Restoring Quality Healthcare, Scott Atlas, Hoover Institution Press, 2016 - Dr. Atlas calls for reforms to restore the fading luster of the US healthcare system. His general thrust is to empower patients and doctors versus ceding ever increasing control to government bureaucrats. As for learning from healthcare systems that have worked elsewhere, he says European countries are swinging away from top-down controls in favor of more individual choice (which affluent may be willing to pay for because public healthcare programs involve restrictions, long wait times, etc.). Payoffs: get better healthcare for less, avert government bankruptcy.
The Affordable Care Act (ACA) pushed US healthcare towards a “far more government-dominated pathway,” effectively doubling down on problems of the existing system. Perverse incentives causing runaway costs – millions of Americans excluded from accessing world’s best medical care. The healthcare industry is now experiencing a wave of consolidation (hospitals, physician practices, pharmaceutical companies, insurers), and the results won’t benefit patients. Expect erosion of US medical quality edge and inability to meet the needs of an aging population in an era of medical innovation & breakthrough cures. In other words, the ACA is undermining the positives of US healthcare without fixing our system’s most important flaws.
Aging population will bring disproportionate increase in healthcare needs. Meanwhile, America’s most serious health problem (more so than elsewhere) is obesity, which has increased to crisis levels and affects all age groups. Given the combination, there’s little doubt that healthcare costs will soar and projected cost trends appear unsustainable.
Heretofore, quality and access to healthcare in the US have been superior to nationalized healthcare systems elsewhere. But this can’t last, and ongoing effects of the ACA will push things in the wrong direction. Soaring premiums for private healthcare insurance (HCI) – most of the newly insured (89% during the first three quarters of 2014) were enrolled in Medicaid – consolidation of healthcare providers in various segments of the industry.
We must restore incentives to increase healthcare quality while simultaneously reducing cost. And here’s a six-point plan, using two building blocks: (a) highly incentivized, lower cost catastrophic healthcare insurance (HCI); and (b) universal, significantly expanded health savings accounts (HSAs). Conservative payoff estimate over 10 years: reduce national healthcare expenditures by $2.75T; reduce government healthcare expenditures by $1.5T; improve access to high-quality healthcare.
Certain details discussed are out of date, e.g., various ACA taxes on healthcare-related outlays or benefits (such as the tax on Cadillac HIC plans) have now been repealed. But for the most part, the discussion still seems germane.
Would the American people accept the healthcare reforms outlined in this book? Polling suggests they would (see the conclusion) if the choices are presented in an appealing way. Thus: (a) 62% of voters chose more free market competition while only 26% chose more regulation; (b) 73% said they had a right to choose between comprehensive HCI coverage and HCI coverage for major medical procedures that cost less; (c) 85% said individuals should have the right to choose between HCI plans with higher deductibles/ lower premiums and HCI plans with lower deductibles/ higher premiums.
#1. Expand affordable private HCI: Permit HCI to be sold across state lines and encourage issuance of high-deductible, limited-mandate catastrophic coverage (LMCC) plans covering hospital treatment, outpatient visits, diagnostic tests, prescription drugs & mental health. Transfer policy ownership to individuals, so employees can take policies if they change jobs. Eliminate ACA 3:1 age-based premiums that were forcing younger workers to overpay at the start while subsidizing older workers. Permit risk adjustment for obesity (as was already being done for smoking).
Note that government plans, especially Medicaid, are inferior to private HCI due to government limits on coverage and reimbursement rates. Also, treatment quality experience has been less favorable.
Likewise, ACA restrictions have raised the cost of private HCI premiums substantially. Quite a few Americans have dropped their coverage as a result, and people who can’t qualify for a government subsidy based on income level are likely to be out of luck. Similarly, provider networks typically don’t include the best hospitals and doctors, etc.
LMCC plans would restore the essential purpose of HCI, which is to cover large and unanticipated medical expenses. Consumers would pay most of the bills directly, and therefore have an incentive to take costs into consideration.
Another opportunity is to strip back many of the ACA mandates for “minimum essential benefits,” not to mention more than 2,000 state mandates for coverage of “everything from acupuncture to marriage therapy.” Let people decide for themselves what kinds of HCI risks they want to cover. But penalties for smokers or obesity are appropriate to provide an incentive for healthy lifestyle choices.
