Greater coverage with lower costs

April 18, 2006|By FRED GLUCK

The U.S. government spends more than enough money on health care subsidies to guarantee a high level of health care to all Americans. But because the system is plagued with inefficiencies and ill-conceived subsidies, it still leaves 46 million people uninsured and its soaring costs threaten to break the U.S. economy.

Massachusetts' bold new health plan paves a way to providing universal coverage but doesn't really address the system's huge and relentlessly increasing costs.

If the 40-year trend of health care costs rising 2.5 percentage points faster than gross domestic product growth continues unabated, we will be spending about half of our GDP on health care by mid-century. This would wreak havoc on our nation.

However, we can address coverage and quality without bankrupting the nation by dealing quickly, decisively and more completely with three flaws in the system: misdirected government subsidies; "insurance" that is not insurance but prepaid, subsidized health care, which gives consumers and providers license to spend because true costs are masked; and an overdependence on litigation to control quality. These all contribute to inefficiency and excessive costs.

A more comprehensive approach than the Massachusetts plan would mandate that all Americans be covered by private catastrophic high-deductible health care policies (HDHPs) and ensure that they have cash to pay for routine care through health savings accounts (HSAs).

The plan would subsidize only lower- and middle-income Americans who are not able to afford either HDHPs or HSAs. It would replace Medicaid, Medicare and the State Children's Health Insurance Program (SCHIP) for low-income children and provide high-quality, universal coverage with a routine-care safety net using HDHP policies readily available on the Internet and their complementary HSAs modified to directly subsidize only the needy.

The total cost of such a program for all Americans would be about $1.2 trillion a year (about $4,000 per person), and the subsidized cost would be about half - $600 billion (or $2,000 per person). This is less than the $870 billion that the government now spends on Medicare ($340 billion), Medicaid and SCHIP ($320 billion) and employer tax credits ($210 billion).

This estimate is based on averaging the cost of a popular Aetna Preferred Provider Organization health plan across different age groups (including significant surcharges for those over 65) plus a $1,000 HSA subsidy for the lowest quartile of the population and a sliding subsidy for the next two quartiles. It also includes $125 billion for administrative costs and additional costs in the HDHP program for pre-existing conditions.

The cost savings come from eliminating all misdirected subsidies, focusing on a single, lower-cost HDHP/HSA plan, eliminating the state bureaucracies and streamlining the federal bureaucracy.

Further, in addition to dramatically streamlining government bureaucracy, we could transform the Center for Medicare and Medicaid Services into an independent agency to specify what coverage would be mandatory and who would be subsidized and to identify and disseminate the most effective and cost-effective medical practices.

This agency also would monitor the state of the nation's health care, directing government subsidies to those who need them most and devising better and less-litigious forms of quality control.

It should be relatively independent and insulate decision-makers from short-term political considerations and special interest groups clamoring for uncontrolled subsidies for the increasingly less cost-effective practices, devices and drugs that America's unparalleled and unprecedented technological prowess in health science and biotechnology will continue to provide.

Moreover, the plan would allow people willing and able to pay for more sophisticated or easier to access care to do so without burdening government. And employers no longer would have to provide employees with very expensive "license to spend" health insurance but could reimburse them for their HDHPs at less than their current after-tax costs. Eventually, this could channel more resources into innovative, economical medical approaches and treatments.

The proposed system also would bring consumers directly back into the decision-making process for health care and counteract current pressures to practice defensive medicine because of potential litigation.

Taking these steps would ensure health care for all, make the system infinitely less complex and much more user- and provider-friendly, and save hundreds of billions of wasted dollars that threaten the economic health of our nation and could be better spent on other pressing national needs.

Fred Gluck is presiding director of Hospital Corporation of America, serves on the boards of Amgen, HCA, RAND Health Care and New York Presbyterian Hospital, and advises a federal budget project of the Brookings Institution. His e-mail is fredgluck@fredgluck.com.

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