The Affordability Model

Capital_2Most health care experts agree the reason our system is so
unaffordable is because of all of the waste  and unnecessary care—up to
30% of what we spend.I will suggest that it will take the
genius of individual creativity to separate the 70% of this health care
system that is the best in the world from the 30% that is waste.So
far, the Congress has focused more on entitlement expansion then
fundamentally reforming the system and tackling the real
problem—getting all the excess costs out. The result so far is
expensive health care proposals and no real reform.How can we actually make the health care system affordable as we expand coverage? I will suggest a three-pronged attack:

  1. Launching a number of hopeful initiatives already outlined by the President that would improve the delivery system.
    These include health information technology, comparative effectiveness
    research, wellness, and prevention. These have promise but there is no
    guarantee they will work without unambiguous changes in incentives so
    those who provide care will begin to effectively use them.
  2. Changing
    the incentives for private sector consumers by adopting many of the
    financing proposals in the Wyden-Bennett Healthy Americans Act
    — which has already been scored by the CBO to broaden private sector coverage for no additional cost.
  3. Adopt what I call the Health Care Affordability Model to do what we should really be doing—making our health care system affordable.

will suggest that it is not enough to simply pay for the expansion of
the American health care system and end up deficit neutral. At 17% of
GDP already and with 30% of the system being wasteful we should set a
goal to actually reduce costs from what they would have otherwise been.

The Wyden-Bennett proposals take us to a place where we can expand coverage for no additional cost. The Affordability Model gives the Obama cost containment policies teeth so we can actually make our system more affordable.

The Affordability Model
creates an unavoidable imperative for health plans, health care
providers, and consumers to finally cooperate in ridding the waste and
avoidable care from our currently unaffordable health care system.

seventy years, we have used the federal tax system to encourage the
expansion of health insurance benefits. But now it only encourages more
spending at a time when health care is becoming even more unaffordable.

already know a great deal about where the waste is in our
system—wasteful treatments and procedures, poor quality, avoidable
sickness, and administrative costs.

We have the tools—or can create tools—to effectively manage the system.

But we haven’t done it quickly or effectively enough.

haven’t done it because we haven’t had to—as out-of-control as the
system is most of the stakeholders have continued to profit from the
status quo.

There would not be any global budgets. The
Affordability Model would use the tax system to fashion unavoidable
incentives to control costs and improve its quality—no stakeholder
would any longer profit from the status quo.

The Affordability Model
would continue to allow employers to self-insure their health plans. It
would not place any limits on insurance or provider prices. It would
not interfere in the delivery of care.

The Affordability Model
reflects a belief that quality health care decisions need to be made on
a patient-by-patient basis, that health care professionals should make
these decisions in collaboration with their patients, and that payers
and providers cooperating toward the same objectives can produce
meaningful results.

Under the Affordability Model,
health plan networks would have clear-cut incentives to first begin to
stabilize and then control their premiums. Failure to do so would mean
the loss of their federal tax qualification and that would mean
employers and consumers would move their business to health plan
networks of insurers and providers that achieved results.

and employer sponsors would not be penalized. They would simply move
away from inefficient and ineffective health plan networks.

at any time all residents in a state did not have access to a tax
qualified plan, the Secretary of HHS would be directed to introduce a
public Medicare-like health plan in that state to compete with all
private plans—qualified and non-qualified.

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

  • 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.

result would be consumers and employers moving to health plans that
succeeded in giving Americans better quality care at an affordable
cost—and bringing the American health care system with them.

If you liked this post, try reading, Why Congress Should Consider Bob Laszewski's Health Care Affordability Model and Fantasy League Baseball — Beltway Series Edition

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AMMProf. Uday P. ChhatreStevenwarren smithBarry Carol Recent comment authors
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BTW I am sick and tired of hearing about the car insurance model as posted by Steven. It’s a bad comparison … you can always chose to not drive. People in cities often don’t own cars.


This is all very interesting but please explain something to me. At a very basic level, how is this affordability credit actually supposed to work? It is easy to say that credits will make the premiums more affordable but I really don’t understand how that will work in practice. Most tax credits work by spending the money first and then getting the credit later. Often working people can accelerate the receipt of this benefit by offsetting their monthly tax payments accordingly. However, most people in the lower part of the subsidized income category simply do not have the cash to… Read more »

Prof. Uday P. Chhatre
Prof. Uday P. Chhatre

The most essential part of the Health Plan is it’s rechability and affordability.
The most next thuing that comes in the way of application of it is How the govt. machinery implements it it so that it can reach to the grass-root needs, the second is the entire system should not be based on the PERCOLATIVE WAY od RECHABILITY of THE AID bu it shoud reach to them as it is their RIGHT TO HAVE
Here the Efficient ROLE of Govt machenery is tested to have flawless implementation of the GOVT POLICY….
uday chhatre


The car insurance model of insurance could work here.

warren smith
warren smith

Health care in the US is controlled by big business profiteers only interested in making lots of money for their bottom lines and to hell with stupid US consumers.
HBOs, insurance companies and all those in shiny office buildings who don’t actually treat patients or provide medicines should be eliminated – or at least taxed at 90% to pay for universal health care for all citizens.


