Health Care for a Free Country

(Note, this is the last of a series on health care. For an index of other articles on the topic, see Health Care, Time to Choose)

OK, having identified many of the government interferences in the market that have resulted in unaffordability of health care, relative to everything else we need and desire, which the free market provides us in abundance and at reasonable costs, how do we unsnarl this mess without causing unnecessary hardship?

In some cases, we can just stop doing harm and the market will adjust quickly and favorably. In others, we have to phase out the problems gradually so people who acted rationally under the old rules will not be adversely affected. For a start,  anti-competitive measures like Certificates of Need can just be immediately abandoned. If someone wants to put their own money at risk to open a health care facility, then they should  need no permission from anyone to do so.

Hospitals, and health care providers, should not be required to give away their services any more than any other business. If people need treatment and cannot pay, that need should be filled by charitable organizations, and not through government. You might be surprised how quickly people will start insuring themselves, at least for basic care, when they learn they can no longer just show up at a hospital and demand free care.

Likewise, regulation of health insurance should be limited to the enforcement of the insurance contract. All mandates should be eliminated, as well as all restrictions preventing the formation of voluntary insurance groups across state lines.

True, health insurance contracts are very complex, and we would not want to  have to become experts on health care in order to evaluate a contract, but that is what insurance agents are for, to guide us to a good policy through the free market.

We need to restore the General Practitioner to his primary role in health care by limiting his liability to the standard of care of other GP’s when he performs services also provided by specialists, providing the patient is informed that specialists are available for that service and he makes the informed decision to receive that service from the GP.

More controversially, I would suggest abandoning professional licensure as a State power, which is too often little more than masked  restraint of trade, and leaving the determination of qualification to our professional liability insurers. Patients could simply look for a health care practitioners certificate of insurance (and health care insurers could demand such proof for payment as well) just as we look for, or trust retailers to look for, the UL certification on a toaster. Underwriters Laboratory is a product likability insurers agency which performs the same function as the Consumer Product Safety Commission, and does it much better and cheaper.

Most importantly, tax treatment for employer provided plans and private plans should be the same. This could be accomplished by allowing employers to contribute to employee Health Care Saving accounts on the same basis they now can contribute to their company plan.

One of the consequences of our past reliance on employer sponsored plans was the need the the Medicare system. Medicare is necessary only because we do not have the kind of lifetime, level premium,  health care insurance described in HC, Disconnection from the Market but we cannot simply discontinue Medicare abruptly as those at or near retirement never had the opportunity to buy into lifetime health care insurance at a young age, and they are now too old to get an affordable rate over the remainder of their lifetime. It will be necessary to phase out Medicare over a couple of decades, possibly with gradually increasing co-pays to be covered by supplemental insurance in the transition, so it will take a while to get government out of health care completely, but when we do, we can expect to see quality and service improve as costs fall, just as they have with the computer you are sitting at right now.

The free market provides for our needs and desires better than any government ever has or could, if we will just trust in that market and let it do its magic.

Advertisements

11 Responses to Health Care for a Free Country

  1. Dave says:

    As an insurance underwriter, I can tell you that we have a hard time figuring out the contracts ourselves. One thing I would like to say is that by handling the bills and medical information for two elderly parents, the Medicare system has an incredible amount of waste. One example is that if you were going to have a procedure that costs $2,000 if you were going to pay cash would cost $6,000 if you had Medicare. Medicare gets the bill, tells the doctor that he can only charge $4,000 and pays that. The doctor or hospital gets to double their profit AND have a $2,000 write off. Another example would be for the wheeled walkers, motorized carts, etc. I actually bought 2 wheeled walkers for under $100 apiece on EBay and a local drug store paying cash. If I had gone through Medicare, the same wheeled walker at one of those mobility or med supply stores is around $260, they bill Medicare for $140 and charge you the additional $120 all for a walker that probably costs them $40 wholesale. If I see this on a daily basis, imagine how much waste there is in total. We could probably cut Medicare spending in half and everyone would still make a huge profit.

    • rich says:

      Please explain the $2000 procedure analysis. I know about the different pricing, but who is responsible for setting up this fraud to begin with? Who says it costs 2k, why does a cash customer get charged 6k (I’ve heard they get a significant discount, not overcharge) and why does medicare/insurance average out what they pay? All should be charged the same, regardless of how they pay or what insurance they have. What a royally screwed up business! The power brokers have had plenty of time to clean it up, but just couldn’t believe the gravy train would ever be forced to stop, just like all the major corporations that are failing and getting welfare. Guess all of health care will jump on that one, too. Hope they won’t be allowed, though, because, ah, alas, life ain’t fair.

