garthmonroe

A. Previous post | summary

Last week’s post discussed why US healthcare is more expensive than peer nations.

B. Solutions

There are solutions to reduce the cost of US healthcare; some are short-term and temporary; others are long-term and structural. The US doesn’t have a uniform healthcare system; it needs a systemic overhaul, not another band-aid or bolt-on.

• Employer-based self-funding
  • Fifty percent of Americans have employer-provided health insurance. One solution, often deployed by large employers (ie. Boeing, HEB), is to self-insure, and pay medical claims directly.
  • Self-funding allows employers to bypass state insurance laws, providing greater flexibility; however, employers are still subject to federal Employee Retirement Income Security Act (ERISA).
  • Employers often put in place a stop-loss (reinsurance) policy, to protect against unlimited loss; typically, there are two layers of protection; the first layer puts in place a ceiling against any single large claim; the second layer puts in place a ceiling against total claims; it’s often beneficial to work with an experienced consultant to set-up the self-funded plan and the stop-loss policy.
  • Consistent with conventional medical insurance, self-funding utilizes a provider network, and utilizes a third-party administrator to pay claims to medical providers.
  • One advantage of self-funding, is that it provides an opportunity to educate employees to become better consumers of healthcare.
  • As CFO, I negotiated annual healthcare plans for fifteen years; I didn’t discover self-funding until this summer; self-funding was never brought to my attention (possibly because my consultants received a 5% commission from the insurance provider). In hindsight, I would have considered self-funding, as employer health insurance premiums increased 8% annually, on average, during my tenure.
• All-payor system
  • Uwe Reinhardt, a Princeton health economist and professor, recommended an all-payor system, which uses a single rate for a given procedure, regardless of payment method (ie. employer-provided insurance, Medicare, cash, etc.).
  • Such a system could produce cost savings up to $250-billion annually (6.5%), by stream-lining administrative and back-office functions, improving price transparency, and creating a more robust market for healthcare services.
  • Reinhardt suggested that an all-payor system would also provide an indexed cost adjustment for those locations with higher input prices (ie. New York City, San Francisco, etc.).
  • There would also be great benefit to industry standardization; for example, use of consistent forms across providers and insurance, and use of electronic forms. Digital medical records would also be beneficial; for example, if a patient, prone to migraine headaches, is traveling on business and falls ill.
• Capitation
  • Reinhardt also recommended a capitation solution (payment per head), where individuals pay a single amount per year for healthcare, rather than pay conventional insurance premiums, co-pays, and deductibles.
  • Healthcare providers would be responsible for the cost of all medical care; such a method should improve cost control, by reducing excessive or unnecessary testing, and should improve focus on outcome-based medicine. Some critics suggest that medical providers would ration medical care to control costs, however, the Mayo Clinic and Kaiser Healthcare have both successfully adopted capitation models, ensuring effective medical care with reasonable costs.
• Single-payer system
  • Single-payer healthcare is similar to healthcare in Canada or Germany
  • Provides universal healthcare with private delivery, and portable across states
  • System could be funded publicly, with taxes, as in Canada
  • System could be funded privately, with insurance premiums, as in Germany
  • Costs are contained by establishing operating budgets, and negotiating rates for medical procedures, pharmaceutical formularies, and pharmaceutical rates.
  • Cost savings up to $250-billion annually (6.5%) due to administrative savings; some argue that such a strategy would displace back-office workers; however, innovation is often able to re-deploy employees in new fields.
  • Elizabeth Rosenthal, of Kaiser Health News, suggests that the US could ease into a single payer system, by periodically reducing the age to qualify for Medicare.
• Cash pay
  • For Americans who are un-insured or under-insured, cash-pay is a solution, as 60% of healthcare is shoppable (ie. annual physical, x-ray, etc.); acknowledging that urgent care, and emergency room care, are often not shoppable.
  • Top ten reasons to attend the ER (American College of Emergency Physicians):
    • Difficulty breathing, shortness of breath
