Solutions to healthcare problems in the U.S.

This first post will be covering the main problems with healthcare, and my second post will cover solutions.


What are the basic problems with healthcare in the United States?

More people getting more health care with no sensitivity to price. Everyone wants everything and nobody wants to pay for it. If you go to the doctor or don’t go to the doctor, it doesn't make much of an impact on your pocketbook. Your insurer or the government picks up most of the tab. This means people consume more health care than they normally would. More health-care consumption means increased demand for health care. Increased demand for health care means increased prices for health care. Multiply higher prices by higher use, and you've got the explanation for the growing share of our economy that goes to health care.


So what exactly is the point of insurance?

Insurance SHOULD be for certain things that we know happen to people, but we consider them unlikely to happen to a particular person in a given time frame, or maybe at all. If these things do happen, they are very expensive. You don’t insure against risks that are predictable and expected. Nobody buys insurance to cover the rent on their apartments. Your auto insurance doesn't cover oil changes. You don’t buy insurance for something you know you’ll have to pay. When the probability of an event is near 100 percent, insuring against it makes no sense. The insurer knows it will have to pay, and so premiums will always cost more than the expense.

Auto insurance also doesn't cover flat tires, just as homeowner insurance doesn't cover unclogging a bathtub drain. These are unexpected, but they aren't that expensive, and they’re not extremely unlikely. Instead, your car insurance covers a big accident, and your home insurance covers your house burning down. Shouldn't health insurance be the same?

It makes little sense to insure against small sprains, colds, or even against routine procedures like tonsillectomies. Everyone knows these sorts of things happen. People who can afford insurance can afford to pay for these events out of savings. In a sensible world, would cover the equivalent of your house burning down or your car getting badly wrecked.


The Tax-Deduction Problem:

Many people get their insurance from their employer. The portion of your health-insurance premiums that come out of your paycheck counts as a tax deduction and reduces your taxable income. You don’t get to deduct auto insurance premiums from your taxes, but health insurance IS deductible. This is also why auto insurance premiums, or other forms of property or life insurance, do not rise nearly as fast. We pay for these policies on our own, with after-tax dollars. If you get your health insurance through your employer, your share of health insurance premiums are tax deductible—while out-of-pocket health-care expenses are not deductible. However, if all forms of insurance were provided tax free from employers, we would have not just a health insurance crisis, but an overall insurance crisis.

The result of this special tax treatment for health insurance: you and your employer both get an advantage if, instead of giving you more money and letting you cover your own health care, your employer pays you in the form of health care. This gives rise to huge distortions. In a normal health-insurance market, you would shop for the plan that leads to the lowest overall expected cost, taking into account premiums and your likely out-of-pocket costs. In short, you would pick as low a premium as possible with as high a deductible as you could afford.

So, your incentives get tilted, and you end up buying more coverage, at higher premiums than you would without the distortions in the tax code. As a result, people end up being over-insured. With more thorough insurance, you're less price sensitive.

Nearly three fourths of insured Americans are on Medicare, Medicaid, or an employer-sponsored plan. This means that almost nobody is really paying for his own health care. Less price-sensitivity means higher demand and higher prices. Imagine if government gave the same tax treatment and subsidies to grocery shopping as to health insurance. Your boss would reduce your salary, but buy you an all-you-can-eat prepaid pass to redeem at various grocery stores. The grocery stores wouldn't show prices, because it wouldn't matter to you. You would pick the fanciest food and more of it than you actually needed. And all food would cost more, but nobody would care because nobody would be paying for their shopping choices. As prices spiraled out of control, the government would declare a national food crisis, offering more government as the solution. It doesn't make sense in food shopping. It doesn't make sense in health care.


Regulations on Insurance Companies:

Regulations on insurers drive up costs. Under state and federal laws, insurers are very restricted in what they're allowed to do and what they are forced to do. Most states have an entire list of procedures and types of care which insurers are required to cover. These laws are always presented as "patient-protection laws". But they actually take away consumer choice.

It's like if everyone who wants to buy a car was forced to buy one with power windows and surround sound. Congress would declare, "Car dealers can no longer deny people the right to power windows and surround sound." If you wanted to pay simply for the ability to get around town in passable comfort, you would be denied that choice. People are being forced to pay for insurance they don't want or need, and people end up over-insured. This drives up both insurance costs and healthcare costs.


Solutions:

I will cover solutions in my next post. The solutions will include tax-code reform, increasing competition over state and international lines, malpractice reform, allowing non-doctors to perform routine procedures, and Medicare reform.

 

Solutions:



End the Tax Exclusion for Employer-Based Health Coverage:

If your boss pays part of your premium, that should be imputed as income. And, you would no longer get to exclude your premiums from your taxable income. Because this would represent a tax hike, we should pair this fix with across-the-board cuts in the income tax rate, to make sure that, on net, taxpayers are paying no more in taxes.

So, what would happen if we killed all the government preferences for employer-based health insurance?

First, pay would go up. With no artificial incentive to pay people in health insurance, employers would start paying people with something more useful—cash. With more money in their pockets, people would start shopping for insurance like actual consumers (it is also important that this reform be combined with a reduction in income tax rates so that it’s a double win for taxpayers and not a windfall for the government). Instead of just taking what your human resources director chose for you, you would compare the costs and benefits of different plans offered by different insurers.

