The Competitive Universal Healthcare Scheme

Following is a description of a proposed US healthcare scheme that achieves all of the goals of healthcare reform while making minimal changes.  It is a middle-of-the-road scheme that people of any political leaning will likely embrace and support during the reform process – once they are aware of it.

Why This Scheme is the Best Option

The Competitive Universal Healthcare Scheme achieves all the goals of healthcare reform without any significant drawbacks.  The following is a summary of its many benefits. 

1. Everyone is fully covered from cradle to grave. 
2. It drives down total health care cost by greatly increasing price competition in a regulated environment, by minimizing administrative activities and associated costs compared with any other schemes identified to date, and by leveraging the capacity of the private sector to minimize costs in an effort to maximize profit. 
3. It allows people to continue to use their current insurance company or health maintenance organization (HMO). 
4. It ensures everyone can choose any insurance company or HMO at any time, and change insurance company, regardless of pre-existing conditions. 
5. It ensures the coverage options available to a person are not dependent on their employment and don’t have to change when they change jobs or are out of work or retired or their marital status changes. 
6. It ensures people can stay with the same insurance company for life if they wish. 
7. It ensures health records are kept in a standard electronic format and follow the patient for life no matter which insurance companies and service providers they use. 
8. Plain-language standard plans allow direct comparisons between companies and ensure there are no hidden holes in coverage or other unpleasant surprises. 
9. People are free to choose from various standard plans and pay more for whatever optional extras they desire. 
10. Those unable to pay even their co-pay are still provided the same basic level of care as everyone else and still using the insurance company of their choice. 
11. Insurance companies have a financial incentive to keep their enrollees healthy and to provide preventive services. 
12. Insurance companies have a financial incentive to recruit unhealthy people (as well as healthy ones) and to get unhealthy enrollees healthy again. 
13. Insurance companies have a financial incentive to avoid any unnecessary treatment.  
14. At the same time, insurance companies have to compete for customers who have access to standardized performance measures and can compare apples to apples between companies, and are legally bound by a level-of-service-based standard plan, so they can’t mistreat customers or unreasonably deny treatment. 
15. To attract more customers, insurance companies will continually improve their services and try different approaches, thus ensuring self-optimizing healthcare services that evolve to remain in line with people’s needs and desires.
16. Patients do not need to do any paper work before or after a medical visit – just a co-pay at the time of treatment.  Patients don’t have to apply for or wait for any reimbursement.
17. Employers no longer have the expense of arranging and providing healthcare coverage for their employees. 
18. Federal and State governments can end other healthcare schemes for special groups such as Medicare, Medicaid, Federal Employees Health Benefits Program, State Children’s Health Insurance Program, etc.  If desired, such schemes could continue until there are no more users, but they would not accept any new enrollees. 
19. There are none of the drawbacks, real or perceived, that some people attribute to a government-run single payer system such as that deployed in several other countries including Canada. 
20. There is no government-provided health care service (e.g., “public plan”) that might unfairly compete with the private sector insurance providers and require a government bureaucracy to operate (or continuation of the Medicare bureaucracy). 

Here is how it works.

Regulation – Just Enough

Working with healthcare providers and insurers, the Federal Government develops several standardized health care insurance plans.  One of these defines the minimum base level of insurance coverage.  The base standard plan will include full coverage for all illnesses including mental illness and hopefully dentistry and ophthalmology too.  It will have no caps and fully cover catastrophe illnesses regardless of duration or expense.  It will not include non-essential treatments such as elective cosmetic surgery, private room in a hospital, etc.  Some argue that this base plan should be similar to that provided by the current Federal Employees Health Benefits program.

Another standard plan will be composed of the base plan plus some extras.  The next standard plan after that provides that same second level plan plus some further extras, etc.  Hence a series of standardized plans are defined, each building on the former.  It is estimated that there would be three to six such standard plans, but perhaps more.  Insurance companies must offer all standard plans, and are free to offer any number of non-standard plans too.  Non-standard plans are required to build off a standard plan.  They must offer all of a standard plan plus any extras they wish to add.  The number and nature of the standard plans can evolve over time.  If too many people are choosing to use non-standard plans it is a sign that the standard plans are inadequate and they will be changed to be more in tune with the types of coverage people are choosing.

