurance networks will disappear, hopefully allowing consumers to access pricing information readily.
While I agree with Dr. Nue that this approach may facilitate transparency, I have grave reservations about giving so much control to the Federal Government in terms of paying for healthcare…both in the subsidies provided for PHA, and in the claim payments for catastrophic medical events. I can foresee Government trying to control the prices of services purchased with PHA dollars as well as with Medicare for Catastrophic for All. Price controls are dangerous, and inevitably lead to rationing. Dr. Nue hopes for a Medicare defined, “allowable amount” rather than price controls, where patients would be balance billed should they choose a provider that charges more than Medicare allows. But what if all the hospitals in a given area charge more than the “ allowed amount”? Who will protect the consumer from price fixing? If the government tries to prevent price fixing by forbidding providers from balance billing, this will create shortages, and predictably lead to rationing.
There might be a better way to bring about price transparency without the need for Medicare for All. Regulation could forbid insurers from entering into secret contracts with healthcare providers. As a result, indemnity insurance plans would arise. Indemnity insurance plans could pay claims based on market prices. Here’s how:
Let’s say a plan pays at the 80th percentile. This means the plan will pay 100% (after a given deductible), of the cost of 80% of healthcare providers’ services in a given geographic area. 20% of healthcare providers may charge more than those that fall in the 80th percentile. If a patient happens to see one of these providers, they will be balance billed. Indemnity dental insurance plans work in this manner, and they do a fairly good job of preventing price gouging.
States, insurance companies or third party administrators could provide routinely updated lists identifying which providers in the area fall within 80th percentile, 90th percentile, or 100th percentile, etc. 100th percentile plans would be the most expensive…Doctors and Facilities won’t want to be in the 100th percentile category, because most people will want to buy 80th percentile plans, so these providers will lower prices to get on the 80th percentile list….this will start price wars among healthcare providers driving costs lower and lower.
If healthcare providers try to price fix, this will drive up the cost of insurance, resulting in fewer patients. Price fixing will be detrimental to healthcare providers, thus market forces will prevent it from happening.
Instead of requiring individuals to save $2k per year per family member as proposed by Dr. Neu, let the consumer purchase affordable, deregulated, indemnity style insurance with the deductible of their choice. Leave HSAs intact, but expand them, so that they can be used to pay for services, such as Direct Primary Care…Savings should be optional, never required!
Secret Networks and lack of price transparency are at the root of the problem when it comes to America’s health care costs. Below is an image which clearly depicts this problem. Costs are displayed on the chart as a percentage of Medicare, for reference:
What About the Cost of Insurance?
Theoretically, if healthcare providers are competing for business, as described above, Heath insurance prices will come down, as there is a direct correlation between the cost of care, and the price of insurance. We must also deregulate insurance, and remove some of the mandated coverages that drive up the cost of insurance, such as contraception, gastric bypass surgery and infertility coverage. Coverage for these services and maternity should be optional, at an additional cost, as these are foreseeable medical costs, and therefore, uninsurable, based upon the true definition of insurance.
But How do we Protect Consumers Who Have Pre-Existing Conditions?
I wrote about Pre-Existing Conditions in a previous post, but I will re-print possible solutions here:
Politicians need to come together in bi-partisan support. Implementing the following simple compromises, I think we could easily appease those who wish to have a form of guaranteed coverage for those with pre-existing conditions, while still preserving the element of risk that keeps insurance affordable:
A Waiting Period
In my opinion, a short pre-existing condition waiting period of six months to a year would be a very good deterrent to prevent people from trying to game the system. Bring back the waiting periods, and we can still have guarantee issue (guarantee issue means insurance companies are forbidden from declining an applicant). Waiting periods can be waived with proof of continuous coverage.
Dental insurance plans impose waiting periods, and they work quite well. Waiting periods are not imposed for preventive care, but a person cannot join a dental plan and get a root canal two days later. With dental insurance, there is a one year waiting period for major dentistry. A person must have procured the insurance and paid into the plan for one year, before the dental insurance will pay anything for the root canal. This protects the insurance company from adverse selection (buying coverage only when it is needed). Something similar could be put into place for health insurance to prevent people from trying to game the health insurance system. Granted, there will be some who have to wait….but if we do a good job of educating the public about the rules, most people will comply, and maintain continuous coverage to avoid waiting periods.
Reinstating waiting periods would immediately cause the price of insurance to drop, and would be a simple compromise to allow people with pre-existing conditions to still have coverage, with the understanding if they don’t remain covered, there will be waiting periods should they try to re-enter the market.
Waiting periods would be a better incentive than the tax penalty for staying insured, and they would eliminate the need for the individual mandate.
High Risk Pools
Prior to the ACA, almost every state in the union offered “uninsurables” coverage through a state sponsored high risk pool. These pools were funded in part with tax-payer dollars or fees assessed on all insurance plans. The coverage was better than anything available on the market today. The premium balance was paid for by the insured on a sliding scale of income. If we took this same concept and required every state in the union to offer such a product, the Federal Government could grant money to the States to use in addition to local funding, to keep the insurance affordable for those who either cannot qualify for a personal insurance plan or who do not want to accept a medically underwritten offer. Of course, if politicians could agree on a waiting period, we wouldn’t need high risk pools.
Financing a SafetyNet for the Poor
Assuming the above changes bring about a reduction in the cost of healthcare and thus the cost of insurance, safetynet coverage will only be necessary for the very poor, not the expanded Medicaid coverage or subsidized insurance model we have today. By very poor, I mean those living below 100% of the Federal Poverty Level. Medicaid should have an asset test, as well as an income test. Asset testing was forbidden by the Affordable Care Act, resulting in much fraud. Several think tanks, such as The Heritage Foundation, have discussed the idea of encouraging states to enable Medicaid patients to pay doctors directly for routine medical services. Congress should ensure that states have the flexibility to allow for direct payment in Medicaid, perhaps through establishing Personal Health Accounts as suggested by Dr. Nue. Dr. Neu’s proposal could potentially work well at the micro level within certain consumer populations, such as those that are already socialized: Medicare & Medicaid. But to socialize the rest of our system is a dangerous risk. The goal is reduce taxation for safety nets to a minimum, by reducing the overall cost of care while preserving liberty. At this point, it would be difficult to predict how much savings could be realized with these changes, but I do believe cost reductions would occur by eliminating insurance networks.
Discussing Healthcare Reform on Social Media
I’ve found that discussion of healthcare reform on Media that allows only short statements is not only futile, but becomes so adversarial that folks are unwilling to consider any alternative options other than the one they are fixated upon. Without discussion, compromise, facts and sharing of information, we as a country will not be successful as a nation, but we can do this, and we can do this the American way, which is and should be contrarian to what “other developed countries” do. We can do better, while preserving the freedom and liberty that America was founded on.