Tuesday, February 7, 2017

Call it Ben’s Care


What is Ben’s Care?  Ben’s Care is a new paradigm for health care in the United States.  The primary objective of Ben’s Care is to provide the best possible health care to every American at the least possible cost to the entire economy.  While those whose health care is now partially or fully paid by an employer or subsidized by the government may feel that Ben’s Care will cost them more, as a matter of fact everyone will experience lower real health care costs than ever before.  Ben’s Care has no monthly insurance costs and it is not paid for by a special tax withheld from you at every pay check.  Ben’s Care will connect you directly to your health care providers as never before.


  • The core idea of Ben’s Care is that people will pay for their own health care, a visit at a time, until it hurts; then government will jump in to help defray its costs.  The tax revenues to support this system will be minimal; and the costs of all health care – even prescription drugs – will be kept under control by the magic of Supply and Demand.
  • Ben’s Care will not require private health insurance companies – indeed, private health insurance will be outlawed, as it is the primary reason that our national health care is so much more expensive than any other country’s and because it would undermine Ben’s Care’s cost savings – instantly saving 10% - 20% of the cost of all health care services.  An entire industry will vanish and, yes, many folks will lose their jobs.  And a few of the best paid CEO’s in the country will also be looking for new employment.
  • Ben’s Care will absorb Medicare and Medicaid, thereby saving taxpayers some $1.2 trillion in tax revenues per year (and putting to rest the question of Medicare’s imminent insolvency).  Your ability to pay for your own health care (rather than your age or disability) will determine how much of your health care expenses you will pay yourself.  Medicare Part D will vanish too, saving taxpayers another $76 billion (2015) (12% of Medicare’s $632 billion) to $94 billion (2017) annually.
  • Ben’s Care will cover everyone by the simple expedient of not requiring anyone to choose to purchase or pay for any kind of health insurance; all health care costs will be borne by the patient out of pocket and by the federal government through general tax revenues.
  • Ben’s Care will of course cover anyone with pre-existing conditions because everyone is covered.  It will cover any young adult living with his parents because everyone is covered.  The healthy and wealthy will pay into the system to cover the unhealthy and unwealthy as (progressive) general tax revenues will be the source of the government’s contributions.  Individual subsidies will not be needed as the poor will pay less of their own money for health care than the well-off.  And religious liberty will not be an issue because … well, it just won’t.
  • Ben’s Care will allow doctors, hospitals, HMO’s, pharmaceutical companies, medical device manufacturers, etc. to charge what they want to for the goods and services that they offer, thereby fixing the biggest problem with Medicare and Medicaid – many providers’ refusal to participate.
  • At first blush, Ben’s Care will indeed appear more expensive to the patient than employer-paid health insurance, and it will indeed appear more expensive than Medicare or Medicaid, because these programs are paid for by others, and their true costs are hidden from the individual patient.  But Ben’s Care will be cheaper than its alternatives when all the costs of health care are considered: (a) the patient’s cost of health insurance, b) an employer’s contribution to that cost, c) the patient’s co-pays, and d) government contributions).  In all cases, health care will cost less, but it may not always appear to cost less.  It is for this reason that selling Ben’s Care to the American public may prove a challenge.  But the benefits are real, and substantial.

What will Ben’s Care Look Like?

