Friday, October 16, 2009

How I'd build healthcare reform, part 1

This is the first in a series on how I would want to see healthcare reform built, and what has stopped us from that.
The first is on how I would want to see healthcare reform built. I welcome criticism, suggestions and ideas. They will be included with credit.
The biggest current issues in health reform:
Health insurance is costly.
   the health insurance market isn't competitive
   technological progress continues to push forward, with corresponding new, expensive treatments
Many people don't have insurance
   can't afford it
   denied coverage from pre-existing conditions
   lose coverage when sick
Many people have bad insurance
   doesn't cover things uniformly
   loopholes to exempt the insurance company from paying for stupid reasons ("you didn't notify us within 48 hours so we won't pay..." "You didnt report your acne treatment so we won't pay for your heart attack")
   lose coverage when sick.
   can't choose the plan that suits their needs
Our medical innovation system is the best in the world
   don't wanna disincentivize innovation, because that saves a LOT of lives
   public option would hurt innovation by forcing prices of medicine down and making R+D less profitable
Health reform is costly
   our government is painfully inefficient - see the post office and public schools.
   many "cost saving measures" currently included will actually increase costs
   the current plans will add a lot to the deficit (note that the current plan claims to be deficit neutral, but it absolutely will not be - see links from the last few days)
A list of potential reforms which, if enacted together, would constitute a reasonably efficient and compassionate overhaul, in my view:
1) an insurer is responsible for all costs incurred by a condition, even after insurance has changed.
      The idea of insurance is that if I get diabetes in the time I am covered by a particular insurance plan, the insurance plan will compensate me for my loss. It makes little sense to limit payments just because coverage ends after the event that triggers the insurance
    net effect: cost of insurance up. Bureaucratic difficulties for people who switch insurance. Hard determining whether new conditions are caused by preexisting ones.
  On the other hand, there would no longer be such thing as "dropped coverage". Pre-existing conditions become far less of a concern (not a concern if everyone has insurance, outside of transitional costs - see 8, 12 and 14).
2) Dropped coverage is not allowed. People who materially misrepresent their own health status when applying for insurance (in order to pay lower premiums) would be fined the amount difference in what their premiums would have been, inflation adjusted with a noncompliance penalty of both damages and legal fees, and pay the higher premium going forward, while maintaining coverage for their condition. This would be determined by health courts.
   net effect: insurance companies have to keep their actuarial tables on file. Costs go up. People aren't dropped when sick and contracts are maintained, but people also dont have an incentive to risk nondisclosure of their health status. Specialized health courts would be required.
3) capping punitive damages from medical malpractice and relocating malpractice trials to health courts.
     net effect: while capping total payout neglects the notion that a true victim of malpractice must be "made whole",  capping punitive damages and moving all trials to health courts will help avoid excessive malpractice insurance costs, reduce the number of tests ordered, and improve the reliability of malpractice judgments (to make them based on doctor behavior instead of on patient outcome). Costs go down.
4) Wyden bill: insurance can be sold across state lines, and if an employee doesn't like the healthcare her job is providing, she can use the employer-provided health money with any additional amount she wishes to add to purchase different insurance from an exchange.
      net effect: insurance companies would have to be mandated to share their actuarial tables. Competition in health insurance goes way up, forcing costs to drop and fairness to increase. The only reason this didn't happen was that Democrats didn't want to lose union support, and unions HATE this provision cuz they lose control of member health plans. Generally, whatever unions want in the US in 2009, it's a safe bet to go the other way.
5) Insurance companies would have to be able to share their actuarial tables and keep them on file (for #2 and #4)
    net effect: small insurance companies can still be competitive. This is the reason why insurance companies have state-level antitrust protection now, which would de facto go away if 4 were enacted. costs go down. There'd have to be stiff penalties for noncompliance, probably paid intra-industry.
6) Consumers have to be given a list of conditions their health insurance will NOT cover. Anything not on the list has to be covered at a default rate which is the headlining coverage rate on the insurance. An exception may need to be the baseline plan (see 8 and 12), which would only cover what's listed.
