Sunday, April 6, 2008

My Healthcare Reform Plan

Healthcare reform will be a major issue in the 2008 elections. Both Democratic presidential candidates have proposed major government programs to subsidize health insurance premiums as well as sweeping new regulations to improve coverage and lower costs. These plans ignore several key aspects of the healthcare crisis and would substitute government regulation for market pressures. Ultimately, these flaws would mean that government healthcare plans would be costly and ineffective.

One of the major flaws in the Democratic plans is that they do not address tort reform. Currently, malpractice insurance premiums resulting from civil liability suits are a major source of increasing healthcare costs. Since 1994, the average award in a medical malpractice case has risen to $3.5 million. Over 70% of cases are without merit, but defending against them costs doctors and insurance companies millions of dollars, even if they win.

The high cost of malpractice insurance is influencing many doctors to leave the profession. OB/GYNs have been particularly hard hit. In several states, finding a doctor who will deliver babies is difficult due to the high cost of malpractice insurance. Many insurance companies are exiting the malpractice insurance business because of losses. As fewer companies write these policies, premium costs rise for the remaining insurers.

Rising insurance costs are not the only problem stemming from the legal liability crisis. In order to protect themselves from lawsuits, most doctors order tests that are medically unnecessary and refer patients to specialists that they really do not need to see. These unnecessary tests and doctor visits contribute as much as $108 billion in unneeded medical costs. 92% of doctors report that they engage in defensive medicine that, in the end, costs patients and insurance companies more money.

Legal reforms to the tort system, such as limiting awards for punitive damages, “could reduce health care costs by 5-9% without adversely affecting quality of care.” This could save from $60 to $108 billion annually. These savings would lower the cost of health insurance and make it more affordable for Americans.

Another way to help make health insurance affordable for Americans is to offer financial incentives. HSAs allow individuals to deposit pre-tax money into an account to pay for medical expenses and purchase high-deductible health insurance plans. Similarly, Flexible Spending Accounts (FSAs) allow individuals to use pre-tax money to pay for medical expenses. Because individuals spend their own money in HSAs and FSAs, they are encouraged to shop around for the best prices when they buy healthcare.

There are several problems with HSAs and FSAs. Contributions must be elected in advance. If the money in your account is not used before the end of the year, it is forfeited. This eliminates the some of the incentive to shop around for competitive prices.

These accounts could be improved in several ways. First, a tax credit should be given for premiums paid for health insurance policies. A credit on taxes for premiums paid would encourage more people to buy their own insurance. Second, the accounts should be changed to allow the balances to accrue from year to year. This would eliminate the rush to spend unused money at the end of the year and allow people to save for anticipated medical expenditures, such as a pregnancy.

Current health insurance plans have insulated consumers from market pressures. Insurance co-payments have eliminated the need to shop for the best deal on medical care because the consumer pays the same price for any doctor and the insurance company pays the balance. In most cases, the consumer does not even know the actual cost of their doctor visit. If health insurance plans were modified to require that consumers pay a percentage of the total cost instead of a set fee, consumers would be encouraged to shop for the most cost effective care. Reintroducing competition would begin to put a downward pressure on healthcare costs.

There are other areas in which competition is already reducing healthcare costs. In 2006, Wal-mart introduced a program to offer certain generic prescriptions for $4. The program has since been expanded to more drugs and matched by several other pharmacies. This has made Wal-mart much more effective at reducing the cost of medicine than the federal government.

Similarly, private chains, such as Wal-mart and Target, are introducing medical clinics into many of their stores. These clinics are often staffed by nurses and offer simple treatments that do not require a doctor’s care. Costs are kept down by keeping overhead low. There are no facilities for extensive testing. Serious illnesses would require referral to a traditional doctor’s office or hospital. Many even require patients to process their own claim if they have health insurance.

These in-store clinics expand access to affordable health care. Many patients who visit these clinics would have normally gone to an emergency room and incurred a bill of hundreds of dollars. Many treatments at in-store clinics cost less than $50, even without insurance. Additionally, they are quick and convenient. An emergency room or doctor’s office visit would have taken several hours. A clinic visit can take less than an hour, even including wait time. Clinics also frequently have longer hours of operation than traditional doctor’s offices.