Would rolling back ACA result in unintended consequences, such as an overload of poor patients at hospital emergency rooms (no, experience suggests that people added to the insured rolls are more – rather than less – likely to show up at emergency rooms)?
Would LMCC coverage result in skimping on routine preventive care because of the high deductibles? According to Dr. Atlas, LMCC plans would be written to cover such preventive care because insurers have an incentive to control healthcare costs over the longer term. Also, LMCC plans would cover three office visits per year to primary physician without applying the deductible. As for co-pays, that would be subject to negotiations.
No one would be required to obtain HCI insurance if they didn’t want it, so would that create a big “free rider” problem (sick people buy insurance, healthy people abstain)? According to the writer, this effect would be relatively minor. He assumes HCI premiums would be set based on age and health status at the outset (young people would pay an actuarially appropriate rate, preexisting conditions would be considered), and that people wouldn’t know what health problems they were likely to develop in the future. Once someone got insured, however, they couldn’t be penalized for developing a disease. And states would form risk pools to subsidize HCI coverage for high risk patients, much as currently happens with auto insurance coverage.
Although ACA subsidies for less affluent HCI purchasers would be eliminated, this loss for these individuals should be offset (or more) by the reduced cost of healthcare and HCI. All things considered, Dr. Atlas maintains that the HCI coverage ratio would go up.
#2. Establish/liberalize HSAs to leverage consumer power: HSAs would be established for everyone, either when they were born or when they first got a Social Security number. HSAs would be owned by the individual, portable, and rolled over (no tax) to surviving family members in the event of death.
The use of HSAs would be to set aside money (tax-free) for uncovered healthcare expenses. Both contributions and payments would be tax free so long as the money was spent on healthcare. In effect, this means healthcare costs would be subsidized, and also that an incentive would be provided for savings. Greatly expanded use of HSAs is essential to achieve the seemingly unattainable objective of enhancing healthcare quality and reducing cost at the same time by getting consumers involved in the process.
Recommended ceiling on annual contributions would be ACA limit of total out-of-pocket expenses (for 2016, $6,850 for individuals, $13,700 for families). Restrictions on uses should extend to family members regardless of tax dependency. Eliminate the requirement of owning coverage with government-specified deductions to open an HSA. Provide financial incentives (such as for wellness program participation) that could be directed into an HSA. #3. Instill incentives with rational tax treatment of healthcare spending: Tax treatment of healthcare expenses would be equal for all individuals, whether they were self-employed, employer-based, or nonworking. Income tax and payroll tax exclusions would apply for two categories of expenses: LMCC insurance premiums and HSA contributions (up to the ceiling amount) for those with LMCC coverage. Income exclusion increases would be indexed for inflation based on the CPI-U.
The current policy (unlimited income exemption for employer healthcare benefits) discriminates against the self-employed and is also highly regressive in that high earners tend to receive the most generous healthcare subsidies. This policy would restore balance to the system and save money for the government overall (estimate of $537B over the next decade).
#4. Modernize Medicare as population ages: Introduce competitive bidding to add private HCI options for all Medicare enrollees (basically an extension of Medicare Advantage plans, or Part C) and define the benefit as premium support (calculated from regional benchmark average price of three lowest-priced approved plans). Premium for LMCC high-deductible coverage would be one of the three plans determining benchmark average. All benchmark plans would include prescription drug benefits and annual out-of-pocket limits. If someone took a cheaper plan than benchmark average they would get a credit to their HSA, more expensive plan difference would be paid for from their HSA. Merge Parts A, B & D to simplify the paperwork. Permit tax-free rollovers of all HSAs to surviving family members. Phase out taxpayers subsidies for high-income-earning seniors. Phase-in increase in eligibility age to 70, and after that index to increases in life expectancy. Repeal the Independent Payment Advisory Board, which would be left with nothing to do.
