| Economics

A Compromise on Health Care: Single Payer Catastrophic

by Michael Bindner

As I wrote Wednesday nite, some type of single payer insurance is inevitable because the mandates in the law are simply too weak to have everyone buy insurance, while pre-existing condition reforms will likely bend the cost curve the wrong way and bankrupt insurers and send them to TARP for a bailout or liquidation.

We could wait for a financial crisis, or we could put through a real bipartisan reform of the reform. Of course, this means giving up on univeral comprehensive but it also means giving up on for profit insurance.

The only proposal that does this is to have single payer catastrophic insurance funded by a payroll tax. Employers would fund Health Savings Acccounts for workers and employees would fund Flexible Spending Accounts for optional services. More under the fold.

Why do both an HSA and a FSA? Two reasons - bending the curve requires that consumers notice the pain (simply allowing them to cash out savings is not enough) and abortion funding. Single payer means that all catastrophic care would be government funded and the insistence on Hyde means that without some consumer funded account, abortion services would be cash only. Additionally, an FSB could included OTC (which the reform takes out) and can be accessed for their full value on day one, while HSAs have to build in value - meaning that providers have to wait to get paid. Eventually, as HSA values increase, FSB requirements go down, however they will at least fund normal use of copays and non-covered expenses.

Medicaid and Medicare HSA contributions would be paid by the government out of the same payroll tax which funds Catastrophic (and Long Term Care) coverage and everyone would have only one Health Security Card to access all three accounts. All beneficiaries would also have the same card, so the discrimination against Medicaid beneficiaries would stop. The payroll tax should be shifted entirely to employers, allowing salary but not net pay deductions to finance this. Compromise should mean that we stop arguing about the cost and hiding the tax from most employees would do this.

Research shows that HSAs would bend the cost curve by giving consumers the incentive to shop smarter, which would save money over time and avoid the necessity of price controls. Of course, the AMA would not like this development unless we threw in malpractice reform. Then the trial lawyers get upset, so the reform must take their needs into account. Also, reform must also make sure incompetent (rather than unlucky) doctors are punished or it will never fly.

The way to reform malpractice is to have special juries with medical society participation hear these cases and empower these juries to discipline doctors, including license revocation. Compensatory damages would remain uncapped, however punitive damage caps must not be allowed to damage the due process rights of plaintiffs by allowing defendents to outspend them on legal talent. To keep the playing field level, the cap should be three times defendent legal fees or some set amount - whichever is higher. Awards would remain untaxable until all appeals are exhausted and are only taxable on money actually received - with compensatory payments remaining tax free. With a capped award, excessive award appeals will no longer be allowed and a bond against the judgment must be posted by the insurer during the appeals process.

Would insurers fight this? It depends upon the timing. At first, they might. Eventually, when their stock price starts to tank and the only way they can stay in business is to provide administrative services to the single payer plan, they will likely come around.

I would offer one further loophole, throwing a bone to the die hard libertarians. Employers can opt out of single payer by prepaying hospital and specialist services at their employees' preferred hospital and by hiring their own doctors to treat employees and their families onsite. This would also take care of the cost curve and is similar to how we deliver health care to the military, veterans, Congress and the President. If retirees are allowed to keep the same coverage and long term care coverage is provided separately, this should also be deductible. Some tax for services to the poor would still have to be paid, however, so there won't be a total opt-out on the payroll tax.

Now that we have health care reform, there is no longer any advantage to the Republicans to avoid negotiation - of course, they may be too partisan to realize this and are so badly staffed with PR specialists that compromise proposals have to use small words - but that should wear off when they realize they've just made themselves look dangerous and foolish and that, if they really care about the cost curve, they have to play ball.

Why should the Democrats negotiate? Some of us still want single payer and believe that the for profit model can't work for much longer. Circumstances will prove us right in less than a decade, however there is no gaurantee of having sixty Senate votes when it finally does. Also, single payer alone only bends the cost curve through capping fees while the approach I have outlined is more likely to bend fees without price controls. Like it or not, we own the debt that we inherited from Dubya and bending the curve is likely the only way to avoid catastrophe.