I’m going to say something that may surprise you. There are lots of ways to make healthcare cheaper by making it better. It’s not like getting your fender fixed. People who use healthcare – you and me – have no way to tell what’s good and what’s not, or even what it really costs – all we know is that we want it to cost less, and be worth more. On the other hand, people in healthcare have no incentive for doing it cheaper – in fact, they are often rewarded for making decisions that end up driving up costs. Like when a hospital gets a new MRI imaging machine – their question is: How do we get people to use it, so we can pay it off? So of course healthcare costs too much, and gives back too little. We need to change the incentives inside healthcare – what people work for, what they actually get paid to do, and we need to bring healthcare into the 21st Century.
Here are four ideas that are about insurance:
First, we could go to a single-payer system, have the government pay for everything and eliminate the private health plans entirely, with their needs for profit and extra overhead. People have the impression that having the government pay for anything is automatically inefficient and troublesome. But in healthcare, it’s clearly the other way around. In Medicare, for instance, over 95% of the money we pay into the system goes to pay for medical care, with only about 5% going to administration. That’s really remarkable – 95 cents on the dollar. Private health plans average only about 85% for medical care – this is called the medical loss ratio – and often much less, 70%, 60%. In some plans less than half of what you pay ever finds its way into medical care. Just the difference between getting back 85 cents on the dollar and getting back 95 cents on the dollar in medical care would mean saving something between $60 and $100 billion every year – enough to pay for healthcare for the uninsured.
Which leads to the second idea: We could just tell the plans that they have to give back a certain percent of the premium in actual medical care. Fifteen states already do this. We could tell the health plans, for instance, that 85% of what you take in as premiums must be paid back out in actual medical services. All your overhead, processing, administration, sales, marketing – and profit – must come out of the other 15%. These costs – what private health plans spend beyond paying for medical care – are huge. They amount to 7.5% of the whole healthcare economy. Germany and Switzerland also have private health plans, but they control the plans’ extra costs. They keep them down to only 5%, not 7.5%. If we could even do just that much, we would save $60 billion a year.
Third: We could just tell the health plans take all comers, whether they have so-called “pre-existing conditions” or not. Health plans currently spend enormous amounts of staff time and effort trying to weed people out, and trying to kick people out of their contracts when they run up large bills. This actually costs the plans a lot of extra time and money.
Finally: At the same time, if we make them take everybody, we should require everyone to have healthcare insurance of some kind, just the way that if you want to drive a car, you have to have car insurance. And we should support the working poor in paying for that insurance. How does this save money? By getting everyone to pay into the system, even those who are young and healthy. They’ll need it sooner than they think, and meanwhile we need them to help pay for all the people who use the system a lot because they have diabetes or other chronic diseases.
All four of these ideas actually would make health insurance cheaper by making it better.