The "Patient Protection and Affordable Care Act of 2010" (aka Obamacare) is a major intrusion into the lives of Americans. Governmental design of allowable health care products will result in major resource allocation disruptions across the country.
Classic “unintended consequences” are already beginning to manifest themselves and will only increase over time. Examples such as 3M shifting retirees to Medicare plans from the company-offered health plan, and McDonalds' struggling to find low cost “mini-care” plans to offer to low wage employees are just the beginning of issues.
Poor design of plans, inefficient administration, inevitable rationing and decision making about the value of human life, and total loss of privacy in health care will cause revolt at the most basic levels of society over time. If the intention was truly to address the “uninsured,” more efficient ways of doing that could have easily been accomplished.
1. We must be free to buy insurance from any place in the U.S. provided the company is bonded and registered in its home state, and registered in the state in which it wishes to do business (diminishes fraud).
2. People must be free to move among insurance carriers once a year. Guaranteed issue is necessary and high-deductible insurance with spending accounts should be the norm. Tax treatment of individual purchase and employer-provided plans must be fair. Tort reform is imperative.
3. Risk management will have to be addressed. Life and casualty companies hedge their risks through commercial reinsurance companies. Why not the same for health insurance companies? Perhaps there is a function for government to provide seed money so health insurers can create a framework to equalize the burden of preexisting cases so that one company does not carry an extraordinarily high level of those cases. Society is going to pay for those riskier cases one way or another, either through insurance rates or through taxes.
4. To discourage just-in-time buying, preexisting conditions must be restricted by a 12-month waiting period unless there is evidence of prior insurance (or Medicaid, parents, school, etc.). New options added to a basic plan must also have a 12-month waiting period.
5. The later people choose to buy insurance, the more expensive is the premium. If someone chooses never to buy insurance, so be it. At least no one is mandating; just encouraging. That’s what Medicare already does. The longer someone over 65 waits to buy into Medicare (B), the more expensive it becomes. Medicare recipients seem to know they must buy into Medicare within the allotted time period, or pay a higher premium if enrollment is late. Younger people can learn the same rule.
6. Current mandates must become options. Mandates unnecessarily push costs up.
7. For people who cannot budget, let them pay their high premiums and put part of the premium into an account for medical spending. Many employers provide such a deal (including Whole Foods). For those who accrue a spending account over the years, it is likely there would eventually be enough saved to pay for insurance premiums and deductibles for life. Medicare could be phased out, at least for most.
For those who want a more socialized system, allow Health Maintenance Organizations as an option, priced accordingly. There would likely be a more limited opportunity to accrue a spending account balance with an HMO, and little to no chance to be free to choose care other than what the HMO allows.
8. For people on neither Medicaid or Medicare, the average insurance plan in 2010 ran $1,147 per month for a family and $421 per month for a single.1 A $10,000 deductible policy can be purchased for a Colorado family for $216/month and a single (25 years old) for $35 - $41 per month.2 That means that a family could have zero additional out-of-pocket expense, pay for insurance, and have $11,172 per year ($4,560 for a single) to put into a spending account. The account balance could grow, and/or the deductible level could rise.
Medicare can be organized the same way with the recipient paying part and the government spending part of that $12,000 it already spends. That’s correct, the U.S. government already spends nearly $12,000 per Medicare recipient.3 That is in addition to what the recipient spends (about $3,500 – $7,500 per year). The total bill is $16,000 to $20,000 per year, per person on Medicare! At the time of this writing, a 64-year-old Colorado woman can get a $10,000 deductible policy with a prescription plan for $218 per month.4
Medicare can be organized the same way with the recipient paying part and the government spending part of that $12,000 it already spends. That’s correct, the U.S. government already spends nearly $12,000 per Medicare recipient.3 That is in addition to what the recipient spends (about $3,500 – $7,500 per year). The total bill is $16,000 to $20,000 per year, per person on Medicare! At the time of this writing, a 64-year-old Colorado woman can get a $10,000 deductible policy with a prescription plan for $218 per month.4
A 65-year-old person, by the way, cannot buy private insurance. Once 65, every American is forced into government medical care if they want any insurance. Medicare recipients are allowed only to see government-approved physicians unless they have the financial means to pay privately and avoid government intrusion in their health care decisions. Medicare has created a two-class system in America.
