I heard Princeton Prof. Uwe Reinhardt speak yesterday at a Society of Actuaries meeting in Toronto, Canada, which is a nice city.
Prof. Reinhardt supports the President's healthcare reform initiative. He does not believe that a single payer system will work in America because Americans do not have the same favorable attitude toward government that Canadians do. (But see this op ed from today's Wall Street Journal.)
Prof. Reinhardt thinks that there needs to be community rating for health insurance. With community rating, everyone pays the same premium. According to the professor, in order for health insurance to work, there must be a mandate to purchase insurance. He identified New Jersey as a state that experimented unsuccessfully with a community rating program for individual health insurance that lacked a mandate.
He thinks that the health insurance exchange is a good idea but he thinks that the a risk equalization mechanism. He explained that Germany has 200 sickness funds. All of the sickness funds in a region pay providers on the same payment schedule. Premiums are set as a percentage of income. When a German enrolls for a sickness fund, a risk equalization board considers the individuals age, gender, income, and a variety of health factors (identified by a U.S. consulting firm). Based on that analysis, the Board decides the monthly risk adjusted premium paid to the sickness fund. Like a community rated FEHB plan, the sickness fund enjoys the medical underwriting gain if the individual's medical costs come in under the risk adjusted premium. He stated that he does not understand the basis on which sickness funds compete.
Prof. Reinhardt would like to see hospitals and doctors price their services using the Medicare pricing methodologies (DRGs and RBRVS). The providers could compete by setting their own dollar modifiers in the Medicare methodologies.
Prof. Reinhardt noted that Sen. Kennedy had floated his health care reform bill which includes an mandate but allows a premium subsidy up to five times the poverty level ($110,000 of income for a family). He predicted that this approach would cost an extra $2 trillion over ten years. A more modest subsidy up to three times the poverty level would cost an extra $1.2 trillion over ten years.