Evaluating the ACP’s Vision for Our Healthcare System, Part 3 of 3: Coverage and Cost of Care

The last in my series evaluating ACP’s “vision for a better U.S. health care system.” Check out the intro to the series, Part 1, context for Part 2, and Part 2.

This is the paper that generated the most media attention, much of which incorrectly asserted that the ACP endorsed “Medicare for All.” So let me, at the outset, clear this up: The ACP doesn’t endorse Medicare for All in this paper. It endorses a couple different options to achieve universal coverage, one of which is a single-payer system. There are many ways to achieve a single-payer system, and Medicare for All is just one way to do that. Maybe this sounds like semantics, but I think it’s important to be accurate here because the term “Medicare for All” carries with it a lot of specific ideas about how a single-payer system should be implemented, and it also carries with it specific political affiliations. The ACP was not committing to any of those specific ideas or political affiliations; the writers were only endorsing the general single-payer system approach as one of two options for how to increase insurance coverage.

Now, on to assessing the details of the paper.

Part 1 of this paper reviews the state of insurance coverage and healthcare spending, which sets the stage for Parts 2 and 3 to talk about ways to expand coverage and lower care costs.

Part 2 is mostly what I want to talk about. First, it asserts unabashedly that the ACP feels that universal health insurance coverage is essential. And since having insurance coverage is pointless if its spending requirements are not affordable or if providers are unavailable, it adds those access details in as also being essential.

Then it lists two options that it sees as being able to achieve that goal: a “single-payer financing approach” and a “publicly financed coverage option.” Let’s look at each one.

Single-payer financing approach. This means a single government-run insurance company provides insurance for everyone in the country. It doesn’t necessarily prevent people from purchasing private supplemental insurance, but it would cover everything considered to be essential. The paper then discusses some of the well-known benefits and concerns that come along with having a single-payer system. The interesting part to me, which makes sense coming from a physician organization, is their particular concern about how this would affect physicians. It could decrease administrative burden and uncompensated care, but it could also decrease autonomy. And the big concern is that if it relies on “Medicare’s flawed payment system,” it would perpetuate a few undesirable things, including bad incentives (such as an over-reliance on fee for service), the overvaluing of certain services (procedures), and unsustainably low reimbursements (that would make some providers go bankrupt). Any prior “Medicare for All” proposal I’ve seen relies on Medicare’s payment system, so this is a good example of why the ACP is not endorsing Medicare for All specifically.

Publicly financed coverage option. Another name for this is a “public option.” Basically it’s a government-run insurance plan that will be offered alongside private insurance plans. It would be available for employees to opt into rather than use their employer-sponsored insurance as well. An essential part of this insurance plan is that it would have premium and cost-sharing subsidies (so that, again, lower-income people don’t end up with useless coverage). Later on in this paper, they say that no matter which option is chosen, it needs to have included with it a mandatory or automatic enrollment component. I’m not sure how premiums would be paid for by people auto-enrolled into the public option plan–possibly through filing their taxes–but isn’t this looking more and more like the Affordable Care Act? Require people to have insurance coverage and subsidize lower-income people to be able to buy it? Yes, that’s the ACA. The one difference is that one of the insurance plans people can select from will be run by the government (which, incidentally, was originally part of the ACA plan).

So those are the two options the ACP supports. They also mention another approach: convert all insurers to non-profits and require everyone to have health insurance (another variation of the ACA, but this time there’s no public option and instead all the insurers are non-profits). But they say there is not enough information on how such a system could be applied to the U.S., so they don’t endorse it. And all the other options for reform that are out there (such as “market-based approaches”) would not achieve universal coverage, so they were eliminated from consideration.

Even though the ACP is politically neutral, you can see that their foundational beliefs and priorities line up much more closely with modern liberal thinking rather than conservative thinking/beliefs/priorities. This is what I expected, and I discussed it in my intro to this series.

Part 3 discusses strategies they support to lower healthcare costs. There are 5 of them: invest more in primary and comprehensive care, reduce excessive pricing and improve efficiency, reduce low-value care, rely more on global budgets and all-payer rate setting, and use more reference pricing.

Rather than get into the merits and drawbacks of these different policies here, lets finish this series with a brief discussion about whether the two options they endorse to attain universal coverage will get in the way of the ideas we talked about in Part 2.

If you will recall, the second ACP paper we discussed gave 6 different recommendations, the two main ones being to (1) give patients price and quality information to help them choose higher-value providers and (2) getting providers to shift to value-based purchasing arrangements (especially different forms of capitation) with insurers.

