The Parable of Buses, Taxis and Limos offers important insights into the future shape of the American healthcare system. The story goes like this …
A mythical city decided everyone had a right to transportation. Businesses were taxed to pay for heavily subsidized taxi cabs. Citizens walked to the curb, held a hand in the air, hopped in the back seat and a taxi delivered them to their destination.
Many people moved to the mythical city to take advantage of this new service. But, as taxes were raised to pay for the increased cost, businesses started to leave, jobs were lost and tax revenues fell.
The imaginary city borrowed money to keep its transportation program going. Eventually, the city could borrow no more, but still had the desire to provide transportation.
Buses were the solution.
Buses could carry lots of people at a lower cost but there were disadvantages. Citizens had to board the bus at bus stops rather than hailing a cab anywhere they wanted. In some cases they had to put up with noisy passengers or crowded conditions. But, ultimately, people were delivered within a few blocks of their destination.
But buses weren't for everyone.
Some people disliked riding the bus and earned enough to pay for a taxi themselves. Their taxes helped support the buses, but were willing to pay the extra cost to have personal transportation.
Still, others even disliked riding in cabs. They could afford an even more upscale and private solution. Limos began catering to the richest citizens of the city.
Almost everybody in the mythical city had some kind of transportation but many people used to a taxi had learned to ride the bus and many former cabdrivers began steering a much bigger wheel.
In a not-so-mythical nation, Congress and the president decided to provide government subsidized health insurance to millions more people. Businesses were taxed to pay for it.
Just like the make-believe city, businesses in the not-so-make-believe nation began to move or fail under the weight of the taxes and the government found itself exceeding its spending projections and borrowing money to pay the bill. Soon it could borrow no more.
To reduce the cost, the government lowered the amount paid to doctors and hospitals for each procedure. Many medical providers were unable or unwilling to accept patients who had government-paid policies, and finding medical care became a problem.
In search of a solution, the government began to contract with medical providers to manage the care of those with government-paid policies. These arrangements were called a medical home or accountable care organization (think bus system). Patients had fewer choices, but still got basic care. In some cases, the care was actually better because it was more coordinated.
Some had health insurance from a private company that was provided by their employer. It was more expensive, but allowed care from a doctor or hospital that didn't accept patients from government insurance programs (think taxi).
A few citizens had enough money they could afford whatever doctor or hospital they wanted and did not depend on insurance. They always got upscale and personalized care with few limits (think limo).
The Parable of Buses, Taxis and Limos tells the story of every healthcare system in the world where government uses tax dollars to subsidize the purchase of health insurance for its citizens. Systems inevitably form multiple tiers of health service.
This story will now play out in the United States at an accelerated rate. The federal government will continue to deficit spend for a time, but it cannot continue indefinitely—the economic world will soon find our debt unattractive and reality will hit. States where falling revenues and increased costs are already forcing changes in Medicaid will change first.
Medicare and Medicaid plans will respond by cutting provider reimbursement rates. Doctor and hospitals historically have either done more procedures to make up the revenue or quit taking Medicare and Medicaid patients. This is a problem because 23 million more people will become insured by Medicaid between now and 2014. In addition, a generation of baby boomers is soon to enroll in Medicare.
Smart medical providers will aggressively organize accountable care organizations, or medical homes (bus systems). Under these arrangements they will be given incentives to provide care for populations of Medicare, Medicaid, and even some private pay patients.
Millions of Americans will begin purchasing insurance through federally organized and subsidized insurance exchanges. Medical providers and suppliers will inevitably be paid according to Medicare-like reimbursement arrangements. Because of coverage mandates required by law, the only affordable plans in the exchanges will include highly restrictive networks or face the same trouble finding a doctor.
Just as a bus system is a low cost way to provide basic transportation, medical homes, accountable care organizations and other forms of managed care can provide basic healthcare to more people for less money. Some will provide superior care, others won't.
Millions of Americans should prepare to transition from a taxi to a bus.
Michael Leavitt is a former secretary of HHS.
