Nathan Sass

Health Care Reform Plan in Action

In Health Care Reform, Politics on August 25, 2010 at 6:30 PM

John is the sole earner in a family of four, and has a family plan through his employer.

John’s insurance costs $15,000 a year and John’s employer pays 80% of the premium. John pays the other 20%, or $3000. They take $115 out of his check every 2 weeks.

The plan also has a $2000 deductible that John has to pay before the insurance pays for anything.

Before John or his family even sees a doctor, he has paid, or is going to pay $5,000 out of his own pocket. Also, we need to consider the $12,000 john’s employer has paid. If his employer didn’t have to pay that $12,000, they may be able to pay John more that the $40,000 he makes now.

So what would John’s life be like under the Medical Financing plan?

First, his employer would be required to increase John’s salary $9,000 because they aren’t paying that $12,000 anymore and the law says that John should get that 75% of that money as part of his pay now. Even with a raise, John’s employer is spending $3,000 less to employ John than they were before and can use the money they save to improve their business, increase profits, or reduce prices.

Also, John will not have to pay the $115 per pay check anymore, giving him another $3,000 per year he didn’t take home before.

Now John is making $49,000 plus keeps $3,000 more of his pay than he did before.

Until John or his family see a doctor, they don’t pay anything to anyone, except the small annual membership fee to the finance company to cover preventative care.

When they do see the doctor, they give the doctor their finance card just like a Visa or Master Card. John will be very careful picking his doctor now, and will make sure to know before he goes what the visit will cost. If the price at one doctor is too high, he will find another one that is more reasonable and still meets John’s quality expectations.

If John gets sick with a sinus infection, he can go to any doctor he likes, and anywhere he wants to fill his antibiotics prescription. Again, he will shop around for the best price and use his finance card to pay for it.

Every month, the finance company will send John a bill for what he owes, and John can pay it off in chunks or all at once. When the balance is paid off, he’s done paying.

If John’s daughter Jane is unfortunately diagnosed with Leukemia, John will not have to worry about his deductible, any lifetime maximums, or having someone ok a treatment he and the doctor think is best.

John takes Jane into the hospital, and they take care of Jane. John gives the hospital his finance card and they charge the treatment to his account.

When the finance company sees the charges come through from the hospital, the treatment code from the hospital tells them that the charges are for cancer treatment, which is something the law says John doesn’t have to pay for. The finance company tells the US Department of Health and Human Services (HHS) that John’s account has a charge they need to pay for, and the HHS makes an electronic payment to the finance company right away.

When John gets his bill at the end of the month, it shows Jane’s treatment and the payment from HHS. John’s balance is still 0, and Jane is getting better.

If John finds a doctor that is charging less, has a better success rate on treatment, or doing something he wants to try for Jane, he can switch anytime. And since all of John and Jane’s medical records are kept with his finance account electronically, the new doctor will not need to run the same tests again. The new doctor will know everything necessary about everything that has been done to help Jane so far.

So in the end, John got a raise, only paid for the health care he used, didn’t need to worry about bills when Jane got sick, and has more money in his pocket.

Even better, since all the doctors will want John’s business, they will try to charge as little as they can to get his business. Every year, the price of every day things like blood tests and antibiotics will actually start to come down, just like the other things we buy every day like TV’s and MP3 players.

Because of that, John will actually pay less next year for the same health care things he bought this year, which puts even more money in his pocket to buy other things or save.

  1. To some extent, the success of this plan in achieving its stated goals rests pretty fundamentally on how broadly the we define the “really bad stuff,” which is covered by the federal government. Certainly things like cancer and HIV are scary and expensive to treat, but so are a lot of other relatively common illnesses. For example, dialysis is so expensive that very few people would ever be able to afford it on their own, so under the current system ALL dialysis patients are covered by Medicaid. Stroke is a debilitating illness for which the cost of the initial hospitalization alone is typically in the $10,000 range, not to mention the continuing costs of rehabilitation and home health care, which may be necessary for the rest of the patient’s life. Similarly, a serious car accident requiring life-saving surgery and long-term recovery can cost a family several hundreds of thousands of dollars in the long term.
    Unfortunately, it appears that the system proposed here does NOT, in fact, eliminate health insurance. It just takes primary care and preventative health out of the realm of health insurance – which are the relatively inexpensive areas of health care for which health insurance was never really needed in the first place – and shifts the burden for all really serious and expensive health care – which is what we all really bought insurance for to begin with – to the federal government, under the auspices of the US Department of Health and Human Services. And once the government is paying the bill for Jane’s Leukemia, or John’s stroke, or his wife’s severe car accident, where is John’s incentive to shop around for competitive prices?
    Under this plan, it looks like we’re all still “insured” against catastrophic health care costs, and it’s a government-funded and administrated single-payor system. That may or may not be the right answer for the current crisis, but it’s what this plan will come down to in the end.

