By GEORGE HALVORSON
The COVID crisis has shown us clearly that major portions of the American care system are extremely dysfunctional and some are now badly broken. We need to put in place a cash flow for American health care that can help our care sites survive and ultimately thrive, and we need to put that approach to save the sites in place now because a vast majority of hospitals and medical practices are badly damaged and some are financially crippled and even destroyed by their response to the crisis.
We have learned a lot in the COVID crisis that we need to use now in building our next steps and our collective response to the crisis.
The COVID crisis has shown us all that our care sites do not have good patient data, do not have good patient linkages, usually do not have team care of any kind in place, and most are so dependent on current piecework fee volumes from patients that they quickly collapse financially when that volume is interrupted.
We should be on the cusp of a golden age of care delivery that uses all of the best patient support tools to deliver continuously improved care — and we now know that the piecework way we buy almost all of our care today will keep that golden age from happening for the vast majority of American patients for the foreseeable future until we change the way we buy care.
We need to buy care in a way that both requires the use of those tools and rewards caregivers and care teams when they use them.
We need a dependable cash flow for care to anchor that process.
We are unlike most of the rest of the industrialized world in not having a dependable cash flow now to buy care. We rely on a hodgepodge and mishmash of unlinked, unaligned and uncoordinated payment sources now and that lack of coordination in payment creates a vast and damaging lack of coordination in the delivery of care.
We can make a huge improvement in that entire process and we can give our health care system a stable and functionally useful future cash flow by becoming a much more highly skilled purchaser of coverage and care. We need a flow of money to make that happen.
We actually can create that flow relatively quickly and fairly easily by imposing a payroll tax on every employee that exactly copies the approach we use now for our Social Security payroll tax process and then using that money in a health care purchasing pool to buy health coverage for every person who is not on Medicaid.
The numbers work.
A 20 percent payroll tax would generate enough money to create that health care funding pool and immediately give us universal coverage as a nation. We know the numbers.
We spend $3.7 trillion on care now as a nation — and the part of that expenditure that is spent on insured care today is $1.3 trillion. We can convert that entire insurance funded cash flow into a purchasing pool for health care coverage that covers everyone who is not on Medicaid by putting in place a simple 20 percent payroll tax, that is about what most companies spend now as an ongoing expense to buy coverage and care.
We need to keep Medicaid in place for the lowest income Americans. We need our Medicaid programs to be strong and effective. Everyone else who is not on Medicaid can be insured with good benefits with a relatively low deductible level that is funded entirely by an extremely affordable tax on wages for every employed person.
The 20 percent tax would be split 50-50 between employers and employees as the starting point for every work site, and then any sites that want to increase the percent spent by the employer can do so at their own discretion.
Most employers who offer health coverage to their employees pay more than that now for the coverage. We would freeze those higher payments from those employers at their current levels to keep that money in the system until the twenty percent tax is higher than the payment level for each employer. So that approach would reduce the cost burden over time for those work sites, and it would end the painful annual increases in those health insurance coverage expenses that most employers who offer health coverage now are unhappy about today.
For the 30 percent or more of the work sites who do not offer health benefits to their employees now, that new tax would only increase their current operating costs per employee by 10 percent for employers. In an age of major COVID responses and expenses, that 10 percent expense is a very affordable number and it is far less than a number of other COVID-related expenses have been and probably will be before we are through the crisis.
Individual employees will spend, at most, 10 percent of each paycheck and each employee will get team care, relatively rich benefits, and financial security from all health care costs because of their coverage. Most of those employees in work sites with no insurance would have been extremely happy under the pre COVID conditions if their employers had decided to offer benefits and had given them that opportunity to enroll in a group insurance program with that kind of 10 percent employee contribution.
That tax gives us a massive asset as a country.
That tax gives us the needed pool of money that we need to buy care and to provide a package of coverage for everyone in the country.
We would use that pool of money to buy Medicare Advantage coverage with a $1,000 deductible for everyone who is not on Medicaid. Medicare Advantage is an existing program and it is doing a very good job of providing coverage, care, and rich sets of benefits to millions of Americans today.
The Medicare Advantage program we use today has far better benefits than the standard Medicare program and it has much better-quality reporting and far better care linkages than both Medicare and most insurance plans.
The Medicare Advantage program — now renamed the “Medical Advantage Program” for the purpose of creating universal coverage — will cover everyone not on Medicaid, and will use the same payment model that is used today by Medicare Advantage for Medicare patients.
