There are two things the newly ascendant House Republicans need to know about fixing the new health reform law. First, their mantra of “repeal and replace” (besides being moot) ignores the fact that, buried in the manure pile of the Affordable Care Act (ACA) is a real pony in the form of individual insurance exchanges that need to be dug out, hosed off, and nurtured by a combination of empowered consumers and enlightened, lightened regulatory oversight. Second, the GOP’s oft-voiced preference for incremental health reform—tort reform, interstate insurance purchases, and tax credits—won’t do anything to fix the fundamental problems in health insurance and medical care.

So I’d like to offer a guide to both parties on what we know and what they must do to fix not just the ACA, but the entire problem of unaffordable, mediocre quality medical care.

What We Know

There are four basic problems to fix.

  1. Group insurance is a failure. Seventy years of letting bureaucrats (whether corporate or government) dictate what health insurance we can have hasn’t produced affordable, high-quality care. It never will.
  2. Medical quality is mediocre. Your chance of getting the accepted standard of care from a random American doctor is about the same as getting heads from a coin toss. Doctors deride such professional standards as “cookbook medicine” (suggesting that pilots using preflight checklists denote “cookbook flying”).
  3. Most medical spending is wasted. A third to a half of medical care adds zero (or less) patient value. Another third is spent on unnecessary administrative paper-pushing. The waste is so bad that we even pay more to providers who harm patients than to those who heal them.
  4. Three-quarters of all medical spending goes to treat largely preventable chronic diseases. Most are caused by individuals failing to control their own smoking, alcohol consumption, obesity, blood pressure, blood sugar, and cholesterol.

If we can figure out how to fix these problems, the cost of medical care (and health insurance) will plummet and quality will soar. This is doable.

What We Need

The first thing both parties must realize is that medical care is an economic good subject to the same supply/demand rules as our other essential needs for food, clothes, housing, and transportation. Second, if we want it delivered effectively and efficiently, we must give consumers the authority (i.e., control of the money) and the responsibility (i.e., to shop wisely and to live healthily) to make it happen. Third, if we want it delivered fairly, we must have adequate social safety nets for those unable to fend for themselves because of poverty or disability.

In fixing the Affordable Care Act, we must focus on three goals. If we achieve those, we will have solved the problem.

  1. Universal Insurance Access. Every individual should have personal choice of health insurance options that are adequate, affordable, sustainable, portable, and voluntary.
  2. Provider Choice. Every individual should be able to choose his or her own medical providers and treatments.
  3. Personal Prevention Responsibility. Every individual must be responsible for controlling his/her own health risks.

What Must We Do

Achieving these goals will require four key changes to the law, each of which I shall describe in more detail in subsequent articles.

  1. Repeal and replace the individual mandate.
  2. Expand and simplify the individual health insurance exchanges.
  3. Expand the prevention incentives.
  4. Fix the safety-net entitlement.

What This Will Achieve

If we do it right, enacting these changes will make health insurers and providers accountable to consumers empowered with the clout to demand value. These vendors will have no choice but to deliver it—or find other lines of work. Innovative insurers will succeed by focusing on customer service and facilitating access to high-value medical providers who compete on quality and price, eliminate waste, adopt ever-improving standards of care, boost productivity, slash billing and collection costs, develop innovative delivery models, help patients reduce preventable diseases, and stop tolerating other, sub-standard medical providers.

This will create a virtuous cycle. Consumers will abandon value-subtracting insurers and providers. Successful insurers will support and incentivize their members to focus on prevention and medical value, thus driving down total claims costs—and premiums. They will keep consumers’ financial skin in the game, even for the most expensive medical procedures, with innovations like negative copayments for members who choose the highest quality and the lowest cost care—and who effectively control their own health risks.

The resulting lower premiums will deliver more market share for carriers that best deliver value to their members. The cycle will continue as growing consumer price consciousness leads to more competitive provider pricing. Doctors and hospitals will reengineer their processes to eliminate waste and improve productivity to deliver more appropriate services at lower total cost.

Medical entrepreneurs will accelerate access to more effective, lower-cost diagnosis and treatment. They will adopt new business models, innovative pricing methods, and evidence-based practice standards. Technology will (finally) drive costs down, not up. Doctors will use electronic medical records (EMRs) because patients will demand them, not because of government requirements. Providers that do these things will take the patients from those who don’t. With each iteration of the cycle, quality will improve, waste will evaporate, productivity will soar, and costs will drop—eventually by half or more.

Sound too good to be true? It’s not. Both parties just have to stop thinking about health care as existing in its own separate economic universe. It’s doesn’t. It can’t.

Coming next: Repeal and Replace the Individual Mandate