Having been elected, President-Elect Trump is now faced with finding ways to live up to his promises. One that he has made, which has been made by many in Congress, is to repeal and replace Obamacare. He is discovering, however, that doing so is not that easy since there are a lot of people relying on the current system, bad as it is, making it difficult to transition to something else.
One of the mistakes he’s making is trying to keep the requirement that insurance companies cover people with preexisting conditions, which is like forcing insurance companies to sell homeowner policies to homeowners when their house is already on fire. As political pundit Lawrence O’Donnell correctly pointed out on his show, that quickly leads us back to Obamacare since you can’t cover those already sick unless everyone is forced to buy insurance so you have enough healthy people to cover the cost. Otherwise, you only have people signing up for Obamacare when they’re really sick, then dropping the insurance when they’re better. The cost then skyrockets until you end up paying the same amount whether you have the insurance or not since the cost of the insurance is the cost of the procedure.
The three things that will make a good health care payment plan are: 1)Have people saving up so that most people pay for their own regular care and a good portion of the big emergencies. 2) Make pricing transparent so that people can compare costs and choose the lower cost option just as with any other service. 3) Require everyone to buy major medical insurance to cover the unusual, high-cost items.
Here is the outline of a plan that will work, including a path to transition from the mess we have.
1. Saving. People should be required to fund an HSA and then pay for regular health expenses out of this account or out-of-pocket. If most people were paying for most of their medical expenses with cash, which they could if everyone were saving for medical bills, it would mean people who were paying their bills would no longer be paying for several others who do not. This would make medical prices lower. Also, it would reduce the cost of providing the services since doctors would not need to maintain a staff to file insurance paperwork. Right now my family is paying about $4,000 per year for a plan with a $3,000 deductible. My employer is paying another $10,000, meaning I’m paying about $14,000 per year for health care before we even start paying off the deductible. On a bad year, we may have had $10,000 in medical expenses, and most years we’ve had maybe $2,000 since we just have office visits. If I were able to save up most of the money I’m paying for health insurance, in a couple of years I’d have $20,000 to $30,000 to pay for some fairly big expenses. Given ten years, I’d be able to cover most procedures. Workers with very low wages could have their HSA contributions subsidized so that they would have the money when needed (see point 4 below for a way to do this through charity).
2. Pricing. Probably the biggest issue is pricing. Doctors and hospitals do not readily provide pricing information. When they do, it is normally the list price, which is two to four times what they actually charge insurance companies and Medicare. If medical providers were required to provide pricing, and if everyone (except maybe for some coupons or special sales) basically paid the same thing, the list price would be far less and within the budget of many more people. Consumers could also shop around for the best deal, which would force providers to lower their costs and get things as efficient as possible. This works for every other product and would work for health care.
3. Major medical insurance. Everyone should be required to buy major medical insurance. There are things that happen to a few people that are very expensive. If everyone were to buy insurance, however, the relatively few people who see things like organ transplants would be covered. Because few people would use the insurance, the cost would be very reasonable, comparable to auto insurance and homeowner’s insurance. Insurance payments could be subsidized for extremely low-paid workers (either from taxes or from charities). Note that if everyone was required to buy major medical insurance, insurance companies could cover those with preexisting conditions currently since that would be factored into the risk pool used to price the policies. People who developed a need later would already be covered.
4. Tax credits for medical donations. Individuals could be given a tax credit (meaning your taxes are reduced dollar-for-dollar) for donations to charities that provide medical care for those who are unable to pay themselves. Donations could also be made to fund the HSAs and major medical insurance of those in low-wage jobs and the disabled who are not working. Because the charities would directly offset tax dollars, this plan would reduce the need for taxes. Also, because individuals could donate to groups in their area where they could make sure the money was being used well, the amount of waste would decline. These dollars would go far further than tax dollars would.
How to transition.
For transition, I would just let the government (meaning the taxpayers) absorb the regular medical costs for individuals unable to work currently due to medical conditions. Over a two to five years this requirement would decline since people would be saving up for regular expenses and buying insurance for exceptional ones. Also, the charitable donations would start to replace the need for government dollars.
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