Healthcare costs in the U.S. have increased faster every year than almost any other expense for individuals, business and the government. In 1980, the per capita healthcare expense was $1,106. In 2005, this expense grew to $6,688, up by more than 500%, and by 2015, it is projected to be $12,357, up another 85%. Most healthcare providers and administrators agree that the current system needs an overhaul.
As healthcare costs increase, health insurance premiums, deductibles and co-payments rise. People, in turn, drop their insurance in response to the increase, hoping they wont need healthcare. But when sickness or disease strikes, they still seek care. The cost of this uncompensated care is then passed on to people who have insurance through higher insurance premiums. This, in turn, makes health insurance unaffordable to even more peopleand so the cycle continues.
While many factors contribute to the increasing cost of healthcare, the aging of the population is one of the most significant. The older people become, the more they use healthcare. We are only now beginning to experience the escalation in costs associated with the baby boomers growing older. Unless we find efficiencies in the healthcare delivery system, either there wont be enough financial resources to maintain the current quality of care or the cost of this care will hurt other parts of the national economy. A new system must increase value by lowering costs while still improving quality. It should be built on three guiding principles: equity, choice and a focus on lifetime care.
Patients should have comprehensive health insurance so that no one is paying more than their fair share. Some 44.8 million U.S. citizens have no health insurance. These people often resort to hospital emergency departments for primary care or when they are ill or injured. The cost of their care is then passed on to the people with insurance. Medicaid is often thought to be safety net insurance; however, Medicaid pays significantly less than the cost of providing the service.
Medicare is also a poor payer, and primary-care providers such as internists and family physicians are particularly hard hit within this system. In an effort to survive, providers must increase their rates for paying customers in order to offset the cost of caring for those with no means.
The incentives need to be changed so that insurance companies make their money by helping providers take better care of the expensive patients. Currently, insurance products are not offered to all people at the same price and some cannot buy insurance at any price because of pre-existing conditions. A person who has a chronic illness must work for an employer who is either willing to pay extra for that person or is large enough to avoid being penalized with higher costs.
Insurance companies are not in the business of managing healthcare. They are in the business of managing risk. This is comparable to the home insurance industry, which bills all customers enough money so they can pay a claim of significant size when an insured home burns down. If they only sell insurance to those customers they are sure will never have their house burn, they are more profitable.
Unfortunately, healthcare is different in that people often live with an ongoing illness. John Sackett, who co-authored this piece, is such a person. John was born with cystic fibrosis, which insurance companies designate as a pre-existing condition. Despite his best efforts to lead a healthy life, he often needs healthcare. If he did not work for a large employer, he could not buy health insurance because insurance companies know that caring for people with pre-existing conditions such as cystic fibrosis is particularly expensive. Large employers require insurance companies to insure all their employees. Because large employers have enough healthy employees, insurance companies are willing to cover the cost of those with a pre-existing condition. This is not true for small companies. This means John cannot start his own company or work for a small company. Insurance companies who avoid people with pre-existing conditions make more money than insurance companies who take care of these people.
Consumersnot employers or health plansshould select their hospital, physician and insurance carrier. Patients should have the ability to change providers if their needs are not adequately met or their health situation changes and is better served by a different provider.
Recently a patient came to our hospital thinking he was suffering from appendicitis. During surgery to remove his appendix, a rare form of cancer was discovered. This patients life depended on his being able to use providers who specialized in treating this type of cancer. Choice fuels competition among providers and ensures better service and better care. Empowering patients through market leverage holds providers accountable for both quality of care and service.
Most people do not pick their insurance. This is done by their employer. It also means the consumer cannot fire their health insurance carrier or keep their insurance when they leave their employer. Large companies have more leverage to buy health insurance at a lower cost than smaller companies; smaller companies in turn can buy it more cheaply than individuals. This is not equitable and is not good for the economy because it puts small businesses at a disadvantage. All consumers should be able to buy health insurance for the same price and take it with them no matter where they work, thus making their health insurance portable.
