The Health Care Affordability Model—A Plan That Will Control Costs and Improve Quality

The Health Care Affordability Model

Health plan networks made up of insurers and providers would be required to first begin to stabilize and then control their costs. Failure to do so would mean the loss of their federal tax qualification. Premiums for a non-qualified health plan would no longer be tax deductible for individuals or plan sponsors who used these unqualified plans.

The Affordability Model would create an unambiguous reason for each of the stakeholders to finally work together to get America’s health care system under control. The Health Care Affordability Model creates unavoidable incentives for health plans and their provider network partners to maintain their tax qualification:

• The health plan would be placed at a substantial competitive disadvantage without it.
• Doctors, hospitals, and other providers who were not in a tax qualified health care network would lose patients to networks that did control costs.
• Employers and consumers would almost certainly purchase their health benefits only from qualified plans.

And, unlike most health care reform proposals, the Affordability Model would simultaneously reduce both public and private health care costs.

The Health Care Affordability Model is not a standalone health care reform proposal. It could be attached to virtually any health care reform plan now on the table.

The Assumptions Behind the Affordability Model

We have not fashioned an affordable and effective health care system in America because we have not had to.

We either know how to do it, or can fairly quickly figure it out from what we do know.

Not until we have no other choice will we be willing to make the hard decisions and take the tough steps.

A government-run health plan, such as the Medicare-like Public Health Plan being debated, could quickly cut our costs by paying less money out. But central planning could not make the discreet decisions necessary to distinguish between expensive care and necessary care that providers and patients, looking at the specific patient situation, and driven by the proper incentives, could.

A Medicare-like Public Health Plan option would simply lead to successive rounds of fee discounting—not rooting out the 30% of the system that is waste.

The Affordability Model gives consumers, providers, and payers (health plans and self-insured employers) unavoidable and unambiguous reasons to finally first slow and then control health care costs while simultaneously improving quality.

The Affordability Model makes the tax preferences payers and consumers would demand of a health plan network dependent upon that networks payers and providers finally coming to grips with making America’s health care system effective for an affordable cost.

For almost 70 years, the federal tax system has been used to encourage the spread of health insurance. Now, it should be used to encourage a transition to a health care system that meets our cost and quality objectives.

In creating the affordability model nine things were presumed:

1. Reform Means Finding the Waste - In great part, America’s health care system is too costly and unsustainable because of wasteful and unnecessary treatments and procedures, poor quality of care, because there is substantial care that could be avoided if we were to live healthier lifestyles and more often practice good prevention, and because there is far too much administrative cost.
2. We Have to Work Together – If payers (including health plans and self-insured employer plans), providers, and consumers more cooperatively and intently engage in systems designed to dramatically reduce unnecessary treatments, procedures, and administrative waste, as well as effectively encourage and reward healthy lifestyles to avoid costly care, we could first slow then control our health care costs at affordable levels.
3. We Have the Tools or Can Create Them – These systems should take better advantage of a number of tools such as comparative effectiveness research, health information technology, results oriented payment systems, and prevention and wellness programs—all aimed at better costs and better quality.
4. We Know Where The Waste Is – Payers and providers generally know, or can determine, where the waste and excess costs are in the system and can be far more effective in delivering preventive and wellness programs to impact avoidable care and costs.
5. We Really Haven’t Had to Solve the Problem – But, consumers, and particularly payers and providers, have not adequately engaged in implementing these tools to eliminate the waste, minimize avoidable care and unnecessary costs, and improve quality because they have not had powerful reasons to do so. During the last decade quality has slipped and health care costs have doubled. At the same time, health insurer profits have never been higher, most health care providers have done relatively well, and insured consumers have continued to enjoy comprehensive tax-preferenced benefit plans.
6. There Can No Longer Be a Choice – What must change is that all of the stakeholders must have no choice but to either make, or cooperate in making, the health care system change.
7. America Was Built Not on Central Planning But on Individual Ingenuity – Patient-centered solutions cannot occur in a system driven by central planning—the solution needs to be about expert health care providers using their ingenuity in literally a million places every day toward better cost/quality results.
8. The Solutions Will Come Nearer the Problems – No health care reform legislation should presume to layout the details of a reformed system. First, that objective will continually change over time as stakeholder learn and evolve. Most importantly, that task should be accomplished in face-to-face work, by those who represent competing interests, on the ground in every part of the country, and driven by unambiguous reasons to get the job done.
9. A Solution Isn’t a Solution If It Is Not “Scoreable” – The health care debate is full of simplistic ideas that never accomplish meaningful results. If a plan does not have “teeth” it will not have results.

