Last of a 4 part series...
Updated January 18, 2010*
So, how would we structure, as Alexander Hamilton would put it, the market for health care?
As I've said in previous posts, I think we need to encourage more of a free market in both health care services, and especially in health insurance. In addition, we need to move to a true insurance model, as opposed to the third-party payer system we have now. We need to reform medical malpractice insurance. We need to eliminate, as much as possible, the middle man in our health care transactions and decisions. And we need to expand the essential element of portability, so if we change jobs we take our health insurance with us.
It has been suggested to me by some very smart people who's opinions I respect, that a free market won't work in health care. My response to them is I won't believe that until we at least try it. Right now the marketplace is so overburdened with unwise regulation that no real market exists. I believe our approach should be to liberate the marketplace to provide and to innovate, as it does in other industries. Once we do that, I'd be perfectly willing to look at public policy ideas we may need to close any gaps that remain in access to care and coverage. At the same time, health insurance companies are going to have to realize that their frequent misbehavior is one of the main reasons for dissatisfaction with the system, and they are going to have to accept some different, and in some cases tighter rules and regulations to continue in business.
One other introductory comment. I think trying to pass heath care reform in one giant bill, as the Democrats are currently trying to do, is very unwise. This issue is so big and so complex that no one really understands it fully. The best way to do this is to take it one issue at a time. Maybe first do tort reform. Then a bill that addresses preexisting conditions and making sure no one loses their coverage just because they get sick. Many of the suggestions out there, including several I will argue for here, are quite popular with the majority of our people, but have powerful interest groups lined up against them. Taking issues one at a time makes it harder for these various interest groups to unite in the way they undoubtedly will against one large bill that tries to do everything.
OK, all that said, I would propose:
--The health insurance industry should have it's anti-trust exception revoked, and we should allow insurers to sell coverage across state lines. The federal government could regulate of this new national market under it's power to regulate interstate commerce.
--There must being meaningful tort reform to bring down the price of malpractice insurance. One approach to this would include things like capping punitive damages, limiting plaintiff's lawyers contingency fees to 15% of any reward, and instituting loser pays laws to minimize frivolous suits. Truth is this is a good prescription for the reform of ALL tort law, but I digress.
Another approach we could opt for would be to remove malpractice from the tort system altogether and place it in a new system where all doctors pay into a pool of money to be administered by a board of doctors for damages to patients who suffer malpractice. Doctors who are found to have erred to frequently would have their licenses suspended or revoked by this board. This approach is mentioned in this column by Charles Krauthammer but is explained in detail in chapter four of Dr. Peter Weiss's book, "Radical Prescription".
--Health insurance must be made portable. The key to this is making Health Savings Accounts (HSA's) available to everyone. These are accounts owned by individuals where they can save tax-free, similar to an IRA or 401(k), for health care expenditures. Contributions to these accounts should be pre-tax and they should be restricted in their use to only health care spending. We should be able to pay insurance premiums directly from an HSA. This is currently against the law. Companies that want to have an employee health insurance plan should be incentivized to put the money they would spend on it into their employee's HSA's instead of purchasing a group policy. Employee contributions to group health plans, and also what they pay into flexible payment plans, would go into the HSA as well. These people can then use the funds in their HSA's to purchase their own insurance. Unused HSA funds would be conservatively invested for future growth. Young and presumably healthy individuals could purchase their own insurance fairly inexpensively, even a policy with a moderate deductible. The rest of their HSA would be available to pay routine health costs, deductibles and out-of-pocket expenses. Since most people don't have a lot of health expenses early in life, as these folks age and their premiums rise, they can afford the increase as well as higher deductibles, because they'll have years of compounded earnings in their Health Savings Accounts.
Right now individual health insurance policies are fairly expensive. This is because the market for them is small and thin, mainly due to lack of competition, and because many of these policies are only in force for a year or two while individuals move between jobs. Allowing a larger interstate market to come into existence, and by using HSA's to aid more people in purchasing their own plans in it, these markets will grow and therefore spread these risks more efficiently, which will bring down costs. The key reason for this is that in such a marketplace, insurance companies will have to compete with each other for our business, as Michael Cannon writes about here in Inventor's Business Daily.
