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July 21, 2011

Guest Post: A Five-Part Plan For Fixing America’s Health Care System

by Guest Poster

Today’s post was written by regular commenter Dr. Gregory Tetrault (aka “Dr. T”). Dr. Tetrault is a clinical pathologist who has directed four different medical laboratories since 1989. He was an Associate Professor of Pathology and Laboratory Medicine at the University of Tennessee Medical Center until 2009. His plan below is, IMHO, a realistic way to introduce crucial market-based reforms into our medical system while still maintaining a social safety net. Enjoy!

Health care costs have increased far faster than the general rate of inflation for decades. The most important cause was the transition from out-of-pocket payments for routine medical care (common in the early 1960s) to employer-based or government-based insurance or health maintenance organization (HMO) coverage. This produced price insensitivity among consumers, who believed that their insurance premiums paid for all the medical care as they wanted, and allowed medical costs to rise rapidly. We cannot rein-in health care costs without making drastic changes to our health care payment systems. My five-part proposal, if implemented, could reduce health care costs.

  1. Dissociate health insurance from employment.

    Employers don’t provide home insurance or vehicle insurance. They should not provide health insurance, either. A disadvantage of the current situation is that workers with chronic health problems become tied to their employer—if they switch employers their new health care plan typically will not cover their existing medical problems. Another disadvantage of the current situation is that most employers offer only a few health insurance options. Workers who opt out rarely get fully reimbursed for what the employer would contribute, cannot deduct health insurance premiums from their income taxes, and usually pay more for health insurance because they aren’t in a group plan.

  2. Require all adults to either purchase catastrophic health insurance for themselves and their dependents or provide proof that they can afford a moderately expensive hospital stay.

    This proposal is similar to the requirements in most states that all vehicle owners buy insurance or provide proof that they can pay for damages. The requirement violates libertarian principles, but it is necessary because clinicians and hospitals must provide medical care even if the ill or injured patient cannot pay. A fully libertarian approach would mean refusing to care for patients who cannot recompense providers at a mutually acceptable price. We aren’t ready for that much libertarianism.

  3. Require health insurance companies to accept all customers (no cherry picking) with only moderate stratification of premiums based on age and controllable risk factors (such as smoking).

    Insurers and others apparently forget that the purpose of insurance is to spread the costs of catastrophic events across the pool of insured persons. Insurers should not be classifying, sub-classifying, and sub-sub-classifying individual risks before calculating premiums. They should lump similar persons into large groups and charge everyone in each group the same premium. Example groups: 40- to 49-year-old male non-smokers, 20- to 29-year-old female smokers, 0- to 5-year-old children, etc. As an incentive for healthy behavior, insurers could offer discounts to those who can prove they are fit and in above-average health.

  4. Give a tax credit for health insurance premiums based on the cost of a minimal coverage policy to lessen the financial impact on the lower middle-class.

    This credit would replace the tax-deduction given to employers who provide health insurance to employees. The credit is capped at the cost of the minimum required health insurance plan to prevent large tax credits for those who buy expensive, low-deductible or full-coverage insurance.

  5. Create a taxpayer-funded (or, better yet, a charity-funded) health insurance voucher program for low income persons.

    This would replace Medicaid. Eligible persons would choose a health insurance provider and a coverage plan and use vouchers to pay all or part of the premiums. The eligible persons would be responsible for their out-of-pocket health care expenses, but health care providers could offer discounts, delayed payment plans, or free care (something that is not allowed under current Medicaid and Medicare rules).

This five-part proposal will give workers bigger paychecks (no employer health insurance deductions) and return most routine care to an out-of-pocket payment system. The mandatory catastrophic health care insurance will prevent bankruptcies after serious illnesses or injuries. The proposal allows people to purchase however much health insurance they desire from HMOs, preferred provider organizations (PPOs), or other types of plans. Implementing this proposal would make people aware of the full costs of health care services. Some people will refuse expensive care or negotiate lower charges. Such actions will reduce overall health care costs.

Businesses will be pleased because this proposal reduces operating costs: no administrative personnel will be needed for handling employer-based health insurance. Productivity would rise slightly because employees would not spend working hours choosing employer-provided health insurance plans or solving problems related to health insurance claims.