As part of this model employer-based health care would not be adversely affected. Employers to continue to design, offer, and administer their own health plans—including those under ERISA.

The Health Care Affordability Model can first begin to slow, and then moderate, and even reduce the climb in America’s health care costs.

The Health Care Affordability Model would not impose government controls over insurance or provider prices. Employers and insurers would be able to offer any benefit plan they choose—including HSA and HRA programs.

Insurers and providers would be able to contract with whomever they choose at what rates and under what protocols they independently agree to.

We Can and Must Do a Lot Better Than Simply a Deficit Neutral Health Care Reform Bill

Today, efforts to reform our system are stuck in the mud over how to control costs and thereby produce the savings we need to pay for any reform plan as well as control our long-term costs.

Really, we have three choices:

1. Price controls on health care providers.
2. Price controls on insurers.
3. A system of incentives that forces insurers and providers to ferret out and eliminate the wasteful administrative and health care delivery costs in the system using such tools as health information technology, comparative effectiveness research, pay-for-performance, prevention, risk sharing models, and the like.

We have these tools to one extent or another today. However, we don’t use them and we don’t further develop them.

For example, the Dartmouth Atlas work, long considered the standard in examining variations in health care spending and utilization, has been around for more than twenty years telling us just where we are doing too much.

The health care “tool box” has long included prevention, wellness, health information technology, comparative effectiveness research, coordinated care models, provider risk-taking structures, pay-for-performance, and the like.

The Congressional Budget Office (CBO) in their December report on health reform options has estimated that none of these tools will make much difference in the present system without compelling reasons for people to use them. We can know about comparative research but we have a history of doing nothing about it—because we don’t have a compelling reason to.

In fact, insurers and providers have had compelling reasons not to make the health care system cost effective—providers and insurers get paid more not to.

Everyone in the debate generally agrees that the third option—making the system more cost and quality effective—is the best one.

Simply lopping off the fees either providers or insurers receive (as the Public Plan Option would do) would do little to create a sustainable system over the long-term. Cutting provider reimbursement across the board using a Medicare-like imposed fee system would reduce costs at least in the short-term. But like the difference between a laser-guided bomb and a smart bomb, while arbitrary fee cuts may be somewhat effective they would be inelegant—efficient providers of health care would suffer the same reduction in payments as inefficient and wasteful providers. And, the longtime health policy frustration would undoubtedly occur again, “push it in here and it pops out there”—health care providers would respond by simply increasing the frequency of services to offset the payment cuts.

Regulating health insurance rates would put the insurers on the spot but they do not control the delivery of medical services—health care providers do. Price controls on insurers might be effective in the short-term but offer no long-term improvement in how health care services would be delivered.

Providers, insurers, health plan sponsors, and patients must be accountable toward the same objective at the same time in order for them to finally pull together.

The Affordability Model would create an unambiguous reason for each of the stakeholders to finally work together to get America’s health care system under control.

The Affordability Model would create an unambiguous reason for each of the stakeholders to finally work together to get America’s health care system under control. No stakeholder would want to see their network lose its tax preferences:

• The health plan would be placed at a substantial competitive disadvantage.
• If doctors, hospitals, and other providers were not in a tax qualified health care network they would lose patients to networks that did control costs.
• Employers and consumers would almost certainly purchase their health benefits only from qualified plans.

