Become informed and defend your freedoms.  This is a website for citizens by an independent citizen.

Solution Framework of Market Forces

Adequate and affordable health for all

McKinsey report by John Rother        3 June 2009

The need for comprehensive reform of health care financing, insurance coverage, and delivery has never been so urgent. With close to 50 million Americans now lacking coverage, the need for a new model is rapidly increasing.  In just the first quarter of this year, two insurers reported that more than one million enrollees lost coverage. Yet the coverage problem goes deeper than the current economic cycle.  Research by the AARP Public Policy Institute has found that more than seven million Americans aged 50 to 64 were uninsured in 2007, a 36 percent increase from 2000.

The broad goals of the current health reform effort are clear: we are seeking a distinctly American model that will feature vital roles for the government and private sectors, while finally delivering affordable, quality health care for all.  It will impose new responsibilities on all players in the health care system. The government will have to oversee coverage expansions, transform reimbursement incentives to encourage prevention and quality care, and make strategic investments in infrastructure—for example, to expand health information technology.

For the model to perform as needed, providers must also embrace change. While we take a “show me” attitude toward the recent announcement that providers pledge trillion-dollar-plus savings in the next decade, we believe—strongly—that big savings are attainable.  The US Congressional Budget Office has estimated that as much as 30 percent of health care expenditures do not promote better health, so the potential for greater efficiency is significant. Indeed, regions in our country with a more economical approach to health care fare quite well.

For example, spending on health care is three times higher in Miami (where intensive resource use is the norm) than it is in Minneapolis (where providers are not as quick to recommend costly treatments). And the results are better in Minneapolis. Cost containment is essential to keeping health care affordable—and the system sustainable—over time. It would be self-defeating to steer many millions of individuals into a system that cannot sustain itself. Insurers, too, need to pitch in by working with government to find a way to make coverage available to all, regardless of age or health status. And individuals must play their part by learning to make responsible lifestyle choices.

There are specific steps these players must take for any reform to work.

In the future, the public sector will need to take a more direct role in order to insure greater coordination, prevention, and wise stewardship of resources.  Medicare, for example, should implement payment reforms that compensate doctors for coordinating their services. This will promote delivery of more efficient and effective care, replacing the current fragmented system that makes treatment—especially of patients with chronic conditions—both challenging and expensive.

(Note: McKinsey is accepting the political reality of the times, without promoting how best to position the patient to own their healthcare, which they had advocated elsewhere at an earlier time.  They must have a lot of government contracts.)

Higher reimbursements can be linked to patient-centered approaches to care, such as the “medical home” which places an emphasis on keeping people healthy and avoiding the duplication or overuse of costly health technologies. Again, Medicare offers a good place to begin. It could set an example by hiking payments for primary care doctors as a way to attract more young physicians to that field and away from less necessary, if more lucrative, specialties. Medicare could also provide patients and their caregivers guidance and support after a hospital discharge. Unplanned hospital readmissions now cost the program more than $17 billion a year. Reducing such readmissions promises significant savings.

Government health programs such as Medicare should also take advantage of comparative effectiveness research, which attempts to systematically quantify the effectiveness of various treatments. Opponents of reform try to spread fear by falsely claiming that comparative effectiveness will become health care rationing. But this misses the point: patients who get the right therapies do better. It is misuse and overuse that cost the system dearly and can hurt people.

While government must take the lead in establishing some of these policies, we are counting on providers to make them work. Doctors, for example, will have a new responsibility to consider the findings of evidence-based research and to use professional judgment in determining how these findings may best apply to an individual patient. And although revised financial incentives can be a powerful tool for modifying behavior, reimbursement strategies that encourage a team approach to care will work best only if doctors can see the medical benefits of interdisciplinary cooperation.

While the new model of care will reserve special responsibilities for the public and private sectors, that does not mean individuals are off the hook. We must each take greater responsibility for our own health, recognizing that personal behavior, health, and doctors’ bills are all linked. Competent adults should also be responsible patients, which means following doctors’ advice and taking medications as prescribed. Individual responsibility also implies a reasonable use of resources. For example, individuals should go to emergency rooms only when there is no reasonable alternative.

Finally, insurers too must meet new obligations. We believe they should be required to accept everyone for coverage, regardless of age, current health, preexisting conditions, or past health history. Recent offers from within the insurance industry to stop considering preexisting conditions in coverage decisions are welcome but do not go far enough. Insurers also must restrict their practice of age rating, which by itself can make insurance unaffordable for older consumers. Many individuals will need subsidies for insurance to be affordable, and tax credits seem the most efficient way to deliver that support. AARP believes that no one should spend more than 10 percent of their annual income on health premiums and out-of-pocket costs.

It is not yet clear whether a public plan is needed to assure sufficient affordable coverage. But an expanded public role is essential. Exchanges or connectors could provide a portal to affordable access for those who have trouble finding it. An exchange could function at the state, regional, or national level. Whatever the mechanism, and whoever bears the risk, the key is that insurers will be required to cover everyone, and that subsidies will be needed to keep this insurance affordable.

And this leads to what could be the greatest political challenge facing the current reform effort: how to pay for it.

Health reform, properly designed, should lead to substantial savings for most households and employers. Medicaid expansions and other low-income protections should save costs for states. Subsidies designed to keep health care affordable will require substantial funding. All of these benefits, along with the necessary new investments, will require substantial new federal financing. The amount will likely exceed $100 billion a year as the program is phased in and cost control incentives take hold gradually.

There are different ways to come up with the money, and Congress is looking at a menu of revenue raisers. These include harnessing savings from Medicare, raising income tax revenues by capping the value of the exclusion for employer-sponsored health benefits, and imposing payment requirements on employers who do not offer health benefits at all. While various mixes of funding might work, we believe strongly in the principle that financing should be a shared responsibility. As part of this, individuals will be expected to purchase their own, affordable coverage.

However Congress addresses the financing puzzle, health reform will have to be an ongoing process. After financing is agreed on, the focus must then shift to delivery. Health reform only can succeed if providers embrace the spirit of delivery reforms and carry out the changes that will fix the system for the long haul.