Federal reinsurance for high claims will lower costs, expand access for all
LIKE MANY OF the Democratic presidential candidates, I believe access to necessary health care is a basic human right, like housing, food and social services. More needs to be done to ensure such basic necessities are available and affordable to everyone, and it starts by controlling the continuing rise in public and private expenditures on health care. New approaches should be explored because the US spends more on health care than other industrialized nations and gets worse overall health results.
While much of the attention is going to proposals to institute Medicare for all, a single-payer idea that deserves careful consideration was introduced in 2003 by then-senator and Democratic presidential candidate John Kerry, when he called for single-payer reinsurance.
Reinsurance is essentially an insurance plan that protects health plans against extraordinarily high claims. Such a plan, revised to fit the federal Affordable Care Act regulated market, could focus government’s limited resources and regulatory attention on the small percentage of individuals who, because of chronic or catastrophic conditions, require high-cost procedures and pharmaceutical products that account for most of the cost of medical care.
Just 5 percent of the population accounts for around half of total US health care spending. These friends, family, and neighbors deserve high-quality care. Government has ensured access to health care by prohibiting health plans from refusing to sell to individuals with pre-existing conditions, and by prohibiting coverage caps on medically necessary care. Before state and federal governments began imposing these guaranteed issue and portability requirements, such individuals were often unable to obtain coverage.
Under existing regulatory and funding approaches, however, the extraordinarily high cost of caring for a small percentage of the population is being spread across public and private health plans, increasing costs by acting as a health care cost redistribution tax. Government should ensure that these individuals have access to medically necessary care, but it needs to take more responsibility for managing the cost.
If the high cost of those procedures, conditions, and products were paid – reinsured – by government, it would significantly lower the price of all other health plans, which would no longer need to account for those costs. Currently, the costs are borne disproportionately by employers because government does not effectively regulate their cost and then underpays the resulting inflated price. Under this convoluted system, employers and employees are asked to pay higher premiums than is rational based on their experience and risk factors.
According to a recent report by the Kaiser Family Foundation, the average annual cost of employer-sponsored family health coverage has increased by about $7,000 over the last decade to more than $20,000. If government could become the sole payer, and price regulator, for high-cost procedures, conditions, and products, and effectively wall off those costs from private plans, basic math indicates that the price of health plans would drop significantly. And, with proper enforcement of loss ratios (limits on health plan overhead), there should be an equivalent drop in insurance company overhead and profit. Health insurance would become more affordable.
Such a plan wouldn’t cut the cost of family coverage in half, but any reduction would be welcomed by working families, and the resulting price would seem closer to the perceived (and actual) value of the coverage. Shifting costs to a single-payer reinsurance plan would open up greater opportunities to incent competition in a better-functioning health care market for more common and less costly care.
Rather than pursuing Medicare for all, we should focus public coverage on the most medically vulnerable and foster improved private market function. A single-payer reinsurance program would reduce the cost for all other health plans, including other public plans that currently cover 30 to 40 percent of the population through Medicaid and Medicare.
The current projected trend in Medicare growth is unsustainable even without opening a public option or imposing Medicare for all. The number of Americans aged 65 and older is projected to more than double to over 98 million by 2060, and the 65-and-older age group’s share of the total population will rise from 15 percent to nearly 24 percent in that time. Given those realities, the existing Medicare program will require changes in eligibility or funding. The current approach, under which the Medicare costs of billionaires in oceanfront mansions are being subsidized by payroll taxes on working families living in rented apartments, needs to change.
A single-payer reinsurance program would create a consistent level of coverage, and better cost controls, for the highest cost procedures, conditions, and products. Many so-called single-payer systems create two-tiered coverage.
In Canada, roughly two-thirds of the population purchases private insurance to cover necessary medical costs like prescription drugs. In European single-payer systems, individuals often purchase private insurance to gain access to higher quality care that isn’t available through the public plan. These two-tiered systems can create significant barriers to quality health care for lower-income residents without access to private coverage. Better health outcomes in those countries may result from many factors unrelated to healthcare coverage, like better social services and more active lifestyles.
All medically vulnerable people should have access to effective procedures and products consistently and compassionately – regardless of their cost. A single-payer reinsurance program could guarantee that access, incent better market function, and reduce health care costs that currently squeeze out funding for other critical economic and social programs.
Thomas O’Brien is the former chief of the Massachusetts attorney general’s health care division.