Why Health Insurance isn’t Working


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


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


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?


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?


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.

The ACA was Terrible; the AHCP Even Worse


Those who are regular readers to this blog will know that I am not a fan of the Affordable Care Act (ACA), a.k.a.Obamacare.  Amazingly, the Republicans have created a replacement plan that is even worse called the American Health Care Act (AHCA).  In what appears to be an effort to avoid making anyone mad, they have basically taken out the parts of Obamacare that sort of made it work, but that people didn’t like because it cost them money, and left the things in that made it financially unstable, but which everyone loved because they were “free.”  Having a lot of people getting free stuff, with no way to pay for that free stuff, is a sure-fired way to bankrupt an industry.  The ACA nearly destroyed the heath insurance industry – the AHCA will surely finish it off if it passes as it is.

The things people loved in Obamacare:

Subsidies (paid for by taxpayers and people paying full freight on the unaffordable, Affordable Care Act insurance)

Keeping young adults on parents’ health insurance until 26 (really, this provision has no effect since young adults rarely get sick, so their health insurance would be really cheap if they ever left their childhood bedroom)

Coverage of preexisting conditions (the most unaffordable provision, since this allows people to buy insurance on the way to the hospital)

No lifetime or yearly maximums (should be included, but raises rates)

Things people didn’t like:

Penalties for not buying health insurance (the only way to make premiums affordable)

Collection of healthcare data by the Feds (creepy)

Forcing religious businesses and entities to buy insurance that included abortant drugs (so much for the 1st Amendment)

So the AHCA tries to keep the things people liked, but get rid of the biggest thing that people didn’t like:  being forced to buy insurance, particularly really expensive insurance for those who are young because they are covering all of the high costs of those who are old.  With the ACA, many young people wisely decided that they were better off paying the penalty, so they didn’t buy the insurance, which pushed the price higher for everyone else, until the ACA entered the death spiral.  The AHCA does nothing to fix this issue, and even makes things worse, since now those who don’t buy insurance until they are sick don’t even pay a penalty.

         

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 their healthcare.  This can only be accomplished if you make sure that they put enough money aside so that they have the money when needed, rather than spending every dime and then not being able to pay their medical bills.  Not even requiring people to buy health insurance is a sure recipe for having lots of people with no money to pay the bills when they have an emergency.  This means the costs for those who actually do pay will get even higher.

A good health care plan has people saving up money when they are well to pay the inevitable times where they will need healthcare.  It also means having them mainly pay for the services they receive, as opposed to having insurance that covers everything regardless of cost, to give them an incentive to use less health care or choose lower cost options when it really isn’t important.  Basic, routine care like physicals and ear infections should be paid for by individuals with money they have saved for medical expenses.  The large, unexpected expenses that rarely happen to an individual like the long hospital stay due to needing to replace a kidney should be covered by major medical insurance.  Insurance only works if most people never use it, since then it is cheap for everyone and since you want to make sure that the few people who incur the big expenses are covered.  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.

Good HSA Investing Can Let You Retire Early


jehericoplunge

If you are fortunate enough to have a Health Savings Account, or HSA, you might be able to retire earlier than a lot of your peers.  Many people have the money to retire by their late fifties, but they hold out a few more years because they’re worried about losing their health insurance before they become eligible for Medicare.  If you invest properly in an HSA starting when you’re young, you might have the cash needed to carry you through to the time you’re eligible for Medicare and beyond, allowing you to retire on your timetable.

This is even assuming Medicare will still be there when you’re ready to retire.  The actuaries for Medicare have been warning for years that the system is running out of money and will either need an infusion from Congress/taxpayers or it will need to start cutting benefits.  This makes even the more reason to beef up your HSA.

So let’s look at the basics of an HSA and then talk about how to contribute and invest in an HSA to have the money you’ll need for medical expenses later in life.

What is an HSA?

