Thoughts on Health Care Reform

Everyone wants health care reform, the debate lies in what kind. Since there is currently no exact plan proposed and because this issue is fairly complex, I'll leave it to a collection of 20 ideas I’ve been considering that I think you should too:

1) First, we need to understand the purpose of insurance. Whether it's health insurance, car insurance, or life insurance, the purpose of these are to pool risk as a safety net to pay for catastrophic events. The hope is that you never need to use them, but if you do, your family isn't bankrupted by a single event. Health insurance does not exist so I can get a $100 discount on eye glasses. It exists to so I can get a $100,000 cancer treatment. This seems to work in the car insurance industry. Sure they don't give me a discount on oil changes, but they do repair my car if someone damages it. One reason health insurance isn't like car insurance is the over 2,000 government mandates that add between 20-50$ to the cost of premiums. If consumers bore the full burden of non-catastrophic care, they would be less susceptible to the moral hazards of health care (another example with some teeth).

2) Although I do want changes to the current system, I want it done slowly and with transparency. That is hard to do when activists portray our current system as hopeless. America's health care system isn't the best, but it's far from the worst. Some things that are not taken into account is how we live. I, and my fellow Americans, eat meaty, salty, fatty and delicious food with very little exercise (many walk less than an hour a week). Another reason why our care seems worse than it actually is, is measurement. If you simply measure life expectancy from birth to death America looks bad. However, the US does well for cancer, heart attacks, and strokes. In fact, life expectancy when you're older is than in those in Europe.

3) One of the most common problems discussed is the long waits for care (people wait more than 18 weeks for treatment in the U.K.). Don't get me wrong, waiting over 4 months for treatment is not ideal, but it is necessary with heavily subsidized care. As the price moves closer to zero, people will demand more care. Everyone cannot get all the care they want (unlimited wants > limited resources), so it must be rationed. One way is to get people to wait in line, thereby increasing the opportunity cost. You have to ration care, whether it's with lines or by denying services. I think the best way is the way we ration everything from food, furniture and cell phones, with price.

4) Rationing with price does not mean we keep things the way they are now, because we do not have a free market health care system. The government already covers a third of Americans through Medicare (elderly) and Medicaid (children/poor). That's not even counting paying for the uninsured through subsidized emergency care. The government is also in charge of medical licensing and it restricts out of state insurance purchases (limiting competition). In some ways these increasing costs are good, it's why we are living longer, healthier lives then ever before. However, rationing with price has become harder in the last couple decades as costs have increased.

5) So then the question must be asked, why are costs going up? Costs in health care are increasing because we are buying more care and better care. Much like the market for animal health care, increases in quality and income have increased costs. America's cost is increasing right along with the industrialized nations of Europe. When trying to bring down health care costs, government must be sure it isn't also bringing down quality.

6) Here are some simple examples of free market health care bringing costs down:

• Wal-Mart’s $4 prescriptions
• cheap, fast, retail clinics (check wait times online)
• everyday things that reduce health care spending: better toothpaste, preventative education, better shoes, etc

7) One of the main questions that needs to be answered is what makes the market for health care different than the market for shoes? The only answer I could think of is a gap between producer knowledge and consumer knowledge. Buyers of health care aren't experts and have to take their doctors advice. However, other complex products like houses, colleges, are designer clothes don't seem broken. Maybe that's why we have realtors, guidance couselors, and wives. Good thing for us, there are now private businesses that assist as health care advocates.

8) However, advocates are rare, and not all complicated products are profitable enough to support an assistant. This is where good old fashioned reputations become important. Take my mechanic for example. When I first moved to NC I asked around in search of a good car repair shop. I know close to nothing about cars, and need to be able to trust that I'm not getting ripped off. I was given a couple of names, read reviews online, and tried out some myself. I now have a great mechanic that I trust to do what they can for a competitive price. There is no reason to believe competition won't work in this same way for health care and insurance. Admittedly there are still huge gaps in information, which explains why Arby's still exists, but for the most part bad doctors fail and good doctors flourish, thereby encouraging all doctors to be good.

