Health Care Reform: Part 1

Here we go folks, the first installment in a series of posts that will definitely shed some light on the health care debate. Part one, as promised, will focus on why the current system is not working. First, if you didn't catch my last post that cleared up some of the dynamics and psychology behind the health care debate, read it before you dive into this series. I believe that understanding these dynamics is essential to fostering productive debate and ultimately solutions on the issue.

The current system is failing largely because of a few main factors: lost job = loss of health insurance, excessive government regulation, Medicare and Medicaid, and the public's lack of knowledge of true heath care costs. It is critical to understand that reforming just one of these factors will not fix the system as a whole and that fixing just one or two may very well make the current system worse. Methodical changes need to be made in tandem across the board in order for the system to work more efficiently.

#1 If You Lose Your Job You Also Lose Your Health Insurance
Do most people even know why we get health insurance through our employers? Does it make any sense? Why not auto or mortgage insurance as well? Quick history lesson.... during World War II the government instituted wage controls on businesses. As a result employers could not give people raises nor could they offer attractive salaries to potential employees. In order to be more competitive companies began offering health benefits with the wartime profits they were making in lieu of salary increases, because the government exempted these benefits from the wage controls. The benefits were also tax-exempt. Fast forward 60 years, and you've got the current system where most people get their health insurance through their employers. Why is this a problem? Just ask the millions of people who have lost their jobs over the course of the last year. My gut feeling is that people would not fear unemployment nearly as much if they could keep their health insurance even if they lost their jobs. Additionally, you may be perfectly healthy when you start a new job, but then you get cancer, diabetes or some other chronic illness..... then you lose your job. Under the current system you're in a pretty poor predicament, because you lost your job and your health insurance. Even if you get a new job and insurance you'll have to pay a huge amount for insurance because of your preexisting condition. If you separate employment and health insurance then you're in much better shape, because you can keep your insurance regardless of your employment status.

Another issue with health insurance being tied to employment is that it eliminates the individual patient (you and me) as the true customer. The only reason you have your plan is because your employer chose it. Most people have one choice of an insurance plan through their employers, because that's all that is offered. So what incentive does the insurance company have to serve you? Not much, because they know you can't switch plans or providers. Most employers offer only one and you are trapped. If we start being the real customer rather than our employers then insurance companies will compete for OUR business, not that of our employers. Competition = better service and often times lower prices as well.

This lack of choice poses other problems as well. You take a job, and you take the insurance plan with it..... and all of the coverages that you don't need along with it. My plan covers me for maternity care! I'm the sperm guy, not the child bearer!!! Why am I paying for maternity coverage?!? Because I don't have a choice. My employer crafted my plan for me. Don't get me wrong, it's a great plan, but it could be cheaper. Also, If my insurance company pisses me off I don't have a choice of whether or not to keep it, because I'm only offered a choice of one company through my employer. It is in the best interest of the insurance company to keep my employer happy. It really doesn't matter to them if I'm satisfied as long as my employer essentially forces me (through no fault of their own) to stay with them. However, if I have the choice between all of the insurance companies then I bet many of the insurance company horror stories would go away. Costs would come down as well, because you could pick and choose which coverages you want (personally, I would definitely not be choosing maternity coverage!).

Solution #1: Level the Playing Field of Health Plan Taxes
Currently, if you get your health insurance through your employer you and the company are allowed to exempt the entire cost of the plan from taxes. However, if you try to buy your own plan in the open market then you do have to pay taxes on it. Does that make any sense? Don't you think that there are probably a few uninsured people out there who could probably afford pre-tax health insurance, but instead have to go without it simply because their employer doesn't sponsor it? The easy solution to this would be to end the government's favorable tax benefits on employer-sponsored insurance and allow everyone to deduct the cost of their health insurance from their taxes. This would also take care of the employment-sponsoring problem, because the tax benefits are the only reason companies offer health insurance in the first place. It would level the playing field for everyone. If you're worried about having to pay the full cost of your health care (your portion and the portion that your employer was paying) then rest easy. When your employer hired you they had to budget for much more than just your salary. They also had to budget for your health care plan. Now, they can just add that money to your salary. It's net-zero for them, because they can write it off on their taxes either way. All of these measures will bring costs down, so the company will be able to save money while paying you more to cover your insurance. Everyone wins!

