RTRP: CommentaramaCare Summarized and Priced

Last week we finalized the CommentaramaCare proposal. At the time, we posted both the final piece, reforming the way we pay for health care, and the conclusion. Several people have told us since then, that the conclusion got lost in being published on the same day. So today, we repost the conclusion to CommentaramaCare, which summarizes the proposal and puts a price tag on it.

The United States health care system is broken. It costs too much and achieves too little, its costs are out of control, not enough people have access to insurance, and it suffers from poor quality control. CommentaramaCare fixes each of these problems: it cuts costs dramatically, it expands coverage to 22 million people -- while still saving the taxpayer $245.7 billion, and it improves the quality of care.

Problem One: Cost Control

The primary problem with the American system is that it costs too much. The American system now eats up $2.26 trillion a year, and it is growing by the second. This problem is the result of (1) a payment system that has little incentive to control costs, (2) a regulatory scheme that generates excessive administrative costs, (3) the prescription of a vast number of medically unnecessary procedures/tests, and (4) an intrusive tort system. CommentaramaCare proposes the following solutions:

1. Fixing The Payment System

Under the current insurance system, buyers of health care (patients) do not negotiate the price of services directly with the sellers (doctors). This interferes with the parties’ incentives to keep costs under control. To solve this, CommentaramaCare proposes making health insurance more like car insurance or home owners insurance, where individuals make routine payments out of their own pockets and then use the insurance only as a form of quasi-catastrophic protection. This quasi-catastrophic coverage would kick in after a person had spent $5,000 on health care during the year, and would cover all remaining health care costs that person experiences during the year.

This change would give patients the incentive to keep costs down for most procedures, as they seek to avoid spending the first $5,000. At the same time, this system protects people from being bankrupted by serious illness. This system also should slightly reduce the insurance cost borne by the average American -- even before considering any specific cost savings that result under the plan.

To assist buyers in pricing their health care, CommentaramaCare requires providers to make available to any patient or potential patient, in advance, a price list for all procedures that they offer, so that potential patients can compare providers and seek competition. It also requires providers to use joint billing for individual procedures.

CommentaramaCare further proposes freeing providers to arrange their business and billing practices in more innovative ways, such as the fixed-price arrangement discussed previously.

Potential savings: Unknown

2. Eliminating Excessive Administrative Costs

According to Harvard Medical School, 31% of health care spending goes to pay administrative/overhead costs (this is nearly double the 16% percent spent in Canada). A reduction to even Canadian levels would save Americans $339 billion annually.

The primary reason administrative costs are so high in our system is that health care is regulated at the state level. Thus, every administrative function is repeated fifty or more times, often with different rules. Complicating this, the federal government provides health care through a half dozen agencies, each with their own bureaucracies, requirements, and rules -- many of which are enforced through state budgets.

To fix this, CommentaramaCare proposes:

• Removing states entirely from this process by replacing state regulation with one, consistent federal regulatory scheme to be organized under a Federal Medical Board (“FMB”). This will eliminate fifty state agencies.

• Allowing the FMB to issue licenses that are valid nationwide, so that providers can move freely and need only satisfy one regulator.

• Eliminating the half dozen agencies in Washington that control different (and overlapping) parts of the health care system and replacing them with one single agency and set of regulations, controlled by the Health Care Administration (“HCA”).

The potential cost savings from these changes could be as high as $339 billion.

Further, rather than trying to develop separate insurance plans for recipients of government-sponsored insurance (i.e. those currently on Medicare/Medicaid, etc.), the government would instead buy those persons the commercial catastrophic insurance, as discussed, and would subsidize some portion of the $5,000 deductible. Even assuming that the full $5,000 is provided for each recipient, this could save the government $3,700 for each of the 81 million current recipients, for a total potential cost savings to the taxpayer of $299.7 billion.

Potential savings: $339 billion
Potential savings to the taxpayer: $299.7 billion

3. Reducing Medically Unnecessary Procedures

It is estimated that $500-$700 billion is spent annually on treatments, tests, or hospitalizations that do nothing to improve health. Studies have shown the best ways to reduce these costs are to (1) change the billing method, (2) improve knowledge of the standards of care, and (3) establish effective tort control. Thus, CommentaramaCare proposes:

• Changing billing methods as outline above, which should reinvigorate the incentive for patients to control costs;

• Allowing the introduction of more fixed-price services (or other plans);

• Improving knowledge of the standards of care by having the FMB establish standards of care and disseminate them, and allowing doctors to use those as “legal safe harbors”;

• Reducing the filing of meritless lawsuits by (1) requiring all medical malpractice actions to be brought in federal court; (2) requiring plaintiffs to obtain certificates of merit before filing, and (3) shifting fees to the prevailing party; and

• Reducing outrageous jury awards by (1) eliminating punitive damage awards and (2) capping awards for non-economic harm at one million dollars.

Potential Savings: $500-700 billion

4. Tort Reform

It is estimated that an additional $11.3 billion can be saved in malpractice insurance premiums through the introduction of effective tort reform.

