A concerning percentage of American hospitals and medical groups will fall into financial failure over the next several months. Their fee-for-service model, which has created dysfunctional and expensive incentives in health-care for decades, also suffocated their cash flow when the pandemic limited lucrative medical procedures.
We should be on the cusp of a golden age in health-care delivery that uses all of the best patient-support tools to deliver continuously improved care. Instead, the piecework way in which we buy almost all of our services today will keep that golden age from happening for the vast majority of American patients for the foreseeable future. We need an approach to buying health care that can give security to all Americans concerned about the quality and cost of care, while also creating a resilient health-care system for future health crises.
We could achieve these goals by buying health-care coverage for every American who is not on Medicaid through the Medicare Advantage program, which a third of Medicare beneficiaries already use very successfully. We could fund this universal coverage entirely with full financial security by using an affordable 20% payroll tax, which is close to the amount most employers currently spend to buy insured care. Half would be paid by employers, so individual Americans would pay no more than 10% of their income to pay for much better coverage than is currently available to most.
This particular path to universal coverage isn’t a new approach nor unique to us. Most countries in Western Europe today use payroll taxes to create protected separate streams of money that each country uses to efficiently buy health care—and most of those countries also use health plans that are similar to Medicare Advantage to actually provide the coverage for each person. No one in Switzerland or the Netherlands is on a government-run single-payer program. Instead, each country has highly functioning and directly competing health plans funded by a payroll tax that creates the revenue streams for their citizens’ health care. They intentionally use a separate payroll tax to keep the health-care dollars in their governmental budgets separate from general revenues and expenditures.
Some in the U.S. have argued for extending our standard Medicare program to all Americans, but this would be more difficult on multiple levels. Our government doesn’t directly administer standard Medicare today, and doing so would require an entirely new infrastructure with intermediaries. More important, that would continue the highly dysfunctional approach of buying every item of care by the piece, which incentivizes abuse and cripples systematic process improvement.
In contrast, Medicare Advantage has negotiated payment rates with care providers and already has extensive care networks that could be expanded very quickly to fill gaps needed for our newly insured Americans to receive their care. Medicare Advantage also has much better benefits, care coordination, quality controls, levels of performance accountability and cash-flow models for implementing and delivering continuously improving models of care. Accordingly, the government pays each private insurance company that manages Medicare Advantage plans a fixed amount of money each month for each covered person, which incentivizes quality over quantity of care.
We could expand the Medicare Advantage program next year to nonseniors and cover all Americans who are not on Medicaid with a new dedicated 20% payroll tax on all workers. This would exactly copy the approach used now with the Social Security payroll-tax process. As the starting point for every work site, the 20% tax would be split 50-50 between employers and employees; any employer that wanted to increase its percentage could do so at its own discretion.
Most employers that offer health-care coverage to their employees currently pay more than this percentage for coverage and would benefit in future years by avoiding the painful annual increases in health-insurance-coverage expenses. For the 30% or more of work sites that don’t offer health-care benefits to their employees, the new tax would increase their current operating costs per employee by only 10%, an amount less than many anticipate for Covid-related expenses.
America would use this pool of money to buy Medicare Advantage for the purpose of creating universal coverage—coverage with a $1,000 deductible for everyone who is not already on Medicaid. The Medicare Advantage plans would be paid a monthly payment from this tax pool for each member who chooses them. Being paid by the month and not by the piece would free the plans and caregivers from the perverse consequences of being paid fees for each piece of care and from being dependent on individual pieces of care for their cash flows.
More than 70% of the health care costs in America today come from chronic diseases, and standard Medicare providers make more money when their patients are in poor health. They even benefit when their piece-work-payment-model patients have health disasters or medical complications. In contrast, Medicare Advantage plans benefit financially when people have fewer heart attacks, lower levels of diabetic complications, fewer asthma attacks and lower levels of chronic diseases. Accordingly, Medicare Advantage plans have strong incentives to reduce the number of congestive-heart-failure crises rather than benefiting financially when those crises happen. So, the number of heart-failure crises has been reduced by a third or more when people have enrolled in Medicare Advantage plans.
The Medicare Advantage approach to buying care by the month and not by the piece uses a purchasing model that demands impeccable service levels with a team approach and accurate care-quality reporting. The philosophy encourages efficiency, health promotion, extensive systems support and more patient-focused use of health-care dollars to sustain the program over time.
When using this approach, Medicare fraud actually disappears entirely as a government expense, because the payment for each patient in a Medicare Advantage plan is a monthly capitation and not a fee-payment system; there are no relevant piece-work payments, which are what invite, enable and allow most Medicare fraud today.
By using this approach we could also significantly reduce administrative costs as a country. The complex array of payers in our hodgepodge payment nonsystem that has created a massive administrative burden would shrink significantly—and once instituted, the universal Medicare Advantage plans should be obligated to reducing excess administrative costs by a third.
The best part: We could expand Medicare Advantage with tools that are already in place. We don’t need any new infrastructure with hidden costs and risks. We already have a Social Security payroll-tax-collection mechanism in place. We already have Medicare Advantage plans in place with fully supported infrastructures for both buyers and payers. We could apply new actuarial calculations to distribute the capitation payments from the new program to each of the private health-insurance plans using tools and cash-flow processes that are also entirely in place today for Medicare Advantage patients.
We’re going to need a new name for this program. From now on let’s call it “Medical Advantage.”
We’ve done a number of dramatic and sometimes heroic things to respond to the Covid-19 pandemic. This specific response to the crisis would give us a long-term benefit that we could look back on with pride and satisfaction. After we had used this approach for a few years and enjoyed the fruits of team care, connected care, and artificial-intelligence-supported patterns of care, we’d wonder why we ever bought care in any other way and would fiercely resist anyone who wanted to mess in any way with our Medical Advantage.