The Unfunded Mandate is a legal contradiction and humanitarian nightmare that is also anti-business. It needs a permanent fix, not a modification, adjustment, reconciliation, and most definitely not Washington style “reform.”

What is the Unfunded Mandate?

In 1986, Congress passed EMTALA (Emergency Medical Transport and Active Labor Act), colloquially called the anti-dumping law. Its ostensible purpose was to prevent one hospital from “dumping” (transferring without medical justification) a critically ill patient or women in labor to another hospital because the patient has no money or insurance. Dumping would allow the first hospital to avoid paying the costs of very expensive care for which it will get no payment.

EMTALA created a new class of patients called the Unfunded Mandate. These patients receive very expensive care for which neither hospital nor providers will be paid. Of course they -- institution and physicians -- must still pay their own expenses, from nurses’ salaries to electric bills.

Very, very large sums of money are involved. Four years ago at my own medical center, the cost of uncompensated care for the “unfunded” was $233,000,000, which represented one quarter of the Hospital’s entire annual operating budget. Can you name any industry where federal law requires individual businesses to give away 25% of their goods and services, and stay in business while prohibited from raising prices?!

Hospitals are forced to do whatever they have to in order to keep their doors open: overcharge insured patients, $2 per aspirin, double billing, creative accounting, up-coding, cherry picking patients, etc. Many are illegal and yet are done every day. Further, hospitals aggressively go after insured patients who have unpaid bills -- the underinsured.

Who are the “Unfunded”?

Most assume that “unfunded” is synonymous with uninsured. While unfunded certainly includes the 45-50 million Americans who have no health insurance, there are tens of millions more who are also unfunded or underfunded -- the underinsured for whom insurance doesn’t protect.

Contrary to public belief, health insurance is not supposed to pay for care. It is intended to protect the families from financial disaster in the event of a very large medical bill, one they cannot afford to pay. The millions of Americans who signed up for ACA Bronze level insurance are part of the unfunded. They have a 40% co-pay which makes them underinsured in the event of any illness that requires hospitalization.

According to the Commonwealth Fund 2012 Biennial Health Insurance Survey, as many as 84 million Americans who are insured through their employers do not sufficient coverage to avoid bankruptcy in the event of major illness.

Do not forget our veterans. They wait forever to see a doctor because they are “unfunded.” VA hospitals have insufficient funds as well as inadequate systems and culture to provide care in a timely manner to those who need it now.

When you include all the groups above, “unfunded” refers to essentially every American.

Funding the Unfunded

Systems thinkers say the best way to “fix” a problem is to dissolve it: change the system so the problem ceases to exist. We can dissolve the unfunded mandate -- by funding it.

Create Health Savings Accounts (HSAs) for all 320,000,000 Americans, whether citizen or not. Fund these HSAs out of tax dollars, and allow people to put in more if they wish without limit. Allow the money to accumulate over time: no use-it-or-lose-it. HSA funds can only be used for medical expenses and health insurance.

Mandate that every American purchase at least catastrophic health insurance that pays out when some upper limit of dollars expended is reached, for instance, a sizeable fraction of the total amount in the HSA.

There is ample precedent for such a mandate. First there is Medicare, which for decades has been taking out a certain amount each month for medical spending after age 65. Then there is the ACA penalty tax for not purchasing insurance. Other countries have similar mandates.

In Germany, the government takes money out each month from every citizen to pay for health insurance that the individual chooses. If the person is working, it comes out of payroll. If unemployed, it comes out of unemployment benefits. If retired, it comes out of pension distributions. By law, every German citizen must have insurance. Non-citizens are not included. 

The Budget

Conservatives will instantly react: where is the money coming from? How will we fund it? That is actually the easy part. Consider how much money Medicaid, Medicare, and ACA subsidies expend through insurance intermediaries and don’t forget to include the cost of their massive bureaucracies.

Now imagine that we place $5000 per year in personal HSAs. With 320,000,000 Americans, that equals $1.6 trillion. According a newly-released Deloitte study, in 2012 the U.S. spent $3.4 trillion on healthcare when our population was 313 million. Thus, two years ago, before the ACA was implemented, the U.S. spent $10,863 on every man, woman, child and baby in this country, more than double what a “Universal HSA” Plan would cost.

And, oh by the way, that $5000 would pay for health care not healthcare BARRC-bureaucracy, administration, rules, regulations, and compliance.

What about the poor?

In 2012, the U.S. spent $8290 for every Medicaid enrollee ($415 billion÷50 million people). Putting $5000 per person into HSAs to cover their insurance and medical costs would save $165,000,000,000 dollars a year.

While certainly there is a primary altruistic purpose to pay for medical care for the poor, there are also practical, fiscal advantages. A healthier populace is both less expensive and will generate more GDP, whether citizen or non-citizen. Further, there is the personal responsibility that comes with managing one’s own health-care dollars.

What about illegals?

At present, illegal residents comprise a major portion of the cost of the unfunded mandate. They are not eligible for either Medicaid or ACA subsidies and typically are uninsured. Yet they need medical care and end up generating large uncompensated costs that force the hospital to “get creative,” or close their doors. The Census bureau reports that at least 59% of illegal residents pay taxes.

For ethical as well as practical reasons, the undocumented should get HSAs like citizens, and then they should pay for their own insurance and their own care just like everyone else. Those who might balk at paying $65 billion a year ($5000*15 million people), keep in mind you are paying more than that right now because of the Unfunded Mandate with illegals showing up in ERs.

In universal health care countries, the undocumented are generally excluded from the national mandate to provide care. Go ask two million Turkish guest worker, non-citizens in Germany where and if they can get medical care.

At present, the issue of mandated care without compensation for people who are in the U.S. illegally is unfair, unethical, inconsistent, and avoidably expensive. Let’s discuss it openly and decide what to do by consensus.

What about seniors?

Most seniors have paid in to the Medicare Trust for 40 years. They should be bought out, i.e., the amount they put in plus some nominal growth factor should be placed in individual HSAs. The cost of care for seniors would plummet, as Medicare would cease to be controller of our health care and return to its original model–a mandatory savings account for retirement. Medicare fraud would cease to exist as the individual carefully watches his or her own funds, and no one is billing the government.

Fully insured yet unfunded

This is certainly the most worrisome group – those who have full coverage but cannot get the care they need.

Government has only one way to “cuts costs” -- by medical rationing. Thus, ACA’s IPAB (Independent payment Advisory Board), tasked with cutting costs, will make certain high-dollar items like chemotherapy, kidney dialysis or heart surgery, unavailable to people over certain ages or possibly with genetic disorders. That will cut costs by denying care. Their catch phrase could be dead patients are cheap patients.

A person's insurance might be fully funded; the patient might even have a well-funded HSA; but if the care is not funded (authorized), then effectively, that patient is unfunded. He or she will not receive necessary, even life-saving, care. This is happening right now in Great Britain.

Conclusion

Funding the Unfunded Mandate with some Universal HSA Plan would dramatically reduce spending on healthcare and would be self-sustaining. Neither of those statements is true for our current healthcare system. Universal HSAs would eliminate a massive, inefficient, and wasteful federal (and State) healthcare bureaucracy. The Plan would restore economic (buying) power to the consumer and thus infuse free market forces into healthcare. There would be strong buyer incentives to economize as well as competition among sellers, neither of which exists at present.

Dr. Deane Waldman is author of The Cancer In Healthcare, Adjunct Scholar (Healthcare) for Rio Grande Foundation public policy think tank, and member, Board of Directors of New Mexico Health Insurance Exchange. Opinions expressed are solely the author’s and do not necessarily reflect those of the Board.