Category Archives: Health Insurance

Why Health Insurance isn’t Working

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Health insurance is somewhat different from other forms of insurance.  Really, what we call health insurance today is part insurance and part prepaid healthcare, which is why it isn’t working very well.  Today I thought I’d discuss how insurance works, and how health insurance is different.

Most forms of insurance are used to reduce risk.  For example, let’s say that there are 100 homes in an area, all valued at about the same price.  The homeowners decide that if they had a fire, they would not be able to pay to rebuild their home since it takes them 20-30 years to build up enough money to buy one.  They therefore decide to each chip in some money into a pool that they could then use to rebuild homes if there is a fire.  In doing so, they eliminate the risk that they would need to come up with a lot of money at one time to rebuild their home.

The first thing they would do is to determine how much money they would need to contribute to cover the costs of rebuilding homes.  Let’s say that they look through data and discover there is a home fire that destroys a home about once each ten years, and that the value of each home is about $100,000.  The amount they would need to contribute is:

(Value of Home x Frequency of Fires)/(Number of Insured)

= ($100,000x 1/10 years)/100 homes = $100 per year

Now, there is a chance that they could have two fires in a year or have a fire relatively early before they had built up enough money to cover the expenses, so they may choose to increase that a little, maybe to $110 per home until they built up enough funds to cover a fire or two, and then reduce the premiums back down to $100 until there was a fire and they needed to replenish the funds.  If a fire occurred and their funds were depleted, they might raise the premium rates back up for a time to build up a reserve.


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Note that everyone is actually paying the cost of replacing his/her own home as often as he/she was likely to have a fire.  He/she could also just save up the money and replace the home himself/herself if a fire did not happen for a long period of time.  There is a risk, however, that a fire could happen right away before savings had built up – hence the need for insurance.  If he/she had enough money in the bank to just pay to rebuild the home, he/she could just be self-insured and save the insurance premiums.

After a little while without a fire, the homeowners in the insurance pool would start to build up some funds in the pool.  Rather than just leave the money in cash, they might want to get a better return for their money.  For example, if they had built up enough to cover 5 houses – $500,000 – they might choose to invest $300,000 of the money in stocks where they could get a good return over long periods of time, keeping $200,000 in cash so that they could cover at least 2 home fires without needing to sell stock.  If the market swooned right when there were a couple of fires, they would still be covered.

An insurance company is no different.  They figure out how often a fire will occur and charge enough to rebuild homes at that frequency.  They also charge more for people who are more likely to have a fire, based on things like neighborhood and the age of the home, and based on how much damage they expect a fire at the residence to cost.  They would therefore charge more for homes that cost more, and less for homes that are close to fire hydrants and maybe those which have sprinklers and other measures to reduce the damage from a fire.  They also charge a little extra to pay for the salaries of the insurance company workers and executives, advertising, and other costs of running the insurance company.  If there is enough competition they will reduce these costs as much as possible to keep their premiums in line with those of the other companies.

The insurance company makes money by charging a little more than they pay out and by investing the money that they have stored from premiums during the periods between events.  If there is a big event they may raise premiums for a while to rebuild their savings to reduce the risk that they will not have the funds to pay for the next event.  If there are changes in their risk – for example, the value of the homes increases or there is an increased risk of fires because the town authorizes the use of fireworks – they may increase their premiums to cover the additional risk.  Likewise, if people start using the insurance more often, they raise premiums to cover the additional costs.

Health insurance is different.  In the past, what was called “major medical insurance,” which only covered hospitalization, was similar to fire insurance.  Most people would not go to the hospital in a given year, and therefore money would build up in the insurance pool which could be invested.  Modern health insurance, however, is really just prepaid healthcare.  Because it covers doctors visits, shots, and other things that most people do each year, most of the money that people pay into health insurance is paid out in claims each year.  Also, unlike homeowners insurance that most people do not use and would not use unless there was a major event, many people will go to the doctor for the least thing because they have the sense, correctly, that they are paying for it anyway.  Likewise, they might choose the expensive medicine over the cheap medicine because they like the color of the pill or the box it comes in.  If they had to pay $100 more themselves, they likely would not think the color or the box was worth the extra price.

So with health insurance, you are just paying the cost of your likely medical expenses each year to an insurance company, which then turns around and pays the doctors, in addition to paying into a risk pool for major events.  The portion going to the risk pool for the very serious conditions that require hospitalization may be building up and being invested, but the portion going to general healthcare like doctor’s visits is spent each year.  Because the money is being spent each year, the cost is equal to the amount you would pay the doctor when you went plus the cost of the insurance company administration, advertising, and a fee to make it worth their while.  So you end up paying more for healthcare than you would if everyone just went to the doctor and paid cash and only used insurance for hospitalization.

In addition, because the natural tendency is for people to use more healthcare since it costs the same whether they use it or not and because the most expensive treatment and the least expensive treatment generally cost the same to the patient, insurance costs are higher than they would be if people were limiting their visits and choosing the low-cost treatment because they were paying out of their own pockets.  This feeds on itself, with premiums increasing, causing people to be more likely to go to the doctor and “get their money’s worth.”  We would be paying less and be in a much better situation if health insurance were like auto insurance, where you pay for the tune-ups and the oil changes yourself, reserving the insurance for only unexpected accidents.