The challenge that both policymakers and those in the health care market have faced is just how do we get rid of all of the waste in America’s health care system. For thirty years—since the advent of managed care—America has attempted to eliminate the waste that makes our health care system the most expensive in the world.

While we have been able to measure the extent of wasteful or ineffective treatments and procedures, to agree that it exists, and to list example after example, we have hardly blunted it.

Managed care has failed in this regard. So have government-run health care programs—Medicare and Medicaid.

We have failed because no one in the system—payers, providers, and beneficiaries had any compelling reason to really make changes. Really, the give and take between sellers and buyers in America’s health care system resembles a kind of phony war—payers and providers pitted against each other in theory but having learned to live with one-another—albeit often uneasily—while dividing up the loot.

Between 2001 and 2008, private health insurance costs increased between 6% and 14% each year—multiples of inflation and growth in the overall economy—while health insurers, drug companies, and device companies booked record profits, and most hospitals and doctors did well.

There is a way to quickly change the focus that those in the market and in government face—to dramatically reorder the incentives in America’s health care system toward affordable cost and quality.

Instead of the untargeted government instrument of controls on prices and procedures, it is the ingenuity of those in the system that must be targeted toward already known waste and inefficiency in ways well beyond any before.

But in the past the big stakeholders in America’s health care system haven’t had to get serious. Under the Affordability Model they would have to.

The Health Care Affordability Model is Not About Arbitrary Price or Service Controls or Global Budgets

America has been the leader in developing the world’s present day health care system whose scientific and technological capabilities could have hardly been fathomed decades ago. That same unbridled ingenuity now needs to be focused on making it sustainable.

An unambiguous and measurable system of unavoidable incentives can accomplish that.

But such a system does not have to introduce onerous government controls.

This can be accomplished without:

• Government price controls or global budgets on either insurers or providers of health care.
• Doing away with private health insurance or employer-based ERISA plans.
• Limitations on what providers of health care can prescribe for their patients.
• Requirements that a provider participate in any network or government-run plan.
• Major cuts to the benefits patients/insureds receive.
• A government cost containment agency or board that dictates prices and treatment protocols.

This can be accomplished in a way that policymakers can be confident the savings will accrue—that the legislative scoring process can identify the hundreds of billions of dollars that will be needed to both create a deficit neutral universal health care program and, more, accomplish the ultimate goal of first stabilizing and then reducing the share of America’s GDP health care consumes.

The Health Care Affordability Model and Quality

Improving affordability at the expense of quality care would be a hollow victory.

Today, the term quality is often confused with a lack of limits on access to care and unlimited spending. Quality has too often been a rationalization for promoting the waste that makes our system more expensive than any in the world with arguably no better outcomes than other industrialized societies.

Today, health plans compete over quality. But the word quality has little to do with whether the patient had access to the most appropriate treatment path. They really compete over the perception of quality—generally having the best-regarded doctors and hospitals in their networks.

As health plans had to become more cost efficient to meet the affordability standards, they would likely be on the defensive with both providers and patients over the issue of quality.

That would be good because it would finally ignite a three-way conversation (payer, provider and patient) over just what care is the right care—quality care.

Under the Affordability Model there would be less money available than what would have been in the relatively unfettered system with costs exploding as they are today.

That would clearly drive the three-way conversation to a place it rarely is today—what is the best way to spend a more reasonable amount to get the patient well.

Most people would agree that giving patients, payers, and providers the incentives to make science-based decisions about the most effective way to treat a patient is the best way to spend wisely.

With private plans competing with more limited resources the incentives will be built in a direction that has the stakeholders more often driven toward a very specific conversation about the most rationale way to spend the money for the best outcome.

