Health Care Solution Analysis
Politics / Healthcare Sector Oct 29, 2009 - 01:36 AMBy: Submissions
Jonathan K. Solan writes: America’s politicians are proposing “Cures“ for health care at a rapid pace. Each “Cure” is immediately challenged by people and organizations from both ends of the political spectrum. One side says the cure is too expensive, the other side says the cure does not go far enough. All sides say we need more insurance.
Most Americans listen to the arguments and they intuitively know what they don’t like in the proposals, but they hear little in the way of proposals that they intuitively do like. They don’t like hearing higher taxes, forced enrollment in insurance, Government options, and fines for not having insurance. Americans know that the American way is freedom, not government force. Why do the politicians repeatedly turn to the use of force to fix problems?
At the same time, Americans are anxiously waiting for someone to come up with a solution. The question is” Why is there no simple answer to the Health Care Question?”
Maybe the answer is hard to find because we are looking in the wrong place.
Let’s look at the problem. The basic problem is financial. Insurance and Hospital bills are too high. Insurance is so high that many people decide not to purchase it. Still others feel they need insurance but they can not afford it. Businesses find they must consider laying off workers because of the high cost of insurance. Businesses also avoid hiring full time employees because of the price of insurance. The price of insurance premiums is rising at a rate well above the general inflation rate. Insurance companies are limiting coverage to save costs. Medicare and Medicaid are going bankrupt.
People without insurance are afraid of becoming ill. Even short stays in a hospital can bankrupt a family. Even visiting your doctor for preventative care can impose strict rationing of family finances.
So it is the cost of care that is the problem. In the United States it is not the availability of care like it is in National Health Care Countries. There is wonderful treatment available if you can afford it. Paying the bill is the problem.
All of the politicians have proposed one main theme to solve the problem. All Democrats and most Republicans are proposing increasing the number of people who have insurance. They propose new ways of using Government power to get Insurance to people.
Is that the right way?
Lets look at the problem closer. Let’s look at another market with similarities to health care. Let’s look at the computer market.
Personal computers require extensive research just like health Care. Computer markets require highly trained technicians to manage the products. There is a thriving research and development industry just like in health care. New products and new technologies are release each month. Unlike health care the computer market has seen the price of Computers go down over the past 10 years while speed, storage, and accessibility have rapidly increased.
Personal and Business computers have become almost as important as health care. Do you remember the millennium scare? Just the thought that computers may not work on January 1st , 2000 drove the country into a panic.
What makes computer markets and Health Care markets so different in their inflation?
The answer is simply this. People shop for computers. That is another way to say there is a free market in the computer market. People shop shop shop. They look in the Sunday paper flyers. They see ads on TV. They go on line to find the best deals. They go to computer shows. They ask their friends for advice. Most importantly they gather enough information to get the best deal.
Most people are not computer geniuses, but they are Americans who know how to shop and get a great deal.
How does that control inflation? Here is the answer. It is simple. Those store owners who are charging too high a price for computers soon find they have few customers. They lower their prices to meet market demand. The price of computers comes down.
Shopping does not exist in health care. Oh, there are some limited markets. Laser vision correction and certain cosmetic surgeries are not covered by insurance and these industries have enjoyed low inflation.
The rest of health care enjoys very limited shopping. There is some competition between insurance companies for general medical care, but the competition is limited by regulation and the small number of participants.
There are many reasons why people don’t shop but let’s look at the most important. The reason patients do not shop is that they don’t care about the price. 88% of the American population is covered by insurance. They have insurance that their employer or the government pays for. They might gripe at the bill, but as long as the insurance company pays the bill the patient doesn’t care enough about the cost to change doctors. It doesn’t matter if the bill is $50.00, $5,000.00, or $500,000.00 the patient will go back for the same treatment the next month. Insured Americans, 88% of the population, do nothing to curb the costs of health care.
On the flip side, Doctors and Hospitals know the patients don’t care. With no brakes on prices by the 280 million insured patients, Doctors and hospitals have been free to raise their prices. The government and insurance companies have tried to slow inflation for the last 70 years by asking for things like co-payments, managed care, participating doctors and various other ineffectual techniques. These attempts have failed. When the market is “The Patient doesn’t care about the price and the Doctor knows it,” inflation will rear its ugly head.
When you hear politicians complaining that they can not find a way to get more people insured and keep inflation in check, isn’t it any wonder.
Insurance is the cause of inflation!!
I don’t want to paint the picture that Doctors, hospitals, and insurance companies are greedy and evil. They are just people operating under the rules they have been stuck with. The rules are bad.