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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.

A Missed Chance to Change American Healthcare History

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I’m extremely disappointed that one of our Senators, Lamar Alexander (R-TN), went along with nine other Republicans and all of the Democrats and voted against the straight Affordable Care Act  repeal bill put forth in the Senate the other day.  The repeal would have been phased in over two years, giving plenty of time for people to shift to new health plans (that would become available once the markets were freed to sell insurance plans that people wanted, rather than those mandated by the government) and for Congress to pass free-market measures that would reduce the cost of healthcare such as mandated Health Savings Accounts, transparent pricing,  and portable health insurance, sold to individuals instead of through work.

When I wrote to Senator Alexander about the repeal of the ACA, he said that he would not vote for any bill that caused people to lose access to health insurance.  Yet Obamacare is imploding as we speak, and it is likely that many insurance markets will have no providers, so people will lose coverage.  Others will have only one or two providers, and those ones will charge so much that those who can’t afford standard health insurance won’t be able to afford the Obamacare plans anyway, so people are losing their health insurance even if Congress does nothing.  And even if people have insurance, that doesn’t mean they have access to healthcare through their insurance.  Many people right now need to pay thousands in premiums and thousands for their deductible even with the Obamacare plans, so they end up needing to spend $10,000 or more per year before their insurance covers anything.  How is this helping them?

And what about Senator Alexander’s other constituents?  How can he vote to protect a small subset of the people in Tennessee while forcing the majority to pay for their protection.  I strongly believe that individuals should voluntarily provide for those who they find in need due to circumstances.  Certainly we need to care for the 21-year old who gets brain cancer and needs expensive treatments.  We need to help the young single mother who has a child who need round-the-clock care.

But think about what we’re doing by enacting forced welfare.  We’re telling productive members of society that they must surrender a portion of their income to us to give to someone else, either through taxes or by forcing them to purchase subsidized health insurance on a sliding payment scale, or we will go to their homes and seize their property and/or throw them in jail.  We are taking people’s money by force and giving it to other people, some who truly have no other way, some who simply choose not to produce, and some  who are unable to take care of themselves because they always have made bad choices and continue to do so.

In many ways, forcing everyone to contribute to what is effectively a public healthcare system, which is poorly run, has an inferior product, and is way over-priced as all public systems are (see public schools for another example) is worse than simply having taxes and providing overpriced, poor quality benefits (see Medicaid) to those who qualify for them.  At least with just taxes people can take whatever money is left over and maybe get better healthcare than what is available in the public system.  By forcing people to buy into the public system (which is what you’re doing when the government fully controls the insurance offered and the prices that can be charged, even if private companies are providing the insurance), you take away that ability for all but the very wealthy to find better healthcare since they have no resources left with which to do so.  Note the similarity with public education, where because people are already paying for the public system through property taxes, only the very wealthy are able to afford private schools, even in places where the private schools are far superior.

But what about the people being helped by public welfare programs?  At least it is a good thing for them, right?  Maybe not.  Think about people in your family who could get a full-time job and take care of themselves, but choose not to.  This is different from a family member who loses a job and needs to move in for a couple of months or needs some help with the rent until they get back on their feet.  This is someone who always has an excuse about why they can’t work here or work there.  Often there is someone in your family who is an enabler – a very sweet person who pays for the food, apartment, and lifestyle of the non-working family member.  In doing so, the needy family member never gets a job or makes anything out of their life.

When we give through private charities, the charity is normally able to do a better job of figuring out who truly needs help and who would be better served with a kick in the pants.  Public programs often give money out blindly, and often even encourage individuals to not work or do anything or the hand-outs would decline.  Get a job, you see your housing allowance cut.  Have another child, see your food stamps payments increase.  If you’re religious, imagine needing to stand before God, having had two good arms, two good legs, and a good brain and having done nothing with the gifts He had given you.  If you’re not, just imagine spending your whole life and doing nothing of value.  How kind is it to encourage others to face that fate?

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.

Fixing the US Health Payment System: Repeal and Remove

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Many say the US healthcare system is broken, but they are wrong.  To see a broken healthcare system, go places like Vietnam and see people dying on gurneys in hospital corridors, or even Great Britain  to see people waiting months for critical procedures.  See also cases like Charlie Gard, where the government of Great Britain is basically telling the parents that they must just watch their child die, forbidding them from going and get care elsewhere.  Because the waits are so long, “good” Canadian insurance includes a clause that allows for treatment in the US if the lines are too long in Canada.  In the US you can almost always get into see a doctor the same day or at least within a couple of days, which is not true in many countries.  Even if you don’t have the money required to pay for care, you can still get the care needed to preserve and even better your life through the emergency room.  You may get a bill, but the hospital will just write the cost off and pass it on to other patients who have insurance.  No one is dying in the streets for lack of care.
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The issue in the US is not healthcare, but the effects of health insurance and government programs on the healthcare markets.  Because most people get insurance through work, and because each insurance company has their own deals cut with providers, it is virtually impossible to figure out how much you will pay for a procedure ahead of time.  You might get the list price:  “Popping that pimple will cost $20,000 plus doctor’s fees, billed separately,” but the actual price you and the insurance will pay will be maybe 10-20% of the list price.  The trouble is that the person who goes in without insurance will need to fight to get a better rate, and that rate usually depends on how much the hospital thinks they can get out of them.  If you can pay $20,000, you’ll pay $20,000.  If you can only pay $200, you’ll pay $200.

