A Better Plan for Healthcare in America


Certainly the Affordable Care Act is a terrible plan for healthcare in the US.  It makes people deal with the bureaucratic nightmare that is the US Government to get health insurance (dealing with them once a year on April 15th should be enough).  It eliminates variety in health plans, reducing the choice down to four, one-size-fit-all plans with all sorts of deals and favors for special interest included.  It has regulations that force health insurers to drop plans that people rely on, forcing individuals who buy their own insurance to go to the health exchanges and generally pay more for plans with higher deductibles with fewer doctors.  It encourages employers to cut people to part-time, lay people off, or not grow beyond 50 people since doing so requires the employer provide expensive health coverage.  Next year, as the employer mandate kicks in (it was delayed by Presidential decree for a year on questionable Constitutional grounds), you can expect more layoffs and people shifted to part-time work.  You can also expect a lot of big employers to drop health coverage entirely, opting instead to pay the $2000 per employee fine and send employees to the exchanges, perhaps with a little funding for premiums.

Rather than do what was promised – reduce costs and get everyone insured – it is increasing costs and millions of people are losing their health coverage.  It will also add dramatically to the deficit as the costs for the subsidies grow and strain the government which is already spending about 30% more than it takes in each year.  If current obligations are included (Social Security, Medicare) with the current debt of $17T, each taxpayer would need to pay an average of $1.1 M to pay off the debt.  This is before the costs of the Affordable Care Act are included.

There is a better way and it uses the same tactics promoted by this website for growing wealth.  It involves saving while one is young and healthy to pay for costs when one needs more medical care.  It also involves the free enterprise concepts of competition and innovation (and no, the Affordable Care Act does not use free enterprise competition because it specifies what the products must be and sets prices for them).

The first step in devising a good plan is to look at the issues with the current system.  Note this issue really isn’t healthcare – America has the best healthcare in the world – it is the method of payment for healthcare.  The issues are:

1.  A lot of people do not pay for their healthcare.  Instead, they go to a doctor or hospital when they need treatment, leaving those who do pay to foot the bill.  Some health insurance (government insurance, in particular) also pays little, perhaps below the costs of services provided.   A dinner at a restaurant would also be very expensive if you needed to pay for three other tables in addition to your own.

2.  Patients have no incentive to keep costs down since they are paying the same amount no matter what.  Likewise, doctors have an incentive to order lots of tests because they may be sued if they don’t order a test and there is an issue.

3.  People aren’t saving their resources for healthcare.  A lot of money is being paid into health plans, but this money is gone at the end of the year.  Few people actually put money away for medical expenses.

4.  True prices aren’t given for services.  Instead, list prices are dramatically inflated by doctors and hospitals because they know they will not be paid in full by insurance companies or most patients who pay themselves.  This makes it difficult for patients to compare prices and value shop, resulting in prices that are radically different within a specific area.

5.  Health insurance is normally tied to a job, unlike auto insurance which is purchased by individuals.  This means that people are tied to their jobs because of health insurance.  Also, insurance is sold state-by-state, meaning that there is less competition and less economy of scale  for health insurance than for other insurance such as car or life insurance.

All of these issues can be solved by simply changing the way healthcare is paid for and requiring individuals to take responsibility.  Specifically:

1.  Require all individuals/families who are working to divert a portion of their pay to a healthcare account (e.g., an HSA).  As with Social Security, the employer could also be required to provide a portion, but as with Social Security this would probably just result in a reduction in pay and wash.

2.   Require all individuals/families to purchase catastrophic health insurance with a deductible based on the savings in their HSA,  For example, an employee starting out with no savings might need to purchase a plan with a $5000 deductible.  Once they have $5000 in an HSA, this could be raised to $10,000, and then eventually to $20,000 or more since the employee would have cash to cover smaller expenses.  Insurance prices would fall as the deductible is raised, encouraging individuals to fund their HSA’s quickly and not spend more than is truly needed.  Employees who have substantial resources ($2 M or more, say) could be allowed to self-insure.

