So Here’s an Idea

If you spend any time writing or speaking about health care reform, eventually you’re asked the, magic wand question: what would you do? . Well, there’s an idea I’ve been thinking about. It’s not a Big Fix. It’s merely something that would improve whatever system is in place – I think – by making the system more simple and transparent. I’m sure it’s riven with problems. And maybe it’s a hot topic, but I’ve missed those articles. In any event, here it is. Please let me know what you think I’m missing.

The Mechanics

The idea is to have providers (physicians, hospitals, clinics, laboratories, etc.) publicize what they charge using a multiple of what Medicare pays. If Medicare pays $100 for a procedure and a doctor charges $300 for the same procedure, this doctor is a 300% provider.

Carriers, meanwhile, will set what they reimbursement providers as a percentage of Medicare as well. If an insurance policy pays up to $250 for this same procedure, it’s a 250% policy.

The key is that this percentage doesn’t vary based on the procedure. Once a provider or carrier sets their multiple, it defines the cost for all treatment and services. Consumers gain two bits of information they lack today: what their provider is charging (300% of Medicare in this example) and what their health plan pays (250% of Medicare here).

There’s two advantages to using Medicare as the benchmark for pricing. First, it’s already in use today. Second, it assures both providers and payers are using the same measurement. When you say “300% of Medicare” doctors and insurers know what you mean whether they’re in San Francisco or San Antonio. (If you’re from elsewhere, it means take the Medicare rate and multiply it by three).

Compare this today when all they know is that the carrier pays in-network services on a mysterious discount and out-of-network services based on an unknowable formula. What is reasonable and customary? Under this proposal, however, the consumer knows what the carrier will pay and what they’re responsible for before they walk through the door for medical care.

If implemented today, a number of things remain unchanged. Deductibles, co-insurance and co-pays: still allowed. The Affordable Care Act’s essential benefits: covered. Preventive care: not subject to deductibles and co-insurance. How emergency treatment is reimbursed will need to change to a standard multiple of Medicare for all payers regardless of the facility’s usual percentage so consumers aren’t subject to balance billing.

Simplicity and Transparency

As noted, this idea overlays the current system; it’s not a substitute. This is an overlay, however, that delivers substantial simplicity and transparency. Consumers know up front which providers they can afford. There would be no networks so there would be no surprises from out-of-network charges, Consumers choose any doctor fully aware of how much of their bill is covered by their health insurance. If they want more covered, they simply choose another provider.

Physicians wouldn’t have to guess what carriers will pay them. They’ll reduce their costs as a lot of unnecessary paperwork goes away. However, they’ll also have to compete with other providers in their community. If a doctor is going to charge 500% more than everyone else, she better have a good reason.

Hospitals could no long hide behind their charge masters– a menu of prices they charge for services that no one ever sees and few hospitals can explain or justify. These inflated costs are the starting point for pricing negotiations with carriers, so few people ever see them. (Steven Brill wrote a special report for Time magazine in 2013 that explains charge masters and should be required reading for anyone attempting to reform American health care).

Consumers and their brokers will be able to compare the value of plans on an apple-to-apple basis. If a 400% policy is more expensive than a competitor’s 500% policy, the carrier better be able to explain why. Consumers won’t face unexpected charges, either. They’ll know if their policy will cover all of a given provider’s expense or if they’ll need to pay a portion of the costs. And they can choose their providers accordingly.

Carriers benefit from this proposal, too (unless you’re employed in the networking department). Actuaries will have more certainty in determining the reimbursement required under each plan, regardless of whether the provider is in o out-of-network. With better information on their exposure, carriers can price more accurately. The simplicity of the system will also reduce operating costs and that’s critical for carriers needing to meet a legally required medical loss ratio.

An Improvement, Not a Revolution

I know this idea doesn’t fix America’s health care system. The goal is to inject greater simplicity and transparency into whatever system is in place. If transparency advocates are right, this will revolutionize health care. I’m not sure I buy into the idea that transparency is all that game changing, but to the extent it is, this proposal dramatically increases transparency throughout the health care system.

Single payer advocates will not be impressed by this idea. However, I believe, in spite of its current momentum, single payer is a long way away. Single payer proposals cost too much, impose too much centralized control and are too disruptive. The ACA cost Democrats Congress (and arguably the White House) and Obamacare is far less radical than any single payer plan out there. Imagine the political blow back at a government-run insurance by voters already fearful of death panels and distrustful of Washington?

ACA supporters should like this approach. A common criticism is that the ACA is that it doesn’t do enough to make health care or health care coverage affordable. Simplicity saves money. Transparency empowers consumers to reduce their health care costs. The ACA plus a Medicare-pegged health care system will help the ACA keep its affordability promise.

Advocates of reference-based pricing should also be happy. I’m proposing reference-based pricing on a nationwide scale with everyone using the same reference: the Medicare reimbursement schedule. This goes further than most of the reference-based pricing proposals or implementations I’ve seen, but it’s a logical expansion of the concept. And because both the provider and the payer are referencing the same benchmark, litigation — a too common result of current reference-based efforts — is unnecessary.

This proposal isn’t a panacea. The question is, it is a practical improvement? Please let me know what you think – and what I’m missing here – in the comments.