Each standard plan is documented, in plain language, not legalese, in an agreement that clearly states the obligations of both the insurance company and the enrollee.  These agreements are available for everyone to read at a government web site.  The agreement for each standard plan defines a minimum level of service on the part of the insurance company, including things like wait times, proximity of care providers, and quality of care.  This precludes companies from providing a minimalist service aimed only at those unable to afford any above-base options. 

All US residents are required to have at least the basic health insurance as defined by the base standard plan.

All current health insurance companies and health maintenance organizations continue to offer health coverage.  New companies can enter the field at will – the more companies, the greater the competition.  However, all companies must offer all of the standard plans and be willing to accept a single regulated annual payment (premium) plus any additional amount they are required or opt to charge the enrollee. 

Insurance companies are paid a fixed amount (premium) per enrollee per year.  They are not reimbursed a fixed fee for each service provided.  The regulated annual premium they are paid for the base standard plan’s services varies from one company to another depending on their mix of high and low-cost enrollees, as described below.  Again, the companies are free to offer additional plans and options, but all such offerings must start with one of the standard plans and add extras.  They can charge any amount they wish for standard plans other than the base plan and for optional extras over and above a standard plan.  Any additional profit they can make from such sales will help subsidize the cost of the base standard plan.

Insurance companies (including health maintenance organizations) are required to accept and maintain the enrolment of any US resident, regardless of age, gender, health history (pre-existing conditions), etc. in any standard plan and any non-standard plan.  The companies and health care providers they use are required to maintain health care records for each patient in a standard electronic format and to make that record available to the patient and any future insurance company and service providers the patient chooses. 

Insurance companies, and health care providers they use, are required to periodically report to the government, in a standard format, the outcomes of all health care activities.  Enrollees (patients) are also encouraged to report their experiences in a standard format.  Both of these are accumulated and summarized into standard measures of performance by company by standard plan by region.  The information provided is conceptually similar to that provided by Consumer Reports for household appliances.  Customers are therefore able to directly compare the performance of companies competing for their enrollment.  Companies that have better outcomes or treat their enrollees better or reduce the wait time for treatment or have closer or more convenient facilities or have lower co-pays (are the low bidder), etc. will get more business.

As now done for other industries, the government rigorously applies anti-trust, anti-collusion, and fair competition laws to avoid bid rigging, predatory pricing (to drive out or shut out competitors), and similar illegal practices.

Paying Insurance Premiums – Uncle Sam Pays

There are various options for paying the insurance premiums.  The preferred option is discussed here. 

1. The government pays the base standard plan insurance premium for everyone in the nation, using money raised by taxes dedicated to health care and automatically adjusted annually to be just sufficient to cover the actual cost of all premium payments.  There would be a fierce debate/battle over the decision as to what taxes to use, but it is theoretically possible to identify a mixture of taxes that is equitable and politically achievable.  The new taxes would be offset by savings to employers and individuals who now no longer have to pay all or part of healthcare insurance premiums.  There would also be substantial savings in other government payments, such as for Medicare, Medicaid, SCHIP, public health care for the indigent, etc. and the equivalent existing tax revenues can be diverted to the new system.  It also enables an end to the tax breaks given for healthcare payments by companies and individuals.  Since this scheme minimizes overall healthcare-related costs, it minimizes the combination of taxes and payments overall, relative to the existing system and other options.  Even after allowing for coverage of those currently without insurance, it should be close to “revenue neutral”. 

2. If an enrollee chooses a standard plan other than the base standard plan, or they choose a non-standard plan, they are responsible for paying the extra portion of the premium (the amount by which it exceeds the base standard plan premium paid by the government).  Co-payments may also be higher for plans other than the base standard plan.  Some employers might choose to pay all or part of such extras for their employees as a means of attracting and retaining employees.

3. Based on a means test, all or portion of co-pays would also be paid by the government for those of limited means, but only at the basic plan level. 

 This payment scheme, similar to a government voucher scheme, totally de-couples health insurance from a person’s employment.  The administration associated with payment is negligible, as there is only one premium payer (the government) at least for the base standard plan, and the amount paid is fixed at the beginning of each year and is not based on the number or nature of patient visits or treatments.  There is no fee-for-service on the part of the government payments.