Health insurance also distorts the cost of routine care at your doctor’s office.  They charge $120 for the visit and $500 for x-rays and screenings, but they know they’ll actually get $60 for the visit and $150 for the screenings from the insurance company.  If you knew you would be paying $60 for a visit and $150 for x-rays, you wouldn’t be willing to pay $1200 per month for health insurance – you would just pocket the $1200 and write the doctor’s office a check during the half dozen times your family went in during the year.  Put the rest of that $1200 away each month and you’d have the money needed for the times you did end up with a hospital stay or more serious issues.

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The issue is that you don’t know what things will cost and what you will pay because insurance has distorted the prices so much.  As a personal example, after a family member spent a couple of weeks in the hospital recently, we received a bill for $60,000.  Insurance reduced the amount down to $15,000, then we paid $3,000.    A $60,000 bill is scary.  A $15,000 bill is significant, but manageable with some savings and perhaps a payment plan, particularly if we weren’t paying $12,000 per year or so in health insurance.  Without insurance, however, we would have needed to fight the hospital to reduce the bill, and perhaps seen it cut to $20,000 to $30,000 after a significant back-and-forth since we don’t have the negotiating power the insurance company does.  If insurance did not exist at all, however, the hospital bill would have been $15,000 to start with since no one would go to a hospital charging $60,000 when another one across town was charging $15,000.  There would probably be a phone app that you could use from the waiting room to compare prices at local hospitals and you would transfer for a $45,000 savings.

The Affordable Care Act (Obamacare) has not brought healthcare to millions of people as some advertise.  Instead it has just amplified the issues caused by the insurance market by making all plans cover the same thing (everything) and forcing everyone to pay with insurance instead of paying out-of-pocket.  It has also added government subsidies, which have the effect of making health insurance cost “whatever you are able to pay” rather than being based on the value of what you receive in return.

In addition, while you may have insurance through Obamacare, it doesn’t mean you’ll actually get healthcare.  Customers are stuck with insurance policies that they cannot use since the deductibles are so high.  It doesn’t do anyone any good to have a policy with a $9,000 deductible since very few people would ever reach that level in a given year.  Even if they did, how many would have the $9,000 to pay?  They would be better off just saving the $4,000 to $8,000 they spent on the insurance policy and just paying for healthcare out-of-pocket.

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Even those who are now on Medicaid, which covers all of the costs, are having trouble getting care since the government is not reimbursing providers enough to make them want to treat Medicaid patients.  In California the free and reduced price clinics have gone away due to the ACA, but doctors are not accepting Medicaid patients.  One individual was quoted in a recent Wall Street Journal article who went to mexico for a critical gull bladder operation after waiting for months in the US for the surgery needed to save her life.

The actions needed to fix the US health payment system are actually quite simple and could be summarized as follows:

  1.  Repeal the ACA in its entirety.
  2.  Eliminate the tax deduction for companies that provide health insurance to their employees.  This would incentivize them to stop providing employer healthcare and just pay higher salaries instead.
  3.  Create a tax deduction for individuals who buy insurance.  This would further create the incentive for insurance to be something individuals buy instead of the norm to be to get health insurance through work.
  4.  Outlaw insurance with deductibles of less than $3000 per year for a family of four.  This would cause most people to pay for routine care out-of-pocket, which means they would be more sensitive to prices and shop around.
  5. Require that all doctors and hospitals publish their rates for procedures online and outlaw charging different people different rates.  Pricing transparency is critical to an effective, efficient market.  Prices would fall as people sought out the best deals for healthcare just as they do for everything else.
  6. Require that everyone put 10% of pay into an HSA.  This would ensure people had the money to pay for healthcare as needed instead of buying a bunch of other things and then not having money for the doctor.
  7.  Provide a direct tax credit for donations made to organizations like free clinics and hospitals.  This would provide a safety net for those between jobs or who were unable to work.  Individuals would be funding these causes directly instead of the money filtering through the government first.

Take these actions and the issue would virtually disappear.

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.

What’s Wrong with the Healthcare Market?

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I was thinking the other day about the American healthcare system and why it doesn’t seem to function like the other markets.  I mean, there is really no issue with getting food – it is cheap and plentiful.  Sure, people who make a lot of money are able to buy better quality food, or at least food that costs a lot of money in fancy restaurants, but anyone who is willing to work a little can get enough to feed their families, even if it is very little steak and a lot of ground beef and chicken.  Clothing is also not an issue – you can pay $5,000 for a dress, but anyone who works can get can cloth themselves and their family.