Why these changes? The existing Medicare system is a confusing mess, which wasn’t properly designed in the first place, has deteriorated over the years, and isn’t financially sustainable. Deductibles – copayments – what’s covered and what isn’t – funding sources – etc. When this book was published, Medicare administrators were processing nearly 4.9 million Medicare claims per day! No wonder the program cost included $60B of fraud, waste and abuse in 2014. And did you realize that more than 70% of Medicare beneficiaries purchase private HCI to supplement or replace traditional Medicare? However, the text adds that 23% of beneficiaries buy Medigap plans while 31% are enrolled in Medicare Advantage plans. Wouldn’t that indicate an overall substitution of 54% vs. 70%? [In a later chapter, it's stated that about 75% of beneficiaries supplement or fully replace Medicare with private HCI, 9% have Medicare alone, and 15% have both Medicaid & Medicare.]
Barring reforms, more and more doctors will refuse traditional Medicare and opt out of the system. The result: a two-tiered system, in which only affluent seniors have access to quality medical care. Why accept such a result, when we can “empower all seniors to become value-seeking healthcare consumers” instead?
Only Medicare Advantage plans (Part C) fit the recommended approach in that they are private HCI plans, provide annual out-of-pocket limits (catastrophic coverage), and provide various supplemental benefits as determined by competition.
The funding sources for Part C are member premiums (if applicable) and capitated payments from taxpayer funds as determined through a bidding process. Private HCI insurers in turn contract with health maintenance organizations (HMOs) or other healthcare provider networks to provide the agreed services.
In the new model, Medicare would be moved from providing HCI to facilitating (and subsidizing) private HCI coverage for seniors from the insurer of their choice. The transition would be phased in, with traditional Medicare remaining an option for Americans who are currently 35 or older. HSAs would be broadly expanded vs. the limited uses that are currently allowed.
#5. Overhaul Medicaid to eliminate two-tiered system that shortchanges low income Americans: Medicare is a federal program intended to benefit everyone who reaches senior status, whereas Medicaid is a subsidy (federal + state) for the poor of whatever age that is supposed to afford them to good medical care and improved health. The result, however, has been to maintain their second-class healthcare status at great cost for taxpayers. Traditional Medicaid is essentially “sham insurance” that “most doctors do not even accept” because payment rates are too low.
Several states (e.g., Arkansas and Iowa) have experimented with private HCI coverage under federal waivers, but the system is rife with bureaucratic complications and an overall reset is needed.
The proposed plan would make Medicaid a bridge program geared toward enrolling beneficiaries in affordable private HCI (including an LMCC option ) with HSAs to cover routine healthcare services. Federal/state funding would continue, but with a twist: federal funds would only be available in states offering the same private coverage options to the entire population and not just to the lower income sector that is eligible for Medicaid coverage. Also, the federal funds would not go to state agencies, but flow directly toward individual HSAs or insurance premium payments. Ultimately, traditional Medicaid coverage would be eliminated as new enrollees signed up for private HCI/ HSAs.
Benefits: eliminate lower-tier healthcare for the poor and provide an incentive (through HSAs) for participants to participate in wellness programs and opt for healthier lifestyles.
#6. Strategically enhance supply of medical care while ensuring innovation:
•Publicize the concept of private retail clinics staffed by para-medicals (nurse practitioners and physician assistants) and minimize regulatory burdens. Cost is 30-40% less than the same services at doctor officers, about 80% less than at hospital emergency rooms. Patients like convenient locations, short wait times, price transparency. Such clinics are also growing fast, but only 60% accept traditional Medicaid.
•Streamline training programs for doctors. Restrain specialty societies, etc. from artificially limiting the supply of trained specialists and/or inhibiting competition. Loosen scope of practice restrictions on para-medicals. Institute national physician licensing via state reciprocity (among other things, this will facilitate the growing use of telemedicine). Strategic immigration reforms to attract immigrants with medical skills. We’ve got a doctor shortage; here are ways to address it without compromising quality standards. And don’t even think about wage controls for the top doctors, that’s bound to be a losing proposition.
•Rein in malpractice lawsuits. The awards are relatively modest, but the threat of litigation is discouraging for doctors and results in a lot of “defensive medicine” (estimated cost penalty of some $45B per year).
•Speed up approvals of medical devices and pharmaceuticals by the Food and Drug Administration (FDA). The bulk of the world’s medical innovations takes place here in the US, let’s keep it that way. ACA taxes on medical devices and pharmaceuticals were a bad idea (now fixed), and it’s disheartening to see longer approval times in the US than elsewhere (let’s fix that too). A shorter Amazon review was posted on 7/16/20.