The following is an article reprinted here by permission of
Dr. Harvey S. Frey, MD PhD JD whose online organization is called
the HEALTH ADMINISTRATION RESPONSIBILITY PROJECT (H.A.R.P.) with
its website at: http://harp.org. We provide this article as an example
of one option which would remove many of the problems in health
care which result in poor patient care due to the health care
industry's current bottom-line mentality which pits profit
against patient care.
A New Model for Health Care Insurance
Few will deny that the U.S. health care system is in serious trouble, but few will agree on the form of an optimum replacement system. There are three major models currently before policy-makers: Indemnity insurance with fee-for-service, managed care, often with capitation, and government-run, "single payer", incorporating either of the first two models. All of these have serious failings, and I here present a fourth model, "risk-sharing fellowships".
Without specifying the particulars in which each of the current models falls short, I shall start by outlining the desiderata of an optimal system. It is probably impossible to simultaneously completely satisfy all of them. The design of a system consists of giving reasonable weights to these factors, and combining them into a workable organic synthesis. Most political disagreements over health care result from political groups assigning a weight of one to one of the desiderata, and zero to the rest. I present them in the order of my own subjective weights.
1. High Quality care
2. Humane care
3. Low cost
5. Universal Coverage
I believe that the above constraints can best be satisfied by a competitive network of a new kind of entity: fully democratic, cooperatively- owned and managed Risk-Sharing Fellowships (RSFs), paying fee-for-service to independent competing health care providers, with government collecting and distributing the premiums, supplementing the premiums of the poor, and setting standards for the RSFs.
A Risk-Sharing Fellowship is a private cooperative insurance company, entirely owned and controlled by its policyholders, who vote directly for all its officers, their salaries, and the terms of insurance policies issued, without the interposition of a Board of Directors. It is not a Republic, but a true Democracy, and its officers and employees must also be policyholders, and subject to the rules they implement and enforce. RSFs may be set up by any group, such as fraternal organizations, churches, towns, or businesses, but will be open to all, and will typically contain several thousand members.
Since the officers will not generally be insurance professionals, the RSF may, indeed must, contract with outside actuarial firms to assure that the policies adopted and the premiums charged comply with government mandated rules of minimal coverage, solvency, and capitalization.
In addition, each RSF must carry two kinds of reinsurance, purchased from competing conventional insurance companies: a very high-deductible catastrophic coverage for each of its members, and an overall reinsurance to cover claims in case of insolvency. The premiums charged for this reinsurance will obviously depend critically on the policies adopted by the RSF and its reserves, and will thus serve as another discipline moderating well-intentioned but risky decision-making. With such reinsurance, there will be no danger in making shares in the RSF non-assessable.
If the RSF makes enough profit, some will be retained to build up reserves, to decrease reinsurance costs. These reserves can be invested in government-approved investment vehicles, with that income further reducing premium requirements for members The amount that a for-profit insurer would ordinarily pay out as dividends, thereby removing it from health care use, is instead paid into each member's medical savings account (MSA), keeping it in the system, and recapturing the 25%-30% otherwise drained from health care.
These MSAs may be used for any medical purpose: co-payments,
deductibles, even to decrease subsequent premiums, or for
otherwise non- covered medical procedures. They follow a member
when he changes from one RSF to another, and could be donated or
bequeathed to someone else's MSA. They are immune from
judgments, except for medical expenses. They can be invested by
the member in approved investments, and of course would not be
taxable. Since these MSAs will be perceived as having real value,
they will provide an incentive for the members of the RSF to
limit their desire to maximize benefits, and instead give some
thought to efficient management.
These RSFs compete against one another for members, on the basis of both benefits and profitability. As successful RSFs grow larger, they become more efficient, as the statistical law of large numbers reduces their risk, and therefore their reinsurance expenses. This competition prevents the arbitrary acts possible to a single payer.
Members may select RSFs annually, based on each plans' public explicit and unambiguous disclosure of coverages and exclusions, binding for the year.
