The data is shocking. Courtesy of the Agency For Health Care Research and Quality:
"As policymakers consider various ways to contain the rising
costs of health care, it is useful to examine the patterns of
spending on health care throughout the United States. In
2004, the United States spent $1.9 trillion, or 16 percent of
its gross domestic product (GDP), on health care. This
averages out to about $6,280 for each man, woman, and
child.
However, actual spending is distributed unevenly across
individuals, different segments of the population, specific
diseases, and payers. For example, analysis of health care
spending shows that:
• Five percent of the population accounts for almost half
(49 percent) of total health care expenses.
• The 15 most expensive health conditions account for 44
percent of total health care expenses.
• Patients with multiple chronic conditions cost up to
seven times as much as patients with only one chronic
condition."
"A small proportion of the total population accounts for
half of all U.S. medical spending
Half of the population spends little or nothing on health
care, while 5 percent of the population spends almost half
of the total amount.2 In 2002, the 5 percent of the U.S.
community (civilian noninstitutionalized) population that
spent the most on health care accounted for 49 percent of
overall U.S. health care spending (Chart 1). Among this
group, annual medical expenses (exclusive of health
insurance premiums) equaled or exceeded $11,487 per
person. In contrast, the 50 percent of the population with
the lowest expenses accounted for only 3 percent of overall
U.S. medical spending, with annual medical spending
below $664 per person. Thus, those in the top 5 percent
spent, on average, more than 17 times as much per person
as those in the bottom 50 percent of spenders."
No matter how you look at it, these are stunning facts.
The way I see it is simple.
A few weeks back a commentator on CNBC had the perfect quote.
"You can't insure a burning house"
Once chronic disease has crept into ones life, your premiums become currency, not insurance. You are guaranteed to spend money far and above what any amount you could ever pay in premiums. It is no longer insurance. Your premiums give you the right, forever, to pay large health expenditures for much less than you pay in.
Most insurances are single event or have pre defined benefits. Auto insurance? You wreck your car, you are paid a defined sum. House burns down? You get a defined sum. You die? Your heirs get a defined sum of life insurance.
Health insurance?
There is no defined sum. You can be sick for the rest of your life. And your expenditures will cost much more than you pay in. You aren't insuring against health. You are insuring your right to subsidized life long medical care.
The way I see it, that 5% has made health insurance unaffordable for the other 95%. By consuming to the extreme, they have driven the healthy out of the market of buying insurance and placed great strain on those who make the transition from healthy to sick, without insurance.
The question then becomes simply:
How do you make insurance affordable for the "healthy" while providing for the 5% chronically ill who consume 50% of our health care dollars.
I have given this a lot of thought. The two groups are incompatible. You can't provide affordable health insurance for the vast majority of the population when the sick, the really sick folks massively drive up the cost for everyone.
I have a proposition that mixes public and private funding of health care that could potentially make it affordable for everyone, while preserving the role of both public and private sectors in ensuring the health availability of everyone.
Medicare will no longer be provided based solely on age or the need for dialysis. Medicare will be available to all. Read on...
The source of funding will be 3 fold.
High Deductible Health Savings Account at 2% of Adjusted Gross Income
1. Patient/family is required to meet 2% of AGI.
If your family makes 100k a year, you must spend $2000/year in deductible before insurance kicks in. If your family makes 20K a year, you must spend $400/year in deductible before insurance kicks in. A minimum deductible will be established based on geographical cost of living adjustments before insurance kicks in.
2. A minimum deductible, determined by geographical cost of living figures, must be reached before private insurance kicks in.
3. If a means tested deductible falls below this value, state Medicaid funds will provide the difference.
For example. In Kansas, the minimum deductible may be $4000/year for a family . In Manhattan, it may be set at $7000/year for a family. If the family's means tested deductible in Kansas is only $400/year then the state of Kansas will kick in the other $3600 for health care bills.
Private insurance will provide a universal fixed benefit per year. If your health expenditures reach this level for 2 consecutive years, you are dropped from private coverage and become a fully funded Medicare patient. Age is no longer a requirement for Medicare.
