Socialized Cost, Private Delivery System?
April 11, 2008 | General
By: Jack McHugh
What follows is my personal view only, and is very much a “minority position” in the free market movement community. This plan is not my idea. It was proposed by author Charles Murray in his 2006 book, “In Our Hands: A Plan to Replace the Welfare State” (AEI Press):
For countless excellent reasons free-market defenders will bitterly oppose socializing the health care delivery system, but perhaps they should not resist socializing the cost of health care. An analogy may be seen in this nation’s system of public education.
Starting around 150 years ago, this nation made a decision that we would not allow the ability of parents to pay to determine whether or not an individual acquires an education. I believe that today we are at a similar point with health care.
We made a tragic mistake in public education back then, which was to give the government control of the delivery system in addition to giving it control of the finances. Imagine how different things would have turned out had a decision been made at the start to implement a school voucher system — the government would pay to educate every child, but the education itself would be provided by a school of a parent’s choosing. Such a system could also make sense for health care, given several prerequisites and considerations.
If:
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The “Scope of Practice/Licensure Raj” were repealed.
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Negotiable waivers of liability were made enforceable.
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Decisions were forced early in life about extraordinary end of life procedures, by requiring individuals to begin paying for this option with (expensive) insurance riders.
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Every person age 21 and older bought health insurance, spreading the cost across the entire population (given the next two components this would be neither an unenforceable imposition nor an infringement of individual freedom).
Then health care costs could be reduced and spread widely enough to allow the following:
- The cost of a health care insurance policy with a $2,500 deductible would be just $4,000 or less, with universal community rating (everyone would pay $4,000, regardless of age or prior health condition).
- This is low enough that giving a universal insurance voucher to every adult for such a policy would cost no more (or even less) than the current health care system.
- This system would be compatible with tax-advantaged HSAs. If they chose, individuals could buy additional coverage beyond the basic policy provided by the voucher, for things like extraordinary end of life care, or lower deductibles. It’s likely that the rational choice would be to stick with the basic policy, and accumulate the savings in an HSA
***Jack McHugh is senior legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.
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Comment by PJ April 11, 2008
The author simply misses the fundamental problem. According to the Govt estimates, total healthcare expense in the year 2016 is over $13,000 per person per year in the current system. Probably, over two thirds of the population can not afford that. Then why waste time talking about insurance, etc. while keeping the current system. It simply will not work.
A fundamental change to the current system is a must. Just simplify the system. Let patients pay directly to the doctors/hospitals for most of the routine services from their HSAs; let the catastrophic coverage be provided by Medicare like Govt program. Whatever employers today spend can be used to fund HSAs as well as the catastrophic coverage program.
This system will be much simpler and there is no third party (like health plans) involvement for every single procedure. There will be less law-suits and less admin expenses. Besides, people are involved in the payment process which automatically enforces healthy habits (diet, exercise, etc) among the individuals. More importantly, it will be cheaper.
Comment by Alli April 11, 2008
I think in this matter the truth lies somewhere in the middle. I have seen cases in which privatizing services only makes them exclusive for the wealthy. But the fact is that governments are not traditionally efficient administrators. Just my 2 cents.
Comment by Eileen Martinez April 17, 2008
I find Mr. McHugh’s opinion quite interesting. I know two things for sure.
One, as in the aforementioned piece we must begin a dialogue placing all theories on the table.
Two, at some point we must be responsible to manage and through some program pay for our own healthcare. How do you value the care you are given if you don’t know and/or pay for the service
We are in the current mess because we allow the government and insurance companies to manage our healthcare.
Would we allow those two entities to manage anything else in our lives?
Think out of the current healthcare box!
Comment by PJ April 18, 2008
We must think out of the box for a healthcare solution. The current system has miserably failed here is US and it does not exist anywhere else in the world. It is simply unaffordable. The current system requires $52,000/- per year for a family of four in 2016 for healthcare alone, per Govt. estimates.
Immediately, people talk about mandatory insurance, etc. A full-time minimum wage worker makes $10,712 a year whereas health insurance premium for the employer to cover his/her family of four cost an average of $12,100 in 2007 (http://www.nchc.org/facts/cost.shtml ); add co-pays, deductibles, in/out-of-network issues, uncovered services, etc. Are we all fools to think that it will work?
Wake up America! Simply the current system will not work. Think out of the box. A fundamental shift in healthcare is an absolute necessity.
As I suggested earlier, let us have a system as follows:
1) Only for catastrophic illnesses (like cancer) let us have insurance, preferably managed by the federal govt. This is to cover a very small number of procedures and they must have some co-pays to control over-use.