A Health Savings Account, or HSA, is a private account that you can use for medical expenses, including paying the doctor, paying for labs and x-rays, and paying for prescription drugs.  You can also use an HSA to pay for COBRA continuation of insurance if you lose a job.  This means that if you are laid off or see your hours drastically cut, you can continue to get the same healthcare insurance for a period of time (currently 18 months, but always check this since it can change) so long as you are willing to pay both your part and the portion your employer was paying before.  So, having a well-funded HSA can help protect you from an unexpected job loss even years before you retire by providing the money needed to pay for COBRA coverage.  Unfortunately, it cannot (at this time) be used to pay for private insurance.

When you use your HSA to pay for qualified medical expenses (things like those listed above), you don’t need to pay taxes on the withdrawals from the HSA.  If you buy other things, you may need to pay some taxes.

Who can start an HSA?

Basically you can start an HSA if you have an employer who provides one, which means that your employer offers a high-deductible health insurance plan option.  The idea is to encourage employees to choose a plan with a high deductible by also having an account from which they can pay for expenses before meeting their deductible.

How does an HSA get funded?

Many employers fund part of the HSA for you as further incentive to choose the option.   In addition, you are able to contribute some of your own money from your paycheck to fund the HSA.  There are limits on how much you can contribute, so check the laws before proceeding.

Why would you want to contribute to an HSA?

If you pay for medical expenses out-of-pocket, you’ll be spending money on which you will have already paid taxes.  You can deduct medical expenses from your taxes, but only above a really high threshold that most people do not meet.  If you instead put the money into an HSA, then pay for medical expenses out of the HSA, you will not pay taxes on the money deposited from the first dollar.  So, if you are in the 15% tax bracket, this is like the government paying for 15% of your medical bills.  In fact, you don’t have to spend the money on medical bills during the year in which you make the contributions to see the savings.  As soon as you put the money into your HSA, you can deduct the contribution from your taxes, while letting the money stay in the HSA until you need it.

Why would you want to invest in an HSA?

In addition not paying taxes on the money you put in, money from interest or capital gains earned inside of the HSA will be tax-free if used on qualified medical expenses.  This means that you can put $2,000 in an HSA today, invest it in stock mutual funds for 20 years, and maybe then have $16,000 or so that you can spend on medical expenses, all tax-free.  Put in $10,000 today and you might have $80,000 later, and so on.  That $10,000 invested in your early twenties for 40 years might provide around $650,000 in your early sixties, which is enough to pay for some significant medical events even without insurance.  Double the amount you contribute and you’ll have over a million dollars available.

And that’s the part that might help you retire early.  If you have enough saved up in an account to self-insure for the unlikely event that you’ll have a major medical event during the three or four years between retirement and Medicare, you may be able to take the risk.  If before you retire the requirement in the Affordable Care Act is repealed that prevents the sale of catastrophic, major medical insurance , that would be even better since then you could buy inexpensive insurance to pay for the unlikely event that a major surgery will be needed and just self-insure for the more minor events.   The nice part about investing money for medical expenses in an HSA instead of just putting money into an IRA for retirement is that you can spend it tax-free on medical expenses before retirement age.  This provides protection and options for you that an IRA will not.

How should you invest the money inside an HSA?

In investing, you need to look at how soon you’ll need the money.  Money you’ll need (or have a reasonable chance of needing) within the next three years or so should be kept in cash.  Money that may be needed in 3-10 years you should be invested in a mix of stocks and bonds.  The higher the percentage of bonds (up to 80%), the more stable your account balance will be but the lower your return.  Money you don’t need for ten, fifteen, or twenty years or more should probably be invested almost entirely in stocks since they’ll offer the best return and protect your money from inflation.

Cash:  So first look at your deductible and multiply by three to estimate how much money you may need to pay out-of-pocket for medical expenses in the next three years.  Then look at your income and free cash flow and decide how much of those expenses you could cover from your paychecks if needed.  Plan to keep the amount beyond what you could cover from your income in cash so that you’ll be ready for near-term medical needs.  For example, if you have a $5,000 deductible and plan to cover $2500 per year from your salary, you’d need to keep 3 x $2500 = $7500 in cash inside the HSA.  For the first couple of years after you open the HSA, you’ll probably just be building up cash.  Investing comes a little later.

