Solutions for Rapidly Rising Healthcare Costs

 There are no silver bullets. Empirical research has debunked many potentially promising ideas on how to control health care costs. Examples include:

·         The idea that if we insure more Americans, they will get care at a primary care office and not an emergency room, reducing spending overall, because, in fact, those who gain coverage increase their emergency department use. 

·         Information technology decreasing service duplication.

·         High deductible health plans reducing wasteful care while maintaining valuable care.

·         Broad use of preventive care reducing later spending.

·         Medicare accountable care organizations, where health-care providers have financial incentives to improve quality and reduce spending — greater care management activities were not associated with lower spending or better outcomes. 

·         A randomized controlled trial recently found little benefit from a multi-component wellness program in a large employer. 
See There is no magic wand to fix health care

However, just because these have not worked yet, does not mean that the idea might not be a worthy component of a reformed system.

What Explains Support for or Opposition to Medicare for All? surveyed four policy options, as follows:

1. making health insurance coverage more affordable by increasing the amount of subsidies to lower the premiums and out-of-pocket costs for some health insurance plans,

2. giving all Americans the option of enrolling in a government-run health insurance plan that would be similar to Medicare (i.e., a “public option” [or perhaps “Medicare for All who want it”, Choose Medicare Act by Sen. Merkley, S. 1261 and Rep. Richmond, H.R. 2463]),

3. enrolling all Americans in a single government-run health insurance plan that would be similar to Medicare as part of a new national health insurance program (i.e., Medicare for All [Medicare for All Act of 2019 by Sen. Sanders, S. 1129] and

4. enrolling all Americans in either a government-run plan that would be similar to Medicare or a private health insurance plan as part of a new national health insurance program.”

If we are looking to actually reduce or at least control the healthcare cost increases, option 1 should be discarded, as subsidies are simply a cost shift.

Whether Medicare for All would be more or less costly is an open question. What Explains Support for or Opposition to Medicare for All? lists four references which address this question, and they reach different results:

·                  Blahous, Charles. 2018. “The Costs of a National Single-Payer Healthcare System.” Mercatus Working Paper. Arlington, VA: George Mason University Mercatus Center.

·                  Holahan, John, Matthew Buettgens, Lisa Clemans-Cope, Melissa M. Favreault, Linda J. Blumberg, and Siyabonga Ndwandwe. 2016. The Sanders Single-Payer Health Care Plan: The Effect on National Health Expenditures and Federal and Private Spending. Washington, DC: Urban Institute.

·                  Liu, Jodi L., and Christine Eibner. 2019. National Health Spending Estimates under Medicare for All. Santa Monica, CA: RAND Corporation.

·                  Pollin, Robert, James Heintz, Peter Arno, Jeannette Wicks-Lim, and Michael Ash. 2018. Economic Analysis of Medicare for All. Amherst, MA: University of Massachusetts Amherst Political Economy Research Institute.

They comment:

“Though support for the Affordable Care Act has grown in recent years, ongoing concerns about continuing affordability and coverage gaps, as well as political efforts to undermine the law or even repeal it, have generated growing interest in single-payer plans, often known as Medicare for All. Typically, a single-payer approach would establish a single government-run insurance plan in which the entire US population would be enrolled; the costs associated with the coverage would be fully government financed. Such approaches have been shown to significantly increase federal taxes (Blahous 2018; Holahan et al. 2016; Liu and Eibner 2019),2 but proponents argue that these costs would be offset by eliminating employer and household premiums and cost sharing (Pollin et al. 2018). “

The Congressional Budget Office in May 2019 released a report Key Design Components and Considerations for Establishing a Single-Payer Health Care System in which it did not release a cost estimate, due to the lack of detail on many unanswered questions. Takeaways nonetheless include:

·   “A single-payer system could substantially reduce the number of uninsured, which currently averages about 29 million people a month. But if undocumented immigrants are not allowed to participate, about 11 million U.S. residents could end up without coverage. (About half of undocumented immigrants have coverage now.)

·   The changes could significantly affect the U.S. economy. The magnitude of the effect on the nation and individuals is hard to predict because the evidence CBO would rely on to make those predictions comes from much smaller changes to the health care system.

·   Whether the nation – and individuals – would end up spending more or less on health care would depend on key features such as how much health care providers would be paid, what services would be covered and whether patients would be required to share some of the costs.

·   Benefits of a single-payer system could include lower administrative costs and more incentives to improve people’s health. But patients may also have longer wait times or reduced access to care if there aren’t enough physicians to meet increased demand. Patients may also have less choice than they have now.

·   Expanding access to health insurance through a multi-payer system instead of a single-payer model could be less disruptive and give patients greater choice. But the nation would probably spend more on health care than it would under a single-payer system.”
'Medicare for All' system could be complicated, potentially disruptive, say budget analysts

My expectation is that the total the U.S. would spend, government and non-government, would rise if Medicare for All were adopted, based on reasonable expectations for what the details of the legislation would be. The optimistic cost estimates made by Pollin, et. Al. were based on assumptions that if there was room for cost savings, they would occur, which obviously are based on faith without specifying a documented method that would achieve that result.

