Defenestrating Thoughts from the Bivouac

In my last post, I talked about the root causes of our health care problems, so as promised, here’s a post on how to fix it.

First a quick recap: the main cause of the problem is that insurance companies yield disproportionate power over the doctors and the patients. This is caused by government policies:

• Employment based insurance is heavily subsidized by the government, while private insurance is not
• Doctors are not allowed to collectively bargain against insurance companies due to antitrust regulations
• Doctors and medical providers are legally allowed to charge vastly different amounts for the same exact service (though this is illegal for everyone else)

So, as you’d expect, the first step in fixing healthcare is to reverse these three policies and undo their horrible negative consequences.

Now before going through the next steps, it’s necessary to go on a slight tangent about “insurance”. Today, when we talk about “health insurance”, we’re talking about two very different things: (1) a pre-paid plan for routine coverage (e.g. covering your yearly physical and normal prescriptions) and (2) an insurance policy for catastrophic health problems (e.g. coverage for a broken leg).

It’s important to make this distinction. Your car insurance doesn’t pay for your oil changes, but it does pay when you crash your car. Now, on the other hand, when you buy your car, you could buy a “pre-paid” plan that covers oil changes and other routine stuff, but it doesn’t cover for when you crash your car.

The reason they are normally separate products is that they are different businesses with different models. If I were to sell you a package that included all your oil changes and timing belt replacements for the next five years, the business model is just a simple “pre-paid” model. If I were to sell you insurance, that’s an actuarial business.

So, the second step in fixing health care is to stop allowing companies to only sell “bundled” plans while include both “pre-paid plans” and “catastrophic coverage”. They need to allow customers to buy just one or the other. Today, the companies, using their disproportionate power, bundle these services which make it even harder for alternative private plans from existing.

The third step is about prices. We already said that the prices have to be consistent and can’t be different depending on who’s paying. Now, we need to make providers publish their prices. Going into a procedure or appointment, I should know exactly what it is going to cost. It should be the same as when I get my car repaired.

This will do two things. First, it makes sure that all patients are billed the same price. Second, and more importantly, it prevents the common practice of billing private insurance (or uninsured) patients significantly more than Medicare patients.

Today many providers can’t afford to provide services at Medicare’s reimbursement rates, so they charge everyone else extra! If Medicare reimbursement rates are too low, then providers should allowed to simply refuse to provide the service at that price. Furthermore, they shouldn’t be forced by the government to provide those services at prices they don’t want to. And they certainly shouldn’t be allowed to rip off everyone else to make up for the loss.

The fourth step is related to people who can’t pay for emergency health care. People who show up at the emergency room but can’t pay will still be treated by the hospital. But the hospital will no longer be allowed to pass the costs to paying patients (this leads to bloated costs at the hospital). Instead, the bill will be paid by the federal government. The government will treat this as a debt to government and have the IRS collect the bill through their existing mechanisms. And if you’re an illegal alien, we will just bill the patients’ home country. After all, this is what everyone else does: if I needed medical care while in Canada, they would just send the bill to the US government.

The fifth and final step is to hold the health care provider responsible for any clear negative consequences of receiving the care. For example, if I have a surgery and get a nasty inflection (e.g. MRSA), then the hospital is responsible for fixing it. Think of it this way, if I have my car tires rotated and the repair shop drops my car off the lift, they would have to fix the car. Under no circumstances would I have to pay to fix the car.

So what about people on welfare? It’s not actually that complicated; while people are on welfare, the government can simply just buy them a pre-paid plan and catastrophic coverage. Once they are off welfare, they can buy their own.

So, just a few simple steps to fix the mess. By making these changes, we break the tie between employment and insurance, remove the barriers so affordable private insurance options can flourish, and reduce the health care costs across the board.

Once we do this, you will be able to buy affordable private health coverage. And if you don’t like your provider, you can find another or just choose to pay out of pocket for your expenses. And most importantly, the “hidden” costs of Medicare and providing care for those that can’t pay will no longer to hoisted on everyone else.