Move from episodic to lifetime care
Currently, hospitals and physicians get paid to care for people primarily when they are injured or sick. Yet, insurance companies get paid to manage risk. A new system should provide incentives for hospitals, physicians and insurance companies to work together to maintain health and manage illness of people across their lifetimes.
Approximately 50% of our countrys healthcare costs are associated with five conditions: asthma, depression, diabetes, heart disease and hypertension. If providers were paid to help people manage these conditions and stay as healthy as possible, significant expenses could be avoided and people would be happier and healthier.
Much has been written documenting the effectiveness of centers of excellence for managing the care of people with unusual conditions. Colorado has a good example of such a place in the 46-bed National Jewish Medical and Research Center, Denver. It is clearly the best at managing the care of adult cystic fibrosis patients in the region. John is certain he is healthier and his care is better and far less costly because they assist him in managing his condition. The point is, the healthcare system can be more productive if designed better. The potential to save dollars and improve quality through collaborative planned-care programs is enormous. This can only be done, however, if the incentives are changed for those who provide the care.
A new system
Based on these foundational principles, the new delivery system should have the following characteristics:
- Require everyone to carry health insurance: Just as our state requires every resident to carry car insurance, everyone living in the U.S. should be required by law to carry health insurance. If everyone has health insurance, everyones health insurance premiums will be less. This insurance needs to be comprehensive enough to assure there is no cost-shifting associated with care given to any one person. Just as with the Federal Reserve Board, a politically independent federal health benefits board should be established to define the minimum benefits of adequate health insurance. While everything that might improve a persons health, such as over-the-counter drugs and massage therapy, need not be covered, essential healthcare should be covered.
- Dissolve Medicare and Medicaid: If health insurance were universal, both Medicare and Medicaid would be unnecessary. Under the new system, people who need financial assistance would receive a voucher of sufficient value to purchase private health insurance. People over 65 should not consider Medicare an entitlement. With the baby boomers nearing Medicare age, young working people will not be able to afford to pay for the care of wealthy seniors. A major problem with Medicare and Medicaid is that provider rates are established by legislative fiat rather than by a negotiated process. Since the cost of delivering the care is higher than the reimbursement, providers charge people with health insurance more to make up the difference. This practice hides the true cost of both Medicare and Medicaid, and puts providers in the role of tax collectors.
- Require insurance companies to accept everyone: Insurance companies must accept all people as customers at the same basic price. However, they should be allowed to charge more to people who smoke and give discounts to people who live healthier lives, such as those who wear a seatbelt while riding in a car. These and other guidelines would be established by a federal health benefits board.
- Allow consumers to choose providers: Employers should not choose a persons health insurance. The employer may still contribute to an employees health insurance premium. The health insurance premium should be tax-deductible at both the state and federal level. This allows people to keep their insurance coverage regardless of their employment status. Insurance companies would benefit financially by working with providers to encourage patients to pursue preventive care that is proven to improve health.
- Require health assessments: All U.S. citizens should be required to complete a health assessment. This information would be used to identify peoples health status. This health status would be given a score between 1 and 10. The scoring limits are subjective and could be modified. After the initial assessment, patients health would be periodically scored based on their medical record; this would be greatly facilitated if a national electronic medical-record standard becomes available. Given that John has cystic fibrosis, and its associated condition of diabetes, and is a male, he would receive a score somewhere near an 8. Dr. Ehrenbergers son, who is 17 and healthy, would receive a score close to a 1.
Reforming the healthcare delivery system into a well-designed system is a difficult and complicated task. Any new design must be comprehensive, collaborative and promote transparency. It must align incentives of all providers and participants to improve care and be held accountable for a healthier population. Insurance companies and providers should be paid on the basis of how their efforts measurably keep people healthy or help them live longer. Gone would be the incentives to avoid financial risks associated with enrolling sicker patients; gone too would be the disincentives to create a healthcare system fully committed to health promotion, screening and the improved care of people with chronic illnesses.
David Ehrenberger, M.D.Chief medical officerJohn SackettChief executive officerAvista Adventist HospitalLouisville, Colo.