    net effect: costs up
7) no more pharmaceutical company/medtech advertising, other than non-drug specific PSAs ("Consumers - drugs exist that can cure your ED. See your doctor") and a specified format of pamphlet to inform doctors that a new treatment exists for X conditions, indicated in Y circumstances, with Z contraindications and side effects. These may be re-sent on certain dates, with a certain frequency, but doctors can't be deluged, and the format must be standard. In other words, pharma and medtech advertising to both consumers and doctors needs to be informational, not promotional. This was the law in the US up until the mid-90s, and it worked fine.
    net effect: costs down, as generic usage increases and more appropriate medicines prescribed. right now, pharma/medtech advertising seems to be a type of prisoner's dilemma - it's not like you're spurring additional demand for your product; a patient is either sick or she's not, and as long as patients and doctors know that a treatment exists (informational), you're not going to get more people going on your product. however, if your competitor advertises and you don't, you get killed. Thus, everyone spends on lots of advertising and pays a fortune. this increases costs and diverts spending from other, more productive uses. Again, something similar to this policy (at least the consumer portion) has worked well for the US in the past.
8) Everyone, including immigrants, must purchase health insurance, and all health insurance spending will be tax exempt (out of pretax income). All health insurance must cover some baseline of conditions, including heart disease/strokes, diabetes, all cancers with a certain incidence in the population, trauma, HIV/AIDS, infectious disease treatments, vaccinations, and age appropriate regular checkups and screenings (physicals, mammograms/papsmears, colonoscopies, etc). I'm sure there are other issues that need coverage that I'm not thinking of, they could be added, but this would be one set of conditions to start as a baseline. (see #12 for issues w helping people pay for it)
   net effect: costs up, but inefficiencies (hospitals eating unpaid costs, emergency room visits instead of PCP visits, etc) down. People who argue otherwise on the former are delusional; those who argue otherwise on the latter are confusing this with a public option.
9) Raise taxes on tobacco, trans-fats, alcohol, sugary drinks and other behavioral factors. Allow all exercise facilities (gym memberships, etc) to be tax-free.
    net effect: insurance costs down. income from other taxes can pay for some of the other sets of increased costs. Hopefully, prevention improves public health cost-efficiently.
10) a % sales tax levied on pharmaceutical and medtech companies, from which all basic research R+D expenditure is deductible.
   net effect: promote innovation (who wants to pay the government if you can research R+D),  higher costs if the fee is passed through in drug prices, but if there are any competing treatments, it'll be less of a price hike than you'd think - it's basically a mandate that pharma companies spend X% of revenues on R+D. Given that they'll be cutting advertising costs (see 7), which will be a major net gain for them, overall drug costs may not actually go up (though this portion will contribute to higher costs, offset by 7). The idea is that smallcaps are probably spending such a massive percentage of their money on R+D that almost none would have to pay the tax. Large caps, which are less innovative right now, would be forced to keep up their R+D.
11) permission to healthcare companies to collude or bundle products when dealing with state-run healthcare plans, or perhaps some mandate that companies are not allowed to, or must pay a fine if they sell to state-run or other state-monopoly healthcare plans at a lower price than the average price paid in the US.
   net effect: costs down in the US. we subsidize foreign healthcare plans by conceding them market power in negotiation with companies. These companies are forced to pass on extra costs to the US because they can't earn much money abroad.
And these are ideas I like, but they're not final - they would have to get some thought on the structure.
12) The government will give a basic voucher to everyone in the country, that covers an ultra-baseline plan (see #8 for the list of basic things covered). Anyone is welcome to spend tax-exempt money above and beyond this voucher; however, the poor will be able to purchase an insurance plan for free (private provider) that covers 90% of the serious things that could happen to them. Finding government money to pay for this would be difficult (though less expensive than the current plans in Congress)
13) The creation of a number of nonprofit health insurance companies unaffiliated with the government and forced to be self-sustaining (a la the cooperatives idea).
14) In order to help transition into #1 and #8, the government would have to offer private insurance a one-time tax break in exchange for a one-time amnesty on pre-existing conditions. This would be a large, large part of the overall cost of the plan.

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