Bonds/fixed income assets: Figure out next what your deductible will be for seven years.  When doing this, assume that your deductible will increase by 10% each year for each of those seven years.  For example, if you have a $5,000 deductible now, use that value for the first year, then multiply by 1.1 for each year afterwards to get $5,500, $6050, $6655, $7320, $8052, and $8858, for a total of about $47,500 over the seven-year period.   Plan to keep about half this amount in bonds and the other half in stocks.  This will result in that portion of your portfolio being fairly stable in value while enjoying modest growth.  In years when the market really falls like 2008, this portion of your account may fall about 15% while the stock market as a whole falls 40%.  In years like 2009 when stocks go up 30%, this portion of your portfolio might gain 15-20%.  This will nearly ensure that you’ll be able to generate the cash you’ll need to meet your deductible in the period 3-10 years from now.

For the first ten years or so after you start an HSA,  you’ll probably not have this much to invest.  Just start by building up the amount of cash you’ll need from the section above,  Once you’ve got enough cash, start buying half bonds and income funds/half stocks and growth funds as you contribute more money.  As far as selecting particular funds goes, you’ll want to just buy an income fund that buys the whole market –  all types of bonds and some dividend paying stocks if possible.  For the stock portion, split between funds that invest in large and small caps 50/50 or just buy a whole market stock fund.  When choosing funds, get the ones with the lowest fees you can find.  If you can find passive funds – those that invest based on a strategy rather than hiring managers to choose investments – that is normally the lowest-cost option.

Stocks/growth assets:  Once you’ve invested enough to cover yourself for ten years out, you’re ready to invest any additional funds for long-term growth.  Here you’ll want to buy a mixture of large cap and small cap stocks, while skewing slightly towards small caps.  For example, you could put 40% in a large growth stock fund and 60% in a small growth stock fund.  If you have the option to buy into an REIT fund, which invests in real estate, you could add this to the mix with maybe a 20% REIT, 50% small cap, 30% large cap allocation.

As with everything, this will start slow with only a small amount invested in your HSA.  After sticking to the plan for many years, however, suddenly the value will explode.  You’ll be surprised at how much money your investments are generating and how easy it is to cover your deductible and medical expenses each year.  Before you know it, you’ll have plenty of money to cover medical expenses.  You’ll then have a lot more freedom and a lot more options.

Got an 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.

How to Replace Obamacare with a System that Works


IMG_0123

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.

How to Have Affordable, Plentiful Healthcare- Part 2


Fountain

In part 1 of this post, reader Carl challenged me in a comment to provide solid numbers for the cost of a room in a hospital.  Well, I dug into the 2013 HCA   year-end report (HCA is a large company that manages several hospitals across the US) and here’s what I found:

In 2013, they had 42,896 hospital beds in their hospitals.  Those beds were full 54% of the time.   =.

That year they had 1,744,100 admissions and 2,844,700 equivalent admissions.  Admissions are people actually admitted to the hospital, while equivalent admissions is a representation of how many admissions they would have had if outpatients were counted as admissions for the amount of time they spent.  From a ratio of admissions to equivalent admissions, you find that the ratio of inpatients to everything is about  61% of the admissions are inpatient.

From a ratio of admissions to equivalent admissions, you find that the ratio of inpatients to everything is about  61% of the admissions.  Let’s therefore assume that about 61% of the hospital costs are inpatient costs.

For 2013, their total costs were $29.62 B.  Taking that number, multiplying by 61%, and then dividing by the number of beds times the number of days in a year, times the occupancy rate, you get:

$2210 per bed per day

Now this includes not only the cost of the room and staff to check on you while you’re in a room, but the cost of surgeries, supplies, and so on.  Given that these other activities like surgeries are a lot more costly for the hospital than a room where you lie around, I think my guestimate of $500 or so per day was probably fairly close.  Even at $1000 a night, it is a bargain compared to the list prices.