  • There is one sure way to achieve universal health care coverage: pay for it out of taxes collected and just plain cover everybody!  This is the ONLY clean way to cover everyone.
  • There is one sure way to contain – and reduce – prices of health care: subject them to the law of Supply and Demand.  Because insurance isolates its buyers from Supply and Demand, health care insurance will play no part in Ben’s Care.  Once Americans begin to pay for all their health care expenses out of their own pockets, the price of every medical good and service will take a slow but steady nose-dive into middle-class affordability.  (E.g., if you must pay out of pocket for a routine doctor visit, you will find the best local physician who will accept what you can afford, and doctors will sprout up everywhere who will charge what you can afford.  The same goes for the prices of prescription drugs.  A drug that now costs $320 / month MUST drop its price.  Why?  Because very few people will be able – and willing – to pay that inflated price.)
  • Every year, only after the patient* has health care expenses that begin to seriously impact his quality of life will the government step in and begin to share his costs.  For example, once a patient has spent 10% of his Real Income** on health care, the government will step in to pay for 50% of his health care costs; at 15% of his income, it will cover 80% of his costs; at 20% it will cover 95%; and at 30% it will cover 100%***.  A single person who earns $58,000 (70th percentile income) and experiences a very bad health year ($50,000 in health care expenses) might see out-of-pocket health care costs of $11,020 while the government covers the rest ($38,980).  And this example is close to a worst case scenario.
  • When the government shares costs with the patient, it will payback or reimburse at “typical local” (median, not average, prices) rates.  The patient may choose any provider that he wants, but he cannot expect the government to help him defray the cost of the most expensive provider in town.  Not to mention that the “best” providers will already have a full calendar.  For the sake of the best health care, it will always be better to be rich than to be poor.  (The rich will typically never see a single penny of government reimbursement for health care expenses; indeed, many wealthy people self-insure already.  However, that does not mean they will necessarily “lose” under Ben’s Care, as they will never have to bear the cost of health insurance.)
  • This plan is an expansion of what used to be called a Major-Medical health insurance policy where the deductible was pretty high (aka high deductible health plans), typically several thousand dollars, and what is now sometimes called a Catastrophic plan or Disaster insurance.  The high out-of-pocket (or deductible) costs do two things: 1) they keep the cost of health care goods and services provided by doctors, hospitals and drug companies as low as Supply and Demand can drive them; and 2) they keep the contributions of the government low because these will not kick in until after the patient has paid a significant sum out of pocket (in a healthy year, in a typical year, the government will not reimburse the patient a penny, and the patient will not pay much out-of-pocket costs either).  But, 3) if this universal catastrophic plan had to compete with other insurance plans, the huge cost benefits of Supply and Demand would disappear.
  • Annual check-ups will be free to the patient.  If the primary care physician recommends two annual check-ups, both will be free.  This benefit will cost the government $50 - $100 billion annually, a drop in the bucket for health care.
  • Bonuses will be paid out every year to every person who uses the system conscientiously (never forgets an annual check-up, etc.) and whose health remains as good or better than expected.  Not huge amounts, but bonuses of $50, $100 or $150.  A meaningful reward for good health behavior.
  • There are some health conditions that are in part bad health by choice.  Examples include obesity, nicotine addiction, alcohol addiction, illicit drug addiction.  Medical services to remedy or mitigate health conditions that result from these kinds of personal choices will be government reimbursed at lower than the typical local rates as discussed above.  These exclusions will be phased in over time as some people are already married to their addictions.  (Some addictions are very hard to beat, but none are impossible.  And Ben’s Care will reward the patient doubly for beating harmful addictions.)
  • Health Savings Accounts are probably a good partner for Ben’s Care as most people will require most of their health care late in life.  But they have to be structured carefully in order not to undermine the cost savings of Ben’s Care.
  • Ben’s Care does have one possible limitation: lifetime limits.  It is one thing for 20% of the people to require 80% of total expenditures, but it is quite another for 1% of the people to require 50% of total expenditures.  Without going into too much detail, if you cost the government $15,000 / day until you die just to keep you breathing, with no hope of recovery, you may have to find another benefactor to pay to keep the plug plugged in (to have no lifetime limits at all must be a political decision; but there need not be an inflexible rule).

Competing with “Free” Health Care

Some people just love to have FREE (apparently free) health-care (where the government collects taxes to pay for it).  Liberals love "Medicare For All" aka "Single Payer," where "Health Care is a Right Not a Privilege," where health care is "free" but for small co-pays.  But slogans aside, someone has to pay for it.  Taxpayers.  You and me.  Alternatively, the idea of having to pay out of pocket for their health care may disturb the American public, even if the out-of-pocket costs are far less than the taxes that would have to be levied to pay for that same care.  And they will vote this way too, even at the cost of huge annual deficits and an exploding National Debt.  We need to do what is rational, not what the people want when they don’t understand what works best (to get the job done at the least possible total cost).  A politician will always have political considerations; but listening to and educating his constituency is a crucial part of being a political leader worthy of his high calling.

"If we must pay for our health care, why can't we just let health insurance companies compete for our health care dollars?"  That is what we did before Obamacare, and for the last 50+ years the cost of private health care has exploded like no other sector in our economy, from 5.0% of GDP in 1960 to 17.4% of GDP in 2013 (17.8% in 2015).  The culprit for this explosion in the cost of national health care is private health insurance.  Private corporations are obliged to maximize their profits.  The two ways to do this are: increase revenues and reduce costs.  They increase revenues by finding new customers and raising their prices (and, unhappily, by their customers being less healthy and needing more health care); they reduce costs by cutting their payroll and not paying claims.  Private insurers are incentivized by profit, and that profit is not aligned with their customers' better health.  In addition, it is in the nature of health care insurance to spread the risks in the system to all its participants and to isolate the system from the cost savings of Supply and Demand.  Sometimes, competition among private corporations does not provide the expected benefits of the free market; this is one of those times (see my Selections from To My Countrymen).

