There is nothing wrong whatsoever with the health care system in the United States, except for two things: the pricing model and the supply model.
Health care now is the largest industry in America. It’s 17% of the gross domestic product and growing at three times the rate of inflation.
The whole country–employers, employees, business owners, the unemployed, families, taxpayers, government leaders–is worried about paying for the costs of health care. Despite the latest efforts, politicians haven’t figured out how to pay for health care on a sustainable, affordable basis. Business decision-makers and families are worried about rising premiums, co-pays and out-of-pocket costs.
The pricing is not right. The U.S. health care system uses a pricing system that rewards health care providers per event. Thus providers create a lot of events (tests and procedures). Certainly many are necessary. However, we need to move to a pricing model that–instead of rewarding each test or procedure–rewards providers for making someone well.
Case in point: Minnesota recently took a bold step in this positive direction. Former Republican Governor Tim Pawlenty, through negotiations with a Democrat legislature and with the agreement of major health care provider groups, in 2010 moved the state in a radical direction.
Here’s how: Minnesota has an entitlement program called General Assistance Medical Care (GAMC). This 100% state-funded program fills an existing gap in Medicaid (which itself is jointly funded by the federal government and the state). A Medicaid enrollee has to be part of a certain demographic class and have very low income. Able-bodied adults without children do not meet the first criteria for Medicaid eligibility, even if very poor, so GAMC is their safety net for health care services.
GAMC cost Minnesota $748 million in fiscal year 2010-2011. In the next two-year budget cycle (fiscal year 2012-13), the unreformed GAMC would have cost the state $928 million. Under Pawlenty’s reform, the legislature passed a new GAMC program that was budgeted at $214 million for fiscal year 2012-13, a tremendous savings.
How did Minnesota realize savings of such magnitude while not dropping any GAMC recipients? Under the program, hospitals formed “coordinating care delivery systems” to manage and provide care. Providers received a payment to keep patients healthy. Hospitals were paid an upfront lump sum on an annual basis to cover all GAMC patients, thereby creating incentives for providers to control costs.
The lump sum to providers was based on the number of GAMC recipients receiving care at each facility, and was not dependent on the amount of procedures. Hence, reimbursement was converted to a per-person annual payment model, away from the prior model of reimbursing providers for procedures.
States can and should be laboratories for reforms. Other states, health care payers (employers groups and union plans), and even the federal government should consider Minnesota’s pricing reform approach that Pawlenty pioneered.
While this was a step in the right direction, Pawlenty left the governor’s office in January 2011; unfortunately, the new Democratic governor has partially dismantled this reform. Under Obamacare, the new Medicaid eligibility rules allow broader eligibility criteria, and Minnesota is now moving thousands of people from the newly redefined, innovative GAMC program to Medicaid. Medicaid, of course, continues the broken model: A payment system where the more procedures that providers supply, the more taxpayers pay.
Meanwhile, there is a dirty word in the health care debate: rationing. It inflames passions in many quarters. But the United States needs a grown-up conversation about health care rationing.
Americans realize that, for transportation, not everyone can drive a BMW to work. Yet there is a basic understanding that some mode of transportation is necessary for people to get to work. In contrast, when it comes to health care Americans expect that everyone should get the best and/or most-expensive care. This results from a sense of entitlement that sooner or later must change. In no other sphere of public life does this exist, whether it’s in education, transportation, or any other area.
Related to rationing is individual responsibility. That too has to change. No matter what their health habits and practices are, Americans are now getting subsidies and a new entitlement to buy health insurance. Compare it to driving. If you’ve had two convictions for driving under the influence and don’t carry car insurance, no one expects that the government would give you a free luxury car and pay for your insurance. Yet on one level, that is what is happening in health care and health insurance. Our health care culture must change.
Big Changes on the Way
The recent health care reform package passed by Congress, however, missed making dramatic and needed shifts in the pricing model and supply model of health insurance. So even as the health care and health insurance industries might need structural changes–what some call “reform the reform”–today insurance agents and brokers must deal with the actual implementation of the Patient Protection and Affordable Care Act of 2010.