    • Very solid feedback and I do appreciate it. I should note that the plan as it exists today is not a final product, but more of a conceptual starting point.

      I included the “over the top” reimbursement due to political practicality. If I were to take a “purist” stance, it would not be included, and would likely kill the entire concept.

      Small modifications such as a 50/50 split of the catastrophic/chronic care costs would allow market forces to come back into strong play in that marketplace. I am sure there are further ways this could be achieved.

      It is important to note that roughly 50% of health care expenditures are not in the catastrophic/chronic area, so addressing “only” those things is still a vast improvement over the current system.

      The plan as written is designed to take any 3rd party out of the decision making process where care and selection of a care giver is concerned. Further, it eliminates the need for Medicaid completely, and repurposes those dollars to the catastrophic/chronic care market only. This is a huge improvement for state budgets alone.

      I am certain that there are many other areas that the plan here could be further improved an refined. The core principle is to give people a PAYGO system where they are very cost aware and where providers must compete on quality AND price.

      There is also an added benefit to the economy in general, in that compensation for almost 80% of those employed would rise an average of over $7,500. The impact is far greater on the lower income levels as a percentage of pay, and this will act as a giant simulative effect on the economy as a whole, without incurring government debt and actually reducing the cost to hire for businesses, especially small business.

      This plan is both a health care reform plan AND a stimulus plan when the economic impact of increased cash compensation is factored in.

      Further, it will also yield higher tax receipts without reducing the take home pay for the population, further reducing deficits beyond the reductions achieved by the repurposing of Medicaid and later Medicare funding.

  2. Left out of your calculations for John and his family is the amount he would have to pay in taxes to cover the government’s costs when paying for Jane’s cancer treatment. Phasing out Medicare but not reducing taxation may cover some of the governments cost. Also, making catastrophic illness coverage go to a 50-50 split would help reduce the cost to government and ultimate taxation levels.

    What do you envision the consequences being for the Finance Companies when people do not pay them back for the expenses they incurred? Would you then envision putting a lien on the property of a person so sick that they cannot work and have no income to pay their bills?

    Over-all, I like your plan. But there are bugs that need to be worked out. As usual, the devil is in the details

    • The funding for the coverage of catastrophic care and other government costs would be covered primarily by redirected funds from Medicaid, which is unnecessary under this plan. Low income individuals have full access to care and multiple supports built in to assist them in the repayment of their expenses.

      This plan also will most likely result in lower costs for most treatments, over time amounting to a massive savings. This further reduces the amount required by government to fund the programs. The reason for the split is to encourage consumers to select the most cost effective methods of treatment, based on their own cost benefit calculations. There is no restrictions on they types of care, which eliminates the potential for rationed care.

      Furthermore, tax receipts would also increase due to a higher amount of taxable income under this proposal. Compensation levels for more than 80% of working Americans would rise on average $8,000 – $10,000 per employee. Marginal tax rates would apply to this income, and both the employee and the government see an increase in effective cash flow.

      As for outstanding debt, the plan would utilize the same methods for collection currently in place for student loans, which are also non-dischargable. Should an individual refuse to repay, and not make use of their once per lifetime federal debt repayment, the finance company would initiate civil litigation and request a garnishment by the courts. Also, tax refunds or other federal assistance would be redirected to the finance company until the outstanding debts are repaid. Again, this is not reinventing the wheel, but relies on proven and in place systems for similar circumstances.

  3. […] (The proposal: Real Health Care Reform Plan – Version 2.0 along with a “case study”: Health Care Reform Plan in Action) […]

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