AMERICAN HEALTHCARE FINANCING-THE FINAL SOLUTION

This is a repost of a peice from december 2007. It is again timely as our government debates healthcare reform,

[AUTHOR’S NOTE: This is a post the Author never expected write. For nearly all of his healthcare finance and reimbursement life, he favored market-type, or mixed-market public program solutions to the failing private health care system. He never believed that he would advocate complete and exclusive government financing of American healthcare. But the conclusion was ineluctable. Below is the story of “Why”.]

The year was 1992. The Author was a healthcare attorney with an interest in healthcare finance and reimbursement. And he knew something was wrong, massively wrong, with the healthcare finance and delivery mechanism. Healthcare was grossly expensive compared to other Western nations and a large amount of Americans were uninsured. Oh, and one more thing. By commonly calculated health outcome measures, the US lagged the Western nations that delivered lower cost universal coverage to their citizens.

In 1992, the Author also believed that the private healthcare reimbursement industry would make efficiency gains to reduce, or at least restrain, the cost of healthcare. He worked for organizations that were attempting to find such solutions. But they ultimately failed. The entrenched health insurance and delivery industry won the lobbying war in Washington and went back to business as usual.

As a person that generally favors free-market solutions, the realization that government could finance and reimburse healthcare providers with greater efficiency than private sector plans was a tough realization. But it is the only correct realization.

And nothing has changed in the intervening 15 years. Healthcare is even more costly, there are more uninsured, and measurements still lag Western Europe.

AMERICAN BUSINESS PAYING LOTS MORE FOR LOTS LESS.

American business people generally entertain the conceit that they are the best business people in the world. Some are among the top. Just as many European and Asian business people are among the top, also. But America is a business-friendly country where smart people, motivated people, can sometimes succeed and prosper.
But there is one area where American business people and corporations are comically negligent. Purchasing healthcare for their employees. They suck at it. They pay more and get less than even the (god forbid) government. Yeah, really. They munch.

Government healthcare programs run at about 3% administrative costs. The crappy coverage that American business buy for their workers have administrative costs closer to 10% or even 20%. That sounds like a mobster’s skim. Some estimates place the cost of administration of the healthcare system at 25% of all expenditures.

AMERICAN GOVERNMENT IS A MORE EFFICIENT PURCHASER OF HEALTHCARE THAN AMERICAN BUSINESS. SAY IT SILENTLY A FEW TIMES. IT GETS EASIER.

Few Americans will accept the obvious, that government financed healthcare programs operate more cheaply than private healthcare plans. The reasons are very simple. We will use Medicare as the model for government-financed healthcare.

1. The Medicare plan is a well-defined and consistently applied benefit plan. Private plans vary widely in benefits and simplicity or complexity of administration. Medicare’s consistency reduces costs of administration.

2. Medicare claims submission and reimbursement infrastructure are well-established and well-tested. This robustness of the claims adjudication mechanism reduces administrative costs.

3. Medicare eligibility is consistent over time and there is not a large amount of beneficiary turnover. The eligibility criteria for Medicare are fairly straightforward. Turn 65 and you are generally eligible for Medicare. Become disabled and eligible for SSI disability benefits and you are eligible for Medicare after an elimination period. After that, Medicare beneficiaries remain eligible for Medicare until their death.

4. The Medicare membership pool is huge. It dwarfs every private plan, and the irrational hodgepodge of state Medicaid programs. It can leverage huge economics of scale to reduce costs.

In private healthcare plans, beneficiaries move between jobs and healthcare plans. Further, employers change health benefit plans quite frequently, often every three to five years. A good deal of administrative costs are spent figuring out who is eligible and who is not. For employer-based plans, eligibility changes every month with employee turnover.

NEARLY EVERYONE INVOLVED IN HEALTHCARE FINANCE, POLICY AND REIMBURSEMENT KNOWS GOVERNMENT PLANS ARE MORE EFFICIENT THAN PRIVATE HEALTH PLANS. SO WHY DON’T THE COME OUT AND SAY IT?

The statement above comes as no surprise to anyone that knows anything about healthcare reimbursement. But given the broad ignorance of the common American, few common Americans know this. And there is another catch. Few politicians wish to acknowledge this fact. Because they know if they speak the truth, the healthcare lobby will steamroll them just as it steamrolled all meaningful healthcare reform attempts in the 1990s. The healthcare lobby has its lips around 16% of America’s Gross National Product and won’t disconnect without decapitation.

This nation is locked in an ideological and political struggle from which it probably cannot extricate itself. Republicans have no plan, and will not submit any plan, to reform healthcare financing and reimbursement. They simply lie in wait to pounce on any Democratic proposals. Probably smart politics. But disastrous policy.

Democratic policy proposals recognize the hegemony of the healthcare lobby and the heft of its war chest. The proposals offered by Democratic Presidential candidates, with the exception of long-shot Dennis Kucinich (who proposes single payor), are a sop to the insurance industry. Instead of “cutting out the middleman” and expanding government healthcare plans, these Democratic proposals will funnel government funds to purchase health benefits for the uninsured. Rewarding failure. That is what America seems best at.

THE AUTHOR’S PROPOSAL.

Medicare Part E (Everyone). Medicare would be expanded to everyone in the US. No private market alternatives.

Medicare primarily covers seniors, but since Medicare covers SSI participants, it can and does administer benefits for working-age adults, including pregnancy and family planning coverage. Pediatric benefits would be relatively simple to incorporate into Medicare E. And Medicare E would also contain a drug benefit where the Medicare program would negotiate prices with the pharmaceutical manufacturers. It is that simple.

Insurance companies would not all go out of business, however. The Medicare program would continue to contract with them for claims, case management, and benefit administration services. At cutthroat prices. Halliburton and Bechtel need not apply.

Medicaid, a grossly complex mess of state systems, each with its own labyrinthine rules, would end. The Medicaid Long Term care programs would be pulled into Medicare Part E with roughly the same coverage and impoverishment requirements.

Politically impossible, but administratively simple. Universal care. Cradle to grave.

And the cost of healthcare would decrease as the administrative costs (insurance companies, brokers, agents, other assorted parasites) are eliminated. And with the government exercising monopsony power over healthcare providers, prices would fall. Providers would have no other choice. Get more efficient, or get out of the business. That is the lesson of capitalism providers never had to learn. Under Medicare Part E, they will have to learn fast.

MOST EVERY LESSON IS A HARD ONE IN THE DESERT OF THE REAL!