These private companies are not bringing low prices to healthcare solely out of altruism. There is a profit to be made. When a consumer visits an in-store clinic or buys a $4 prescription, they are more likely to bring other business to the store as well. For instance, people might shop for groceries while waiting for their prescriptions to be filled. This creates a win-win situation for both parties without any government subsidies.

Another method of reducing healthcare costs would be to decrease government regulation. Currently, each state regulates health insurance within its borders. Therefore, there are fifty different sets of rules and regulations for insurance companies to follow. In many cases, these regulations add needlessly to insurance costs.

Coverages mandated by the government require increases in insurance premiums. For example, some states mandate that all health insurance must contain coverage for pregnancy. If a consumer does not want pregnancy coverage, if they do not want or cannot have children, they must still pay the increased premiums. Similar mandates for coverages such as co-payments, Viagra, elective surgery, mental health benefits, and chiropractic all serve to increase health insurance costs. It is increasingly difficult to obtain a no-frills, high deductible, major medical plan even though such a plan would provide an inexpensive source of health coverage in the event of a catastrophic illness or accident.

A simple solution to the problem of over-regulation is to allow policies to be sold across state lines. Consumers in highly regulated states who can currently only buy expensive policies would be allowed to purchase cheaper policies from states with less regulation. This would allow more Americans to buy health insurance that would protect them from a major illness, even if it did not pay for each and every doctor visit or prescription.

A secondary benefit of interstate policy sales would be pressure from insurance companies to simplify regulation in expensive states. If sales began decreasing as consumers shopped out of state, legislatures would be forced to make their insurance regulations more competitive. Without change, the insurance industries in their states would continue to decline and lose sales to more competitive states.

A new trend in health insurance is for employers to give their workers an allowance to pay for an individual health policy rather than purchasing a group plan. This is allows the employee to choose coverage that is important to them, while shopping for the most cost-effective plan. If this trend continues, prices would fall as more companies compete for more individual business rather than a monopoly for policies covering a company’s employee group.

An additional problem with the Democratic health plans is that they overstate the severity of the healthcare crisis. Many advocates of a government takeover of the healthcare industry claim that 40-50 million Americans are uninsured. In reality, those numbers are inaccurate because they include noncitizens, people who choose not to purchase insurance even though they can afford it, and people who qualify for government insurance, but have not signed up.

Government statistics indicate that 45% of the uninsured lack insurance because of job changes. These people will become covered again within a few months. Approximately ten million of the uninsured are not citizens of the US. According to a Census report, there are approximately 17 million Americans without insurance who earn more than $50,000 per year. These people can afford health insurance but choose not to purchase it. One prominent study places the true figure for the long-term uninsured as low as 8.2 million.

In a free society, we must accept the fact that some people will make poor, even stupid, choices. Many of the people who elect not to purchase health insurance do so because they are in good health and do not feel that they need insurance. In many cases, they are correct, but sometimes a sudden illness or accident leaves them with large medical bills. This is the result of a deliberate choice that they must live with.

In other cases, health insurance becomes unaffordable or is canceled after a person suffers an illness. Health insurance plans should have renewals guaranteed as life insurance policies do now. A consumer would have the right to renew their health insurance policy regardless of changes in their health during the policy period. Rate increases would be spread over the entire pool of policyholders rather than targeted at those who had incurred large claims.

Some people would remain uninsurable. People with illnesses such as AIDS, cancer, and diabetes should have access to insurance coverage even if they are too high risk for the private insurance market. This is where the government can have a role. In some states, the government currently operates a high-risk insurance pool for people who cannot qualify for private insurance, such as those who have bankruptcies or who own homes in hurricane areas. A similar program for those who cannot qualify for private health insurance would solve the uninsured crisis. The pool could be funded by a small tax added to private health insurance policies sold in the state.

Price controls and increased regulation are ideas that would ultimately be unsuccessful at controlling rising healthcare costs. Price controls would lead to shortages as people and companies leave healthcare for more profitable businesses. Increased regulation would add to the cost of treatments and health insurance.

The government has proven its inability to efficiently manage healthcare in several areas. VA hospitals are notoriously inefficient and often poorly run. Medicare recently announced that it will pay out more than it takes in 2011 and be bankrupt by 2019. Bureaucratic red tape prevents people from getting the care that they are entitled to, while fraud runs rampant. A national government health insurance bureaucracy would likely bring the efficiency and customer service of the Post Office and Department of Motor Vehicles to the healthcare industry. As Americans, we should expect better.


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