Pre-existing conditions: My house is on fire!

Pre-existing conditions: My house is on fire!

Congress and the national media are discussing the Republican attempts to repeal and replace Obamacare.  One of the thorniest issues is how to care for people with pre-existing conditions.  The media portray this as clearly a humanitarian crisis brought on by the heartless conservatives.  They put on camera a woman with cancer who begins to cry talking about what will happen to her entire family if she cannot get health insurance now that she has been diagnosed with cancer.  Cancer treatments are so expensive that a family faces financial ruin if they don’t have medical insurance.  Taking away coverage for pre-existing conditions is so mean spirited, even President Trump can’t stomach it.  There’s a huge problem with it, however.

Requiring that health insurance companies sell insurance to cover a catastrophic event, such as cancer, after it has occurred is the same as asking insurance companies to sell you fire insurance after your house is on fire!  It defeats the whole purpose and intent of insurance.  The idea of insurance is that all sensible people buy it, most of whom won’t need it.  Lots of people pay for it for years and years and all of those pooled premiums are enough to cover the cost of the catastrophic event, for the unlucky person it happens to.   No one likes paying premiums year after year for something that only might happen, but prudence says it’s better to be covered for those catastrophes than to be facing them without insurance.  If you could wait to buy “insurance” until after your house is on fire, or after you’ve had a car accident, or after you’ve been diagnosed with cancer, then everybody would.  But then everyone who took out a policy would be getting a huge payout, and the premiums would have to reflect that.  Eventually, homeowners insurance would be as expensive as a house, car insurance would be as expensive as a car, and so on.  Not everyone is waiting to buy health insurance until after they are diagnosed with a pre-existing condition, but many people have pre-existing conditions and so under the wonderfully generous Obamacare system premiums are going through the roof, and insurance companies are dropping out of the business.

Interestingly enough, in a single-payer, socialist system of health care everyone has to pay in taxes for the healthcare so the costs are distributed evenly over the healthy and unhealthy evenly.  So that system is more economically viable than Obamacare.   The question is, can a free market take care of people, of everybody, as well as socialism?  Getting back to a free market from where we are now would be difficult and tricky, even if we were behaving in a smart way and understanding economics correctly–which our congressmen apparently do not.

In a free economy, health insurance, like life insurance, is something everyone should buy early in life so it is affordable and to be prudent about protecting yourself and your family from financial ruin should you get cancer (or some other expensive medical condition) later in life.  The deal between you and the insurance company should be that you carry the policy your whole life and maybe they have to pay out if you have a catastrophe.  That means you have one policy your whole life and the fact that you’ve kept it in force means the insurance company has to pay if something terrible happens to you.  That’s a fair bet and lots of insurance companies would be willing to cover you.

Health insurance should not be provided by your employer, because you need to keep the policy if you change jobs or your employer goes out of business.  You might end up looking for coverage after you have an expensive health condition and now you’d have to pay excessively high premiums.  It should not be provided by the government as a benefit for being poor because if you get a job you’ll lose that benefit and that insurance and you might end up having to get coverage when you can’t.  It really shouldn’t be provided by the government when you’re old, because you were paying into a policy all your life and the insurance company should be on the hook as you age, not taxpayers.

But that is not the world we live in.  We have ruined the health care insurance market in many ways.  So what do we do now, particularly about the people with pre-existing conditions?  We should look at ways to 1) pare that problem down as much as possible and 2) incentivize everyone else to prudently acquire health insurance before they get pre-existing conditions.

Allow insurance companies to cover everything but the pre-existing condition, so everyone can afford the rest of their insurance.  Maybe have the government and/or charities pay for the care (not the insurance, but the actual care) for people with pre-existing conditions.  Make it like Medicare, which isn’t that generous, so everyone could see that they would be better off if they buy coverage for themselves early before pre-existing conditions.  End the employer and government provided health coverage and have everyone buy private insurance.  Give vouchers or cash assistance to those who can’t afford insurance, but get them out into the same private market as everyone else.  More people in the pool, the lower the premiums will be.  The earlier you buy health coverage, the cheaper it will be.  The healthier you are, the cheaper it will be.  We will have to take care of the people for whom it is too late to be prudent–the people whose houses caught fire before they bought insurance.  However, we should work to decrease the number of those people, not set up the rules to reward people who wait to buy coverage with pre-existing conditions.  That’s a recipe to bankrupt the entire private health insurance system.  Maybe that’s what Obama really wanted?




Posted by in Medicine, 0 comments
What should replace Obamacare?

What should replace Obamacare?

The Republicans can’t seem to agree upon the principles for replacing Obamacare.  You may have heard that some conservatives want to base the replacement on “free market principles” and “competition.”  What does that mean?  The problem is that medical care costs continue to spiral out of control because we are insulated from the real costs, two layers deep.  Those two layers make thinking about free market reforms confusing.  The first layer is medical insurance insulating us from the costs of medical care.  The second layer insulates us from the costs of insurance—by having others buy it for us. Eliminating those two layers of insulation and creating a free market in medicine would give us more control and actually make healthcare more affordable.  Here’s how we could get there from here.