Each person who enrolls in the current Medicare Advantage program today is covered by having the government pay a flat fee each month to each Medicare Advantage plan for each patient who enrolls in each plan.
The Medical Advantage Plans will also be paid a monthly payment for each member who chooses them — and their cash flow as plans will be completely separate from the payment by the government of any fees for any pieces of care.
That approach of being paid by the month and not by the piece frees the MA plans entirely from the perverse consequences of being paid entirely by piecework fees for each piece of care and of being dependent on individual pieces of care for their flow of cash.
Medicare Advantage plans benefit financially when people have fewer heart attacks, lower levels of diabetic complications, fewer asthma attacks and lower levels of chronic diseases. More than 70 percent of the health care costs in America today come from chronic diseases and it is absolutely clear that standard Medicare care providers make much more money when their patients are in poor health and make more money when their piece-work payment model patients have health disasters or even physical and medical setbacks of various kinds.
Medicare Advantage plans have strong incentives to reduce the number of congestive heart failure crisis rather than benefiting financially when those crisis happen. So the number of those heart failure crisis actually tend to be reduced by half or more when people enroll in Medicare Advantage plans.
Most hospitals have contracts now with the insurance companies, local health plans, and with the benefit administrators who will run many of the Medicare Advantage plans. Those hospitals do not know today in the heart of the COVID crisis who will be their source of revenue for their patients who will be admitted next year. That uncertainty about that payment flow will be resolved immediately on January1st— or whatever day we pick for the beginning of universal coverage and the MA plan — because everyone in the country will either be in a Medical Advantage plan or will have Medicaid coverage on that date.
We need to make sure that care sites have links to plans — and that they can choose, where appropriate — to become or create plans.
This particular path to universal coverage is not a new approach or unique to us.
Most of the countries in Western Europe today use payroll taxes to create protected separate streams of money that each country uses to buy care — and most of those countries also use Medicare Advantage like health plans to actually provide the coverage to each person.
Health plans are everywhere. There is not one single person in Switzerland or the Netherlands who has a government-run single payer department or program. They each have high functioning and directly competing health plans funded by a payroll tax to create the revenue stream for care for their people.
They very strongly link their national funding approach for care directly to employment for each person because they very much want people to be employed and to have employer linkages in those countries. The also use a shared payroll tax in each country because they want both employers and employees to jointly purchase care.
We can do the same — and we can use that payroll tax that creates universal coverage there to create universal coverage here as well. The finances work.
We can actually fund universal coverage for all of the people who are not on Medicaid here with a 20 percent tax — because that is more than we actually spend now on insured care and because we can use a capitation payment drawn from that fund to buy care.
That approach of buying care by the month and not by the piece uses a purchasing model that has very high levels of requirements for service levels, care quality reporting, and team care to deliver that care, and it encourages efficiency, health promotion, extensive systems support and more patient-focused use of health care dollars to sustain that program over time.
Medicare Fraud actually disappears entirely as a government expense with this approach because the payment for each patient in an MA plan is a monthly capitation and not a fee payment system, so there are no relevant piece work payments that invite, enable and allow most Medicare fraud today.
We can also reduce administrative costs as a country significantly by using this approach. The massive administrative burden that having a complex array of payors in that hodgepodge payment non-system creates that we use today will also shrink significantly — and we should make shrinking that excess administrative cost burden by a third or more to be an obligation for the Medical Advantage plans.
We can do this all very quickly to meet the need created by the COVID imperatives and their related financial damages.
We can build this approach immediately and we can build it well with tools we have in place today. That is a major asset in beginning any new program. We do not need any new infrastructure to make this happen. We already have a Social Security tax collection mechanism in place — and we can just change the tax percentage number on that current collection system.
We also already have Medicare Advantage plans in place with full supporting infrastructure as a buyer and payer — and we can just apply a new set of actuarial calculations to distribute the capitation payments from the new Health Advantage funding tool to each of the plans using tools and cash flow processes that are also entirely in place today for Medicare Advantage patients.
We need to help COVID damaged care sites, and it is clear that we need to do that relatively soon.
We desperately and urgently need a cash flow response to the COVID crisis to save care sites. We will need to do some immediate bail-out payments of various kinds very quickly that work for Congress to keep the care sites going temporarily and then we should add Medical Advantage universal coverage to the cash flow to keep all of those sites alive next year and into the future.
