A Better Plan for Healthcare

Students are starting to see their health insurance rates rise at colleges across the country, as reported by the Wall Street JournalThe increase is due in part to the requirements in the new healthcare law that limits be raised.  Currently many plans have caps in coverage of $10,000.  Under Obamacare, those caps would be raised to at least $100,000.  Because of these increases, plan premiums are rising dramatically, increasing between 200 and 1000 % in some cases.  This will work out nicely if you are one of the very few college students who end up with a long hospital stay, but for many the additional coverage will just be a waste of money.

Congress is not happy about Obamacare either.  They have received a special waiver from President Obama for them and their staff to remain on their traditional health plan and have 75% of their premiums paid even though the law specifically stated that Congress and their staff would go on Obamacare.  After all, if it was so wonderful why wouldn’t they want to do so?  You can bet they aren’t telling the Senate and Presidential doctors who are there for their healthcare home anytime soon either.

The issue people have with healthcare has nothing to do with the healthcare itself – the US has the best healthcare in the world, both in availability and quality.  The issue is with health insurance and people’s behavior.  Health insurance has distorted the market to the point where no one knows what the price of things are, even the healthcare providers.  Call you doctor and ask how much a procedure will cost, and chances are they won’t be able to tell you.  They might be able to tell you the copay or what they will bill the insurance company, but they won’t know what they will actually get from the insurance company until it goes through the system.  This prevents patients from shopping around for the best rate, not that they would since they pay the same anyway.  It also allows hospitals to charge $10 each for aspirin.  (I’ve always wondered if I could pay them in $10 aspirin.)

The other issue is people’s behavior when it comes to taking responsibility for their healthcare.  Health insurance ranks somewhere below a cell phone, vacations, and a gym membership in people’s priorities.  Unless it is provided through work, many people would opt not to get insurance, saying that they “can not afford it.”  In some cases this is true, since buying insurance would mean not making the rent.  In others it is just that they don’t place healthcare high enough in their priority list to buy it.  This causes rates to rise since they don’t pay their bills when they get sick, which makes health insurance less affordable for everyone else.

Obamacare will just make the problem worse and create new ones.  It will start out promised as a way to keep the cost of insurance down but it will quickly grow in cost as people go to the doctor for every little thing.  The plans are actually coming in about 40% higher than current plans already since they must cover so much more and people who are already sick and therefore will use a lot of healthcare will be supported by everyone else.  Many will also drop off insurance and pay the fine (either through choice or because their employer drops them), then signing up when they get sick since insurance companies cannot refuse them.  This will drive up costs still further.  Politicians will set limits on premiums, causing insurance companies to go bankrupt.

At that point the government will step in and take over, then start rationing care and hiring people who really don’t care about customer service because their keeping their jobs will not depend upon making you happy.  Like anything government related, you’ll need to satisfy their demands to get what you are paying for.  They will then start rationing care to keep down costs, do all sorts of experiments in care and services based on shaky theories, and drive all of the good doctors and nurses out of the business.  Through everything there will be plenty of cronyism with certain people getting better healthcare and certain people becoming rich through their political connections as people always do with any large government program.

Here is a better way.

Building a better health system depends on using demographics to your advantage just as you do with retirement.  People who are young are able to earn a lot of money and get sick rarely.  This means you can save up money while you are young and then use that money as needed when you are old.  The trick is getting people to do this and giving them the tools needed.  Here’s how:

1.  Encourage people to put a portion of their pay away in a Health Savings Account (HSA).  This account stays with the individual, so changing jobs is not an issue, and continues to grow each year and unused balances can be given to hers in a will.  Subsidize low earners as needed, but make sure everyone puts in something.  Set up government clinics and hospitals for those who choose not to save in an HSA and buy insurance and get sick.

2.  Require people to purchase high deductible health insurance.  For example, a plan that pays everything above $10,000 in a year.  As the value of the HSA’s grow, allow individuals to raise this limit, thus reducing their premium costs.  Because this limit will rarely be reached, it will act like true insurance and cost a lot less than current health insurance.  The reduction in premiums will encourage people to save the money in their HSAs and let it grow rather than spending it on petty things.

3.  Require doctors and hospitals to post true rates for their services.  As consumers try to save their HSA dollars, they will use this information to shop around, thus causing rates to fall.  Since the doctors won’t need to deal with insurance (you’d just give them your HSA debit card) their costs would decline and they will be happier to be doctors again instead of dealing with paperwork.

With this plan, people will be able to build up savings for healthcare while they are young and go to the doctor fairly rarely.  If they do have an unexpected event like a surgery, they insurance will kick in and cover what the HSA cannot.  As they get older, they will have plenty of money to cover their healthcare costs.  In fact, for about half of what people pay into health insurance today (including the employer portion), people could have a couple of million dollars for healthcare by the time the retire.  This could provide home healthcare, instead of needing to go to a nursing home as is often done now because Medicare only covers nursing homes.

Hospital rates would decrease since most people would be able to pay their bills, either for cash or with their insurance policies.  Those who chose to not put money away into an HSA or buy a major medical insurance plan could go to a government clinic or hospital (which is where we’ll all end up if Obamacare goes into effect and the government becomes the only available healthcare provider).  If the government clinic is just wonderful, more people might decide to not get insurance and go to the clinics when they get sick.  If it is substandard, as I expect it will be, most people will put money away and buy the high deductible insurance, reducing the cost of the high deductible insurance for everyone.  For those very unfortunate few who get a costly medical condition early in life, we could just take care of them, partly through charities and partly through Christian hospitals and government programs.  The cost of these few would be very little when spread out to the whole of society.

The cost of everything will decrease since doctors aren’t maintaining the large staff they currently have to do insurance billing.  Doctors will be able to spend more time with patients since they’ll be getting a little more per patient (even though the patients are paying less) and will generally be happier in their careers.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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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.

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