You would call your friends to check on the quality of service, just like you ask your friends how good Verizon’s cell phone signal is, or whether they have an auto mechanic they trust. Once we have more health-insurance consumers, magazines and nonprofits would begin offering reviews and evaluations of different health insurance plans. This would spur insurers to compete—which is something they don’t really do. Insurers would have to behave like players in a market, rather than like government agencies, as they currently do.

And consumption patterns would change. On average, without the current tax incentives for high premiums and low deductibles, people would buy less comprehensive insurance. With higher deductibles, price sensitivity would return for patients. You would shop more for health care. Doctors and other providers would have to start competing on price. In addition, because consumers would now be paying cash for office visits and routine procedures, doctors would no longer have to process so much insurance-related paper work. This would greatly reduce overhead, making it much easier to slash prices for cost-conscious consumers shopping around for the best deals.

Imagine that... competition! And whatever money taxpayers saved by purchasing lower-priced insurance would be available for other purposes, such as buying something else, or added to their savings or investment accounts.



Fix the Individual Market:

Once we’ve stopped pushing people into the employer-based insurance market, we need to fix the problems with the individual insurance market.

This means legalizing consumer choice.

State governments need to end all coverage mandates. Let consumers choose—and pay for—whatever coverage they want. I can buy a car without a sunroof, or with manual windows. Why can’t I buy insurance that doesn’t cover IVF or pregnancy? Just as cars would be more expensive if government required they all come fully loaded, insurance prices are higher today than they would be if people could pick and choose what they want covered.



Allow the Purchase of Insurance Across State and International Lines:

Amazingly, this is basically prohibited today in the individual market. Many smaller states have only one or two insurers, and so there is no functioning marketplace. But why stop at state borders, why not let Americans buy insurance across national borders as well? I can buy a Swiss watch, why can’t I buy Swiss health insurance? Switzerland has some great insurance companies. I wish my government would let me use them for health insurance. International competition works well for automobiles and it will work just as well with health insurance. Many Americans choose to buy imported cars, and even those who buy domestic end up with better cars due to intense competition from foreign brands.



Malpractice Reform:

One reason health-care costs are so high is that our legal system refuses to accept that doctors are people, too. All human beings make mistakes. All doctors are human beings. Therefore, all doctors will make mistakes. Nobody is perfect. But doctors are expected to be perfect.

It’s one thing if a professional in any industry harms someone through malice or negligence. That person should be legally liable. But if someone uses her best professional judgment and is careful, she can still mess up. If she’s a doctor, she might be liable for malpractice. We hold doctors to standards of perfection. The result is disastrous. Malpractice lawsuits run rampant. This obviously imposes costs not only on doctors, but also on their patients.

One result: doctors are less likely to do small treatments inexpensively or (for the poor) free. The costs of any visit needs to cover the added legal risks. The economics of malpractice risk makes it much harder for doctors to work part-time. This means more doctors simply retire instead of doing what they used to do, which is go into semi-retirement. This dynamic adds to the shortage of doctors.

The threat of malpractice also spurs a nasty phenomenon called “defensive medicine.” How many unnecessary tests and procedures do doctors run simply to protect themselves from liability? How much does it cost the economy? I read a study recently that as much as 10 percent of all health-care costs are linked to malpractice lawsuits and defensive medicine.

The burden of proof regarding malpractice needs to be changed. The question should not be whether the doctor messed up. The question should be did the doctor use her best judgment and make her best effort.



Open Up the Field to Non-Doctors:

Many routine treatments or procedures can be safely done by non-doctors, and any laws getting in the way of this should be repealed. Do you really need an advanced medical degree to bandage a wound, put in a few stitches, or take blood pressure? All too often, expensive and time-consuming doctor visits are overkill for the task at hand and the job could have been done safely and effectively by someone with far less training.

Paramedics, physician’s assistants, midwives, nurses, and nurse practitioners must all be given greatly expanded roles if we are ever to begin controlling runaway health-care costs. As long as the health practitioner is upfront about his or her training and certification, why shouldn’t we let him operate? Clearly medicine is serious business and professional training is needed. But we still overly restrict the practice. And we ought to give consumers more choice.



Fold Medicare into Medicaid:

Medicaid is the federally created and state-run health-care program for the poor. It could be reformed, but its existence is not a substantial part of our health-care problem. But Medicare, the federal health insurance program for the elderly, is at the heart of the problem. It needs to be drastically reformed. And, as with Social Security, there are some straightforward fixes we could do. First, we stop subsidizing the health care of rich seniors.

Warren Buffett shouldn’t have taxpayer-subsidized health care but he does. Anyone who can afford to pay their own medical expenses should be expected to pay their own medical expenses. Again, this will increase price sensitivity. It will also reduce fraud. The more people we take off Medicare, the more health-care costs will go down.

 

As with many things, government is the problem, and the market is the solution. A market allocates resources where there is demand. That does not happen in health care... not because “health care is different,” but because government won't let the market operate.

Politicians see how screwed up the health-care sector is, and so they think they need to fix it. It never even occurs to them that they are the ones
who broke it in the first place.

 

I just gave a wealth of information backing up that statement.

I didn't just say it and not expand on it.

You obviously did not read the previous two posts.

 

Why? Food and housing are, and people need those things.

 

There are no countries that it can directly compare to as all countries have different levels of wealth, economic freedom, laws, etc.

Singapore has a system where everybody is provided catastrophic coverage, and every service requires some level of out-of-pocket payment, in order to reduce over-utilization of services (one of the problems I mentioned).

And Singapore's system is one of the best, and most efficient systems in the world.

 

Which states have completely revamped malpractice reform specifically?

I'm not talking about tort reform in general.