Don’t Adopt the Medicare Model in Expanding U.S. Coverage

by David Edman

Originally published in The Jewish Exponent, July 30, 2009

As Americans, we have access to the best healthcare services in the world, but our system of health insurance is broken, leading to unnacceptably high healthcare costs, significant wasteful spending, and a lack of access to healthcare services or health insurance for some. Experts agree that approximately 30% of the $2.5 trillion dollars of our annual healthcare expenses are wasted on unnecessary care, inappropriate care, and poor quality care. As we seek to fix this problem, we must “First, Do No Harm”, in accordance with the traditional Hippocratic Oath taken by physicians.

At one extreme, some people argue for a single payer, government-run healthcare system, a so-called “Medicare for All” approach. Why would we want to do this? The current Medicare program is a financial train wreck waiting to happen. As the largest healthcare payer in the United States, Medicare has led the way to high levels of wasteful spending. It is a politicized system of healthcare, not an economic system. Decisions are made, and providers are paid, based on who has the political power, not who provides the most value as determined in the marketplace.

The critical question then is, “What Is The Propoer Role For Government” in healthcare reform? Should government ‘negotiate’ with doctors and hospitals, set payment rates, and cut the checks, as done for Medicare parts A and B in this country and government-run healthcare in Canada and England? Or, should government manage and pay into a system of competing private insurers, establish the rules of engagement, serve as referree, and promote competition based on quality and cost of care? Examples include the non-traditional, Medicare Advantage Part C Program and our Federal Employees Health Benefits Program (FEHBP).

In my view, the answer is clearly the latter. In Canada and England, government sets the rates, pays the providers, and limits the supply of services such as the number of hospitals and high-tech diagnostic equipment. Everyone is covered and per capita costs are lower, but there are waiting lists for services, a dissatisfied public, and a growing system of private insurance. In the US, there are many examples of inefficiency and wasteful spending in the current Medicare program. And, since Medicare covers only 60% of costs on average, recipients need private supplemental insurance to pay for healthcare services Medicare doesn’t cover.

And what about the call for a “public option”, a new Medicare-like program to compete with private insurance companies? Again, I would argue NO, because this will inevitably lead to a single payer, government run system. In order to control costs, such a program will have to set rates of payment sufficiently low as to drive both physicians and private insurance companies out of the market. The claim that you will be able to “keep the current health insurance plan that you like” is patently false, because employers will drop their current private insurance in favor of the “cheap” public option.

So how do we solve the problem? By creating a voluntary, health insurance exchange where private citizens, employers, and the government (on behalf of the indigent) pay into a system of competing private insurers, such as FEHBP. In the FEHBP, insurance companies submit competitive bids once a year to the federal government’s Office of Personnel Management (OPM). Federal employees, including Members of Congress, then get information on benefits, costs, and services and make their annual election of an insurance carrier and benefits plan. Competition to attract members on the basis of cost, quality, and outcomes is what keeps costs down while providing the best possible healthcare.

Such a system of ‘Managed Competition’ will also spur innovation, allowing us to continue to deliver the best healthcare services in the world. Other components of national health reform that should be encouraged and rewarded in the private marketplace include:

• Electronic Medical Records
• Greater Consumer Choice (including HSAs)
• Personal Responsibility
• Enhanced Transparency
• Pay For Performance
• Prevention, Wellness, and Heath Education

In conclusion, the answer is not to insure more people into the current ‘broken’ system. Fix the system first, and then require all citizens to purchase health insurance (like car insurance). Reducing the estimated $750 billion of wasted healthcare dollars will let us subsidize those out of work or otherwise unable to afford their own health insurance. Contact your Members of Congress today to let them know you support health reform but oppose any expansion of government-run health care, including a “Public Option” health insurance plan.

DAVID E. EDMAN is a healthcare consultant and the Managing Partner of Risk Management Partners LLC in Wayne, PA. He can be reached at 610-975-4415 or by clicking here.