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National Health Insurance Reconsidered

February 15th, 2013

Americans remain deeply divided over health care.  Liberals emphasize the goal of comprehensive, lifelong health insurance for every citizen.  Conservatives emphasize the goal of a more competitive free market in health care, without government getting between doctors and their patients.  Everyone shares the goal of reducing the runaway costs of health care in the United States, which are the highest in the world.

Many doubt whether the Affordable Care Act, aka ObamaCare, can achieve any of these goals adequately.  One widely held goal it clearly cannot achieve is to improve the global competiveness of American companies by removing, from employers, the costly burden of providing health insurance for employees.  What shall be argued here is that national health insurance achieves every one of these goals, but only in a form much like that outlined below, incorporating ten features.

The Ten Features

1.  Universality.  National health insurance is to cover every citizen, and cover each for life.  It is to replace Medicare, Medicaid, SCHIP, and every other program that is part of the excessively complex, overly expensive, inadequate patchwork of government health care programs that exists today.

2.  Comprehensiveness.  National health insurance is to be comprehensive.   Except for purely elective procedures, such as fertility treatments and most cosmetic surgery, it is to cover all proven health care, including medical tests, hospital stays, rehabilitation treatments, and medications.  And there are to be no restrictions, either direct or indirect, upon the freedom of doctors to prescribe whatever proven health care they consider appropriate.  What qualifies as ‘proven’ health care — proven, as opposed to clearly experimental, bogus, or harmful — is to be determined by an independent panel of distinguished doctors.  Their decisions are to be based not upon cost considerations, but upon medical considerations only.

3. Free Choice of Doctors.  National health insurance is to place no restrictions upon the freedom of people to choose their doctors and other health care providers themselves.

4. Large Co-payments.  For effective free-market price competition among health care providers, it is necessary for people to be prudent, thoroughly cost-conscious health care shoppers.  But for people to have sufficient incentive to be cost conscious, they must bear much of their health care costs directly, rather than indirectly through insurance premiums.  Therefore — except for crucial preventative care, such as periodic physicals, prenatal care, and immunizations, which is to be provided at no charge — national health insurance is to require co-payments of 50 percent for all health care.  Large co-payments reduce, considerably, the tax dollars that otherwise would be needed for financing national health insurance.  And they place more of the burden of financing it upon those consuming more of its services, which is as it should be.  And most important, large co-payments provide people with sufficient incentive to be genuinely prudent, cost-conscious health care shoppers.

5A Yearly Cap.  A national insurance agency, the NIA, is to be established for reimbursing health care providers and collecting co-payments.  Health care providers are to supply the NIA with the information necessary for reimbursing them.  From this information, the NIA is, for each household, to determine the total amount of co-payments the household has accumulated during the year, and send the household an itemized list.  But how much of this total the household ends up actually paying is to be to be capped at 25 percent of the household’s income that year above poverty guidelines.  The rest need never be paid.  Call this the ‘yearly’ cap.   Since a household’s yearly cap cannot be determined until its income for the year has been determined, how much of its total accumulated co-payments it must actually pay cannot be conclusively determined until the year is over.  After the year is over, the amount owed is to be paid either all at once, or in equal installments over a period as long as ten years, at a fair rate of interest.

6.  A Long-term Cap.  To help alleviate family financial hardships from long-term medical conditions — from, that is, illnesses or injuries that require expensive treatment over a number of years — co-payments related specifically to a long-term condition are to be capped as soon as the total already paid reaches 50 percent of the average above-poverty-line household income for the years in which the payments were made.  Call this the ‘long-term’ cap.  The percent of co-payments a household pays toward reaching its yearly cap for any given year that also counts toward reaching its long-term cap for any given condition is to equal whatever percent of the household’s total medical expenses that year were related to the condition.

7.  Free-Market Prices.  Health care providers are to be strictly prohibited from ever charging more than they would otherwise charge just because a household’s yearly or long-term cap has been, or is likely to be, exceeded.  Other than this, national health insurance is not to place any restrictions upon what providers charge.   And, regardless of what they charge, providers that observe the above prohibition are, by government, to be reimbursed in full for any nationally insured care they provide, except for care not subject to the normal constraints of supply and demand.  Care not subject to the normal constraints of supply and demand would be (1) preventative care provided free of charge, and (2) extraordinarily expensive care, like heart transplants, care that, by itself, would be costly enough to put a typical household above its yearly or its long-term cap, thereby undermining the incentive to shop prudently.  How much providers are to be reimbursed for care not subject to these normal constraints is to be determined by NIA officials in negotiation with a panel of health care providers.  The reimbursement limits  they set are to be just high enough for assuring that providers choosing not to charge more than these limits will be sufficient in number for no one ever to lack timely access to necessary care solely because of costs.  Households that patronize providers that do charge more than these limits are to be wholly responsible for paying the difference themselves.