Out-of-pocket payments for most of our health care will force the magic of Supply and Demand to take over and deliver the lowest possible costs to consumers.  It may take a few years to settle, but it is an inevitable consequence of having people pay for their own health care.  (If I am wrong, we can abandon the experiment.  However, I am certain that most economists will agree that Supply and Demand is the best way to contain, and lower, the cost of health care.  Price controls may work OK in Europe, but they won’t work too well here.  Find me a non-partisan economist who ever approves of price controls.)

A phenomenal benefit of this program is how much the federal government will not have to tax us for.  It will cost the fed a nation's worth of annual check-ups ($50 - $100 billion) plus an unknown amount to cover a few people's really bad health years plus bonuses which pay for themselves.  The cost of health care for most people most years will be 100% out of pocket.  But that out-of-pocket expense will be significantly less than the cost of private health insurance plus patient co-pays plus the taxes that used to be raised to pay for Medicare and Medicaid.

People whose health insurance costs were previously a benefit of employment will pay (out of pocket) for their health care much more than they used to – unless their employer remits to them what it used to cost them to provide health insurance to their employees.  Ben’s Care should not be a bonanza for private employers and a large pay cut for their employees; so, corporate savings should go into employee pay checks (for as many years as the employee has worked for that employer) to be fair, at no loss to the employer.  This surely must be part of the legislation.


How Much will Ben’s Care Cost?

Ben’s Care won’t cost the economy or any family a red cent.  Ben’s Care is not a government program with a cost to taxpayers, it is just a set of rules governing how health care will be paid for.  Under Ben’s Care, a best guess is that it will cost us all less than $2 trillion / year, a 33+% savings, a $1+ trillion annual savings.

Given a current annual national cost of health care of $3 trillion and given a population of 320 million American souls, the average cost of health care per American is roughly $10,000 per year ($10,345 for 2016).  Given that Ben’s Care will pay nothing for private health insurance, we will save 10% - 20% off that national total.  Given the reduced costs of virtually all medical goods and services because of effective Supply and Demand, we can expect even more substantial savings (10 - 30% off the total).  Further, given that large numbers distort averages, health care will cost most of us even less than we would otherwise expect from average costs.

But it is one thing to claim national savings; if it does not save you money, what good is it, why would you care?  Without arguing that point of view, here is my analysis of how Ben’s Care will affect your individual or family pocketbook,  As this section is pretty technical, an aptitude with numbers is highly recommended.

For Geeks Only

Ben’s Care will have multiple levels of government participation (e.g., 50%, 80%, 95% and 100%) (government participation % + co-pay % = 100%) for everyone.  These levels will kick in depending on an individual’s income and the out-of-pocket expenses he has already paid for the year.  What follows is an example of how Ben’s Care might work with numbers that were best guesses by the author.  Clearly, professional actuaries will have to determine these numbers (government participation and income thresholds).

In order to derive a good estimate of what health care under Ben’s Care will cost an individual, we may want to somewhat arbitrarily define for an average American what an excellent health year might cost (less than $2,000), an average health year ($10,000), a poor health year ($50,000) and a catastrophic health year ($500,000) (most of us will never experience such a year).

The same logic that dictated that we pay our own health care costs at first dictates that government participation in paying our health care costs should be gradual.  In other words, at some income threshold, the government will pay 40% of our costs, then 80% of our costs, then 95%, then 100%.  Government will begin to help a poor person at a lower income threshold than a rich person.  These two notions can be set down in our Government Participation Matrix.****

Government Participation Matrix
Income
50% Govt Participation
80% Govt Participation
95% Govt Participation
100% Govt Participation
< $10,000
5% of income
10% of income
15% of income
25% of income
$10,000 - $35,000
10% of income
15% of income
20% of income
30% of income
$35,000 - $100,000
15% of income
20% of income
25% of income
35% of income
$100,000 - $350,000
20% of income
25% of income
30% of income
45% of income
$350,000 - $1,000,000
25% of income
30% of income
40% of income
55% of income
$1,000,000 - $3,500,000
30% of income
40% of income
50% of income
60% of income
$3,500,000 +
40% of income
60% of income
80% of income


As you can see, the government begins to help pay expenses (with 50% Participation) when they reach 5% of a poor person’s income but 40% of a super-rich person’s income.

