As I begin writing this, the healthcare initiative proposed by the Democrats in Congress is on the ropes. It has lost its liberal basis of support because it does not address many of the major tenants that proponents of reform deem necessary. It has not garnered the support of conservatives because (although it claims to be otherwise) it will not be budget neutral and will increase the federal bureaucracy rather dramatically. The election of a moderate Republican to fill the late Ted Kennedy’s senate seat provided the symbolic coupe de grace for the current health care reform proposal.

As a physician with 30 years experience, having seen the adverse consequences of poor access to healthcare, I am firmly in favor of re-engineering healthcare delivery in this country. That said, I am not pleased with the current proposal and fear that even if it passes, the resulting system, although arguably better than our current system, will remain very expensive and unsustainable. My greatest concern is that passage of the current proposal will drain such resources that meaningful reform will be stymied for another generation.

Over the next paragraphs, I will describe why I feel that re-engineering of healthcare is essential, discuss the flaws with the currently proposed solution, and propose an option that should meet the needs of the majority of informed parties, and at the same time provide a major economic stimulus.

Chapter 1.

Why we need to re-engineer healthcare delivery.

Universal Access

The most obvious argument regarding the need for healthcare reform is the issues of lack of access for too many Americans. This not only is a national disgrace that poor Americans are dying due to lack of access to basic healthcare, this lack of access is actually increasing the ultimate cost of delivery. For instance, it is much less expensive to allow someone access to a physician to treat their bronchitis than it is to wait until they are hospitalized with pneumonia.

Paul was a 54 year old diabetic with elevated cholesterol. I first met him when he was admitted to the hospital through the emergency room for treatment of a foot infection. He had a job delivering news papers but had no health insurance. During the course of the next few months, we diagnosed coronary artery disease and he was given coronary stents for severe coronary blockage. His foot eventually healed and his diabetes and coronary artery disease were treated. Unfortunately, this was not the happy ending.

Paul could not afford his medications. I supplied what I could from samples and used cheap, generic medications when I could. He had accumulated significant medical bills. I knew that I would never get paid but assured Paul that his health needed to be our first priority and that I would survive without getting paid by him. Unfortunately his hospital bill was well over 100,000 dollars. Our not for profit, charitable tax exempt hospital gave him no quarter. He was the single dad for two teen aged boys. He knew that he could never expect to be free from his debt and that his illness would continue to cost him more than he could earn. In addition, he would never be able to get health insurance.

It was a cold and icy March morning. The canyon had areas of black ice around curves. Paul’s truck crashed into the creek and Paul died instantly. Officially this was determined to be an accident. Through death, Paul got rid of his debt and his small life insurance policy provided a way for his sons to attend college. Accident or suicide, who knows, but I have my opinion.

If Paul had been given access to healthcare to diagnose his diabetes early, we could have prevented the onset of atherosclerosis and the consequential foot infection. The system would not have spent well over 100,000 dollars to react to his problems. And he would likely be alive for his sons today.

There is a great irony in American healthcare delivery. We have determined that healthcare is a right however we have not figured out how to manage it or pay for it. “How is it that healthcare is a right” I hear you question. Here is the reality. If a homeless man without money or insurance walks into an emergency room with chest pain, he will be treated the same as if he were the mayor of the city. If he was sent out of the emergency room untreated because of his lack of financial means, he would have no difficulty finding an attorney who would sue the hospital and the physicians and certainly win a very large amount of money.

For a point of comparison, if the same homeless person went into a grocery store with no money and walked out with 6 doughnuts, he would be arrested. Under the “3 strikes” law, there is a man who is currently serving a life sentence in California for stealing 6 doughnuts. Instead of stealing the doughnuts, he should have had a heart attack; the doughnuts in the cardiac unit would have been free.

In life threatening situations, we provide high quality healthcare for all. Unfortunately, we fall short in providing basic care to those without adequate insurance or resources. If we could spend our resources in prevention and early treatment, we could improve quality and reduce costs at the same time.

Cost containment

Healthcare cost has been going up faster than inflation since 1960. In 1983, I bought a health insurance policy with a $1,000 deductable and 80/20 coverage and no pre-existing exclusions for a premium cost of $45 every 3 months. Today a similar policy for a 28 year old man would cost 16 times what I paid in 1983, providing he had no previous medical history which might prevent him from getting insurance at all. It is not rational to think that the cost of healthcare can continue to exceed inflation without it eventually collapsing from its own weight.

