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The fourth reform is Health Care, Disability, Long-term Care and Welfare. Health care reform is first. The first requirement for a suitable health care system for the U.S. is socialized funding to pay costs on behalf of those who need health care but cannot afford it but only to the extent that they cannot afford it.
The second requirement for a suitable health care system for the U.S. is individual-by-individual cost accounting of health care expenses. Currently, high cost insureds are a burden for health insurers. Gimmicks like community rating and prohibitions against the exclusion of preexisting health conditions make health insurance affordable for high cost individuals but those costs are paid for by everyone via higher premiums. Worse, these gimmicks eliminate the financial reward for providing cost-effective care for high-cost individuals, so premiums are high and climb higher.
Instead, turn high cost individuals from a burden into an opportunity by assessing costs on an individual-by-individual basis. Providers will figure out how to provide lower-cost care, giving them profits and lowering the cost of health care for everyone.
The third requirement for a suitable health care system for the U.S. is to maximize competition, especially between providers. The current system tries to create competition between health insurers. This doesn’t work because in many communities, a small group of providers have a local monopoly on the provision of health care services; for example, rural hospitals. Any insurer wanting to offer insurance to the residents of these communities must contract with the same health care providers, resulting in little real competition. This problem can exist in larger communities too. Instead, providers must be required to compete against each other for the business of each individual patient. Only then will they be incented to provide quality service at a good – that is, competitive – price.
The vehicle used for reform will be a new program: Medicare Choice or MC. With MC, all legal residents who choose to participate in MC choose their health care providers regardless of whether or not they are young or old, rich or poor, employed or unemployed. Members of each community make their choices simultaneously in order to facilitate the movement of providers between communities. Implementation of MC is delegated to the states. Medicare Choice is a total replacement for the patchwork of health care systems for different groups that the U.S. currently has.
The major benefit provided by MC is a basic health insurance policy or BHI. The policy terms will be defined by MC. It will be no-frills but the coverage will include pharmaceuticals. The child’s deductible will be $0. The adult’s deductible will be 10% of income but may be lower for certain individuals. In addition, a small copayment will be required.
The heart of MC is the insurance auction, which gives individuals choice. It is a person-by-person auction. If every individual in the U.S. participated in MC, MC would need to conduct over 300 million auctions, one for every person. What would be auctioned? Basic health insurance plus other health insurance, as defined and offered by insurers, including extended health insurance. Extended health insurance is comprehensive like BHI but has “better” coverage in some non-trivial measure when compared to BHI. Individuals will select one BHI or extended health insurance policy. Supplemental health insurance is an add-on to BHI or extended health insurance. The auction will be conducted every three years. MC will pay 100% of the cost of the lowest-priced BHI policy as determined by the individual’s auction results. Each person will select one BHI or EHI policy plus any of the optional SHI policies. People will pay the difference in cost between the policies they choose and the lowest-cost BHI policy. Seniors can use the money they currently spend on Medigap premiums. Employees and the self-employed can use the money they currently spend on premiums.
This is an illustration of the auction results for an individual. The policies are divided into three sections. The BHI policies are in the top section. The lowest-cost BHI policy is highlighted. If the individual selects this policy, he will pay nothing because the government pays 100% of the cost of this policy. If he chooses another BHI policy or an extended health insurance policy, he will pay the difference in cost, as shown in the “you pay” column. Supplemental health insurance is an add-on to a BHI or extended health insurance policy. Because it is extra insurance by definition, the individual will pay 100% of the cost of these policies.
Competition between insurers is good but can be less than meaningful if, at the end of the day, there are only a couple or just one provider group in a community; for example, a rural area with only one hospital. If a hospital’s services are required, the patient will likely be cared for by the same providers regardless of the insurer. Real competition will come only when providers have to compete with each other. In order to encourage competition between providers, the individual-by-individual auction must be conducted simultaneously by all individuals in each community. This will allow providers, including providers wishing to move into a community, to offer their services directly to individuals in the community, bypassing health insurers. In addition, the ownership of health care infrastructure must be separated from providers in order to make it easier for providers to move to and from communities.
Beginning with the auction, if providers and insurers believe based on a person’s medical history that it will be costly to insure a person, they will bid high. If they believe low, they will bid low. Otherwise, they will not win any business or they will lose money. Consumption taxes will fund the lowest-cost BHI policy for each person.
Currently, insurers are interposed between health care providers and their patients. If this proposal is successful, health care providers will bid directly for the community’s business without using insurers as an intermediary. This will require current insurers to change their business model; for example, to help providers prepare bids for the auction; handle health care for covered individuals receiving out-of-area care; pay for expenses outside the providers’ control like pharmaceuticals and medical devices; and cover expenses that exceed expectations. These services would be tied to all health care expenses rather than only private health insurance as is currently the case.
Insurers can still participate in the auction and compete against health care providers and other insurers. For some people like itinerant workers, insurance will be the better option because they have no true home. For them, purchasing an insurance policy not tied to providers in a specific area is the best option.
Other parts of health care reform include instituting a health improvement office with the objective of cost-effectively improving people’s health. It will implement behavioral incentives like preventive care and possibly subsidize certain treatments that achieve long-term cost savings. This reform will increase medical research and development funding, require concessionary pricing for medicines and medical devices and increase FDA funding. This reform must fix the regulatory and legal framework impacting MC. First, the states should have no jurisdiction over MC because it is a federal program. Next, providers should be deregulated. There should be freedom to contract between providers and their patients. Finally, abusive medical lawsuits must be eliminated. A new compensation system should be instituted based on the premise that not every negative outcome is caused by negligence. People can purchase “negative outcomes” insurance in order to compensate themselves when there is no negligence. “Healthy baby” negative outcomes insurance is mandatory. Alleged negligence will be adjudicated in administrative law courts, or, alternatively, in arbitration. Of course, criminal acts will continue to be prosecuted via regular legal channels. A nationwide electronic medical record system must be implemented. Performance data on providers and insurers must be collected in addition to patient medical histories.
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