Pan American Uni-Care Health insurance plan.

The Pan American Uni-Care Health Plan proposed here will be universal, comprehensive, and publicly funded health insurance for all medically necessary inpatient and outpatient hospital and physicians' services, except for certain small segments - military and Veterans Affairs - that are covered by the federal government. Such a plan will be federally mandated and ultimately federally funded or with equal sharing of costs between the federal government and state and local levels. In exceptional circumstances, the private sector may have to be tapped if a state so decides to meet its obligations. This universal, comprehensive, publicly funded health insurance plan, with portability among states and with no financial access barriers to coverage, will be viewed by U.S. citizens as a social jewel of which they will be proud.

Payment for Physicians Services

This plan will create a single payment system for all services and will impose mandatory assignments on physicians for all payments in full, either on the basis of Harvard's resource-based relative value scale (RBRVS) or through negotiated binding fee schedules with the states. The payer model will be based on state governments' being single-source payers of health care with a centralized locus of control - monopsony power. Once the overall level of payment to physicians within a state is established, the government will leave the setting of relative fees among physicians and specialists in the hands of the professionals. Physicians' services will be reimbursed on a fee-for-service basis and will be volume driven. Physicians will have to accept the binding fee as payment in full without balance billing. Physicians will be paid only for covered services. Uncovered services, such as cosmetic surgery, will be the patient's responsibility. Those who want special surgical procedures, or the ambience and comfort of "Cadillac care," will have to pay out-of-pocket expenses. There would be no cap on total annual physicians' incomes, no government-imposed prior authorization for medical care, no second opinions, no utilization review process, and no external interference with medical practices.

Physicians will preserve their basic professional autonomy and retain their commitment to serving their patients. Clinical decisions will not be reviewed by reimbursement agencies and therapeutic protocols will not be established. Committees to review patterns of practice may be in place to monitor small numbers of practitioners whose patterns deviate radically from those of their peers and also to look for fraud and abuse or incompetence.

Some may argue that such a plan may be costly, because more Americans would seek care if it becomes free at the point of access. To avoid overutilization of services, mandatory copayments for office visits will be imposed. Patients below the federal poverty level or senior citizens on fixed incomes, unemployed, or indigent will be exempt. Others may have to pay between $5 and $15, depending on their yearly income, or a flat 20 percent copayment for those who can afford to pay. This will stress overall control on demand through patient cost-sharing. Consumers will have free choice of physicians and hospitals, but there will be a deductible of $200 per hospital stay to discourage overutilization and to avoid care that might be medically unnecessary or only marginally beneficial. This will serve a dual purpose of discouraging unnecessary utilization and bringing more money into the system. But medical care will not be denied for failure to pay the deductibles.

The plan will eliminate physicians' ownership of major pieces of medical equipment, and all major surgery or high-tech diagnostic tests will be done in the hospital as at present. A few entrepreneurial physicians, if they want and can afford it, may be allowed by the state to open surgi-centers, provided they operate outside the public insurance system.

Payment for Hospital Services

The system will pay hospitals and nursing homes a total global annual amount in three to four installments to defray all operating expenses and for capital improvements. Hospitals will be subject to prospective budget review and physicians to a regulated fee schedule. Hospitals will do little or no billing and need not keep track of charges for individual patients, thus freeing up substantial resources for increased care. There will be no allowance for depreciation; capital improvement will be approved separately and may be funded separately by combinations of philanthropic and government funding. Hospitals will have annual operating budgets, negotiated between hospitals and state governments, but capital spending will be negotiated separately. As a result, hospitals must petition separately for new technology. The use of operating funds for capital improvement or purchases will be prohibited to minimize incentives for hospital expansions. Leases and the like may be funded from a variety of sources, but they require the approval of state agencies, which generally also contribute the major share of funding. This process of centralized approval will prohibit hospitals from accessing private capital.

Significant tax increases will be needed to implement such a plan and spending will be tied to a fixed percentage of the GNP. Turning the funding of health care to the federal government or any single entity may not be an unrealistic approach, provided there are built-in checks and balances. The promise of universal access will not be compromised by supply constraints, at least for new and sophisticated medical technologies. Citizens will be assured prompt access to high-quality and sophisticated technology without rationing of care or waiting periods for elective surgery procedures. The model will not encourage sacrificing quality in the name of cost; rather, it will provide the "best and the latest" in medical technology.

