I started thinking about this problem in detail because I've recently switched employers, which has meant switching health insurance companies. This has led to the typical bewildering array of changes. Some Doctors take one insurance plan (the old one) but not the new one. Others take plan 517b but not 517c. Other Doctors, such as our internist, don't take any insurance. I don't blame her. In short, it's frustrating for me, but it's far worse for many Americans who have no insurance at all.
At the start of the health care debate, I, like most Americans, couldn't begin to think about how to solve the problem. I only knew that there was a problem. The problem, as most Americans know, is threefold:
- Healthcare costs are soaring at double-digit rates
- Too many Americans are uninsured
- The landscape of insurance companies is bewildering and makes it very difficult for people to move jobs
In attempting to fix this problem, the Congress has proposed a set of laws which will only make the problem worse. Some of the symptoms of the supply-demand imbalance have been insurance companies tightening up their underwriting policies to prevent enrolling those with preexisting conditions. So, Congress has outlawed these practices. This will simply lead these companies to either (1) exit the market or (2) raise prices again, for everyone. Another approach is outlawing "lifetime limits" on health care. Think of this as an insurance-imposed constraint on potential demand for health care. Once again, it is being done away with. More insurance companies will exit the market or raise prices. This does nothing to help anyone.
At the same time, Congress is covering more Americans with subsidies. This will increase supply, but it won't increase it enough. There is just no possible way to increase supply enough to moderate prices in this system, because we're talking about life and death issues--people will always want infinitely more health care, and I don't blame them. I do too. Without some form of rationing in place, things will only get worse, and the new bill does nothing to ration health care. It will also ensure that a larger and larger proportion of our GDP goes toward health care, which means higher taxes, more borrowing, or both. I'd argue that in the long run, this will wreck the country.
Speaking of rationing, any good or service can be rationed in one of two ways. The most common is market rationing, where a supply and demand naturally balance each other out. A more discredited method is government intervention. This means the government decides what the supply is, and who gets it. When you think about it, the reason health care prices are out of control in this country is that we have reverse-govenment rationing combined with a free market. Many are mandated by the government to receive coverage, while few can pay; at the same time, we have an innovation-driven supply side. The new laws just make this worse and more aggregious than it already is. I would have had more respect for those in Congress had they said the following:
"There are two choices. We can ration by the free market, or we can ration centrally. Free market rationing means none of you who are poor will get health care. Rationing centrally means that those of you are too sick to save or near the end of your lives will be denied care. We need to understand that these are the two options. Let's pick one, or the other, or something in between. Any reverse rationing has to be balanced by real rationing--taking health care away from someone else--or by raising taxes."
At this point in this imaginary debate, I would have presented my approach, which would have been immediately shouting down by Democrats and Republicans alike. The approach has four basic components. First, mandatory health care savings accounts for all Americans. Second, mandatory catastrophic care insurance for all Americans. Third, outlaw Doctor-specific or hospial-specific rates for insurance companies. Doctors and hospitals and pharma companies charge the same price to all buyers. Fourth, a clear income floor beneath which health care savings accounts and catastrophic care accounts are subsidized progressively by the federal government.
Mandatory HSAs would work just like 401(k)s and IRAs. Americans could contribute to them tax-free. By making these "real money", Americans would pick their Doctors and hospitals on the basis of who gave them the best deal. Prices would moderate. Ineffective treatments or dubious drugs would shrivel up and die. There would be no insurance companies. You could go to any Doctor you chose, based on their price and their effectiveness. You would pick a $30 blood pressure drug over a therapeutically identical $300 drug. The maker of the more expensive drug would lower prices or go out of business. Would this "stifle innovation?" I don't think so. I think it would bring innovation back into the realm of the free market.
At first, Americans would revolt at such a system. It sounds too much like "work." We've been accustomed to thinking of health care as a public good we don't have to worry about. But, as Americans got used to it, they'd see prices immediately moderate. They'd also see that health care quickly got much less confusing. Finally, they'd see their accounts grow in value, ensuring that they could cover health care costs as they got older, and even, in some cases, pass saved money they didn't use on to their children for college.
Of course, people also get very sick from time to time. These sicknesses can eat up even a $100,000 balance HSA balance in months. For cases like this, a government catastrophic pool would kick in. This would be funded by a tax, like Medicare. The pool would be accessible by patients with certain conditions, like metastatic cancer or a massive car accident, that would be pre-defined by statute. Every three months, a certain amount would be deposited into the patient's HSA, and once again, the patient (or the patient's family) would be responsible for allocating the funds. The inflow to the HSA account would be a fixed number set by condition. For example, $25,000 a month for colon cancer treatment. At the end of the condition, any unused money would go back to the government.
Of course, this is the element most like the current system, and most susceptible to abuse. However, this is where element three would come in. Because hospitals and Doctors couldn't charge different rates to different people (or firms), the government would know what it truly cost to provide care for a condition, and people would know they could pay for their catastrophic treatment out of the government lifeline. There is still potential for abuse here--no doubt about it--so this would need to be monitored closely.
Element four makes sure all Americans are covered. If you made, say, $60,000 a year as a household, you might qualify for a $4,000 tax credit towards your HSA, ensuring your family could pay for preventative health care. Medicare and Medicaid would be gone. Seniors might also get an additional tax credit to account for increasing health care costs as people reach their 60s and 70s. One other legislative element could be a five- or ten-year phase-in period during which catastrophic funds could be used for preventative care as HSA balances increased over time. The total pool would be mandated as a fixed percentage of GDP--say 2%--and would be gathered through income tax. Yes, it's tax, but remember, Medicare goes away.
So, this system, when you think about it, is novel for one reason. It does away with insurance companies. Insurance companies are great in theory, but in our case, they've distorted the market to the point where prices bear no resemblance to the underlying value of services provided, with governmeny playing key enabler. Furthermore, they've created a bizarre landscape that ties Americans to their jobs and stifles innovation. While I'm sure this proposal needs tuning, it seems to accomplish two goals: keeping prices in check while ensuring that all Americans receive a morally acceptable level of health care. Of course, none of this will ever happen, but one can dream.