Smart Cost Sharing

Robert Waldmann is thinking about how to give insurance companies a long-term stake in the health of their clients. This is an example of the type of policy I had in mind when I said:

…preventative care … ought to be encouraged, and one way to help with this is … to forge an unbreakable lifetime relationship between the insurance company and the consumer so that expected lifetime costs are important to the insurance carrier.

Here’s Robert Waldmann’s plan:

Smart cost sharing, by Robert Waldmann: Ezra Klein writes about smart cost sharing. He wants a committee to decide reimbursement rates.

Oddly, I had another idea about smart cost sharing. Make the doctors pay for the care and pay the doctors based on outcomes. This is based on a Cutler et al result that very small financial incentives to doctors based on their patients’ blood pressure, glucose and cholesterol can cause big changes in those outcomes.

One politically unfeasible approach to this would be to assign people randomly to HMO’s and pay the HMO’s based on their health but have the HMO’s pay for their health care. …

Now no way are Americans going to give up all choice… So there would be a huge huge cherry picking problem. … Obviously it would never work.

I think the best we can do is to charge medical costs not just to the current insurance plan but also, in part, to the one that covered the patients in the past (to give the an incentive to keep their clients healthy). That has the effect of partially funding Medicare with a tax on health insurers which would be OK since it is insolvent.

Plus paying insurance plans based on documented improvement in, well, the 3 blood things say [blood pressure, glucose and cholesterol]. If insurance companies saw obese people with horrible eating habits who watch TV all day as a profit opportunity, the USA would be a healthier place.

Just think, sleazy insurance agent tells his boss (hey I just found someone with an LDL level of 300, we got to move fast before our competitors sign him).

To try to explain better

My plan is the Edwards plan plus insurance companies pay for care of former clients based on α(cost of the treatment)*(years with that company)/(age at time of care) where α is well below one and for the care of current clients minus the part paid by former insurers. They get paid a constant which depends only on the region where they are located times the same α-factors.

Thus they have an incentive to keep their clients healthy (which they can pass on to doctors).

Plus they get paid based on progress on preventive measures (patients who quit smoking, got blood pressure from x down to y, lost weight from obese to not obese etc.) funded with a tax on insurance companies per patient so on average they get zero.

This means they would be more willing to sign fat lazy smokers as there is lots of room for improvement compared to things as they are.


Originally published at Economist’s View and reproduced here with the author’s permission.