Why does healthcare cost so much more today than it did 28 years ago? The most comfortable and obvious explanation is that we have had progression in diagnosis and treatment of illness with the use of costly technology which results in improved outcomes and longer life expectancy. Although there is truth to this explanation, it looses some credibility when we compare our cost of healthcare and outcomes with other countries. When other counties with similar financial and ethnic demographics demonstrate comparable or better outcomes with respect to life expectancy and health quality at half of the healthcare cost of America, we must evaluate how this is possible.

The 8,000 pound elephant in the corner that no one is talking about is the fact that Medicare is destined to run out of money within the next couple of decades. Ignoring this fact will not make it go away. We knew that the levees in New Orleans were inadequate 30 years before the Katrina flood, yet we did not respond. We now know that Medicare will be bankrupt in our lifetimes and no one has the courage to even discuss this reality much less propose a solution.

Economic considerations:

Due to circumstances unique to America, the cost of heath insurance has evolved to be the responsibility of the employer. This was not an economic problem when health insurance was a small additional benefit of employment. Today, the cost of healthcare is a major financial consideration of many companies and is one factor that makes American manufacturing less competitive in an international market. For instance, how many more cars could GM sell if each car did not bear healthcare cost which in 2005 was estimated to be $1,700 for ever vehicle. The near failure of the American automobile manufacturing sector has cost the economy dearly and has cost taxpayers billions of dollars. Could this have been avoided if American cars were more competitively priced by $1,700 each? Perhaps.

As a physician, I have always felt that providing quality healthcare for my employees was my responsibility. With a large practice, 6 providers and 24 support staff, in 2007 my annual medical insurance expense was over $160,000. My specialty is Internal Medicine which is a poorly reimbursed branch of medicine with a large number of elderly and ill patients. The revenues of the practice could not meet the overhead and my practice closed. Had I not been burdened with the cost of health insurance for my employees, my practice could have survived. I suspect that I am not the only example of a small business being closed because the incremental overhead of medical insurance made the business unsustainable.

What is wrong with the solution currently being discussed?

Let me preface this answer with the disclosure that although I am politically independent and not party affiliated, I do believe that Barak Obama is a brilliant man and a skilled leader. I also believe that healthcare reform is essential for our citizens, our economy, and our credibility as an international leader. That said, I am horribly disappointed by the solution currently being proposed, and feel that any watered down version of this will likely be worse than nothing.

My biggest concern with the current proposal is enforcing employer and individual mandates for medical insurance coverage as a major underpinning for the solution. As I discussed in a previous paragraph, saddling the employer with the cost of health insurance makes it incrementally more difficult for the employer to succeed when the international competition likely has no healthcare cost. Mandating that all employers provide health insurance will cause businesses to close.

Very concerning is the fact that there are employers who have very low profit margins. If we mandate an increase in their overhead by insisting that they provide health insurance for employees, we may turn a low profit margin into a loss. Which is worse, to be employed without health insurance benefits or to be unemployed? I realize that the current proposed plan is supposed to have provisions to prevent this from happening but there will always be the case of someone who is not going to qualify for an exemption to this mandate but will also not be able to afford it. In addition, how many dollars do we want to waste in investigating and enforcing this mandate? Dollars spent on bureaucratic administrative costs are health care dollars wasted.

The individual mandate is even a worse idea. It represents the most regressive tax this country has seen since we eliminated the poll tax. When a person making $3,000 a month is required to spend the same as a person making $100,000 a month by virtue of a federal law, this is by definition a regressive tax. Again, there are provisions to assist those in lower income brackets however there will certainly be those not poor enough to benefit from the assistance yet will be unable to provide essential services for their families when saddled with the increased cost of the individual mandate.

The argument is made that we mandate auto insurance be purchased by anyone driving. This is true but auto insurance is dramatically more affordable than medical insurance. In addition, one can chose to not own a car and therefore not need to purchase insurance. We have no such easy outs with health.

I am not surprised that Nixon supported the individual and employee mandates during his administration; however I am a bit surprised to find this to be the solution of the liberal Democrats today.

Cost savings? Universal coverage?

In addition to my concerns about the negative economic aspects of the individual and employer mandates, I am also disappointed by the fact that the current proposal does nothing to contain costs and may fail to provide universal coverage. It also avoids the question of what do we do with a foreigner (legal or otherwise) who presents to a hospital sick and without insurance.

