Sunday, June 10, 2007

On the issues - Health Care

I'll be breaking down my point of view on the issues that I think are important in the coming election. You may notice many of these refer to Ron Paul. I think he's got an incredibly good head on his shoulders, and even though I may occasionally disagree with him, I'll say right now that I support his candidacy.

Now on to the issue of Health Care. There was an interesting comment on this post and I just had to reply. See, Phil (the commentor) felt that Ron Paul's ideas would lead to a crisis in our health care system. Well, for one, Ron Paul does not have any plans to break the promises the government has made to care for those people who need these programs today, but he does plan to reform the system that is so obviously broken... and that's a good thing. So here's my reply:

Essentially the plan Ron Paul (and others) have for medical treatment is to give control back to the people. The problem we have now is that insurance companies (which are essentially government funded in a number of ways, not the least of which is that the government gives significant tax breaks to companies to pay for insurance but doesn't extend all of those tax breaks to individuals - so they are often left with no option but to use the insurance their employer provides) control what medical providers can provide, at what cost and even what medical provider you are "allowed" to go to. This is not a free market and therefore market forces can't work to keep prices low and quality of service high.

You create a free market by giving people the appropriate incentive to get off their arse and take their medical treatment into their own hands - or rather, by making them responsible for paying for their medical treatment themselves. That may sound harsh, but hear me out because there is a reasonable solution to this: health savings accounts. For those unfamiliar with it, what it means is that you purchase a high-deductible insurance plan for "the perfect storm scenario" so that you will only ever have a maximum amount of out of pocket expenses in any given year. Okay, so once you have this plan, that's actually fairly cheap, you then pay money into a health savings account - think of it like a separate checking account that you use to pay for all your medical needs. The list of "medical needs" includes things that most insurances don't even cover such as over the counter medications and other non-traditional treatments. If you hit your high deductible for the year, then the insurance plan kicks in. If you don't spend all the money in your account for the year, it rolls over for the next year. Don't have enough money this month? Don't pay into the account this month. It's okay! And the money left in your account can work for you in a lot of ways. One way is that it can be invested however you like. Another is that it's tax free so you get to keep more of your money. But then, let's say you retire or have your kids going off to college or something and you find yourself needing money from your health savings account. That's okay too, but you just have to be aware of the tax issues that comes from that.

Now, health savings accounts are already out there - but they don't get a chance to compete on the same level. For example, because of the way that I get to declare the insurance I pay for my family that I purchase through my company, not to mention the fact that my employer is contributing to the insurance for me... it would be a significant disadvantage to leave my companies insurance plan and move myself and my family to a health savings account. I'm essentially stuck with my employers medical insurance plan. But once you level the playing field and give the appropriate tax incentive to employers and individuals, then health savings accounts become a viable alternative to a lot more people. I'm not saying the plan is perfect for everyone - but make ppo's and hmo's compete with health savings accounts and you'll see a dramatic improvement in prices AND quality of service.

How? For one, you'll see that once medical providers start getting paid in cold hard cash (through the health savings accounts), and without the troublesome paperwork and hassle of insurance companies, medical providers will be able to reduce their prices because their costs have dropped. The other thing is that they will also be in direct competition with each other to do so. When it doesn't matter which doctor you go to because the price is going to be the same, why would they offer a lower price? If a doctor is always going to be able to charge the same price, what incentive is their to provide a higher quality of service?

The other part of it is that you should also make doctors compete against nurses. What I mean by that is that nurses are fully qualified to handle a large number of medical issues, but because of the licensing and regulation issues, they can't hand out prescriptions (such as birth control pills)... I mean, come on, those kind of silly monopolistic policies have encouraged high prices for the most basic services. Obviously though, (and I'm paraphrasing Ron Paul here), you wouldn't go to a Nurse if you needed brain surgery.

Couple more points that I won't elaborate on here but I think are helpful to mention:

1. If you want socialized medicine provided by the federal government, that's perfectly fine. I disagree with it but if the federal government is going to provide that service, we should follow the Constitution and explicitly amend the Constitution to allow the federal government the right to do so. If we don't follow the Constitution (which we didn't do for Social Security or medicare/medicaid), we have no rule of law. Get me 3/4 of the states that want it and it's yours, but even then I would also argue I should have the option to opt out of it.
2. Our monetary policy is causing a lot of the inflated costs of medical care. What other presidential candidate is even discussing this?
3. On the issue of states providing services such as socialized medicine - let the states compete in an open market and if they can't deal with things like a huge influx of people because the costs are too high, then that should tell you something. Socialism doesn't work in practice. But let's say a state got it right (we'll call it Utopia), if everyone happily left a state (we'll call it Dystopia) that didn't provide medical care or social security to go to Utopia because they got it right, Dystopia would want to compete by providing a valid option for their citizens. Why is that a bad thing?
4. Others have said it but I'll reiterate - obviously a capitalistic system requires a moral society of which charitable giving, volunteer-ism, etc. are part and parcel. The thing is, when you give people freedom to make their own choices and you give them the ability to truly take personal responsibility, they are significantly more likely to be charitable than when you culture an environment where everyone expects to be given to from the nanny state.

