Healthcare Reform: What’s Next?

President Obama recently approved a healthcare reform bill that aims to extend coverage to 32 million uninsured people. But instead of calling it a healthcare reform bill, it’s more appropriate to call it an “insurance reform” bill. Granted health care needed to be fixed in this country. But it cannot just stop at insurance reform. This bill does nothing substantial to curb the rising costs of health care, in terms of its “unit costs”, which really is the fundamental issue we need to address.

This bill works toward providing coverage to 32 million uninsured people by mandating insurance on individuals and on employers with 50 or more employees. This bill also introduces insurance market reform where insurers would be forbidden from placing lifetime dollar limits on policies, from denying coverage to children because of pre-existing conditions, and from canceling policies because someone gets sick. Parents would be able to keep older kids on their coverage up to age 26. A new high-risk pool would offer coverage to uninsured people with medical problems until 2014, when the coverage expansion goes into high gear. Major consumer safeguards would also take effect in 2014. Insurers would be prohibited from denying coverage to people with medical problems or charging them more. Insurers could not charge women more.

The basic underlying assumption is that in spite of these restrictions, insurance carriers will still remain profitable, if they have a large enough pool of population to spread the risk. While it may be true for the top 5 insurance carriers, this may have a negative impact on the small carriers who were already running on thin margins, if they have one or two high-cost cases on prolonged treatment whose lifetime costs can easily run into > $1 Million. Furthermore, for self-insured employers, having one or two very high cost patients could be a financial hardship on the business. Employers in that case could choose the alternative of dropping coverage altogether as the penalty of $2000 per employee is a lot less than paying $10,000+ per employee that some of them pay today, if they have sicker and older population.

Furthermore, unlike the British Government health system – NHS (National Health Services), that caps the prices of drugs and medical devices or determines pharmaceutical coverage based on cost-effectiveness, it is unclear that the private insurers in the US are at liberty to do so, essentially taking away any solution they could deploy that potentially would reduce the “unit cost” of drugs or medical devices.  This reform bill does nothing to address these costs.

Solution? As the government is introducing insurance reform, they also need to seriously look into how to reduce the cost of health care. One solution might be hospital or health system reform. “The average U.S. hospital spends one-quarter of its budget on billing and administration, nearly twice the average in Canada. American physicians spend nearly eight hours per week on paperwork and employ 1.66 clerical workers per doctor, far more than in Canada (Thomson Reuter ref. 7). These add costs to the system, further increasing what hospitals charge to private carriers. However, staff model insurance carriers or health systems like Kaiser Permanante, Mayo Clinic, Cleveland Clinic, or Intermountain Health System, manage their costs way below the national average. How do they do that? Their physicians are on payroll, and physician billing is no longer separate. So in addition to eliminating the administrative costs of physician billing, being on fixed payroll their doctors do not have the incentive to perform more and unnecessary procedures. Ideally to control costs, today’s fee for service reimbursement model needs to go away.

One idea to achieve this will be for the government to fund some public hospitals. Coming to think of it, it’s not that radical. County hospitals and clinics today are indeed funded by the State government. Now that this healthcare reform has significantly increased taxes, some of the new tax revenue should go to public hospitals, in addition to enabling people to afford insurance. The criticism you might hear about today’s public health system not well run is largely because the system is underfunded.

This solution creates a two-tier system where the government funds a certain number of hospitals and employs salaried physicians, thereby eliminating the fee-for-service model, and reducing the overall costs of healthcare. Just like CMS today, government health systems would be able to use their purchasing power to buy pharmaceutical drugs and medical devices at a substantially reduced price. Any tax-paying person with a social security number should be able to access the public health system for a nominal fee.

At the same time, public hospitals system can co-exist with today’s private health care system and insurance programs can be designd based on which service you access. For example, the NHS owned public hospitals in the UK have "amenity beds" which are typically hospital rooms appointed more comfortably, and private wards where more amenities are provided for extra fee. Patients using these beds are in an NHS hospital for treatment, and are attended by the same personnel, but the hospital and the physician will receive payment from a private insurance carrier. From time to time, the NHS pays for private hospitals (arranged hospitals) to take on cases under contract, especially for surgical care.

Just the insurance reform is not going to solve the health care crisis problem in the USA. We need to take it a step further to now address root causes of rising health care costs. Starting with health system reform is one of them.

About The Author

Dr. Sadhna Paralkar is a Health Management Consultant and partner at Altruista Health. She has a plethora of experience in healthcare operations, informatics, and consulting in medical management focusing on health improvement while containing costs.

Prior to Altruista Health, Dr. Paralkar was at UnitedHealth Group. At Ingenix Consulting, Dr. Paralkar was responsible for providing clinical expertise to our clients in the payer, provider, public sector, and employer markets. Her areas of expertise include health care informatics, medical management program design, clinical operations, benefit plan design and network management strategies to optimize health improvement while containing costs, and evaluation and implementation of disease management and wellness programs based on evidence based medicine (EBM) protocols. Prior to Ingenix, Dr. Paralkar was at Optum, another UnitedHealth Group company, where she served as the Director of Business Development for the Care Management suite of products.
Prior to joining United, Dr. Paralkar worked at International Truck and Engine Corporation (Navistar, formerly known as International Harvester) - a Fortune 500 company in various capacities. The last position Dr. Paralkar held at Navistar was Associate Medical Director responsible for occupational health and disability, on-site wellness programs, health benefits plan design, and health care purchasing.

Dr. Paralkar has published several articles on Health and Productivity in peer-reviewed journals and has been an invited speaker at national conferences on the business of health care, including the Government’s Finance Officers Association, several Society of Actuaries conferences, and the ACOEM (American College of Occupational and Environmental Medicine) conferences.

Dr. Paralkar holds a Doctor of Medicine degree from University of Bombay, India, a Master of Science degree in Public Health from the University of Illinois at Urbana-Champaign, and an MBA in health industry management from Kellogg School of Management of Northwestern University.

Dr. Paralkar is a member of the American Public Health Association, American College of Occupational and Environmental Medicine, The Institute of Medicine of Chicago, American Association of Physicians from India, and Women Business Leaders of the U.S. Health Care Industry Foundation.