Health care providers will experience reduced billing costs because most people will pay directly for routine medical care, dentistry, prescriptions, laboratory tests, and imaging studies such as x-rays and simple ultrasound exams. Elimination of Medicaid with its poor reimbursement and excessive documentation requirements will greatly benefit many providers.

The losers if this proposal is implemented are: employees who work in health insurance benefits subdivisions of businesses, government bureaucrats who hoped to control the health care economy, and advocates of ‘nannystate’ government who believe that Joe and Jane Average are incapable of making health care financial decisions lose. The winners outnumber the losers by at least 1,000 to 1.

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  • http://knappster.blogspot.com Thomas L. Knapp

    Where are the “crucial market-based reforms” advertised in the front matter? This plan seems is a dog’s breakfast of irrational mandates and social engineering.

  • http://thelibertypapers.org/ Brad Warbiany

    Thomas,

    Today, most people get their medical insurance through either their employer or the government. They rarely if ever see any semblance of a price tag, and the insurance company servicing their employer views *the employer* as the customer, not the employee/patient.

    Creating a more individualized market where individual participants are forced to make choices, taking costs into account, is key. Ideally I’d go one step farther than Greg suggests and declare up front that the MINIMUM mandated plan be a high-deductible health plan with a health savings account option. This would protect people from the worst of catastrophic health care problems, but force them to make most of their spending come out-of-pocket. I expect total medical service usage will decrease as a result, and the lower demand should reduce costs across the board (and at the very least reduce aggregate spending).

    Today we don’t have a functioning *market* for healthcare services.

    The keys are to disassociate health insurance from employment, voucherize Medicare and block-grant Medicaid to the states, and then (because we don’t live in a society that will allow those without insurance to die) have an individual mandate with an HDHP as the minimum insurance plan accepted.

    Making the individual market the *primary* market rather than an afterthought, and increasing the relative burden of out-of-pocket costs to the total, are two HUGE changes that will allow the market to function.

  • Steve Trinward

    I give you credit for #1 – until that link is broken (and thanks, Uncle Miltie, for creating one of the worst things ever to happen to the American dream!) there will always be a built-in “customer base” for the existing anti-responsibility paradigm. (The challenge is to replace the lowered costs of a large shared pool, with some other method!)

    Item #2 is authoritarian, but has merit as a direction toward personal responsibility (PR hereinafter). Item #3 works, but only if you consider insurance companies arms of the State and not private entities. (I happen to think, as they are presently constituted, they are the former.)

    #4 and #5 are fine, or not — depending on the ‘force’ aspect. (Providing encouragement, tax credits, shelters for providers, etc. All for it! mandating it via govt? not so much!)

    You also miss a few things: hospital reform; breaking the AMA union walls; opening to integrative and alternative healing; shifting from aftercare to ‘wellness’ …

    decent start, though …

  • http://knappster.blogspot.com Thomas L. Knapp

    Brad,

    In a market, actors are free to make decisions. For example, my employer is free to offer me health benefits as part of an exchange for my labor, and I’m free to accept that offer. To propose banning that is anti-market, period, end of story.

    As far as the individual mandate bit goes, my response to all variants of it is the same — go fuck yourselves. The day the individual mandate takes effect is the day I become uninsured as a matter of principle.

  • http://thelibertypapers.org/ Brad Warbiany

    Thomas,

    You are correct regarding the market, but the deck is stacked by government policy towards a company offering health benefits and away from an individual market. That, coupled with the extremely large market distortion created by Medicare, and we have what I would call a non-functioning market. FYI I don’t propose BANNING employer-provided insurance, but I suspect that when you take away the market props and have a functional individual market, most employers will voluntarily exit.

    As for the individual mandate, I’m with the original poster that it’s not a libertarian policy. I don’t like it. I’m just not sure I’ve got any other answers, considering we live in a society that will expect taxpayers to pick up the tab anyway. I think that the suggestions in the post above are light-years better than the current situation we have, but if someone can find a way to improve the situation without a mandate, I’m open to the argument.