      • Don Tabor says:

        I don’t deal directly with Medicare, but I don’t think it works quite the way Dave describes. There are additional steps.

        Most Medicare fraud is done by un-bundling. For example, a walker that would, in the free market, sell for $200 would only be paid at say (just guessing) $140 by Medicare. So the provider also charges $90 to “fit” the walker for the patient and Medicare pays $60. Then the provider charges another $100 to instruct the user on how to safely use the walker, and Medicare pays another $50 or so for that. So, the seller has charged $390 for the $200 walker and Medicare has paid $250 for it. The remaining $140 is charged to the patient, but no effort is made to collect it, so the patient doesn’t blow the whistle on the seller for the added charges, fearing that if he does, the seller will collect the $140.

        Those extra charges for fitting and instruction would not have been charged to a private buyer and would have been included in the $200 price.

        That is one of the problems with third party payer systems. The incentives for honesty are destroyed. Both the provider and the consumer have an incentive to game the system, and the system is scamming both of them by refusing to pay a fair price in the first place, making everyone involved feel morally justified in their deceptions.

        Government poisons everything it touches.

  2. Don Va Beach says:

    “if you were going to have a procedure that costs $2,000 if you were going to pay cash would cost $6,000 if you had Medicare. Medicare gets the bill, tells the doctor that he can only charge $4,000 and pays that. The doctor or hospital gets to double their profit AND have a $2,000 write off.” In other words, are you saying that the problem is with greedy, dishonest doctors, and not Medicare?

  3. Len Rothman says:

    Don,

    I think you wrote a well thought out plan for a free market health care system. I do have a few concerns, however.

    1) Malpractice insurance is very high, no doubt. But the lawsuit is the only redress for injuries caused by bad procedures and incompetent physicians. It is free market regulation, with all the good and bad parts that unregulated free markets often contain. Doctors, hospitals and other health care facilities are notorious for “circling the wagons” and protecting their own, rather than policing their ranks. Enter the malpractice suit. And often, as in many product liability judgements, the records are sealed and a settlement is made. Then the bad practice continues.
    Unless the medical community can come up with a regulatory procedure with teeth and serious consequences for egregious practices, these lawsuits will continue. You can’t just blame the torts system without holding the reason for such actions responsible.
    2) Now, if the insurance certificates that you prefer were a reality, it would really just add to the clogging of our courts and probably more vigorous lawsuits. After all, losing the certificate would only come after successful suits have cost the insurer money. Taking away third party licensure and letting the courts decide after the fact that the surgeon who killed my mother is incompetent may be free market, but kind of dangerous. We are not talking about killing your shrubs and getting compensated.
    3)I also see a danger in letting private insurers rate doctors via certificates of insurance. There is a conflict of interest, I think, in having the doctors pay a company to provide them with a license.
    One doctor might not have much leverage, but the AMA could switch insurers if it thought a particular company was too stringent. Much like Moody’s giving AAA ratings because their clients paid the bill. The competition among companies would not be based necessarily on what helps the consumer, but the size of the premiums and how tight or loose they regulate their clients. I am not sure that would provide effective policing for medical quality.
    4) I agree that having companies provide insurance has got to go. Everyone should have their own individual health plan. And if everyone had to purchase insurance, we now have a group of about 300 million, and that should provide a great deal of leverage. Having to rely on a local club or national group to negotiate will only serve to fracture the market with some wealthy groups, such as physicians or other professionals having great negotiating power, whereas the freelance house painters association might not have the resources to hire powerful negotiators. If all the insurance companies had to compete nationally, or even regionally for individual policies that would provide some real competition.
    Of course, someone would have to oversee the insurance companies to make sure they have the resources to actually pay when the time comes. Up rears the ugly head of regulatory teeth.

    • Don Tabor says:

      Len, Thanks for your reply. I understand your concerns.

      Regarding #1, I am not suggesting banning malpractice suits, but they do add a great deal to the cost of health care that adds nothing to its value. Not just because of the embedded cost fo malpractice insurance, but more because of the unnecessary defensive testing and imaging and the drive toward overuse of specialists that result. This is second only to cost shifting in avoidable, unnecessary costs. Perhaps some other method for settling such disputes, either binding arbitration or special, expert courts might work, but so long as health care providers must approach every case as though it is a trap waiting to be sprung in court, health care costs will be higher than need be.