How did the rules of the health care market evolve and where did it all start. This is our second problem. In order to solve a problem it is useful to not repeat the mistakes of the past.
Media talking heads and politicians blame free market capitalism. They say that the uncontrolled health care market has run wild. That would be possibility if free markets existed in health care. They do not. All medicine is controlled by government regulation. There was however a time when free markets did exist in health care.
At the beginning of the 20th century there were free markets in health care. A significant year is 1927. The year is significant in that it was the year that the first modern health care insurance program was written. It was an agreement between Baylor University Hospital and a nursing school.
The importance of this policy is that for the next ten years nobody saw a need to buy it. Health care was relatively cheap and accessible through direct fee for service, club or lodge doctors, and charitable organizations. The point was that markets kept the price down and insurance wasn’t considered a valuable purchase.
All that changed in 1937. In that year many business started buying insurance for their employees. Medicine had not changed. Government policy had changed. 9 years into the Great Depression, FDR had still not found a way to get out of it. The economy was still sinking. The government placed Wage and Price controls on business to try and freeze the economy. They were hoping to prevent further unemployment and pain. Unfortunately it was a bad idea and 1938 saw another dive in the market and a rise in unemployment.
One of the unexpected consequences of Wage and Price Controls was its affect on health insurance. War was raging in Europe. Men were going into the army. There was a shortage of skilled workers.
Employers could not offer raises in pay to get new skilled employees,that was illegal under Wage and Price Controls. Employers discovered a way to get new employees without getting into trouble with the law. They started offering health insurance to new employees. Insurance gave the large employers leverage to get good employees.
The use of insurance grew exponentially during this period. Soon another Government intervention encouraged the use of more insurance in health care. Business found that they could save a great deal on payroll if they bought insurance instead of paying employees cash. When an employer paid cash he had to pay the new social security taxes and unemployment taxes. When the employer bought insurance he only had to pay for the insurance. This provided over a 10% savings in payroll for each dollar paid in insurance instead of cash.
Remember, insurance was purchased not because of a problem with health care. Insurance grew in use because of poor regulatory practices and high taxes.
The net result of this growth of insurance was the growth of inflation in the price of health care. For the next 25 years medical inflation grew. Remember, “The patient didn’t care about the price and the Doctor knew it.” Costs were rising.
By the early 1960’s the price of medicine had grown so high that the poor and elderly could no longer afford to go to the doctor.
The government had the opportunity at that time to look at the problem and come up with and answer. Unfortunately the government came up with the wrong answer. Instead of limiting the use of insurance, they created Medicare for the elderly and Medicaid for the poor. They insured millions more Americans.
I am sure the reader can guess what came next. Why of course, more inflation.
Over the next 40 years the government tried many times to curb the rising cost of health care. They tried managed care. They encouraged insurance companies to pay for more and more conditions. The government started setting the price for all procedures. They used the Stark Amendment. They passed the HIPPA laws. The government did many things that all increased the use of Government and private insurance but they never addressed the main problem. “The patient didn’t care about the price and the doctor knew it.”
The group paying for the bulk of these bills, the employers, was very late to complain about the price. The employers allowed the price to rise for many years. For many years the employers knew they were paying a steep price for employee insurance. The employers were willing to pay for this insurance for several reasons. First, the cost was just considered to be the price of doing business. Secondly the employers were enjoying the tax deduction for buying insurance. I fact, most employers were happy to buy more insurance for the tax deduction. In the 60’s they bought dental insurance and dental prices rose. In the 80’s they bought vision insurance and vision care prices skyrocketed. In the 90’s insurance companies started canine insurance and the price of Veterinary medicine became very expensive.
It was not until the monthly premiums became so high that the employers could no longer afford their employees that they became concerned. By that time it was too late. Insurance was now expected by employees.
Now we come to modern times. The price of health care continues to rise. Prices are so high now that government and private insurances are starting to ration care. Eye exams are only allowed every two years. The best lens implants are not covered. People are kicked out of hospital beds at shorter times after surgery. Many of the best drugs are not allowed on drug protocols. Dentists are faced with doing the best work, and not being paid or using techniques from years ago that are still paid. Pre-existing conditions are a death sentence or at least an unemployable sentence.
So what will the government do? Will they do the right thing this time, or will they repeat the mistakes of the past. The president says,” Doing nothing is not an option.” Is that true? Some answers will make the situation much worse.
