...On Healthcare

We all agree that the U.S health care system needs some major reform.  However, in the process what we should not do is destroy the best, most innovative health care system in the world by imposing a central bureaucracy that will attempt to regulate and control 1/6 of the U.S. economy, namely health care.  Health care is unique in its size, complexity, rate of innovation, and ability to impact the lives of the customers it serves.  Therefore, it would be impossible for any centralized planning agency to ever effectively or efficiently manage all of the variables associated with the day-to-day caring of patients.  Additionally, the health care system must be nimble enough to rapidly adapt to the dizzying pace of technological innovation seen in modern health care, something that no centralized agency with all its inherent layers of bureaucracy and competing political interests could ever hope to achieve.  The only mechanism that can successfully meet the need for rapid adaptation, complex solutions, and optimal patient care is the unleashing of market forces on U.S. health care.

The current third party system of payment in the United States, i.e. health care insurance, is largely responsible for the uncoupling of consumer demand and health care supply.  Few health care consumers consider factors such as cost when choosing to seek health care, therefore health care providers do not feel market forces driven by the consumers of health care but instead by the insurance industry.  The goals of insurance companies are not always aligned with those of consumers therefore health care providers, while responding to the demands of their customers, i.e. the insurance companies, may not necessarily be responding optimally to the needs of patients.  So any modification to the current system of health care must better align consumer demand with health care supply.

One solution being proposed by conservatives is allowing consumers to purchase health care insurance across state lines.  To me this appears to be a short term solution at best.  The reason insurance rates vary from one region to the next has to do mostly with varying rates of risk between regions.  Thus where the rate of a certain medical malady is higher, the insurance companies will charge a higher premium to offset that cost.  Additional reasons may also include varying regional minimal benefits insurance providers are required to offer by local law, i.e. mental health services, that force them to bare additional costs that they then pass on to the consumer.  It is reasonable then to conclude that with the removal of regional boundaries for obtaining health care insurance that health care premiums will equalize across the nation over time.   This will occur because the risk pool will equalize across the country and thus the cost of providing insurance will equalize among insurance companies.  Over time, more efficient companies will consume the less efficient with a subsequent reduction in the number of insurance companies until only a few major players are left, thus reducing the competitive argument for eliminating state insurance boundaries.  I suspect that the net effect of all of this would be a small reduction in the overall cost of providing health insurance, and thus in health care costs, as less efficient companies will be weeded out, however the overall cost savings will not be enough to expect this measure to save us from the exponentially rising cost of health care.  So while removing state boundaries to health insurance might marginally improve health care costs, the greatest gains can be had by allowing consumers to drive health care demand which in turn will optimally effect health care supply.

The best idea to date I have seen to both encourage consumers to save for their own health care and to make consumers the determinant of health care demand are Health Savings Accounts.  Health Savings Accounts allow consumers to place pre-tax dollars into an account that both earns interest and that they alone control and that can only be used to pay for health care expenses.  These accounts are unlike traditional FLEX accounts in that they earn interest and the balances do not expire.  Over time these accounts can accrue significant balances that can be used by health care consumers to make their health care purchases, thus placing consumers in control of health care demand.  There should be no limits to how much people can contribute to a HSA.  The fact that HSA dollars can only be used to pay for qualified health care expenses will naturally limit how much individuals will save in their HSA's thus countering the argument that the wealthy will abuse them as tax shelters.  Given that only the absolute wealthiest patients could afford a truly catastrophic medical illness (probably only 0.1% of the population) costing hundreds of thousands or millions of dollars (i.e. major trauma or advanced cancer treatment), it is critical that HSA's be paired with a true Catastrophic Insurance Plan.  This Catastrophic Insurance Plan should be a very high deductible plan with a minimum deductible high enough to truly be a catastrophic plan, i.e. $25,000 or more, but could actually be decided by the consumer, with higher deductibles charging a lower monthly premium.  As an individual's HSA balance increases he or she might choose to increase their deductible and thus lower their annual catastrophic insurance premium.  I would even be open to mandatory catastrophic coverage as a compromise with those who believe in mandatory universal coverage provided that the insurance was provided by private companies.  Given that only a very small percentage of the population has a catastrophic illness in any given year, the overall cost of catastrophic claims should me manageable over time.

Another hot political topic is coverage of uninsured individuals.  The solution to this problem must avoid undue cost to taxpayers, provide coverage to all uninsured patients regardless of citizenship, and positively encourage health care providers to treat these patients.  My proposal is to allow health care providers to deduct their unreimbursed cost of caring for these patients, something current law does not allow.  Such a system would have doctors lining up to care for these patients, solve the problem of the uninsured not having access to health care, not burden taxpayers, and not increase government expenditures.

By promoting and liberalizing Health Savings Accounts and allowing health care providers to deduct unreimbursed care of uninsured patients, the power and adaptability of free market supply and demand forces can be harnessed to both provide health care for the uninsured and more efficiently balance health care demand with cost, all with undue burden to the taxpayer.