Friday, March 5, 2010

My Healthcare Reform, Version 2.0

This is a large issue, and I'm sure my treatment is imperfect. This, however, is how I see this reform playing out.
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 (large) noncompliance penalty of both damages and legal fees, and pay the higher premium (the one they should have paid initially) going forward, while maintaining coverage for their condition. This would be determined by specialized 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) tort reform: 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) Elimination of the employer subsidy for health insurance, portability and the 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. Workers can also bring their insurance with them from job to job, and employers don't get special tax treatment as insurance providers.
      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 2010, it's a safe bet to go the other way.
5) All insurance companies over a certain percentage 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, and disclosure of what the health insurance DOES cover must be simple, and concise. This would probably require an agency of healthcare disclosure. Anything not on the list has to be covered at a default rate which is the headlining coverage rate on the insurance (if it covers 80% of your health costs, it must cover at least 80% of unlisted conditions). An exception may need to be the baseline plan (see 8 and 12), which would only cover what's listed.
    net effect: costs up a little. This way, not everyone needs to buy coverage for everything (I have no interest in paying for acupuncture, for example) but everyone should know exactly what they're buying.
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. For those who say this is impossible, regulation has actually been reasonably successful at preventing contact between bankers and researchers in the SAME ORGANIZATION. Will there be violations? Certainly. Will it make the problem less bad? Absolutely.
    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) up until a "Cadillac" level plan. All health insurance must cover catastrophic and preventive care, including some TINY baseline of (expensive and common) 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). Penalties need to be very high for anyone who doesn't enroll (a LARGE annual fee, and you can't get guaranteed health coverage for 5 years after paying a penalty- and if, after those 5 years, you don't sign up again, you don't get guaranteed coverage for another 5 years - only at the insurer's discretion).
   net effect: costs up, but inefficiencies (hospitals eating unpaid costs, emergency room visits instead of PCP visits, etc) down. I don't like mandates, but people do underestimate their own risks for things, and having someone not covered for a common cancer, or HIV, or heart attacks, or other common catastrophic or necessary preventive care would be a disaster. A big problem here would be combating mandate creep - you may have to make some sort of quantitative cutoff for a condition to be automatic (must incur a medical-inflation-indexed $X in medical spending each year - so either lots of people or high cost).
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) Large R+D Tax credits for pharma and medtech companies. These should accelerate as R+D climbs as a percentage of revenue - the first 5% maybe gets a 15% tax credit, while above 20% of revenues may get an 80% tax credit.
   net effect: promote innovation (who wants to pay the government if you can research R+D).
11) Permission for reimportation of drugs from OECD countries with national health plans, subject to very, very rigorous inspection. Alternately, some other way of granting 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. Opening up reimportation (which ideally should not happen at all even if its opened up) strips foreign companies of their market power, which means our health costs go down and we stop subsidizing foreign plans.
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 (tax-exempt up to a "Cadillac" point); 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.
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) A ban on discriminating by pre-existing conditions for anyone who signs up within the next year. After that, discrimination based on pre-existing conditions should be permissible, because you shouldn't see anyone HAVE a preexisting condition, thanks to number 1 and the penalties in number 8.
15) A shift away from paying doctors by procedure towards some weighted combination of paying by outcome, paying per 15-minutes spent in appointments, paying per condition and paying per procedure. The reason for including all 4 of these is that procedures give you an incentive to take very sick patients, outcomes give you an incentive to cure patients and take healthier patients, and per-condition would give you an incentive not to take too few patients, and per 15-minutes spent in appointments gives an incentive to fit more patients into a day. The last two of these certainly do overlap). This would have to be experimented with on a small scale to get the weightings right in each region.
16) Rewarding hospitals that implement high quality care for low cost - in a sense, forcing them to make themselves more competitive. This is like the "Race to the Top" mechanism in education - you give it to just enough hospitals that everyone thinks they have a chance, but not so many that it's all just handouts.
17) Funding the construction and accreditation of more med schools and nursing schools. The US has half the doctors per capita of other countries, which means supply is constrained, which means cost is higher.
18) A health insurance company that acquires over 10% (or whatever %) of US consumers would be paid a substantial ($1 billion? $2 billion? more?) "bonus", and be forced to split into two (or three or four). The idea is that you don't want health insurance companies with market power (over consumers or suppliers), but you also don't want to give health insurers license to treat customers badly if they reach their size cap and have no incentive to keep growing through competitive excellence.

19) FDA reform. Drugs need to be faster to market, cheaper to test, and the process is currently very political. The current structure also stifles innovation into a number of types of drugs because it prefers focused ones (aspirin likely would not pass an FDA inspection right now because its benefits are largely too diffuse and the Reyes' syndrome issue would be too much of a side effect). I'm no FDA expert, so some of the nuances of this would have to be worked out by someone who knows them better than I do.

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