National Self-Insurance: A Path to Healthcare Reform

Strategic Insights -

By implementing a national variation of self-insurance practiced by large employers, the US healthcare system can cut costs and address the conservative-liberal impasse. This approach could lead to substantial savings by eliminating administrative waste and lowering demand through payment requirements. Simplifying the system could reduce administrative expenses by over 10 percent.

Key Takeaways:

  • The US healthcare system has the world's highest administrative overhead costs, accounting for over one-fourth of total health costs (New England Journal of Medicine, 2003).
  • Simplifying the system to cut administrative expenses could save 10 percent or more.
  • A RAND Corporation study found that requiring people to pay the full cost of health services until a deductible is met reduced visits to health professionals without causing serious consequences, even for at-risk patients.
  • National self-insurance would assume the employer's role of shouldering the risks of expensive care and pay private insurance companies management fees based on the number of people selected their plans.
  • All Americans would pay an income-based premium to fund the system, which would be withheld from income and put in a national account to pay healthcare costs.
  • Individuals would pay for their own healthcare needs until the bill exceeded a deductible representing a specified percentage of their income.
  • Private management companies would set up networks of providers, negotiate discounts with healthcare providers, and compete to enroll individuals in their coverage plans.
  • Americans could choose any private plan they wanted and pay an income-based deductible, providing an incentive for health management companies to negotiate the lowest possible prices with healthcare providers.

Statistics:

  • Over one-fourth of US health costs are for administrative overhead, the world's highest according to a 2003 article in the New England Journal of Medicine.
  • Simplifying the system to cut administrative expenses could save 10 percent or more.
  • The Congressional Budget Office estimates direct government spending for healthcare is 7.5% of the economy.
  • Harvard University researchers suggest that indirect expenses push total healthcare spending over 9%.
  • The envisioned system would make existing government health plans such as Medicare and Medicaid redundant, and they could be phased out.

Sources:

  • New England Journal of Medicine, "Health Care Reform and the Medical Profession--A Proposal by the American Medical Association Council on Ethical and Judicial Affairs," 2003
  • RAND Corporation study on requiring people to pay the full cost of health services until a deductible is met