3.  Require medical providers to post a list of prices to allow patients to see what they will pay at different places and shop around.

4.  Allow insurance policies to be sold nationwide to increase competition and to allow insurers to offset high risk customers in one area with low risk customers  in others.

5.  Have the government involved in ensuring health insurers honor policies.  For example, an individual who has a claim denied could send the denial to a government agency which would investigate and fine the insurance company if they were denied incorrectly.

6.  Set limits on malpractice suits and have cases settled by judges rather than juries.  Remove bad/unethical doctors by pulling their licenses after a review by their peers.

7.  Create government-funded clinics as a safety net for those who don’t work and those who spend all of their HSA savings and still need more treatment.

8.  Create a national insurance pool for individuals who exhaust their insurance and require substantial care (for example, the twenty-year old cancer patient).

The first clause, requiring that all individuals put money away in an HSA for healthcare, would deal with the main problem seen today – that people don’t save money when they are healthy and therefore don’t have money to pay for procedures when they get sick.  It also removes all of the expense of filing insurance claims for every pill and doctor’s visit.  Most people would simply swipe their HSA card and be done, reducing the cost for the doctor and thereby reducing the cost of healthcare.  This would also eliminate the game of charging $1000 in hopes of getting $200.

There would be incentive to allow the balances in the HSAs to build over time to reduce the chances of needing to pay for expenses out-of-pocket, so many individuals would be more sensitive to the costs of procedures and visits.  Healthy, young individuals would build balances so that they would be able to pay for more expensive procedures later in life.  If you are spending $9000 per year (between you and your employer) for a health policy now, that money is all gone at the end of the year whether you use it or not.  Put into an HSA, and you’ll have $90,000 in ten years if you stay healthy (even without investment) – enough to cover a major procedure.

The second clause, the requirement to buy catastrophic health coverage, would take care of those with bad luck.  The people who get into accidents, need a major surgery, or get hospitalized due to illness, for example.  Because the price would drop as people were able to raise their deductible, allowing people to spend less of their money on insurance as the deductible went up, there would be incentive to preserve the money in their HSAs.  Again, the individual would have incentive to reduce spending.  Note also that this is true insurance – where individuals buy a policy to reduce risk – rather than prepaid healthcare as is the existing health insurance.  Few people get into accidents to use their auto insurance each year, but many people currently get procedures done because they are paying for it anyway with health insurance.

The third clause would cause competition for patients.  Because prices currently are not easily available, one hospital may change two or three times what another hospital charges across town.  The true price is also often a mystery (just ask your doctor’s staff what you will owe for a procedure and they will often say they have no idea, saying it depends on the insurance company).  Putting prices out in the open would lower prices as patients went to the low-cost option, pushing those who charge more to lower their prices.

The fourth clause, allowing insurance to be sold nationwide, would lower insurance prices since there would be more competition.  When there is a monopoly or a near monopoly, prices rise to the level of the most individuals are willing to pay rather than the least a seller is willing to accept based on  costs and profit.  More competition is always better for the customer.

The fifth clause uses the power of the government in a role for which it is well suited – enforcing contracts.  Currently there is incentive for insurance companies to simply deny all claims the first time since many individuals will then simply pay the bill rather than putting up fight.  The government should shelter individuals who are sick from needing to deal with this type of abuse.

The sixth clause, to limit malpractice suits and have a judge decide cases rather than a jury, will also help reduce costs.  Currently juries award large sums of money to individuals even when the doctor or hospital isn’t at fault because they feel someone needs to help the plaintiff and they see the doctor and hospital as an endless source of money.  This causes malpractice insurance to cost hundreds of thousands of dollars per year, which drives up costs of medical procedures.  Bad and unethical doctors could be removed, protecting patients, and just compensation could be dispensed by a judge in the case of malpractice.