The healthcare markets, however, are different.  The cost of things can be very high, such that even someone who makes a good, middle class income can be bankrupted by a hospital stay.  There are some ways to save money, but in general the premium price is almost always charged, particularly when things are urgent.  Why is it the free enterprise works great for food and clothing – necessities of life – but not healthcare?

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Then I started thinking about it a bit and realized that healthcare is not operating under the free enterprise system like food, clothing, shelter, and virtually everything else.  Healthcare is different for these reasons:

  1.  Most people pay for buffet plans, then use as much as they want without concern for costs.
  2. Most services are provided without the consumer or the provider knowing what the price will be.
  3. The final price is decided after the product is consumed, and often the consumer and the person/entity that pays is different.
  4. Many people receive services and pay nothing.

Think about what it would be like if you went into a restaurant that had the same policies.  You can already see what happens when you pay a fixed amount for unlimited food since there are buffet restaurants.  People eat a lot more than they would if they were paying per item, and also tend to concentrate on the more expensive items.  Very quickly the buffet restaurants learn how much they need to charge and earn a profit, and that tends to be a reasonable amount since there is only so much people can eat.  But in the medical system prescriptions, devices, and services can be really pricey, so if people just keep consuming a little bit more it drives up costs, which is why premiums seem to rise every year.

 

                 

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Think now what the effects of the second and third items – having services provided without knowing the cost and not even deciding on the final price until the product was consumed  – would be in the restaurant industry.  What if you walked into a restaurant and sat down and there were no prices on the menu.  You ask the waiter about the price of a steak and he says that he’s not sure since it would depend on your insurance.  You tell him you don’t have restaurant insurance and ask him what you would pay.  He says he’s not sure since everyone pays with insurance.  He might be able to tell you the list price was $500, but says you’d probably pay a lot less.  You then go ahead and order meals for you and your family, sweating the whole time because you’re not sure what the meal was going to cost you.

At the end of the meal, the waiter comes out with the check – $3,455.  You look through the bill and see that rolls were $30 each!  You know you could have bought a whole pack of rolls across the street for $5.  You say that there must be some sort of mistake.  The waiter refers you to a manager who says that they could work out a payment plan.  He also says that he’d be willing to cut $1,500  off of the bill.  You’ve already consumed the food, so you can’t just say “No thanks!” and walk out the door.

Would you go to a restaurant like this?  Maybe you would if you had a meal plan where you paid a fixed amount for food at the restaurant, but what if the price of that meal plan just went up every year until you were paying $5,000 per year for the plan?  Would you be tempted to go to the restaurant more often?  Would you get more food than you really needed, and insist on only the best food while you were there?


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And what if while you were at the restaurant, you saw the family next to you just walk out without paying a bill?  They got the same food and the same service, but paid nothing.   You ask the manager why they didn’t pay and he explains that they didn’t have any money to pay, so they just eat for free as part of the restaurant’s benevolence.  Of course, you realize that the restaurant doesn’t have any source of money except for people like you who eat there and pay their bills, so you’re really paying for the bill of the family that eats free.  Going to the lot you notice that they are stepping into a brand new Cadillac.  You are getting into an old Honda because you want to save up some of your money to pay for things like food and can’t do that with a big car payment.

Obviously this is not the way that restaurants work.  The prices are clearly printed on the menu in almost every restaurant and there is no negotiation.  While you do not pay until after you’ve eaten, you have a good idea of what your bill will be and you choose restaurants based on what is in your wallet since you know that you’ll need to pay the bill after the meal or they’ll call the police.  No one eats without paying, so the price fo your food is only based on what you eat.  You’re not paying for other people.  As a result, prices are reasonable and there is a wide variety in choices of restaurants.  If eating at fancy places is your thing, you can put your money towards that and cut in other areas.  If it is not, you don’t need to pay the same price as others who like fancy places when you do go out since you can pick a cheaper place.  With medical care, especially when it is an emergency, there is little choice.  Plus if you’re on insurance because you’re worried about a big bill, you end up paying premium prices whether you use your medical care often or not.

 


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So how do we fix the healthcare system in the US?  Well, we start having people save up money for medical costs so people can pay for their own care for one.  We make prices transparent for another and have consumers pay the bill and get reimbursed by insurance rather than having fifty different deals cut with insurance companies and having the consumer have no idea what things costs.  We also get medical costs out there where people can see them rather than have everything so hidden.  Maybe there is a tech entrepreneur out there who can take that last idea and run with it.  Think about an app that tells you what the price of procedures are across your city and what that would do to medical care prices.

So what do you think?   Please join the conversation and leave a comment.  Contact me at VTSIoriginal@yahoo.com.

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.

Why Are Republicans Afraid of Free Market Healthcare?

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The United States has fantastic healthcare.  We have all of the latest machines and gadgets.  You can get in and see a doctor often the same day, but certainly within a couple of days if needed.  There are also starting to be walk-in clinics at drug stores and other places where you can go without an appointment for simple things like ear infections and poison ivy rashes.  There are readily available hospitals and emergency rooms for more serious events.  Finally, there are all sorts of new drugs coming out all of the time that treat virtually everything that makes ailments that were once considered just part of growing older a thing of the past.  Certainly the care available is among the best in the world.