  • Phil

    Thomas,
    The proposal could be nit-picked until doomsday. The point is that it would result in lower costs for health care than are now prevalent. It is completely different from the current system which, as has been pointed out, is the opposite of market-based. There is, in effect, because of relative subsidization of employer-supplied health insurance, no market in health care or health care insurance.
    Also, Brad, I agree with adding a medical savings plan and requiring only a minimal insurance.

  • http://knappster.blogspot.com Thomas L. Knapp

    Phil,

    Whether it would result in lower costs is an open question.

    The idea that it is in any way “market-based,” however, is absurd on its face. Requiring some customers (individuals) and forbidding others (employers) to buy, forcing sellers to sell to all comers, and socially engineering it through the tax code is, to steal your phrasing, “the opposite of market-based.”

  • Phil

    Thomas,
    All predictions of future results from present actions are open to question. That goes without saying. I firmly believe that there is precedent for making the claim of lower costs.
    As to “social engineering” and “market-based”, I believe that you are looking at the proposal, not as an alternate to the present situation, but as if it were a stand-alone proposal not replacing anything.

  • http://knappster.blogspot.com Thomas L. Knapp

    Phil,

    Whether or not it’s “market-based” isn’t dependent on its relationship to the current situation.

    However, given that the current situation is that:

    – ObamaCare’s “individual mandate” is not yet in effect and will likely be repealed;
    – ObamaCare’s pre-existing condition exclusion ban is not yet fully in effect and will likely be repealed;

    … implementation of this plan from the current situation would be a move away from, not toward, market principles.

  • Phil

    Whether the Obamacare provisions will likely be repealed is an open question. :-)
    Are you aware that the current situation is that an employer is allowed to count his costs for health insurance as a business expense? The result is that the current situation is socially engineered. That is, the employee receives a benefit that is not taxed. The result, as pointed out in the original post, is that the typical employee pays little or no attention to the cost of any health care. The result is that there is no direct market pressure on the provider of health care to be more efficient or otherwise reduce cost.
    Consider a comparison of health care costs with food costs. I believe that it can be argued successfully that the reason food costs in this country are the lowest in the world can be attributed to the fact that people pay directly form their pocket to the grocer for each item of food they buy. That is what I mean by market-pressure.

  • http://thelibertypapers.org/ Brad Warbiany

    Thomas,

    It is my contention that the current system is horrendously distorted by government policy. Tax policy encourages third-party payment of insurance premiums. Insurance companies already operate under heavily regulated conditions by the individual states, and the action of the healthcare market in general is dominated by the action of huge state enterprises like Medicare.

    The distortions on the market today constitute a system where almost all the incentives are lined up against cost containment or letting market principles work. The unintended (or intended, depending how you view gov’t & corporations working together) are to make it nearly impossible for individuals, the self-employed, and very small businesses to buy reasonably-priced insurance, thus giving an enormous market advantage to large corporations who have the bargaining power to reduce rates. The incentives align for both employed individuals in corporate plans and for Medicare recipients to over-consume health care services, as they’re almost completely insulated from the costs.

    Now, the proposed plan above isn’t a “libertarian” plan. The original poster admits that point #2 violates libertarian principles. Even with that caveat, I think it’s a move towards market principles from the current system.

    I would also state that Obamacare is a large net move AWAY from market principles. In addition to adding the mandate and the exclusion ban on pre-existing conditions, it maintains the third-party provision of all medical insurance for the bulk of the consumers by expecting companies to kick in even more for insurance and by retaining Medicare in its current form.

    So I’m not making the argument that a mandate and ban on exclusion are themselves pro-market, but that if you have those in conjunction with ending the employer subsidy for health insurance provision and voucherizing Medicare, the combination is more market-based than the current system. I say that because it starts to align costs with the person doing the consumption, giving the actual patient the incentive to economize or to price-shop in ways that they wouldn’t even give two shits about today.

  • http://hathor-sekhmet.blogspot.com VRB

    Quite as it is kept, employees are very much aware of how much health care cost, when they are consistently asked to pay more of the premium and co-pays.

    If it weren’t for some of the unions you would wind up with you health care aid making less than a McDonald’s cashier. Take it from me it is no fun laying in your urine or feces for hours, because of lack of care or personnel. Everyone is equal(unless you have private nurses), no matter how much you pay or don’t pay at this level.

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