How to Solve Healthcare Part I

G’Day!

The 2,000+ page “Obamacare” legislation has good intentions but is potentially a government fiscal, debt, and administrative disaster. Like President Obama’s impressive rhetoric, it sounds good but will only increase costs, undermine individual freedom of choice, result in jobs lost in the private economy, reduce competition, increase government spending and regulations, and ultimately lead to government-only rationed health services & treatment.

Since “Obamacare” regulations are still being written and implemented, the ultimate consequences are unclear but they are certain to be, on balance, unfavorable and more costly for the majority of US citizens. More importantly, free-market improvements are available which would expand individual choices and minimize or prevent a government takeover of healthcare. The Republicans are right to oppose the bill, but the question of how we can fix it, reduce costs, and maintain our freedom of choice is still open. Perhaps the biggest question to be answered is, “Who should make healthcare decisions, the government or the patient in consultation with his or her doctor?” For me, given my belief in personal liberty and the effectiveness of free markets, individual freedom of choice is the answer.

The need for improvement in cost and coverage is obvious. In their most recent report, the UN World Health Organization ranked the USA #37 in overall world health results. The OECD 2008 report ranked the USA #1 (highest) in healthcare cost per capita. USA costs were $7,538/capita, more than twice the average for OECD countries and 50% higher than the #2 country, Norway, at $5,003/capita. Equally important is the September, 2010 report that 50.7 million of our citizens do not have healthcare insurance. While some legislation is necessary for those temporarily without healthcare insurance AND IN NEED, more government control over healthcare products and pricing will ultimately lead to higher not lower costs, fewer choices, higher taxes, more debt, and less competition.

Let’s start with the major issues upon which there is general agreement for improvement: 1) cost reduction, 2) coverage for “pre-existing conditions”, 3) patient choice in doctor selection & treatment, 4) portability of existing coverage in relocation, 5) coverage for catastrophic events, 6) tort reform, and 7) coverage for those involuntarily uninsured because of need.

Some potential solutions are relatively simple and should have immediate beneficial effects. First, allow insurance companies to compete across state lines (nationwide competition). The immediate effect would be to dramatically increase competition and put downward pressure on prices and costs. Second, remove the anti-trust exemption for insurance companies by amending/repealing the McCarren-Ferguson Act of 1945. The effect would be to reduce the potential for insurance companies to engage in unfair or collusive practices to the detriment of the consumer. When combined with nationwide competition, this should also put pressure on prices and increase transparency. Third, coverage of pre-existing conditions is in “Obamacare”, is important, and should be retained. Fourth, there is no reason for individuals to lose insurance when relocating and changing jobs. Insurance companies should be required to continue healthcare for individuals currently covered and moving under these conditions

Fifth, enact “tort reform” by capping “punitive damages” at a reasonable level and forcing the “loser” in a lawsuit to pay the legal costs of the “winner”. This should dramatically reduce the number of frivolous or speculative lawsuits by reducing the benefits for lawyers and increasing the costs of losing in a lawsuit. There can be little doubt that the high costs of defending medical malpractice lawsuits by insurance companies adds to medical expenses by increasing insurance premiums and stimulating “defensive” medical practices (unnecessary or marginal medical testing and consultations). There can also be no doubt that the victims of legitimate cases of medical malpractice deserve and should receive appropriate compensation for actual damages. What is at fault with the current system is that it is a patient cost-free, one-sided lottery, funded, not by legitimate actual damages, but by “punitive” damages. Anyone with common sense knows the magnitude of these “punitive” claims is ridiculously excessive and largely serve the lawyers, (just watch your TV to see how many ads there are claiming “you may be entitled to compensation”). Capping “punitive” damages at a reasonable level reduces the financial incentive for lawyers (and patients) to initiate unwarranted or marginal lawsuits. Combining this with “loser pays” the legal costs of the “winner” in a lawsuit creates a potential penalty, which further discourages initiating lawsuits with little or no merit in the hope getting a large settlement from the insurance company, a substantial portion of which goes to the lawyers. Without a “loser pays” penalty, the lawyer can rightly claim to any patient that there is no downside cost for the patient in filing a lawsuit. It is truly a one-sided, no-cost “lottery” for the patient and the maximum loss for the lawyer is only his or her time. This is absurd and without correction adds to medical costs by increasing insurance company costs and premiums and stimulating  “defensive” medical practices by doctors.

Sixth, regarding healthcare for those not currently covered and temporarily in poverty, Medicaid already provides a means-tested method of coverage, including children. If Medicaid is not working properly, it should be changed. But, it should be a transitional bridge, not be a permanent provider, and should be modified to keep routine treatment out of Hospital Emergency Rooms. Improving Medicaid to better and more efficiently provide the intended services should not require a new bill with 2000+ pages of unclear legislation AND “Obamacare” seeks to expand Medicaid coverage (& CHIP for children) far beyond poverty levels.

These six items should be “doable” with some political will and a little common sense. Other potential solutions including better “catastrophic” coverage are more complicated and would require major structural change in the industry but potentially could have even larger positive effects on costs, individual doctor choices, and decisions on treatment in the long term. Perhaps the biggest of these is to remove the employer from the insurance business. This will be the subject of a future post on this site.

Healthcare should be a choice and responsibility of individual citizens in a nationwide free-market economy. Let’s keep our government’s role at the minimum necessary to provide a competitive level playing field and a safety net for only those in temporary need.

Individual choice in a free-market economy with competition is the best way forward.

The Old Guy PhD