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Radical Reform Idea Is Based on Financial Incentives

What if financial incentives for providers, insurers, employers and consumers were the starting point of reform? The healthcare consultant and health policy expert Bob Laszewski has thought deeply about the answer to that question and come up with a unique reform plan he calls the Health Care Affordability Model.

In a nutshell, Laszewski is proposing that if a health plan cannot keep its annual cost growth under a certain level, any employer choosing that plan will not be allowed to deduct the cost of that insurance from its taxes. Any employee who picks the same plan will have to pay tax on the value of his employer's health benefit. Laszewski believes that this would cause insurance companies and providers to work together to reduce the cost of care, because neither would want to be placed at a competitive disadvantage to other plans and providers that kept their costs down instead of merely passing them on to employers and consumers.

The proposal has many strengths--not the least of which is that it does align the incentives of all the major stakeholders. It does not rely on global budgeting, across-the-board fee cutting, or government-imposed rationing. While every insurer would have to offer a standard benefit package, they would be free to sell other plans that had richer or leaner benefits. Self-insured employers, similarly, could offer whatever benefits they wanted. And providers would be free to join any networks they wished to. However, if they were in networks of plans that did not qualify as cost-effective, they would see far fewer patients. Laszewski suggests that in the third year of his program, the allowable cost growth of the standard plan be no more than 175 percent of GDP growth, phasing down to 100 percent by the seventh year.

Laszewski's plan could slow spending growth, but it needs to be fleshed out some more. I'd add these caveats:

• While the proposal mentions universal coverage, it doesn't call for an individual or an employer mandate. Laszewski does note that his idea could be coupled with any of the reform plans now on the table, some of which do include mandates. • Even if providers had the incentives to reduce waste and deliver only appropriate care, the healthcare system remains too fragmented for them to carry out that program. So Laszewski's proposal would have to be linked to something like the accountable care organization idea to be practical. • If health plans had to cut costs to compete, it's possible that they might consolidate even further to drive harder bargains with providers. • Tying the cost growth limit to the GDP, rather than to general inflation, has some problems: for example, this year the GDP will contract. • He talks about insurers and providers reducing administrative costs, but doesn't explain how that would happen in a system with many insurers and plan administrators. • Consumers would have an incentive, not only to choose cost-efficient plans, but also to take better care of themselves, Laszewski suggests. Well, maybe, but they're not going to be happy when their doctor tells them they can't have the test they want.

Bottom line: Bob Laszewski has made a very creative and potentially fruitful addition to the health reform discussion. We need more ideas like this that don't keep crossing the same ground that we've fought over for years.