Determining Prices – Bidding

Various techniques can be devised to determine the regulated insurance premium payment while building in financial incentives for desired behavior on the part of insurance companies.  The following is one example.

1. The cost of providing the same health service varies from one part of the country to another.  Therefore, insurance premiums need to be able to vary by geographic region.  Cost regions will be determined by an independent body based on evidence of significant regional differences in health care delivery costs.  Each insurance company can choose to operate in (offer coverage for residents of) any or all such regions.

2. In addition to regions, each new patient enrolled by an insurance company is put in a cost category when they sign up, based on their standardized medical records (which are accumulated over the life of the person regardless of which insurance company and medical service providers they have used).  Companies can’t change an existing patient’s cost category.  The cost category is determined at time of initial enrolment and doesn’t change while they remain with that company.  Therefore, the companies have an incentive to make patients healthier over time and recruit from higher cost (less healthy) groups as well as lower cost groups. 

3. At the beginning of each year each company reports to the government the number of patients in each cost category, in each region they choose to service, and their bid price for each cost category for that region for the base standard plan.  The lowest bid per cost category in each region determines the cost assigned, for all companies, for that category in that region.  For each company, the government then calculates the weighted average regulated payment for the base standard plan for each region that company operates in.  The formula for a given region is:  the sum of [the number of current patients (enrollees) for that company in that region (including those in all plans other the base standard plan) in each cost category, multiplied by the low bid cost assigned to that cost category], divided by the company’s total number of enrollees).  Hence companies are fairly compensated for base services according to their mix of low and high cost (high risk) enrollees, but only to the extent of the lowest bid from all companies.

4. For each company, the government also calculates the weighted (by number of enrollees in each cost category) total of the bid prices for all cost categories in each region.  For a given region, the company with the lowest such total of bid prices is not required to charge their enrollees any premium over the base plan premium provided by the government.  All other companies servicing that region, are required to charge enrollees an additional premium equal to the average difference between their bid-price-based premiums and the lowest total of bid-price-based premiums (that paid by the government).   The amount of extra premium varies from one company to the next depending on the amount by which their total bid price exceeded the lowest bid.

5. Therefore, companies other than the low bidder are penalized financially, by having to charge enrollees an additional premium payment, over and above that paid by the government, according to how much their bid prices exceeded those of the low bidder.  Since everyone can choose any company at any time (although changing companies may be restricted to say once per year to avoid a patient making an excessive numbers of changes) regardless of employer or pre-existing conditions, having to pay an additional premium for the same standard plan is a disincentive to use that company.   Hence there is a strong incentive for companies to be the low bidder.  

6. There is no regulation of the additional premium charged by insurance companies for standard plans other than the base plan.  Competition for enrollees ensures those charges are minimized.  It is only the government-paid base plan premium that requires the bidding process, as it is paid by the government on behalf of everyone and the government is not choosing just one company (the low bidder) but pays all companies the same low-bid premium (adjusted to account for their mix of patient types (risk) as described above). 

7. The standardized co-pay varies by type of service and type of drug or appliance.  Treatments, drugs, and appliances proven to be the most cost effective (highest benefit-to-cost ratio) would have minimal co-pays, while those that are least cost effective would have high co-pays.  Preventive services proven to be effective (e.g., most immunizations) would have no co-pay.  The standardized co-pays would be set by an independent, non-political entity charged with assessing the cost effectiveness of alternative treatments, services, drugs, and appliances, similar to how the Federal Reserve sets interest rates.  The standardized co-pays are reviewed and announced just prior to bidding by insurance companies so that they can be taken into account in establishing their bid prices. 

Other Details

The relationship between an insurance company and the health care providers available to their enrollees, and the payments they make to those service providers, are not regulated.  It is up to each insurance company to obtain the services of medical care providers by any means they choose, just as insurance companies do now.  However, they will not be able to compete if they don’t obtain convenient, high quality services at minimum cost.  Insurance companies will innovate and try different arrangements and agreements with care providers in an attempt to maximize customer satisfaction while minimizing cost. 

Switzerland and the Netherlands use private insurance company based universal health care schemes with some similarities to the one proposed here. 