We have done a number of dramatic and sometimes heroic things to respond to the COVID crisis. This specific response to the crisis will give us a long-term benefit that we will look back on with pride and satisfaction, because the benefits are so huge and immediate and long lasting.
The proposal uses a very affordable and easy to accommodate payroll tax to create a risk pool fund that is used to buy capitated care for everyone who is not on Medicaid.
After we have used this approach for a couple of years and after we have deeply harvested and enjoyed multiple levels of team care, connected care, artificial intelligence supported patterns of care, and after we do it all for only 10 percent or less of our individual paychecks, we will wonder why we ever bought care in any other way and we will fiercely resist anyone who wants to screw that entire process up in any way.
We are very close to an approach that can benefit us significantly for a long time.
Let’s do it and let’s do it now.
For a much longer version of this proposal see here
George Halvorson is Chair and CEO of the Institute for InterGroup Understanding and was CEO of Kaiser Permanente from 2002-14
George, you probably know more about every aspect of health care business models than the average patient. I understand your suggestions to set a flat 20% payroll tax for a universal health care plan. However, implementing it during Covid-19 may not resonate when many companies are closing their doors or struggling to keep them open. I also wonder how the proposed flat 10% employee tax will be impacted with our high unemployment. It is difficult to get this idea implemented while companies and people are dying. If individuals earning minimum wage have to pay 10% of their earnings toward to get or keep health benefits, I think the financial stress might send more of them to health care providers and add a burden to an already overwhelmed system.
Thanks for the excellent article. Since majority of the states offer Medicaid Managed Care for their Medicaid beneficiaries through MCO’s, does it make sense to implement this at the state level through MCO’s for all of the state population. Instead of medicare advantage for all, we can have Managed Medicaid for all. I feel this will be easier to implement as the scale is much smaller. I also feel, the states should abolish FFS Medicaid altogether as the admin costs to build and maintain these large MMIS systems are too expensive. At the minimum, the states should provide Managed Medicaid for all kids upto the age of 18.
We will need a cash flow for care to make up for the Covid financial catastrophe. A simple twenty percent payroll tax that is split 50/50 between employers and employees to buy great coverage and continuously improving care is less than employers who offer coverage spend today and far less than individual patients who have health conditions spend now for their care. We should be improving care and using the new computerized care support tools and those tools will never get used as long as we keep buying care only by the piece. This approach costs less, covers everyone, and provides far better care. It works because we are finally buying care by the month and not by the piece.
We will need a cash flow soon to make up for the Covid Financial Catastrophe and we can trigger that immediately with a simple payroll tax for care that will be less than most employers who offer coverage now currently spend. A simple twenty percent tax split 50/50 between employees and employees can buy great coverage and continuously improving care that can stabilize our care spending for years. We will get continuously improving care that will utilize the new electronic care support tools that will not be available to us as long as we keep buying care by the piece and not by the month. This approach costs less, covers everyone, supports care teams, and provides better care. It works because we finally buy care by the month and not by the piece—so continuous improvement is rewarded.
Thanks for the excellent piece, and the many thoughtful comments. These proposals and discussion need to be brought forward during this election season. We are desperately in need of a better system, and one that is backed up with financial and system details. One challenge is how to present this information to the voting public in a way that they can understand. For example, perhaps a chart comparing current system with one or more proposed Medical Advantage Programs. The comparative information from other countries with such plans (and still health competition) would be persuasive, also.
Out of the 35-40 million Americans who will be unemployed this summer, many of them will qualify for Medicaid in red states. In the 14 states that did not expand Medicaid, I suppose that all we can do is the old model of patients-go-bankrupt and hospitals-get-crumbs from the Medicare allowances. This might be the push to federalize Medicaid, long overdue.
Back in about 1996, I had a very boring security guard job in a health care facility in Duluth MN. Desperate for something to read, all I could find was Strong Medicine by a ranger named George Halvorson. Great book, I read it five times and have drawn inspiration from it.
I appreciate the feedback.
The tax percentage is actually less than most companies who offer coverage spend now on their employee health coverage–so that number actually makes the finances of most companies better and is not a burden on those companies and there are no negative impacts on those employers or their employees created by the tax. They get frozen costs for a few years if they are beyond that number now.