Most people also agree that costs cannot be improved without effectively implementing such tools as health information technology systems, prevention programs, and wellness systems. To meet the Affordability standards health plans and providers finally would have to aggressively implement these tools. The effective implementation of these kinds of programs can only create a better quality system.

Each of these things—a more direct conversation about quality and aggressively implementing systems that support quality—would be a major improvement in the name of quality.

The Health Care Affordability Model

This model presumes employers would be able to continue to offer their own health insurance plans—including under ERISA—and that a new system of insurance exchanges would be created for the individual and small group health insurance market.

How the Affordability Model would work:

• Health plans (insurers) could offer any health benefit plan they chose to.
• Benefit programs could be customized for any employer or multi-employer group.
• Health plans could contract with any health care providers they choose to on any terms.
• Health care providers would be able to contract with any health plan they chose to on any terms.
• No government agency would require providers or insurers to follow any treatment protocols.
• Insurance exchanges under uniform federal rules would be established in each state—states would continue to regulate insurer solvency and consumer protections.
• Health insurers would be required to offer at least the standard option benefit plan in each state in which they operate through the insurance exchange. Through competitive bidding each plan would establish its baseline costs in the first year.
• Employers (including multi-employer plans) could purchase health benefit plans from the insurance exchange, directly from the insurance company or may self-insure their own program.
• Self-insured plans would be required to provide an actuarial certification attesting to the relationship its overall plan costs had compared to what they would have been had the plan offered the standard plan option to all employees (including age and severity adjustments). In the first year, that cost would become the baseline for future year costs.
• Employers could continue to provide their own health benefit plans (insured or self-insured). An employer who chose to terminate their health plans in favor of their employees purchasing benefits through the insurance exchange would be required to “cash-out” their benefits.
• Insurers would be allowed to market their health plans outside the insurance exchange to individuals and small groups under uniform reformed underwriting and marketing rules.
• Consumers, employers, and associations would be able to purchase any health plan design they choose to. If an HSA or HRA style plan is chosen, any savings in cost compared to the standard option accomplished by purchasing such a plan must be contributed to the employee’s health account. The standard option plan exists only as a reference point for measuring a plan’s ability to meet affordability goals.
• Legislation would set national health care affordability goals expressed as a percentage of growth in the nation’s GDP—as defined and measured by the Department of Commerce.
• These goals would at first slow, then stabilize, and then potentially could reduce national health care expenditures as a percentage of GDP.
• A Health Care Actuarial Certification Board would administer the goals. The Secretary of Health and Human Services would appoint its members and its budget would be funded by an insignificant assessment on insurance exchange premiums the rate limited by statute.
• The Health Care Actuarial Certification Board would be empowered to establish the regulations by which the Board would be able to hold health plans accountable for compliance with the “actuarial equivalency” standards (taking into consideration age, salary differences by area, and severity differences) of the Affordability Model. The Board could not allow for treatment differences by geography—ultimately all parts of the country would have the incentives to move toward the most efficient models.
• The board would not have the power to set goals (these would be set in the legislation), set or regulate insurance rates or provider fees and prices, require the use of treatment protocols, rule on the efficacy of any treatment or device, or require or deny the use of any technology. In short the board could not interfere in the relationship between payers, providers, or patients.
• The Board would act as a referee in monitoring compliance with the Act, ruling on the actuarial equivalency of any plan of benefits, determining if a plan is meeting the affordability goals. Disagreements with any Board ruling could be appealed to the federal courts over the issue of good faith enforcement of the Act.
• Sub-Boards would be created in each state operating under the policy direction of the national Board in order that detailed actuarial health plan oversight be effective.
• To measure compliance, each health plan (insurer) operating in a state would be required to offer the standard option plan in the insurance exchange during the first year the legislation is effective. Health plans could also offer any other plan of benefits they chose to—better or worse.
• Health plans, plan sponsors, and providers would have until the first calendar year two years after the legislation becomes law to organize for cost containment compliance.
• After the first two calendar years, the legislation would create a five-year (years three - seven after enactment) phase-in of the first affordability goals and objectives. Affordability goals for year eight and beyond would be set by subsequent legislation. However, the Act would freeze the affordability goal indefinitely at the year seven level if the Congress did not act to change it.
• Any health plan offered by an insurer or self-insured employer which did not meet affordability standards by the end of third, or subsequent, year would be in jeopardy of being declared non-compliant and would be given one-year in which to comply with both that non-compliant year’s standard as well as the following year’s requirements.
• A plan subsequently determined to be non-compliant could continue to be marketed, provided by its employer sponsor, or purchased by individuals but any costs would not be tax deductible to an employer. Further, the cost of the plan afforded to the consumer, by a plan sponsor or through the insurance exchange, would no longer qualify the individual for the health tax deduction.
• If at any time the Health Care Actuarial Certification Board determines that 100% of the residents of a state do not have access to a compliant health plan, the board would be required to request the Secretary of Health and Human Services offer a public health insurance plan similar to Medicare in its operating structure as a competing plan in the state—the plan could unilaterally set reimbursement rates and treatment protocols as Medicare now does. The Medicare plan’s budget would be limited to the increase in the GDP. The plan would be tax deductible for employers and individuals. The Secretary would be required to comply with the request within two years.