The issue is not healthcare, but the way in which payment has been made for healthcare for the last 40 years or so that has made the sticker price very high and the amount that people are paying increase faster than inflation.  The issue is that prepaid healthcare, in the form of cover-all health insurance plans, has become a standard benefit at work. It has also become a common benefit provided by the government for those who don’t work or who have jobs that don’t provide health insurance.

Insurance is a good thing to buy and part of a free-enterprise market.  Most people don’t have an extra $50,000 in the bank to pay for their and someone else’s car and injuries should they get into a car accident, so they buy car insurance that covers the costs should it happen.  People also don’t have an extra $200,000 to replace their home should a tornado wipe it out, so they have home insurance.  In both cases people don’t pay the full price of a car accident or a home each year when they buy the insurance – they pay a small fraction of the price based on the amount that the insurance would pay should an event occur and the likelihood that it would occur in any given year.  Insurance works well for events that are unlikely to happen, but that would be financially devastating should they occur.  This keeps the cost affordable but makes sure the money is available for the few people who use it each year.

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What is called health insurance in the US includes an element of insurance that covers things like liver transplants and hospital stays that are unusual, but it also covers doctor’s visits, prescriptions, and labs that will happen for most people each year.  This means you are paying the full cost of these procedures, plus a bit extra to cover administrative fees and profit for the insurance company.  Plus, since people are paying for everything regardless, and it will cost the same whether you go to the doctor fifty times or three times, and whether you get the name brand drugs that see for $500 per month or the generics that sell for $15 per month, people tend to use healthcare more and not take cost into consideration in their choices.  This then causes the cost of insurance to rise.

Another factor is that health insurance makes pricing very opaque.  The sticker price for a doctor’s visit might be $150, but the doctor might have an arrangement with the insurance company that they’ll take $40.  An x-ray might have a sticker price of $500, but the insurance pays $75.  If you ask the doctor, you might get similar prices, or pay just a little more or a little less, if you’re paying cash.   If you’re dealing with a hospital it is more difficult to negotiate since they’re trying to get as much as they can to of each patient, so their willingness to cut a deal will be based in part on their expectations of whether you’d be able to pay the full amount.     Because a lot of people pay nothing at the hospital, or the hospital gets less than the cost of care from the government Medicaid or Medicare programs, they charge others more to make up the difference.  They then claim that the ones who don’t pay are getting “charity care” from the hospital, when really the patients who pay out-of-pocket or use insurance are paying the their bills, and they don’t even get to deduct the gifts from their taxes.

                 

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Free-markets, where there are many consumers and many providers trading with each other, would work with health care just as it works with everything else.  If everyone just paid out-of-pocket and didn’t use insurance except for major events, the costs would immediately drop to be in line with what the insurance companies pay or even less since the doctor’s would no longer need to spend time and money sending in insurance claims.  If everyone were paying for themselves, costs would decline since you wouldn’t be paying the costs that others didn’t pay, just as it would be a lot more expensive to go out to eat if you were paying for the tables around you rather than just the cost of your food.  Prices would also start to be more transparent,  as medical centers started to advertise their prices and specials to attract customers.  Those that didn’t provide their real pricing would lose customers since people wouldn’t put up with not knowing the price before they bought things and being surprised at the end just as they wouldn’t shop in stores that had no prices until they got to the register.  Prices would drop as providers looked for ways to be more efficient and cut their costs to avoid being undercut by other providers.  Manufacturers of medical devices and drugs would also look for ways to cut costs if they were competing for consumer dollars rather being able to bill insurance companies since they would not be able to sell drugs that cost $100 per pill.


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Despite the vast evidence that free-enterprise makes markets more efficient, lowers prices, and improves customer satisfaction, Republicans are scared to go to a free-market system.  Rather than simply repealing Obamacare and shifting to a market system over a reasonable transition period as they’ve said they wanted to do for the last six years, they want to go to some sort of Obamacare 2.0 that still has all of the collective payment for care but without the things that sort of make Obamacare work like the requirement that everyone get insurance.  We could be on the road to a great system where anyone who works a regular job would worry about getting healthcare no more than they worry about getting food.  Why the fear?

The answer is simple:

  1. Eliminate the tax break for providing insurance through work to encourage employers to simply pay their employees money and separate healthcare from work.
  2. Require everyone to put away money into a health savings account so that they have the money needed for healthcare so that others don’t get stuck with their bill.
  3. Make the health insurance market free, allowing insurers to sell anywhere they wish rather than being confined to certain states.

Do these things and watch healthcare costs drop as the free-enterprise system does its magic.  There is no reason to fear.

So what do you think?   Please join the conversation and leave a comment.  Contact me at VTSIoriginal@yahoo.com.

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.

How to Replace Obamacare with a System that Works

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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.

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

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

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.

Obamacare is failing. Here’s a better way.

