Health care reform that pleases liberals and conservatives
Congress should adopt a national version of the self-insurance now practiced by many large employers.
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.
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.
The role of the private management companies would include setting up networks of providers (basically the PPO, HMO, and POS plans that currently enroll over 80 percent of Americans with private insurance). Negotiating discounts with healthcare providers, and competing to enroll individuals in their coverage plans.
Since Americans could choose any private plan they wanted and would pay an income-based deductible, health management companies would have an incentive to negotiate the lowest possible prices with healthcare providers.
They'd also want to emphasize convenience and quality to attract more enrollees and garner greater profits.
For example, a healthy young construction worker might look for a company offering steep discounts on basic medical services. An accountant with a tight schedule might select a plan that included 24 hour stop-by clinics in shopping malls, and a teacher needing a hip replacement might seek a network with a trusted surgeon.
Emphasizing individual choice would make these and other options available. Hence, the envisioned system would help control prices while accommodating both the conservative desire for private sector participation and the liberal demand for universal coverage.
National self-insurance also makes it possible to streamline our current system.
First, since the new program is envisioned as universal, it would make existing government health plans such as Medicare and Medicaid redundant, and they could be phased out. The Congressional Business Office estimates direct government spending for healthcare is 7.5 percent of the economy, and Harvard University researchers suggest that indirect expenses push the total over 9 percent.
Canceling programs eliminates administrative overlap, saves money, and lowers taxes.
And, under the new system, employers would stop furnishing health insurance to workers and convert the value of that coverage to wages.
Since wages grow more slowly than health-insurance premiums, and employers can control wages more easily than healthcare costs, this is a deal most firms would embrace. For many workers, this wage increase would cover their income-based health premium.
Liberals might argue that it would deprive seniors of Medicare. But since government health programs would be phased out over a long period of time, current Medicare enrollees would be unaffected.
Conservatives might object that the proposed plan would put the government in charge of our healthcare system. But the government would only play the role of premium collector. The government would not manage the system, set prices, or decide upon treatments.
Healthcare professionals working with the private management companies would do these things.
Adopting national self-insurance cuts costs, creates a public-private partnership that bridges political differences, and sets the foundation for lasting reform.