The administration is adamant that the proposal will not increase costs. I doubt that this is true but even if it is true, it does nothing to slow the rate of escalation of costs. I realize that the major insurance companies have reassured us that they will be able to reduce costs. This strategy of relying on the assurances of health insurance executives lacks credibility. If insurance companies were capable of reducing costs in their current dynamic, they would have done it long ago. Let us not gamble our children’s future upon promises that cannot be fulfilled.

The “Federal Option”

There is a significant contingency of folks who think that a Federal option is the solution to cost containment and that if the current plan a Federal option, everything would work out. The thought is that the lack of profit motivation and absence of marketing costs would save a dramatic amount of money and reduce the cost of healthcare to a reasonable level. I do not believe in Santa Clause and I do not believe in a Federal option as the solution to health care cost escalation.

When Michael Dukakis ran for president in 1988, he was asked how he intended to handle the impending bankruptcy of the Medicare Trust. His response was that it would be simple. “Just direct Medicare recipients into private HMOs.” He calculated that the savings encountered with privatizing Medicare would extend the life of its trust. If the Democrats way to save money in 1988 was to direct patients away from a “Federal option”, and in 2010 the Democrats way to save money is to direct patients to a “Federal option”, I have trouble believing that this is a real solution.

Although it is true that there will be savings with respect to no need for profit and no need for marketing with the Federal option, there will be other costs which will likely offset these benefits. Medicare HMOs are not significantly more expensive than Medicare and often provide a better quality service. It is not beyond imagination that a federally administered system could add its own special inefficiencies that could impact global costs even without marketing costs or profits. The billions of dollars Medicare looses each year to fraud in Florida alone, if you can believe news media reports, lends skepticism to a single federal option being the cost effective option.

Medicare has been held up as an example of administrative efficiency. The VA system is promoted as a measure of low cost, quality medicine. Sadly both of these representations are wrong. Medicare has been the victim of gross fraud and abuse by unscrupulous physicians and durable medical goods providers. I don’t care how cheaply you process claims, if you have no mechanism of detecting fraud, you are not efficient. In addition, Medicare requires a hideous amount of paper work by physicians and hospitals; costs that are very real but never show up on the GAOs ledger. The VA system looks much better than it really is. I have many patients who use their VA benefits. They see me for most of their healthcare needs but go to the VA twice a year to get their medications refilled. From the VA’s perspective, they cost very little with only two visits; from my perspective, for these patients, the VA was nothing more than a very expensive pharmacy.

My conclusion is that a Federal option saving money is at best a long shot and not a gamble that we should rely on as the salvation of our health care cost crisis. I am in favor of including it in our options, but to make the Federal option the salvation of healthcare is foolishly optimistic.

A solution that will work: (in 5 pages or less)

When running for president, John McCain suggested that we give everyone a $5,000 check to help defray the costs of health insurance. Although I considered his proposal to be inadequate and not fully thought out, I do think it provides a starting point for the real solution.

Instead of passing out $5,000 checks, I propose that we provide every citizen plus every tax paying legal alien with a voucher that can be used to fully purchase a “basic health insurance policy”. (Non tax paying legal aliens such as foreign students and retirees would be required to provide proof of insurance as a condition of residency). We need to decide what elements are appropriate to qualify as a conforming “basic policy”. I would propose that the basic policy provide for preventive care before deductible, limit out of pocket expense to no more than $5,000 a year, and otherwise leave the options up to the individual insurers to decide. One insurance company could offer a very low deductible policy with a 20 % copay to a maximum out of pocket expense of $5,000. Another could offer a high deductible policy but provide the insured with and partially fund an HSA (health savings account) which would get the enrollee interested in saving money from the first dollar. The greater the flexibility allowed the insurance companies, the greater the potential for innovation and improvement and the less federal scrutiny is needed, with its inherent costs.

The value of the voucher would be based upon age/gender/acuity formulas which are well understood in the healthcare industry. This would result in preventing the rewarding of insurers who cherry pick healthy patients. In addition, individuals could change insurance carriers at will. When a subscriber changes from insurer A to insurer B, insurer A would be penalized, say perhaps one years premium, and insurer B would be bonused the same amount. This would strongly incentivize the insurance companies to keep their subscribers happy. The Federal government would also provide stop loss insurance for annual claims costs > 100,000 dollars. This would reduce the capital requirements for insurance companies, and further dis-incentivize insurance companies from cherry picking patients.

