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.
- 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.
- 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.
- 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.
- 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.
- 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.