It's a question to which seemingly no one has the correct answer: What's the right model for healthcare reform in America? As The Times' March 27 editorial, "," explains, although negotiations between insurers, consumer groups and lawmakers have shown signs of progress lately -- namely, insurers offered to stop basing policyholders' premiums on medical history -- there are still several non-trivial details to work out. Should the government require everyone who can afford coverage to buy insurance, a provision the industry seeks? Should there be a public insurance plan open to everyone?
These are worthy questions, but what's needed is more fundamental reform that doesn't merely tinker with the systems already in place. What I propose is a completely new model that doesn't pit private insurance providers against a public plan, but would allow and encourage the two to partner together voluntarily.
Before detailing my plan, I'll explore some of the issues mentioned by The Times that present roadblocks to the reforms on the table.
Republicans in Congress are concerned that a public plan is the first step to a single-payer, nationalized healthcare system. The insurance industry argues that a public plan would use its buying power to force down fees and shift costs to private insurers. The problem is not fee levels, however, but the absence of incentives for physicians and hospitals to think carefully about what services are needed to provide the best care for their patients. Medicare is effectively a single-payer system, yet it costs nearly twice as much to treat Medicare enrollees in their last two years of life at UCLA than it does at the Mayo Clinic -- even though there's no evidence that the care is any better at UCLA.
The editorial expresses some reservations about a mandate, saying it's pointless to require people to buy something they can't afford. But lost in this debate is the issue of what coverage should be mandated. Special interests have long argued for covering specific treatments, devices and conditions. The right mandate, however, would require everyone to have insurance against chronic illnesses and catastrophic events that require expensive hospitalization. Together, these account for more than 60% of all medical costs for people under the age of 65. By requiring that everyone have coverage for at least hospitalization and chronic illness, either from the public plan or from private carriers, costs will be evenly spread across the sick and healthy. Premiums can be based on age and sex, and the government could provide income-based subsidies to assure affordability.
My proposal would address both concerns raised above: What should be covered, and how should we pay for it. Rather than positioning government programs to compete with health insurers, a primary concern of private industry, I propose a solution that would allow private insurers to voluntarily buy into an expanded public pool. This would enable insurers to partner -- rather than compete -- with a public healthcare plan.
This publicly chartered insurance would have the scope to offer bundled payments to physicians and hospitals that volunteer to come together and provide high-quality care to their patients. They would determine among themselves how to allocate resources. Public oversight of the plan would ensure transparency and fairness, and the operational aspects could be contracted to private intermediaries, just as Medicare does today. Medicare could also adopt such a bundled payment approach, reducing its costs while enhancing quality.
The new public plan would also cover chronic illness care, most of which is delivered by independent physicians. Such preexisting conditions are a major source of high individual insurance premiums. Chronic illness, however, touches many more people than are hospitalized and involves far more providers. Developing high-quality treatment for chronic illnesses can benefit greatly from creative use of new types of providers and health information technology.
Private insurers may be more agile than public ones in addressing both chronic illness care subject to mandated coverage and the routine minor acute care for which a mandate is not necessary. Private plans can offer products that cover both, and behind the scenes they could buy reinsurance coverage from the public pool for the chronic illnesses of their enrollees. In this way, the public plan would do what it does well -- pool risk and pay for inpatient care. The private sector can reduce costs -- not by constraining fees but by developing innovations in care.
The Times was right to praise the recent actions of the insurance industry. But bold new thinking is needed to achieve real reform. Every avenue needs to be explored, not just the same ideas and arguments that have held the nation back from achieving universal coverage, cost containment and improved quality.
Harold S. Luft is director of the Palo Alto Medical Foundation Research Institute and the author of "Total Cure: The Antidote to the Health Care Crisis" (Harvard University Press).