      #2 & #3 Ending professional licensure by states is not a high priority for me, it is just another thing I trust the private sector could do better. I know you have more trust in government. But consider that a model of what I am talking about already exists in aviation. I am a lapsed private pilot, but I could reactivate my certificate simply by passing a two hour check ride with an instructor. Were I to then try to finance an airplane purchase, I would face a much higher standard from the insurance company that would cover the airplane. They would require much more recent experience, recurrent training and time-in-type than the government does. This is especially true as you move into more complex aircraft and commercial flying. The private sector’s standards for pilots are far beyond those of government. The same could be true for professional liability insurance were licensing by the state automatic proof of insurability.

      #4 Simply requiring everyone to buy insurance would not create a group of 300 million, it would create 300 million groups of one. Insurers would still use underwriting to set your rate. I would prefer that each of us be qualified for a number of possible voluntary groups. Our church, our professional association, our union, our health club, our employer, etc. or GEICO for that matter (which was originally a group). Any large group capable of negotiating a rate and saying ‘take us all or take none’ to the insurance carrier would have a better bargaining position than an individual. So long as we have choices other than our employer’s plan on an equal footing, insurance more suitable for lifetime coverage will be offered.

      And yes, those who, with such coverage available but who choose not to take it would have to rely on charity.

  4. rich says:

    Yeah, stick it to the boomers (phasing out medicare, increase supplemental premiums) like has been done to this generation over and over in many matters, not just this one. Enough boomer attacks!

    • Don Tabor says:

      As a fellow boomer, I feel your pain.

      But Medicare WILL collapse. It is a Ponzi scheme which is coming to the end of its rope. Our choices are to phase it our gradually, thereby extending its life until lifetime insurance can take over, or hoping we die before it abruptly collapses.

  5. Len Rothman says:

    Most of the emphasis on controlling heath care costs seem centered on the insurance industry. But we need to remember that insurance is nothing more than spreading the risk and using premiums in other investments to provide coverage based on actuarially determined expenses. If the math is right, and the larger the group, the more accurate the predictions will be, then the cost of coverage would not vary much from company to company for equal coverage. Add ons and extras would merely be charged as such to the individual requesting such services.

    So no matter what system of insurance we use, free market, public/private, or single payer, the cost of insurance should be about the same. The premiums structure would merely reflect administrative and marketing costs as far as any differences are concerned. If those costs are passed on to the customer, which they invariably are, then the competition is merely based on who has the most effective marketing coupled with the least costly administrative expenses. And, if we ever do get our act together on medical databases and single, electronic card reimbursement systems, then just about all private insurers would have similar expenses.

    So now, where will our savings come from?

    The only two sources would be actual medical fees and individual lifestyle.

    I have championed the idea that lifestyle changes could come about if we had advertising as clever and convincing as that used to get Americans to eat at MacDonalds. Not Public Service Announcements, but effective, persuasive marketing that nudges people to act in their own self interest instead of the opposite. Our most effective advertising has been to encourage extreme consumer debt, obesity, alcohol and tobacco addictions. If we can make large portions of the population act AGAINST their own self-interest (Adam Smith, take note please), then we should be able to reverse that trend, and do it for profit.

    Insurance companies would pay for this, because in order to keep premiums coming in, expenses low and profits high, they would have to encourage healthier customer lifestyles. Essentially the huge sums they now pay for advertising their services would be shared with advertising reducing their claims expenses.

    I should mention that no matter what system we use, we have to prevent cherry picking and denial of claims as the only true profit incentive for private insurers. Profits need to come from large group coverages which provide actuarial accuracy and proper premium predictions without cutting customers off from treatment or denying coverage.
    After all, the uninsured are costing us more than the insured due to expensive treatment.

    Then we come to the actual cost of health care delivery. By now, you are familiar with the Dartmouth study, particularly regarding the Mayo Clinic and other major metropolitan systems around the country. Even allowing for local cost differences and lifestyle, great efficiencies can be achieved in providing care that actually is effective rather than just running up costs.

    And these differences are not based on malpractice over-treatment protection, but rather a culture of what is best for patient results rather than corporate profits.

