In my previous post, I suggested a simpler, more equitable, less expensive way to pay for health care reform than the plans included in the bills being considered by Congress. Just require that everyone contribute an income-related amount to a dedicated pool of funds for paying insurers and health plans. In this post, I discuss what would happen to the fund that would be created.
All the payments would be deposited into a Federal Health Insurance Fund (HIF). The Fund's managers would estimate the next year's needs and set rates to create a pool large enough to cover them. Individuals would receive vouchers with which to choose a health plan that meets federal standards for covered services, appropriate numbers and types of providers, and fiscal and managerial capacity. Private insurers, which would continue to play a large role, would be paid risk-adjusted amounts so that those that happened to attract large numbers of high-risk people would not be disadvantaged by their success. That is, the HIF would pay the plans more for older people and those with pre-existing conditions than for healthy 25-year-olds. Another benefit of this proposal is that those who like the coverage they have now would be able to select the firm that provides it. Importantly, individuals would choose a plan based, not on price, but on the particular providers who are included and the quality of the plan's service.
Even with these protections, however, fee-for-service payments to providers are likely to promote higher utilization rates and, therefore, higher expenditures. How will the plans cope? Although risk-adjusted payments will provide some protection, some firms will find it advantageous to change the incentives under which providers would work. They might transform themselves into prepaid group practices on the model used by Group Health Cooperative of Puget Sound or to contract with systems whose physicians are salaried, like the Mayo Clinic. Both of those models provide high quality medical care at reasonable rates and have subscribers who are a lot more satisfied with their plans than the typical American.
Those arrangements would not be mandated but would develop naturally through negotiation between insurers and providers when it is seen as a rational response to changed conditions. The insurer's revenues would be determined by the number and characteristics of the subscribers they enroll. To take in more revenue, plans would need to attract more subscribers. To have more net income at the end of the year, they would need to provide good care efficiently. Further, since the entire population would be covered, the possibilities for expanded financial rewards are considerable - but only for plans that attract lots of subscribers and deliver good care efficiently.
Since subsidies would be embedded in the progressive tax rates, people with high incomes would pay more, not as a surtax, but as a result of the rates. Although individual behavior plays a role in the development of some medical conditions, people can't always avoid being hit by a drunk driver, developing cancer, having a heart attack, or even breaking a leg while exercising. Their access to the care they need to treat those conditions should not depend on the amount of their take-home pay. So people with modest incomes would receive the same voucher as everyone else even though they paid less.
The most important point is that these ideas will make it possible to accomplish the goals of reform at a manageable cost. Moreover, they would be relatively simple to administer. The IRS already knows how to collect taxes based on progressive rates. Insurers already negotiate with providers and, because it would be in their interest to do so, together, they would be able to develop methods for improving efficiency, quality of care, and customer service. Everyone would have the same comprehensive insurance coverage. Even the HIF role would be simple: it would determine the next year's financial needs, certify that insurers and health plans offer the mandated services and have the administrative and financial capacity to receive payments from the HIF, enroll providers, and distribute payments to them.
The main objections are predictable. For some, it will look like too large a role for the federal government. Insurers and providers might resist the need to master new ways of working together.
But for the public, not only will health insurance be simpler and more secure, but also care will be more stable and reliable. And the bill will be manageable.
If we start by thinking about what we want to accomplish (that is, cover everyone, control costs, and improve quality of care), this is just about the fairest, simplest, and least costly way to do it. All it takes is a willingness to think outside the box.
Davidson, a Boston University School of Management professor, is author of the forthcoming book, "In Urgent Need of Reform: The U. S. Health Care System."
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