First, fix the way we pay for insurance.  (The Republicans are afraid of embracing this change, but it is essential.)  Having the employer or the government pay for health insurance as a “benefit,” means that most people assume that the more expensive their health insurance is, the better it is. WRONG!  We should turn employer-provided health insurance premiums into salary instead.  Let employers admit that the cost of health insurance is really salary, and free everyone to buy their own health insurance.  This would allow us to keep our health insurance when we change jobs.  (Some day we’ll think, “My God, what a stupid idea that was, to tie health insurance to your job!”)

Second we should be able to buy whatever health insurance we want—without mandating what it covers.  So start with eliminating the federally imposed mandates on what health insurance must cover.  Second, we should be able to buy plans offered in other states—eliminate those fences between the states.  Some states don’t have expensive coverage mandates in their policies.  Buying from other states means we could buy cheaper insurance policies that don’t cover things we don’t want to pay for.

Third, we need to bring everyone into the situation of choosing their own private health insurance so the free market can provide a lot of options to choose from.  Seniors on Medicare should get money equal to the average amount now being spent on health care for seniors, and then they should be free to purchase health insurance coverage with that money.  People on Medicaid should do the same thing.  If the amount they are given is equal to the average cost of their medical care, it will be enough to buy insurance to cover the services they are currently getting.  (That’s the basic idea behind insurance—the costs averaged out over many people.) It would just be an offer to give them the money and allow them to choose their own insurance, but within a short period of time, the options in the free market would offer more for the same money.

Young and healthy people who don’t want to buy health insurance would be encouraged to buy health status insurance that guarantees the right to buy health insurance in the future without being rated or denied for a medical condition.  People who are healthy and can prove it should be able to buy insurance less expensively.  People who have a pre-existing condition should be able to buy health insurance but at higher cost.  We may have to help them.  If there was a 100% tax credit for all contributions to charitable health organizations, those organizations could assist with medical costs for people with really expensive pre-existing conditions like cancer and diabetes.  But people who bought their health insurance early (remember fire insurance) while they were healthy could be guaranteed a steady premium even when they do get sick.  (And they wouldn’t lose it when they change jobs!)

The first layer of insulation would now have been peeled away.  Everyone would be paying for their own health insurance with money they could spend in other ways.  We would now have an incentive to look for ways to economize on the cost of health insurance, just as we do with car and fire insurance now.  The best way to economize on health insurance is to choose high deductible insurance with a health savings account.**  High deductible health insurance is so much cheaper that the consumer can put the savings into a health savings account (HSA) which would be more than enough to pay medical costs up to the deductible.  With more saved in the health savings account, a higher deductible can be chosen, lowering the premiums, and allowing for more savings in the HSA.  Perhaps a “high” deductible in the first year would be $4,000, but it could climb over the years to $20,000 or more. [Another innovation that would come along is to make the deductible like it is in auto insurance where it is “per claim.”  So you might have a $1,000 per claim deductible so that you don’t even turn in a claim unless it is over a grand–and then you can spend your HSA without having to accumulate records of all health insurance expenses.] 

Using high deductible health insurance and our own HSA money to pay the first several thousand dollars of medical costs peels away that second layer of insulation between the customer and the cost of medicine.  This puts us in the position of wanting to save on those first dollar costs of medical care.  Why use a brand name prescription at $100 a month, when there is a generic for $10 a month?  Why not have a $70 EKG instead of the new, fancy treadmill EKG for $3,000?  Amazingly enough, most of us can keep our medical costs under a couple of thousand a year if we have a reason to do so.  Once we are asking questions about the prices of things (because the costs are not being paid by a third party), doctors will have to be prepared to discuss cost with us.  One we are spending our own money we can switch to a different doctor’s office to get something at a cheaper rate.  We can drastically bring down the cost of our medical care the same way we bring down the costs of other things—by paying attention to the price.  That’s the basic idea of free market competition in health care.  This is the solution to the problems of Obamacare. All of these reforms have to be put into place at once to achieve the lowering of costs, but these are what should replace Obamacare.

**Note: The effect of allowing people with “pre-existing” conditions to buy health insurance has driven up the cost of health insurance a huge amount.  The costs went up much so that they put in high-deductibles on all the policies.  High-deductible policies used to be really inexpensive and will again, once the Obamacare regulations are lifted.

Posted by in Medicine, 0 comments
Why not just “fix” Obamacare?

Why not just “fix” Obamacare?

