Scott MacStravic, PhD
I still recall when the total costs of health care in the community were shared, more or less equally, among all those who lived in the community. It was called “community rating” and was the standard approach used by Blue Cross/Blue Shield plans in the 1960s. Different communities paid different premiums, reflecting how much health care they used each year, and how much it cost to “reimburse” providers for delivering that care. (It was truly “reimbursement back then, since Blue Cross, for example, paid hospitals 102% of their audited costs of operation, given the number of Blue Cross members they cared for.)
Community rating was on its way out even then, because other health insurance plans came up with an “experience rating” alternative, where individual employers paid premiums based on their own workforces’ use and costs of care. This meant that every employers whose experience was better than the community rating level would naturally choose the experience rating option, while those whose experience was worse would choose the community rating option. This kept driving up the community rating premium level, thanks to the “adverse selection” it promoted, until only experience rating could be sustained.
In both cases, the total costs of healthcare in an given place were shared, differentially according to employer experience, or equally based on community experience, based on what happened in one given year and was predicted to happen the next year. But in recent years, we have moved toward a different model, though never quite making it explicit. It is that model that is my suggestion for a modest proposal to reform healthcare.
Instead of sharing equally the past costs of healthcare, we could share unequally the future costs. At birth, and at initiation of such a system, each individual would be assigned a predicted lifetime health cost, not adjusted for lifetime inflation, since that would make it seem overpowering, but in today’s dollar terms. Patterns of how these costs would be shared over time by that individual, and by the family to which that individual would belong, as well as any employer who chooses to take on some responsibility for sharing those costs, would be created by actuaries, based on the “normal” timing of sickness episodes, pregnancy and childbirth, end-of-life costs, etc.
The predicted lifetime costs would then be “assigned” to each individual for which the prediction applies, and translated into the income/ability to pay lifetimes predicted for each. The costs of care would thus be shared over different years by individuals, instead of for the same year by populations. This fact would maximize the responsibility of individuals for managing their own health and sickness care “purchases”. It would give them the ultimate degree of “skin in the game” that has been recommended by champions of the “new consumerism”, “consumer-directed health plans”, etc.
What this should do, as a consequence, is maximize individuals’ and families’ interest in managing their risks. Every time an individual/family member adopts an “unhealthy” behavior, or a preventable risk condition or chronic disease, each would be assigned a higher lifetime health cost prediction and a higher immediate premium share, set of deductibles, co-pays and co-insurance, as decided by employers, insurers, and government agencies who share the burden. And every time an individual/family member adopts a healthier behavior, reverses a risk condition or chronic disease, each would be rewarded by a lower projected lifetime cost and next-year premium.
This would continue the present situation where insurers, employers and government agencies have strong financial reasons to promote health maintenance and improvement among all individuals for whom they are responsible, including the extra interests that employers have in doing so, since healthier employees reduce total labor costs, not just sickness care costs. But it would add an immediate and considerable motivation for individuals and families to adopt and maintain healthier behaviors and conditions, since they will be automatically rewarded or punished financially depending on both.
Clearly some mitigation of both rewards and punishments would be needed, or people could become financially ruined too easily. This mitigation could combine employers’ sharing in the premium costs, given their sharing in the productivity and other performance benefits of having a healthier workforce. Governments would surely be expected to mitigate the premium costs to poor and underprivileged members of the community for which they take responsibility, and from whom they derive tax revenue.
Governments, after all, and society as a whole benefit financially from improving the health of their communities. People who live longer in an employable and employed state earn more income, contributing more to the economy and paying more taxes. If they achieve the desired “telescoping” of the end of life, they will save governments by not taking as long or spending as much in futile efforts when they die. Plus governments will share in the direct savings from sickness care costs achieved when their beneficiaries become healthier and less in need of sickness care.
But it is the benefit to individuals that would be optimized in this individual-lifetime cost-sharing system. They would enjoy immediate financial benefits, perhaps augmented through employer incentives, when they adopt and maintain healthier behaviors and conditions. This would add to their “discretionary income” in precisely the same way as it does for individual users of tobacco products when they quit. The lifetime cost predictions would serve as an accompaniment to their retirement planning, indicating how large a burden their current level of risky behaviors and conditions impose on their future. The immediate penalty of higher premiums would serve as a stronger motivation for those who tend not to plan ahead.
The predictive modeling, information and communications systems needed for such a system would be substantial, and themselves add to “healthcare system” costs, but no more than current systems for sharing costs across communities already do. The technology is already available, with predictive modeling, for example, automated computer analysis, customization and online communications already well developed and inexpensive. It is a system that could easily be pilot tested in any population where payer and payee will agree. And it could be precisely the kind of “disruptive innovation” that could be the “tipping point” in healthcare system reform.
