Providers of healthcare in the US have increasingly been pushed aside and commoditized by hospitals and insurers. As such our healthcare payment system is deeply flawed, with high costs, unequal access, and complex reimbursement systems. This paper proposes a three-tiered, shared-cost model designed to distribute financial responsibility among various stakeholders, including the government, insurance industry, hospitals, providers, and patients. Unlike single-payer or purely market-driven approaches, our model aims to provide a balanced solution that ensures universal basic healthcare access while preserving market competition and efficiency.
Total U.S. healthcare spending surpasses $14500 per capita and growing despite cost-containment efforts. Existing payment models, such as bundled care, often lead to conflicts of interest rather than cooperation among providers. Healthcare is financed through Medicare (22%), Medicaid (18%), private insurance (30%), third-party payers, and out-of-pocket payments (30%). The Affordable Care Act (ACA) aimed to increase coverage but also led to high deductibles and limited provider access. While a single-payer system is often discussed, it faces significant obstacles, including high costs and political resistance. Free-market approaches such as Health Savings Accounts (HSA) also struggle due to system complexity and consumer challenges in navigating healthcare decisions.
The Proposed Model
Our model addresses four key issues:
- A universal basic insurance plan provided at no cost to the patient;
- Access to cost-appropriate healthcare options;
- A sustainable funding mechanism;
- Benefits to each stakeholder.
The system consists of three tiers:
- Tier 1: Government-funded basic healthcare, similar to Medicaid, available to all. It provides universal access but has limitations, such as reliance on public healthcare providers. It is portable in the form of a subsidized voucher that can be use to help purchase Tier 2 or Tier 3 coverage.
- Tier 2: Optional private insurance, subsidized by the government and funded, in part, by employers or individuals. This tier offers enhanced benefits and broader provider access.
- Tier 3: Premium insurance options that utilize the initial government subsidy. Added costs are then borne by employers or individuals.
The government would shift from healthcare administration to financing, thereby reducing costs and ensuring universal coverage while maintaining free market private sector involvement. Employers would only pay for Tier 2 or Tier 3 coverage, reducing their overall healthcare costs, thereby making private insurance more affordable. This would also allow more employers to provide more healthcare benefits.
Economic Feasibility
Current government spending on healthcare (Medicare, Medicaid, etc.) is approximately $1.9 trillion (~ $5000 per capita). By redistributing these funds into a tiered model, universal basic coverage (Tier 1) could be achieved at a lower per capita cost. Additional funding for Medicare would be required to maintain elderly care, which could be sourced through minor tax adjustments or means-based contributions.
Projected per capita expenditures:
- Tier 1: $4,000-$6,000, covered by the government;
- Tier 2: $4,000-$6,000, covered by employer/individual with Tier 1 subsidy;
- Tier 3: $1,000-$2,000, covered entirely by individuals/employers.
This tiered structure ensures a mix of public and private funding, balancing financial responsibility among multiple parties rather than burdening any single entity.
Benefits to Stakeholders
- Government: Reduces administrative burden while ensuring universal coverage. Block grants to states for healthcare administration allow for localized management.
- Insurance Industry: Maintains a strong market presence by administering and managing all tiers, creating competition for quality and efficiency.
- Hospitals: A guaranteed payment system reduces the burden of uncompensated care and ensures financial stability.
- Consumers (Patients): All individuals receive baseline healthcare, while higher-tier options remain available for those who can afford them, ensuring broader access.
- Providers: More predictable reimbursement and reduced administrative burdens with standardized government oversight.
- Economy: A healthier population leads to lower long-term healthcare costs and improved economic productivity. Employers benefit from lower healthcare costs, potentially increasing job creation and wage flexibility.
Implementation Challenges
Adopting this model requires political compromise, acceptance of a tiered system, and public funding adjustments. Critics of a tiered system will point to disparity and access issues but our current system is already a de-facto tiered system, where private providers often do not accept Medicaid and occasionally, Medicare. Exchange programs and some Medicare supplements are also not accepted by many providers, thus relegating ACA insurance to the public sector. Medicare for seniors would be a Tier 2 program and require additional financing. While these patients are often not covered by an employer (retired), the added premiums would require added government financing. However, instead of a Medicare-for-all plan that would double the government costs and require substantial tax increases, a partial payment by the government for seniors could be achieved with only a moderate tax requirement. This tax would be the compromise of the population to allow for a safety net system that would ensure no one going without some type of healthcare coverage. A structured rollout, starting with universal Tier 1 implementation and progressive employer incentives for Tier 2 contributions, would be necessary. Regulation would be crucial to ensure insurance companies manage funds efficiently while maintaining patient protections.
Conclusion
This tiered shared-cost model offers a fiscally responsible alternative to single-payer or fragmented private healthcare. By distributing financial responsibility among stakeholders, it ensures universal basic coverage while preserving market-driven competition for higher-tier care. Implementing this model could break political deadlock, improve patient outcomes, and stabilize healthcare costs, offering a pragmatic solution to America’s ongoing healthcare crisis.
