Posts Tagged HSA

On Wednesday night, President Obama called for ideas to improve the proposals in Congress to reform healthcare. Taking him at his word, I propose the following for healthcare (not simply health insurance) reform.

My Foundational Premises:

Let me first state the two critical foundational premises that inform my proposals.

First, I don’t think that personal health records or electronic medical records will bring any cost savings to the system. I note that some of President Obama’s advisors agree. In any event, absent 100% inter-operability, PHRs and EMRs will always hit the “End of the Line”, to quote the Traveling Wilburys, most likely when a physician is in urgent need of the information. The only entity in the U.S. that can guarantee anything approximating 100% deployment is the Federal government, the most obvious example of which is the Social Security account.

Second, I think the HSA concept is a good one. Consumerism pervades every aspect of the American economy except for those health care services for which Medicare has established a fee. In contrast, consider how Americans shop for plastic surgery, cosmeceuticals, alternative therapies, and organic foods. I believe that training consumers to make unique value decisions in health care purchases is a good and necessary idea. Even when the tax-deductibility of employer-sponsored health benefits inevitably crumbles (the only real way to pay for reform), I think a tax-advantaged Health Savings Account is good policy.

My Plan:

I know that a good political plan should be summarized in three points, but healthcare merits a few more. Hence, the following eleven points represent a direction that the Federal government could take that would at once be palatable to a majority of working Americans, reap long-term cost-savings and other benefits such as allowing Americans to retain decision-making power over personal healthcare decisions and immediately incentivize the healthcare financing and delivery system to deliver far more value for the money.

1. Couple the issuance of a Social Security card to newborns with a tax-advantaged HSA and a PHR.
2. Similar to Senator Kerry’s proposal in the 2004 Presidential election, purchase a 25-year term catastrophic insurance policy for the child at birth.
3. Deposit $2,000 per year into the HSA for preventive care.
4. Marry SCHIP reform/expansion with those HSAs to deliver preventive care, specifically to incorporate CDC guidelines. Between preventive care and catastrophic coverage, we can cover the vast majority of every child’s healthcare needs.
5. At age 18, allow the child to convert the balance of the HSA into a 529 account for college expenses.
6. At age 24, “sweep” the balance of the account, if any, into the now-adult’s Social Security account and purchase a new 40-year catastrophic policy.
7. For adults, a call for personal responsibility is critical – the healthcare delivery system is only 10% of the issue, while behavior and genetics are each more than 30%. For the 30%+ that is behavioral, ERISA should be amended to allow employers flexibility to provide incentives, but not penalties, for improved health behaviors. For the 10% that is related to healthcare purchasing, knowledge is power, and price/cost transparency is necessary to allow consumers to evaluate the value of the care that they need.
8. The hardest issue, but perhaps most crucial, is the need to address the employer-sponsored tax benefit in a rational fashion so that the consumer/patient is incented to control the costs. The most likely positive unintended consequence of reform is the behavioral change that price/cost transparency would bring.
9. Repeal of the McCarran-Ferguson Act is essential to health insurance reform. It is widely cited that Medicare’s administrative costs are lower than those of commercial insurers. CMS obviously has the benefits of scale that allow a lower administrative cost as a percentage of dollars paid. The critical fact in comparing CMS to United or Aetna or Wellpoint is that CMS does not have to follow state insurance regulations, which allows it to administer a global budget with one adminstrative team. In contrast, insurers with multi-state operations have tremendous duplication of the same essential function, which is required to comply with differing state requirements. It may seem counter-intuitive to Republicans to federalize the oversight of the insurance industry to eliminate the barriers presented by state-to-state regulation. In a sense, it is a restriction of state authority; in another sense, it is deregulation. Wise regulation can level the playing field across states for private players to compete at an administrative cost level with each other and with CMS.
10. Address the issue or pre-existing conditions.  Whereas the President seems to believe his version of the reforms will make them a non-issue, Republicans must address this one issue that resonates with most tax payers. If federal oversight is in place, and barriers to interstate competition lowered, wider risk pools will be available to the average consumer, thereby spreading the coverage cost over a larger base. In any event, pre-existing conditions cannot be allowed to prevent Americans from obtaining affordable insurance coverage.
11. To date, Washington has focused almost no attention on the healthcare delivery side, which is the most complicated aspect. For starters, carefully analyze the 747 hospitals celebrated by The Hospital Value Index™, which should rightfully be the models of healthcare delivery reform, not just Mayo, the Cleveland Clinic and Intermountain. These examples routinely cited by the White House as models of reform cannot be replicated, mostly because they are geographic or demographic outliers. There are literally hundreds of hospitals delivering great value — go find them, find their commonalities, and start there.

A few concluding thoughts:

The White House, and particularly Peter Orszag at the OMB, are fixated on Dartmouth Atlas, which uses 2005 Medicare data as a prescription for reform. As we have demonstrated in our analysis, a “GPS” approach that evaluates the most recent all-payer data is much more insightful than an Atlas.

Elements of this plan do not provide immediate coverage for all uninsured, but it could be adapted to “grandfather” in every person in the U.S. who is under 18 at the effective date of the plan. It would, however, provide a much more targeted program than SCHIP, presumably at a lower cost. My belief is that the combination of a distinctly Democratic concept (Social Security) and an equally distinctly Republican concept (HSA) would allow a truly bipartisan solution.

I keep waiting for a call for shared sacrifice from Washington; instead, all of the bills or proposals shelter labor from any sacrifice in insurance reform. Health reform for all must mean ALL, not everyone except organized labor. As George Will suggests, we will all be much better off when 7% of the workforce stops making all the rules.

All of this requires more thought and discussion, but I think it is fairly reasonable.