Monday, January 18, 2010

My plan

I've been doing quite a bit of bashing of the current health legislation without providing anything productive. Well, this post is intended to remedy that by outlining my ideal health care reform.

It is pretty obvious that health care spending has been increasing at a pretty good clip:

This is really unsustainable (I think). Health expenditures increased by just over 6% in 2007, which is much higher than GDP growth. At current trends, we'll be directing one quarter of all of our country's expenditures to health care (we're currently spending around 16%). This represents a huge amount of money and resources that could be applied to things that provide us with more benefits.

Now, there are a lot of things driving this growth: new medical technology, increasing personal wealth, the aging population, and increasing third party payment (insurance) are generally cited. The aging population is a trick issue, and I'm not completely sure what to do with it. Earlier, I indicated I wasn't positive about the unsustainable health cost growth. This is because there is a chance that, as people live longer and longer, we really will just come to an equilibrium wherein a huge amount of our wealth is spent on health care. This is not my preferred alternative, but it is possible.

The other items, however, can be addressed. I think that getting rid of so much third party payment--that is, depending on health insurance to pay for just about everything--is the key. After all, we don't use our car insurance whenever we get an oil change, and car maintenance costs are not skyrocketing. But a dental cleaning or a routine doctor's visit are almost never paid entirely by the consumer. This is distorting expenditures because consumers don't know how much stuff really costs and, since they're not really paying, they elect to have more done than is necessary.

Currently, health insurance premiums provided by one's employer are tax deductible. This provides an incentive to beef up compensation packages by providing better health insurance to workers. Getting rid of this tax benefit would reduce the amount of companies that provide substantial health insurance. And since nearly 200 million people have insurance through an employer, this would push a ton of people out into the individual market.

This may sound like a no-win for workers, but employee salaries are currently reduced by however much a company spends on their health insurance. Getting rid of this cost would lead to higher salaries, and they could pay for the insurance they want rather than whatever their company offers. Or, if they just wanted to pay medical expenses out of pocket and keep the extra $2 million or so that their employers will pay for their health insurance over their career, they could do that too!

Under this scenario, many people will probably not elect the most comprehensive coverage. This means that, if they want or need some care, they will pay are larger portion of it themselves. This will force consumers to evaluate costs and benefits, and will lead to less wasteful spending. Perhaps consumers don't know enough about health care to evaluate these trade-offs, but I am absolutely positive that hospitals and doctors would make costs more transparent so this would be easier.

Another crucial step is to get rid of so many mandated insurance requirements. Throughout the states, there are nearly 1,000 mandated benefits, and they don't come cheap.
A new analysis prepared for the National Center for Policy Analysis by the actuarial firm Milliman & Robertson estimates the costs of 12 of the most common mandates and finds that, collectively, they can increase the cost of insurance by as much as 30 percent.
Mandating coverage of things people don't need or want covered is no good. People should have the freedom to sell and purchase what they want. If a person wants podiatry coverage (or not), that should be up to him.

Phew! This is super-long, so I will go into more detail of why I think this will work tomorrow. Stay tuned!


Mom said...

I didn't read part two yet, but this seems so sensible to me. Here is an example your dad and I just discussed yesterday before I read this. I need to get a mammogram which will not be covered under my high-deductible policy, so my plan is to call around and find the best price. When my insurance covered it, I just went where my doctor told me to go, and I never knew how much it cost. But what about this issue--since I am paying with my own money, I haven't had a mammogram for two or three years. If people don't have insurance they might put off some medical care, which your dad and I have been doing. I think that is fine with me, if people make their own choices based on what they want to spend.

Peter said...

I'm not at all saying that this should influence government policy, but people without good budgeting/money skills could get into a scrape without insurance. If they follow the idea that "if they just wanted to pay medical expenses out of pocket and keep the extra $2 million or so that their employers will pay for their health insurance over their career, they could do that too!" then they might just increase their standard of living without thinking about medical expenses.

After typing this, I realize that a counter-argument could just be made by citing the car insurance issue you mentioned.

David said...

I don't think insurance should be abolished; it should just be used for catastrophic events, which is what insurance is traditionally used for.

As for people increasing their standards of living, that is a plus, not a negative. If people value eating out regularly more than an annual dental checkup, then they should spend their money on that. their lives will be happier on net. It may turn out to be a mistake for some people, but most choices turn out to be mistakes for some people. For example, anyone who bought a house in 2008 in California who wants to sell it now.