Other Aspects of the Proposed Plan

Special, separate funding may be needed to encourage research and technological innovation and to support academic medical centers. Attempts will be made to improve care in medically underdeveloped areas and a national advisory committee to engage in technological assessment and clinical effectiveness review will be instituted. The states may have the prerogative to negotiate lower fees with physicians, hospitals, and drug suppliers.

The plan will provide continuity of health care coverage for those who quit or change their jobs or are laid off. The current, nearly 1,500 insurance company bureaucracies would be dismantled. Each state would disburse all funds, and central administrative costs would be limited by law to 3 percent of total health spending. As a result, cost-shifting would become pointless.

Competitive private insurance companies would be banned or would be gradually phased out. The private sector would not be allowed to sell health insurance for covered services available under the state health plan. Because public plans may not cover some services, such as cosmetic surgery or prescription drugs, and may limit the amount of coverage for others, such as physical therapy, podiatry, and dental services, there may be a residual role for private insurance. Such a supplemental private insurance plan, largely employer-provided, would typically cover prescription drugs, dental and vision care, additional charges for private or semiprivate hospital rooms, medical devices, ambulances and other transportation, private duty nursing, medical expenses incurred outside the country in excess of amounts covered by government plans, and certain services beyond the limits of government plans.

Both the public and the medical profession will be totally dependent on a single tax-financed system. Such a plan will have wide support from the medical profession because of little interference by the government and health care administrators in day-to-day clinical decisions. Physician support for the system may also come from the streamlined administration of the payment system - i.e., no bad debts and reasonably prompt payment of all services rendered.

This single-tier system will not limit the number of practicing physicians who could bill state governments for their services. There would be no cap on physicians' income or predetermined ceiling. To reduce health care costs, the government may put pressure on medical schools to reduce their undergraduate enrollments and limit the number of training positions for residents and specialists. Medical students may be allowed to pay low registration fees, and the cost of education may be regulated or subsidized. Some resources may be shifted from the curative to the preventive side of health care. Medical schools may be asked to train physicians who are not only knowledgeable in the biological aspects of medical science but also well prepared to provide managerial leadership in the health care system.

Health maintenance organizations (HMOs), preferred provider organizations (PPOs), prospective payment systems, and DRGs will be eliminated, because, with firm centralized management of expenditures, there will be no need for these decentralized and intrusive methods of cost control.

Implementation and Financing

of the Plan

A special, independent, not-for-profit planning board, consisting of nationally known health care analysts, researchers, government policy makers, federal and state representatives, representation of organized medicine, labor leaders, economists, consumer advocates, and business executives would be created. It would be held accountable for regulating the finances of the health insurance plan and formulating health policy. Americans would be given medical identity cards that would entitle them to comprehensive services. This would simplify billing and cut office overhead. Physicians would bill by checking a box on a simple billing form and submitting it to the state plan. They would be paid in 30 days.

The national health program will be tested initially in statewide demonstration projects. Such a project will evolve first in one of the states. Some states are already looking for ways to improve access to health care for their residents. In California, for instance, there is a serious proposal in the legislature for the state to pay for health care, including long-term care for all Californians. In New York, state legislators recently passed a state-subsidized insurance plan for young children of the working poor, a step some see as a move in the direction of national health insurance. In these demonstrations and during the phasing-in of a nationwide system, funding would mimic existing patterns to minimize economic disruptions, but all payments will be disbursed through the Uni-care Health Insurance Plan.

Total expenditures would be set at the same proportion of GNP as health costs represented in the year preceding the establishment of the Uni-Care Health Insurance Plan. All current federal funds allocated to Medicare and Medicaid would be paid to the plan and would be set at the previous year's expenditure adjusted for inflation. All current state and local funds for health care expenditures, adjusted for inflation, would also be paid to the national health plan. In addition, employer contributions would be set so that total collections equal the previous year's statewide total of employer's expenditures for health benefits, adjusted for inflation. Additional taxes, equivalent to the amount now spent by individual taxpayers for insurance premiums and out-of-pocket health care costs, would be levied. During this transition phase, all revenues from such plans would be turned over to the national health plan.

