Rethinking health care reform

The President recently said that people like me, the always griping, should keep their mouths shut about Obamacare . . . unless they have a better idea. Well, here it is.

Obamacare is failing. Some skeptics would say that it was intended to fail. The thought is that the left would then opt for a single payer (government) system, thereby completely socializing the health care system. Others might suggest that there is less of a conspiracy here and the Obamacare failure is simply another bit of evidence that massive government can do little that is good.

It is time to reassess and to craft a new kind of health care reform. In doing so, let’s recognize that the Democrats identified some real problems with the existing system. Some of these problems are a lack of insurance transportability, cancellation of insurance of high risk individuals, and issues about who is really bearing the cost of the health care system. This last point can be expressed in other words: the general population, including the young, is not subsidizing the uninsured poor; instead, the uninsured poor are being subsidized by those who are insured and buying medical services.

There are really two pieces to health care reform, insurance and costs. Both should be addressed. First, let’s create an insurance system that brings in many more people but offers transportability and universal access.

Health insurance reform

First, get rid of the notion that health insurance comes from employers. This was originally a notion that grew out of a way to get around wage controls during WWII. This system, in combination with high job mobility, has produced problems associated with a lack of transportability and a lack of access to those with preexisting conditions.

New groups need to be created. It is best if these new groups are “natural” groups (i.e., groups to which everyone automatically belongs). One example of a natural group is State of birth. But other people may have other and better ideas for natural groups. Anyone who belongs to a group (e.g, a State of birth) should be able to buy a health insurance policy from among the insurance companies with offerings for the group.

Second, get rid of mandates. Decrees requiring that people or businesses must do thus and so just tick people off. Instead, rely on pricing to achieve the desired results. Prices will not be correct initially, and that is one reason why it is desirable to have multiple groups. It is like having multiple experiments. Some will be more successful than others, and the more successful ones will be copied by the less successful ones. It is like the prices for travel delay when an airline overbooks a flight. It is not obvious how much the airline will have to pay to get passengers to give up their seats; the price is ultimately found by a discovery process that looks very much like an english auction.

An example of the use of a price rather than a mandate is helpful in understanding this distinction. Suppose it would be desirable if young adults have insurance. The government could issue a mandate requiring that they have insurance. Alternatively, insurance contracts could have a schedule of co-pays that decreases with the number of years in the system. For example, the first year might have a co-pay of 50%, the second 45%, the third 40%, and the fourth 35%, and so on until the co-pay is 20% in the seventh year and all following years. If young adults drop coverage, it takes six years to achieve the long-run, co-pay level, so they are less likely to drop coverage and likely to get back in quickly if they do drop coverage.

Although the insurance contract should “belong” to the insured, various parties could pay for some part of the insurance: the insured, the insured’s employer, relatives, associates, charities, or the government. One might allow the same tax benefits to all the private parties who pay, perhaps a deduction from their taxable income. Among other things, this would encourage parents of young adults to keep their “children” active in the system, because they care about their “children’s” health insurance even though their “children” may not care. If the government chooses to contribute, then there is an element of socialized medicine and one could substitute this policy for Medicaid.

Third, catastrophic (i.e., high deduction) insurance in combination with health savings accounts for minor issues should probably be a focus (i.e., not necessarily the only focus) of the new groups. What should be realized is that annual checkups, dental cleaning, and other recurring expenses are not really appropriate subjects of insurance. As a result of this realization, prepayment via health savings accounts seems appropriate.

Cost reform

There are a couple of dimensions of cost reform: transparency and shifting the supply curve, ,

In terms of transparency, customers of health care services need to see the costs prior to undergoing any procedure: the overall costs and the division of costs between the insurance company and the patient. The existence of co-pays is absolutely necessary to provide discipline in the system, as is complete information on the costs.

The supply curve can shift if the cost of monitoring health status can be decreased. For example with the right regulatory environment, drug stores could employ a nurse who would take vital signs and some other monitoring functions. Perhaps taking photographs of skin anomalies, drawing blood, and collecting urine samples, and issuing fecal sample kits. EKG or ECG tests are also possible at the drugstore. Of course, the results would be forwarded to a center staffed by doctors and they would interpret the tests and communicate with the customer regarding diagnosis and any next steps that might be advisable.

We also need to shift the supply curve for more-or-less trivial visits to doctors and emergency rooms. Of course, what might seem trivial at first may not end up being trivial. So here is how this could be handled: the first visit is to relatively low level personnel, but they would not be permitted to handle a second visit for the same physical complaint. What categories of complaint are we addressing here? Basically, we are talking about self-limiting conditions that may be addressed by OTC medications or anti-bacterial medications: colds, flu, poison ivy, minor bacteria infections and so on. Please note that I am not suggesting anti-bacterials for colds and flu.

Finally, we need to shift the supply curve for major health issues. One big way to address this is to limit punitive malpractice lawsuit awards. This suggestion does not address awards that compensate for various damages; it only addresses punitive awards. The idea is to reduce the cost of medical liability insurance without reducing the ability of patients to recover for real damages they have suffered. Of course, there must also be enough to compensate lawyers who take cases on a contingency basis. At the same time, there should be a realization that malpractice is not at the root of all bad outcomes. Perhaps we need bad outcome insurance as a rider on health insurance policies and not just malpractice insurance that doctors purchase.

A second way to shift the cost curve for major health issues is to provide information to potential patients of the costs of various settings inside and outside the United States. This requires transparency in costs. It also requires that the natural group coverage could be for hospitals any where in the US and the world. So even though a group might be for persons born in Ohio, hospital coverage could include Texas and Thailand as examples.