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A FEDERAL RESERVE SYSTEM FOR HEALTH CARE — IT’S ABOUT TIME

It’s encouraging to see that one of the proposals being advanced by the Obama Administration to deal with health care is an idea we proposed four years ago – an independent agency modeled on the Federal Reserve System to oversee health policy and expenditures.

We suggested this solution in our 2004 book, CRITICAL CONDITION: How Health Care in America Became Big Business — and Bad Medicine, which also described why our present fundamentally flawed system is in such desperate need of reform.

In researching the current system and the havoc it is wreaking on millions of American families, we concluded that the only way the nation can break the political gridlock over health care is to create a quasi-independent agency modeled along the lines of the Fed.

Our book sketches out the broad concept of such an agency and explains why it is so desperately needed. The response to our proposal from citizens groups, health professionals and average Americans across the country with whom we have talked has been strikingly positive.

Here is the excerpt from Critical Condition  calling for creation of a Federal Reserve like board to set overall policy on health care and control expenditures:

Americans are the most over-treated, under-treated, and mistreated health care patients on earth.

It need not be this way.

The simplest and most cost-effective remedy would be to provide universal coverage and to create one agency to collect medical fees and pay claims. This would eliminate the staggering overlap, duplication, bureaucracy, and waste created by thousands of individual plans, the hidden costs that continue to drive health care out of reach for a steadily growing number of Americans.

Under single-payer, all health care providers –- doctors, hospitals, clinics — would bill one agency for their services and would be reimbursed by the same agency. Every American would receive basic comprehensive health care, including essential prescription drugs and rehabilitative care. Anyone who needed to be treated or hospitalized could receive medical care without having to wrestle with referrals and without fear of financial ruin. Complex billing procedures and ambiguities over what is covered by insurance would be eliminated.

Radical? We already have a universal health care and single-payer system for everybody aged sixty-five and over: It’s called Medicare. For years, researchers, think tanks, citizens’ groups, and health care professionals have advocated a similar plan for the rest of the population. Study after study has concluded the most practical and cost-effective way to provide quality health care and to restrain costs is a single-payer system, but no plan ever has come close to adoption because of fierce opposition by the powerful health care lobby.

To discredit the single-payer idea, insurers, HMOs, for-profit hospitals, and other private interests play on Americans’ long-standing fears of big government. This view was summed up by Susan Pisano, a vice-president of the American Association of Health Plans, who contended in 2002 that a single-payer “would lead to the creation of a large federal bureaucracy that would be less responsive and actually raise issues of cost, access and quality more than it would solve them.”

In truth, it is the private market that has created the largest army of clerks in health care, a free-market bureaucracy that dwarfs the size and costs of Medicare. Because there are so many different plans and payers, each with its own requirements, computer systems, call centers, reimbursement formulas, and red tape, health care is strangling in paperwork and duplicative processes that have pushed the cost of administering the profit-driven system to stratospheric heights.

By contrast, notwithstanding worries over government waste, the federal Medicare program is the most efficiently run health insurance program in America. Medicare’s administrative costs average about 2 percent a year. In a 2002 study for Maine, a Princeton-based firm, Mathematica Inc., concluded that administrative costs of private insurers in the state ranged from 12 percent to more than 30 percent. Studies of private carriers in other areas have reached similar conclusions. This isn’t surprising, because Medicare relies on economies of scale and standardized universal coverage. Private insurance is built on bewilderingly complex layers of plans and providers that require a costly bureaucracy to administer, much of which is geared toward denying claims.

Some studies have put the price tag for administering the current system at one out of every three health care dollars, much higher than any nation with single-payer health care. There is no way of knowing how much the United States could save by adopting such a system, but even with one that covered 100 percent of the population, the savings would still be substantial.

What kind of an agency would administer it?

The idea of a single payer plan run by the U.S. government carries with it far too much political baggage to ever get off the ground. Hence the need for a totally fresh approach, establishment of an organization that is independent and free from politics, one that can focus with laser-like precision on what needs to be done to further the health interests of everyone in a fair and evenhanded manner. For in addition to covering the basic costs of all Americans, a new system needs to institute the programs that will improve American health generally, that will be as concerned with preventing illness and disease as with treatment, and do so without breaking the bank.

How does the United States come up with such a mechanism?

One possible answer: Loosely copy and then amend and expand on what already exists in another setting: The Federal Reserve System, a quasi-governmental organization that oversees the nation’s money and banking policies. The Fed is one of the nation’s most ingenious creations, a public agency that is largely independent of politics. The Fed’s Board members are appointed to staggered, fourteen-year terms by the President with the consent of the Senate, meaning that no one in the White House or Congress can substantively influence the Fed’s policies while they are in office.

Call this independent agency the U.S. Council on Health Care (USCHC). Like the Federal Reserve, the USCHC would set an overall policy for health care and influence its direction by controlling federal spending –- from managing research grants to providing basic and catastrophic medical coverage for all citizens. Unlike the Federal Reserve, it would be entirely taxpayer funded. The money could come from just two taxes, a gross receipts levy on businesses and a flat tax, similar to the current Medicare tax, on all individual income, not just wages. This would not represent an additional cost to society, but rather replace existing taxes. It would cut costs for corporations and raise taxes slightly on individuals at the top of the income ladder. Members of the USCHC board would include both professionals, drawn from the health care field, and ordinary citizens from all walks of life. Its mission: Implement policies that improve health care for everyone, not just those suffering from a particular disease. In short, make the unpopular decisions that the market cannot make.

The Council could establish regions similar to the Federal Reserve System, which is divided into twelve areas. Whatever their number, the geographic subdivisions could take into account cultural and regional differences among Americans. They would allow for health care delivery to be fine tuned at the local level, and to assure that rules and regulations could take into account the differences between metropolitan and small town community hospitals. Although the USCHC could be set up to keep partisan politics out of hospitals and doctors’ office, health care politics, which can be every bit as divisive as the mainstream variety, would still present a challenge. If you have any doubt, just assemble surgeons, radiologists, and internists in a room to discuss the merits of their particular approaches to treatment of a specific disease. But those members of a USCHC board drawn from outside the health care community would at least introduce a moderating influence.

By Don and Jim on 1.8.09