    Savings can be achieved, and are in fact being done. No reason not to implement those across the nation.

    And we cannot let pharmaceutical companies, especially those who are foreign owned (and most of the top ten are) use us to line their pockets while they sell the same drugs to the rest of the world at a discount. Much of their R&D comes from university grants, often taxpayer funded, so we are in effect paying twice.

    Adding in the database, malpractice reform using medical boards and legal clearinghouses for frivolous suits, we are capable of going back to being the best in the world.

    We are not now, nor will we ever be unless all the players-medical providers, pharmaceuticals, consumers and insurance companies decide that in the long run it will be profitable for everyone, not just a few for the next fiscal quarter.

    And, please note, that I am not pushing single payer or a government plan. People can still make plenty of money at all levels, no limit except as provided by the competition. But they may have to adhere to some rules. But, after all, manufacturers cannot dump raw sewage or chemical effluent to their hearts content either. It is in our best interest that they follow some rules also.

    • Don Tabor says:

      Your concerns on lifestyle, cherry picking and cost shifting are all legitimate, but in each case, restoring normal market relationships is the answer, not turning to government.

      First, regarding cherry picking, that is why I advocate voluntary group plans over individual coverage. An individual photographer seeking coverage has little bargaining power, but a national professional photographer’s organization(open to everyone from news photographers to mall portrait workers to artists) would be a huge group. Those same people might also be members of a church, or service organization and have a number of group plans available to them.

      Regarding overuse and lifestyle issues, that is easily limited by co-payments and discounts written into group policies. If your professional group gives a discount on rates to non-smokers or those with restricted BMI ratings, but your church does not, that might affect which group you choose to buy through.

      The key to making market forces work is to reduce the number of third parties. As it is, for most people, the person who makes the buying decision is not the one who pays for it. Your employer chooses your insurer, but you decide when to seek medical attention and to what extreme you will pursue treatment and preventive care. That really can’t work.

      But I really can’t see how adding government as yet an additional third party will help. In fact, the proposed single payer insurance plans, with government acting as the third party payer in an monopoly position is the worst possible alternative. A truly free market, as I have proposed, I believe is the best choice. But if government is going to take over, than it should do it all the way and own the hospitals and clinics and make providers government employees eligible for collective bargaining. Expecting providers to operate independent businesses with only one customer who sets the rates, will be a disaster that will make the housing bubble collapse look insignificant.

  6. Len Rothman says:

    Don, I understand your position, particularly keeping government totally out of the insurance business.

    However, if we are to have a health care system that works, then we have to insert some regulations for insurance companies.

    Large groups may work well, but if you happen to have a medical history with serious problems, you will, I guarantee it, have major difficulties finding groups that will let you into to their bargaining pool.

    The cherry picking will simply shift to the groups, who are interested in getting the best rates for their members. That will, at best, leave a few groups who specialize in very sick people. How much leverage do you think they will have? And that removes the whole principal of insurance: spreading the risk over a large population, most of whom will not need catastrophic coverage, but will pay for those that do.

    The present day practice of rescission must be stopped and made illegal. As it is, the ability of a company to unilaterally reject a claim years after acceptance of premiums that a customer paid in good faith is not only immoral, but should be against the law.

    Pre-existing conditions should never enter into the insurability of a patient. Competition among insurance companies should be on price and service, not who can sign up only the young and healthy.
    That should be against the law, also.

    With millions of new customers, the insurance companies would have more leverage with providers and drug companies to reduce and maintain reasonable rate structures.

    I don’t find fault with the idea of preferential rates for those who maintain a better lifestyle. But that is exactly what they are doing today, so nothing new there. Those incentives, combined with a insurance industry long term ad campaign for better lifestyle choices, will work. It worked to get us fat, it can work to get us back in shape, voluntarily mind you.

    I am afraid the fast food industry is a good example of the failure of free markets, by the way. It was great for the beef and corn producers and shareholders in MacDonalds. And left alone, it was very successful at sickening our population. Advertising overpowered the customer’s ability to act in their own self interest. Combined with the food industries fine tuning the addictive nature of salts and sweets, (sort of like cigarettes being nothing more than a nicotine delivery system perfected to increase consumption of tobacco) many in our population are now suffering the ill effects that we are paying for.

    That is why I believe in the power of persuasion. It worked in one direction, and I know it will work in the other. And insurance companies will have that incentive if they cannot cherry pick or rescind.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: