Why Are Republicans Afraid of Free Market Healthcare?


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.

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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.

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.