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Commentary: A Modest Proposal for Controlling Healthcare Costs

Jim Koepke, for HealthLeaders Media, May 13, 2011

Example: The Federal government determines that it can afford $100 in healthcare entitlements in each of the next five years. It puts the healthcare system out to bid – just like any private firm would put its employee healthcare plan out to bid. In this example, the ABC Insurance Company offers to administer healthcare for the uninsured. ABC's plan consists of a major medical plan, office visits and preventive healthcare visits requiring prior authorizations, co-pays, limited number of visits, etc. They state they can do this for the $100 that has been budgeted. They have a proven record of providing quality insurance coverage to large companies and their benefit plan is superior to what other bidders offered.

ABC is awarded the bid. At the end of year one their administrative costs plus their expenditures for the uninsured amount to $98. The $2 difference is theirs to do with as they please. If, at the end of year one, ABC had expenditures of $101, they would be responsible for the $1 difference and would not receive further reimbursement from the federal government to cover the shortfall.

Meanwhile, attrition would decrease the number of employees in the Department of Health and Human Services as fewer staff would be needed in the healthcare entitlement area, a major current cost savings in salaries and benefits and a major cost savings in future pension obligations.

Jim Koepke is a former administrator of Hennepin County Mental Health Center in Minneapolis. He may be reached at Jim_Koepke@yahoo.com.

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6 comments on "Commentary: A Modest Proposal for Controlling Healthcare Costs"


DonS (5/18/2011 at 4:31 PM)
The concept breaks down looking for the Private Firm to bid. You state: "This is not much different than the risk a private insurer takes when agreeing to insure a large company." Private insurances IMHO have been running from risk. 70% of "insurance" is really claims processing with the employer taking the risk. And the employer hasnt been able to manage the risk and token UM or Case management provided by the insurance company at a PMPM paid by the employer hasnt helped. Now everyone wants to put the risk back on the providers in an ACO, global payment or outright cap model. If I have a severe abdominal pain, do I want my provider trying some medicine or "wait and see" approach or giving me the CT Scan right away to rule out appendicitis.

BobBobberson (5/17/2011 at 11:16 AM)
@ Steven T. You are correct in your assessment, however what if the interstate and bridge was privately owned? Lets say someone owned a road and charged a toll, if the bridge collapses they will collect no toll, and it would also impact their future revenues as people would be wary of driving on a repaired road in the future. However since the government owns the road, and does not collect income from it, and thus it has no incentive to ensure proper maintenance. Improvement of the situation comes not from bidding out different services of the public, but by privatizing the whole thing. Yes ownership and bidding of parts will likely cause problems, companies will make a killing off of the government by providing shoddy service. Look at the private defense industry and its ever growing costs for nearly every weapon for the public Department of Defense.

Arun K.Potdar (5/17/2011 at 10:20 AM)
It is amazing to read such a simplistic solution to a complex problem. Medicare Choice program has been in the private sector and it did nothing but escalated the costs and premium rose by 15 plus percent each year. The solution offered does not examine the cost components which are primarily driving it up and up. Both government and Insurance companies face the same challenges (Shortage of Care Givers to high costs of medicines and treatments). The entitlement programs are outcome of social liberalization policies and a uninsured patient most of the time is uninsured because the person cannot pay for the insurance in the first place then how the private insurance scheme that shares the risks with employer and employee will work? Comparing the two systems is like treating the proverbial apples and oranges alike. Sharing Cost Savings as one commenter has indicated already will lead to the decline of quality of care because the contractor will want to make profits at all costs to remain in business. Any proposals to bring these programs under control must include the attacks on the primary factors of cost escalations as mentioned before. Allowing to import drugs from the [INVALID]ed countries alone will arrest the inflation in Medical field for all Americans and similarly revamping education systems to produce more Doctors and Nurses will bring down the cost of care. Many other areas need to be inspected before giving A+ for the private sector and at last but not the least is the inability to force changes in lifestyles of Americans which tend to hold the society at large responsible for their own high-risk life style( Smoking, Drug and Alcohol Abuse and Obesity to name few).The true American attitudes and philosophy of life where each took his or responsibilities for themselves and the society seriously, that made this country a great nation and it has been disappearing for a long time and is replaced by government hand outs is my way of life attitude. This has to change before shifting of operators managing these programs. Goal should be in next ten years these programs should be phased out completely and replaced by programs that serve only those who are willing to work to get out the poverty situation they are in. In the highly taxed European Socialistic Programs it has not worked and it will not work in the USA also no matter who administers them. Give American youth opportunities and education to rise above poverty levels and there will be no need for the unearned entitlement programs.