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For years the Affordable Care Act was being rolled out in drips and drabs, and having portions delayed to avoid angering voters right before critical elections.  Now it is fully implemented and health insurers are falling out of the Obamacare marketplace left and right.  It is becoming clear that the predictions made by pundits as the law was being passed are coming true.  Healthcare premiums are rising way up due to the requirement that insurance have no limits and cover preexisting conditions (the money to pay for these things needs to come from premiums).  People are losing jobs as employers are cutting workers – both to stay below the 50 person threshold where health insurance is mandatory and to offset costs from increases in healthcare premiums.  Other employers are cutting fulltime employees and shifting them to part-time shifts (less than 30 hours per week) to reduce the number of full-time employees below the threshold.  Not only are people not getting insured – they are losing wages as well!

Predictions on the supply side are also coming to pass.  Doctors are quitting the practice to avoid having their payments dictated and face a mountain of paperwork.  Others are shifting to concierge practices and not seeing patients with insurance at all.   Networks are being shrunk to reduce costs, resulting in long drives to see specialists or even primary care doctors.  Copays are also going up as insurers try to cover costs.

Costs are also not decreasing  – they are increasing.  This is partly because individual who originally bought minimal plans, because this was what they could afford, lost those plans and had to pay for plans with a lot more services they may or may not use.  (This is like wanting to buy regular gas but being forced to buy premium.  Sure, it is better gas, but not worth the cost to many people.)  In addition, younger individuals are needing to subsidize the healthcare costs of older, sicker individuals.  Even with these increases in premiums, insurance companies are not covering costs.  Healthy individuals are deciding to go uninsured because the price is not worth the perceived value (if you are healthy), some individuals simply cannot afford the higher premiums, and the penalties for not signing up were delayed another year.  As a result, only the sicker individuals who are using far more healthcare than they are paying for are enrolling.  Because of this, premiums are not covering costs and it is expected that the government will need to bail out these insurers.

The Affordable Care Act actually exacerbates the issues that existed with traditional health insurance.  These are:

1) Everyone pays essentially the same cost whether they use healthcare or not, so there is an inclination to go to the doctor for every little thing and there is no reason to choose lower-cost treatment options.  Increased demand results in higher costs, and higher payouts result in higher premiums.

2) Pricing is greatly distorted by insurance.  Just try asking the front desk in your doctor’s office what a procedure will cost with your insurance (your portion and what the insurance will pay) and it is unlikely anyone in the office will know.

3) A lot of people aren’t paying, or paying very little, so those that do pay are paying for ten or twelve other people besides themselves.  (Imagine what eating out would cost if you had to pay for the meals of five tables sitting next to you.)  This makes fewer people willing to save up and pay because the costs are so much higher than the value received (for example, $10 aspirin in hospitals), so people would rather not save and then rely on charity when they need healthcare.

Realize that there is no magic that allows people to pay less than the cost of their care, on average.  If someone gets care for free, someone else must pay twice.  This is true of anything – someone needs to create the value that is used.  Everyone cannot have free cupcakes.  Someone needs to put in the effort to make the cupcakes and must buy the ingredients, and few people will make free cupcakes indefinitely if they are not compensated for their efforts.

The secret to reducing the price of healthcare, and making getting it a non-issue for virtually everyone just as buying food is a non-issue for anyone with a job, is to get most people to actually pay for it.  This means that they need to save up money for the inevitable times where they will need healthcare.  It also means having them pay for the services they receive to give them an incentive to use less or choose lower cost options when it really isn’t important.  The solution is therefore the following:

1.  Require that everyone sets up a Health Savings Account (HSA) and contributes a required portion of their income to the account, up to a certain dollar value of income.  The contribution percentage would decline after a certain amount is saved in the HSA, meaning that those who used little healthcare would have a higher take-home pay, providing an incentive to maintain high account balances and not spend money unless needed.  Those who cannot contribute enough to cover reasonable costs would have their contributions subsidized.  Any money left at death would be passed to heirs.

2.  Require that everyone also buy major medical insurance – insurance that pays for costs above a certain, large threshold, like $20,000.  Ensure that there are enough insurance companies competing that the price of this coverage is as low as possible and the service is as good as possible.   These policies must be clear on what is covered and government should fine any company that does not immediately pay for a covered service (no denying payments for sick people, hoping they won’t dispute the mistake and just pay the cost themselves).  The threshold could also be raised as an individual increased the amount in his HSA, thereby lowering the premiums.  For example, an individual with $40,000 in an HSA could have a major medical plan with a $40,000 deductible, which would cost less than one with a $20,000 deductible.

3.  Develop a high risk pool, subsidized by taxes, that covers those with really bad medical luck (like a major disease at 18 years old before starting a job and getting major medical insurance).  These individuals are rare so most people would be able to cover themselves with everyone saving up a portion of their income in an HSA, so spreading the risk out over the whole population won’t cost much.

4.  Require that all medical providers post costs and stick to those costs (no preference for one patient over another).  This would allow individuals to shop around for the best deal and eliminate price disparities as currently exist.

What would things be like after this plan is implemented?   Most people would just pay for their medical treatments out of their HSA when needed because they would have the cash saved up.  There would be no need for the doctor’s office to file insurance, reducing costs.  In addition, because most people were paying their bills and you wouldn’t need to pay for other people, costs would drop dramatically.  Imagine $20 office visits, $15 X-Rays, etc….  Hospital stays would be maybe $150 a day instead of the thousands they now cost per day.