Other things in the report:

Managed care and insured are 30% of the business, but pay 46% of the costs.

This shows that you are subsidizing others, including those on Medicare and Medicaid, as well as those who don’t pay (charity care), when you have insurance or pay out-of-pocket.  Medicare was 45% of the business, but paid only 39% of the costs.  Medicaid was 17% of the business, but paid only 10% of the costs.  Charity care was 16% of the business, but paid 0% of the costs.

If people were forced to save up money for healthcare, such that most people had money to pay the bills when the need arose, we would see costs for those who are responsible (those who currently have insurance or pay themselves) drop by at least 50%.

Probably the most telling number was the gross charges, which were $181.1 B.  Compare this with the costs (already stated) of $29.62 B,  and you have charges of more than 600% of costs.  This is the list price you see on the bill and the charges that you get if you walk in without insurance.  The hospital only has revenues of $34.18 B, meaning that most people (those with insurance or the government programs) don’t pay anywhere near the list prices.  The average ratio of money  paid to costs was 115%.

This means that the people who don’t have insurance are hit with a bill of six times what things actually cost, whiole the insurance company only pays 1.15 times costs.

If you have the money but no insurance, you probably end up paying this hugely inflated cost.  If you have the money but are willing to fight a bit, you still probably pay 2-3 times costs while on average people are only paying 1.15 times costs.  This means that the people paying out-of-pocket are subsidizing the low payments made by the insurance companies and the government.  This forces people to get insurance or risk facing astronomical hospital bills.

This issue would be solved by making pricing transparent.  There is no way that you could charge someone six times costs while others were paying 1.15 times costs.  If prices were posted – true prices, not what they list but then cut by huge amounts if you have insurance – web aps would quickly pop up to show people the lowest prices and hospitals would be forced to drop their list prices to compete.  Suddenly you would be paying $1000 per night for a hospital bed instead of $12,000, making it easy to cover the costs with the money you had in your HSA for medical care.

Forcing people to save up money and pricing transparency relally are the path to affordable, plentiful, high-quality healthcare.

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.

How to Have Affordable, Plentiful Healthcare


IMG_0123There are a lot of things wrong with the Affordable Healthcare Act, a.k.a Obamacare.  Requiring all insurance to cover everything rather than letting people buy plans to cover what they can afford to cover is a bad idea.  Having health insurance pay for routine costs like checkups and doctor’s visits is a bad idea.  Putting everyone’s health information online where it can be stolen and used for embarrassment and blackmail is a really bad idea.  It should be repealed and replaced with something far better.  It did get one thing right, however, that should be part of that something much better – the requirement that everyone contribute to their healthcare costs if they are at all able.

Now I do think that this provision of Obamacare – the requirement that everyone buy insurance or face a fine – is unconstitutional and Justice Roberts got it wrong.  You can’t force someone to buy something just because they breathe air.  There is nothing in the Constitution saying the government can force citizens to buy health insurance or anything else.  Still, the option if we did not would be to let people die in the streets if they did not do the right things – get a job and save up some of their money for healthcare costs – and therefore were not able to pay for healthcare.  This is not an acceptable option in our society.  There is therefore little choice but to require people to do what they should be doing – putting aside some of their money to buy healthcare before they buy new cars and a load of junk at Wal-Mart.

The issue with Obamacare on this front, however, is that they are having people put aside money in the wrong way.  It is a pay-as-you-go system, just like Medicare and Social Security.  Both of these programs rely on the right demographics – lots of young people and only a few old people – since the money paid in today is used today, with excesses used to fund other stuff that it shouldn’t rather than being saved up in case the demographics shift.   In ten years it won’t matter if you’ve put aside money every year for healthcare and never used any of it since the money you put it will have been spent on other people.  If there is extra put away, that will be squandered just as the excesses from Social Security were squandered.  Unless there are people there, paying in money for you when you need healthcare, you’re just out of luck.

