Wednesday, July 22, 2009

A Single Payer Solution: Health Care Credit Cards (Part 1)

by Marcel F. Williams

"If we do not fix our health care system, America may go the way of GM — paying more, getting less, and going broke."

President Barack Obama June 15, 2009 in front of the American Medical Association

Americans currently operate the most expensive and inefficient private-- and public-- health care systems in the world. And the astronomical and ever increasing cost of medical care in the United States is a continuously growing cancer that threatens the long term economic health of American industries and the economy as a whole.

It is estimated that private health insurance and other worker benefits add $1,000 to $1,500 to the cost of manufacturing a car in America, while it only adds approximately $150 per car in Japan. GM, however, claims health care costs added between $1,500 and $2,000 to the cost of every automobile it manufactures. The Business Roundtable, which represents the largest U.S. corporations, released a study showing that for every $100 spent in the United States on health care, a group of five of our leading economic competitors (Canada, Japan, Germany, the United Kingdom and France) spend only 63 cents.

In 2008, employer health insurance premiums increased by 5.0 percent – two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $12,700 with the annual premium for single coverage averaging over $4,700. So its pretty easy to see that the cost of providing private health insurance for American employees is putting US businesses at a substantial competitive disadvantage against other countries whose governments provide universal health insurance for their populations.

In 2007, the U.S. spent $2.26 trillion on health care, or $7,439 per person. Yet, despite the fact that Americans spend more per capita on health care than any other nation on Earth, the UN World Health Organization (WHO) only ranks the US 37th on the planet as far as the quality of health of its citizens. And nearly 50 million Americans have no health insurance at all! France, on the other hand, was rated number one by the WHO despite only spending $3040 per capita in health care dollars for its citizens.

But this is nothing compared to the nation of Singapore. Singapore has a higher per capita GDP than the US and is ranked 6th in the world by the WHO as far as far as the quality of health of its citizens, yet it spends merely $1118 per capita.

Ironically, the US Federal government spent more than $808 billion in 2007 on health care (medicare, medicaid, Federal workers, VA hospitals, etc.). If you divide that number by every American citizen, that comes out to $2640 per capita which was higher than was spent per capita by Ireland, Japan, Italy, Spain, Singapore, and the UK, nations all ranked higher than the US as far as the health of their citizens by the WHO.

If that $808 billion in Federal health expenditures were utilized as an 80% subsidy for a single-payer health care system then the Federal government and its citizens would be spending approximately $3300 per capita, which would not only be a higher expenditure than in Ireland, Japan, Italy, Spain, Singapore, and the UK, but also higher than Canada, Sweden, Australia, Germany, and France, all with higher WHO health rankings than the US. And this doesn't even include the hundreds of billions of dollars annually spent by State governments on health care. So the US Federal government already spends enough money on an annual basis to provide quality health insurance for every man, woman, and child in America without any private health insurance dollars at all, if we utilized these Federal dollars as efficiently as they do in most other advanced nations.

Unfortunately, both Medicare, Medicaid and the other public and private health care systems financed by the Federal government are as fundamentally inefficient and inherently inflationary as the private health insurance systems in America.
Medicare alone provided health care coverage for 43 million Americans in 2007 at a total cost of $440 billion, approximately $10,200 per recipient. That's more than four times as much as Spain spends on health care for its 46 million total population even though the health of Spaniards are ranked 7th in the world by the WHO.

Why are public and private health insurance cost so inordinately expensive in America relative to most other industrialized countries?

Himmelstein, an associate professor at Harvard and doctor at Cambridge Hospital determined that 31 cents out of every dollar spent on health care in America is for administrative cost. So out of the $2.26 trillion spent on health care in the US in 2007, approximately $700 billion dollars a year is spent on administrative cost. The total IRS budget in 2006 was less $11 billion. In Canada, administrative cost account for only 17 cents per dollar. So its obvious that our complex health insurance system in the US is costing Americans several hundreds of billions of dollars in annually in administrative waste.

Most private and public health insurance plans usually limit consumer choice of doctors, hospitals, and clinics. And once a consumer is enrolled in a health care plan there are practically no market incentives to reduce cost. And this is compounded by the fact that Americans exist in a health insurance culture where the cost of a medical procedure is rarely discussed (don't worry, your insurance will pay for it). Of course Americans and their employers end up paying for it through ever increasing monthly premiums. Guaranteed health insurance benefit packages that allow hospitals, doctors, and clinics to charge the maximum price for a medical procedure also dramatically increase the cost of health care. Hospital stays after surgery for simply monitoring patients can run into several thousand dollars on a daily basis. Medicare will pay in full for hospital stays up to 20 days, charging fixed co-payments only for the first day and for patient stays exceeding 20 days. None of these payments rise or fall in relation to the total cost of a hospital stay. So there's no incentive for a Medicare patient to seek out hospitals that charge less for a hospital stay.