There would also be incentive to save money, and therefore people would pick the cheaper option when it really didn’t matter and not use healthcare when not really needed.  This would cause less demand, and therefore lower prices.  Doctors could also provide a discount for procedures that really reduce costs like certain exams.  Prices would decline to the point where getting healthcare is no big deal for most people.  With most everyone paying for their own healthcare, the cost to cover those who could not would be easily obtained through charity or taxes.  Now that’s health insurance reform.

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.

The Cost of Obamacare

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OLYMPUS DIGITAL CAMERAI was talking to a gentleman today who works part-time as a professor at a local community college.  He also spends part-time running a local non-profit.  His experience shows why the recovery from the 2008 recession has been so slow.

When the Affordable Care Act, a.k.a. Obamacare, was forced through Congress by the thinnest of margins, one issue pointed out was that it discouraged employment.  This is because the law requires a company provide healthcare to employees who work for more than 30 hours per week.  It also requires employers with greater than 50 employees to offer health insurance.  This creates a digital change in the cost per employee.  If you give someone a few extra hours per week, your cost for that employee may jump by $8,000 per year or more.  Even worse, if you add another employee to the payrolls and pass the 50 person threshold, your cost may just by $8,000 per employee per year, or $400,000 for a 50 person company.  This is a recipe to reduce hours and keep companies from creating jobs.

While the intentions of the law were good – get everybody health insurance – the way it penalizes businesses who go above a certain threshold is a bad idea.  It has caused businesses to cut people’s hours to stay below the threshold.  Likewise, it has caused businesses to not expand and hire more people because they can’t pay for the huge cost of adding healthcare for all of their employees.

The gentleman I was speaking to saw his hours cut at the college because they could not afford to pay for health insurance for him and others like him who were not full-time professors.  For the individual, this means that not only do they not have health insurance, but they also have less money in general to pay for things like healthcare, food, and housing.  This makes people drop out of the workforce entirely so that they can get Medicaid.  Otherwise, they may need to work a few part-time jobs because they cannot get a single full-time job.

So is there an answer to healthcare?  I think that there is a solution that will work for most people, and for the number remaining it would be easy to take care of them.  It involves going back to the way healthcare was paid for before health insurance was offered through work, but adding a measure of personal responsibility.  It involves the following:

  1.  Everyone who is working is required to put 10% of their salary away into a health savings account for their immediate family.  This account is disconnected from their job – it is money sitting there waiting for them when they need it whether they are working at the time or not.  Lower income workers would receive a subsidy to boost their contributions.
  2. Parents are required to put away $500 per child per year into a health savings account for their children from the time their children are born until they turn 18.  That means the child will have a starter HSA of $9,000 when they leave the house.  Parents can contribute more if needed.  Poorer parents would get a subsidy.
  3. Individuals would be required to purchase major medical insurance.  They could choose policies that pay for bills that exceed certain thresholds, such as $5,000, $10,000, or $20,000.  Choosing a higher threshold would require enough money be saved in the HSA to cover the deductible.  Higher thresholds would charge lower premiums, encouraging individuals to keep the balance in their HSAs high to reduce their major medical insurance bills.  These policies would cover all medical costs after the individual met the threshold and would continue to pay for that condition.
  4. Doctors would be required to post their rates for procedures so that individuals could determine the price of services and compare among providers.  Doctors could also have flat rates per year and sell healthcare plans.

The reason that this plan would work is that most individuals would have the money needed to pay for care when needed, meaning that people wouldn’t be hit with outrageous bills that are the result of many people not paying their bills.  Because the bills would be more reasonable, more people would be able to just pay their bills.  The major medical insurance means that most people would also be able to pay for the rare, high cost events like major surgeries and accidents.

This would also disconnect health insurance from employment, resulting in increased employment, increasing the amount of goods and services produces, leaving people better able to take care of themselves. and improving the economy.  This in turn would further lower healthcare costs since it would increase the percentage of people who could pay their medical bills.  Soon, the ability to pay for healthcare costs would be as common as the ability to pay for food and most people would be paying their costs out-of-pocket, saving their HSAs for the rare major expense..

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.

Generation Y and Health Insurance

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FireAlarmGeneration Y has gotten a bad rap, and it really isn’t deserved.  OK, the students protesting for free tuition and a $15 minimum wage on campus obviously haven’t done the math and clearly don’t understand much about economics. (In order to get “free tuition,” they would end up paying more over their lifetimes in taxes than they pay now for tuition.  Likewise, a $15 minimum wage on campus would mean things would cost more and their taxes would be higher.)  And yes, there are a lot of young adults moving back home and playing the perpetual teenager, thanks in part to their enabling helicopter parents.  But on health insurance, and on other entitlement programs, they get it.

An issue Generation X and the Baby Boomers were facing is that they were getting older and needing a lot of medical procedures, but they hadn’t saved up any money.  Also, healthcare premiums kept going up because they were getting sicker and using a lot more healthcare.  One of the big issues was that there was very little personal responsibility for keeping healthcare costs down since the patient wasn’t paying for it.  So, the older generations got together and figured out a way to “fix” the system.

