Wednesday, March 24, 2010

A New Healthcare

Note: I am writing this blog post partially in response to a Facebook thread which you can find on my FB page.

President Obama signed the Democrat’s healthcare legislation into law yesterday amid the lamentations of me and millions of other freedom-loving Americans. A constant refrain from those who support this legislation is that the opposition is devoid of ideas and relies on lies and distortion to paint the healthcare legislation as an abomination.

So here I will set out my ideas of what a conservative restructuring of our healthcare system might look like.

In my estimation, the principal problem with the current healthcare system in the United States is that it is employer-centric, rather than individual or family-centric. Insurance is not portable, either from job to job (or to unemployment...), or across state lines. But the American economy is mobile and dynamic, and this sets up a clash of structures. As a result, the healthcare insurance market is unwieldy and beset by bureaucratic costs.

If we are serious about making real changes to our healthcare system while retaining consumers’ freedom, then there are several things we could do to help with these problems.

Cancel the business healthcare tax deduction: The first thing we should do is make the provision of healthcare by employers taxable again. As it is, businesses have a massive advantage over individuals in providing healthcare. So the system has grown up around employers. There are two negative effects of this: 1) individuals do not have incentive to keep healthcare costs down and as a result we have massive healthcare inflation; and 2) it is difficult for the self-employed or unemployed to purchase affordable health insurance. In a system where individuals are on the same economic footing as businesses in the purchase of health insurance, there is a chance that these difficulties could be overcome. However, the implementation of such a system would require several changes to the way we do business. So, for example, we must

Require businesses to administer any registered plan: Health insurance is a major financial undertaking such as social security and income tax. So the payroll deduction is an appropriate method for paying the cost. But getting business to subtract individually-owned insurance premiums from paychecks would require some arm-twisting. We’d probably need to legislate it. These administrative costs would go up slightly. Payroll processors such as ADP could implement this in a heartbeat, but it would take some small business some time to adapt.

In a world contemplated by a system such as this, the purchase of an individual’s first healthcare insurance policy would be a coming of age rite of passage, much in the same way that purchasing a first car or getting a first mortgage is today. Once purchased, this insurance policy would grow and offer new services (and premiums would likewise grow) as the individual aged and his family grew. It would follow the individual as he changed jobs, moved across state lines, became unemployed and reemployed, went freelance, and then it would finally disappear when the individual was covered by Medicare.

Such a system would be very powerful in helping us to reign in healthcare inflation. First, in the same way that automobile insurance tends toward catastrophic coverage and ignores the little dings and scratches, personalized health insurance would automatically tend toward catastrophic coverage. People would begin to utilize fee-for-service facilities for things like runny noses, bronchitis, allergy medicines and other small health annoyances. An entirely new service industry of general practitioners would grow up to service this type of consumer, who would end up paying $30 or 40 for a five minute visit with a physician instead of the $170 that gets charged to the insurance company today. Broken bones and real health problems would be dealt with in the industry as it appears today. The growth of health care expenditures in this world would be naturally restrained by the invisible hand, rather than by the authoritative but inefficient hand of a central bureaucracy. Furthermore, people would be free to purchase healthcare in the manner in which they see fit.

In this world, catastrophic healthcare policies for the young and healthy would be very cheap. The struggling 26 year old artist in New York City would easily be able to purchase insurance, and would visit clinics for life’s small inconveniences. A huge percentage of what is now deemed the uninsured could become insured again. (Note: the truly poor and indigent are already covered by Medicaid. That’s what Medicaid is for. Liberals often seem to forget this when they talk about the uninsured. If Medicaid needs to be expanded, then let’s contemplate that, but don’t lump the indigent into the “uninsured”).

In this world, most individuals would always actually have an insurance policy, so the difficulty of new policies for preexisting conditions would largely disappear. Those who fell through the cracks somehow and could not afford coverage would need to be picked up by Medicaid or be covered in the way they are today: by hook or by crook.

The best insurance policies in a world such as this could also include monthly additions to a reserve which would serve as “unemployment health insurance” in the same way that whole-life insurance policies have a measure of principal security. In this manner, individuals and their insurance companies could privately account for certain periods of unemployment (or underemployment), in the same way that, for instance, AFLAC provides supplemental disability.

The success of the real cost reductions and thus the affordability of personal catastrophic insurance for the now-uninsured would be truly dependent on the growth of this new fee-for-service model of private pay healthcare. In such a system, doctors would need to be able to make good-faith healthcare decisions without fear of bankruptcy. So, we will need to

Cap punitive damages in malpractice judgments: Yes, I know all you fans of the trial bar will be upset with me for pushing this old conservative bugaboo. But any analysis of fixed versus variable costs of a small healthcare practice would need to acknowledge that a huge portion of the difference between my $40 mythical fee and the $170 real fee is comprised of malpractice insurance. I am not suggesting that we dispense with reasonable judgments in case of real loss caused by bad medicine, but rather only punitive damages. These are the judgments which make our system unaffordable. We need to start acting like grownups.

