ComingTogether Plan

Most current public discussion of health care reform omits our ComingTogether Plan option — by painting a false dichotomy between what we have now and government run health care. We offer a third, more balanced, choice.

Health care as it is in the U.S. is one of the finest health systems in the world, when measured by outcomes and availability. The problem is costs. Within the U.S. economy, we have a third-party payment system whereby individuals and employers purchase insurance that allows patients to receive health care services that are in turn paid for by insurance providers. For the elderly and disabled, the government assumes the role of the insurer, using funds from payroll taxes from current workers (in addition to premiums) to pay medical providers for care provided to those currently enrolled in Medicare, Medicaid, and other public healthcare programs.¹ Notice the interest of government and insurance companies in dealing with the cost problem. It should be unsurprising that these entities would recommend rationing of care.

Rationing: Not If, But How

However, the “elephant in the room” is that health care is and will always be rationed since there are not unlimited resources available for it. The current system tries to deny that, and many would say that any system that rations care is inappropriate due to respect for human life. Yet the current system includes rationing in the following ways:

1. Cost borne by the consumer: On the average, the patient (or the patient’s family) pays about 13% of the health care costs out of pocket. Therefore, for the average medical expense, they purchase $100 of health care if it is worth $13 to them. If it is worth less, they will not buy the care. Of course, it is rare that a particular treatment or test would fit this average profile, but consumers do decline services that, in their judgment, are not worth what it would cost them personally.
2. Government benefits are not available for certain procedures: Oregon has a list of procedures ordered by priority, and they only pay (through Medicaid) for highest priority procedures down to what they have money for. That leaves a bit under half of the procedures on the list unavailable through Medicaid. Medicare can be said to “ration” care as well, since there are certain procedures that can be handled more safely and for less cost if done at home, but Medicare will only cover them if done at a hospital.
3. Government benefits are also rationed by indirectly restricting the number of providers that will accept the benefits. How? Government programs specify the amount that will be paid for almost every medical service, and many providers find those amounts insufficient to cover their costs in offering the procedures to consumers. Therefore, a person on government benefits either has no access to such procedures, or will often find longer waiting lists at the providers who do accept the benefits.
4. Insurance companies control costs by omitting procedures from coverage and by limiting choices, particularly in HMO’s.
5. Insurance companies ration care in part by time. Their rules often do not allow a patient to cover more than one issue in a single doctor’s visit and still have the visit covered by insurance benefits. The reason for this is that people do not take time for minor things since it takes a major amount of time in driving, paperwork, and waiting room time to get the 7.5 minutes with the doctor. (Note how the medical industry has “waiting rooms,” while most businesses have “reception areas.”)

Rationing by prioritizing and rationing by micro-pricing (issues 2 and 3 above) become much more serious in countries that have nationalized the health care industry. For example, Great Britain has an organization misnamed NICE (National Institute for Health and Clinical Excellence). NICE was advertised as a part of the British government health system to research and disseminate “best practices” information. What it actually does is much like the Oregon Medicare system. It decides what services are worthwhile, such as deciding that a drug to treat macular degeneration could be used to treat one eye, but not both. Remember, in the British system, even if you could afford to pay for it yourself, it is illegal to get treatment outside the government system. (Also realize that the most recent U.S. stimulus bill includes the launch of a national health database for this same stated purpose – “to research best practices”.)

The rationing by time is also part of many government run systems. For example, the Canadian system is set up so that it takes a very long time to be seen by many types of specialists after your primary physician refers you. This also saves significant money due to the mortality rate during the wait, since the wait times are not necessarily less for critical cases. There is actually a booming private pay health clinic business in Canada. The law forbids private pay providers from doing anything already covered by the government health plan, but a Supreme Court of Canada decision in 2005 allowed these providers to handle services with long wait times.

Rationing: Who Calls the Shots?

Once we recognize that there will be rationing, the question is, “Who will make the rationing decisions? The government, the employer, the insurance company, or the consumer?” Most people would say they would like to make their own decisions, but if they are not paying for 100% of the cost of the services, they may often say “Yes” to procedures that are not worthwhile based on the total cost, but the consumer finds them worth more than the cost to the consumer. To use an analogy, if your auto insurance covered oil changes and wiper blades, how much cost-comparison would you bother with on those items? It’s ‘covered,’ so you get it done at the nearest or most expensive shop – and your premiums start to go up. Or (rationing!) your next policy includes fewer benefits.

Consider a medical treatment for which the total cost is $100. Assume that this is an average treatment that costs the consumer $13 out of pocket. The following table shows various values that the consumer may place on the treatment, the decision that the informed and logical consumer will make, and the decision that should be made.

Value to Consumer	Consumer’s Decision	Correct Decision
Less than $13	Refuse treatment	Refuse treatment
$13 to $100	Pursue treatment	Refuse treatment
Over $100	Pursue treatment	Pursue treatment

The problem is in the line where the value to the consumer is $13 to $100. These are the treatments that lead to excessive utilization. This problem is managed by making the consumer responsible for small stuff, and using insurance for major expenses. This is the way insurance has always been intended to work, and how it works for most other types of insurance.

Therefore, the question becomes one of affordability, and we have certainly seen that problem in our current system. How can the health system work so that the consumer makes at least most of the decisions, and yet not suffer from runaway costs?

