Wednesday, August 26, 2009

Health Care and Insurance Reform

My simple plan for health care reform. It’s not by any means a complete health care system, but then neither is what we have nor what is being proposed.

First, repeal the HMO Act of 1973. From their beginnings, HMOs were designed--by Democrats and Republicans--to eliminate individual health insurance. The result is a vast network of health care collectives (HMOs, PPOs, Point-of-Service plans) created by government that are destined to do harm to individuals.

Second, you are just not serious about reform unless you start with completely decoupling health insurance from employment. If your employer wants to use health insurance as a means for employee retention, he can offer to pay for your individual plan. The individual was first discouraged from buying insurance in 1942 when employee health premiums were made tax deductible to employers (as part of the war effort there was a wage freeze, so in order for companies to offer an incentive to retain employees, Congress passed legislation that made corporate money spent on employee health insurance tax deductible) --not to individuals. Think about that – corporations are not charged any tax against any health insurance expenditures, but if you want to buy an individual policy for yourself or your family, you have to do it with what is left in your net, after taxes, income. (I realize some folks can use pre-tax dollars if they are lucky enough to have an employer who participates in the Section 125 plan, but even there, the company is choosing the plan so the choice and motivation for savings is not there.) Anyway, Congress created Medicare in 1965, in effect making individual insurance for those over 65 obsolete. Subsidized, unrestricted healthcare for seniors led to an unprecedented frenzy of spending by patients and doctors. Combined with Medicare, the HMO Act eventually eliminated the market for affordable individual health insurance. If we return the buying power to the individual, we can take steps in the right direction. Every other type of insurance that I can think of is based on an individual choosing the plan/coverage that best fits the individual’s situation. Not 30 minutes goes by on any television channel I watch where I don’t see a commercial for Progressive or GEICO car insurance. A little competition for my dollars would be a step in the right direction.

Third, let the market shake out a lot of the unneeded administration of health care. I remember going to my family doctor as child in the 70s and being greeted by the receptionist, who also served as the billing clerk and the girl who would bring me to the exam room and put a fresh piece of paper over the exam bed. Now my PCP has 3 different people for each of those jobs, plus a staff of ten more who do I don’t know what. There is a huge layer of unnecessary administration. If the individual can deal directly with the provider, fair market price will eventually be achieved. I use as an example the Lasik eye surgery. When this first came out, each procedure would cost as much as $10k. Why? Because it was new and there were only a few providers. HMO’s rightly called that a cosmetic treatment and refused to pay. Wear glasses or pay for it yourself. Well now that the industry has matured, you can get Lasik done just about anywhere and what is the price? Usually less than $1000 for both eyes. Need another example? I have chronic back pain due to some car accidents and the construction industry when I was a young man. I found that once or twice a week trips to the chiropractor for a quick manipulation allowed for better range of motion and less pain. HMOs however do not get the concept of maintenance. They want the chiropractor to “fix” me, in the way a surgeon would. Instead of covering the yearly costs for my weekly trip, they pay for a maximum of 8 trips per year. All of course with the $30 co-pay for each visit. Want to know what the HMO rates as fair and competitive price for the 2 minute back manipulation? $31.35. Subtract the $30 co-pay and the good doctor gets a whopping check from the HMO for $1.35. So what did my chiropractor and I do? We arranged for unlimited chiropractic care for $45 per month. There is no reason this could be the standard rather than the exception. In fact, some PC doctors have tried this approach, only to be smacked with cease and desist orders because they are “acting like insurance companies” ( Health care costs should be coming down, not rising, as competition for individual care leads to greater efficiencies. Instead, we have a perverted market where doctors compete to obtain the biggest block of members in one felled swoop. Then the HMOs and Medicare tell the doctors what they are going to pay for a particular procedure, rather than the other way around. To make up the difference, doctors have to charge the uninsured 10x what they get from the HMOs and Medicare for the same procedure. Doctors want to make a certain salary level. It’s like squeezing a balloon – if you artificial deflate the balloon in one area, then the other areas have to compensate.

Real reform would put decision-making back in the hands of the patients. Doctors would advertise. The best doctors will command higher prices, but the poor would still have access to what they can afford. Charity will have to cover the truly indigent. My boss has a saying regarding payroll, “Leave it to the employees to notice every penny.” In other words, if your payroll check is wrong, you are going to bring it to the owner’s attention because “hey! That’s my money!” Patients empowered the same way will make the best decisions because now it will be their money. Some will want more complete coverage and will supplement with their own dollars, some will prefer to use their money elsewhere. The system will be reformed in such a way that artificial pricing structures that penalize the individual will be greatly reduced, giving greater access to those seeking doctor care.

A lynchpin of the current plan is that savings will be derived from preventive health care. There is ample evidence in the current system that preventive health care is expensive, too. By artificially lowering the cost of doctor access (co-pays), not surprisingly people see their physician for the most basic maladies. There are simple laws of supply and demand in play here. If we increase demand, supply becomes either more expensive or rationed. We have a finite number of general practitioners (many of whom are closer to retirement than they are to their med school days, with fewer med students choosing the family practice when they can specialize and make much more, or work less for the same dollars) and this is a flaw in the system that is only going to get worse. No new medical schools have been allowed to open since the 1980s. Frequently overlooked in the debate is the way the AMA cartel has kept doctor’s fees artificially high. This forces much greater cost into the system, without any improvement in care. It’s another place where free market competition could do wonders to lower costs. Expand the role of medical assistants and nurse practitioners. Nurse practitioners can do many of the procedures that presently require doctors at a fraction of the cost. Allow foreign born doctors to emigrate here and just show core competency, instead of forcing them into repeating residencies. Again, supply and demand. Doctors command exorbitant salaries because the AMA imposes an artificially high barrier to market entry. By limiting the number of doctors, the AMA has reduced the supply.

So we have fewer doctors and a declining population of general practitioners. We are already in the midst of declining service (long waits at the office, coupled with long lead times for appointments). And now we want to inject another 50 million souls into the system who are presently underserved.

Lastly, if Obama fails to read this blog and we head down the road of more entitlements, I don’t know why the idea of vouchers gets so little play. If we are going to pay the way for certain individual’s health care, what’s wrong with handing them a check and saying, “Spend this wisely”? I don’t understand the idea that we should be on the hook for medical treatment on demand, regardless of cost or efficacy. They could use the voucher for routine doctors visits if they feel they are healthy enough, or they could pay for the routine treatments and use the voucher to buy insurance to cover catastrophic events. Their choice, and choosing wrong will lead to some folks not receiving the life saving treatment they could otherwise get, but it puts the decision back in the hands of the consumer rather than the government or insurance company, neither of which has the patient’s best interest as the only priority.

So if we are really serious about reform, I mean the part where we stop scratching the union’s back, appeasing the AMA with laws they help write, and stop treating the individual as too stupid to be responsible for his own well-being, if that reform is what we really want, then maybe the few suggestions I have here will get some sunlight.

1 comment:

  1. John -

    Thank you so much for this post. I found your blog through a comment you made on the Facebook Libertarian Party group this morning.

    I agree with every thing you said above. *This* a health care plan that I can not only understand, but agree with. I want the right to choose from who and where my care comes from. I want options that are natural and\or herbal, not just a pill in a bottle, which is what I feel Obamacare will be pushing on America.

    Thanks again for your great article, and your straightforward approach toward national health care.