In short, health plans could continue to offer any benefit program they wish and individuals and employers may buy them. Self-insured employers could choose any network to operate their plans.

The employer could continue to deduct the cost of any plan it offered so long as it was a qualified plan.

Health plans could contract with any providers they chose to on any terms they could negotiate. Providers could contract with any health plan or employer self-insured group (likely through insurer networks) they chose to on any basis they chose to agree to.

But if the arrangement between payers and providers did not meet certain affordability standards beginning in the third full calendar year of the Act, the health plan under which the providers and payers operated would ultimately lose its tax preference for both sponsors and consumers if it was not able to comply.

Controlling Medicare Costs

Securing fiscal sustainability for America is not possible without bringing Medicare’s costs under control.

Today the private Medicare industry competes with the traditional Medicare program under a complex structure that has done nothing to bring Medicare costs under control.

Instead of the value of competition bringing market forces to bear in order to control Medicare costs, we have an artificial means by which private Medicare reimbursement is set and plans doing nothing more than figuring out how to profitably operate at those levels.

The Affordability Model would apply to the private portion of the Medicare program and therefore drive private competitors to either produce meaningful results or get out of the business.

The government-provided traditional Medicare program would continue in its present form. However, policymakers would be encouraged to adapt its payment structure to follow any private sector success in controlling costs. This would include using the “tool box” composed of such things as health information technology, comparative effectiveness research, pay-for-performance, prevention, risk sharing models, and the like.

But to gain the full value of any success the private market achieves on the cost and quality front under the Affordability Model, the Medicare Advantage program would be significantly upgraded:

• Medicare Advantage insurers would establish a baseline cost for providing the statutory Medicare benefits through a competitive bidding process in the first full calendar year the Act is effective.
• Private Medicare rates would be set via the bidding process on a county-by-county basis that capped payments at the level traditional Medicare pays in that county for a similar risk pool.
• Private Medicare providers could offer any benefits they chose to beyond the traditional plan’s baseline but would have to charge seniors an actuarially appropriate premium for these additional benefits.
• Private Medicare insurers would be required to contract with health care providers to provide services to seniors making clear their networks and how their benefits vary from the baseline standard benefit package in senior marketing materials.
• Employers could utilize private Medicare plans to provide retiree or active worker benefits.
• Legislation would set national health care affordability goals expressed as a percentage of growth in the nation’s GDP—as defined and measured by the Department of Commerce (the same goals for both Medicare and the under-age-65 market).
• These goals would at first slow, then stabilize, and then potentially could reduce private plan Medicare health care expenditures as a percentage of GDP.
• A Health Care Actuarial Certification Board would administer the goals. The Secretary of Health and Human Services would appoint its members and its budget would be funded by an insignificant assessment on Medicare Advantage premiums the rate limited by statute.
• The Health Care Actuarial Certification Board would be empowered to establish the regulations by which the Board would be able to hold health plans accountable for compliance with the “actuarial equivalency” standards of the Affordability Model—including adjustments for severity and differences in wage rates—but not geographic differences in treatments.
• The board would not have the power to set cost goals (these would be set in the legislation), set or regulate insurance rates or provider fees and prices, require the use of treatment protocols, rule on the efficacy of any treatment or device, or require or deny the use of any technology. In short the board could not interfere in the relationship between payers, providers, or patients.
• The board would act as a referee in monitoring compliance with the Act, ruling on the actuarial equivalency of any plan of benefits, determining if a plan is meeting the affordability goals; and therefore whether the Medicare Advantage plan could continue to be offered to seniors.
• Private Medicare plans, plan sponsors, and providers would have until the first calendar year two years after the legislation becomes law to organize for compliance.
• After the first two calendar years, the legislation would create a five-year (years three – seven after enactment) phase-in of the first affordability goals and objectives. Affordability goals for year eight and beyond would be set by subsequent legislation. However, the Act would indefinitely freeze the affordability goal at the year seven level if the Congress did not act to change it.
• Any health plan offered by an insurer or self-insured employer which did not meet affordability standards on a statewide basis by the end of third, or subsequent, year would be in jeopardy of being declared non-compliant and would be given one-year in which to comply with both that year’s standard as well as the following year’s requirements.
• After the one-year warning period, if the plan were still not compliant with the affordability goals, it would be removed from the list of approved private Medicare plans in that state and its members would be offered a seamless transfer to the traditional Medicare plan or another private plan of their choosing.

The Affordability Goals

The actual affordability goals could be set at any number of levels from aggressive to modest. The policy question is just how serious and aggressive we would want to be about controlling our health care costs. Should we simply bend the curve and allow costs as a percentage of GDP to continue growing? Should we cap costs at the current level. Or, perhaps more appropriately, should we first stabilize costs and then begin to reduce them to more affordable levels as a percentage of our GDP?

Once that policy is determined the goals would be inserted into the model.

For illustrative purposes, I have inserted goals that would first slow then stabilize then reduce costs as a percentage of GDP.

Years One and Two the Act is In Effect – No Affordability goal set. Time used to set baseline costs and organize to meet cost containment goals.

Year Three – The Affordability goal is set at 175% of GDP. The GDP goal comes from the Commerce Department determination of GDP for the 12 months ended June 30 of the prior year. If GDP were to have increased by 4% the prior year, for example, health care plan costs would be limited to an increase of 7% in the third year of the act (4% x 1.75=7%).

Year Four – 150% of GDP

Year Five – 125% of GDP

Year Six – 100% of GDP

Year Seven – 100% of GDP

By the seventh year, in this illustrative option, private health care costs and private Medicare costs in qualified plans would have their cost increases slowed to the rate that GDP is increasing.

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Issues
I don't agree with many of the policy choices you have made in your explanation of how the Affordability Model would work such as whether a standard option plan should be set as the minimum, your preserving all of the current health insurance benefits tax preferences, your allowing individual and small group policies to be sold outside the insurance exchange, and a number of other policy secondary choices you have made.

Please remember that the Affordability Model is primarily about cost management and changing the incentives for insurers and providers. It can be attached to virtually any of the current health plan proposals and the detailed policy choices they have made.

Won’t insurers just game the system by establishing an artificially high baseline cost in the first two years?

Insurers are only required to have their standard option plan offered in the Insurance Exchange comply with affordability goals. Why can’t they just game the standard option offering and charge whatever they wish for the rest of their non-Medicare business?

