“Perhaps the single most pressing issue facing every parent today is providing our children with quality, best-money-can-buy health care when they need it.”
An Historical Perspective
Since the 1950’s when Blue Cross and Blue Shield came into their own, health care in America has been administrated by the private insurance industry. Other nations chose health care systems administrated by the government, and generally speaking sacrificed a certain amount of quality of care, and certainly ease of access to that care, in exchange for universal availability to all its citizens.
Here in the US, facility-based and professional providers alike subsequently enjoyed higher reimbursement levels, quite naturally attracting the best and the brightest physicians from the world over. It is undeniable that high reimbursement levels in the United States contributed substantially to the quality of care enjoyed here, as compared to the quality of the National Health Service in the UK, or even of Canadian socialized medicine.
During the heated debate regarding health care reform preceding passage of the Affordable Care Act, proposals were heard involving conversion of the American health care system to a “single payer” Medicaid-type model, and similarly, a model to provide “Medicare for all”, both based on European-style systems, and the “public option”, essentially a variation of “Medicare for all”. In fairness, it is perhaps appropriate to consider the relative merits of such proposals, before rejecting them outright; for there are fundamental issues with our Medicaid and Medicare systems as they exist today that need the light of day shed on them anyway. Of primary concern is the fact that neither Medicaid nor Medicare reimburse providers, neither facility-based nor professional, at cost-reimbursement levels.
Every facility in the US completes an annual cost report, essentially a balance-sheet detailing its expenses, the number of patients served, the types of services provided, and so on, which it submits to its state’s Blue Cross plan. For more than fifty-years, Blue Cross has analyzed each facility’s annual cost report, and based its “charge screens”, or how much would be allowed in reimbursement, on the cost of providing those services. Everyone recognized that if a hospital’s costs were not covered, they would soon go out of business, and no one would have health care. Allowable charge screens typically represent “cost-plus”, generally from 3-5% over costs, to allow growth and expansion of services to meet the needs of a growing population, and a growing economy.
The bulk of health insurance coverage was supplied by employers, as part of a benefits package, begun during WWII, and continuing unabated into the 60’s. Those who were unemployable notwithstanding, those who had worked their whole lives, and were now retired, no longer had employers to provide coverage. Providers were obliged to treat the elderly, increasing in numbers and with inherently greater health issues, for free… along with the unemployable. Employers were quite naturally reluctant to pay increasing premiums to cover these two growing segments of the population, and pressure was felt by Congress to enact Medicare as the logical first step.
From an historical perspective, Medicare as it was originally enacted reimbursed both provider types based on the cost-reimbursement formula. Physicians were reimbursed based on the Usual, Customary, and Reasonable rates representing what they charged Blue Shield and other insured patients for similar services. Early on, Blue Cross and Blue Shield served as Medicare intermediaries, and everything ran very smoothly… providers were quite happy with the program, and it gained a strong foothold.
The growing indigent population prompted the Medicaid program, sold to providers under the premise that any reimbursement was better than no reimbursement at all. For the first time in history, reimbursement was paid to hospital and physician providers, below the cost-reimbursement level. It was begrudgingly accepted, as sold: twenty-cents on the dollar was indeed better than no reimbursement at all.
And in that moment, the system began to unravel…
Congress, in its infinite wisdom, decided that if providers were willing to take less than cost for services provided to Medicaid patients, and it was OK to pass on the unpaid costs to everyone else, as indeed it had been done for years before either Medicare or Medicaid existed, then why wouldn’t it be OK to reimburse providers for services provided to Medicare patients under the cost-reimbursement threshold too… and the Diagnostic Related Groups methodology was born.
Popular opinion held that hospitals and doctors were getting paid far too much, and Congress was witness to the fact the Medicare program was going broke, its budget growing every year. Baby-boomers were retiring and living longer, increasing the program’s costs. Providers could be paid less than cost, as represented by Blue Cross charge screens, and they would simply tighten their belts and make do with less.
What happened in reality, was what would happen in any other business… as reimbursement from the “fixed payers” went down, the balances remaining were simply shifted to other payers, and the “retail price” of services went up. Pretty much the same occurred with physicians… they simply raised the UCR to cover the overhead of running the office, in order to maintain a constant income-stream.
And of course, as provider pricing rose, insurance premiums rose along with them, and employers were faced with higher labor costs. Insurance companies began experimenting with alternative products, negotiating lower rates with area providers on behalf of big-contract employers… and the era of Preferred Provider Organizations was ushered in. Hospitals in markets with competition could ill afford to have the biggest employers in the region cut them out of the loop, and deals were inked under which reimbursement for large chunks of what once constituted their lifeblood, fell below the level of cost as well…
Again, this was reflected in the cost reports, and premiums went up again. People began screaming about the “spiraling cost” of health care in America, when in reality, costs were actually being cut to the bone, with nurses and those who worked in the field feeling the crunch in years of salary and benefits packages that did not keep pace with inflation. No, it was the retail price of health care that was spiraling out of control, precipitated by employers fleeing traditional insurance coverage plans in favor of those that paid less than cost.