Now that we have designed our Government Participation Matrix, associating 1) an income level and 2) a threshold of health care expenses with 3) a government participation rate, we can now generate a new matrix, the Outcomes Matrix, that will associate an individual’s income and a level of health with ($ total health expenses / $ out-of-pocket payments / $ government participation).  As these somewhat arbitrary amounts are average amounts for typical people (50%ile, $38,000), poor people will spend less and rich people will spend more for the same outcomes.

Outcomes Matrix
Individual Income / Health Year
Excellent Health Year
Average Health Year
Poor Health Year
Catastrophic Health Year
5%ile ($4,000)
($750/$350/$400)
($3500/$360/$3140)
($20,000/$360/$19,640)
($200,000/$360/$199,640)
10%ile ($9,500)
(1000/720/280)
(5000/850/4150)
(25,000/850/24,150)
(250,000/850/249,150)
30%ile ($24,000)
(1500/1500/0)
(7500/3360/4140)
(35,000/3360/31,640)
(350,000/3360/346,640)
50%ile ($38,000)
(2000/2000/0)
(10,000/7050/2950)
(50,000/7220/42,780)
(500,000/7220/492,780)
70%ile ($58,000)
(2000/2000/0)
(10,000/9350/650)
(50,000/11,020/38,980)
(500,000/11,020/488,980)
90%ile ($105,000)
(2500/2500/0)
(12,000/12,000/0)
(60,000/25,460/34,540)
(600,000/25,460/574,540)
99%ile ($288,000)
(3000/3000/0)
(15,000/15,000/0)
(60,000/58,800/1200)
(750,000/69,840/680,160)
99.9%ile ($1,100,000)
(5000/5000/0)
(20,000/20,000/0)
(100,000/100,000/0)
(1,250,000/412,500/837,500)

The values for the Out-of-pocket and Government Participation costs in the table above were calculated with the aid of the Excel spreadsheet called Ben’s Care Govt Reimbursement Calculator.xlsx.

Whether legitimate health care expenses will include vision and dental etc., is up for discussion.

Coda

An Outcomes Matrix (overflowing with many too many numbers) is not a good way to end a presentation of a new health care paradigm (except, of course, for Geeks).  Suffice to say, it is possible to design a health care system for Americans that will provide affordable access to great health care to us all, and save all of us at least one-third of what we today pay for health care annually ($10,345 or 17.8% of GDP), and save most of us in most years much more than that, too.  Yet – it may prove difficult to sell to the American public, which has so gotten used to “free stuff” that the government pays for (through taxation) or, even worse, free stuff that the government does not pay for (through deficit spending).

If you are not convinced that Ben’s Care is the best possible solution to our health care mess that you have seen, then I beg your forgiveness for not doing an adequate job of explaining it.

What have I missed?  Please let me know.





Any use of the word “patient” may mean “the patient and his family.”

** Some very wealthy Americans declare no taxable income and pay no income taxes; they live off their wealth.  “Real Income” would take that fact into account (Indeed, all income tax policy should take wealth into account, but that is another essay).  For our purposes, “Real Income” means Net Taxable Income plus some fraction of Total Net Worth.  Treating wealth as income will only impact a few high Net Worth individuals and families, and it will keep our most fortunate citizens from being able to game the system.  Actually, only some fraction of Net Worth would need to be added to Income to derive a fair “Real Income.”

*** Income thresholds (10%, 15%, 20% and 30%), and levels of government participation (50%, 80%, 95% and 100%) are hypothetical figures; actuaries will determine the proper levels of both.  But the Government Participation Matrix (see below) represents my current thinking.

**** The values in this matrix are pure invention.  The real matrix that will be used to assign government participation rates must be the work of professional actuaries.

† These well-paid people have chosen to pay more for their health care expenses than “typical local” rates.  The rules of Ben’s Care calls for government participation at typical local rates.  The Outcomes Matrix does not reflect that rule.


Downloads
Introduction
Ben's Care
Selling Ben's Care
Ben's Care Govt Reimbursement Calculator
High Deductible Health Plans
Selections from To My Countrymen