Getting Health Insurance Out of Healthcare


Most everyone loves their healthcare.  Talk to most people and they’ll tell you that they like their doctor.  They like their dentist, too, even though they may not like going to see them.

In the United States, everyone can also get access to healthcare, at least when times are desperate.  Every hospital is required to admit you and at least provide enough treatment to keep you alive.  Note that the same is not true for food, shelter, and clothing – things people need more desperately than healthcare most of the time, yet you don’t hear about a food crisis or a shelter crisis.  It is just that people put their first money towards these things, while healthcare comes after cell phones, cars, and lattes for many people.

Health insurance is another matter.  Most people hate their health insurance company.  Granted, if you talk to people who rarely need more than a yearly physical and a shot now and again, they may say their health insurance is just fine so long as the premium and the copay are low enough, or at least their employer picks up a good portion of the premium.

Talk to people who have had a major operation, however, and have therefore needed to spend time dealing with their insurance company, and you’ll likely get a different story.  You’ll hear about claims that should have flowed right through the system and been paid denied because of an incorrectly entered code.  Because it is the interest of the insurance company to deny the claim — there is no penalty for denying a claim and perhaps they won’t need to pay some valid claims if they deny them at first and then the customer doesn’t fight it — they generally won’t spend much time trying to figure out issues with claims before denying them.  This leaves people who are very sick or who are caring for someone who is very sick fighting with insurance companies and hospitals.

There are really two issues with health insurance as it is today in the US:

  1. Individuals give up control of their medical dollars to an outside entity, then they must convince that entity to release those dollars when the time comes.
  2. There is no incentive for medical providers to operate efficiently and no incentive for customers to look for low-cost options because normal free-enterprise factors that drive down costs and increase efficiency in other markets don’t affect healthcare.

The Affordable Care Act, or “Obamacare” does not solve either of these issues.  In fact, it makes it worse by forcing everyone to buy all-inclusive health insurance and effectively eliminates choice in that health insurance since every insurance package must include the same things.  This means that no matter what the insurance company charges, individuals will keep buying the insurance because they are forced to do so.  If they cannot afford the insurance, or if the penalty for not buying insurance is low compared to the cost or the insurance, some individuals would simply go without any insurance rather than buying a lower-cost, lower value product they could afford.

Note that subsidies have the effect of having insurance prices increase until they consume the entire free income of anyone who does not make a very large salary.  Whether you make $40,000 a year or $100,000 per year, the amount of free money you have available will be the same since you’ll just be putting more of your money to healthcare if you make more.  This means that your ability to pull yourself from the middle class into wealth and self-sufficiently is taken away since you won’t have any extra money to save and invest.

Note you would not want to do this for food – buy “food insurance” and then need to go to the food insurance company to reimburse you for your meals.  You would want the freedom to choose whatever food you wanted to eat and where you wanted to eat it.  Also, you wouldn’t want to be paying for other people who were wasteful with their food spending.  Think of a family that decided to buy every meal at Disneyland because it all cost the same to them anyway.  Given that you were paying the same, you would probably stop worrying about being wasteful as well, which would cause the price that everyone was paying to increase.

So what would work better?  Well, the first requirement is to have most people paying for most of their own healthcare.  This means making sure people are setting aside enough money to pay for regular doctor’s visits, medications, the odd broken bone, and the birth of their children.  You would also want them to be saving up for the higher healthcare costs they would face when they were elderly.  You would want people to be putting this money aside before they used any of their income for luxuries.  For people with a very low income such that they couldn’t even afford to pay for necessities, obviously subsidies or charity would be needed.

The second requirement is to have true insurance – something that few people actually use and therefore pay far less than the cost of the benefit they receive if they should use the insurance.  When you buy home insurance, you pay maybe 1-2% of the value of your house since the chance of a fire happening and destroying the whole home might be 1-in-100 or so.  Because only one person out of 100 has a fire, everyone only needs to chip in a little to know that they’ll be able to rebuild their home should a fire occur.  Health insurance should be the same way where rare but costly things like cancer are covered fully, but common things like dental cleanings are not.  The most important function of the government would be to ensure that the policies are paid out fully as specified without the consumer needing to fight.  The government could levy fines against the insurance company should they not pay a valid claim immediately so that it would be in their best financial interest to pay claims fairly.

The third requirement is to have true competition for healthcare.  This means making the prices more transparent.  Call your doctor today and ask what he charges for a procedure, and he’s unlikely to know.  He might be able to tell you what the rate is on the books, but the actual amount he receives will depend on your insurance and other factors.  There is probably an unpublicized cash rate as well.  You wouldn’t expect to go into a retail store and not know what the price is.  Doctors should be the same way.  Prices need to be publicised so that consumers know what a procedure will cost from different providers.  That would allow them to find the best value for them.  With time, the cost of all procedures would drop as those healthcare providers that provided sufficient quality the most efficiently would survive while those that were inefficient would go out-of-business just as with any other industry.

So, a good health care bill would be as follows:

  1.  Entirely repeal the Affordable Care Act.  It is too complicated to fix, so it would be faster to simply start over.
  2. Require everyone who works to put aside a fixed amount into a healthcare account.  This would be enough to cover routine medical care, plus pay for deductibles for major health events.  It should be set at what the typical mainly-healthy middle-aged person would spend each year.  People who were young would therefore be saving up for when they were older, while those who were middle-aged would be setting aside just enough to pay for their healthcare.
  3. Require everyone buy major medical insurance to pay for unexpected medical events, such as hospital stays and surgeries.  Also, create an enforcement arm that fines insurance companies that deny valid claims and a toll-free number for consumers to call when needed.
  4. Require healthcare providers to publish rates prominently so that consumers will know what they are going to pay before they step through the door.  Sales and special event pricing can be allowed, but those rates should be open to everyone, as opposed to different rates to different people.

Simple – now let’s get to it.

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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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