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Health care reform that pleases liberals and conservatives

Congress should adopt a national version of the self-insurance now practiced by many large employers.

By John M. Rothgeb, Jr / September 22, 2009

Oxford, Ohio

The US healthcare debate can be boiled down to two important issues. The first is cost containment. The second is the conflict between the conservative aversion for taxes and bureaucracy and the liberal belief that new government programs are essential to health coverage for all Americans.

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One way to cut costs and break the conservative-liberal impasse is to adopt a national variation of the self-insurance now practiced by many large employers.

Discussion has focused on deals with healthcare providers on prices, end-of-life care, and rationing. Less attention, however, has centered on eliminating administrative waste and using payment requirements to lower demand, even though these issues could lead to substantial savings.

Over one-fourth of US health costs are for administrative overhead, which is the world's highest, according to a 2003 article in the New England Journal of Medicine.

Simplifying our system to cut administrative expenses could save 10 percent or more. Additionally, a RAND Corporation study showed that requiring people to pay the full cost of health services until a deductible is met reduced visits to health professionals without incurring serious consequences, even for at-risk patients.

Self-insured employers use private insurance companies to manage their health coverage plans and to negotiate with healthcare providers for discounts from their list prices. But the employer, not the insurance company, pays the bills for health services used by employees. Insurance companies make their profits from their fees as managers.

The value of self-insurance for healthcare reform is found in how its incentive structure differs from conventional insurance. Conventional insurance companies use the proceeds from premiums to pay for medical care for policy-holders and therefore attempt to avoid high-risk enrollees. With self-insurance, the insurance company has no such incentive because it acts only as manager. Instead, the employer bears the costs of medical treatments.

With national self-insurance, the government would assume the employer's role of shouldering the risks of expensive care. It would pay private insurance companies (now health management companies) management fees depending on how many people selected their plans.

To fund the system, all Americans would pay an income-based premium sufficient to care for those facing catastrophic problems. These premiums would be withheld from income and put in a national account to pay healthcare costs.

Additionally, individuals would pay for their own healthcare needs until the bill exceeded a deductible representing a specified percentage of their income. Since the premium and the deductible would be income-based, they could be reduced for the poor, abolished for special cases such as members of the military and their dependents, and capped to eliminate excessive fees for the rich.

All Americans who paid their premiums would be covered in a system run by private management companies much as what is already in place with the accounts of self-insured employers.