Whatever price the health plan bid in the insurance exchange becomes the basis for any other price it charges for any other customer. The plan would have an obligation to demonstrate an actuarial equivalency in each of the states relative to the rest of its non-Medicare business. In the health insurance business this is often referred to as the “manual rate” from which the insurer builds the rest of its health insurance products.

If it bids an artificially high price for the insurance exchange, it will have effectively priced itself out of the market for the rest of the business it has in the state market—fully insured or those self-insured plans it administers.

It would be the full-time job of the Health Care Actuarial Certification Board to police this compliance.

What if the standard option plan changed over the years? How would an insurer’s or self-insured employer’s compliance with the original baseline and the annual cost targets be administered in later years?

The standard option plan of benefits can change each year. For actuarial certification purposes the system would continue to use the original plan design as the baseline from which any standard plan option or other plan offered in the private market is evaluated.

What if GDP grows only by 1% or 2% leading up to the third year? That would mean a health plan’s health care costs would be limited to 1.75% or 3.5%.

Yes it would.

First, remember that a health plan has two years to become organized for compliance. A year or more out, the fact that GDP is lagging would be clear and the plan would have time to organize for it.

Second, not only would the health plan have two years to organize, but, if it did not make the third-year goal it would have an additional one-year grace period to comply. That means a health plan really has the first four years the Model is effective to bring its costs under control.

Some health plans and provider organizations are already operating far more efficiently than most. Yet, they would be subject to the same objectives. Wouldn’t this be unfair?

Yes. The solution would be to enable the Actuarial Certification Board to recognize delivery systems that are already doing a better job of managing care and adjust their goals accordingly.

I think your growth goals (as a percentage of GDP) are unrealistic.

The Model will work with any goals chosen--the more aggressive the greater the savings. The less aggressive the smaller the savings.

But at the end of the day, what is a "sustainable" or "affordable" health care system? At some point we need to decide that question or we will simply be kidding ourselves that what we are calling health care reform will get us to an "affordable" or "sustainable" place.

For example, the key health care stakeholders representing insurers, doctors, hospitals, drug companies, and medical device makers have said they know how to save $2 trillion over the next ten years. The Affordability Model could be pegged directly to that level of savings.

You are penalizing only the health plans by potentially taking away their tax deductibility.

Nothing could be further from the truth. Yes, the operable mechanism is the tax deductibility of the health plan. But in the end, every doctor, hospital, and other health care provider would need to provide their services and products through a qualified plan or their patients and consumers would have to buy their services in before tax dollars.

You are penalizing consumers and employers.

No. The Affordability Model provides unambiguous incentives for consumers and employers to choose only health plans that are affordable. When the day is done, all of the players must "have their incentives aligned" in order for us to truly reform the American health care system. Have you ever seen a plan that did a more complete job of that?

And, don't forget, every consumer is guaranteed access to a qualified affordable health plan. If one is not available, then the federal government would have to make a Medicare-like public health plan available to them.

The means for measuring a health plan's growth by using the actuarial board sounds overly complex and unenforceable.

It is very doable. In the health insurance industry we have always used a concept called "manual rates." The idea is to set a baseline pricing standard against which all insured business is measured. In effect, I have set the standard option plan inside the insurance exchange as the baseline manual rate against which all health insurance plans offered inside and outside the exchange in any given state would be measured. The trend rate for that insurer's book of business in a given state can then be compared to the affordability goals and measured. The same principle can be applied to a self-insured employer's health plan compared to the insurance exchange's standard option. The process can work even as an employer or insurer or insurance exchange offerings vary from year to year--one can always calculate the actuarial equivalency. The cost for a standalone employer plan to be certified each year would be nominal as a percentage of the plan's overall costs.

But to be sure, I ran this component by a number of senior health actuaries. While I received a number of technical suggestions too detailed for this overview, the concept was reaffirmed.

Won't the Congress lose its political resolve and just back-off the affordability goals if the markets don't respond by bringing our costs under control?

