Healthcare Reform

Heard a joke the other day. What’s the market solution for healthcare? It’s people exploiting people. And the government solution? It’s the other way around.

I tripped and sprained a pinky. It swelled to twice its thickness and I wondered if it was broken. I found a discount x-ray center at a local strip mall and stopped in for a snapshot. Turns out I needed a ‘script from my primary physician. He wouldn’t fax one over. Said I needed to go to my orthopedic surgeon to get the x-ray. $1,000 versus $60. I have a high deductible insurance policy and decided to wait until the swelling went down. Yep it was broken. But it was also healed. I now go through life with a crooked pinky.

Contents

  1. Healthcare Reform
  2. War of Currents
  3. Healthcare Utilities
  4. Mechanics
  5. Objections
  6. Summary

War of Currents

The War of Currents in the late 1880s pitted Thomas Edison promoting direct current (DC) for electricity against George Westinghouse’s alternating current (AC). Direct current had several advantages, but its power plants had to be located within about 1 mile of its customers. Alternating currents could be transmitted over much longer distances, but involved construction of large expensive generating plants. The only way to make AC cost effective was if everyone in a region was required to purchase electricity from this single source.

Westinghouse won. Everyone was required to purchase his electricity. In exchange, Westinghouse agreed to limitations on prices for electricity that limited him to a reasonable, but above market return on his investment.

Public utility commissions were set up to determine what constituted a fair price.

Healthcare Utilities

I propose a utility model for acute medical conditions. By ‘acute’ I refer to medical conditions where you go into a medical facility, receive treatment, are ‘cured’ and then discharged. Think childbirth or coronary stents.[1]

All residents of a healthcare utility zone will pay a flat fee on their paycheck (similar to the unemployment insurance fees deducted in most states, no exemptions). In exchange all residents become members of the healthcare utility zone, and receive free, unfettered treatment for most (80-90%) acute medical conditions. No paperwork, no waiting, no co-pays, no pre‑authorizations, no second guessing, no strings attached.

Single-payer? In a sense but not really. We’re just emptying out the emergency waiting rooms.[2] Keep reading.

We continue to use private insurance for chronic conditions. Private insurance premiums should be cheaper for residents of the zone: insurers no longer have to cover acute medical conditions. The healthcare utility is modeled so discounts on private insurance premiums approximately offset the healthcare fees on paychecks.

Acute medical conditions have the advantage of being routine in terms of treatments, costs and outcomes. Munchausen patients are mostly weeded out. Innovation (e.g., robotic surgery) happens less frequently, and with greater clarity as to its costs and benefits. Government meddling into our lifestyles for “our own benefit” is much less a concern with acute care (as compared to chronic care[3]).

How is this possible economically?

Profits for the insurance industry from acute care are low per incident, but with high volumes and high predictability. We capture these profits and use them to (partially) offset costs of treating the uninsured. Private insurers today are quite profitable.[4]

Healthcare providers (emergency centers) today often provide legally-mandated medical care to indigents. We reduce their burden for this care and ask them in turn to help us make the healthcare utility zone economically sustainable (it’s in their best interest after all).

And of course we will suckle at the Federal teat (e.g., Medicaid, Medicare) for as long as the milk holds out.

Instead of having a dozen or more private insurers covering 60-80% of the local population, with the public picking up the difference, we now have one healthcare utility covering 100%.

Mechanics

This is a subscription-based model. We make a single payment to providers for total annual coverage based on estimated numbers of incidents by type. Providers receive a guaranteed annual income. Residents of the healthcare utility zone receive guaranteed, quality acute medical care.

Payments are adjusted up or down annually based on a two year rolling trend-line in incidents. Some years providers come up short. Other years they come out ahead. We allow each side a limited number of discretionary timeouts (e.g., 1 every 5 years) should costs or profits be deemed excessive in any one year (e.g., local catastrophes).

Healthcare Utility Commissions are established to set the pricing, and all related administrivia. They line up and negotiate pricing with local providers. They decide which medical procedures are included in the formulary. They ensure quality of care. They help patients navigate amongst providers. They negotiate with insurance companies for resident discounts on non-acute policies (or work with employers in their negotiations). They report to taxpayers on how well the zone has helped meet community healthcare needs, and at what cost. In summary, they are fully responsible for the cost and quality of acute care within their zone, with no Federal or State strings attached.

We do not repeat the sins of managed care (and the ACA), which attempts to control healthcare costs through micro‑management of physicians, tied to a system of financial incentives. That approach left physicians treating patients like products on an assembly line. Medicine became just another job, with loss of autonomy and high levels of bureaucracy.

Instead we step back from the details and complications of medical procedures and reimburse solely on the number of incidents (e.g., childbirths). We leave the medicine to the medics.

Although hospitals may still decide to micro-manage their physicians, there will be no financial or bureaucratic incentives for this behavior intrinsic to our reimbursement scheme. There should be no reason a healthcare provider could not offer its staff physicians a generous fixed salary, buttressed by fixed annual payments from our hospital utility.