Opinion polls tell us that 85% of Americans are satisfied with their health coverage. The dirty little secret in this number is that virtually all of that 85% aren't sick. If most of these individuals were to get a serious illness or suffer a serious injury they would be unable to work and so would eventually lose their jobs, and their health insurance along with it. At that point they'd be stuck with COBRA, which is expensive and temporary. All of this is why portability has to be an element of any real reform. If an individual who has years of savings in their HSA's loses his or her job, or just wants to change jobs, they can use their HSA's to keep paying the premiums and then they don't lose coverage for themselves and their families. They would own their policy. Their employer wouldn't own it, as is often the case now, and the government won't own it, as would be the case if Obama, Pelosi and Reid get their way on this.
Most people in a system like this would reach retirement age with a large amount of money in their HSA. This would give them a lot more flexibility once they reach Medicare to do things like purchase supplemental insurance, etc. When they pass on, any unused portion could become a significant addition to their estate. If part of needed Medicare reform looks to replace the current single-payer plan with a voucher system, so seniors can shop for their own insurance, HSA's could again play a central role.
More on Medicare later.
--Individuals and families who use HSA's and purchase their own health coverage should get the same tax treatment as business when it comes to health coverage.
--Individuals, families and small businesses should be able to buy health policies through large, multi-state purchasing pools, where they can combine their purchasing power to negotiate the kind of lower premiums that big employers and big unions get now.
--All insurers would have to offer a basic, no frills, major medical (so-called catastrophic) health insurance with a deductible in the $2000+ range. All policies should have a specifically set and specified annual out-of-pocket maximum. Everyone should have access to a policy that does not have all the extras that states often require, like dental and mental heath, etc. These bells and whistles add to the price of a policy and many people don't want them. Such a policy for the average young healthy person would be fairly cheap, since most substantial medical expenses occur later in life, but would still offer them a backstop against an unforeseen accident or illness.
When we combine HSA's with a high deductible major medical policy, we create a system where health insurance companies are not involved in most every day health choices. We just pay for these doctor visits, etc., with money out of our HSA. If we think our doctor is charging to much for a given service, we can fire him or her and find a new one, just as we would with a plumber or car mechanic. Doctors would have to compete for our business, which would put a powerful check on their prices. We would have more money in our HSAs because we are paying less for a high deductible policy and not joining that intrusive HMO, that has a cheap $20 co-pay, but can disapprove anything we or our doctor want to do. If we do become seriously ill or hurt, our insurance still pays for everything above our set annual out-of-pocket maximum, which we would pay our of our HSA.
Also, if we allow a free market to develop, inevitably there will be more innovation and creativity in the products offered, not unlike what we've seen in the telecommunications and computer industries. John Cochran, writing here in the Wall Street Journal, talks about several innovative new insurance products, including pre-existing condition insurance. This is a policy that insures the price of health insurance should one need to buy it in the future. Many other ideas like this are discussed in The Innovator's Prescription, a new book by Professor Clayton Christensen of Harvard Business School. If you'd like a preview of this book, the good professor was a guest on Hugh Hewitt's radio show. The transcript of that interview is here.
--If someone is to poor or disabled to afford a certain level of deducible, or coverage at all, then aid programs should be structured around subsidizing premiums for private insurance with lower deductibles for them rather than public programs like Medicaid.
--Many proponents of health care reform say insurers must not be allowed to deny coverage for pre-existing conditions. This sounds great in theory, but isn't that like saying one doesn't have to purchase car insurance until after they have an accident? Our goal must be to make coverage more accessible. It is not to encourage people to not get covered. One middle path could be to not allow insurers to deny someone with a pre-existing condition a policy if they already own a policy. Such individuals should always be free to change insurance companies or plans within the same company if they find a plan they like better. There would have to be a sort of one time national enrollment period to allow new people into the system. This would further encourage more people to get covered.