ComingTogether Plan Individual Accounts
Our proposal suggests that each citizen receive a fixed amount of money (for his or her age) to spend or not spend as they see fit. (See DETAILS of how it works HERE.) The nearest concept to this in the current system is the Health Savings Account (HSA), in which a person or an employer can put money to set it aside in a tax advantaged account. The beneficiary of the account can spend it on medical items, or keep it in the account for future use. (Note the contrast with the Flexible Spending Accounts offered as employee benefits by many employers, which severely limit carry over from one plan year to the next — a sure fire way to increase overall medical costs – use it or lose it.)

Does this work? Yes! A recent study conducted by Blue Cross/Blue Shield Association found the following:

• 72 percent of those with HSA’s track their health expenses, compared to 42 percent of those covered by insurance.
• 24 percent of those with HSA’s discuss health expenses with providers and may shop and negotiate, vs. 18 percent of those covered by insurance.
• 69 percent of those with HSA’s have regular check-ups vs. 62 percent of those covered by insurance.
• 25 percent of those with HSA’s exercise regularly vs. 14 percent of those covered by insurance.

“In short, those paying for health care with their own money are much more involved and responsible in taking care of themselves and controlling costs than those receiving insurance as an employee benefit or otherwise covered by insurance.” ² This also accounts for the fact that the insurance policies associated with HSA’s (which cover major expenses) typically experience slower growth in premiums.

Insurance

What kind of insurance avoids the problems discussed above? Many types of insurance (auto, homeowners, etc.) illustrate the principle that insurance should be used to cover expenses too large to be handled in routine spending. As employers began providing health insurance, they realized that in any given year, few people benefit from plans with higher deductibles, so they started including many benefits that employees would use more often, and therefore feel that the company was doing something for them (the real reason why employers offer employee benefits). This is one of the major problems of tying the health coverage to employment. The employer has a different purpose than the employee for these benefits.

The insurance plans associated with the HSA’s mentioned above have typically higher deductibles, so the consumer is using money they could otherwise keep if they spend on medical services before the deductible is met, which is the majority of purchasing decisions. However, once an individual meets the deductible, we are back in the situation where the consumer has an incentive to purchase services that are not worth what they cost.

Another difference between health insurance and other types of insurance is in the nature of the deductible. Other deductibles are “per occurrence” rather than “per year”. Converting to the “per occurrence” concept would avoid the situation where a person has a serious problem early in the year that satisfies the deductible, and then makes choices for other issues the rest of the year based on the fact that there is no deductible left to pay. Consider an “occurrence” being defined as from the onset of symptoms through diagnosis, through treatments, until the problem (or side effects of the treatments) no longer exists.

If consumers bought their own insurance, rather than it being tied to a job, we would also expect that there would be less turnover of policies. This situation would prompt the insurance companies to be generous with their “wellness” benefits, and would incentivize them to do all they can to see that chronic conditions are treated with the maximum chance of achieving a cure — lowering the total cost of health care for the country as a whole.

Distinctives of Our Proposal

An HSA allows the beneficiary to withdraw money after retirement for any reason without penalty, much like a Traditional IRA. The ComingTogether Plan makes it an inheritable asset so that the family continues to have available any balances associated with any person who has less than typical health expense. Also, the ComingTogether Plan would allow insurance premiums to be paid out of the account, whereas the current HSA rules do not, in most cases.

Encouraging advances in medicine: new medical procedures tend to start out expensive and rare, but become more popular and affordable as development continues. How is the continued development financed? Largely by the payments made by “early adopting” customers (those who always want state-of-the-art technology, or who want to be the “first on the block.” (Readers over 30 may remember when it was rare to have an Internet connection at home, and if you did, it was slow. Those who had patience were able to buy a 3m [3,000k] broadband connection for much less than the early adopter’s 14k service using a modem.) In government-rationed health systems, new (usually expensive and unproven) treatments are generally not covered. Since initial research is often funded by the expectation of future profit, the greater uncertainty of profit associated with government rationed plans means less research will be done — to the detriment of all mankind.

For those that might not believe that medicine follows the same pattern as other technical innovation, take a look at the advances made in procedures that the consumer normally pays for themselves, such as LASIK eye surgery and cosmetic surgery. Also look at the clinics being installed in retail centers, and services that provide consultation with doctors over the phone. These companies are selling convenience, and customers pay for that themselves. These are generally not part of any provider network.

The ComingTogether Plan removes roadblocks to medical research and development of new health technologies, by allowing the “early adopters” to fund leading-edge procedures or equipment, without artificial interference by government entities.

Balanced Aspects of Our Proposal

In the ComingTogether Plan, which features a federal electronic benefits card supported by a simple flat tax, the medical benefits would be age rated, but that would be the only factor used to determine individual benefits. The amount could be used for health insurance or directly on any expense currently deductible under the Internal Revenue Code. This balances the Liberals’ determination to see that everyone gets health coverage with the Conservatives’ intent to allow each citizen to spend more on health care if he or she wants better coverage than the minimum benefits, thus keeping normal market pressures in the picture. Rationing would have a more realistic relationship to the true value of services, freely chosen by those directly affected by such choices. Access to health care would not be micromanaged as merely a means to economic ends, but would respect the fundamental dignity of all persons, young and old, healthy or not.

We believe all Americans can come together on that.

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¹Chambers, Dustin. “What is Driving Rising Healthcare Costs?”. American Enterprise Institute. May 18, 2009 <http://www.american.com/archive/2009/may-2009/what-is-driving-rising-healthcare-costs/article_print>.

²Kennedy, Dan. “On Health Care (and Everything Else), What is the American Way?”. Business & Media Institute. 7/1/2009 <http://www.businessandmedia.org/commentary/2009/20090701090418.aspx>.

This entry was posted on Sunday, August 30th, 2009 at 10:29 am and is filed under Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.