2) For all other wide range of routine services, let us pay doctors/hospitals directly from our HSAs (tax-advantaged). The benefits are enormous.
a. Patients pay the bills for the service they receive. In our ‘how-much-I-need-to-pay’ culture, people do not care how much any service costs if it is paid by insurance or some one else. Making people pay the bills is the only way we can control costs.
b. Patients and doctors are the only ones involved in medical decisions, they meet in person and they establish a mutual understanding; leads to most efficient treatments and much reduced law-suits.
c. There is no claim form to fill; leads to significantly low administrative costs.
d. The doctors and hospitals will lure the patients as they are the ones who pay the bills. Result: competition among doctors/hospitals, better service, and transparency (now, up front you have no way of knowing how much any hospital charges for a given service).
e. When cheaper alternatives are available, patients will go for it. Example: a pair of eye glasses instead of expensive lasik surgery.
f. The so called ‘defensive medicine’ (where doctors send you for unnecessary tests to avoid potential legal problems) will be much less as doctors deal only with patients and not with health plans, etc.
g. Large numbers of diseases involve ‘family history’ at least partially. When the entire family can have the same doctor (primary care physician), that doctor is better informed and can provide effective treatments early.
h. Today, doctor-to-doctor discussions are mostly around insurance payments and not on medical matters. This kind of wastage of doctors’ time will completely end.
i. Today, besides federal regulations on healthcare, we have millions of state specific, ridiculous and unnecessary laws/regulations making the system just too complex. This status will be gone.
j. After all, every other insurance (auto, home, etc) does not cover routine services and they are meant to cover catastrophic risks only. That’s why they are efficient and cheaper. We do not send claims for car oil-change.
Do we need any more reasons to understand that it will cut healthcare costs drastically? In this proposed model, the healthcare system will be highly efficient and the cost will only be much less than what we spend today
Also, I think we need to make people go for ‘routine exams’ early in life to identify potential problems. Why not we have a system where the federal government sends 1-2 medical vouchers a year to the individuals for such exams and collect the health data from the doctors. This will reduce the healthcare cost significantly in the long run. Besides, we will have accurate and comprehensive data on people’s health nationwide; this will be extremely useful for making policy decisions.
How to fund? Today, employers spend a lot of money on healthcare; let it be diverted partially to fund the individual’s HSAs and the rest to federal catastrophic coverage fund. Individual’s payroll deduction can also go to their HSAs. Here, younger generation also will be happy to participate whereas they do not in any mandatory insurance.
Comment by JFRock April 22, 2008
I think the concept of High Deductible plans supported by HSA is right on, but let’s close the loop. High Deductible plans equate to lower premiums, which is good for employers and employees. But now the employee and their family are strapped with a potentially large out of the pocket expense. Let’s help our employee’s with this significant burden…let’s give them the price (not the provider charge) for the services in their area. Those in healthcare know insurance companies pay different rates to different hospitals and outpatient facilities for the same procedure in the same geographic area. I know in my area I have found that prices (not charges) vary 20% to 25% for the same procedures performed in different area hospitals, and if I can have the procedure done in an outpatient setting (that is not owned by the hospital) the saving are substantially higher.
I constantly hear about our out of control healthcare cost in this country, but premiums and costs just keep escalating. If the problem is costs, seems that we need to focus on the money. Who better to focus on the money than individual consuming the resource. Most of us don’t know a good CT scan from a bad one, but all of us know the difference between paying $900 and $300 for the same procedure. With a high deductible plan and the appropriate pricing information, I believe the 200 million of us that have and pay for health insurance can have a rather dramatic impact on the cost of healthcare in this country. Just show us the price and my fellow Americans will show you how to reduce costs in fashion that the government, insurance companies, and providers can’t seem to accomplish. We do it every day. Show us the price…after all we pay the premium.
Comment by Jack McHugh May 8, 2008
Just a couple quick points: Regarding PJ’s “healthcare expense in 2016 over $13,000 per person,” the reforms that are prerequisites to the Murray proposal I describe would have the effect of bringing that down substantially. His research estimated that with these in place a comprehensive high-deductible policy could be had for around $3,000 in 2006 dollars - I jacked this up to $4,000 to be safe. Note that this would not cover extraordinary end-of-life care - individuals would have to pay extra for that, or just skip it if they make the rational choice.
Also, the price controls and other distortions imposed by the Medicare system PJ proposes as the model for what is essentially a single-payer system have done more than anything to undermine any incentives in the current system for providers to be efficient and innovative. So I would not support that idea.
But I agree with PJ that replacement for the current system is needed. I also disagree with my friends at Cato Institute who contend that any government assistance (like Medicaid) is just another form of welfare, subject to the same moral hazard concerns, and so should be minimized if not eliminated.