If the federal government provided the $10,000 deductible and the Medicare recipient bought private insurance, the immediate federal savings would equal over $90 billion a year. Additionally, the billions of dollars of yearly Medicare fraud and abuse would become a distant memory. A plan like this should be an option for current enrollees and the norm in later years. Many would immediately jump at the chance to regain their health care freedom. In time, the Medicare tax could be reduced so that only those too disabled to have accrued a spending account could still be cared for.
For people on Medicaid, provide high deductible insurance and a spending account. Incentives can be built in to encourage careful spending and saving. The amount spent per Medicaid recipient could be reduced simply by putting them in charge of their own medical care. All sorts of creative solutions could be developed to encourage careful saving, careful spending, and eventual independence.
For people on Medicaid, provide high deductible insurance and a spending account. Incentives can be built in to encourage careful spending and saving. The amount spent per Medicaid recipient could be reduced simply by putting them in charge of their own medical care. All sorts of creative solutions could be developed to encourage careful saving, careful spending, and eventual independence.
9. Competition and careful shopping bring prices down and increase quality, but pricing must be transparent and nondiscriminatory. It is the very discriminatory nature of medical pricing that makes comparative shopping and wise spending impossible.
Providers are free to charge any price they want, but prices cannot be based on the insured status of the consumer, nor on who is paying the bill. That one provision of ending price discrimination would seriously inhibit the intrusion and power of government and insurance companies. It would free up the market, terminate provider "networks," price-fixing, and secret contracts; and stop inhibiting personal choice. Consumers would become aware of what various medical services cost.
10. The primary role for government is to provide basic rules and then let people be free and private. It would return decision-making and privacy to physicians and their clients. Government and insurance companies, for the most part, wouldn't be involved in most medical decisions.
Colorado HB10-1330, the law that establishes a privately funded and privately operated medical dossier on every person, would be irrelevant because our medical issues would be private. The federal database, authorized and funded in the stimulus bill, would become irrelevant, too. When medical dossiers are irrelevant, medical privacy is protected. Americans don’t need government databases for health care treatments. Professional societies already provide guidelines in nearly every discipline, and are more up-to-date than government can ever be.
South Africa has adopted a successful plan of spending accounts and high deductible insurance.5 America can do the same. Milton Friedman has understood a market-based health care system for a long, long time. When will we learn?6
Where does my logic fail?
©Valarie Murphy
M.S. Economics
Adapted from my original article at Hear Us Now http://hearus-now.org/
1Kaiser Family Foundation http://ehbs.kff.org/?page=charts&id=1&sn=6&p=1
5National Center for Policy Statistics http://www.ncpa.org/pub/st234
6Milton Friedman, How to Cure Health Care
http://www.hoover.org/publications/hoover-digest/article/7298
More good reading: Limited or Limiting Government?
Just say NO to Obamacare!
http://www.hoover.org/publications/hoover-digest/article/7298
More good reading: Limited or Limiting Government?
Just say NO to Obamacare!
why didn't you run for Congress?
ReplyDeletewe need people like you!
impeccable logic!
Oh Anonymous, I love you!
ReplyDeletewDear Val:
ReplyDeleteIn a perfect world your description of how health care should work is wonderful. Great. But, alas, this is not a perfect world. It is a world governed by big business and big egos. We have to start somewhere. "Obamacare", when all is said and done, and I don't expect that it will be in my life time, will not resemble what exists today. It is an enormous step that anything got done at all.
Following the money has always yielded answers to hard questions. The Supreme Court has taken that out of the mix and we are now in a free-for-all. Any hope of a plan as elegant as yours, or even the one that exists now, will be but a whisper of our past. Big Pharma and others will make healthcare into a circus until it finally finds its place in our world.
What a mess!
Robi 5.
Thanks for your thoughts, Robi.
ReplyDeleteWhat we have today, and when Obamacare is added, will only continue to create a two-class society. Those who can afford it will just see their own doctors and pay their own bills. Those who are not will become more and more dependent on whatever government allows for them.
My plan is not only elegant; it is simple and supports freedom instead of serfdom.
Yes, a mess. Socialism is not pretty; big government is not pretty.
You've said a number of sensible things. Discriminatory pricing, which perversely charges more to those who can't afford health insurance, should be ended. I have always preferred low-premium, high-deductible insurance plans that don't involve the insurance company until the deductible is met, but discriminatory pricing has had the side effect of making those less attractive because we're paying more during the deductible period than the insurance company would pay for the same service. Insurers should be free to negotiate prices, but only in a way that does not affect what the uninsured pay.