1. The cost of this insurance will not be based on health history.
All patients will be given the same premium quote. Since the risk is predefined and much smaller, the risk of insuring high health consumers is drastically reduced. And if the patient reached the defined benefit level for 2 consecutive years, they are dropped from coverage and placed into the Medicare pool. So the cost of insurance for the "healthy" is drastically reduced. It provides for insurance in the case of a catastrophic illness development of chronic illness, at any age, at an affordable price.
By taking the chronically ill health care consumers out of the insurance pool, you are able to provide affordable insurance to all. You are insuring against illness. You are not paying for illness.
2. Insurance companies will be required to equalize their payout ratio to insure equal distribution of patients.
They will pay each other. That is, to insure that one insurance company does not sign up all healthy patients and thus able to provide lower premiums. If one insurance company paid out 80% of premiums and another paid out 90% of premiums, the 80% company would pay the 90% company.
3. You cannot be turned down for any reason.
You are guaranteed to be insured. Premiums will fluctuate yearly based on the payout per person, which has been equalized among all insurance companies. But the premiums are equal for all.
4. If you cannot afford a means tested premium, state Medicaid funds will pay for it.
5. Defined benefit limits at which point Medicare kicks in will be defined by Congress.
$15,000/year? $20,000/year? $25,000/year? The figure could be established and determined yearly by funding.
Medicare will be an insurance of last resort for all 300,000,000 Americans. It will be available to everyone that exceeds their yearly private insurance benefit, and will be available for all patients that have been removed from private insurance pools.
1. It will be available to all Americans.
Qualifying for Medicare will no longer be age dependent. I know of a lot of healthy, wealthy 70 year olds who don't need the system. I know of a lot of 35 year old chronically ill patients who need the system. To qualify, you must have exceeded your defined private insurance deductible for the year, or you must have been kicked out of the private insurance pool for exceeding the benefit for two consecutive years.
2. There is no Medigap coverage, but the means tested deductible still stands.
Medicare will pay 100% of costs incurred.
3. It will be rationed.
If you want government to pay for it, you have to accept no as an answer. You do not have a right to bankrupt the country to get FREE=MORE.
4. If after two consecutive years on the Medicare pool, you fail to "spend" in excess of the private insurance pool deductible, you are removed from Medicare and made eligible for the private insurance pool. At this point, you are now part of the private insurance pool again, and treated the same as everyone else.
Looking at this proposition, I have no idea what it would cost. But if you take the 5% of people who consume 50% of the health care dollars out of the system for everyone, you make insurance affordable to all.
Treating health insurance as insurance, instead of a life long currency is necessary to make it affordable to all.
I think this represents a nice mix of private and public support for the health of our nation, and makes the patient responsible for a means tested portion of their own health care dollars.
Clearly getting the chronically massively ill out of the system is required - look at how we already do this with ESRD patients.
ReplyDeleteI wonder though if the better model for managing the spend is to keep them in Medicare based on a combination of usage and outcomes data for their disease state. For example, two years of low-cost care for a woman with metastatic breast cancer (say, just aromatase inhibitors) is not a good predictor of her staying cheap - one AI failure, she's back in the Medicare pool having run up two big years in the private pool.
E
I learned a lesson as a 3rd year medical student. During my medicine rotation, we had a patient in the MICU, a 70yo woman with end stage CA, in a coma for a week, edematous and being kept alive on pressors. The family clearly understood that she would never recover, but wanted "everything possible" done for her. One day after surviving her second code-blue, the chief resident called another meeting with the family requesting permission to make her DNR. The family refused. He shared their ethnicity and somehow convince them in their native language a little lie that from this day on, the family would be billed $50 for each day while the county would foot the rest of the multi-thousand dollar bill. Faced with the prospect of having to share some of the burden, the family quickly relented and requested that further aggressive measures be discontinued. This supports your wise conclusion that people make smarter decisions about spending their own money than they do about other's money. Thanks for another great post!
ReplyDeleteI think we have to accept that chronic medical conditions are by definitions expensive to manage. Getting that expense out of the insurance pool will make it affordable to the 95% of the population who don't use insurance as a currency. It should insure against a catastrophe, not a perpetual payment source of the catastrophe.