More robust packages could be purchased by individuals or employers by adding additional money to the vouchers. These higher end packages could include a broader range of covered procedures, advanced preventive screening, lower deductibles, or added benefits such as life, disability, or long term care insurance. It seems like a logical alignment of incentives if the same insurance company was providing health, disability, long term care, and life insurance for their clients. When keeping a client well means making fewer disability payments or delaying life insurance payments, this might create some creative thinking among insurance companies.

Medicare would be upgraded to qualify as a “basic policy” option. In its current form, Medicare is not adequate as a stand alone insurance and that needs to be corrected. A person who today has Medicare can keep the policy but it would be improved to the point that a secondary or “Medi-gap” policy is not needed. When a provider must bill Medicare, then bill a Medi-gap policy and then bill the balance to the patient, the undocumented administrative costs are astronomical

A person with Medicare today could chose to take the voucher and purchase a basic policy from any commercial insurance company or they could retain Medicare. Anyone not currently under Medicare could have the option to use their voucher to purchase a Medicare (Federal option) policy.

There are dramatic benefits to be had with incorporating Medicare in the reform package. First off, the administrative costs of maintaining a secondary insurance policy would be eliminated. The losers here are the Medi-gap insurance companies. The winner is everyone else. Perhaps there is some way that the current Medi-gap providers could receive one time compensation for their loss so that everyone wins.

The Medicare trust could not afford to upgrade Medicare policies to equal the “basic policy” on its own. It will require some additional Tax dollars to make this work. As a consequence, this logical additional revenue source to improve Medicare will result in providing a mechanism to prevent the ultimate bankruptcy of the Medicare trust.
Medicaid insurance and VA medical benefits would no longer be needed as everyone will have coverage. This will increase access and convenience for current VA beneficiaries and will dramatically improve access for Medicaid recipients who are currently unable to find physicians outside of subsidized indigent clinics which is not always available.

So let’s evaluate the results of this policy. Everyone is covered, this is good. The insurance companies will be very interested in keeping their enrollees happy as it will be very easy to change companies and it will be painful for the company to lose enrollees. Physician input will be valued as saving money with retention or improvement of quality requires physician input. And finally, there is a mechanism for true cost savings.

For the first time, physicians will have a legitimate chair at the table. Today if a physician does not like the policies of an insurance company (reimbursement or otherwise), the options for that physician is to grin and bear it or to quit the company and lose the relationship with their patients enrolled in that company. With the voucher system, the physician could inform their patients that they will no longer be participating with company A, but that they can change to any of the other companies remaining in that physician’s portfolio and not need to change physicians.

Yes, this can work!

Is it possible to have an insurance company that is interested in the welfare and happiness of their physicians as well as their clients? Actually it is and there is a real life example to be examined.

Rocky Mountain Health Plans in western Colorado is an example of an insurance company doing it right. It was formed as a not for profit insurance company administered by a for profit management company. The management company makes a percentage of the premium but does not directly financially benefit from denying services. The incentive of the management company is to enroll as many insured as possible, keep costs controlled to maintain solvency of the HMO, and retain as many insured as possible. Toward this end, they have engaged the physicians to help determine the best and most cost effective mechanisms to provide health care.

The reason President Obama visited Rocky Mountain Health Plans in 2009 was because it was the least expensive provider of Medicare services in the country. Historically, areas such as New York or Florida would cost two to three times more per member per month to provide care to similar patients as Rocky Mountain Health Plan affiliated physicians and hospitals could. Satisfied consumers, satisfied physicians, and low costs, all out of the same formula.

So we have a model of success. Why do we not see this same model all over the country? The answer is that not all insurance companies think and work the way Rocky Mountain Health plans works. Strategies to purchase market share and reduce costs through denial of needed care (rather than from investing in optimization of care) is too often the strategy implemented by insurance companies. As only a minority of enrollees develop medical needs in any given year, the insurance companies are allowed to get by with unreasonable practices and still have a majority of enrollees satisfied with their coverage. Very little effort is spent on the arduous task of developing health and prevention programs as most enrollees will be changing their insurance carrier within a few years, before there is a return on investment. Short term profits are rewarded and sought out.
Due to its geographic isolation on Colorado’s western slope and the historic investment RMHPs has made in doing it right, they can be rewarded financially by illness prevention and trying to encourage and reward healthy choices. In more urban settings where there is an oligarchy of insurance plans all behaving in about the same way, the concept of saving money by improving care is lost and is not a profitable course of action anyway.