Potential Savings: $11.3 billion

** Certain problems are not addressed specifically at this time, including (1) medical innovation costs, (2) drug costs, and (3) long-term care costs. It is unclear to what extent the realignment of cost reduction incentives will influence those items. Thus, further reform may be needed after these effects can be evaluated.

Problem Two: Improving Access To Health Care Coverage

The second group of problems with our health care system are related to access to health insurance. Not only is there the issue of the “46 million” uninsured, but there are issues related to illegal aliens, uninsurable persons, and the problem that loss of employment currently also means loss of health care. CommentaramaCare proposes the following solutions:

1. The “46 Million Uninsured”

Of the 46 million uninsured, only 7.3 million persons fall into the category of those who cannot obtain insurance due to lack of income. Assuming the projected cost of $7,400 per person, providing these people with fully paid insurance and income subsidies (in other words -- no cost to them) would cost $54 billion dollars per year.

Projected Cost to Taxpayer: $54 billion
Additional People Covered: 7.3 million

2. Illegal Aliens

Another 9.7 million of the 46 million uninsured are non-citizens, whose health care expenses should be paid for by their country of origin. Only the federal government has the power to stem the flow of illegal immigration and to deal with foreign governments. Thus, CommentaramaCare proposes (1) that the federal government fully reimburse providers for the costs of providing such care, and (2) that the federal government seek to charge the home countries for the costs incurred.

Projected Savings: Unknown (should zero out)
Additional People Covered: 9.7 million

3. The Uninsurable

Another 5 million of those without insurance are considered uninsurable because of pre-existing conditions. CommentaramaCare solves this problem by requiring bidders on the HCA insurance contracts to accept all persons who apply, at the same fixed price, without regard to pre-existing conditions, and by prohibiting such insurers from terminating individuals who experience high medical costs.

Projected Cost to Taxpayer: $0
Additional People Covered: 5 million

4. The Link Between Loss Of Employment And Loss Of Health Care

Currently, 59.3% of Americans receive their health insurance coverage through an employer. The unemployment rate is 9.5% and growing. Moreover, the composition of the 9.5% changes every day. Thus, vast numbers of Americans are at risk of losing their insurance because they face the prospects of becoming unemployed. To solve this problem, CommentaramaCare proposes to break the link between employment and health care by:

• Making health care premiums tax deductible to the individual, but not the employer;

• Allowing the creation of HSAs wherein individuals can save unused deductible costs, which should eventually build up to cover future deductibles;

• Ensuring that the HCA plans are available to any person at any time, without regard to employment; and

• Continuing government subsidies for low-income and unemployed persons to obtain health insurance coverage.

This method should ensure that anyone can get access to such insurance, regardless of employment status.


Problem Three: Improving Quality Control

Finally, the current system exposes patients to an amazingly high risk of under-treatment and over-treatment, and results in an incredible number of preventable medical injuries. The existing mechanisms for monitoring quality control are simply inadequate.

According to a study by Dartmouth’s Institute for Health, patients had just a 50% chance of receiving the right treatment for common ailments. Other studies have shown that between $500-$700 billion in medically unnecessary tests or procedures were ordered in 2007, that nearly 200,000 avoidable hospital deaths occur each year, and that another 1.5 million preventable drug-related injuries occur each year. The costs of treating injuries resulting from preventable medical error could be as high as $520 billion per year.

At the core of each of these findings was the conclusion that the lack of clear national standards, and the fact that many doctors lack adequate information about the standards of care, were the direct cause of the majority of these failures.

CommentaramaCare proposes the following solution:

• Federalizing the oversight/regulation of the entire health care profession (doctors, nurses, psychologists, therapists, hospitals, etc.) under the FMB;

• Making the FMB responsible for licensing medical providers as well as investigating complaints against medical providers and disciplining those where necessary;

• Making the FMB responsible for issuing national standards of care, which the FMB would disseminate to doctors in the field -- the FMB also would issue best practices guidelines and would regulate continuing legal education requirements; and

• Reversing the legal changes that allowed hospitals to avoid liability for the actions of doctors who practice at the hospital, to encourage hospitals to conduct thorough oversight.

Projected Savings: Up to $520 billion


Conclusion

As outline above and as explained in greater detail in the prior posts on this topic, CommentaramaCare has the potential to dramatically improve each of the three main problem areas in the current health care system. Moreover, it does so without stripping patients, doctors or insurers of their freedoms -- in fact, each group is freed from considerable amounts of regulation.

Under CommentaramaCare, an additional 22 million people would be able to obtain health care. Yet, taxpayers should be able to save $245.7 billion, even as coverage is expanded.

The country as a whole should benefit as well. It is difficult to determine exactly what the potential savings would be, as many of the $1.3 trillion potential savings identified above likely involve duplicate costs. Still, it is clear that dramatic savings could be achieved. Also, a reduction on the order of one trillion dollars is not as outlandish as it sounds. That would reduce the amount Americans send on health care to between 9% and 10% of GNP, which would put us in line with the amounts spent by other Western countries.

If Washington wants a plan that works, here it is.

Thoughts?