What impact would implementation of the Pan American Uni-Care Health Insurance Plan have on government finances in this country? There is no perfect way to get a precise answer to this question; however, it is possible to get an idea of the cost involved and its likely impact on the U.S. economy.

Funds for such a plan could be raised through a variety of mechanisms. In the long run, funding based on income taxes or other progressive taxes might be the fairest and most efficient solution, as tax-based funding is the least cumbersome and least expensive mechanism to collect money. Corporate taxes, profit taxes, sales taxes, and property taxes are another source of revenues.

Estimating Costs

To estimate the cost of instituting this plan, the total cost should be divided into two components:

* The cost to the government of paying for services that previously were paid for by the private sector.

* The cost of financing additional health care services (beyond the charity or self-pay care they always receive) for those who currently have no coverage.

The first element represents not a new cost but a shift of current cost from the private sector to the public sector. One way of estimating the cost to the government of this shift is to apply the Canadian public-private allocation of health care costs to the U.S. context. About 74 percent of Canada's health expenditures were in the public sector in 1987, compared to only 42 percent of U.S. health expenditures in 1988. If the U.S. system had mimicked Canada's in this regard in 1988, roughly $402 to $407 billion of our total $540 billion in health expenditures would have been through the public sector, an increase of $174-179 billion over the $228 billion that was actually spent by the public sector that year (of which Medicare and Medicaid together accounted for about $146 billion). This includes 3 percent administrative costs for the public sector.

The second element of covering the currently uninsured population will represent new spending. An analysis done for the Health Care Financing Administration (HCFA) estimates the order-of-magnitude increase in personal health care expenditures that might result from expanding health care coverage to the entire population as about $10.7 billion (in 1988 dollars), again allowing 3 percent for additional costs. This produces an estimate of $9 billion to $10 billion in new costs to be paid by the public sector. Combining these two elements suggests that implementing a public health insurance program would cost American taxpayers an additional $183 to $189 billion (in 1988 dollars). With health care expenditures growing at about 10 percent per year, the increase in 1991 dollars could be as much as $244 to $252 billion. The bulk of this figure will represent a shift from private to public financing, rather than entirely new costs.

It is believed that implementing such a plan would generate sufficient savings in administrative bureaucracy, waste, and inefficiency to pay the costs of insuring those who now lack coverage. The savings are expected from eliminating the administrative and marketing expenses of private insurance companies and from reducing the accounting and record-keeping burden on providers. Significant savings could also result from reducing provider payment rates through the monopoly market power of a single paymaster. The precise savings are hard to project now but certainly will be substantial. The extent of the savings from administrative waste in U.S. health care is estimated to be nearly 20 percent of all health care expenditures - nearly 120 billion in 1989 dollars.

Another saving could be derived from a medical liability insurance premium. According to the AMA Center for Health Policy Research, expenses related to medical malpractice reached $17 billion in 1989. Physicians spent about $4.2 billion on medical malpractice insurance premiums and another $12.8 billion on defensive medical procedures.

A move to a universal health care plan would save money in other ways. Because medical care would be available to everyone, there would be no need for medical payments for worker's compensation insurance or automobile insurance policies; for the liability portion of homeowner's insurance that goes to cover injury claims; for the health care component of tuition fees for education; or for hospital indemnity premiums. This could generate a savings of another $10-15 billion. Such savings may reduce the estimate of public cost by nearly $244 billion.

Administration of the Pan-American Uni-Care Health Insurance Plan will be left to the individual states and regional governments. The federal government will be responsible for distributing the "block grant" funds and tracking the overall performance of the system. The strong state and local role will ensure that the public health insurance system is administered at a level of government close enough to the people. Although this system will be highly regulated, regulators will be closer to the affected population. Because health care is a local phenomenon, approaches that work for cost and access in local areas can be managed effectively at the state level.

A strength of the American health care system is its ability to adapt to changing needs and to develop and to bring rapidly on line new and better ways of treating illnesses. Such responsiveness clearly is possible with the Pan American Uni-Care Health Insurance Plan when all major resource allocation decisions are made by a single paymaster.

Kalika P. Srivastava, MD, MHA is a general surgeon and Past President of the medical and dental staff at St. Mary's Hospital, Troy, N.Y.