In my mind there are two issues that need to be addressed in any successful health care overhaul. First, costs have to come down so health care stops costing $7,900 per person and increasing at a rate faster than inflation. Second, access to health care needs to be expanded to include the 21 to 46 million people without insurance. Since it is commonly accepted that the health care system needs an overhaul, what should that overhaul look like?
The Advantages of Government
There are two elephants in the room (if some are hiding and I can’t see them, let me know in the comments section) which the market has little incentive to deal with.
- It is in an insurance company’s best interest to avoid people with chronic diseases and conditions. Once a chronic condition is identified, that person’s cost to the insurance company is known to be greater, on average, than a person without that condition.
- Preventative medicine doesn’t pay the bills. Our medical system reimburses more for procedures and tests than physicals and diet plans. Additionally, insurance companies know that their customers may switch plans. This strangely creates a disincentive to offer more preventative services; another company can merely not offer the same benefit yet offer a cheaper overall package. This means that diet, exercise, and other similar programs get the shaft.
In the case of pre-existing conditions, insurance companies have no incentive to allow people with a diagnosis of a chronic condition to join the plan. Insurance companies also have the perverse incentive to not encourage preventative care because people can leave the plan. This is especially awkward because healthier people tend to be cheaper for insurance companies. These conditions will probably need some ‘Congressional Intervention’ to solve. Coverage mandates and some minimum preventative programs are in our future.
Solutions in the Public Domain I Love
There are two generalizations which may as well be facts when it comes to costs. First is you will cost more in the future than you do now. Second is that smoking and diabetes (type 2) are (generally) preventable. The first is just life… as we age, we have more conditions which cost more to treat. The second means that we can have an effect on our future health by changing our behavior today.
A complaint about current High Deductible Health Plans (I am in a HDHP) is that too many young, healthy individuals join these plans, driving up the cost for people in ‘classic’ premium/copay plans. I love the idea of HDHPs, many reimburse 100% for preventative medicine, and additional procedures, visits, and tests are at the insurance company rate (which is lower than the billable rate for a walk-in). The beauty of the plan is, on the off-chance something very expensive (medically) happens to a holder of the plan, they will be saved from bankruptcy- another request of President Obama in any health care overhaul. HDHPs do exactly that… they take bankruptcy out of the equation. Fundamentally, HDHPs are catastrophe insurance.
How do you hedge against future costs? 21-year-old Joe Sixpack won’t have his sixpack forever. He will eventually need more than the occasional antibiotic. Here is an informative description of the Cato Institute’s plan which would attempt to solve this issue. The link to the full report is here. The idea revolves around the use of “Health-Status” insurance, which is insurance for a premium rate change. If Joe Sixpack develops a chronic condition, this Health-Status insurance will kick in. This sort of a private market solution goes a long way to addressing the pre-existing condition ‘elephant’ mentioned above as well.
In car insurance, Joe Sixpack is perhaps the riskiest demographic to insure. Unmarried 21-year-olds require more reimbursements from car insurance companies. Older drivers (and females) don’t tend to behave in the same way behind the wheel, and cost less to insure. Many factors affect car insurance rates… number of recent accidents, age, type of car, number of tickets… and the private market classifies these risks correctly and adjusts rates accordingly.
In health care, if Joe Sixpack joins a premium based plan at work, he pays the same amount as Steven Kegger, a
- Should this Cost More? From SuperFantastic
54-year-old smoker with type II diabetes who is 80 pounds overweight (these people are made up, get off Google!). The risk of various lifestyle factors is disconnected with the price of insuring those same behaviors. If there were less onerous regulations on health care companies to be risk-blind, markets would be more efficient. Recently, the Wall Street Journal ran an editorial about Safeway (for our non-California readers, it’s a supermarket) and how their health insurance is structured. By incentivizing’ good behavior (or penalizing bad, as the case may be) Safeway has managed to keep their costs under control. If it’s okay to increase the tax on cigarettes, for example, why is it not okay to assign costs based on lifestyle choices? I would never advocate forcing people to stop their bad habits (I certainly lean Libertarian in that regard). However, I believe the market needs to price this behavioral risk accordingly.
A Note About Price Transparency
If I want to purchase car insurance, I can go to any number of web sites and get an accurate, comparable quote. If I want to purchase life insurance, ditto (and they are allowed to adjust for behavioral choices… weird). If I want to purchase health insurance, it’s close to impossible to compare the true costs across plans. With any health care overhaul, this needs to change. True price transparency will allow consumers to see what plan is actually better. Medical care is the same way… think about it. How much is a vaccine? An office visit? A hip replacement? Price transparency is an important step towards any successful overhaul.
Fix It.
Here we are, approximately 4,000 words later. Congratulations, you made it! Now what?
I hope I have convinced you that the statistics are wrong, the costs of government care will be huge, the ‘public option’ is actually a single payer system, and a market based solution is the best solution. Health care reform is a serious and timely issue, and I hope to see this country approach it in the correct way. Removing the perverse incentives in the market and allowing efficiency to reign supreme will allow the best medical plan to shine through.
White House thumbnail sourced from www.flickr.com/photos/20119750@N00/2770838680.
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