The consumer also has extremely limited accessible information as to how much a medical procedure cost at a hospital or clinic. Of course, all of your investment or your employer's investment in your health insurance can be lost if you change jobs, lose your job, or that company goes out of business.

So extremely high administrative cost; extremely costly and inherently inflationary health insurance benefit guarantees associated with public and private insurance plans, and the severely limited ability of consumers with health insurance plans to price shop for the doctors, hospitals,and clinics that can provide quality health care services at the lowest price-- have in combination made health care in America easily the most expensive per capita in the industrialized world.

In order to substantially reduce the cost while increasing the efficiency of Federally funded health insurance programs in America, we need a system or systems that strongly encourages recipients to seek out the best medical care at the lowest price. And we need a system that gives consumers convenient access to what doctors, hospitals, and clinics are charging for medical check ups, examinations, and other procedures in order for consumers to make informed decisions on the cost and quality of their health care. The best way to do that, in my opinion, is to design a system that makes medical cost affordable for all American citizens-- while still expensive enough to provide consumer's the incentive to seek out the lowest prices. In other words, we need a health care system in America that makes health care affordable-- but not free!

Credit cards are a popular and convenient financial mechanism that private enterprise uses to make expensive items immediately affordable since the cost, including interest and fees, are spread out over a several month pay-back period. Subsidies are also an efficient mechanism for making something that is expensive more affordable for an individual. Since the Federal government already spends enough money on health care to provide universal health insurance for all Americans equal to that of practically all other industrialized nations, I believe that these funds could be most efficiently utilized to subsidize a Federal health insurance credit card system.

Under my scenario, Federally subsidized health insurance credit cards would be utilized by Americans to pay for all of their medical, medicinal, dental, and eye care services. Americans would be able to utilize these health care credit cards at any hospital, clinic, or pharmacy in America and possibly at any hospital, clinic, or pharmacy in any other country certified by the United States Department of Health and Human Services (medical tourism). The U.S. Federal government would pay private and public hospitals, clinics, and pharmacies 100% of the medical cost charged on these health care credit cards while charging Americans who utilized these cards 20% of the total cost in addition to a standard user fee.

Such a system would also provide consumers with a central online data base where health care credit card charges by doctors, hospitals, clinics, and pharmacies could be displayed (the individual patients associated with the charges would be anonymous of course) allowing consumers the ability to compare prices and medical cost. So consumer co-payments, user fees, and the ability to compare prices while selecting the doctor, hospital, or clinic of their choice at practically any place in America and possibly even over seas could dramatically reduce the cost of health care in America.

However, if such a system could eventually be run as efficiently as health insurance is in places like Japan, Spain, Singapore, or the UK then our current Federal health care expenditures could potentially be reduced by hundreds of billions of dollars annually. States would also benefit if they no longer had to pay the hundreds of billions of dollars of annual Medicaid support payments. Of course, if private industry in the US no longer had to pay trillions of dollars to the private health insurance companies any more, this would result in a titanic economic boom for the American economy which should bring in even more revenue for the Federal government. And in order to achieve all of this, all we have to do is to simply run our health insurance system as efficiently as practically all other industrialized nations do!

In the next part of this discussion, I'll describe how I believe the Federal government could implement a Federally subsidized single-payer health insurance credit card system without raising any taxes while possibly creating huge surpluses in annual Federal revenues that could be used to fund other Federal programs, reduce the Federal deficit, and even reduce our individual income taxes!

References and Links

How a Real Public Option Could Reduce Deficits, Create Jobs, and Save the US Economy

Per Capita Health Expenditures by Country, 2007

GDP Per Capita (CIA)

The World Health Organization's ranking of the world's health systems.

U.S. business leaders say hobbled by healthcare cost

Healthcare Costs and U.S. Competitiveness

Declining employer sponsored health insurance: Tennessee and the U.S.

U.S. Health Care Costs

2007/2008 Human Development Report

Health care system

Government Spending on Health Care Benefits and Programs: A Data Brief

Singapore's Health Care System: A Free Lunch You Can Sink Your Teeth Into

Singapore’s Health Care system

The Singapore health system – achieving positive health outcomes with low expenditure

The Cost of a 3-Day Hospital Stay

Health Insurance Cost
VA Hospitals vs. Private Sector Hospitals

Why Does U.S. Health Care Cost So Much?
Paperwork, profits clog health care's efficiencies

Health Insurance Administrative Costs to Doctors = $31 Billion Per Year
Debunking Canadian health care myths

Fact and fiction: debunking myths in the US healthcare system.

Debunking myths about the U.S. health-care system

Medical Tourism

Copyright New Papyrus Publications
Marcel F. Williams

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