Instead of having a dozen or more insurers questioning payments on millions of indecipherable medical line items, we have one healthcare utility managing a few annual payments to providers, based mostly on counts of incidents and quality of service.

Objections

Oh my gosh!

This is a slippery slope to a comprehensive single-payer system. Zealots will push for incremental coverage of more procedures, creeping up to universal coverage. Abortion is acute care, isn’t it? Politicians will gerrymander the zone. These misguided do-gooders will squeeze providers for greater price concessions when costs get out of hand, due to their own meddling. Taxpayers will get stuck in a Catch-22 where steadily increasing payroll deductions become unavoidable.

The insurance industry will fight back. This is their gravy. They will jack up insurance premiums on chronic care, offering few or no discounts for residents in zones. They have national market power through their alliances, allowing them to out-bid a healthcare utility zone. To kill this proposal they will temporarily offer non-residents reduced rates vis-à-vis residents.

Providers will gouge the public. They have all the detailed cost records, whereas public commissioners often only see the gross counts of incidents. Not all incidents are created equal. Primary caretakers will cherry-pick easy incidents and farm out difficult ones to fly-by-night operators. Mom-and-pop providers will get squeezed out, making large providers the only game in town.

I could give detailed responses to these and other objections, but I’ll only say the main protection for taxpayers and patients comes from the direct election of a local Commissioner. Professionalism in the Commissioners’ office will make or break these zones. I paint this model simple, but in practice it will quickly smear into a gawd awful mess, which must be continually cleaned up by the Commissioner and his or her staff.

In addition, we will put in place many other protections just to be sure we get the results intended from these zones.

Summary

I propose the Healthcare Reform Act of 2014. Any community setting up a healthcare utility zone gets full exemption from the ACA (Obamacare), including its tax increases on so-called Cadillac health insurance plans.

It is important that the Healthcare Reform Act of 2014 tweak Federal rules to help these zones (e.g., allowing providers to bill Medicare and Medicaid their share, to cut down on the healthcare utility share). No further Federal dollars are needed and no further strings should be attached.

This proposal provides both the insured and uninsured with full, unprejudiced coverage for most acute medical care. It will not fly if zealots expand the mandate of the healthcare utilities to cover chronic medical conditions. I propose (here) a much needed fix for insured individuals with chronic conditions. I provide (here) some thoughts on helping the uninsured poor with chronic conditions.

Notably, we cannot cover chronic conditions for the uninsured poor without a massive tax increase (direct or hidden) despite lies to the contrary as were used to sell the American public on the affordability of the ACA.[5] There will be many pitched budget battles in Congress before such chronic care is ever realized. This shouldn’t delay enactment of the somewhat simple fixes that make universal acute care a reality, as delivered by the healthcare utilities.

Not national but local sentiments will guide all our healthcare utility decisions. What’s good for NYC may be horrible for Horse Cave, KY. The goal is to build a nationwide network of independent zones where each zone experiments over time with new forms of healthcare delivery, and all share in the learnings from each others’ failures and successes.

If you like this proposal, then let’s bring in the electric utility industry sponsors and their critics. Let’s learn from their failures and successes (e.g., decoupling of distribution from production, allowing new providers direct access to customers over a shared energy grid).

We can run these healthcare utility zones in a way that allows reasonable, but above market returns for all players, including taxpayers.


1. I would like to also include annual physical checkups, but the actual medical procedures to be covered are decided by the Healthcare Commissioners Office, described below.

2. This today is how uninsured individuals receive acute medical treatment, paid for by the rest of us.

3. Government dollars and chronic conditions. What a dream come true for meddlesome bureaucrats. Government number-crunchers will mandate what we eat, how much to exercise, how little to sin (e.g., sex, smoking, drinking) and who is considered mentally ‘normal’. The definition of healthcare will quickly expand to cover wealth disparities and the ‘lifetime traumas of bullying’. Don’t forget the human health impact of the Ozone Hole and Global Warming. Targeting of religious beliefs is not far behind (e.g., the pernicious psychic damage of belief in sin). We get some of this from private insurers, but their weapons are limited to pricing. Governments use brute force and “good intentions”. Think Waco, Tuskegee or childhood thymus irradiation .

4. I regularly get sizable rebate checks due to my insurance company’s excess profits, even with my dirt-cheap (non-ACA compliant) company policy. A portion of these rebates will end up as funding for the healthcare utility. Note that since we depend on capture of private insurance company profits to partially cost-justify this scheme, the more residents in a zone with private insurance the more medical procedures we can cover for the zone.

5. Think about it. Each incident of chronic care is potentially a multi-million dollar liability. The insurance industry must collect this money somewhere. In a sense, Justice Roberts rightly called the ACA individual mandate a tax, since the young who purchase this insurance will do so at inflated premiums in order to cover the uninsured. As it turns out we all will be forced to purchase insurance at inflated premiums (a hidden tax) to buy this coverage for the uninsured.

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