9) Competition, in theory, will force businesses to provide the best product they can at the best price. Then why, in practice, does the medical industry seem to fall short? The market failure we see is really government failure (see my comments on this blog post). Most of the complaints about our current health care system can be dealt with by improving our legal system. Flagrant law suits can be reigned in by tort reform. Bad doctors can be replaced by not limiting the number of doctors, and rescission (unmaking of a contract between parties) can be eliminated by better enforcement of agreements. There is one major reform that deserves its own number.

10) Even though it's how a majority of Americans get health insurance, it does not need to be connected to their job. The only reason they are tied together is a fluke of history. During WWII the government put a wage ceiling on how much people could get paid, so businesses began to offer employer-paid health care as a way entice workers. Now, we only pay 14% of health care costs directly, so we rarely know what the real price is. How can businesses ration on price when consumers don't even know what they are? Also, if you lose your job, you lose your health insurance. Remove the tax exemption for businesses to buy health insurance and give it to individuals.

11) The main losers in our current system are the uninsured. Whether they are unemployed, self-employed, or employed without insurance, these 45.7 million people that are at most risk. But who are the uninsured? Here are some stats:

• 26% of the uninsured are eligible for some public coverage
• 21% of the uninsured are immigrants
• 20% of the uninsured have family incomes greater than $75,000 (more than me)
• 40% of the uninsured are young

Although I don't think it's totally fair, this cartoon helps put this crisis in perspective. It's also worth noting that the uninsured are only slightly less healthy than the insured, which means they are still insurable.

12) Unintended consequences are also important, here are a couple of examples:

• more regulation would increase costs and lead to less people with insurance
• to it's going to be very expensive and we don't have a lot of extra government funds
• the amazing, but currently unknown improvements in health care that would be developed for profit (most medical advances come from America's "broken" system)

13) Unlucky number so we won't put one here (actually my html messed up and somehow deleted parts of my post and I can't remember what this one was).

14) You cannot pass laws that ignore pre-existing conditions. It's a cost and businesses have to know what their costs are. Imagine trying to buy a warranty for a broken TV. These evil profit mongering businesses aren't evil (well I guess that's up to you) or really that profitable (health insurance industry ranks 86th in profit margin).

15) Speaking of evil, opponents need to stop demonizing health care reformers. It's just distracting from real complaints. Sadly, the debate over this issue has only increased my desire for more politcal apathy among the masses.

16) Profit is still the best motivator for giving consumers what they want. Denying services promised is an issue, but one that should be dealt with tort reform. However, refusal of treatment isn't always a bad thing. It is possible that the cost of treatment is too high when compared to the likelihood of help it would do. If not I'd get screened for skin cancer weekly. Again, we have to ration health care somehow and transparency is key.

17) Central to this debate is the something I mentioned last month, who do you fear: government intervention or unchecked businesses? The information is so massive, it's helpful to think generally about which will deliver better options.

18) Another argument I've heard in favor of more government intervention is from the documentary Sicko. Michael Moore takes a group of Americans over to Cuba for cheaper care. Yes, drugs may be cheaper overseas, but that's just price discrimination, something that happens at the movie theater all the time.

19) And now a personal complaint. If, in you opinion, you think everyone deserves health insurance from their government, then know you are forcing fellow citizens (with the threat of jail time) to support it as well. If you don't want to live in a world where Americans don't have health insurance, this is the only way to do it.

20) When I started this post (I wasn't expecting it to be so long either), it seemed Obama's plan would be pass. On July 26th Intrade, an online prediction market (earlier), gave the public plan over a 45% chance of passing. Today it's below 15%. However this is not a victory for anyone. Like I said in the beginning, everyone wants some kind of health care reform.

Conclusion: I want a consumer driven market just like I do for all markets. I want citizens to save and buy the health care they can afford, and in extreme situations have health insurance.