Margalit, It sounds like you where on the right path, maybe you got hung up on the risk factor of it. In very few cases do we see the premium savings being significant enough to cover 100% of the increased liability. This is because employees will not incur 100% of that liability, carriers charge premium for the expected claims then a healthy margin. This is where we break prospects into two groups. I personally have an HSA but use it as an investment not as a method to finance healthcare. In the past I had it invested in mutual funds… Read more »

Margalit Gur-Arie

Deron, what you are describing is exactly what we wanted to do. However, the numbers just didn’t add up. The savings in premium between the high deductibles and the zero deductible were not substantial enough to cover the deductible. I am going to get the exact numbers on Monday and email them to Nate. Our goal was to cover all expenses for all employees at all times. With the exception of copays, that’s what this plan does and it is only slightly more expensive than the high deductible. I thought we made a good and economical decision, but I’ll defer… Read more »

Deron S.

Margalit – If your company isn’t going to go bankrupt by paying for a $0 deductible plan, then your employees shouldn’t need to go bankrupt if you opt for a $6000 deductible, because you should be able to use the premium savings to fund HSA accounts for them. The savings might not cover the full deductible, but it should really knock it down to size if the plans were priced properly. Employees could make up the difference by putting $10-$20 in the account each week. It works well for us.


Lumenos is both individual and group. We use their 5K HSA for a large number of our clients. We then self fund back down to a normal deductible. Most of our clients are groups with old or sick people that came to use because they had to save money and needed new options. All group covers maternity so that isn’t an issue for what we do. I strongly advocate for continuing the employer distribution of insurance, we should do everything we can to eliminate the need for individual insurance, either through group coverage or pools. What competition? Right before UHC… Read more »

Margalit Gur-Arie

Nate, here is why: Just recently I was involved in picking new insurance for our company and it was nauseating. We looked at Anthem and UHC. First we looked at mostly high deductible plans. It took hours on top of hours to figure out what is covered, when it kicks in and when you get kicked out. A $6000 deductible for a family of four for example would have easily bankrupted some of our folks, if they got sick. $50 copays have the potential to add up like crazy if you are really sick. Life time maximum of 1MM or… Read more »

Barry Carol
Barry Carol

Nate, Correct me if I’m wrong, but I think Anthem’s Lumenos product is aimed at healthy young men. As I understand it, it doesn’t cover maternity benefits, and, if it did, Wellpoint would have to charge at least twice as much for it. I also wonder if there is a maximum payout limit on the policy that could be easily breached if one were in a serious accident. It’s a pretty good product for the population that it’s aimed at, assuming the prospective client can pass the underwriting screen. However, it’s misleading to imply that Lumenos and similar products could… Read more »


there is 1 way to fix the majority of the problems, not all of them but most. Health insurance should be just like your car and life insurance. high risk = pay more. if you are out of shape and refuse to exercise you are going to cost the system more, if you smoke you pay more, this will give people an incentive to exercise and take care of themselves. this will bring down costs and make it more afforable, allowing more people to contribute and bringing the costs even lower.


“At 17% of GDP already and with 30% of the system being wasteful we should set a goal to actually reduce costs from what they would have otherwise been.”
Reducing costs like using natural childbirth?? http://www.louiseroth.com/2009/06/dick-morris-doesn%E2%80%99t-understand-birth-or-health-care-maternity-care-reform-would-improve-maternal-and-infant-outcomes-and-reduce-costs/


Margalit….why oh why? “Or will the plans that offer very high deductible HSA accounts, that do not serve the sick very well,” please do explain what the heck you mean. I have been doing this for almost 20 years and for the life of me can’t figure out how an HSA does not serve the sick very well. Unless you OD on maggie I can’t fathom where you would ever get such a silly idea. Please tell me you at least sat down and did a comparison before making this comment, you aren’t just repeating what you read somewhere are… Read more »

Tom Leith
Tom Leith

Interesting thought Bob. I think there’s a precedent for this: it sounds soething like the “public education insurance” plan wherein students at underperforming state schools are allowed to transfer out of their “home districts” into better performing districts, and in some cases even to private schools. Of course it is a different mechanism. And of course, it’ll never happen 😉