Plus, they aren’t even really forcing people to put money away because they know all of those young voters who thought they will get free healthcare would turn mean and nasty if they were fined for not paying for expensive insurance.  Sure, this is what they signed up for when they elected Obama (twice), but many of them didn’t read the fine print and choose instead to believe the lies and the rhetoric.  So instead of fining them enough to force them to buy really overpriced insurance, they have been given all sorts of waivers for whatever reason they come up with and the Obama Administration has been delaying implementation of the fines.  This has meant that those who were paying, because they were sick or just foolish, have been paying more and more.  As prices rise because fewer people are paying, fewer people pay, driving up the cost for those who do pay.

But we could have affordable, plentiful healthcare.  It just requires we use the same  free-enterprise methods that have made housing, clothing, and food affordable and plentiful.  We just need to undo everything that was done to healthcare once insurance started and start over.  Here’s what is needed:

1.  Require most people to pay for their healthcare.  Currently, if you go to the hospital, you’ll pay tens of thousands of dollars a night for the room and $10 per pill for aspirin.  It is not that hospital rooms cost that much per night to man, or aspirin are really expensive to transport to the hospital.  The reason is that a lot of people are paying only part of their bill – or none of their bill.  The cost is therefore “whatever you can pay,” and those who are able to pay more – either because they have the money or because they have been buying insurance, or because they are taxpayers – do pay more.  Lots more.

Think of it this way;  If you were to go out and have a steak dinner with friends, it might cost you $30 each.  Maybe $40 each if you add a couple of bottles of wine.  Sure, that’s pricey, but it seems worth the price.  But now what if there are ten friends, but only two paid the bill.  Now each of the people paying would be paying five times as much for the same meal.  Suddenly that $30 steak dinner cost $150 – certainly an outrageous price.

Healthcare is the same way.  A hospital puts a list price of $10,000 a night for a room at the hospital, which maybe cost them $500 per night to staff and pay for the room in the building.  Some people plead poverty and the hospital charges them nothing.  They talk about how wonderful it was for the hospital to give them free care.  Many people have insurance and pay $5,000 per night, including $1500 they pay themselves and $3500 that the insurance picks up.  They gripe a bit, but end up talking about how glad they were to have insurance since it both cut their bill and covered part of it.  The last group is made up of people who have saved up rather than spending their money, or those who make decent wages and can pay the bill given a year or two.  They end up paying the full $10,000, covering for the people who get free healthcare and those who got a cut rate due to their insurance.

The first step to plentiful and affordable healthcare is to expect most people to pay their own bill.

2.  Make sure people save up to pay their bills.  Most people see millions of dollars go through their hands during their working lifetimes, yet can’t shell out $10,000 for a hospital stay.  (This is assuming hospitals only charged you what your stay really cost, plus a reasonable profit).  You need to make sure people have the money needed to pay the bills when they come due.  The solution here is to require people to put away a few hundred dollars from each paycheck into a health savings account.  This way, they’ll have the money to pay the bill.  Note this is the same idea that is in Obamacare where everyone would be forced to buy insurance.  The difference is that the money you need would be sitting there, waiting for you, rather than have already been spent to cover someone else’s healthcare.

People also need to have major medical insurance for the rare and very serious things that happen to a few people.  This is how people can pay for the heart transplant or chemotherapy, which truly is expensive.  If everyone throws a little money into the pot based on the chance they’ll need to use it, the cost will be very low and the money will be there to pay for these procedures when needed.  Again, everyone pays for their healthcare.

3.  Make pricing transparent,  Along with making people pay for their procedures is making the pricing transparent.  This means that the price the doctor charges is really what she charges, not a first, ridiculous offer that no one except those with no negotiating power – the uninsured who have money – pay.  It also means making prices published online so that people can comparison shop.  It is crazy that a procedure that costs $5,000 in one place may cost $750 across town.  If prices were published, these differences would go away.  Think of a website where you enter your procedure and it gives you choices of doctors and locations just like a hotel room site.  Price differentials would be a thing of the past.

So there you have it.  Three simple steps to make healthcare plentiful, high-quality, and affordable.  Now we just need to undo the mess that has already been made.

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