The seventh clause, to setup government clinics and hospitals for those who don’t work or spend all of their HSA funds, deals with the reality that everyone will not be able to support their medical costs.  In some cases, despite the protections, some people will waste their HSA dollars and then have nothing when they need it.  Other individuals will not work and therefore won’t have an income to direct to an HSA.  Rather than having these individuals flood emergency rooms, forcing others to pay higher rates to cover them, the government could setup clinics and hospitals for them.

These government clinics could charge based on what people were able to pay, such that those who had HSAs could go there as well if desired.  They could hire doctors for a salary and would get a mixture of those doctors who wanted to help the poor in their community and those who simply preferred the security and simplicity of a government salary to the uncertainty and administrative burdens of a private practice.

If those who believe in a single-payer system are right, these government clinics and hospitals would offer great care at good prices and take all of the business away from the private market and we’d end up with a single-payer system.  Past history has not shown this to be the case for other government endeavors, however, where a general lack of motivation to provide superior service prevails or to work efficiently has caused poorer results than is seen in the private sector.  Perhaps medicine will be different, however.  If not, there will be further motivation to work and put money into an HSA to avoid the government clinics.

The final clause deals with the reality that some individuals will simply exhaust insurance and require further treatment.  The number of individuals in this category will be low since most people will be saving for medical expenses and have insurance that covers most conditions.  Here some tough choices might be necessary – if it if worth $1 M to keep someone alive for three months, for example.  A small tax on everyone would be able to fund most of the expenses in this unfortunate group.

Certainly this plan is not perfect, but it solves many of the issues with existing health insurance and is far better than the Affordable Care Act.  I open the floor up to comments and improvements.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. 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. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

2 comments

  1. I’m a healthcare provider, so I’d like to comment on your article.

    Nothing makes my irony meter go off the charts more than the “Affordable” Care Act, and here is why:
    1) “If you like your plan, you can keep it.” Well actually I can’t. My company doesn’t offer the plan anymore that let me have a $700 deductible and $0 copay at company primary care clinics. Now I have a $4,000 deductible and to get a similar plan to what I had, I would be paying double or triple the cost on my own.

    2) We already have nationalized healthcare plans. Everyone gets it when they turn 65 (or are disabled), its called Medicare. Also impoverished people also get national healthcare, its called Medicaid and it is the BEST insurance in the world, yes I said it, THE WORLD. Someone with Medicaid can come into the emergency department at the world’s leading university hospitals every single day of their life, complaining of stubbing their toe, upset stomach, etc (anything non emergency) and their bill will be $0. You may say, well that’s good for them that they have coverage, and it is, but guess what; these are the most unhealthy and least compliant patients that we see despite their unrestricted access to healthcare, so clearly something isn’t working there.

    3) Health insurers are ruthless and out for profit only.They don’t care about their patients or the providers. Think about their business model: They collect money from their beneficiaries and then pay out LESS money than they collect, making them a profit. They don’t actually provide any service, only a payment, albeit one that is LESS than what you’re paying them. So why does this bill force everyone (who isn’t eligible for our nationalized plans) to pay for their products AS WELL AS others from the taxes that will be in place next year. Using your restaurant analogy: why would I be forced to go to a restaurant that I know is overpriced, when I am able to eat better and for less money by cooking myself? But lets not stop there, lets also tax me to pay for other people to eat at the restaurant.

    Other countries are far beyond the United States in terms of the fairness of their systems. Taxing and punishing the middle class will only force more people below the poverty line in order so that they can get “affordable” coverage, even though they were fine before the ACA. Insurers and employers are BUSINESSES, they operate for profit. Putting restrictions or requirements on them regarding coverage is pointless and detrimental. They will not simply take a loss because of the ACA, and we have already seen that. Businesses will drop coverage or convert workers to part time in order to grow their bottom line. Insurers will offer low-risk, high-deductible plans in order to force patients into bankruptcy (and thus onto government assisted plans) before they will take a loss by providing payment for more services.