For the small companies who do not offer coverage now, the new tax is only a ten percent expense and that is far lower than the thirty or percent or more of their paychecks that they would have paid for highly inferior coverage if they had offered those benefits under the current insurance model we use for that coverage today. Post Covid, all economics for employers are in flux, so a ten percent expense the results in exceptional health care for employees will actually not be a hard sell for most employers.
This model switches American health care from buying almost all care by the piece–a clearly flawed approach–and switches us as a country to buying all care as a package with monthly payments for the patients just like Medicare Advantage buys care now. That approach will immediately create team care, far better care connections, and a cash flow for care that will be stable for the first time in a way that will allow health care sites to do the kind of continuous improvement engineering that we see done so well in all other industries.
Medicare Fraud will disappear, because when you buy care only by the piece, fraud is tempting and almost invited, but when you buy care by the month, fraud is impossible because no one has figured out how to create fake months.
Administrative costs should be cut by a third or more inside of two years because we will not have thousands and even millions of different payers for the care sites–and the relatively few payers will have strong incentives and tools to engineer data flow processes in much better and less expensive ways.
Europe actually uses this model with health plans and employer linked payroll deductions and shared in expenses in most countries today and they encourage the relationship between employers and employees because they want people to be employed. No one in Switzerland has government coverage. They all join health plans and everyone is covered.
We should want the same link to our employers and to a stable cash flow for care.
The cash flow that is created by that tax has massive benefit and power and it works financially and actuarially even with massive unemployment because the tax creates a purchasing pool–not a premium–and that purchasing pool can be spread to all of our employed people easily and with great flexibility.
There are very important pieces to this tool kit. People will get much better care for much less money and care sites will have guaranteed payers into the Covid disaster years we will face ahead.
Can you explain the mechanics of what happens when someone loses their job? Asking for 35 million friends! If this system was in place now, who is responsible for paying the employer side for the newly unemployed? Or do they join Medicaid and then switch back? If the system is like Medicare Advantage and the individual chooses the plan, why do we need a link to employment at all? Why not raise money from a variety of tax revenues (including some kind of payroll tax so employers don’t just get a windfall). However, it wold be fairer if employees got the benefit of receiving in ash what their employers are currently spending on their health care/insurance, and that funding was replaced by a progressive income tax–so the lower paid with higher health care costs get a bigger incremental increase. And if we solve that connection, why should Medicaid be a different (separate but unequal) program?
Maybe it would be helpful if you explain how hospitals would get paid. Is it a global budget? If so, what happens if they run out of money toward the end of the year? Is it a daily rate per licensed bed whether it’s occupied or not? If so, doesn’t that create an incentive to have many more beds than are needed? Do all doctors work for a hospital system based on salary and maybe a bonus? If so, doesn’t that create an incentive to see fewer rather than more patients per day and extend the time needed to get an appointment? It’s starting to sound more like the VA even if the doctors and nurses aren’t employed by the government and the VA can only serve about 9 million people even though there are currently 22 million veterans in the U.S..
Regarding your proposed financing mechanism, you ignore or underestimate a psychological issue here. Even if employees sort of know that the employer contribution to their health insurance is part of their compensation, they never see it. It doesn’t show up on their wage statement each week or month. If employers raised wages by the amount they are currently paying for insurance, that wage increase would presumably become taxable income and the new payroll tax on employees would be highly visible. If the new payroll tax on employees were treated like the current social security and Medicare tax, it wouldn’t be deductible for income tax purposes.
From where I sit, the U.S. healthcare system is more expensive than other systems for three reasons two of which are cultural and one is structural. The first is the litigiousness of our society which drives the medical societies that develop the practice patterns that define the standard of care to incorporate lots of testing compared to other countries to reflect the litigiousness of our society. The second is a much more intensive and heroic care at the end of life even if it’s marginally useful at best or futile at worst. The third is that everyone who works in healthcare from doctors, nurses and tech, to IT specialists, administrators and CEO’s earn 50%-100% more than their counterparts in other countries.
If Kaiser were such a great and cost-effective model for providing care, why don’t we see it replicated all over the country? More to the point, why can’t Kaiser itself execute it effectively outside of CA?
Any reputable economist will tell you that employees effectively pass the employer share of any payroll tax as part of his or her total compensation. A 20% tax on top of the already existing 15.3% social security and Medicare tax would be a tough sell to put it mildly. If there is no wage cap to which the tax applies, highly paid workers will pay far more for health insurance than the policy is worth. Even Germany caps its payroll tax at a middle class wage level.
