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Models for healthcare [ClearOnMoney]
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Commentary

Models for healthcare

26 Jul 2012 by Jim Fickett.

US healthcare is currently in sad shape, with higher costs and worse outcomes than in many other countries. Reform seems nearly impossible, but perhaps a current groundswell among insurers and providers to collaborate on an improved HMO idea could allow the free market to do its work. If not, a high level classification of different structural approaches to healthcare may help those considering the expat life in retirement.

Breezy cliches that pass for financial advice suggest less money is needed in retirement than during the working years. I've never seen any data to support this idea and the high – and ever-rising – costs of healthcare make me suspicious of its accuracy.

At this point it is pretty well known that healthcare in the US is more expensive than anywhere else, while providing worse outcomes than in many other developed nations. I, for one, am considering living somewhere besides the US in order to have high quality healthcare available at a reasonable price (and food with fewer chemicals added).

There are just a few main structures for healthcare systems around the world. These are nicely explained in a book entitled The Healing of America, by T.R. Reid, a Washington Post reporter. The focus of the book is how the US might make some progress on fixing its sadly broken system, but the book is also useful for someone who is shopping for a healthcare system, and wants to understand how they work. (This book was a NY Times bestseller after it was published in 2009, but somehow I missed it; thanks to Michael Cinkosky for pointing it out to me.)

To understand Reid's classification of healthcare systems, I find it helpful to note that there are three main roles in the healthcare system: medical service providers, payers, and regulators. In the four primary models that Reid outlines, the government takes a strong role in different one of these three, or in none at all.

  • Government as regulator. In the Bismarck model, named for the Prussian chancellor who united Germany, the government focuses on regulation. Insurance is provided by private, non-profit cooperatives, and medical services by private businesses. Government regulation ensures that coverage is universal and services are reasonably priced.
  • Government as provider. In the Beveridge model, named for William Beveridge, who inspired Britain's National Health Service, most doctors are government employees, and medical services are financed directly by taxes.
  • Government as payer. In the National Health Insurance model, the only insurance providers are regional or national governments. Because of their monolithic nature, they have strong price negotiating powers with medical service providers, who are private.
  • No strong government role. In the Out of Pocket model, which obtains in many poorer countries, those who can afford to buy medical services get them, and those who cannot afford to do so go without.

I have not begun serious research on which of the world's best healthcare systems are open to ex-pats, but it seems to me this classification should provide the framework for asking the right questions. Under the Bismarck model, for example, one would like to know whether foreigners can buy into the insurance co-ops and, since tough times often result in xenophobia, one should ask whether in the past there has been bad feeling against those who turned out to be poor risks, or against those who moved in from another plan.

It is not at all obvious whether improving the US system from the top down is politically feasible. Few voters understand the debate and vested interests are more interested in obfuscation than clarification. Providers stand to lose under the Beveridge model, insurers stand to lose under the National Health Insurance model, and both stand to lose under the Bismarck model. So a lot of money will continue to go into obfuscation.

Moving away from Reid's book, I was interested to see today an article on Bloomberg which might point the way to another model. Maybe – slim chance but just maybe – the US could come up with a unique way forward. The main idea of the article is that insurance and medical services could be combined in a single business which, motivated by picking up market share, could offer comprehensive care at a reasonable cost. HMOs were one, not very successful, foray in this direction. It seems there is a groundswell of effort to make another try. And with employers and governments all feeling the squeeze of high insurance costs, there is great pressure for a market solution to work.

Aetna Inc. (AET), the third-biggest U.S. health plan, will join with the nation’s 10th-largest doctor’s group to sell coverage in Wisconsin, in the latest collaboration to blur the lines between insurers and providers.

Aetna and Milwaukee-based Aurora Health Care will form an “accountable care network” pitched at small- and mid-sized businesses, said Aetna Chief Executive Officer Mark Bertolini. Aurora, with 1,600 doctors serving 1.2 million patients a year, will get a share of the savings, if the group can cut costs. …

Insurers from Aetna to Cigna Corp. (CI) to UnitedHealth Group Inc. (UNH) have been sealing similar pacts with hospitals and doctors across the U.S., reacting to pressure from employers to rein in medical bills. The ventures typically emphasize preventive care, close monitoring of at-risk patients and payments based on quality measures rather than the number of procedures done. …

In January, Minnetonka, Minnesota-based UnitedHealth, the largest U.S. plan, said it’s in talks with “dozens” of groups to form ACOs. Cigna plans to have 1 million patients in such arrangements by 2014, CEO David Cordani said in March.

Health plans are competing in “a real estate grab” across the U.S. for partners, Bertolini said. “This is the kind of thing that will be a market-shifter.”