If there is any essential service staffed by essential workers, it is healthcare. Payment methods – I refuse refer to the current situation as a “system” – make no sense in terms of aligning incentives for better health, responding to public health matters, and in providing a sense of security to citizens.
This column will not cover every aspect of healthcare, prevention, or wellness, but instead will be limited to the current payment methods for diagnostic and treatment services. Every day, there are thousands of medical miracles achieved due to the innovation and investment in healthcare facilities, technologies, and treatment. These innovations and investments, along with the quality of US healthcare workers due to training, certifications and their diligence means that a person in the USA often has better odds of defeating a particular condition.
With these amazing resources available, why so much differentiation in perceptions and the reality of healthcare access, quality, and cost? It’s easy to understand when the payment methods are examined.
Let’s begin with the premise that everyone needs health services. Such services take the form of wellness, preventive screenings, chronic disease management and treatment of acute conditions.
The threshold service for wellness is education regarding exercise, healthy diet, and abstention from toxic substances. Preventive screenings for hypertension, early-stage diabetes, mental disorders, and common cancers such as colorectal, breast and prostate would also represent a minimum threshold of services available to all. It is well established that management of chronic conditions such as diabetes and mental illness positively impacts cost and quality on acute care settings for episodic diagnostics and treatments.
To cover costs of health services, there are tax-supported insurances, private insurances, (most often sponsored by Employers) and direct pay from patients. Within each of these payment methods, there exists a wide array of what is paid for, when specific care is necessary, and how much the provider will be paid for the service.
It should not be surprising that the disparate payment sources and the attendant rules and rates, have resulted in higher costs, less efficiency, and one more layer of anxiety for a person facing the shock of an injury or illness. It is not uncommon to hear laments of how wellness or preventive screening may have prevented a serious illness.
We need to fix this.
Employer-Sponsored Health Plans
What are the payment methods today and how well are they working?
Let’s start with the seemingly immovable employer-sponsored health plans. These plans cover some 160 to 170 million American families. Costs are shared with the employee and the insured, with many large employers acting as their own insurance carrier. The risk pools are defined between the employer and the insurance carriers, and a benefit plan designed. Many are very satisfied with their employer-sponsored private insurance. Satisfied until they realize that they will be kicked out of the risk pool if they become too ill or too old to work. So, while an illness may mean loss of employment, it may also mean loss of health benefits exactly when the need for health services is greatest.
The satisfaction rating of the health care coverage may change when the costs of deductibles, employee premium contributions and co-pays are factored in, or when an employee discovers that the doctors and hospitals most desired are “out of plan.”
The private, employer-paid insurances provide no incentive to promote wellness or prevention. The insurer knows the employer may shop their insurance plans every year or the employee may change jobs which means a new insurance carrier each year is not uncommon. Obviously, short-changing wellness and prevention services because it may benefit the next insurer and/or the next employer is not uncommon. All plans have limits to care, which are typically discovered when one is facing the need for care not in the health plan. The churn of coverage provides incentive to delay payment and deny care.
The federal tax treatment for employer-sponsored health plans is fundamentally flawed and unfair. An artifact of economic and social conditions in the mid 1940’s does not suit the economic and social conditions of 2022. The insurance benefits are provided as part of employee compensation but are not subject to individual income tax. Therefore, those who have a rich, benefit-laden plan pay zero income tax for that employment compensation – while the people who struggle with a thin, limited-coverage plan also pay the same.
Those that argue that employer-sponsored plans are an efficient market cringe at the idea of taxing the cost of the insurance coverage and will lobby to make sure this ancient tax break is maintained, despite its contribution to uneven access and economic protection.
Tax-Supported Health Plans
The contours of the marketplace for healthcare insurance coverage are unique to other markets. It’s a service that everyone ultimately needs, but consumption of the services cannot be tied to the ability of customers to pay. For example, if a person cannot afford to buy an airplane ticket, then they don’t make the trip, or at least don’t travel by airline. Sounds fair. Suppose that same person hit with an asthmatic attack needs immediate medical attention. The answer can’t be they don’t get the care. It’s not an option like the airplane trip.
Into this gap is health insurance provided to persons of a certain status. The tax-supported health plans include the combined Medicaid & Children’s Health Insurance Program (CHIP) which covers about 73 million Americans. These programs are designed to meet the needs of low-income and medically needy persons.
Medicare, which provides health insurance primarily to those who have attained the age of 65, also provides coverage for some with disabilities and everyone with End Stage Renal Disease (ESRD). Medicare and Medicare Advantage plans have certain premium charges based on income and other criteria. Supplemental plans, purchased from commercial insurance providers fill in the places where Medicare coverage doesn’t, i.e., “gap”, which explains the “Medigap” insurance monikers. Approximately 65 million people are enrolled in Medicare. About 15% of Medicare eligible people also qualify for Medicaid and are referred to as “dual eligible.”
The Veterans Administration (VA) provides health services to about 9 million veterans at nearly 1,300 sites of care.
All these tax-supported health plans require certain preventive services. Medicare’s entry-level preventive care is an annual wellness visit. Preventive and screening services have been shown to measure health status and detect disease in early stages, where treatment is less costly and more effective. The incentive for the tax-supported plans to promote and pay for prevention is that the enrollees will be using the coverage for several years, if not a lifetime.