The Affordable Care Act
During President Barack Obama’s tenure, his signature achievement has been the Affordable Care Act. Nicknamed “Obama-care”, the ACA represented the President’s vision for health care reform, and was designed to provide universal access to health care to every American Family. One particularly contentious provision of the Act required individuals to buy health insurance under penalty of law, raising the ire of many Republican and Tea Party conservatives. On September 13, 2011, Federal Judge Christopher C. Conner struck down that requirement, declaring it unconstitutional.
On balance, the mandate was perhaps an error in judgment. Instead of mandating that every American household purchase health insurance, the ACA perhaps might have offered every American tax-filer the option to purchase health insurance, using an Earned Income Tax Credit to do so.
The original purpose of the ACA was to provide universal access to health care for every American. That means Everyone, and it means regardless of ability to pay for it. If we start from that assumption, that access to health care shall be the Right of Every American, there is no need to further debate the morality of the issue… all that remains to be decided is the logistics of delivery.
There are so many advantages to American families’ choosing their own health insurance plan, and paying for it themselves, that a delivery strategy that employs these components is certain to gain maximum support from the public. Whether supported in fact or not, Americans recoil at the very suggestion of socialism, even given that in reality, Medicare and Medicaid represent exactly that.
The Affordable Care Act can be amended to allow every tax-filer to purchase health insurance for himself and all dependents, with zero-deductible and zero-copay, in order to ensure truly equal access even for those with no financial means. To further ensure equal access, the health insurance industry must be allowed under the Act to borrow the cost of every family’s premium from private sector sources.
An interest rate likely to ensure the participation of Wall Street banks in such a funding scheme might represent a quarter-percent over the 24-month Treasury yield, backed by the federal government through the EITC written into the tax-code. (At the time of this writing, 0.20% interest is about average for 2-year Treasuries; the rate for funding the Act would calculate out to 0.45% interest over 18-months.)
In practice, the Affordable Care Act, amended in such a manner, would essentially “gift” the health insurance industry what amounts to 100% national market penetration, just like the electric company in your community is handed 100% market penetration. In exchange, your electric service provider is tightly regulated by a Public Utilities Commission, such that profits are kept very low, on the order of 3-4%. Communities sometimes allow tax-free dividends or other perqs to attract investors’ money to utilities, keeping the doors open and the cost of electricity as low as possible.
Health insurance companies should be regulated in precisely the same manner. The ACA actually allows health insurance companies profit margins well above what we allow electric companies in exchange for universal access to the market. The Affordable Care Act might be further amended to limit the health insurance industry to levels of profit similar to those allowed public utilities, in exchange for 100% market penetration. The Act already grants oversight responsibilities to each state’s Insurance Commissioner, who might require audited cost-reports from licensed insurers.
One of the highlights of the Affordable Care Act is the 180-degree reversal of the American health insurance company business plan, with the September 1st, 2011, implementation of provisions that regulate insurance company premium levels, setting statutory maximums at a fixed-ratio to benefits paid-out…
Previous to implementation of these regulations, the market allowed insurance companies to charge “what the traffic would bear” in premiums; what was not paid out in benefits was then retained as profit. This model provided incentive for the denial of every claim, and then requiring beneficiaries to submit additional paperwork and make telephone calls to appeal the initial decision.
In stark contrast, the ACA-imposed model provides profit-driven incentive for blanket approval of every claim, and the immediate cessation of policy cancellations, as insurers will recognize that bottom-lines are directly proportional to the total value of benefits paid. Health insurance companies are now likely to prioritize high-risk policy applicants with pre-existing conditions, and to treasure policies belonging to beneficiaries who succumb to catastrophic illness.
Further regulation of the health insurance industry is likely not necessary, with the lone caveat that it may one day come to pass that we need to constrain health insurance companies from paying out more than is reasonable, in an effort to boost profits.
Oversight might be achieved by requiring every licensed health insurance company to submit an independent audit to its governing state Insurance Commissioner, detailing the total amount of benefits paid out, and comparing the statutory allowance made for overhead and profit to the actual retained premium revenue after payment of all claim benefits. The Commissioner might then file a summary report to the Secretary of HHS on November 1st, who shall present to the President’s Office of Management and Budget an Affordable Care Act Cost Report.
As an added benefit, the OMB could then determine from summary report data, the total number of households projected to be eligible for the EITC, and thereby health insurance benefits, as well as the total monetary value of the health care sector of GDP, to determine the Universal Family Health Insurance Premium most likely to balance the books for the coming calendar year.
In keeping with the public utility synesthetic model outlined above, it might be recommended that health insurance company profits be classified as tax-free, as should shareholder dividends, in order to keep profit-margins at their absolute minimum.
Hospital costs are already contained quite well by Blue Cross plans in every state, as every facility-based provider must file an annual cost report upon which hospital rates are based. While oversight of hospital rates might fall to each state’s Health Department, the system has functioned adequately for more than fifty-years.
