Healthcare without the smoke and mirrors

Healthcare without the smoke and mirrors

photo credit : US News & World Report

Traditionally, medical care was limited by the ability to pay and distance from a doctor or hospital. The idea of a universal free government cradle-to-grave medical care was proposed as a detailed plan by William Beveridge in 1944. There was one major problem with this beautiful idea: Cost. If it wasn’t obvious in the late 1940s, it was visible by the early 1960s and more than obvious by 2010.

Since the Great Society, Democrats wanted to provide some kind of better medical care and protection from catastrophic medical costs. Apart from the useful side-effect that beneficiaries would turn into grateful voters if they were able to come up with a solution, there’s no reason to believe Democrats were lacking in altruism. It’s no longer the 1960s and less the 1930s when one could still create a Social Security plan. Insuring retirement income, which is a health-related risk, was possible then because the effectiveness and cost of treatment were far less than today. Life expectancy then was less than 62 years meaning most people died before they could become too expensive; today’s average life expectancy is in the high ‘70s.

Many, especially those who have no direct experience, point to the British National Health Service and Canada as examples to be followed. But there’s no magic bullet because all the large scale single-payer national medical systems suffer from the same problems as our patchwork quilt of large medical systems: how much care can be given, standards of care and consistency of delivery, what medicines can be afforded. All systems practice rationing because the cost of modern medicine and modern care is a vicious upward spiral. Its success in keeping people alive longer has increased demand disproportionately simply by being successful while the cost of treatments has escalated hugely as both drugs and equipment become more sophisticated.

Early on in planning ACA it became clear to the Obama Administration that neither the present private medicine nor even a monopoly government health plan could be affordable to the very people whom they wished to include without subsidizing their premiums. The solution was not to rethink how to achieve their goals but to buy compliance with subsidized premiums at least for a few years and backed up by the threat of IRS enforcement of compulsory participation.

Putting aside the question of thuggery, the glaring problem with this is that, if it has to be subsidized, it is not affordable in any accepted sense of the word.

People have theorized that, given the Obama crowd’s devotion to Big Government, that Obamacare was designed to collapse and be replaced during a Hillary Clinton presidency by “rescue” with a government monopoly system for the proles. (Obviously, the rich and members of Congress would be exempted.) Yet it’s not a question of how we pay, it’s a question of how much we pay and the value we see. What kind of care do people actually get through their insurance policy? What level of financial risk do they still bear even with their insurance policy? How much is it costing the nation to pay for this both directly and through taxes?

Obamacare sold America the obligation of buying an insurance product without any guarantee of care but with the almost guaranteed prospect of ever-increasing premiums. It should be obvious that poorer people - the stated objective of ACA - will tend to buy lower cost policies and lower cost policies offer lower coverage but subsidies only apply to the lower-coverage Bronze and Silver plans - the ones with the $6,000 deductibles.

If half the country cannot write a $500 check for an emergency, how will they cope with a $6,000 deductible? Evidently, most of the 25 million people who so needed insurance still live with the impossibility of paying their medical bills so has being one of 25 millions (if it is that) who now have insurance made any difference?

The elephant in the corner is that what we are really asking for at least some of the time is subsidy not insurance.

The doctor wants to charge $125.00 for the visit and the patient wants to pay $25.00. The drugs cost $50.00 a pill, the patient wants to pay $5.00. Why? The idea that somehow there is an insurable risk in here has obscured market pricing for services so people put a false price on the cost of medical care.

So let’s ask the fundamental question: If we know that it’s subsidies we want, would we really choose to provide it through “insurance” products? Does health insurance as we have it cover an insurable risk in practical terms or is it, as Social Security has become, a slide through side door from insurance into a hybrid of a contributory plan plus entitlement?

Most houses do not burn down every year. Most people don’t crash their car or run over a pedestrian every year. This is the essence of an insurance product: of the pool of purchasers, any one can suffer a major loss in a year but the overwhelming majority do not. Is health insurance insurable like houses and cars? As defined under Obamacare, it is plainly a hybrid of insurance and subsidy even if it is the insurer who provides a per charge subsidy by overcharging for the policy.

We need to make virtue out of necessity. Everyone benefits from an annual check up and physical but, fortunately, the cost of a doctor visit plus some lab tests is not huge and is valuable as a preventative to reduce the possibility of higher costs later – visits to Emergency, more extensive treatment once the damage is done. We could provide and pay for annual checkups as a social benefit. Qualified providers might bill the government for a standard set of services through CMS (Medicare).

What happens when something serious is detected in the annual physical or just manifests itself is the next question.

We go to the doctor and consume medical services when we are ill but not seriously ill. A prescription, a minor in-office procedure is all that is needed. This not an insurable risk as nearly all of us need this level of treatment every year. Maybe we should pay as we go. In order not to bankrupt people, we could limit exposure. Beyond a certain threshold, say $1,000 a year, we might cap or subsidize the cost depending on the ability to pay. We already provide food stamps and other assistance to the poorest citizens. We can do that for basic medical care too.

With its high deductibles – up to $6,000/year – cheaper Obamacare plans have taken many of us back to the major medical of the 1950s with some free preventative care as a sweetener. However, major medical is indeed an insurance product: most people do not require hospitalization or expensive treatment every year. Major medical by itself could be provided significantly more cheaply insurance companies than the Obamacare bundle because it is an insurable risk.

Chronic illness can also bankrupt people. It’s too expensive for many, if not most, people to pay for many long term drugs and treatments. We are presently allowed to deduct medical costs above 10% of AGI, 7.5% for seniors. Perhaps it would be cheaper for the taxpayer to allow a deduction from a lower percentage than to try to pay for it through insurance companies. We make the poor sicker (= eventually more expensive) by not helping them afford drugs which prevent or arrest deterioration.

I am not rushing to preach the idea that small is beautiful but we can already see that some health organizations are too big for their own good. Even a successful general could not run VA. So splitting things up as outlined would leave us with:

- a modest social program

A simple social program can be measured easily in terms of cost and effectiveness so long as Congress can resist the temptation to embellish it into the budget for the Department of Defense.

- self-insurance with a cap and/or subsidies and/or credits for the poorest

People insured under Obamacare who are not subsidized pay plenty for medical insurance and by design subsidize the poor. Might they object to better value or paying less by paying another way?

- a revised income tax deductible for health expenditures

Although, tax reform is urgently needed, don’t hold your breath! Changing the allowable percentages of AGI for deduction is achievable, waiting for a radical comprehensive overhaul may not be.

- a viable insurance product

Insurance companies insure risks fairly efficiently: it’s what they do so we should let them do it.

The whole ambitious global approach of Obamacare has been its undoing. Instead of trying to stuff it all into our collective craw, maybe we should now try to eat the salami slice by slice?