How do we transform health insurance? It cannot be done gradually, because the insurance industry would find ways to counter any measure that merely changed how it did business. The only way to ensure radical transformation—short of a government takeover—is to take rapid steps that fundamentally redefine the insurance companies.

The first step in this process is to follow the Patient Choice example and have consumers choose among financially accounta¬ble physician groups rather than health plans. The primary-care groups would be ranked in tiers, based on their total cost of care, and patients’ share of the premium would depend on which group they picked. While consumers probably wouldn’t pay more attention to quality scores than most of them do today, those rankings would get the attention of physicians, prompting them to improve quality more than pay for performance ever could.

The second step is to allow only one health insurer to operate in each city or region. Such an insurer would operate like a state-regulated power utility. While this “utility insurer” could be a private for-profit or a not-for-profit company, it would act mainly as a conduit between payers and providers and as a financial reservoir. It could not negotiate or set prices, and its only role in managing care would be to measure the performance of physician groups, specialists, hospitals, and other providers. The federal government would decide which companies could bid for insurance contracts with regional health boards that would include physician, hospital, employer, and consumer representatives. The government would also specify a maximum profit margin for insurers and the maximum amount that their top executives could earn.

This approach would have several advantages. First, it would reduce administrative costs enough to provide most of the money needed to reach universal coverage (see Chapter 18). Second, everyone in each region (except for Medicare beneficiaries) would become part of one big insurance pool. By returning to the community rating system that was used before insurance became a big business, the utility insurers would spread coverage costs equally across the healthy and the sick, regardless of how large their employer was or whether they had a job. And third, without interference from the insurance companies, but with accountability to the public, physician groups would be able to strike an acceptable balance between serving the needs of the population and those of the individual patient.