I would not be surprised if such a system resulted in the reduction of our total healthcare expenditures in the United States down to the single-digit percentages of GDP which is the norm in other Western countries at the same time as it offered better care with more options. In total, the system in the United States would always be more expensive than socialist systems, because there will always be people who will be willing and able to afford expensive services of questionable effectiveness or benefit, simply because they can. And a rich society can afford things like new, $10,000 titanium hips for 90 year olds – something which would be preposterous in a poorer socialist country.

A system such as this will leave quite a bit of discretion to the consumer, so it would need to be coupled with a genuine attempt to educate people about healthcare. I do not have any problem with using public funds for programs such as this, particularly since our education is largely public in the United States. Like your car comes with a user’s manual with a recommended maintenance schedule, people should be generally aware of good health care practices.

To be sure, there are problems with my system, both in the getting there and when we’ve arrived. Solving the interstate dilemma would be difficult under any circumstances. Medicaid is so entrenched with the regulatory apparatus at the state level that it has affected all attempts to make healthcare portable across state lines. Also, there will still be people who fall through the cracks of such a system, and there would continue to be horror stories, although hopefully diminished in number. Medicaid may need to grow.

However, like democracy is the least-worst form of government, I believe that this system would be the least-worst form of healthcare, both in its efficiency and its flexibility. I believe that the benefits of such a system in terms of cost-effectiveness and ability to provide quality care quickly would be unmatched in the world.

The current healthcare legislation signed into law by President Obama yesterday is like doubling down on a bad hand. It takes our bad system and makes it much worse. Honestly, I would almost prefer single payer to what is coming upon us soon. Consider that the IRS is being required to hire 17,000 new agents right now to enforce the individual mandate. Now that’s efficiency for you! The bureaucracy in Washington is going to be mind-boggling, and that’s before the plan is even implemented by state regulators!

But there is a general, more important point to be made here. With the passage of this healthcare legislation (and the ensuing, ineluctable flow toward a single-payer system), the third leg of the stool of European-style socialism has now been constructed right here on US soil.

I read yesterday that in the UK last year, government expenditures exceeded 50% of GDP for the first time in history. In the United States, the number is about 44% if we add federal, state and local expenditures. Almost fifty percent of every dollar spent in the United States now comes from some form of taxes. And it’s quickly going north.

I’ve made this point in these pages before, but I’ll make it here again. When I was a boy, growing up here in the United States, we took pride in saying “Hey, it’s a free country…”

Well, at what percentage of GDP consumed by taxation are we no longer free? Are we free when 50% of our money goes to other people and things? If it’s not 50%, then when is it? When are we not free?


John said...

The first seems complicated for me since I live in a country where I can choose any doctor or hospital and can even be a bonified hypochondriac but still have one card that pays for almost everything. France is rated number one. It's not the NHS here. It's all private except for the insurance, and then we have mutual insuarance to pay for the rest.

The second point about capping punitive damages is entirely logical because the vast majority of doctors are doing the best they can.

Scott Jakovics said...

well done. another persepctive to the debate

Anonymous said...

Interesting perspectives. And a few more observations to throw into the mix.

The split service approach (basic medicine/care center and specialists) seems similar to the hmo model. I'm not well versed on the finances of that model, but I think that it requires sheer numbers and a mix of consumers/levels of use to balance cost/income as scott points out. At my employer its cheaper for folks who want that type of service. I personally don't want someone else being my gatekeeper - and I pay the difference - to the tune of almost $300/month. Pricey, but its my choice and I'm paying for it. There are already models out there that have a basic service - pay more if you want more (public school system), my work health example).

Incentives to spend/use services wisely. My auto insurance is with usaa - a nonprofit organization. There have been times I've declined to file claim and other times I've filed claims - depended on my financial situation - it requires me to take ownership for my use of the service and reap the (susibdized) $ implications (increased rates or a rebate at the end of the year based on my own claims and the ability of the collective to cut costs. Btw - isn't bcbs a nonprofit? I'm not sure that simply being a non profit creates the values that scott described - I've seen nonprofits spend outrageously - just like for profit corporations. I think we need some of the consumer choice and competition that matt talks about - but mixed in with the a different fiancial model.

And I think we do need to address portability, and also have a larger safety net for those who make low salaries (beyond the indigent) and the unemployed. it makes me sick (figuratively) to see friends and acquaintances scramble for health care/insurance, both when they had jobs with no insurance or situations working for a small business. I've seen people have to "force" a local church to provide health insurance for their staff. And other friends who have small businesses are lucky to have partners/spouses who can get them/family coverage through a more traditional means.

And amen to better health education, regardless of which plan ends up sticking. I'm still waiting for someone to pick up on hillary clinton's campaign platform of financial literacy/education system.

I don't love the current way things are, but the past wasn't going to work. I choose to have confidence that somewhere there is a room full of smart,compassionate people who will come up with workable ideas, try it out in smaller scale and then spread it when it works. Hmmm - maybe my state legislators should redirect the $ & resources from a lawsuit and find a damn solution on the local level like massachusetts did.