ReplyDeleteOn a second, different level you have to find ways to make that 5% less costly.
Disease management programs, (see my black jack post), transparency, open market pricing, etc...
You can make chronic disease cheaper. But the current system doesn't encourage it. It encourages volume. It encourages procedures. It encourages fragmented care. It doesnt' encourage primary care and all the benefits that come with it.
Bring disease management to the patient. Organized. Centralized centers for care of chronic disease.
And FUND it appropriately.
Don't make the patient go looking for it. Fragmented care spread among multiple physicians who rarely talk to each other because every one is too busy trying to make up decreasing reimbursement with increasing volume.
Even as a hospitalist I can sense the hurriedness in the PCP's voices/interactions by phone. In essence, 'hurry up telling me about MY patient', I have to run and see patients in my office.
If you pay based on volume, you get volume. Don't blame the physicians, blame the system.
The ultimate definition for quality is what the patient says it is. Take ESRD for example. Quality for some is being able to stay alive. They will tolerate 4 hours a day, 3 days a week of hemodialysis.
For others, quality is being able to stay alive, at home. Continuous ambulatory peritoneal dialysis. Both are quality. As defined by the patient. For others, quality is getting off dialysis by listing for a transplant. All quality as defined by the patient.
The patient defines the quality. And in a perfect world, will define quality with their pocket books.
Now you can define outcomes in other ways. Such as frequency of line infection. Frequency of hospitalization. Survival rates. Death rates. And on And on.
Outcomes may not mean better quality because the patient defines quality.
Also, not all chronic disease states are equal in expense. Take diabetes for example. Some are managed well with $4/month metformin. Some get admitted every month to the hospital with DKA. Some cost hundreds of dollars a year. Some cost hundreds of thousands of dollars a year. Defining the cost of care helps define the "risk" in the eyes of an insurer.
Ultimately, we need to get the 5% high spenders out of the pool to make insurance affordable for the 95%.
We can work on those 5% to find out what it takes to decrease their utilization. That can happen from a multitude of fronts. From personal responsibility, fully funded chronic disease management programs, rationing, technology/email/phone reminders/funded home visits. The list of target projects to decrease the cost are numerous.
Chronic disease is unpredictable. You may have stable coronary disease for 5 years and then WHAM, massive MI, inspite of doing everything right. Taking that expense out of the private system will insure affordable insurance to all.
Using Medicare as a back up plan is certainly appropriate. Using it will also mean accepting the rules that they instill. If you want FREE=MORE, you will have to pay for it, unless you can find a way to make FREE=LESS, then it's WIN-WIN for everyone.
Great post.
ReplyDeleteWhile I agree with most of the issues you raise, I find your conclusion that the insurance model is the right answer surprising.
Insurance's major processes are underwriting and claims handling. You've already made the assumption that the top 5% drive spend, and from data in the report, its pretty clear that who they are is relatively predictable from year to year (high repeat rate within same percentile).
Therefore, the insurance model isn't the right answer, as the risk is mostly pre-determined by the time they hit the system and continues to keep cost high from that point.
This is really two problems: redistribution of money to help the chronically ill pay for care, and insurance for the healthy against unforeseeable/controllable acute illness. For the former (which is the primary driver of cost, the insurance model seems like a terrible fit. There are better ways to reallocate those funds in a way that would better help control illness and put a lid on costs. For those that are healthy, low-deductible insurance seems wasteful, as median population spend would indicate that premium savings for a higher deductible would approximate the deductible over relatively short periods of time.
I talk quite a bit more about this on my blog: Consumer-focused healthcare: Insuring a burning house: Cost shifting vs. prevention
This is going to be a hard sell politically. I heard that about 65% of voters are satisfied with their current health care coverage and will resist any attempts to change things. Most people in this country still have access to the physicians they want to see. The health insurance industry and AARP have proven time after time that they can scare the public into resisting attempts to reform the system. I think it's going to take a lot more hurt before real reform is possible in this country.
ReplyDeleteDr Goel, you present a great summary on your blog.
ReplyDeleteWhat I have proposed is taking out the high spender, chronically ill patients from the insurance pool to make it affordable for the 95% of the population. It should insure against a defined benefit to keep premiums low and if you exceed that defined benefit, than I think it is reasonable to have government kick in for the uninsurable.