    • Chest or upper abdominal pain or pressure
    • Fainting, sudden dizziness, or weakness
    • Changes in vision
    • Confusion, or changes in mental status
    • Any sudden or severe pain
    • Uncontrolled bleeding
    • Severe or persistent vomiting, or diarrhea
    • Coughing or vomiting blood
    • Suicidal or homicidal feelings
  • Cash-pay strategy requires that people set aside money for medical care; given that many Americans don’t save, a cash-pay strategy may not be feasible.
  • For example, as the COVID pandemic un-folded in 2020, as many as 60% of Americans had less than $1,000 in emergency savings.
  • Reinhardt also believes that a cash-pay strategy wouldn’t work, as it often penalizes the poor, who may go without, or delay, treatment.
• Avoid using conventional US healthcare system
  • Another solution is to avoid using the conventional healthcare system, and instead, invest in health, in part, by staying active, and avoiding processed food.
  • Americans could use cash-pay providers, including
  • Direct Primary Care: is a non-insurance payment model that provides healthcare access with a greater focus on outcome-based medicine; there is no fee-for-service or third-party billing. Prescriptions, specialists, urgent care, or hospitals are not included; care available via monthly or annual subscription.
  • Telemedicine: the use of telemedicine, coordinating with a medical provider via video or phone, has expanded, and has become more acceptable during the pandemic, due in part by convenience and affordability. Routine or follow-up care available via monthly or annual subscription, or (fixed) fee-per-service.
• Medical procedures
  • Cash-pay providers: don’t accept insurance, and increase transparency by publishing prices; prices are often less expensive due to administrative and back-office savings; for example, the Surgery Center of Oklahoma.
  • International providers, often cash-pay, and often US-trained providers:
  • For example, cash-pay dental cleaning ranges between $120 – $175 in the US; however, costs less than $50 in Mexico City (if you’re on holiday).
  • Medical tourism is becoming more popular, increasingly used by employers and insurance providers to reduce healthcare costs.
• Prescriptions
  • GoodRx: allows individuals to compare prescription drug prices and find coupons at more than 60,000 pharmacies. Using a GoodRx coupon, and paying with cash, individuals may access pharmacy benefit manager (PBM) rates for a prescription; these rates may be lower than insurance rates.
  • Cash-pay pharmacies: do not accept insurance; these may be brick and mortar, or on-line pharmacies. These pharmacies may issue 90-day prescriptions, and typically offer a flat fee for each prescription filled. Avoiding insurance, cash-pay pharmacies may offer lower prices, greater price transparency, and may use generics.
  • Canada or Mexico: Americans may obtain up to a 90-day supply of a prescription from either country; for example, one vial of Humalog (insulin lispro), a drug that is more than 100 years-old, may cost $275 in the US; however, may cost $35 in Canada, and $45 in Mexico.
• Other approaches
  • Economists: some healthcare economists suggest a 1% (100 basis points) solution; deploying multiple small solutions to yield savings. It’s sometimes suggested that we don’t save a million dollars, but rather, we save one dollar a million times.
• Bankruptcy
  • Some people suggest that filing for bankruptcy is a solution when faced with a catastrophic medical expense (ie. cancer, accident, child with leukemia, etc.)
  • Bankruptcy shouldn’t be a solution, for anyone, and certainly not for the citizens of the wealthiest nation in the world, as measured by total GDP.
  • In the current healthcare system, un-insured or under-insured patients often pay “list” price for medical care. As of January 1st 2021, charge master rates are required to be made public. Reinhardt recommended that the maximum fee for un-insured patients should be the Medicare rate, or, Medicare plus 10%.
  • Patients who are truly in poverty will likely receive some type of charitable coverage or community benefit, as required by not-for-profit hospitals, and reported annually by hospitals on IRS Form 990, Schedule H.
  • However, it’s often the un-insured or under-insured patient, not in poverty, most likely harmed when charged “list” price, and forced into bankruptcy.
  • Consider a self-employed plumber, family of four, making $100,000 per year; in such a scenario, the plumber doesn’t qualify for ACA subsidies, and is responsible for the first $25,000 (premium and deductible) before medical insurance provides any benefit.

C. Looking ahead | next post

Next week’s post will propose action-based steps to improve US healthcare system.