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Archive for January, 2010

I was as hopeful that newly elected President Obama would be a positive change agent on many fronts, not least in health care. Though a wonderfully articulate speaker, his completely bare legislative history revealed itself when he chose to farm out health care reform to the Congress. By not expending more of his limited political capital with his own articulated reforms package, he insured that we would end up with a terribly compromised bill. Democrats can’t even agree amongst themselves about issues such as funding for abortions. Republican input has been non-existent. As a result, Congress is on the verge of passing perhaps the most substantial change in government benefits in a generation by the slimmest of margins and with the disapproval of the majority of the American populace.

According to the CBO, the health care sector accounted for approximately 16% of US GDP in 2007, and is on track to approach 25% by 2025. But although Americans spend more per capita for health care than any other country in the world, we are no “healthier” as a people than many other countries that spend far less. In the last 10 years, medical costs have risen 119%, as inflation totaled 29% and wages increased only 34%. Furthermore, about 16% of the population was without health insurance in 2009.

The health reform bills now before Congress not only would NOT stop the rapidly rising costs of health care, but would increase them by funding vast new entitlements that are not affordable and will inevitably result in rationing and a suppression of the US medical and pharmaceutical innovations that have fueled longer life spans around the world. Reorganizing the sector with market based reforms rather than by a government takeover of the medical insurance business can achieve the goal of (near) universal insurance coverage while not only slowing, but reducing the per capita cost. My proposals are not original, and have been eclectically sourced from both left and right. They are as follows:

  1. Require all insurance plans to make patients absorb a significant deductible fee for all expenses before insurance pays for any services.This increases incentives for price discovery and lesser expenditures. Yes, some individuals would chose to forgo some services rather than pay up front, reducing costs overall. At the same time, those individuals would still have “catastrophic” coverage for major accidents/injuries/diseases that could bankrupt them. Medical insurance should provide this safety net rather than pay for all healthcare expenses. My guesstimated total medical cost savings is 3%.
  1. Place limits on malpractice awards to actual consequential damages, not pain and suffering. Malpractice insurance for doctors and penalties today equal about 2% of gross medical costs. This cost is passed on in the form of higher fees to patients. Furthermore, “defensive” tests and procedures performed by medical practices to avoid potential lawsuits, account for about 5% of gross medical costs. Both parts of the proposal could reduce total medical costs by as much as 3%.
  1. Revise the tax code to treat all employer based coverage as taxable, and all medical insurance premiums paid by individuals as tax deductible. The employer based coverage model dates back to WWII wage and price controls, and it penalizes individuals who must purchase their own coverage with after tax dollars. Some workers (unions and executives, government workers and even members of Congress) have “gold plated” plans that are a part of their benefits packages. If given a choice, many would choose to pocket some of that value and reduce their health insurance costs. This proposal should be completely cost neutral, but is not. My guess is that this closer alignment of cost and beneficiary will save at least 5% of total industry costs.
  1. Allow insurance companies to offer national plans that do not include state mandates for particular coverage. This would reduce costs by as much as 15% for individuals/families not covered in employer or government insurance plans, and a total medical expenses savings of at least 5%. The fiction that each state can best mandate its citizens’ coverage needs to finally be put to rest. State legislatures have no such influence over company sponsored plans or federal employee insurance plans covering 85% of currently insured workers.
  1. Require all citizens to complete electronic records of their medical history/data. This data could either be stored on government servers or given to citizens on something as simple and cheap as a USB key. These electronic records would be added to for every doctor/provider visit. As much as 5% of medical costs could be saved permanently (in fewer personnel to give out, collect, file and store such records) and care improved for all.
  1. Require all medical service providers to post their prices prior to rendering services. Because a third party pays for care, price is only discussed if the patient is uninsured. The price to individuals paying cash is typically more than double than for someone who is in a group with lower negotiated rates, and who requires far greater paperwork for reimbursement. Providers should be required to post not only list prices, but also insurance discounted prices for all procedures and supplies.
  1. The abovementioned reforms should make medical insurance affordable to at least half of the currently uninsured in the U.S. Still, some will choose to not purchase insurance. As long as they are able to pay medical provider charges as fees are incurred, this should remain an individual choice. Those below the poverty level should be given vouchers/credits for private coverage. The dream of (near) universal medical coverage would have been realized without a government takeover of the industry.

In their entirety, I believe these proposals could eliminate much of current US healthcare and medical insurance spending. The growth trajectory of future spending would be adjusted sharply downward. The estimated 15% of citizens that are currently uninsured, and want to be, could be covered even as total costs decline.