financing the new u.s. health system
OPINION PAPER BY HARRY SPRING - 2009
To convert the US healthcare system from a diagnose-and-treat system to a health system will demand a complete revision of how the system is financed; it is not about whether it is a single-payer federal plan or some other mechanism. Let’s lay that argument to rest immediately with this overly simple statement:
Health Care financing all comes from our economy, either paid through taxes for government plans, premiums for insured plans and direct payment for self-insured plans.
The bottom line is that our economy has to support healthcare, and we decide through our choices, laws, policies and consumer decisions what percentage of our economy goes to health services.
This commentary is not about the debate over national health insurance; it is about how the money is spent for health services from whatever source is paying for those services. As with other commentaries, I will approach this topic with some diagrams.
First is a diagram of how money is typically distributed across healthcare services for a group of randomly selected employer-sponsored plans. The basis of this model is that 93% of the current system’s money is spent on diagnosing and treating, with 7% spent on administrative applications such as claim payment, customer support and similar services.
A conclusion from this diagram is that practically all the money spent in this model is for diagnosing and treating. The amounts spent for evaluation and management are primary care services that are, in the current model, spent treating minor conditions. This data is from random InforMed clients and represents about 100,000 members, who are active employees and who are spending about $3,600 per year in medical costs per member, equaling about $7,200 annual cost per employee.
In other commentaries I've espoused the addition of 4 new elements that assist in driving toward a newer US health system.
Those four elements are:
1) Health Screening
2) Health Improvement
3) Health Education
Below is a graph of the reapportionment of US health dollars to incorporate those new elements.
The recurring series of questions within this model include:
1. Who ultimately pays for the services?
2. Who is “at risk” for meeting the budgets and plan performances?
3. What organizations can take on the responsibility of these budgets?
4. What are the population sizes that can take on this responsibility?
5. What resources are needed to operate such organizations?
That’s not a comprehensive list, but it’s a good start, and there are some answers. Here are starting points to the discussion:
1. First, and extremely critical, most government sponsored national plans of other countries use population-specific budgets. Whether it’s the German system, with the long term successful “sickness funds”, or the Canadian Province based plans, the recurring theme is specified populations with specified budgets and performance accountability. Whether we nationalize at the Federal level or change healthcare financing incrementally, a basic building block is defined populations and budgets for those populations.
2. A second and extremely important aspect of the process leading to a newer US health system is the fact that numerous organizations are already mostly THERE. I will not mention any of them here for the lack of presenting a complete and scientifically developed overview, but simple research will bring forward the fact that numerous organizations have:
1) defined populations
2) health improvement orientation and integration
3) budgets and performance accountability and
4) long-term success records. As the national debate heats up, it’s crucial that the knowledge of these population-based organizations is used and not wasted in the decision process.
With those 2 points made, here are answers to some of the basic questions:
1. Who ultimately pays for healthcare services? The economy has to pay for it all. Whether the money flows through insurance companies, employers or governments, the payment comes from the economic engine; that fact gets pretty complex in the face of the current economic problems and the reality of global economies and monetary policy.
2. Who is “at risk” for budgets and performance? The populations and the organizations that serve them are ultimately responsible for health and healthcare in their locations. This financial risk is processed through various forms, either insurance, employers or governments. At the end of the day, health and healthcare, their quality and cost, are the responsibility of the local population.
3. What organizations take on this responsibility? Local health systems, the hospitals, physicians and leaders within local communities actually have the risk and responsibilities. Attempts on the part of these organizations to offload or avoid these risks only results in increased cost and disruption to the population they serve. A review of long-term successful plans, whether governmental or private sector, indicates an intense integration of delivery of services and financing of those services. The bottom line is the governments, insurers, administrators and employers are experienced in taking these financial risks. These organizations are not experienced in improving health and certainly are not, and do not, want to be in the business of delivering healthcare; herein lies enormous opportunity for a newer US healthcare system.
4. What population size supports the healthcare risk? The numbers here are shocking in how small they are. If an employer has 200 employees, which equals about 500 total members (including both employees and family members) they are considered by the insurance company as experienced rated. Their healthcare costs actually reflect the expense spent by their employees. That number is too small for what I’m advocating, however it’s a good beginning dose of reality. The actual numbers show that the old Roman rule of 10X works for sizes of population. Here’s the example:
a. 5,000 people form a group large enough to have fairly predictable profile of risk.
b. 50,000 people form a group size where a health system begins to emerge. This level of population will spend about $250,000,000 annually and can support most components of a complete health system.
c. At 500,000 people, most comprehensive care has historically been afforded and provided by one or more health systems.
d. At 5 million people, large multiple health systems will operate. It is interesting to note that with populations over 500,000, subdivisions of geography normally occur, naturally segmenting a population into groups of about 500,000.
5. There are approximately 5,000 acute care hospitals in the US. With a population of 300 million, that’s an acute care hospital per 60,000 people. The current resources to support overall health and healthcare are typically viewed as the ability to support an acute care hospital with its attendant physicians that operate in an acute care environment. In the future, this definition will still be critical to the structure, but there will be a resource shift toward:
2) primary measurement and testing
3) seamless integration into health improvement along with treatment using the most advanced technology and
4) access to centers of excellence where high performance procedures are accomplished
The bottom line is that whatever national and regional shape a newer US healthcare system takes, it is critical to recognize and capitalize on the population realities of relatively small populations supporting their own health improvement and healthcare. Failure to capitalize on this core strength of the current system can cause serious and long term problems with the system.
The mechanics of this apportionment are generally as follows:
1. Individuals select (during specified open enrollment periods) an organization that will be their health system. This organization could be one of several types: an integrated system that offers all services, commercial health plans, government plans, hospital organizations that include full services, physician groups that offer comprehensive services, and new organizations that will form around the new methods of financing and delivering health improvement oriented services.
2. The commonality of these plans and organizations is that they will: 1) be customer friendly and judged for their quality of customer service
2) be health improvement focused
3) contain financial incentives and rewards for improved health of their enrolled people and
4) provide the best possible medical treatment to their members.
3. Budgeting of expenses for defined populations will be an aspect of a newer US health system. We can no longer allow local healthcare budgets to roll up into a single national number like the Medicare system we now have. Budgets, and limitations on those budgets, along with local decisions as to allocation, must occur within populations that use services and experience health that is indigenous to their particular geographic area.
4. Budgets will include uniquely evolved variations of the allocations stated above, including resources for health screening, improvement of health, health education and technological support for the allocations.
5. Failure to achieve the performance dictated by the budget will result in the sponsoring organization having to capitalize any losses and its realigning its budget allocations with the recurring focus that savings must come from:
1) improved health of the population and
2) increasing efficiency in the delivery of services.