You can't expect an old retired poor person with 12 chronic medical conditions to pay for their service with their social security check. the same way I don't expect an uninsurable poor 35 year old with brittle diabetes to pay for it either.
Both are uninsurable. Both add expense to everyone else. They should be taken out of the pool of insurance. I want to insure me, a healthy individual against the possibility of a costly event or development of a disease. But once I have that disease I don't expect 95% of the population to pay for it. Because that makes health care unaffordable for everyone.
Accepting that chronic disease is expensive is necessary. You can reduce the cost by innovative programs (possibly private run, but government funded), but it will still be expensive and limit the affordability of insuring 95% of the population against an event.
On the contrary, yes you CAN insure a burning house.
ReplyDeleteThe premium is easy to calculate. It's the cost of the house, plus an administrative fee.
If you look at the population as a whole, it is possible to reliably predict costs and hence risk to that whole population. If a predictable percentage of people develop type II diabetes and another percentage develop chronic hypertension and yet another COPD, and some other percentage two or more, all of that can be described, and a general understanding of the costs developed.
ReplyDeleteTrying to separate the people who have developed disease and need care from those who haven't and don't is really nothing more than cream-skimming the population as a whole. Instead of a private insurer doing so, you set up a successive-cost basis for identifying those who are separated. The risk of becoming a chronically ill person is what those who buy into the insurance system are insuring against. It is not unreasonable for 19 healthy people, each paying into the pool and hoping not to have the misfortune of becoming one of the few really sick ones, to pay what it costs to insure against ruin should the odds not work in their favor.
Are the medical costs of the chronically ill really and truly unlimited? Of course not. Chronically ill people die, and usually earlier than well people do, and any decent actuarial review of finances of people who develop one of the chronic illness you mention could probably have a predictable outlay for medical expenses over their remaining life expectancy. So they are not really the black holes of the medical system you make them to seem. Of course including them in the overall risk pool does drive everyone's premiums up, just as car theft in one neighborhood drives up premiums in a whole city. That is the idea of insurance. Skimming off the really sick does nothing to contain their costs and really just offers a select and profitable population to the insurers who then don't have to pay out as much. (Are you sure you aren't working in that industry?)
The plan you propose is really just a reworking of the existing system, with a new style of shell game of passing around the premium and deductible liability. It really does nothing about affordability, because affordability depends on aggregate costs which takes us back to that 5% group that is doing all the consuming. Unless you can get those folks to spend less, you really haven't accomplished anything at all. Those expenses, once passed to Medicare, still have to be paid, if not in insurance premiums than in Medicare taxes.
So unless you have a solution that radically curtails consumption among the high-consuming group, you will get no benefit. "Affordable" insurance for people who really need no insurance is a poor value, not that there aren't a lot of insurance companies who would want to argue otherwise.
The real solution is limiting what the costly consumers are able to consume. That will take some tough decision making and a willingness to weather a lot of political storms. It will mean telling someone that because they are both diabetic and have COPD that they can't also have dialysis after age 70. It will mean telling someone with cancer and liver disease that they cannot have any organ transplants. It will mean telling a family that their 85-year-old great-grandmother with pneumonia and acute respiratory failure cannot have a respirator or a bed in the ICU. It is going to take exactly those kinds of tough things to bring the costs under control and to make "insurance" affordable.
Sure, you can insure a burning house. If you take twenty thousand houses into your insurance pool, there has to be one of them that is burning. You could bet on it.
Okulus
okulus, I can assure you if 5% of the houses burned down in my neighborhood, I would not be able to afford home owners insurance.
ReplyDeleteI don't want to insure against the possibility of getting a costly medical problem. But I don't think it is economically viable for the other 95% to pay for the perpetual life long costs associated with it. I think in order to assure affordability for the 95%, you have to remove the 5% from the insurance pool.
Lower premiums come with lower risk to the private sector.
Let the government fund chronic illness (not necessarily run it) because nobody else will (the uninsurable)
"I don't want to insure against the possibility of getting a costly medical problem."
ReplyDeleteThat should be I do want...