Regarding current Medicare Advantage plans, a lot of the better hospitals and doctors don’t accept many of them because they either pay poorly, are difficult to work with or both. Hospitals need the higher payment rates from commercially insured employees to help cover their expenses.
Salaried doctors will have an incentive to see fewer patients than they current do under the fee for service model which will likely result in a shortage of doctors especially in areas that are already under served.
People like choices in this country even if it raises costs somewhat by adding administrative complexity. I’m all for universal coverage but I prefer to get there by providing subsidies to help buy an ACA exchange plan with no income cap to be eligible for a subsidy.
I would also support a public option to buy into Medicare, again with subsidies, but only if Medicare is required to compete fairly on a level playing field with private insurers. That means it has to cover its medical claims and its administrative costs solely from insurance premiums. Federal reinsurance to help cover the highest cost claims is also fine but I would set the attachment point at $250,000 and require insurers to absorb 15%-20% of the claims to which reinsurance applies. Nobody at the middle class income level and above should have to pay more than 10% of pretax income for health insurance or the full value of the policy, whichever is less. Medicaid beneficiaries would pay nothing and the near-poor would pay a sliding scale amount of perhaps 5%-8% of income.
The rub in all of these single payer proposals is always the financing mechanism and I’ve yet to see a workable proposal. A 20% payroll tax is not a workable proposal in my opinion.
Thanks, George, for a well reasoned and carefully thought out design.
Still…too much bureaucracy. Why not:
Just make hospital, non-ambulatory health care a public good? No paperwork or billing in hospitals. No coding. Triage physicians admit folks who are 1. Possibly going to die from their current health process or 2. Possibly could be disabled or 3. Possibly could be bankrupted.
They did this in Canada before they included ambulatory care. We have to try this to see how we can finance this, before we go into ambulatory services.
Everyone on salary. Executives are doctors and nurses and advance practice providers and business people on comparable salaries. Money comes primarily from hospital district taxes or county or state taxes with local ownership and subsidies from state and feds and bond issuance. All financial records are open to the public.
Ambulatory care can be run any way patients desire. They can pay cash or buy insurance or try to get employer plans.
These would be big local or county enterprises with efforts much beyond MA plans. They would run inpatient mental health, occupational and drug rehab programs, SNFs, long term care programs and they would try to monopolize these in their counties so that they could secure monopsonic purchasing of labor and supplies and drugs. Their reach would be much larger than a
HMO as they would run and manage so many more provider types, plus their own GPOs and PBMs in concert with other groups across the country.
They would save primarily by eliminating all paperwork except clinical records, using executive salaries, all providers on salaries, monopsonic purchasing. They would join other counties in organizing group purchasing organizations and PBMs. They would also save by avoiding DC regulatory strangulation.
The hospital district or county running these programs would guess at initial global budgets and then use taxes or bond issuance to finance. Medicaid dough thru waivers might be brought in. Suppliers and Pharma would be allowed to use these non-profits in their advertising brochures.
No question that we need a radical change and need it quickly. Also no question that Medicare Advantage DONE RIGHT is better than FFS, even though the current Medicare Advantage program has plenty of fraud from the big guys in risk selection & upcoding. But that’s probably ok given the ease of extending a current system that relies on our current insurer infrastructure.
Where I think this proposal has a serious problem is in its continuation of using employment as a vector for health insurance. Right now most small businesses with low wage jobs are exempt from offering insurance and even if they do, they don’t offer it to dependents. Asking those employers & employees to pay 20% of payroll tax between them is a non starter. And we now have 25% unemployment at a time of low workforce partipation anyway– with worse yet to come (I personally think 30% unemployment is coming).
How are those people supposed to pay 10% of pay? Perhaps they all go on Medicaid? But that makes no sense either. Why should Medicaid be separate? Especially as there is chaos now when people move between Medicaid, employer based insurance and the ACA.
Im in principle fine funding care via competitive all inclusive Kaiser like entities, but employment based payroll tax is a 1930s way of funding health care. We need one pool (like the Netherlands) including everyone/Medicaid) and progressive taxation to pay for it.
And if that means taxiing highly paid health plan executives or conference hosts a little more, that’s OK!