People are beginning to say, “Well, can’t we just fix the bad parts of Obamacare, and leave the good parts?”   When you ask about what they think are the good parts, they usually name the fact that people can’t be denied health insurance for pre-existing conditions and they can’t be charged more for their insurance because of pre-existing conditions.  Unfortunately, the bad part, the high prices that are going through the roof, are a direct result of the good part.  So we can’t lower the cost of medical insurance if we want to have these “good parts.”  Let me explain.

Let’s talk about fire insurance on your home.  We usually understand that we have to pay for fire insurance year after year, even though we don’t have fires, so we will pay enough to the insurance company so they have the money to pay to replace our house if it does catch fire.  Now imagine if we decided to put the “good parts” of Obamacare into our fire insurance policies.  So the rule would now be that you can buy fire insurance at any time, even after your house catches fire, and you can’t be asked to pay more because of the fact your house is on fire.  (Not to mention that everyone pays the same regardless of the size of their house–e.g., community rating.)  As you could predict, if people could wait to buy fire insurance until after their house caught fire, everyone would skip paying for years on fire insurance policies and call the minute the house caught on fire.  The insurance companies would have to pay thousands every policy, and the prices would go through the roof, and/or fire insurance companies would go out of business.  That is exactly what is happening in health insurance now as a direct result of the “good parts” of Obamacare, and for the same inescapable economic reasons.

Many people will say, “But health insurance is more important than fire insurance.  It is not fair to require people to pay more for health insurance if they get sick through no fault of their own.  People need to have access to health care or else they could die. We are a rich country.  We can’t let so many people go without medical care and the insurance to pay for it.”

Regardless of how important something is someone has to pay for it.  Medical care does not become free because we really want it.  It does not even become “affordable” if someone else pays for it or other taxpayers subsidize it.  Medical care is no exception.  Every medical procedure, prescription and practice has to be paid for in real money.  We want to have a system where “price is no object” and everyone can have anything they want.  The problem is that humans have unlimited wants, even when it comes to medical care.  This demand is driving up the cost of medical care.  This is the cause of the fact that the prices for medical care and medical insurance have been rising, even faster than inflation, as we have all noticed.  In fact, the prices will keep going up until we cannot afford to pay them.

The cost of Medicare and Medicaid and Obamacare and all medical insurance are all going to keep rising until we put on the brakes and say, “No we don’t want to pay for that.”  In other words the value of medical procedures has to balanced against the cost.  If the price is too high, the customer has to say, “It’s not worth it.”  Well, actually the government is already trying to do that somewhat with Medicare and Medicaid by limiting what they will pay for.  Everyone is incensed by this denial of the procedures and services they want, but it is the only way to stop the rising costs.  If we want the government to pay for our medical care, so we don’t have to, then the government must ration what healthcare we are going to receive.  Medical care is either going to be rationed by price (only buy what you can afford) or by government edict.

A better way is to let us decide what we will pay for and what we won’t.  That is how the marketplace works best.  Prices can come down when individuals decide what they are willing to pay for and what they are not willing to pay for.  But we have to be deciding this with our own money, not someone else’s money.  No one is very careful or frugal with someone else’s money!  That’s why if we want to help poor people we need to give them more money not free health insurance.

In some areas of our economy, notably where government subsidies are absent, and government regulation and micromanagement is minimal we see competition drive down the actual prices of things.  Computers, cell phones, TVs, and clothes at WalMart have all gone down in price.  They are today more affordable than they were 20 years ago.  Even “non-covered” medical costs like the cost of Lasik or cosmetic surgery have dropped.  These things have become more affordable.

How do things like computers become more affordable–actually come down in price?  The people with less money to burn don’t buy the newest computer at the high price.  When the computer manufacturers have sold all the computers they can at the high price, they then lower the price.  They’ve probably covered their startup costs or perhaps have learned ways to make their product more efficiently.  If they haven’t figured it out, their competitors probably will.   However it happens, the producer sees that with a lower price it is possible to keep selling more and keep making a profit.  So the price comes down as the volume goes up.    As the computer becomes really more affordable, more and more people can buy it.

Just the opposite happens when something is made “affordable” by subsidizing.  Nobody is saying “That’s too expensive,” and refusing to buy it.  [This is happening with college tuition as well.] In turn, the provider has no incentive to lower the price and, in fact, research into new and more cost effective methods of delivering product will slow down to a crawl.   So the goods or services never really become affordable.  They will have to be subsidized at higher and higher rates forever.  Economically speaking subsidies are an addictive drug.

Medical care costs continue to spiral out of control because we are insulated from the real costs, two layers deep.  Those two layers make thinking about free market reforms confusing.  The first layer is medical insurance insulating us from the costs of medical care.  The second layer insulates us from the costs of insurance—by having others buy it for us. Eliminating those two layers of insulation and creating a free market in medicine would give us more control and actually make healthcare more affordable.  See “What should replace Obamacare?” for how we get there from here.



Posted by in Medicine, 0 comments