They saw all of those twenty-somethings who never get sick but who weren’t buying health insurance (since they never got sick) and decided that they could force them to buy expensive health insurance with all of the frills and pay extra for it so that the older generations could pay less than the value of the healthcare they were using.  To make it sound better, they would force the health insurance companies to allow their parents to keep the Gen Y individuals on their insurance until they were 26 (it really didn’t cost the health insurance companies much more anyway, because again, they rarely got sick).

So, it was thought that the twenty-somethings would agree to pay way more for insurance than they used in heathcare, so they would be paying for the healthcare used by the older adults.  The older Americans loved this because they would be not need to pay for all of their healthcare.  They didn’t seem to worry that they spent their twenties and thirties spending their money how they wished, and they were now denying Gen Y this same opportunity.  The health insurers loved this because they would be selling expensive, full-coverage insurance to everyone, including the people who would never use it, and everyone would be forced to buy it.

Except the twenty-somethings looked at the cost of the insurance and figured out that it was not worth the price.  It was better for them to just pay the penalties.  In fact, if they kept their income low, by not getting a real job, the penalty they would actually pay would not be that big – maybe a couple of hundred dollars per year.  That was way less than the thousands they would have been paying in health insurance premiums.  Furthermore, they could avoid the penalty entirely by asking for a “hardship waiver,” which the government was happy to provide since they didn’t want to lose votes of the Gen Y crowd.

So as a result, many of the health insurers are losing money by the boatload.  They’re needing to cover the older, sicker Americans who pay far less in premiums than they receive in benefits.  Without the younger, healthy Americans there to pay the bill, insurance companies are losing billions of dollars.  Because Obamacare requires that the insurance companies cover everyone, even if a person signs up after they get sick and then drops coverage as soon as they get healthy again, they have no choice but to take on the sicker people.  Because the law also limits the amount they can charge for that insurance, there is no way for the insurance companies to break even, let alone make a profit.

For a period the American taxpayer was bailing out the insurance companies through what were called “risk corridors.”  Basically the government agreed to pay for any losses the insurers had, after those losses were offset by gains other insurers made.  Because no one made a profit, the government (meaning the taxpayers) was left bailing out everyone.  Now the risk corridor money has run out, so insurers are pulling out of the insurance exchanges to avoid bankruptcy.  As an example, United Healthcare has announced that it may pull out of the exchange marketplace next year.

Now I doubt many Gen Y individuals sat down and did the calculations, estimated the likelihood that they would get sick, what the cost of that illness would be, and then determined if the insurance was worth the money based on a risk benefit analysis.  Instead, they just had an innate sense that what they would pay in premiums was not worth it.  They realized that the chances of getting sick are fairly low, that what they would be paying in premiums over a couple of years would be more than the cost of many of the things that could happen to them in terms of healthcare needs, and decided to opt out.  Unfortunately in many cases they chose to just ignore the issue and hope nothing happened, rather than save up some of the money they would have been paying in premiums in case something did happen, which means they would burden other healthcare users with their costs should they get into an accident or something.  This leaves us exactly where we were before Obamacare, except with a lot more government employees and rules on doctors and hospitals, narrowed networks (meaning it is hard to find a doctor), more expensive health insurance since now plans must cover everyone (and because more people drop out as the price goes up), lots of more people on Medicaid with the government already $20T in debt, and doctors leaving the profession.

So how do we get everyone covered and stop having hospital bills lead to bankruptcy to the unfortunate few who do get really sick?  Well, instead of having Gen Y pay for the healthcare of Gen X and the Baby Boomers and then hope that there will be someone around to pay for them when they get sick, we should simply require that everyone start an HSA and contribute a reasonable amount of their income each year.  Because people would be putting money away for healthcare, when they got sick they would actually be able to pay their bills much more of the time, meaning the costs would drop for everyone since those who were paying would no longer be picking up the bill for those who weren’t.

On top of this, each individual should be required to buy major medical insurance – insurance that kicks in when you go to the hospital for several days – with a premium set based on the amount of money in their HSA.  Because this insurance would only pay when they had a major event, the cost would be a lot lower than the cost of Obamacare.  They would rightly judge that $500 per year or so was worth it to avoid having a $100,000 hospital bill they couldn’t pay.

Finally, we should require doctors and hospitals publish their prices for procedures where everyone could see them so that people could comparison shop.  And these would need to be the real prices – what the insurance companies actually pay them, and not the price on the books that almost always gets sliced down.  Wouldn’t it be great for hospitals to consider what would be a reasonable price for things because they knew that people would go elsewhere if their prices were too high?  This would help solve what is really wrong with the healthcare payment system – list prices are way too high, and those without insurance are forced to fight the price down on their own when they are sick, while insurance companies pay no where near those amounts, so people are forced to buy their healthcare through insurance companies even though the cost overall is higher that way than if they were to just pay on their own and hospitals just charged the real prices from the start.

Got and investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

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.

Getting Health Insurance Out of Healthcare

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Garnets

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.