  8.  Supplemental Health Insurance.  Supplemental health insurance to cover amounts charged above reimbursement limits, or to cover experimental treatment, may be bought from private companies.  But, to preserve people’s incentives to be prudent health care shoppers, private health insurance is never to cover national health insurance co-payments.

9.  Free-Market Entry.  There are not to be any restrictions, direct or indirect, upon admissions to medical schools or entry into the medical profession, except as is necessary for quality control.

10.  Transparency.  To be prudent health care shoppers, people need to have not only sufficient incentive, but also sufficient information, information about what providers charge for each service or treatment.  They need information about alternative treatments, side effects, success rates, and probabilities, enough information for well-informed, doctor/patient shared decision making.  Sufficient information is to be achieved through carefully conceived transparency regulations.

Competition And Costs

A more competitive free market in health care is vitally important; competition motivates lower prices, shorter waiting periods, more innovation, and better care in general.  But the free-market competition that is vitally important is not competition among health care insurers.  What is vitally important is competition among health care providers — among doctors, medical labs, pharmaceutical companies, and hospitals.

The features of this program that promote a more competitive free-market among health care providers include:  (1) no restrictions upon people’s choices of doctors and other health care providers; (2) no restrictions upon what proven health care is prescribed; (3) no restrictions upon what providers charge; (4) no restrictions upon how much providers are to be reimbursed for what they charge, except for care not subject to the normal constrains of supply and demand; (5) no restrictions upon entry into the medical profession, except as is necessary for quality control; (6) a large co-payment that motivate people to be prudent health care shoppers; and (7) transparency regulations that enable people to be prudent health care shoppers.  This is not a program of national health care; it is a program of national health insurance only.

But what about costs?  With health care, as with other sectors of the economy, nothing is more important for controlling aggregate costs than a truly competitive free market.  So the seven features above that promote a more competitive free market among health care providers would also lower health care costs.  And these are not the only features that would do so.  According to a study published in the New England Journal of Medicine (August 2003), 31 percent of health care costs in the United States are administrative costs. These administrative costs are generated largely by the convoluted conglomerate of rules and regulations resulting from the innumerable differing private insurance policies there are today.

ObamaCare, itself extraordinarily complex, does little to remedy this.  But by substituting national health insurance — a single, comprehensive policy — for all of these innumerable differing policies, the savings in administrative costs will be substantial.  According to the above study, administrative costs in Canada, which does have national health insurance, account for just 16.7 percent of health care costs.  Moreover, national health insurance eliminates the costs of marketing, the costs of a considerable claims denial bureaucracy, and the costs of huge executive pay.  And let us not forget this:  To the extent that truly universal, comprehensive coverage, along with free preventative care, result, as is to be expected, in healthier people, this alone will lower health care costs.

Potential Problems

To the extent that a 50 percent co-payment does encourage people to be prudent health care shoppers, it may also discourage people, especially people in low income households, from seeking necessary health care promptly enough to preclude expensive, agonizing complications.   But since, with this program, the yearly cap on co-payments is to be 25 percent of household income above poverty guidelines, households with incomes close to, or below, poverty guidelines — those households that otherwise would be most susceptible to putting off necessary health care — need pay little, or nothing.  And crucial preventative care, which is most important for precluding expensive medical complications, is to be provided for everyone at no charge.

Another potential problem is how much of a financial burden a co-payment cap of 25 percent of household income above poverty guidelines might be upon many families.   Consider a family of four.  Suppose that this family’s annual income is $53,050, about the median for U. S. households these days.  The 2012 poverty guideline for a family of four within the 48 contiguous states is $23,050. Thus this household’s yearly cap on co-payments for 2012 would not be reached until it owed $7,500, a considerable amount indeed.

But put this amount into perspective by comparing it to the amount in premiums that would probably have to be paid for privately insuring such a family these days.  According to the Kaiser Family Foundation’s annual survey of employer health benefits, the annual premium, in 2012, for employer-sponsored health insurance for a family of four averaged $15,745 — an amount more than twice this household’s cap of $7,500.  And unlike this cap, insurance premiums must be paid every year.

Consider now another family of four, but one with s yearly income of $423,050.  Their yearly cap would not be reached until they owed $100,000, a huge amount.  But they would have the option of paying this amount over a period as long as ten years, which, with interest of, say, 6 percent per year, would require paying only $13,323 per year, still less than the average premium of $15,725 per year.

Yet would not this program require a huge increase in federal taxes?  Probably not.  The taxes required are reduced considerably by large co-payments, and all other health care programs, including extremely expensive programs like Medicare, will be eliminated.  But the main reason a huge increase is unlikely is how much this program will lower aggregate health care costs.

Of course no national health insurance program can ever satisfy those who are obsessed in paranoid fashion with fear and hatred of the government just because it is government.   But to achieve universal, comprehensive coverage, and to do so while increasing free-market competition among health care providers, decreasing aggregate health care costs, and removing the burden of providing health insurance from employers — to do all this, government is necessary.  And if America truly is to be a land of opportunity for rich and poor alike, universal, comprehensive coverage must be achieved.

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