Alright, enough ranting. I think it's important to debate these issues - instead of debating who has the best hair of the "first tier" candidates... and differences of opinion are welcome. Thanks Phil for giving yours!


D. L. Mitchell said...

Great post!

Wendell Murray said...

There was a reference to your blog at the end of an article on consumer-oriented health plans in today's WSJ. First of all, if you want to know how healthcare works in the USA, you - not to mention all Presidential candidates - should do some research. There is an immense literature available that covers almost any possible topic. Much of the research is excellent. You can find excellent material at the Health Affairs website, ( Conceptually, the idea of consumer-oriented health is good and the idea is appealing. Unfortunately it will have a marginally beneficial impact on our healthcare 'system'. There are multiple aspects of the healthcare that need to be separated and analyzed in order understand how it works then to make recommendations on changes. Most people never get to the first point - understanding - but readily jump to the second - prescription for changes. The consequence unfortunately is a lot of nonsense being spouted.

I won't try to discourse much on this, but the demand for medical services from individuals needs to be separated from demand from insurers, whether governmental or private, supply of medical services , i.e. physician, hospital, other providers and secondary level suppliers, needs to be analyzed in its constituent components. The market and functioning of health insurance and the financing of medical services also need to be analyzed separately, then their role in the overall 'system' needs to be analyzed. The point is that most people - certainly including all of the President candidates - need to do this, if they intend to propose cogent policies. None have done so with the possible exception of Dennis Kucinich.

I am in favor of any technique or policy that can be applied to the market for healthcare services in any of its facets, including consumer demand, to reduce costs and improve quality. The practical problems with consumer-oriented healthcare are illustrated in today's article in the WSJ, most specifically regarding the self-employed individual. The basic problem is that the market for medical services does not function like normal consumer markets: prices for services are not readily available. The value received for money paid is even less available or apparent to the consumer. The second problem is that most healthcare spending is for serious maladies and chronic, i.e. on-going, health problems. Demand for what are essentially life-ending conditions is almost completely inelastic, i.e. people need treatment or care almost regardless of price.

The big issues in healthcare - cost levels, cost increases, lack of access, lack of insurance coverage - have to be addressed directly. Consumer-oriented healthcare makes some positive contribution to limiting cost increases, but that is about it. Much more can be written on any aspect, needless to say.

Andrew Douglas said...

Wendell: Thanks for the very informative and constructive reply.

Couple of points - as you said, there are volumes and volumes of information available on the subject, and while I've done quite a bit of research myself, I certainly wouldn't consider myself a leading expert. That being said, I think the post served the purpose of explaining what most American consumers can easily grasp. I didn't try to cover every aspect of the "system" though either, such as prescription drugs or as you point out chronic illness. Those can and should be looked at in their constituent parts.

Second, to say that it would only have a marginally beneficial impact on our health care system is being disingenuous. We could continue the debate about market forces at the different levels of the system, but let's instead look at it from the personal level. Family X pays $6,000 a year in medical insurance today. They may have an occasional broken bone, a set of braces or crown work, but generally they are a fairly healthy household. They rarely, if ever, need treatment in a single year that would come anywhere near $6,000. They are, in effect, subsidizing those individuals that are a drain on the insurance companies - meaning they require more in insurance payouts than they pay in. We already have, in effect, a socialized health care system. And the worst part is that family X ends up with $0 dollars left over for their medical needs when they reach retirement.

So let's say family Y is a 45 year old couple - and they place $5,450 per year in their HSA over a period of 20 years, they have on average, $2,000 per year in qualified medical expenses, and they get an average return of 12% on their investments. If they withdraw the $2,000 from their HSA each year, they'll have a net contribution of $3,450 per year into their account, and that will mean that they'll have $248,581 in their account when they retire. That's a quarter of a million dollars in real money that they own that they can either use for their own medical needs, use for whatever retirement plans they have, etc. As you stated, most of the expenses today are for serious conditions and chronic care - and while certainly a significant portion of that is age independent, it is disproportionately the realm of the retired and are dependent on government systems to pay for them. But if people who are reaching retirement age actually had money set aside for the majority of their treatment, it wouldn't be the kind of drain on the system as it is now. HSA's aren't a panacea, but they are a significant step towards a system that works.