Thoughts on the U.S. Health Care System

The current health care crisis in the United States is rooted in the imbalance of incentives impacting the various actors within the health care delivery system. A different system with different incentives might operate more sustainably. Thinking about how one would design a new health care system "from scratch" may be useful even if there is no practical way to transition the existing system to the de novo design. So, let us design a new health care system.

Modern health care is provided by complex organizations involving the cooperation of thousands of individuals. We will call them "Qualified Health Care Providers" (QHPs). QHPs could be private (for profit or non-profit) organizations or operated by state or local governments. Multiple QHPs would operate in each geographic area. QHPs would be required to accept all applicants within their service areas. Standards for electronic medical records would ensure data portability and allow patients to change QHPs easily.

Next, our new health care system needs to decide how much and what kind of care to provide to individual patients. These decisions should provide what is best for each patient, but they are constrained by resource availability. Physicians personally involved in the care of an individual patient are best positioned to balance these conflicting goals. Thus, our new system will empower physicians to make care decisions in consultation with their patients. Investing so much power with the physician means their decisions must be honest and impartial. Therefore, we will pay physicians a fixed salary and make it illegal and unethical for the physician to accept any other compensation. We must also protect physicians from non-monetary pressures by the QHPs to unduly restrict care to save costs. To ensure this, the physician's salary would be paid by an entity other than the QHP where they work.

Our new system must provide coverage for everyone. Experience with Social Security shows us that the Federal Government can efficiently operate systems that require the disbursement of many relatively uniform payments. Therefore, the Federal Government would issue vouchers to all individuals. QHPs would be required to accept the vouchers as sole payment for enrollment. Within broad guidelines, coverage would include "whatever the Doctor orders". Because the Federal government would not be intimately involved in administering the health care system, it is also the logical entity to pay all physician salaries. However, physicians would not receive civil service protection. They would only be paid as long as they were working for a QHP, which would have the power to hire and "fire" them. Because the U.S. taxpayer would be funding the entire system, no advertising for QHPs or prescription drugs would be allowed. Medicare, Medicaid, medical care for veterans, and worker's compensation (medical only) would be rolled into our new system.

This architecture delivers many advantages over the existing system. It relies on a very simple mechanism to provide coverage for everyone. Tensions generated by the system's structure create desirable incentives on the organizations and individuals working within it. Piece work compensation and the associated incentive to over-utilize medical resources, currently a major cost driver, would be eliminated. A system without this internal cost driver would not require the massive bureaucracies recently created by insurance companies to try and control runaway costs. The lower administrative overhead would itself generate significant savings and would also improve efficiency by enabling care givers to focus on giving care rather than spending time on paperwork justifying expenditures to insurance company bureaucrats. Quality of care would be maintained by the competition of QHPs for customers. Cost shifting would disappear. Insurance companies could not boost profits by excluding sick people from coverage. Physicians would be free to focus on healing their patients, but they would still face pressure to work hard and do the job to the best of their ability. High level standard setting and paying for the system would not require a large Federal bureaucracy. The overall cost of health care would be controlled by a single politically accountable body (Congress). The direct cost of advertising would be eliminated and the advertising created pressure to provide expensive prescription drugs would be reduced.

Even with these changes, many significant challenges would remain. For example, the medical malpractice compensation system ("defensive medicine") and rising prescription drug prices are two significant cost drivers that would not necessarily be controlled by this proposed system. Nonetheless, this is the basic outline of a system which could deliver high quality health care for everyone at a more reasonable cost then the existing system.

by Neal Lester
July 21, 2009
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