--We have to make sure there are strong laws that make it extremely difficult for an insurer to deny a claim or drop coverage. Pretty much the only way a company should be allowed to drop someone would be for failure to pay their premium. If they deny a claim and you sue, the burden of proof should be almost completely on the insurer as to why that claim was denied. In extreme cases, insurance company personnel responsible for such a denial may have to be held criminally liable.
--Insurance providers should have no say whatsoever regarding your choice of doctor. So-called "networks" where insurers reimburse some doctors at different levels than others should be illegal. There should only be one requirement, and that is the doctor you want to use be properly licensed.
--On the subject of Medicare. We need a top down review of what kind of system we want in the future. A voucher system is one possibility. One thing we need to do right now is a through effort to get waste and fraud out of the system, which the Center for Health Transformation estimates is over $100 million a year. Fans of how Medicare currently operates love to point out how it only spends 3% of it's annual budget on administrative costs. But one effect of that low overhead is that there is virtually no enforcement mechanism to stop fraud and abuse, so millions of taxpayer dollars are wasted.
We keep hearing that there are 47 million people in America without health insurance. That number is misleading for a couple of reasons. First of all it is very fluid. About 20 million of these people turn over regularly, on an average of about every six months. Also, many are young, under 35, with incomes over $75,000 a year, who have access to health insurance but just choose not to buy it. About 17 million of that figure are in the country illegally. The real number of the "chronically uninsured" is more like 10 million. That is still to many, but the 47 million number is another example of the Democrats doing one of the things they do best: making a problem seem worse than it is so they have an excuse to grow government to solve it.
Remember that everything we've discussed here has to do with costs and access to insurance, not access to care. Access to care in the US near 100%. If you show up at an ER, you will get cared for even if you have no money and no insurance. Many of the countries with "nationalized" health care have higher levels of their populations insured while simultaneously having less access to care. This is because when everyone has health insurance, and health insurance is involved in every health care transaction, then there will always be a bureaucrat there to deny you care. Rationing is the norm in these countries.
We need more and better ways to get people insured. At the same time we must take care not to do serious damage to the parts of our system that are working, while we fix the parts that are not.
The plans proposed by the Democrats are not careful about this. Their proposal is over 2700 pages long and creates over 100 new government agencies. Senator Jim DeMint has introduced a bill that addresses many of the ideas I've outlined here and his bill is only 17 pages long. It seems to me that one side is trying to fix something, while the other side is trying to run something. I'd like a good system that makes care and coverage accessible to me and my family, and then leaves the rest up to me, thank you.
When Medicaid was first passed in 1965, it was estimated that by 1990, it would cost $10 billion a year. In 1990, the actual cost was about $110 billion, more than ten times the original estimate. Congress has been "estimating" the costs of programs with this same level of accuracy forever, and there is no reason to think they're going to be right this time about health care reform. The Congressional Budget Office estimates the cost of the Democrats current reform plan to be at least $1 Trillion. You do the math. This plan will explode the budget and the deficit in ways we can't imagine right now, and that is saying something when you consider the huge spending binge the Democrats have been on since President Obama's inauguration. If this plan passes, it will certainly lead to immense tax increases, unacceptable levels of health care rationing, and most likely both.
*It is now January, 2010, and I am revising this post from it's original incarnation in August, 2009. I am doing so because I've learned much more about the subject, and so I've taken some ideas out, added others and modified some. That said I still recognize health insurance reform is an extraordinarily complex subject and I am sure there are a lot of good ideas I have missed. I am aware that there are arguments against many of the proposals I support. Questions and challenges are particularly welcome on this issue. As always any comments should be emailed to us using the link on the right side of the page, just below the words "About Me".
Intelligent, insightful comments and challenges will be posted.
If you want to learn more I recommend the following:
The National Center for Policy Analysis is a leader on health care policy. They have a variety of resources on their website. These include policy ideas as well as opportunities to be involved in the ongoing national dialog on health care reform.
Docs4Patientcare.org is a grass roots organization of doctors that have been working to make any changes in health care law doctor and patient centered, not bureaucrat centered.