HEADLINE: Obama assails health insurance companies

"Americans are being held hostage..."

Railing against health insurers is not going to get us anywhere. You can villanize them all you want, Mr. President, but they're not that big of a problem!

Health insurers had profit margins in the 5-6% range last year. So if we eliminate them, what's that going to do? I paid around $1,500 towards health care last year, so elminating this profit will save me what, $75?

Get a grip! Demonizing others is not a solution.

The Bill

What I would include in a Health Care Bill and the effect on costs:

1. Elminate prexisting condition exclusions - INCREASE
2. Elminate ability to drop coverage when insured gets sick - INCREASE
3. Regulate what can be considered for premium increases - INCREASE
4. Tort reform for malpractice suits - DECREASE
5. Require all Americans maintain coverage (See earlier post) - INCREASE
6. Require insurers go back to "insurance" - DECREASE

Without the number crunching of the CBO, I can't say how much such a program would cost. However, what I can say is that:

1. It will address most of the issues of those "unsatisfied" with health insurance
2. It will cover the "47" million Americans without coverage
3. It will make doctors and hospitals happy with tort reform
4. It will keep the gov't out of day-to-day health care decisions
5. It will keep private insurers in the game

Taxes may go up some, but overal costs should go down...the net effect? I'm not sure...

Health Care Overhaul II

In a previous post, I set up the background as to why the involvement of third parties in day-to-day health care is costing the American people tons of cash. Just how much? According to the RAND study, those who have a Copay only policy (like mine) consume twice the amount of health services as those with a 50% coinsurance plan. So the obvious solution is to get more people into HSA styled policies, where the insurer is INSURING against catastrophic health events and the individual is involved with the day-to-day costs.

The question comes, how can people pay for their day-to-day costs and go back to being health care CONSUMERS? After all, many struggle to pay at the current rate? While I haven’t worked out the logistics exactly on moving people to true health insurance and away from “health plans”, the increased costs to be paid through the increased coinsurance will be more than offset by the potential savings by moving back to a true market system.

Just how much could be saved? Well, figures I’ve seen say that Americans pay around $750 billion a year in health care premiums. On average, insurers pay out around 85-90% of premiums, so that’s around $650 billion or so in health services. According to the RAND study, a 50% coinsurance would reduce this spending by half; so the number would drop by $325 billion dollars! That’s over $1,000 per person! (I know this is an oversimplification, but it makes my point).

I’ve also taken Scott and White as an example for health care premiums as their plans are easy to compare and the rates are readily available on their website. For the “over insured” plan, such as the one I have, the average monthly premium across all age groups is $415 (mine is $120 including Rx). For their catastrophic coverage, which includes NO charge for preventative services, the average premium is $274. The difference is around $1,700 per year.

So these two effects, taking my simplifying assumptions, reduce the overall health care burden on the consumer by almost $3,000 per year…pretty close to the $3,000 deductible! So at most (on average) the consumer will be out the same amount as they are currently. If they consume less, it is more money in the consumer’s pocket!

But again, if the average American is already struggling to pay costs how can they come up with $3,000 if needed for a catastrophic event? Knowing the behavior of most Americans, the above mentioned savings will be quickly spent on houses, cars, boats, shoes, etc. This is where the already existing HSAs come into play (the bane of many Democrats!). If we’re going to require some minimum level of catastrophic health care coverage, why not require some minimum level of cash in an HSA to cover out of pocket expenses? A system could be set up so that X number of dollars must be contributed in the first few years until a certain level is built up in the HSA (let’s say twice your deductible). When funds are removed to purchase health services, they must be replaced in a certain amount of time. It’s OK to have too much money in the HSA, but not OK to have too little.

And what if there is too little? After a certain grace period, if the funds are not there, a “tax” is assessed. Now, I put “tax” in quotes because it is not a true tax. The tax is taken and the funds are put in an HSA (where there is already a penalty in place to remove the funds for non-health related spending).

The idea is to get everyone moved to a true form of health insurance with an account ready to tap for their spending. Since the account is their money, consumers will be spending the cash wisely, yet will have sufficient funds available to cover a catastrophe.

If the minimum deductible is set to $3,000, the first two years’ savings should fund the HSA. After that, it’s $3,000 for the consumer to use however they see fit!

Healthcare Overhaul Part II-A Set Up

The problem with our current healthcare system is twofold. The first issue is the number of uninsured and I offered a solution for this in a previous post. The second issue is related but completely different. It is the issue of the overall cost of health care in this country.

Back in the mid 90s, it was the cost of health care which spurred the drive for what many dubbed “Hillary Care”; a quasi-single payer system. I recently read an article written for the CATO institute back in 1994 used to refute “Hillary Care”, an article which has a lot to tell us about our situation today.

In this article, the CATO institute, and many economists, placed the blame for the high costs of health services not on insurers, not on doctors, not on government, but directly on the American people. Over-consumption of health services was and is the largest contributor to high costs.

Remarkably, this opinion was supported by a study performed by RAND in the 1970s. During this study, RAND provided health coverage of different types to a population of 3500 families. These 3500 families were divided into 4 groups. One group paid 0% coinsurance. Essentially ALL of their health costs were covered. The other groups had coinsurances of 20%, 50%, and 80% up to a $1,000 deductible ($3,000 or so in today’s dollars).

The study found that the group who paid 0% consumed TWICE as much health services as those who paid 50% to 80% of the costs. Yet at the end of the study, there were no statistical differences in the general health of the various groups. Health could not be directly linked to a level of health service consumption (behavior, such as smoking, was a much more likely indicator).

So what was the cause? Those conducting the study believed that this 0% group, like many Americans, was too far removed from the actual costs of the goods they were consuming and had no incentive to assess value. Meanwhile the groups with the larger coinsurances had to make such an assessment, much like any other time they spent money. Is it worthwhile to go to the doctor for this tiny sniffle? Are the costs really justified?

I personally have what many term a “Cadillac” health plan, although I wouldn’t call it such. My coverage requires a small copay ($30 for doctor’s visits) and no coinsurance. Fortunately for me the costs are still relatively low (the insurer, Scott and White, is also my health provider) and are in fact lower than the group plan offered by my employer. Still, when I visit the doctor, I have no disincentive to seek as many unnecessary procedures, tests, etc. as possible. In fact, I usually feel justified in the bill being high; after all, I have paid in all those premiums, right?

The current system of third parties being involved in every day health care payments has created a tremendous disconnect between the consumer and the costs of the goods the consumer is using. This system is not remotely close to a “market type” system. Due to these third parties, the “market” is utterly failing.

Replacing insurers with a different third party, mainly government, would do NOTHING to fix this problem. The same incentive to consume goods in excessive would remain and unless government artificially depressed prices, costs would remain high. Some means, therefore, should be put in place so that consumers actually have “skin in the game” and are aware—and accountable—for the health care they consume. Only this awareness would lead consumers to end “excessive” use of medical services and bring costs back down to where they belong.

Of course, the average American cannot afford the medical bills that accrue after a catastrophe. But this is why it is called medical INSURANCE. Auto insurance is required on a new car to cover a catastrophe (such as totaling the car) because the risk is too high for the average consumer. We expect the insurer to cover the cost of the vehicle if it is lost, yet we do not expect the insurer to pay for new tires, oil changes, or car washes? The same is true of home owner’s insurance. The policy will cover the loss of the home in a fire, but we don’t expect the insurer to pay for lawn maintenance, new paint, or the plumber to make repairs! Insurance is not there to cover the costs that we can pay; it is there to cover the costs that we cannot pay!

Medical INSURANCE should be no different.

(to be continued)