Reforming health care : a case for stay well health insurance

All countries - whether industrial, developing, or in transition to a market economy - are interested in health care reform. A central focus of reform everywhere is to make patients more responsive to health care costs without diluting the protection offered by public or private insurance. Conventional insurance offers customers little incentive to monitor their own use of health care services or to adopt and maintain better health habits. The authors describe an alternative health insurance structure first adopted in Mendocino County, California, in 1979, and compare it with conventional forms of insurance. The Mendocino or"stay well"plan offers consumers direct incentives to control their use of health care services and to adopt healthier lifestyles. How well this insurance can contain health care costs depends on the size of the incentives and consumer responsiveness to them. Conditions in some developing countries and in many countries moving to market based economies - overuse of services, poor health habits, and declining real incomes - improves the likelihood of a favorable response to such incentives. How to structure the stay well system depends on the country, but the stay well plan is a general flexible form of insurance that subsumes most conventional plans as special cases. The rewards for low use might take many forms. As in the Mendocino plan, the rewards might be a credit to a retirement account, but they could just as easily be annual cash rebates or credits against out of pocket expenses that exceed an individual's or family's spending goal in a future period. Administration of the stay well plan appears not to be unduly complex. If anything, incorporating stay well incentives in a single-payer or national health care system would be simpler than incorporating them in a self insured fund. The success of the plan hinges on whether incentives shift the frequency distribution of health care spending by reducing unnecessary utilization in the short run and through better health care habits, reducing long run costs. Despite additional payments to low users, the stay well plan could be less expensive than conventional plans with similar coverage. As in any insurance plan, solvency is enhanced by larger groups, better risk pooling, economies of scale in administration and claims processing, and greater bargaining power with health care providers.