Former House Speaker Newt Gingrich outlined steps towards transformative change in the health sector at a conference at the American Enterprise Institute yesterday. Gingrich, now a senior fellow at AEI, was joined by John Goodman of the National Center for Policy Analysis and Thomas Saving, Director of the Private Enterprise Research Center at Texas A&M University.

Gingrich said he hopes this conference will be the beginning of a new dialogue laying out truly transformative changes in health care, not just reforms of the current system. He emphasized that a debate on principles is more important than a debate on specific legislation. “We have a health care system that is avoiding modernization and progress,” said Gingrich. One of the problems Gingrich identified is that consumers are encouraged to be passive participants instead of being involved in health care decisions. The principles of transformation he laid out were making use of the free-market, emphasizing quality and information technology, putting individuals at the center of their health care decisions, and a new system of health justice de-emphasizing the role of trial lawyers.

John Goodman discussed how to make health insurance personal and portable for the general population. He described a system in which employers would give their employees a defined contribution for the purchase of health coverage, either in the individual market or through new pooling arrangements. This would essentially take employers out of the business of providing health insurance. Under Goodman’s ideal scenario, employers would subsidize the employees’ choice of health coverage outside the workplace with pre-tax dollars, which HIPAA currently prohibits.

Goodman described in more detail the new pooling arrangement he envisions. All employees of a particular company could join the same pool, or some other freestanding pool. Since the continuity of membership in the pool is important for balancing risk, individuals would sign a contract for at least three years. Movement between plans would be possible but discouraged, and the sick could only switch plans if both insurers agree to the switch, and the old plan compensates the new plan. There would be no individual underwriting, and coverage would be guaranteed renewable. Goodman said all members of a pool would pay the same premium to equal out differences in the amount of care they consume. “Risk adjustment is hard to do because it’s hard to predict next year’s health, and it encourages underpayment to the sick and overpayment to the healthy,” said Goodman.

Thomas Saving discussed how to create a medical market for sick people. He said the key is to pay for health care maintenance based on expected cost, not prior experience, and to provide health insurance for catastrophic health events. Saving said the current system of risk adjustment does not treat the sick fairly because prior health events may not be a good measure of future health cost. Saving presented data showing high mobility in health status and corresponding spending levels, particularly in the senior population. Saving described a more viable market for the sick within the Medicare population. In Saving’s plan, Medicare beneficiaries would have a lifetime contract with providers that would guarantee providers periodic payments based on expected costs. If beneficiaries change providers, the new provider is compensated by the old provider based on predicted costs. “In the long-run, sick people are not more costly anyway because they die sooner,” said Saving.

The event coincided with the opening of the AEI Center for Health Transformation, which is a “war room” with the health sector mapped out on four walls. Some of the ideas discussed were from a forthcoming book by Newt Gingrich entitled “Saving Lives and Saving Money” due out in April.

–Joe Moser
Galen Institute

Former House Speaker Newt Gingrich outlined steps towards transformative change in the health sector at a conference at the American Enterprise Institute yesterday. Gingrich, now a senior fellow at AEI, was joined by John Goodman of the National Center for Policy Analysis and Thomas Saving, Director of the Private Enterprise Research Center at Texas A&M University.

Gingrich said he hopes this conference will be the beginning of a new dialogue laying out truly transformative changes in health care, not just reforms of the current system. He emphasized that a debate on principles is more important than a debate on specific legislation. “We have a health care system that is avoiding modernization and progress,” said Gingrich. One of the problems Gingrich identified is that consumers are encouraged to be passive participants instead of being involved in health care decisions. The principles of transformation he laid out were making use of the free-market, emphasizing quality and information technology, putting individuals at the center of their health care decisions, and a new system of health justice de-emphasizing the role of trial lawyers.

John Goodman discussed how to make health insurance personal and portable for the general population. He described a system in which employers would give their employees a defined contribution for the purchase of health coverage, either in the individual market or through new pooling arrangements. This would essentially take employers out of the business of providing health insurance. Under Goodman’s ideal scenario, employers would subsidize the employees’ choice of health coverage outside the workplace with pre-tax dollars, which HIPAA currently prohibits.

Goodman described in more detail the new pooling arrangement he envisions. All employees of a particular company could join the same pool, or some other freestanding pool. Since the continuity of membership in the pool is important for balancing risk, individuals would sign a contract for at least three years. Movement between plans would be possible but discouraged, and the sick could only switch plans if both insurers agree to the switch, and the old plan compensates the new plan. There would be no individual underwriting, and coverage would be guaranteed renewable. Goodman said all members of a pool would pay the same premium to equal out differences in the amount of care they consume. “Risk adjustment is hard to do because it’s hard to predict next year’s health, and it encourages underpayment to the sick and overpayment to the healthy,” said Goodman.

Thomas Saving discussed how to create a medical market for sick people. He said the key is to pay for health care maintenance based on expected cost, not prior experience, and to provide health insurance for catastrophic health events. Saving said the current system of risk adjustment does not treat the sick fairly because prior health events may not be a good measure of future health cost. Saving presented data showing high mobility in health status and corresponding spending levels, particularly in the senior population. Saving described a more viable market for the sick within the Medicare population. In Saving’s plan, Medicare beneficiaries would have a lifetime contract with providers that would guarantee providers periodic payments based on expected costs. If beneficiaries change providers, the new provider is compensated by the old provider based on predicted costs. “In the long-run, sick people are not more costly anyway because they die sooner,” said Saving.

The event coincided with the opening of the AEI Center for Health Transformation, which is a “war room” with the health sector mapped out on four walls. Some of the ideas discussed were from a forthcoming book by Newt Gingrich entitled “Saving Lives and Saving Money” due out in April.

–Joe Moser
Galen Institute