Who knows what tomorrow will bring, but at this moment, the debate is focused on contracting the uninsured piece of the pie, expanding the Medicare and Medicaid pieces of the pie, and maybe, just maybe, contracting the commercial insurance piece of the pie by creating a new piece called “public option.” I don’t know about you but I would not want to be in a pie-eating contest with eaters as strong and as voracious as commercial insurance companies. Yet, that is precisely the nature of the contest currently being waged.
I have a pie-shattering, paradigm-shifting idea. What about doughnuts? Doughnuts are meant to be shared. If you have an early morning meeting with a group of your fellow employees and you want to bring something that says, “We are all in this together,” you don’t bring pie—you bring doughnuts.
What is the pie? The pie is the cost of providing healthcare to everybody in the country. The following chart is meant to be representative of the players holding pieces of pie but it is not meant to be statistically accurate. The economic size of the piece is not as significant as the political strength of the hand holding on to it. The players are likewise a bit different than the usual suspects. The uninsured piece is not based on the actual market force belonging to the consumer-patient responsible for payment because that market force does not exist except as a negative pressure, a kind of anti-piece. The pieces belonging to Medicare and Medicaid are easily recognized but should carry subtitles as a reminder of the federal and state political processes that respectively exert pressure. The piece labeled on the pie chart below as belonging to “provider contract” is not usually recognized as such. The pie is usually divided into “employer provided” insurance and individual purchased insurance, but the fact is employers do not really control a piece of this pie beyond an indirect influence similar to the role of the taxpayers who fund governmental insurances. The “provider contract” piece refers to contracts negotiated by healthcare providers (primarily if not exclusively the large hospital systems in a given market) and commercial insurance companies (primarily if not exclusively the mega companies that dominate a given market). The “provider contract” piece also refers to direct contracts between providers and employers or other groups cutting out the insurance middleman.
Each piece contains a distinct population at any given time. The insurance industry refers to them as “covered lives” meaning that the unlucky millions in the uninsured piece would therefore have to be “uncovered” lives. If you are paying close attention, you might notice that there would be many more lives contained in these pieces than there are people living in this country. A person covered by commercial insurance would also get counted in the provider contract piece. That is as it should be. There is a cost based on the provider contract and a separate cost associated with the commercial insurance “middleman.” This doubling effect also holds true if the Medicare or Medicaid covered life is a commercial insurance hybrid such as Medicare Advantage. These, then, are the principle pie-eaters holding a significant piece of the total cost of providing healthcare to people in this country.
Thus far, healthcare reform has focused on reducing the size of the pie (or, more accurately, slowing the rate of the pie’s increase in size) by shrinking/enlarging some of the pieces relative to the other pieces (or, in the case of the public option, introducing a new pie-eater to the contest). It is difficult to shrink the overall size of the pie using that kind of strategy. Thankfully, there is another way. Bring doughnuts!
There is no hole in this doughnut. Americare is a basic benefit package covering everyone. In order to determine the cost of Americare, the total cost of providing care for everyone in the country for one year is calculated at Medicare rates and is divided by the total number of lives, creating a “single payer” annual premium for every individual life. It would be a low premium for three reasons:
1. By including all lives, the premium is based on the low cost of covering the “young invincibles.”
2. By forcing the cost of care to the Medicare allowable, the profit margin of the commercial insurers is eliminated.
3. While there are no deductibles, Americare has an across-the-board “co-pay” of 40% and the premium is based only on the 60% of cost actually covered.
The thing that makes this approach a doughnut instead of a pie is that the remaining 40% of the cost would be covered by the traditional pie-eaters. In that way, we can eat our doughnut and they can have their pie, too. In fact, since Americare would function like Medicare by utilizing commercial insurance companies as fiscal intermediaries to process and pay claims, the commercial insurance players would maintain multiple opportunities to feed themselves. The Medicare program would function as it does now but would provide coverage under its terms only as to the 40% co-pay. Likewise, the Medicaid programs would provide coverage for the 40% co-pay for covered beneficiaries—with coverage determined through a combination of federal and state mandates. Employer-funded groups would cover the co-pay through traditional commercial insurance. Self-employed persons would be required to purchase insurance (perhaps through a newly created insurance exchange) to cover the 40% co-pay. Individuals would also be allowed to “self-fund” the mandated insurance requirement through individual HSA investments.
I discuss this Americare version of healthcare reform in more detail in my whitepaper posted on this blog. In order to control the cost of care, it is important to include economic incentives for patients to reduce over-utilization and to maintain healthy lifestyles. Therefore, the premiums for the cost of covering the 40% not covered by Americare would be based on individual rate factors. Insurers would still have incentives to offer innovative programs. There would be healthy market competition between insurers. Providers would compete on a level playing field but there would be remain opportunities for synergies in well-integrated systems.
It should be obvious as to the pay sources of the 40% co-pay, but who pays for Americare? The answer is that much of funding would come from those same pay sources. The “new” payers would be those uninsured persons mandated to pay the Americare premium. There would also be “new” monies made available from that part of the premium dollar now being paid to commercial insurance companies. That dollar would no doubt cover more lives under the Americare system. Providers—particularly the mega systems built on heavy utilization by a saturation of specialists—will howl that they cannot survive on Medicare rates. It will probably be necessary to phase in the program over four years, but providers will adapt and they will survive.
Don’t Bogart the pie. Pass the doughnuts.