Wednesday, May 4, 2011

The Health Plan for the USA: A graded copayment on every level of service

Level A: Hospital

The research from HPUSA has elucidated some important clinical statistics to control health care costs. This data is hard to obtain and cannot be automated. It is labor intensive. At this point it is clinical: one on one. When we see large expenditures in health care, we try to determine if the patient is a candidate to be included in our series. We then indulge in a frank discussion of his or her responses to the questions concerning percentage copayment and its effect on the patient’s utilization of health care benefits.

Health care can be stratified into a number of logical tiers. The most expensive and highly sophisticated care is in the traditional acute care hospital. We won’t get involved in any medical-political redefinitions of this level of care such as the somewhat controversial specialty hospital. We were even opposed to the spinning off of Psychiatric Wards to Psychiatric Hospitals several decades ago inasmuch as this lowered the level of care in these facilities for psychiatric patients.

The traditional hospital is like the mainframe computer industry of the third quarter of the twentieth century. Most of the mainframe companies didn’t adapt and are no longer in existence. IBM was the only one that was able to adapt and survive until the most highly sophisticated demands, such as accessing millions of ATMs simultaneously around the world on an integrated network that includes all financial institutions. IBM would not have survived if they had continued to compete in the laptop industry. When they sold their ThinkPad to Lenovo and refocused, they became the world leader in sophistication and problem solving again. We would expect them to develop Watson and compete with live human beings on Jeopardy.

Starting with the highest and most expensive strata of health care, the acute hospital, or the IBM of health care, what is the appropriate copayment for hospital work? The health care insurance companies have various forms of copayment, such as an 80/20 plan in which the patient pays 20 percent of the hospital charges and the insurance companies pay 80 percent. There are also 90/10 plans and those with fixed deductibles that bear no relationship to hospital charges.

There are two problems with these plans. First, few people can pay twenty percent of a $150,000 hospital bill. Even if it’s linked to a line of credit, the credit requirements are extraordinary.

Second, there is little transparency in hospital billing. Insurance companies have various arrangements with hospitals that the patient cannot see. In fact, hospitals have forced patients to go into hock for the 20 percent copayment (which is $30,000 in our example) and meanwhile the remaining $120,000 is discounted to the hospital, sometimes for even less than the patient is asked to pay on their 80 percent share. It may not be unusual for the hospital to take the patient to the cleaners for the $30,000 (20 percent) and accept the usual discounted hospital portion, which will be far less than the rest of the bill. We understand this has come under litigation and the results are not recalled.

With small or no deductible policies, it is not unusual for patients to show us statements indicating that their insurance company was billed $75,000 and the hospital accepted $7500 as payment in full. For co- payments to work effectively there has to be complete transparency. In other words, a patient knows up front what the hospital charges are and will be. This then allows for a percentage copayment to work effectively in controlling health care costs.

For instance, if a patient checks in for gallbladder surgery, he or she is told the usual charge for this procedure is, say, $20,000. And if your copayment is 10 percent, the patient is asked if he wants to write a check or utilize a credit card for the $2,000 copayment.

At this point in time, the patient can make a further assessment of the pros and cons for the surgery. A discussion with the spouse may remind him that his internist thought since he has had no gallbladder attacks, and his one stone was found on a routine exam for another problem, that he should forgo surgery for the present. In fact, they had agreed to wait, but the patient wanted to see a surgeon “for a second opinion.” Even though his internist advised against surgery, the surgeon was very convincing that he should have the operation. The internist had stated that if he hadn’t had the backache and the x-ray for that, they would not have known that he had a gallstone and the question would not have been raised. Now as they were staring health care costs in the face, they recalled this conversation. They had a number of other pressing financial struggles and so at the registration desk, he decided to put the credit card back in his billfold and sit tight for the present, realizing that an emergency could develop. However, his internist had advised him that given the nature of his stone, an emergency was not likely to occur.

Without going into the pros and cons of delaying any medical care, this simple maneuver has placed health care in the Medical MarketPlace and in competition with other finances. The Medical MarketPlace would have prevented the current catastrophic Medicare and Medicaid over utilization and our current health care crises. This further prevents utilization of our children’s finances, which obviously is very unethical. If this weren’t across generation lines, it would easily have been seen as Grand Theft because of the magnitude of the crime.
In our efforts to determine the best copayment that would control health care costs but not prevent necessary health care, we would sit down with the patient in a neutral time and make a determination: If you had a five percent copayment, would you have proceeded with the operation? If 7.5 percent? If 10 percent? If 15 percent? If 20 percent? If 25 percent? If 30 percent? Etc, et al.

Our results indicated that in the majority of cases, a 5 percent copayment did not control costs and allowed over utilization. A 15 percent or greater copayment controlled costs very well, but we felt it prevented some necessary hospitalizations or operations. For the vast majority of patients, a 10 percent copayment controlled over utilization of hospital care rather well but did not prevent necessary health care that would reduce the quality of care.

Hence, in our research so far, a ten percent copayment on hospitalizations was the ideal amount to prevent over utilization and not cause under utilization.

If the health care insurance is further tied to a line of credit at a favorable interest rate appropriate for sick people, that could be administrated by one of the credit card companies, everyone would have access to the highest level of health care.

To read about Level B etc, stay tuned. To purchase a copy of the Business Plan, go to

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