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.

Objective Medicare for All Public Option Universal Catastrophic Care
Lower Risk of Medical Bankruptcy +++ + +++
Simplify Healthcare for the Patient ++ +++
Lower Overall Costs From Societal View + + ++

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.

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