A quasi-government body similar to the Federal Reserve would be established to administer the program.  Such a body is independent, and free of direct political or industry influence.  Among other things it would define the standard plans, define the cost regions and patient cost categories, set the base standard plan premium via the bidding process, set co-pay amounts, gather and analyze and report performance statistics, investigate complaints by healthcare consumers, and recommend changes to healthcare-related legislation when needed.

The Competitive Universal Healthcare Scheme described above is similar to one developed by two US medical doctors, Zeke Emanuel and Victor Fuchs, and documented at http://www.brookings.edu/~/media/Files/rc/papers/2007/07useconomics_emanuel/200707emanuel_fuchs.pdf.  There are small but important differences in the two proposals.  Most significant is that the Emanuel/Fuchs scheme would have an independent entity (like the Federal Reserve) set the price of the base insurance premium.  Such artificial price setting, no matter how well intentioned and well done, is bound to be sub-optimal.  The bidding system described above is considered a better means of ensuring that prices are minimized while still being fair and sufficient. 

Medical malpractice reform should also be addressed, but this is independent of the health care scheme adopted.

Comparison with Alternative Schemes

In comparing the above-described Competitive Universal Healthcare Scheme (CUHS) to alternative proposals (the best of which appears to be the single-payer option) there is only one area that appears sub-optimal.  Although some insurance companies may be able to make arrangements for service to be provided by most if not all care providers in a region while still being cost competitive, it is likely that as with current health care insurance, most customers will be limited to a subset of care providers.  A single payer system on the other hand ensures everyone can go to virtually any provider. 

Although many customers believe they would like to have a choice of any doctor or hospital for each service event, the flexibility provided by a single payer system makes integrated care very difficult and probably expensive, if not impossible.  In general, there would be no one proactively looking out for the patient, trying to keep them healthy and to get them well again as effectively as possible when they do become ill.  

Integrated care involves a group of service providers providing coordinated care for a particular patient, often with a primary care doctor responsible for the coordination.  The company providing integrated care has an incentive to ensure the patient receives adequate and effective care, and also receives preventive services.  It is argued by many that integrated care leads to better outcomes at lower cost.  It is a key attribute of many of the top-rated healthcare facilities in the nation, including the famous Mayo Clinic.  Furthermore, different companies continually experiment with refinements to their integrated care model, and with standardized performance reporting the best approaches will quickly become evident.  So the disadvantage of not allowing total choice of any care provider is at least partially offset by the advantage of facilitating integrated care. 

On the other hand, the single payer scheme (effectively extending Medicare to everyone and doing away with private health insurance companies except for optional extra coverage), has several distinct disadvantages including: 

• Single payer involves the government reimbursing care providers on a fee-for-service basis which gives care providers an incentive to provide unnecessary or higher cost rather than lower cost treatments.
• Single payer involves a huge government bureaucracy, which as evidenced by other government-run services, is inevitably less efficient, less effective, less innovative, and more expensive than a well regulated, highly competitive private sector equivalent.  
• Single payer involves more politically based decision and policy making, with the inevitable attendant distortions due to special interests and political influences.
• Single payer makes it difficult, if not impossible, to provide integrated care for most people, as discussed above.
• Single payer involves a very disruptive and expensive transition from the existing insurance-company based system to a government-run system, disrupting the existing healthcare plans for those who like their current health plan.  

Some argue for a “public option” to private health insurance.  Inevitably, the public plan will become either an unattractive service used by only a few or only the poor, or will be unfair competition to the private insurance companies.  The latter would rapidly evolve to a single payer system, and the former would be either ineffective or (if used only by the poor) would establish tiered health care with continuing big discrepancies between the healthcare (and therefore the health) of the haves and the have-nots. 

Also, public option schemes invariably involve a continuation of employer-paid health care with all the attendant disadvantages including:

·         People can’t choose between all insurance companies, only the one or two with which their employer has contracted.

·         People can be forced to change insurance companies when they change jobs or change their marital status.

·         Employers continue to incur the significant cost of providing employee healthcare insurance, including significant administrative costs. 

·         The government continues to lose the tax revenue forgone by income and payroll tax deductions associated with employer-based health care (currently $220 billion per year).  

Any healthcare reform proposal that mandates or encourages employers to provide healthcare benefits to employees will not overcome such drawbacks, but will prolong them.

It is concluded that the healthcare scheme described above, or some refinement thereof, is the best choice for the United States.  

-oOo-