A caveat re Medicare:

One problem with Medicare is fraud.  Currently fraud is 5-10% in Medicare system, perhaps more. According to AgingInPlace.org, the most common types of Medicare Fraud are:

• “The Healthcare Provider Bills Medicare for Services the Patient Never Received. For example, charging for an appointment that the patient failed to keep.
• Healthcare Provider Bills Medicare for More Expensive Services Than the Ones the Patient Received.
• Performing Services Not Medically Necessary in an Effort to Pad Billing.
• Overprescribing Medically Unnecessary Medications to Patients.
• Misrepresenting Unnecessary Procedures as Medically Necessary.
• Falsifying A Diagnosis to Obtain Payment for Additional Tests and/or Treatments.
• Billing for Each Individual Step of a Procedure as if it Occurred in Separate Sessions.
• Waiving Unqualifying Medicare Copays and Deductibles.”
• Receiving Kickbacks.”

There would need to be significant efforts to prevent these and other means of fraud. The result is that some people may not get the tests done that they want if found not to be medically necessary (or the doctors recommend the tests to increase their income or as defensive medicine vs. malpractice). Also, some life extending treatments may not get received. (This sounds bad, (“throwing Grandma under the bus”) but this already happens, as currently health care is rationed based on ability to pay, i.e., whether you have insurance or can afford to pay out of pocket.) But, who is to decide who gets and who doesn’t? (tough question that will generate much debate and many unhappy people)

To be truthful, I don’t know if there is more fraud in Medicare than in the private insurance industry. Hmmmm.

Understanding the new system:

Health insurance plans are basically (1) defining the benefits, (2) negotiating rates within defined networks and (3) administering the claims. The insurance company makes money by charging a premium higher than the cost of services and administrative costs and containing the cost of services by trying to minimize waste and fraud in the system.

A universal national health care plan similarly could define various levels of benefits, have a single payer plan, and have insurance companies bid to administer the claims by state (or other region if that makes more sense). This will serve to minimize the administrative costs.

·         The plan could have varying levels of coverage, somewhat similar to the Bronze, Silver and Gold plans of Obamacare, depending on what an individual was willing to pay. For example, everyone would get the basic Bronze plan. Others could enhance their coverage similar to how seniors can now purchase Medicare Supplemental insurance by selecting more robust plan. There could be a very high deductible plan version of each with a medical spending account attached. But, note that there would be no insurance company issuing policies for themselves; there would only be the insurance through this program. IA single insurance company would be solely an administrator of the program.

·         The Internal Revenue Service would collect the increased taxes that fund the program. To avoid higher income taxes, which distort savings and investment decisions, a Value Added Tax could be added, which is basically a consumption tax, preferred by most economists. [1]

·         The Social Security Administration would continue to collect some of the premiums paid by higher income beneficiaries which escalate by Adjustable Gross Income by deducting from Social Security checks. The IRS could do the same through the income tax system for non-SS recipients.

·         Private insurance company administrators (rather than the Department of Health and Human Services) could administer the claims, and manage accounting, auditing, and fraud and abuse control and pay for building costs, and more. Marketing would be virtually eliminated except for enrollment process and information dissemination. The goal is to have one and only one administration of the claims.

·         The profits (return on capital invested) would be much lower, as insurance companies’ capital base necessary would be much less than for companies that need to protect against major losses from excessive claims. There would be the opportunity cost of the taxpayers’ money being tied up which otherwise they could invest and achieve a return on investment (which would be a fair way to look at this)

Other thoughts or considerations:

• The size of the program would counter the supply side consolidation and exert market power. For example, the program could negotiate with pharmaceutical companies for drugs. There would need to be a prohibition, however, of the government plan actually setting prices.
• The program would need some sort of incentive system for the private insurance company administrators to minimize fraud to achieve some cost savings as compared with Medicare and Medicaid.
• The program would need people to have “skin in the game”, similar to medical savings accounts, HSAs or HRAs. I.e., we need to get the incentives right!
• The medical service industry would need price transparency so people can actually respond to market signals. Without this, having “skin in the game” is meaningless.
• The program would need some “accountability” provisions, vs. those who do not take care of themselves. E.g., higher co-pays and/or deductibles for medical issues caused by drug use, smoking, drinking, careless sexual behavior, reckless physical behavior, obesity (and resultant Diabetes Type 2) caused by overeating and lack of exercise, etc.
• The program would need financial incentives for healthy lifestyles, e.g., health clubs’ subsidies.

Issues that would disappear:

• Medicare and Medicaid as we currently know it.
• The argument of who is more efficient is eliminated, with comparing apples to oranges due to different demographics between Medicare and private insurance.
• There would no longer be “cost shift” issues from Medicare patients and indigent to insured or those insured who can pay.
• Preexisting conditions coverage will need to be continued, as they would simply be covered, period.
• Young adults would be allowed to stay on their parents’ health insurance plan.
• Provisions be in place to take care of individuals who have been using the exchanges to purchase their insurance or who have been covered under the Medicaid expansion.
• Excise or other taxes on insurance plans.
• Employer offered health care plans. This would reduce the direct cost of production, making American manufacturers more competitive, somewhat offset by higher taxes to fund the health care program.

Boy, in many ways this sounds like “Medicare for All” or “Obamacare”, other than retaining the insurance companies’ expertise in claims administration intact. That difference from Medicare for All may be the necessary piece to obtain an acceptable compromise for an otherwise unsolvable problem.

Note:

[1] Without a doubt, whatever we do about health care will cost more money. Even if we do nothing to change the system, Medicare and Medicaid costs will rise. So, to prevent greater federal budget deficits and mounting national debt, we must find a solution. While political rhetoric says to “eliminate waste and fraud” and “cut non-essential programs”, even during the 2016-17 years when Republicans controlled the Presidency and both branches of Congress, spending increased. So, I don’t hold out much hope for this to be any solution to paying for the increased costs. Taking off my conservative cap and donning my economist cap, I see the Value Added Tax as the most viable solution.