Private Pay and Individual Health Insurance
Suppose a person is not employed by a company who offers an employer-sponsored plan. Freelancers, small business owners, artists, and “gig workers” cannot avail themselves of the large group market. Indeed, many large employers go to great lengths to avoid classifying part of their work force as employees, to sidestep obligations to provide health coverage.
That same person also earns too much money to be eligible for Medicaid and is neither old enough for Medicare nor a veteran of the armed forces.
So, the choices seem to be running the risk of no insurance, imperiling both health and a sound financial future, or buying private insurance. Private insurance is typically purchased with after-tax dollars unless certain thresholds such as 7.5% of annual income are exceeded. The costs are still on the taxpayer after this threshold, they are just deductible.
Premium costs for these private plans may be $6,000 or more per year for an individual and $13,000 or more for a family. The plans come with hefty annual deductibles and co-pays, which may double the out-of-pocket costs before insurance covers any medical bills. Less expensive plans can be found, but the buyer needs to be very aware of which doctors, hospitals, and other care providers will accept the insurance, i.e., be “in network.”
To sum it up, our current methods to finance health insurance coverage is financially crushing a segment of our society that is vital to our future.
How to Reform our Healthcare Payment System
The solution to a sensible health care financing system is right before us.
Consolidate all the tax-supported health insurance plans, excluding the VA, into one program. Replace the costly application and eligibility screening to see if someone is old enough, sufficiently low-income, or a veteran with a simple test: Is the individual a citizen or a permanent legal immigrant? If so, then there is a base level of coverage for all.
Citizens need to bear in mind that nearly every hospital in America would have gone bankrupt during the pandemic if special reimbursement mechanisms were not put into place. A base system with universal eligibility could shift or amplify coverages to meet the requirements of public health crises.
The longer-term outlook of a universal system means that incentives for wellness and prevention, including mental health services are part of budget considerations.
Allow for a secondary, private market of supplemental insurance for people who have the desire and means to pay for additional choice, broader access, or alternative treatments. Should employers want to offer such insurances to attract employees, the cost is taxable income to the employee. This element of the health insurance landscape is essential to foster experimentation and innovation. Nearly every country with a universal system also has a private system.
End the tax-favored treatment of employer-sponsored health plans. Even if nothing else is done. It’s the lynchpin to the entire crazy situation.
Promote the use of Health Savings Accounts (HSA) for all, not just employer-sponsored plans so that individuals can defer some of their earnings for future health care related expenses. Funds can grow tax free like Individual Retirement Accounts and can then be applied to long term care and assisted living.
Immediately make every person eligible for a Medicare Part D plan for prescription drug coverage. The program is working very well.
Funding The New Health Insurance Payment System
Reforms such as consolidating to this simple plan would provide great cost relief. For tax-supported health coverage, it is a single eligibility question. Employers would not need to devote time and valuable resources to the purchase of healthcare, save for any supplemental benefits they may want to offer. More likely employers would just get out of the health insurance business altogether and use some of the savings for wage increases.
I will leave it to the actuaries to come up with the precise calculations for funding, but here are some obvious means:
Every beneficiary (all citizens) would contribute to health costs on a sliding scale, based on their income. The information is readily available on form 1040. Worried about those in cash economy not contributing? Cumulative annual banking transactions over $10,000 must be reported to the IRS, as are cumulative annual payments from financial apps (think Venmo, Stripe, et. Al.) over $600 must be reported to the IRS.
Expand the Medicare tax that all employers and employees pay. The mechanisms are already in place. The employers will see this as savings against what they pay in insurance premiums today.
A better idea, tax luxury goods. For example, average taxpayers have been funding stadiums for billionaire owners of sports franchises. Reverse this with a tax on revenue of professional sports above a threshold.
Still better idea – tax trades of public securities. A fraction of a cent per transaction adds up quickly. Add a surcharge to credit card charges. The financial system is where money flows.
Will Solution Be Better than What Exists Today?
The needs for wellness, preventive screenings, chronic disease management and treatment of acute conditions, both medically and mentally, will not shrink nor will they go away. Standing still while young families are slammed with unmanageable costs, our nation remains unprepared for a major public health crisis, and money that could provide care is sucked into a bizarre vortex of bureaucratic waste is not right for a nation such as ours.
There are plenty of things in this policy proposal for readers to dislike.
There are those on the left who advocate a single payer, all-encompassing system that includes prohibition on offering healthcare services outside the national system. The evidence is that all these type of payments methods manage global cost by restricting access. Examine where the innovations are coming from that are adopted by the universal systems.
There are those on the right who think we can have some type of open market system like groceries, transportation, or recreation. There is evidence that the core economic of supply-demand is defeated in many parts of healthcare financing. We might take a trip if the airlines offered 2-for-1 ticketing, but I doubt many would get a cardiac procedure based on similar special pricing.
This outline is pragmatic, recognizes that a base portion of healthcare services are public goods – available to all and funded through taxes – while simultaneously championing free markets that can spur innovations.
In every case, hopeful that most would agree that the ideas in this column would be better than what we have today.
Onward.
I am fortunate that BCBS is relatively proactive about preventive care (what a concept!). I still have "survivor benefits" from my late husband's job, thank god, as the jobs I've had since then would not have provided coverage for me. In fact I actively declined Medicare when it became available to me in order to keep BCBS as my primary coverage. I had colon surgery several years ago, for a sessile polyp, and have had more frequent screenings since then, to be safe, which BCBS is happy to cover. It boggles my mind that other insurance companies have not caught on to this idea.