ReplyDeleteHolland's system has the reinsurance aspect you call for to equalize risk.
I quite agree that health care costs need to be more transparent. E.g., I have a hernia that may need surgery. I'd like to know how much it will cost so I can set up a medical savings account to deal with anything not covered by my insurance. Nobody seems to be able to give me any idea of how much this will be. But I don't think it's just discriminatory pricing that leads to this. There's also fragmented billing, where I may get separate bills from the surgeon, the hospital, the anesthesiologist, and a lab.
Now for the bad news. Even with a twelve-month waiting period, I can think of one significant area where your system can be gamed: pregnancy and childbirth. Someone with no intention of ever having children would naturally buy a policy that did not cover that. (Remember, you want no mandates, meaning such a policy could be offered.) Someone who does want children can take a policy that covers it but switch to a no-childbirth policy after having all the children they want. This would make policies covering childbirth much more expensive - they could penalize you for waiting to buy, but it would be much harder to penalize you for dropping the policy.
Thank you for reading and responding.
ReplyDeleteIf insurers negotiate secret contracts, they do so with the hope of cornering the market and pushing others out. Because of discriminatory pricing, price fixing, and secret price contracts, it is impossible for the consumer to shop, compare and spend wisely. It seems as though this issue could be or already is covered under some antitrust law.
If one has high deductible insurance, any charge must be run through the insurance company unless one wants to pay 1/3 - 1/2 more. First-dollar processing is expensive and intrusive. Let price discrimination end and let us be free to shop.
Pregnancy is one of those problem areas. If one accepts that pregnancy is not an unexpected nor catastrophic happening and that pure insurance should cover unexpected and catastrophic happenings, perhaps normal pregnancy should never be a covered expense. That would be an excellent way to spend some HSA money. You'd certainly see prices fall in that case. My daughter has a high deductible policy (that will be illegal under Obamacare) that covers only complications of pregnancy (i.e., anything other than normal delivery).
For a wonderful example of how horribly distorted the market has become because people are not paying their own bills, see my blog post:
http://valariemurphy.blogspot.com/2010/11/catching-up-and-railing-against-death.html
I don't think the agreements (on discounts given to insurers) are all that secret. Since all insurers do it, they're not pushing each other out. Rather, they're pushing out people who would prefer to self-pay ordinary expenses. I don't think that's covered under antitrust, unfortunately, although I'm not a lawyer.
ReplyDeleteIf the discriminatory pricing ended, we wouldn't need to push all charges (whether before the deductible or not) through the insurer. We could just save all the receipts and send them in once we exceeded the deductible. This would save money on overhead for the insurance company. I would prefer doing things this way, frankly.
I agree that an uncomplicated pregnancy is probably best not covered, but complicated pregnancies (caesarian, neonatal ICU, etc.) can be pretty darned expensive. I'd be curious to know just how much the total annual cost of all such complications are.
Amen on the problems of people not paying their own bills. Back when my company offered a high-deductible policy, I had an accident and had to have physical therapy. Since I was paying, I had incentive to scrutinize the bills. I noticed several questionable charges, and asked to speak to the manager. "Oh, since you're a self-pay, we'll just take those off." Someone who was not paying a dime out of pocket wouldn't have had any incentive to double-check. Unfortunately, even if we were all self-paying, a lot of people don't have the understanding of medical matters to be able to spot bogus vs. valid charges, so I'm afraid there would still be significant questionable charging that would slip through.
By engaging in price fixing, insurers are able to corner the market over time. In many states, Blue Cross has already done this. Because they are a large insurer, they deliver more patients to providers, and get better deals. Costs for other insurers are higher, so they must charge higher premiums. Sooner or later, Blue Cross is the only one left standing. When I have the time, I'm going to investigate any possible antitrust implications of that.
ReplyDeleteThe only way you can find out the pricing insurance companies offer is to wait until the procedure is done and then see what the insurance "explanation of benefits" says.
Interestingly, I just had two biopsies. The second one was paid $1,000 more by Blue Cross. The procedures were identical but at two different hospitals. Obviously, the second hospital has a more lucrative contract with Blue Cross.
I like your idea of collecting receipts and sending them in when you meet the deductible. For high deductible plans, that would mean that insurance companies/government wouldn't be intruding in everyday medical spending. Most people could maintain their privacy until things reached a catastrophic state.