The Benefits
As for the economics of this elegantly simple plan, the benefits include massive federal deficit cuts in the first year, the creation of millions of new middle-class jobs in the health care sector, and increased competitiveness of American labor in every sector.
One obvious major benefit is the elimination of further need of Medicare or Medicaid. Total Medicare spending reached $599 billion in 2008, and amounted to 20% of all federal spending. In the first year of implementation, the federal budget would be reduced by more than $600 Billion. And while the Medicaid program is less costly at the Federal level, it represents an additional $204 Billion in federal outlay. Perhaps more importantly, the states provide approximately equal funding of the program, which has resulted in nearly bankrupting them all. Without the burden of Medicaid, every state’s budget will balance, allowing them to reinstate recent cuts in citizen services once more.
Because the plan provides for zero-deductible, zero-copayment, and the relative prestige of commercial insurance policies over socialized federal programs, the out-of-pocket benefits are likely to gain immediate popular support among the public.
To quote Wikipedia, “The present value of unfunded obligations under all parts of Medicare during FY 2009 over an infinite horizon is approximately $36 trillion.” Such a massive deficit reduction alone is likely to afford broad-based appeal to a new wave of political conservatives in the United States.
Broad-based, cross-sector economic stimulus will likely result from allowing health insurance companies to fund premiums from private sector funds that Wall Street is now sitting on, “waiting for a quality investment”. This year’s health care sector of GDP is likely to total $2.5 Trillion, including dental, mental health, and virtually anything and everything remotely related to health care, prevention and maintenance. Those funds would appear on the industry’s Balance Sheet on January of Year One. The federal government would have until July of Year Two, to balance the books and reconcile the EITC’s, allowing a full 18-months for funds to funnel into the sector.
The health care sector currently represents 17.6% of GDP. It has been estimated that it will expand to 23% or more, in the first year alone, were we to achieve universal access for all American families. This increase represents an $800 Billion expansion.
The American Hospital Association states that 52.5% of hospital budgets nationwide, is spent directly on the cost of labor… health care workers. Of the projected $800 Billion expansion of the sector, health care labor costs must, by definition, represent $420 Billion. Using $60K as the average annual wages and salary earned by a “middle-class” worker, the expansion is projected to create 7-Million new middle-class jobs in the first year alone.
As 7-million new health care workers spend revenue into local economies, the increase in household consumer demand will generate a multiplier-effect, contributing substantively to broader growth throughout the general economy.
Of perhaps greatest importance to the American business community, and certainly to the US Chamber of Commerce, is the lifting of the burden of providing health insurance benefits to employees from America’s employers. As an immediate result, the competitiveness of American labor will increase sharply. In light of increasing consumer demand from the health care sector alone, we may perhaps witness a reduction in our long-term 23% unemployment rate.
Projected Sources of Support
Wall Street, the investment community… will likely participate in what will amount to a government-backed, 18-month instrument that will carry an interest rate set at the 18-month Treasury Bill yield, plus one-quarter percent. The aggregate face-value will equal the entire total of benefits paid, essentially the health care sector of GDP, currently estimated at $2.5 Trillion, and expected to expand to $3.3 Trillion with universal access.
America’s Health Insurance Plans… the health insurance industry will likely participate fully, being granted what amounts to an industry “franchise”, affording 100% market penetration, at a profit-margin to be determined. With the recognition that the industry will serve as intermediary for the entire health care sector of GDP, perhaps a tax-free 5% of that total, representing corporate profit after overhead and allowed expenses might be an appropriate place to start. It is apparent that the number of personnel handling the claims process can be held to a minimum, as there will be no issuance of denials, nor determinations of appropriate reimbursement amounts on any give claim, as the current cost-report format that works for Blue Cross and Blue Shield will serve the balance of the industry equally well.
The American Medical Association’s, and the American Hospital Association’s memberships… will likely find 100% commercial health insurance reimbursement for every patient refreshing, and are likely to participate enthusiastically.
The US Chamber of Commerce… its membership comprises the bulk of America’s employers. As the burden of providing health insurance benefits to workers has been lifted completely, it is likely that American business will participate enthusiastically.
The estimated 36 million unemployed Americans… expansion of the health care sector of GDP promises to create on the order of 7 million new, long-term jobs, and to provide the stimulus to consumer household demand necessary to generate production increases and renewed hiring across all sectors of the US economy.
The Tea Party conservative movement… The sudden deletion of $36 Trillion from the long-term deficit, and the elimination of $800 Billion from the federal budget in the first year of implementation, amount to the kind of spending and deficit cuts that the conservative movement has been demanding.
The American electorate… the first key step in leveling the playing-field for every American family, and its children will be in place. Every man, woman, and child in America will be able to access the best care in the world, as full participants in the American Health Care System. Rather than lower the quality of health care in America to the lowest common denominator, in a government-mediated socialized framework, the plan elevates the level of quality for all Americans, to what only the wealthiest of Americans now enjoy…
In the end, while the achievement of social goals through capitalistic means is decidedly outside the box, creative innovation has been an American tradition throughout this nation’s history.