Maybe.

First, I haven't figured a away out to reform the political process--I'm just making a health care policy suggestion.

But that issue does cut both ways. What if we in fact set too aggressive a standard and were on our way to blowing the system up. Unintended consequences happen in Washington. The Congress would have the ability to amend the goals--perhaps phasing them in over a longer period--if the result was becoming counterproductive. In all likelihood fixing America's health care system won't be done in one bold stroke. It will likely be an iterative process with adjustments over many years to come--and it will be at least partly a political process. I will suggest that an advantage of the Affordability Model is that it can be adjusted through the years.

This is nothing more than a global budget.

Absolutely not and the difference is very important to understand.

A global budget would hit all players--insurers, providers, and consumers equally. In health care that is unacceptable. If the global budget cut reimbursement 10% in a given year to control costs, everyone would be cut--the "good guys" and the "bad guys." Efficient and effective doctors would operate under the same limits as inefficient and ineffective doctors, for example. The same with health plans and all other providers. Consumers would all suffer because all treatments would be limited without an efficient way to separate the waste from the important.

In fact, under a global budget there is no incentive to be efficient when the most productive participants aren't rewarded differently than the least efficient. With lower reimbursement rates the incentive would be to just figure out how to game the system.

Under the Affordability Model health plans, providers, and consumers who aggregated into networks that got the job done separating the 70% of this system that is the best in the world from the 30% that is waste would benefit from it. Under a global budget that would not be possible--everyone is in the same boat.

Under the Affordability Model those who succeeded at managing the system would--through the tax incentives created--be separated from those who were not successful. Competition would ultimately force the inefficient to become efficient.

The Affordability Model would only penalizes insurers, providers, and consumers who insisted on being unproductive players in the system. It would reward those who are willing to work together--including consumers through their purchase of more efficient plans--to separate the value from the waste.

Only the Affordability Model has the potential to use the waste in the system to reduce our costs while keeping the 70% of the system that is the best in the world.

I am in the health insurance business and I think this will put the private health insurance market out of business.

Do you believe in what you do? I do.

In my mind, if we finally enact a health care bill similar to the bills now on the table it will not contain costs and we will be headed for an even bigger cost explosion in just a few years.

Much of the existing health care reform proposals on the table in Congress, and the likely outcome of the debate, would be great for health insurance industry profits--millions of new customers and little in the way of onerous regulation. It would be a great few years to come.

But, when Phase II of health care reform inevitably happened, in the wake of that explosion, the chances are good the kind of government-driven health care reform plan the health insurance industry would then face would be far more onerous to the health insurance industry than this.

I believe it would be shortsighted for the health insurance industry to sign-on to a health care reform bill everyone knows is just delaying the explosion by a few years and declare victory because of the short-term benefits.

The best thing that can happen to the insurance industry is for it to be able to prove its real value by participating in a system that is sustainable.

Do you think most insurers, doctors, hospitals, and other providers will support this?

No. We appear to be on our way to a bill that would shave a little off on reimbursement, create lots of new customers for everyone, and not otherwise demand a lot of real change. That will be more attractive. Actually being held accountable in a measurable and verifiable way for making the system work is pretty scary.

But then, we haven't actually passed a "no pain only gain" health bill yet.

Your proposal does little to ensure quality. In fact, I am concerned that health networks would concentrate on cost over quality.

Let me again say this again as emphatically as I can, THE AFFORDABILITY MODEL IS NOT A COMPREHENSIVE HEALTH CARE REFORM PROPOSAL. It is a cost containment proposal that can be adapted to any of the health care reform proposals now on the table. Quality, comparative effectiveness research, HIT, subsidies for the uninsured, prevention, the details of the insurance exchange, and all the rest are the other elements.

That said, I would agree that it would be important for a focus on quality to be part of any overall reform plan to offset the tendency to focus on cost more than quality.