Health Insurance Reform

I used to work for a company with an excellent health care plan. It’s “gold plated”. I really mean it. Everything was covered, annual physicals, vaccinations, prescription drugs. In 9 ½ years on the plan we haven’t had a single out-of-pocket expense. During this time my wife has been diagnosed with cancer 3 times and all the surgery (including plastic surgery for breast reconstruction), chemotherapy, radiation therapy and follow-up oncology appointments have all been covered without question.

We are currently covered by the plan under COBRA and a few weeks ago while writing the check I wondered “What would it cost to put everyone in the country on this plan?” So I did the math. That’s $1435 per month for a family of four so $1435 * 12 * (306 million US residents / 4) = $1.309 trillion. That seemed like a lot until I read that we spend about $2.4 trillion on health care. I was amazed – buy everyone (EVERYONE!!!!) superb insurance and SAVE A TRILLION DOLLARS!!!! So I thought I should investigate this a bit more.

I have pulled all of these figures from official U.S. government documents. All figures are in billions of dollars.

2009 Estimated Total Health Care Expenditures	$2,509
2009 Federal Expenditures	$873
2009 State and Local Expenditures	$318
2009 Government Expenditures	$1,191
2009 Private Health Insurance Expenditures	$854
2009 Other Private Funds	$181
2009 Total Private Health Expenditures	$1035
2009 Out of Pocket Expenditures	$283
2009 My Old Employers COBRA	$1,309

Amazingly, in addition to what government already pays we would only have to come up with $1,309 - $1,191 = $188, only $188 billion more dollars to cover everyone. To be fair, the number is likely higher due to the fact that the company plan doesn’t cover any elderly or disabled people. So, let’s be really pessimistic and say we need $500 billion more to cover everyone. This would actually save about $500 billion in private expenditures plus the $283 in out of pocket expenditures. It is clear that the money to provide everyone with excellent coverage is already in the system. We just need to get it where it needs to be.

So, let’s design a system to cover everyone using money that’s already available. Here are some principles I suggest:

• Coverage should be universal


• Administrative costs should be minimized


• The system should consolidate existing government programs


• Payment of premiums should be mandatory and automatic


• Employers should be relieved of the expense of providing coverage

Let’s take the last item first. Health insurance coverage is part of an employee’s compensation so if coverage is to be provided under another mechanism, employees should see an increase in their pay. But since we want to relieve employers who have been providing health insurance coverage with a reduction in their labor cost to enable them to be more competitive I propose that we split the difference. Assuming that the $854 is private health insurance expenditures is roughly equal to what employers currently pay, business will see a $452 billion decrease in labor costs and employees will see a $452 billion increase in wages and salaries.

The easiest way to make premium payment both mandatory and automatic is to deduct it from income. In 2007 personal income was $11,660 billion. Let’s use this figure, even though it’s probably a bit low but it should account for the recession. Add to it the $452 billion increase and we get $12,112 billion for personal income. This $500 billion is 4.1% of personal income. Not trivial but not awful either. My first thought was to just increase the payroll tax for Medicare but that would be burdensome to low income folks. So let’s make it a bit progressive. I leave it to the experts to determine the actual rates. Notice that this approach helps make the system more efficient since it automatically takes care of determining eligibility for Medicaid and other subsidized programs.

After collection through the tax system the premiums would be combined with the Federal, State and Local government contributions and distributed to the insuring entities. I recommend that these be large enough to gain efficiencies through scale but small and local enough so that people will be dealing with a fairly local entity. Organization on state or regional boundaries seems sensible. These entities would insure everyone residing within their coverage area. Like my former employer, they would contract with insurance companies to process claims. After all, those companies already know how to do that. The insuring entity would pay them on a “by the claim” basis. Additional reductions to administrative costs would occur when the insuring entities move to common claim forms and processes.

There are additional savings that would automatically result from this system.

• Since everyone is covered for preventative care the population should be healthier leading to a reduction in overall costs and in employee productivity.


• Workers Compensation for on the job injuries would just go away. This provides additional cost reductions for business.


• Since everyone is covered, automobile insurance rates would be reduced since medical coverage would no longer be required. Liability insurance rates should also be reduced since medical costs will no longer be incurred.


• Because there will be fewer insuring entities and they will move to common claims forms health care will see reduced administrative costs.


• Since everyone will have insurance coverage health care providers will see reduced administrative costs because they will receive prompt payment for their services.

Let’s be clear about a few things. This proposal does NOT put the government in the health care business. The government would collect health insurance premiums that would be paid to state and regional health insurance entities which would pay claims. Health care decisions will be in the hands of providers and patients, not government or insurance company bureaucrats. Denial of coverage for pre-existing conditions or technicalities on an application form would not, in fact COULD NOT happen.

So here we have the capability to provide universal coverage while saving businesses and consumers hundreds of billions of dollars and keep us all healthier. Why is there talk of a system that won’t cover everyone and costs a trillion dollars over 10 years when we can cover everyone and save 3 or 4 trillion dollars?