Here’s where I think that goes off track: While most citizens are perfectly willing to repeal welfare entitlements, that’s not the case with health care. Americans will not step over the bodies of ailing-but-curable indigents saying, “Sorry pal, you made bad choices – must be tough to be you.” We WILL provide medical assistance, so reform proposals contingent on ending health care entitlements become circle-squaring exercises created by this contradiction: We don’t want to create moral hazard, but as a society we refuse to withhold treatment.
I believe that the Murray idea may provide a way to avoid the worst aspects of both socialized single-payer systems and the current U.S. system, while also satisfying the public’s desire for universal access to health care.
Comment by PJ May 9, 2008
Thanks MR. McHugh, for your response. It is good to have frank discussions; it is even better if more and more people are involved.
Coming to the issue of cost, national per capita healthcare expense is over $7,000 and is projected to reach $13,000 in 2016. If the insurance premium is less, obviously your deductibles, co-pays, etc will be higher. So, why waste time talking about premium, it does not matter even if it is just $1000.
Let us look at affordability. The median household (not individual) income in 2005 was $46,326 (http://www.whitehouse.gov/fsbr/income). It means, 50% of the households make less than $46,326 a year. A household of three will need at least $21,000 for healthcare alone; according to your numbers, they need $12,000 for premium and another $9,000 for deductibles, co-pays, etc. There is no way it is doable.
COST & AFFORDABILITY: These numbers clearly show that the cost and affordability are miles apart. If you analyze and try to cut cost while keeping the current system, probably you can cut a few feet off these miles of gap. It is only a waste of time to discuss about fixing the current system.
What can we do? First, think out of the box. Make health insurance just like auto-insurance. Is auto-insurance system in crisis? Absolutely not. Then, why don’t we follow that.
What does it mean? Auto-insurance provides coverage only for ‘accidents’. The average number of claims may be less than 1 per year per person. That’s why, the premium is affordable and everyone has it. For every single auto-maintenance or repair, we pay directly pay from our pockets, the vendors compete for your business, and pricing is completely transparent; in other words, it is extremely efficient.
PROPOSED SOLUTION:
1) Have health insurance only for catastrophic illness (only for a very few procedures). I am not concerned whether it is single-payer or multi-payer, public or private; it must be efficient.
2) For all other procedures, let us pay directly from our HSAs. Can we afford to pay? Let us look at an example; for a simple doctor’s office visit (new patient), Medicare pays $43.36 in Manhattan, NY or $33 in Kansas. Doctors will be happy to receive the same amount when they get paid directly then and there; they don’t need to file a claim and wait for months to get paid. Even if it is 20-30% more, people will have no problem paying it directly. THIS WILL BE THE MOST EFFICIENT SYSTEM with enormous benefits (as I listed earlier); less law suits, low admin expenses, etc. The cost can be cut in half.
What is the problem in this solution?
PJ
Comment by Brian May 11, 2008
Really, is it just $43 for doctor’s office visit? I pay around $30 every 3 months for my car’s oil change. I will go to doctor’s office at least twice a year (just for routine check and a small chat with my doctor) if it is that simple and low cost. Even if it costs 50% more, I have no problem. I want to just PAY & FORGET.
Now I have insurance, but scared to go to a doctor for fear of issues like out-of-network, co-pay, co-insurance, deductibles, etc. I don’t have time to deal with all these non-sense.
Whatever be the solution, make it simple.
Brian
Comment by Liz May 12, 2008
I am on the same boat as Brian. If I have an option to PAY & FORGET, I will go for it.
Two years ago, my doctor sent me to a hospital for a small procedure, an ultra-sound scan; it involves only a medial technician and no doctors. My insurance company rejected on ‘pre-existing’ grounds. The hospital waited for insurance company action; then it sent me a bill for $1,224. For the same procedure, Medicare pays just $65.
Is it not a FRAUD? I am scared to go to a doctor or hospital. My insurance is a total waste. If I can pay & forget, I will go for it.
I just do not want to receive any bills from doctors/hospitals/insurance carriers. Period.
Liz
Comment by Steve May 13, 2008
I agree with Liz. I am insured, but I am scared to go to a doctor/hospital. I strongly feel that my insurance is a waste. My payroll deduction is over $3000 a year and I am seriously thinking of not renewing my insurance during my next enrollment period. Besides, I am sure my employer must be saving at least $10,000 a year if I didn’t enroll.
We consider ourselves as the best democracy in the world. But we have absolutely no information available on healthcare cost and quality. We are under seize. Health insurance industry controls all of us like a ruthless dictator and in the process killing all of us slowly.
I hate the term ‘health-insurance’. They take our money and they control us.
Steve B
Comment by Brian May 13, 2008
What I am seeing here is people are thoroughly frustrated with health insurance.
What is unique in US compared to every other country in the world.
We have the CRISIS. And we have private health INSURANCE. Simply shut it down.