A Simple Plan: Universal Catastrophic Care

by Stanton Mehr | Feb 25, 2020 | Uncategorized

In our previous post, we documented the difficulties and challenges in considering a “Medicare-for-all” scenario to extend coverage to virtually everyone. We also discussed the potential for implementation of a “public option,” which was first proposed with the initial version of the Affordable Care Act. One of the least considered alternatives to extend universal coverage is Universal Catastrophic Care (UCC).

Any attempt at extending coverage to the fullest, appropriate American population should accomplish three objectives: (1) it should lower the risk of medical bankruptcy (or even eliminate the possibility), (2) vastly simplify the health system from the consumer’s point of view, and (3) lower overall costs (administrative and healthcare costs) from the society’s view. The chart below is a simplified view of how well the three mechanisms discussed in this series of posts attack these objectives.

Health Insurance as Insurance Once Again

Insurance of nearly any type is supposed to protect people from unlikely, negative events. For auto or homeowners insurance, this means the unlikely prospect of a serious vehicular accident or fire in the home. A routine visit to a doctor is a regular occurrence for the majority of the population. Chronic prescription medicines are taken by a substantial portion of Americans. This does not fit the concept of insurance, wherein low costs are paid by the many so that they few have protection in times of need. With healthcare, most people have a regular need.

The problem for underwriters is that general health care delivery is not truly something that can be insured. Unlike auto insurance, it is a service that the majority of people utilize at some point of time, and the costs associated with that care are not limited. As it is, most people pay large sums each year on auto insurance and do not file claims in a given year. Health care, however, is a service that many people utilize at some point during the year, and some repeatedly. First-dollar coverage for many services, including preventive care, raises rates. A wide array of services covered raises rates. Increasing provider charges raises rates.

Universal catastrophic care enables healthcare insurance to act more like insurance once again. It resets the definition of health insurance to that of reinsurance. A design such as UCC prevents medical bankruptcy for most consumers who require expensive care–like in today’s traditional Medicare, government funding is used to pay for their expensive episode(s) of care. Instead of being funded through premiums, UCC will be financed through payroll and employer taxes, like the Medicare-for-all plans being raised today.

Under UCC, individuals would be responsible for paying for (or obtaining private health insurance to pay for) medical care up to a specific threshold expenditure. Everyone can buy this insurance through their own resources or through government subsidies (based on a sliding income scale). In simple terms, people with incomes qualifying for today’s Medicaid will pay nothing out of pocket; a person earning $300,000 a year must pay for all care up to the level defined as catastrophic care. Medical savings accounts like those seen today to pay for today’s care under a deductible can still be used to pay for medical care below the catastrophic care threshold. Beyond that level, the government pays all costs. Above this level, the government negotiates all bills and sets fees with physicians and hospitals, and other health providers.

For example, Mr. Jones chooses his doctor, any doctor he believes will serve him best (no referrals). His doctor says Mr. Jones needs surgical intervention. Prior authorization or precertification is not required (or is completed electronically, instantaneously for highly complex cases only). He chooses any hospital he wants to perform the surgery, because the hospital network is universal. He is treated by numerous professionals, none of whom are “out-of-network,” because every credentialed provider is part of the UCC network. All hospitals and providers must meet accreditation and quality standards to operate.

What Happens Before Reaching the Catastrophic Care Threshold?

Before reaching the UCC threshold, Mr. Jones pays up to the preset threshold amount for all his medical care (it is also possible that dental/ vision can be added to this benefit, depending on financing). This threshold will be calculated based on the initial target national health expenditure. Let’s say that this number is set at $8,000 for 2022. Mr. Jones, who earns a moderate income, would be asked to pay for all of his care up to this amount or purchase health insurance that covered this care up to $8,000 (family care limits may be something similar to today’s high-deductible limits). If Mr. Jones earned very little (i.e., qualified for Medicaid in today’s system), the government would subsidize 100% of his payments. Patients with preexisting conditions may be compensated with a credit towards their initial cost of care. Remember, relatively few patients would require care that costs more than $2,000 in any given year. Overall, the vast majority of people would pay far less in premiums and incur lower costs than they do under today’s system.

A person who wished to purchase coverage for an individual or their family from traditional health insurers up to the threshold amount should be subject to very low premiums. This is because health benefits costs are capped at a relatively low amount. And insurers may not find it necessary to require any tiered networks or other marginal mechanisms to hold down excessive costs. Furthermore, health insurance companies will need to market themselves differently than they do today to capture consumer marketshare—with this structure, Medicaid and Medicare can be folded into this system (or not), while providing the same or improved benefits to consumers.

Marketing to People, not to Health Plans

This also means that hospitals and other centers must be more consumer centric in their approach, as the patient is more directly involved with choosing a provider, without unnecessary gatekeeping referrals, or other forms of authorization.  

Optimally, the hospital would be paid a single global fee for its inpatient services, medication use, and follow-up care. Optimally, drug companies would be paid a standard fee for outpatient medications (they are also paid a standard negotiated fee for inpatient medications; payment does not vary by hospital).

For routine office visits and elected procedures, the patient chooses their providers, with as much information on quality that can be made available. The hospital and/or physicians must compete for that patient, especially for those initial, below-the-threshold dollars.

Today, we pay $3.7 trillion on US health care expenditures, or more than $11,200 per person, which is far more than any other nation pays for their advanced health care systems. In comparison, UCC has the potential to lower this amount, while providing care access for every US citizen.