With a single-payer system, usually the implementation involves setting a uniform nationwide price for each service (adjusted by region for cost of living). This would completely ruin their idea of getting patients to choose providers based on value because the price would be the same for all providers. I will not get into detail on how, but setting a price floor like that completely distorts providers’ innovation incentives. It would kill pretty much any cost-lowering innovation that results in slightly reduced quality, even if the innovation could result in drastically lower cost.

But, on the upside, since there’s only one insurer to deal with, a single-payer system would allow for perfectly uniform incentives for any provider that chooses to enter a VBP arrangement!

With a public option like they have described, there is the exact same problem with distorted/ruined incentives due to uniform pricing, but at least the extent of the problem is limited to the number of patients who are on the public option plan. And, as for providers’ efforts to enter into VBP arrangements, it would probably make it slightly easier to get uniform incentives because I assume VBP arrangements would be harmonized between Medicare and this public option. But any provider who wants to design their own VBP arrangement is going to have to have an even harder time attaining uniform incentives because I suspect they would have to convince the plan administrators of Medicare and the public option independently, which means they’re trying to win over yet another public payer to be able to move forward with their idea.

Am I saying that the ACP’s efforts to accomplish universal coverage will interfere with their efforts to improve the care delivery system? Yes. The two options they endorse don’t necessarily need to be implemented in a way that does that, but I see nothing in what they’ve written that specifies that they should be implemented in a way that mitigates those problems. (For details on how this could be done, see what an optimal single-payer system would look like here and what an optimal ACA-type system would look like here.)

I think different groups of people were working on each paper, and even though they were reporting their findings and recommendations to the same group of ACP leaders for approval, it’s quite a difficult task as one of those ACP leaders to be presented with complex recommendations from two different groups and figure out exactly how they might conflict with each other.

Well, there we have it. The ACP endorsed some things that would be very beneficial, but they fell into the same trap of not thinking about these things from a complete system perspective, so their efforts to get more people into the system will interfere with the changes the system needs to deliver better value over time. This is why any healthcare reformer first needs to have a firm understanding of the core causes of low value and how those can be resolved before deciding on the details of how to enact universal coverage.

But I am happy the ACP jumped directly into this arena. It shows that powerful physician groups are also interested in figuring out how to fix the healthcare system. Maybe the biggest benefit from their efforts of researching and releasing these papers (and then having them critiqued) is that it will make the ACP and other provider groups more likely to recognize and support policies that will truly move us closer to fixing our healthcare system.

Building a Healthcare System from Scratch, Part 8: Fixing the American Healthcare System

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Image credit: thepolicy.us

This is the final installment of the Building a Healthcare System from Scratch series, and it begins with the same caveat as Part 7—to understand the rationale behind the ideas presented, you need to read and understand all the prior parts of the series, beginning at Part 1.

Now that I have explained the Healthcare Incentives Framework (Parts 1 through 6) and described what various types of systems would look like that have implemented the principles of it (Part 7), we are ready to look at something more complex: rather than building an optimal system from scratch, how can this framework be applied to an existing system that needs fixing? The American healthcare system will be a perfect case study for this.Picture1

Where it sits right now, the American healthcare system seems to land somewhere in between the libertarian-type system and the single-payer system described in Part 7, except that it fails to implement the majority of the principles of the framework. It is also overly complex, which contributes greatly to its impressive administrative expenses. So what could a much-simplified American healthcare system look like that also maximally implements the principles of this framework? With consideration for and much guessing about Americans’ preferences regarding healthcare, here is an imagined description . . .

The United States eventually chose to strengthen its individual mandate. The government now mandates all people, without exception, to have a healthcare insurance plan that covers all services included on its list of “essential health benefits.” For those who forego insurance coverage, they pay a tax penalty that ends up being nearly the same as the premiums they would have paid. If uninsured individuals receive care that they cannot afford, they usually end up having to either go on long-term repayment plans or declare bankruptcy because there is no bailout available for them.

The website healthcare.gov has become the ultimate source for healthcare insurance shopping. All qualified insurance plans (i.e., plans that cover all the essential health benefits) are listed there, along with their coverage level (according to the metal tiers), prices, and a short description that highlights any other benefits the plan offers that may help prevent healthcare expenditures.