Everyone must belong to an RSF of his choice, which he will indicate by a check-off on his annual federal income tax return. The IRS will add the amount of that plan's premium to his tax bill, and forward it to the plan. Since the return will demonstrate the filer's income and dependents, the IRS will easily be able to identify those whose income falls below a prescribed level, and will be able to supplement their premiums. In this way, everyone who files an income tax form will be covered. No doubt, those who receive such government supplementation will have some lower level of choice of plans than those who pay the entire premium. This system also takes care of the problem of the well-off person who nevertheless fails to buy health insurance, and then presents for health care for himself or his family at government expense. If a filer fails to select a plan, the IRS will select the closest cheapest plan for him.
Each plan pays fee-for-service to health providers who charge what they like, controlled only by competition. Patients are free to select any provider, paying any excess over what their plan allows, or bargaining for lower fees.
Every plan must require mandatory proportional (not flat-rate)
co- payments. The patient is the one best able to control health
care costs. Once a flat copayment is paid, there is no further
incentive for that patient to be concerned about increased costs.
A proportional co-payment maintains patient oversight for
expensive procedures. These co-payments are capped at a level
determined by the patient
If a provider offers to waive a co-payment, patient cost-saving incentive is subverted, so this practice should be made impossible. This is done by having the RSF pay the full allowed amount to the provider, and collecting the co-payment from the patient or his MSA. This system avoids the necessity for policing provider-patient transactions. Any excess payment agreed to by the patient will be paid directly to the provider, possibly by a check drawn on his MSA.
Needless to say, all premiums and co-payments must be fully deductible to insureds. It is irrational to allow medical deductions to employers but not to insureds, especially since these private expenses relieve the government of the necessity of paying for the care itself.
As in any human endeavor, RSFs may be afflicted by incompetence and fraud, so government regulation is a necessity. Government sets minimum levels of solvency and good management. It sets actuarial and risk standards. Since medical records must be confidential, RSF members can't be allowed to review the books and records. Therefore strict audit and bonding requirements must be established for all RSFs.
1. High Quality Care
2. Humane Care
3. Low Cost
5. Universal Coverage
6. Alignment of Duties and Interests
THE PROBLEM OF ADVERSE SELECTION
There is one problem with the above system which is particularly difficult. Of course, no existing or proposed system has a solution which satisfies all the desiderata, either.
RSFs which have a more liberal policy toward a particular expensive disease (such as AIDS or Cancer) than most others, will tend to attract people who already have that disease at each annual RSF selection period. These new members will cost far more to treat than the premiums they pay, since the disease is pre-existing. There are several possible solutions, but none which satisfies all the desiderata, to wit:
1. Exclusion of pre-existing diseases
2. Government mandated uniformity of coverage
3. Assigned risk for pre-existing diseases
4. Pools to treat certain diseases
5. Make patients live (or die) with their initial choice of
6. The solution which seems the fairest is to allow a patient with a condition which arose when he was a member of an RSF which didn't cover it, to switch to an RSF which does, upon the payment of (say) 10 years difference in the annual premiums of the two RSFs, and to pay a heightened copayment for (say) one year. This should be enough of an incentive to prevent some RSFs from taking advantage of the largesse of others more generous with benefits, yet doesn't lock individuals out of needed treatment.
OBSTACLES TO IMPLEMENTATION
Policy is determined by the self-interest of the most powerful players, and this plan, unfortunately, gores the oxen of most of them. It cuts out direct government involvement, and the many bureaucrats who would be out of a job will lobby vigorously against it. It cuts out most direct insurance, so the private insurance and managed care industries will surely use their massive wealth to defeat it. Health care providers may not welcome the return of real competition to their practices. Many doctors are rabidly opposed to government involvement of any sort, subscribing to a radical libertarianism, except when the government offers to pay part of their bills. The inclusion of the IRS, and government subsidization of insurance premiums for the poor will surely spark their violent opposition. Control freaks will complain about the power given to each plan to set its own policies. The wealthy currently covered by Medicare will complain about the means-testing of this plan. Only potential patients will be for it, and they have no political clout.
So it is unlikely that the plan will ever be implemented. However it may serve as a mirror to reflect the failings of the current systems, and to remind policy-makers that a rational design is possible.
To contact Dr. Frey about this article or the Health Administration Responsibility Project, you can e-mail him at: firstname.lastname@example.org.
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