Simplicity. Competing for patient dollars. Quality. No preexisting exclusions. The health care system can be refreshingly simple, wherein patient choice carries much greater weight (which would enable the market to work better), where physician practices would reap savings in administration, and where patients and consumers might actually see considerably lower costs.

Several complex issues would need to be addressed, such as setting fees, labor practices, medical malpractice, the role of pharmacy benefits managers, encouraging routine vaccinations, and others, but this may be the simplest, most refined and rational way to deconstruct the decades-old patchwork machinery that has promoted rampant costs, decreased physician satisfaction, increased underinsurance, limited a patient’s ability to navigate the system, and ceded a world-leading position in health care effectiveness and innovation.

For our archived posts on a wide variety of topics, see http://smhealthcomreports.blogspot.com/.

If Medicare for All Won’t Work, What Possibly Can?

by Stanton Mehr | Feb 7, 2020 | Uncategorized

Some election-year topics are hotter than others, and now that impeachment seems to be behind us, many expect that the topic of health care access will heat up.

Not that this hasn’t gained plenty of press and airtime in the past few months. The Democratic presidential campaign has focused on the potential of “Medicare for All” to either spur the discussion of improving health coverage or kill it altogether. And the reasons are not simply about money. It’s also about a relatively quick closure of a massive industry and the jobs it would lose.

As of 2018, the Kaiser Family Foundation indicated that 16% of all adults 18 to 64 years of age were uninsured. Broken down by states, around one-fifth of nonelderly adults were uninsured in Texas (24%), Oklahoma (20%), Florida (19%), Georgia (19%), and Mississippi (19%). Far fewer are found in states that expanded their Medicaid programs under the Affordable Care Act. Underinsurance is a separate issue; this includes those families with unaffordable deductibles or especially who have coverage in plans that offer limited benefits and exclude benefits for preexisting conditions. The percentage of the population who are underinsured is growing.

And let’s put aside the rhetoric that such a move would amount to a socialist takeover of the country. Universal health coverage is an important, worthwhile goal. The real question remains how to close the remaining access gaps in our system and do so in a way that covers more people faster than we gain uninsured amidst rapidly rising health insurance premiums, cost sharing, and deductibles.

As many analysts have pointed out, gaining fully universal coverage through such a plan will either cost trillions more than the bloated amount we already spend on health care (over $3.6 trillion in 2018), or it will cost a somewhat small percentage more  than we already spend. The Sanders campaign believes it will save money over the long term, but there haven’t been as much support for this viewpoint. If it is phased in over a relatively short 4 years, that means that all health insurance employees and executives will need to find new occupations by 2024. I haven’t been able to locate consistent figures; the US Bureau of Labor Statistics does not specify numbers for “health service managers” that include health plans, insurers, PBMs, but of course many may overlap with physician, pharmacist, and other medical professional counts. However, if I could count all of the at-risk employees of UnitedHealthcare, CIGNA, CVS Aetna, Humana, and the regional health plans, the number of people affected could approach or surpass 750,000.

There are a number of different options, some of which have been well addressed and others have not.

The Public Option. This may have been an opportunity missed during the Obama Administration. The “public option” was originally planned as part of the Affordable Care Act but was dropped from the legislation to assure its passage. The public option was supposed to be a government-managed health insurance choice, apart from the private exchange plans. This has been raised again by certain Democratic presidential candidates, and there is polling evidence that it has more support than Medicare for all.

When first considered in 2009, the benefits of the public option were twofold: (1) the administrative costs of this nonprofit health plan would very likely be less than that for private health insurance, resulting in a lower cost alternative; and (2) with sufficient growth, it could force private plans to accept higher medical loss ratios to compete. The potential implication is that private insurance plans that have to show profits would not be able to compete in reality, and the public option would become a de facto national health insurance. And it may have driven private health insurers into narrow areas, such as integrated plans like Kaiser Permanente, which could still remain viable.

The public option remains available. If it was implemented in 2012, when the ACA took effect, consider how the coverage, cost, and deductible situation might have been different today.

Universal Catastrophic Care. This option has not been well described. It resets the definition of health insurance. In this iteration, it is more a type of reinsurance—it prevents most consumers who experience the need for expensive care from suffering medical bankruptcy. An added benefit is that it would help individuals and their dependents more easily navigate their acute care needs.

The problem for underwriters is that general health care delivery is not truly something that can be insured. Unlike auto insurance, it is a service that the majority of people utilize at some point of time, and the costs associated with that care are not limited. As it is, most people pay thousands of dollars per year on auto insurance, and do not file claims in a given year. Health care, however, is a service that most people utilize at some point during the year, and some repeatedly. First-dollar coverage for many services, including preventive care, raises rates. A wide array of services covered raises rates. Increasing provider charges raises rates.

Under this scenario, individuals would be responsible for paying for (or obtaining private health insurance to pay for) medical care up to a specific expenditure. Everyone can buy this insurance through their own resources or through government subsidies (based on a sliding scale). In simple terms, a person with incomes qualifying for Medicaid pay nothing out of pocket; a person earning $500,000 must pay themselves, again up to the level defined as catastrophic care. Beyond that level, the government pays all costs. Simple.

In our next post, we’ll detail more closely how the catastrophic care option can work.

For our archived posts on a wide variety of topics, see http://smhealthcomreports.blogspot.com/.