Premium subsidies are available to all whose premiums will exceed a certain percentage of their income, and the subsidy amount is pegged to the second-cheapest qualified insurance plan available to them. The subsidies are automatically applied at the time people are choosing a plan on healthcare.gov. Because this system worked so well and was basically duplicative of Medicare and Medicaid, both programs were slowly phased out, which decreased insurance churn and increased time horizons. However, a vestige of Medicaid remains in that, depending on an individual’s annual income, there are also limits on how much they can be required to pay out of pocket for care.

The government also did away with the employer mandate and somehow found the political willpower to repeal all tax breaks for healthcare expenditures, which eventually led to employers getting out of the business of providing healthcare insurance for their employees and just giving that money to employees directly as regular pay.

Altogether, these changes mean that all Americans shop for their healthcare insurance on healthcare.gov. For anyone who is unable to do this themselves, there is a phone number to call to connect with someone who can assist them in selecting the plan that seems best for them.

A few changes were also made to encourage more insurance options. First, many regulations were eliminated, including the medical loss ratio requirement and state insurance department approvals of rates. These became unnecessary after people began to be able to compare the value of different insurance plans and choose based on that because overpriced or low-value plans (either from too much overhead or too high of rates in general) lost market share and profit. State-specific insurance regulations were standardized so that insurers can easily expand to new markets. And a law was passed requiring transparency of all price agreements between providers and insurers, which made the process of forming contracts with providers in a new region easier. These policies led to almost all markets having multiple options for each coverage tier.

In this way, the United States achieved universal access to affordable healthcare insurance relying on the private market while preserving the ability and incentive for all people to select the highest-value insurance plan for them. As a result, insurance plans aggressively innovate to find ways to prevent care episodes so that they can offer lower premiums and attract higher market share. Insurers also found that implementing differential cost-sharing requirements led people to start choosing lower-priced providers, which also enabled the insurer to lower premiums further. Finding provider prices has become easier ever since the price transparency law was passed.

The government has had to help overcome the problems caused by a multi-payer system by enforcing some standardization, including uniform insurance forms/processes, standardized bundles of care that all insurers in a region either agree or disagree to implement together, and standardized quality metrics that providers are required to report. These quality metrics are not used for bonuses, so they have been changed to be more focused on what patients need to know to choose between providers for specific services.

These quality metrics are now reported on an additional section on healthcare.gov that lists all providers, their quality metrics, and their prices (seen as your expected out-of-pocket cost if you log in) in an easy-to-compare format. Due to patients’ differential cost sharing requirements for most services, as well as broad common knowledge of the existence and utility of this website, most patients have begun to refer to it before choosing providers. This part of healthcare.gov has even been developed into a highly rated smartphone app.

In response to these changes, providers found that their value relative to competitors largely determined their market share and profitability, which unleashed an unsurpassed degree of value-improving innovation. The cost of care in the United States was previously so high that the majority of those initial innovations led to much cheaper care, which led to much lower insurance premiums and eased the premium subsidy burden on the federal government. Thanks to these changes, the federal deficit has begun to sustainably diminish quicker than any budgetary forecasting model could have predicted, which has also helped stabilize the American economy.

There are still barriers to people being able to identify and choose the highest-value insurers and providers. There are many important aspects of quality that are unmeasurable. Many people do not have the health literacy required to figure out which insurance plan or provider would be best for their situation and preferences, despite the ease of comparison enabled by healthcare.gov. There are medical emergencies that do not allow shopping (although the number of these has turned out to be much less than was previously thought because most of what used to present to emergency departments were not actually emergencies).

In spite of these lingering barriers, enough patients are choosing the higher-value options that providers and insurers still have a strong incentive to innovate to improve their value so they can win the market share and profit rewards available to higher-value competitors. And the result is that Americans are being kept healthy more often and are receiving care that is higher quality and more affordable.

That concludes my imagined description of how the American healthcare system could look with the principles from the Healthcare Incentives Framework fully applied. Just as a reminder, it represents merely a guess of how it could end up given the current system. This is by no means the only way to apply the principles of this framework, nor is it my secret idealized version of how it could end up. But I hope it was useful and thought provoking as a case study!

We have come a long way in this series. Throughout it, I worked hard to make the principles of the Healthcare Incentives Framework clear, and I hope the concrete examples have helped solidify those as well as demonstrate their potential for sustainably fixing healthcare systems around the world. If you want a more academic treatment on this framework (at least the part of it that applies specifically to providers), I published that as a medical student.

I intend to help policy makers of all types find ways to apply the principles discussed in this series. Please contact me if you have questions or would like me to help work through potential applications. Contact info is on my About Me and This Blog page. In the meantime, I hope you will follow along as I continue to blog about how to fix our healthcare system!