OK, so we have the model of improved efficiency and the concept of vouchers to cover a basic insurance policy. How are these related and how will they reduce health care costs?

First, let’s not overlook the power of an intelligent, educated public and the free market when the educated public is allowed to make choices. For instance, if I truly had the choice of spending my voucher on a plan like Rocky Mountain Health Plans who have a track reputation of quality service vs choosing a plan that rewarded its CEO with a 100 million dollar golden parachute as he was being terminated for cheating on stock futures, I know which one I would choose and so would most other informed consumers. We are in the information age people, let’s use it.

With everyone covered and consumers in a position of power, the insurance companies will need to change to be more responsive to consumers. The companies that succeed will be those companies who work with physicians and consumers to provide the best quality care at the lowest cost. Those that take their profits and reinvest a percentage into further refinements toward improving their product, offering more than the mandate of the “basic policy” or adding rewards to their enrollees for healthy life choices will rise to the top. The model of making a small profit per insured life, based on having a large number of happy enrollees, will result in a very adequate profit for the insurance company and evolution toward lower healthcare costs with better quality.

A recent case in Colorado had an insurance company denying a person care for the results of an auto accident because she forgot to mention that her doctor had described “uterine prolapsed” on a prior exam. They canceled her insurance retroactively and left her with a 150 thousand dollar medical bill. She sued and got a jury reward of 2 million dollars. If consumers were really empowered, everyone who heard of this case would drop that insurance plan and move to an honest one. No one did because no one can. Replace our current failed system with the voucher system and the result would have been different. Would we see a change in insurance company behavior? Ya betcha.

What about the economy?

The voucher plan would provide a major economic stimulus which would keep on stimulating year after year. As manufacturing would be more competitive in the international marketplace against companies whose healthcare costs are not part of the cost of the product, we should see growth in this sector. The result would be increased employment and an increased tax basis. The small business sector would be in a better position to flourish as health care costs are currently putting people out of business and discouraging others to begin business. Stimulating small businesses with tax credits will help only those who are currently profitable and pay taxes. Removing the cost of healthcare will allow businesses currently unprofitable to become profitable, employ more individuals, new businesses to start and this will increase the tax basis.

We have experience with the trickle down economics of the Regan era. I propose that this health care reform would create a trickle around economic scenario. If the middle and lower income individuals have more spending money due to decreased health insurance and health care costs, a very high percentage of that money will be quickly be spent on goods and services and thereby stimulate economic growth.

How much will this reform cost and where will we get the money?

The reality is that providing adequate care to everyone should not cost much if any more than we are currently spending. The uninsured poor are currently cared for and the expense of their care is passed on to the more wealthy and insured. When providers are paid for caring for all, the individual costs to each will decline. This would be close to a net zero sum transaction.

As the vouchers will come from the federal government, the government will collect the money to cover these vouchers from income tax. The good thing about income tax is that tax assessment is based on some consideration for one’s ability to pay. I would argue that the increase in tax to fund the voucher system should not fall exclusively on the very rich but be born to some extent by most tax payers. As with income tax, it would be graduated and the very rich would pay more. When you analyze the winners and losers of economic growth vs increased taxes, the very rich are in a better position to benefit incrementally more with economic growth and loose incrementally more with economic failure. If funding the voucher system increases your tax by 5% but the resultant economic stimulation increases your stock portfolio value by 15%, you win!

To Tigerlilly, and all, I say this; All the elected Republicans who showed up for this Health Care Summit meating were in fact, used as ‘props’ for the Obama illusion of a bi-partisan discussion. In no way did he even entertain the thought of having any one there who really knows the Health Care enviornment to shed light on this complex topic. Although I do remember hearing from one of three Doctors there who shed light on the ordering of labs to protect themselves and not for the benefit of the patient! All for the practice of defensive medicine… a CYA approach.
This being one of the pots of gold to seek out and change. The first being Medicare fraud, saving $15 billion.
Obama could really care less. We all saw him staring at the Rep.s while they gave there thoughts, intently, to intently to seem sincere, when all along it didn’t matter what came of this meeting, HE’S GOING TO RAM THIS SO CALLED HC BILL THROUGH WITH RECONCILIATION, as he stated in one of his closing statements!!
This is not a HC bill, but is truly a power grab toward Socialism! The kind President Ronald Reagan warned us of way back in 1950 or 1951.