I think it should be obvious to the reader that increasing the use of insurance is not a good idea. Should insurance be done away with? No, that is also not a good idea either. We need insurance for catastrophic conditions. What is the happy medium? Truthfully, only the market can come up with the final answer. Millions of Americans deciding what is best for themselves is far more powerful and accurate than 400+ politicians in Washington deciding. The American people need their freedom back in order to make the decision.
Even though the market should decide how to solve the problem, Americans will make the decisions and rules that describe the final market.
Here are some potential guidelines.
All Government policies must bring the price of health care down. Lowering the price limits the problems facing the poor, elderly, and those with preexisting conditions. The best way to lower the price is to avoid the use of insurance to pay for routine care. Insurance should be reserved for catastrophic health care problems. Let the Doctors and hospitals set their prices based on what people can afford.
1. Medical Savings accounts also called Health savings accounts - Currently Americans go to the doctor and think, “I need to spend the insurance money or I will lose it.” Medical savings accounts are a way to turn patients into saying” If I can get a good deal at the doctor I will have money left for other projects. Patients are turned from being medical spenders to medical savers.
In short, medical savings accounts allow patients to purchase high deductible, catastrophic plans. The employer places several thousand dollars in the medical saving account to pay for the deductable costs. The employee spends the money for routine expenses. If the medical savings account is exceeded the catastrophic plan kicks in and pays the bills. If the patient does not exceed the limit he is rewarded the cash as a bonus for being a good shopper. These plans can turn 300 million Americans into medical shoppers instead of medical spenders.
These plans are currently strictly limited by the federal government. Expanding the use of these plans and clearing the limitations on them could powerfully change the way Americans purchase health care.
2. Deregulate the insurance industry. Stop the limits on interstate commerce for insurance companies. Regulating the insurance industry has some very negative effects. First the regulations restrict new and innovative ideas. Second, insurance officials find it is easier to influence a government official with donations or property than to work hard at outdoing the competition. The influence buys the insurance business special privileges including a lack of competition. Patients suffer.
Just look at the sweet deal the insurance companies tried to make with the president last month.
Regulation directly makes monthly premiums very expensive. Every time there is a problem in the news, the media drives the hype over the problem. The congress responds by demanding that insurance cover the problem. The FDA writes new regulations requiring more detailed coverage. The end result is the bloated policies that are currently available for sale. This phenomenon prevents the use of catastrophic insurance policies that would be much more cost effective than the current policies.
The first state that is smart enough to deregulate its insurance companies will find itself swimming in revenues as all Americans flock to the state to buy cheaper insurance.
Insurance companies hire thousands of smart people. If their intelligence is turned to finding answers to health care instead of avoiding government regulation, they will develop answers to many problems.
3. Encourage private purchasing of insurance rather than employer purchased insurance. A market where 300 million Americans are shopping is much more powerful than a market with only thousands of businesses or worse, one government shopping. For years the government has talked about the power of buying insurance in bulk, it has not worked.
4. Offer tax credits to doctors and hospitals who donate time and materials to helping the poor and elderly.
5. Lower taxes in general making it possible for doctors to profit on lower prices.
6. Unfortunately there is one group of people who must be protected. Senior citizens have had their money taken from them in taxes for many years. They do not have the ability to start working again and then compete in the market. Medicare in a modified form must continue to protect them at least over the short term. A worthwhile reform would be to offer Medical Savings Accounts to Senior citizens. This would allow Seniors to be be watchful of what Doctors and hospitals are charging.
Younger Americans must not be subjected to the same unfortunate situation of being a slave to state and federal handouts.
7. There is a vast burden of Autocrats on the payroll in the State, Federal, and Private insurance Agencies. These people get paid first, and what is left over goes to health care. Eliminate the Autocracy. It is estimated that it costs over $600 a month to insure an individual. This number includes premiums, taxes and out of pocket expenses. For a family of 4 that is up to $2,400 a month in lost income. That’s $28,800 a year. That’s $720,000 in lost income over the 25 years a family supports two children. There is plenty of money in the system, but it goes to the governments and the insurance companies first. Let Americans keep their hard earned money first.
8. Americans have always been a generous compassionate people. Allow them to keep their money and they will have the means to help their family and their neighbors.
9. Educate doctors and the public on what the true problems in health care are. An educated public makes wiser decisions on government policy.
10. Distrust any government official who supports a bill he has not read or is not written in clear language.
11. Initiate comprehensive tort reform. The lawyer lobbies are not more important than the American public.
Thank you,
© 2009 Copyright Jonathan K. Solan, O.D - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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