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The local (now defunct) Mercy IPA documented a 400 percent variation in what doctors spend to evaluate and treat their patients. A Pennsylvania study documented a 400 percent variation in what hospitals charge for the same type of admission. Managed care may not have narrowed this variation, even though they have decreased costs.

President Clinton's plan, the "Health Security Act" that he hoped Congress would implement, did, among other options, call for a "Fee-For-Service Plan." It states that each Alliance must include at least one health plan based on a fee-for-service system that may require utilization review and prior approval for certain services, but does not require approval through a gatekeeper. This was primarily recognized as a mechanism to diminish resistance to nationalized socialized medicine. However, it did not have any built-in clinical incentives that would induce physicians and patients to direct their health care to the lowest possible cost.

A fixed co-pay may dampen entry into a doctor's office or hospital, but does not discourage huge costs after the gate has been passed. After an admission co-payment has been made, whether it be $750 for the Medicare deductible or a $300 to $3000 deductible for private insurance, there is no incentive to decrease excessive utilization during the remainder of the hospitalization since all additional costs are covered.

The 40 million Americans without insurance might give us some clue as to the savings total private pay may provide. It has been reported that the uninsured have a two-thirds decrease in hospitalizations and a one-third decrease in outpatient care. There is no evidence that their health suffers. Hence, a continuous awareness of the costs incurred gives a continuous incentive to cost containment.

It appears that a percentage co-pay from newborn through Medicare eligibility is required to conserve health care resources. During the past decade, we have accumulated anecdotal evidence that suggests what the appropriate co-payment and annual deductible should be in order to return HealthCare to the open Medical MarketPlace.

We have interviewed patients who utilize excess health care costs - we provided a range of deductibles and co-payments to evaluate and asked at what level they would have made a more market-oriented decision. We arrived at some basic conclusions. In general, outpatient care is not an insurable item any more than car repair or house repair is an insurable cost. We obtain house insurance to protect us from major loss as a result of tornados, earthquakes, fire and other catastrophes. Similarly, we obtain car insurance to provide replacement if we have a collision, theft or damage through hail, fallen trees or vandalism. We need health insurance to protect us from major catastrophes, such as a heart attack, stroke, cancer, surgery and organ transplant, that we are unable to afford unless insured.

Hence, our preliminary data indicate that the annual deductible should equal the cost of an annual examination. At the present time, a medical consultation with basic laboratory and x-ray evaluation would cost about $500 per year for an adult and $250 per year for a child. Thus, our deductible was so defined. We used age 16, or whenever a child obtains a driver’s license, as the age that health and accident risks increase dramatically to the adult level.

Our preliminary clinical and anecdotal data suggest that a 10 percent co-pay for hospitalization insurance essentially prevents all unnecessary admissions, does not preclude necessary admissions, and will probably save 30 to 50 percent of unnecessary hospital stays. If hospitals could be assured of a 90 percent reimbursement rate for all admissions, hospital charges would become economically sound and probably exceed the current discounted rate and not gouge the patient without insurance.

If patients were required to pay 10 percent of their hospital bill, they would scrutinize their hospital bill to make sure all charges were reasonable. An administrator of a 200-bed hospital would either make sure that all charges are at the lowest possible range, or face 200 phone calls a week, if not daily, from irate patients and their families, threatening to seek services elsewhere if the situation were not resolved promptly and adequately. Thus the Market Place reduces all charges to their lowest levels faster than any other mechanism. However, it is a level that will be sustainable economically.

The second highest cost center involves outpatient surgery, trauma surgery and endoscopies such as colonoscopy and bronchoscopy, all of which can occur in hospital outpatient departments, in free-standing surgical centers or in emergency rooms. Similar analysis of patients maximizing their outpatient surgical and emergency benefits has found that a 20 percent co-pay to outpatient hospital/surgicenter/ER visits essentially prevents all unnecessary visits and procedures, but does not preclude those that are necessary. Current data suggest that this range of co-payment will save 20-30 percent of those costs.