#2 Excessive Government Regulation
Our current health care system is mired in layers upon layers of regulation. Some of it is necessary, but much of it is not. Every state is allowed to set its own regulations for insurance companies. That's why you have a "Blue Cross Blue Shield of [insert any state here]". Currently we are not allowed to buy health insurance across state lines. What if insurance companies were allowed to sell insurance across state lines and they also didn't have to figure out how to comply with FIFTY different sets of regulations? If insurance companies had only one set of regulations to deal with then they would save hundreds of millions of dollars! Think about it.... (hypothetical numbers here) each company might only have to hire just 50 people to take care of the regulations for all 50 states instead of 50 people PER state (2,500 people!) to deal with individual state regulations. Let's say those 2,500 employees makes an average of $50K per year. That's a total of $125,000,000 that the company pays them in salary alone! Tack on benefits (health insurance!) etc. and it's far higher. Having just 50 employees working on regulations would only cost $2.5 million per year. That's a savings of $122.5 million per year! If the insurance companies save money then guess what..... you do too! Your health insurance premiums would go down. If health insurance costs go down then more people can afford it. See where I'm going here? ACCESS TO HEALTH CARE FOR MORE PEOPLE!

I have seen examples of policies in Iowa costing around $99 with the exact same policy going for almost $400 in New York. It just so happens that New York State has one of the most regulated health insurance industries in the nation. Coincidence? Absolutely not. Yes, cost of living is higher in New York (not 400% higher though), but insurance companies also have to employ more people in order to keep up with the regulations. An insurance company in Iowa might not be able to sell a NYC resident the policy for $99, but they might be able to do it for $199. Don't you think there are probably a few people in New York City that could afford a policy that costs half of what they currently have to pay? Definitely.

Solution #2
Allow insurance companies to sell policies across state lines, and perform a methodical review of all current regulations with the intention of throwing out the ones that are needlessly weighing down the system. This could add millions of people to the ranks of the privately insured.

#3 Medicare and Medicaid
Health care costs money. Period. As much as we would like it to be free, it's not. Someone always pays for it. Just because a doctor's visit costs a Medicaid patient $10 doesn't mean that the visit actually cost $10. The visit may have actually cost $1,000, and now the doctor must pay the $990 that the patient didn't cover. So, the doctor bills Medicaid to recoup these costs. Medicaid currently reimburses providers at a fraction of the real cost in many cases. The doctor might send a bill to Medicaid for $990, but if Medicaid only reimburses that care at a 70% rate, then the doctor only receives about $700. Where does the other $300 come from? The doctor has to have that $300 to pay his nurses, rent and keep the lights on. He or she cannot operate at a loss. The answer is that it comes from you and me.

Doctors are currently forced to recoup these costs from privately insured individuals and charge more to paying customers. This drives up the cost of private insurance and it drives up the overall cost of health care. For some people, private insurance is too expensive, so they go on Medicaid. More people on Medicaid drives up the cost of private insurance even more. You get the picture? If we implement reforms across the board (remember, reform does not equal "government option" as the current powers that be would like you to believe), then insurance costs will go down. Insurance costs go down, and more people are able to afford it.

Medicare is projected to run out of money in 2017. MedPac, the agency responsible for advising Congress on Medicare and Medicaid, in their 2008 report speaks of "poor quality," financial concerns, "inaccurate payment rates" to doctors and hospitals and many other concerns. The main issue, however, is that the system is simply not financially sustainable. When something is "free" people use too much of it. When people use too much of something, rationing begins. Why do you think people in Canada have months long waiting lists for emergency surgeries?

Solution #3
I'm not 100% sure what the best solution to the Medicare and Medicaid problem is. I know one solution that would work better is to give Medicare and Medicaid patients money to buy private health insurance rather than have the government reimburse providers. The bottom line is that there is a solution out there. I just haven't found it yet. When I do I promise you'll hear about it.

All of this contributes to the issue of patients and consumers having zero clue how much their health care actually costs. If people really knew then they would appreciate their current insurance much more. The only time people start caring is when they actually start having to pay for of it, such as when they lose their job or their insurance doesn't cover a certain procedure. When people leave the doctor or the pharmacy they should get a line item print-out of all of the services they received. Included in it should be the cost for each of those individual services. If people had that then they would realize how much they're actually getting, and they would also know that health care costs money, regardless of whether or not they actually paid for it themselves. Ultimately, they would realize that the government cannot magically make health care free. Just because the government provides it does not mean it's free.

That's it for round one folks. There is definitely much more to come. The thing to remember here is that there are many solutions to the health care problem. Government is not it.