Roles the Government Could Play in Healthcare

It looks like Obamacare will be ruled unconstitutional from the questions that were asked by the Justices and the attack President Obama made on the Judiciary soon after the hearings.  Hopefully the entire bill will be struck down, rather than just the individual mandate.  If there is not a mandate but insurers are still forced to cover people without regard to preexisting condition, patients will be signing up for insurance just before they go to the hospital and will soon bankrupt the system, so a partial repeal of the bill would be disastrous.

Unfortunately, rather than provide a fix Obamacare just expands what is already wrong with health insurance.  Namely, that people are essentially buying a healthcare plan that includes everything rather than buying true insurance that would only kick in for items that the patient couldn’t afford to cover out-of-pocket.  This means that the plans cost a lot (think of how much your auto insurance would cost if it covered gasoline and oil changes). There is also a feeling of “use it or lose it” that causes people to run to the doctors and not care about the expense of a prescription or procedure, so long as it is “covered by insurance”.  If car insurance coevered 100 gallons of gas a month no matter what, you can bet that people would be driving a lot more to “get their money’s worth”.

Obamacare and traditional health insurance also follow the fallacious plan of having the young and healthy pay for the older and sicker with the expectation that there will be young people there to pay for the current youth’s healthcare when they are older.  These types of intergenerational plans are subject to shortages due to demographic shifts (like having a huge number of Babyboomers compared to Gen Xers) and wasteful spending at times when there is a large, young population (like when the Boomers were young).  As seen with Social Security, this type of plan will fail when a high number of people start drawing off the system and there are few remaining workers to support the large number of benefit recipients.  Because the surplus provided by the Boomers was spent rather than saved in private accounts, the money needed to fund Social Security for their retirement is not available without huge amounts of borrowing by the Government.

The best way to pay for healthcare is to have people save for themselves while they are young.  A system of Health Savings Accounts (HSA)s with a high deductible, major medical plan attached would suffice for the vast majority of people.  While medical expenses may be high when you are older, and especially when you are in retirement, people could easily have several million dollars in their HSA’s when ready to retire if they were putting just half the amount that is contributed to worker health plans now from the time they started working.  This would be more than enough to cover their healthcare costs from middle age through death, plus they would have far greater choice in how care was provided.   Such a system would require no help from the Government.  Tax free growth would be nice, but the accounts would still be plenty large even if taxes were paid from them each year.

There are some roles that the Government could play in healthcare, however.  These are things that people cannot do for themselves, at least not in a practical way.

1) Ensure that insurance contracts are upheld.  Individuals who are sick don’t need to be fighting with the insurance company for bills to be paid.  The Government could have a complaint process with a set of arbiters who would simply check the claim against the policy and ensure the policy was enforced.  A modest fine for the insurance company when they wrongly deny a claim to provide an incentive to get things right in the first place would also be in order.  With relatively little competition, the incentive is for insurance companies to deny claims as a matter of practice, hoping that the denial won’t be questioned.

2) Create standardized insurance plan levels.  Because it can be difficult to compare insurance plan prices when coverage options are all over the board, the Government could create a set of standard insurance coverage levels.  For example, there could be Class A insurance that covers everything down to Class D insurance that maybe only covers operations with a high deductible.  By simply learning one set of standards, people would know what the insurance they were buying did and didn’t cover, allowing them to effectively shop prices.

3) Set up healthcare for those who cannot or will not save for their own healthcare.  This would involve establishing clinics and hospitals, staffed with doctors on salary, to treat those who either do not hold regular employment and therefore do not save for their own health insurance or who choose not to buy insurance or contribute to an HSA and end up with an illness that they cannot afford to treat.  These facilities should provide minimal care (essentially there to keep people alive but not really improve quality of life) but keep people from dying in the streets.  The number and capacity of these facilities should be based on the need (private charities and churches should step up to the plate first, and doctors should be expected to treat some patients pro bono as they always have).

4) Pay for those who are extremely unfortunate.  There are some people, who are relatively few in number, who develop an expensive, debilitating condition early in life.  These are people like children with cancer, young adults with MS, and people injured before they are over 40.  Once again, charities and churches should be the providers of first resort for these individuals, but for those who cannot find care any other way, there numbers are few enough that the population as a whole would be able to support them.

5) Support healthcare research.  One of the reason prescription drugs cost so much is that the reasearch to create them costs a lot and there are many drugs that fail.  There are also diseases that affect so few people that it is not economically viable for private companies to research cures for them.  It is perfectly appropriate for the Government to provide grants to researchers to develop new drugs.  When these types fo drugs are discovered under public research, however, they should not be subject to patents since they were developed with public money.  In fact, some of the proceeds from the sale of the drugs could go back into funding more research.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Picture Credits: Kurhan, Downloaded from stock.xchng

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