Ambulatory health care that occurs in offices and clinics is generally not an insurable item. However, sophisticated diagnostic testing, such as CTs, MRIs, PET scans, that can range between $500 and $2500 are generally not easily affordable. We have found that these tests can be placed in a market-based environment with a 30 percent co-payment. After the annual deductible is met, all outpatient charges, whether office visits, outpatient laboratories, x-rays or drugs, essentially eliminates all unnecessary visits, tests and treatments. It brings the bill to the lowest possible level and will probably save 20-30 percent of the original costs.

In Sacramento, paying cash for whole-body CT scans eliminates insurance billing and have reduced the charges by 50 percent. In Washington, the SimpleCare network, by requiring full payment at the time of service, has been able to lower the cost of outpatient laboratories by as much as 83 percent. Hence, the critical item is eliminating billing so that the transaction is closed at the time of service. We are proposing that if the patient doesn’t have the cash for his co-payment or a medical savings account to make this payment, it will automatically roll over to a line a credit. The usual interest charge will be far less than the cost of billing, including third-party billing.

With a number of bare-bones plans providing premiums under $100 per month (the latest Blue Cross plan had a $55 monthly premium for a high deductible that few could cover), one could project a similar premium under $100 for a spouse and $25 for each child through age 16 or onset of driving, at which time the adult rate would occur. Thus a family of four would have a premium of $250 per month or even less. This cost would not escalate since health care inflation will have been brought under control, possibly even decreasing.

This premium structure is contingent on the continuation of the Medicare program, for those over 65 (or projected 67 or 68 years of age) or those disabled for over two years, and the Medicaid program. The cost of plumbing (e.g., coronary thrombosis, strokes) or wiring (e.g., diabetic neuropathy) or structure (e.g., cancer) cannot be insured in the aged any more than plumbing or electrical wiring or roof structure can be insured in an old building. The governmental Medicare program need not be abandoned and could probably be funded indefinitely if the initial proposals at Medicare’s inception in 1965 of a 20 percent co-payment were still enforced, rather than using a MediGap policy.

The premium structure is also contingent on NO co-insurance. If one has co-insurance to cover the 10-20-30 percent deductibles, the dis-incentives no longer apply, and this premium structure will not support the increased utilization. If an individual has co-insurance, premiums would obviously have to increase to the current standard rates since utilization will probably increase by at least 30-50 percent.

This plan could be implemented without any change in the tax code. Any financial benefit by continuing favorable tax treatments would be less than the cost benefit by returning to the open market place. As employers seek ways to reduce the moneys paid out for health insurance, the favorable premium would assure that every insurance carrier will offer such a plan. It would be universally used because the higher option plans would be at least twice as expensive and they would not be significantly cheaper even if paid with after-tax dollars. Most individuals would opt to make the co-payments as they occur and thus conserve costs and, therefore, personal income.

It appears that the national mandate of no additional premium for pre-existing medical conditions could be met. For a person who has diabetes or hypertension through no fault of his own, there would be no premium increase. However, since the major increase in costs are due to personal, self-induced risk factors such as smoking, drinking, drug and food addictions, there should be a premium surcharge for these in order to keep the program financially sound.

Present statistics indicate that the obesity epidemic in the United States adds 13 percent to health care costs and health insurance premiums. Rather than those who live healthily having to pay this cost, it would be more appropriate if the 20 percent that are obese with a body mass index of over 35 pay for their own cost of illness caused by their gluttonous habits. Thus, the 20 percent would have an increased premium of 65 percent (5 times 13) and those with normal weight a decreased premium of 13 percent..

Similarly, the additional costs for smoking (cigarette use in the past two years or greater than a lifetime smoking history exceeding 20 pack years), alcohol risk (more than two drinks a day, inebriation in the past two years, or having been in a withdrawal program during the past five years), drug risk (drug abuse during the past five years, whether inhaled, ingested or injected, or in a drug detoxification or behavior modification program) or risk for incurable diseases as immune deficiency. Claims experience would verify reliability of reporting.

The above percentages are clinical impressions. In my experience, they would be closer to reality than governmental actuarial projections that have been shown to have a 600 percent error in costs and utilization. Part of the government error is that it is hard to project human greed when it comes to spending other people’s money.

If all physicians would support such a plan, the mandate for health care reform would then disappear because it would have already occurred. Our patients would be the winners. And we would be professionals once again because the Doctor/Patient relationship would be restored.

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© Del Meyer, MD 1/2004

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