One of the most difficult questions on healthcare our society will wrestle with is should all people get the same level of health benefits? With the rapid advances in medical technology, pharmaceuticals, bio-tech, and other high-technology procedures, we are experiencing a very rapid increase in health care costs. Will we be able to afford all those advanced technologies, drugs, and procedures for everyone?

This question has been answered in Canada and the answer is yes-we will all have the same level of benefits and if you want additional benefits you will have to leave the country. In the United Kingdom, everyone has the same level of benefits except for those who buy additional benefits with private insurance.

In the United States, we have ostensibly said yes by providing the same level of benefits in our Medicaid and Medicare programs as private insurance. However, we have quietly reduced access in the Medicaid arena by paying physicians significantly less than what Medicare and private insurance pay. As a result of these reduced payments to physicians, many of the top specialists do not participate in the Medicaid plans, thereby reducing access to high-tech services and procedures. In certain states, the Medicare programs mandate generic drugs where there is a brand substitute.

Until we decisively answer this question, state and federal budgets will continue to underfund Medicaid and the cost of these higher-tech procedures will continue to be borne by the private insurance marketplace. And as private insurance medical cost increases continue at the unsustainable double digits, the sooner we answer the question of whether Medicaid is going to have equal benefits to private insurance or not, the faster we can solve the current private insurance cost crisis.

This debate is happening right now as supporters of universal care and single payer systems are clearly in the camp of equal benefits for all. These supporters are also supporters of a national healthcare plan. People who oppose the national plan and universal health care implicity say there should be a different level of benefits going forward. Although one of the most difficult questions on our plates, we must answer it sooner than we think.

The New York Times recently published an article entitled “10 Steps to Better Health Care,” which basically describes Health Maintenance Organizations (HMOs) where doctors get paid a salary and often receive a bonus related to the quality of healthcare they deliver and the cost of that healthcare. HMOs typically have significant restrictions on seeing physicians outside the network and seeing specialists without a referral. These restrictions allow the physician to control the overall cost of healthcare.

It is therefore not surprising that none of the cities where we found low healthcare costs were in large metropolitan areas where there are high amounts of specialists and a low penetration of small HMO physician networks. The authors raise a great point: these are extremely efficient healthcare delivery models. The only problem is Americans hate HMOs! But somehow we need to figure out what will govern the runaway costs of medical care, and I would rather have my physician say no to a service than no to a bureaucrat.

A healthcare exchange is a great idea as it relates to reducing administrative costs for health insurance. Rather than create a new set of regulations and mandates, we should consider letting the free market create health care exchanges.

Today broker commissions for small groups (companies with under 50 employees) average between 6-10% of the premium. The practice of reducing commissions is called rebating and is prohibited in almost every state. It theoretically prohibited to protect the consumer from low-quality broker service. This obsolete regulation has offered raises to brokers equal to healthcare inflation.

If we eliminated the laws, brokers would compete on both quality of service and on commissions. We would quickly find exchanges that were characterized by high-quality, high-service and very low commissions. I estimate commissions would get as low on group policies as 2% instead of the current 6-10%. The free market is not perfect as it relates to health insurance. But it can bring huge efficiencies if we let it work in the right ways.

The proposed national health insurance plan has said it will price its products competitively or slightly below private insurance pricing. This could be a very tricky exercise. For example, in Westchester County, NY, a 25 year old male buying a PPO policy would pay between $1200-1500 per month. Up the stream in Stamford, CT, a 25 year old male could buy a similar policy for $100-$150 per month. Where will the government price its policy for 25 year old males? Will the government plan be subject to state regulations, state mandated benefits, state regulatory compliance, state premium taxes, graduate medical education fees, income taxes, or any of the other wide array of fees that today’s health plans pay? Actually, health plans don’t pay those fees. They pass them onto consumers, thereby raising the cost of health insurance.

A better question is how will the national health insurance plan save money over the competition? Reduced administrative fees? If all the national health plan does is reduce administrative fees, it will be an enormous failure, because today’s problem is not administrative fees. It is the 10-15% medical cost trend that occurs every year in both Medicare and private insurance. You can cut administrative fees that average 10-15% in the health insurance industry to 0, but a year later you’d have the same problem because the other 85% of the medical cost went up 10-15% and boom! You have the same problem.  So, before we jump onto the national health care plan bandwagon, we probably should know how plans are going to be priced, and, secondly, the cost of those plans, other than what they do in Medicaid and Medicare, which has ratcheted down fees to doctors and hospitals.

Arthur Laffer nailed it in The Wall Street Journal yesterday when he talked about the lack of patient involvement in the cost-benefit analysis of health care services. A typical patient only incurs a very small cost at the point of procedure and enjoys lots of subsidies, either from the government in Medicare or from the employer in a group plan. As a result, patients demand more services than they otherwise would if they were paying for the service. Please see the following link to read the whole article. It is a great read… Read it here

Instituting better cost-sharing in Medicare would be a great way to save expenses. The Centers for Medicare and Medicaid Services (CMS) needs to introduce medigap or supplement plans that have more cost sharing. The most popular supplement plan in Medicare is Plan F, which costs seniors between $125-$275 per month and covers virtually all out of pocket costs. Many of these plan designs have not been updated for years and years. The good news is that CMS has finally introduced a co-pay plan for the doctor- thirty years after private insurance did! Any sort of progress can help.