    Here is a system that works in other countries and would work here and save us trillions. Have different tiers of providers (you mentioned this in your article) where if you want you can go to a free-government clinic and get all your healthcare needs. If you need to go to a larger hospital (for a rare procedure or specialist care), the providers at the free clinic/hospital can request to transfer you, thus taking a large load of freeloading/drug seeking patients off larger hospitals. Then the private providers would still exist as normal and accept private insurance to provide more personalized care. This would also force insurers to offer decent insurance plans, because otherwise people would just use the free-clinics and pay out of pocket when needed to use other providers.

    So its basically a 3-tiered system, with:
    1) Free clinics/hospitals
    2) Larger hospitals
    3) Private practices

    Instead of the way it is now, where in many lower income areas the emergency department traffic is nearly 90+% non-urgent problems for patients on medicaid. Setting up free clinics and urgent care centers would be FAR FAR cheaper than for the government to continue to pay billions to these large hospitals and doctors who in all honestly, they know if someone doesn’t require emergency care, so they order all the necessary test to clear a person (which can be expensive depending on what their complaint is, ie: an MRI may be ordered for a younger repeatedly complaining of headache; this test costs $1500 at many hospitals) and then the person is sent on their way home, never knowing that their 15 minute interaction with the provider resulted in a $2,000 bill to the government.

    As far as the doctors inflating the costs of services like you mentioned, I really don’t know why this is. Insurers negotiate set rates for most services and even diagnoses, so we could bill for $1M and they will only pay $200. However, there are many cash-only providers who will charge fair prices for people (similar or less than what the insurance pays) which makes sense because its much easier to not have to deal with the medical billing. Also, services like http://www.castlight.com can compare prices for different doctors. I think that service is still growing but its pretty interesting to be able to look up costs online, however lab tests also cost money and for a patient it would be impossible to predict what labs would need to be ordered for them.

    Conclusion:
    I’m sure people would complain about any change, because as a nation we complain about everything, but the ones who should really be complaining are the ones paying the taxes that run the entire nation and pay for everyone , while they themselves never get anything in return for it (ie middle class who are ineligible for any goverment assistance). Even a completely nationalized healthcare system like in Canada is better than the complicated mess we have now, at least then everyone is equal.

    Anyway, hope this helps!

    • Thanks for the well-reasoned comment, per usual. I’d make a couple of notes:

      In any plan, someone would need to pay for the value of the care. This means someone would need to create something of value to trade for the service provided. The cost of the service isn’t actually the list price – an ER doctor really doesn’t expect $1000 to see a patient for 15 minutes – but it is not $0 either. It needs to pay for a portion of the building, utilities, staff, liability insurance, and supplies and still have enough left over to make the doctor want to work instead of playing golf or something. Even in “free” government clinics, someone would need to pay these costs, which would be the taxpayers. Because no one in a government-run business makes more money if customers are happy or they cut costs – they get reimbursement for whatever they spend and more customers doesn’t mean more pay, just more hassle – there is little incentive to provide good customer service or to be efficient. You would therefore be spending more for less customer-friendly care in a government free clinic than a private cheap clinic.

      The “insurance companies,” as they currently are, don’t provide insurance. They are prepaid healthcare with an extra cut for the insurance company to pay for their trouble. The “product” they offer is negotiated rates combined with true insurance – the spreading of risk – for unusual, high cost events. The negotiated rates would be unnecessary if true rates were publicized since consumers would go to the lower cost providers until the costs were the minimum required for the providers to make a profit worth their trouble. As I said, the biggest role for th egovernment would be enforcing the terms of the contracts since there is little incentive for an insurance company not to deny a valid claim since there is no penalty if the claim is determined valid and they may end up not needing to pay a valid claim if the patient doesn’t fight.

      The best plan is not a single-payer since that would decrease customer service and reduce incentive for innovation and efficiency. The attitude would be “take it or leave it,” as in any government monopoly. The solution is to stop making prepaid healthcare the rule, and instead having most people “cook at home” – paying bills as needed – and then holding insurance policies to spread the risk of high cost occurances.

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