Health Care: A Simple Suggestion

I heard of a man who had a stroke and as a result he and his wife lost their home. Many will scream foul, they should have had healthcare. However, the family in question needed just major medical/catastrophe insurance. But he was between jobs, and had neither. This was the known problem that Obamacare, despite its many flaws and sinister intentions to hijack existing healthcare, was an attempt to solve. But with high deductibles and high premiums, it has devastated family budgets and appears to be in self destruction mode. Given trying to be one size fits all for about 320 million people, I’m not surprised.

They completely ignored understanding risk, the basis of liability insurance. I suggest separating risks and propose near universal major medical insurance. Such policies are fairly commonplace. I had one during years of self employment in my 30’s and 40’s. But as I aged, the premiums became excessive and I dropped the policy. My experience was typical. However, if I and others had a life insurance policy purchased at the same time and with the same payments, we would have been vested in the policy and received a permanent policy with reduced benefits. Granting vesting and ending unfair cancellations can be corrected legislatively. Insurance companies would still make ample profits.   

But it would be done in the private sector and be actuarially sound, unlike Social Security and Medicare. Starting in your twenties or so at a few hundred dollars annually, almost everyone would be covered. The monies paid in would easily cover those unfortunate younger few who needed it. By the time most people needed major medical they would be prepaid, much like a life insurance policy. Many employers would pay their employee’s premiums. But the policy is yours and stays with you, employed, self employed or just hanging out. And undoubtedly for some others, the welfare system would pay the premium. The amount hospitals overcharge their paying customers to cover their losses for non payers could be significantly reduced.

The medical system would be simplified with some likely reduction in overhead costs. In 2011, I wrote on this blog: “A recent visit to my dermatologist cost $240. My health insurer paid $73 and I paid $166. What I paid was what the service was worth. What my health insurer paid did not share the actual expense, but rather represented the cost of the insurer’s bureaucracy and the doctor’s billing staff.” The last time anyone visited a health practitioner, the ratio of actual providers to support staff is rather apparent. With spiraling medical costs grabbing headlines, the experts not surprisingly hire more experts and usually on the government dole.  Of course, their existence adds to medical costs but they see it as worthwhile it because they claim to wring costs from the medical system.

They pay doctors less. Half of our doctors are over 50 and just hanging in there with retirement on the horizon. While increasing in number, the new medical students fall significantly short of future demand. So we import doctors from foreign countries that often don’t respect us or our culture. Squeezing doctors is a no-win proposition. But it does provide an incentive to master the medical billing codes and return the squeeze. Another method used to reduce costs is to deny benefits. The insurer often gets the accounting benefit of delaying expenses even when the persistent patient wins in these situations. But they structure the experience to get you to give up. An office assistant of a health care provider I use was once on hold for 30 minutes to get approval for a necessary procedure. What percent of the final price of the service I received was simply the cost of gaining approval?

Obviously, increasing the demand for doctors at the same time as decreasing the supply is a prescription for disaster. We have seen a partial solution in the VA and elsewhere with medication substituted for treatment.  For these reasons of expanded sales, the pharmaceutical companies signed on in the backroom deals that created Obamacare. Since then, some firms have exploited this situation into public outrage and headline news. But most Rx drugs are purchased at different prices by various organizations such as Medicare and groups of hospitals through third party buying syndicates. Their dealings are beyond the public eye and often quite murky. They are opportunities for corruption. So aside from some retail consumer trade, most Rx prices are not free market prices.

How much would an unfettered free market lower health care costs for everyday expenses if almost everyone had major medical insurance? Would it be as much as a third, a half or even three quarters? What if all those paper pushers were producing goods we now import from China? Certainly the Liberals would cite the dangers of the irresponsible deplorable masses who would skip annual physicals, etc. But beyond their prejudicial attitudes, real proof is sketchy. The number of people driving around on bald tires remained unchanged after annual auto inspection laws were enacted.  Responsible people had an additional hassle and expense while the auto shop lobbyists were richly rewarded. No law makes irresponsible people responsible. But some argue, and rightly so, that responsible people often put off necessary doctor’s visits due to temporary financial hardships. With the public tab at stake in these situations, many argue that coercion is necessary. Indiana Medicaid recipients have compulsory preventive care visits.

Even with qualifications, my vision of everyone having major medical/catastrophe insurance along with vastly reduced free market prices for day to day care just ain’t gonna happen. The change is too abrupt, and too many people are used to some version of the existing arrangements. And while I have no idea what changes will come from a Trump Administration, I am pleased to see the major medical vs. regular care dichotomy enter their discussions along with editorials urging them to recognize this distinction. I perceive Trump as a person guided by what works more so than ideology, and I am hopeful for some sanity to unfold. 

Trump will probably govern with a center/right coalition that includes the blue dog or moderate Democrats. Politics is the art of the possible. This will isolate the progressives, the closet socialists or worse. (Leaving the leadership of the Democrat Party to Keith Ellison, Elizabeth Warren and a behind the scenes Obama should be an ominous warming to anyone concerned about the survival of the Democrats.) We will always be split, arguing and compromising, but it is the progressives that prevent workable solutions.

An excellent example of this occurred in the UK recently. A system of government run 401(k) type retirement plans was proposed, similar to a recent program in California, but with the plan participants required to buy an annuity upon retirement to protect them from market swings. The progressives were infuriated that the government didn’t control the whole process and conjured fears of bankrupt annuity companies. They believe that the government should take on a massive unfunded liability that can only be met by, at the very least, higher taxes or inflation or both. But the solution is simple. Have everyone buy the annuity at retirement age and insure the annuities with a self funding mechanism like the FDIC for banks. If an annuity company goes under, the stockholders - not the taxpayers - lose out. That’s how a free market works. In a worst case scenario, if the annuity insurance fund went under, the government could make up the difference. But it would be the equivalent of pennies on the dollar and not a crisis. No retiree would ever lose their retirement income. While this may not meet the ideological requirements of some, it is workable and doable. The moral of this story is simple: Get the government must control everything progressives out of the way and we can compromise and solve.

Endnote: Health saving accounts (HSA’s) are likely to remain in some form. They are another addition to the alphanumeric soup that includes IRA’s (Individual Retirement Accounts), 529 plans (an education saving plan) and many others. The goals of all these schemes are all beneficial, but they all miss the salient point. Once upon a time in America, earnings and savings weren’t taxed away. Today, they are so high that even prudent people don’t have money available for savings. But forgetting the cause doesn’t help the financial firms providing, for a fee, these accounts. And, as I have noted many times in these posts, we have more and more people counting beans and less and less people producing them. We borrow money we can’t feasibly repay to buy manufactured goods made elsewhere. If Trump doesn’t reverse this we will eventually fall off an economic precipice.

Copyright 2016, Mark L. Bennett