The Path to a Sustainable Health System
“Today’s problems were yesterday’s solutions.”
—former Senator Sam Nunn (D, Georgia)
America’s health-care system is like a termite-infested house kept standing by ever-thicker layers of paint. The industry is very far from the competitive Nirvana beloved of economists and conservatives. But proposals to correct it by discarding market principles in favor of government can spark a cure even worse than the disease.
Candidates jockeying to recruit their partisan bases regularly spout platitudes that ignore the dysfunctional realities. Liberals don’t acknowledge the limitations of publicly financed benefits. Conservatives assume a competitive landscape that does not exist. This book provides some principles for more productive reform.
But until the day when genuine health reform is enacted, how can we pay for the system we have? This book also describes an approach. It can be profitably implemented by any entity that takes financial responsibility for the care of a defined population (program beneficiaries, or company employees). It can be implemented by public or private organizations. And it leverages health inflation to make it an asset, not a liability. Part V describes this approach: the Health Insurance Revenue Bond (HIRB®). We illustrated HIRB® as issued by a state, because we believe it has great promise for U.S. states. But it is adaptable by almost any issuer to finance its health-care obligations, including private employers who cover employees, or nonprofit coops authorized and subsidized by the ACA.
HIRB generates the working capital to finance any system reform that will make a health program fiscally sustainable. As noted, its basic purpose is similar to any refinancing: using that working capital to convert a rapidly escalating liability (like a high interest mortgage) into a more sustainable one.
Not all states’ fiscal and political climates are ripe for HIRB. The conditions that are most promising for success include:
A below-average level of outstanding debt. Governments groaning under the weight of accumulated past debts will have extremely limited appetite for new debt, regardless of its financial advantages. So, the most promising population of states that might be early HIRB adopters will probably be limited to those with a lower debt burden. But if after issuance a state wished to terminate the HIRB financing strategy, in any given month there are sufficient assets to pay all benefit liabilities accrued to date as well as allow for redemption, all the outstanding bonds. There are no unfunded liabilities to program beneficiaries or bondholders. Note: This issue is strictly symbolic and political, not substantive, since HIRB® is designed as a self-liquidating revenue bond that should not impinge the state’s overall fiscal position.
Recent successes with financial innovation. HIRB will receive the warmest welcome in a jurisdiction that has recently used an innovation like a refinancing to achieve some widely recognized fiscal success. This is most promising if that success was quite recent, like within the last one or two election cycles. Political memories are exceptionally short.
Program reform proposals with substantial support. Each state doubtless has a number of unsustainable program obligations, and proposals for reform. We have outlined several in this book. HIRB has the best chance to succeed when the primary obstacle to implementing reform is the hurdle of transition costs. The transition costs currently preoccupying health officials are those to implement the ACA, but nearly every reform requires short run expenditures to achieve longer term benefits.
This novel financing approach draws from several disciplines that do not normally intersect, including public finance, insurance, and health policy. Organizations interested in issuing such bonds need to be discriminating in their choice of advisers. A multidisciplinary perspective is essential.
No Long Bombs
As Part II made abundantly clear, we have not been well served by grand schemes to remake the health-care system. Any sector that consumes nearly 20 percent of GDP has a vast number of moving parts, and it is disingenuous to suggest that we can predict how they all will react to a systemic change. Unfortunately, many bold changes have ignored the termite-infested foundation and simply added more layers of paint.
Health reform is a game of inches gained in short runs, not by long bomb passes. The ACA may well have preempted further reforms at the national level for several election cycles. For the meantime, the locus of innovation is likely to be in states and among private employers. But while we wait, our system’s finances need repair. Financial innovations like HIRB, which transcend ideology, are a sensible interim step.