Thursday, September 24, 2009

Just a wee note on health care/insurance reform ...

Well, I plan to write about the G-20 (apparently now after the fact) and I plan to look at local politics, but I am still somewhat consumed by healthcare/insurance. I want to challenge any opponent of healthcare/insurance reform to read what I have written below and then tell me why we shouldn’t reform the system. When people say the system is broken, I think they are understating the issue.

As I understand it, health insurance came about in World War II, when there was a government imposed wage freeze. Now, lots of people were working, and companies still wanted to produce more … I guess tanks and uniforms, mostly, so they wanted to lure better workers to their plants. Health insurance allowed them to differentiate themselves. I believe early health insurance simply paid the doctor bills. I believe at some point in the next forty years doctors discovered if they raised their prices insurance companies would grumble but still pay.

Fast forward to the 1980’s, where the increase in health care costs and the corresponding increase in health care premiums has caused a crisis. See, the way employer based health insurance worked was that at first, the company paid it all. As premiums increased, companies started tinkering with their employee’s plans, creating and then increasing co-pays and having employees contribute to the premiums of their plan. But by the 1990’s health insurance is becoming a crisis, and Bill Clinton tried to implement universal health care. It was defeated, partially because of tactical errors on Clinton’s part, but also because of the alliance of the health insurance giants and the Republicans. For practical reasons the health insurance industry did try to reform itself (it was in danger of killing the goose that laid the golden eggs) through mechanisms like HMO’s and preferred provider options. In particular, at some point probably in the late seventies, health insurance companies started saying they would 80% of the usual, customary and reasonable costs charged by doctors in that particular geographic area. The doctors would receive less money but be guaranteed payment, and agree not to charge the patient the twenty percent. The insurance companies could enforce this by creating networks (where the doctors agreed to these rules) and only paying out of network doctors fifty percent of their charge (this is usually called blackmail). Now, as I suggested at some point I think doctors (and hospitals) started at some point milking the system when they had previously found insurance companies would pay the whole bill, and this new system reinforced the notion that it made sense for all doctors to find excuses to raise their rates every year, if only to increase that 80%. But you can imagine the effect on the uninsured. Every year, it becomes more and more dangerous financially to go to a doctor or the emergency room. Doctors desperate to maintain their life style and hospitals that want to remain profitable are raising their prices to astronomical levels (one night in the hospital for me according to insurance: 11 grand).

Another piece of this puzzle is that companies are still largely shielding their employees from the bulk of the cost of health insurance premiums. Apparently health insurance can cost 12 grand a year for an employee with a family of four, of which I believe companies might charge the employee three grand (I don’t know for sure, I never priced the family plans at work). To some extent, this used to work out ok because companies take a tax deduction on that part of the employees wages, as do the employees on the part they pay (look at your W2). This gave companies an incentive to offer health insurance (the health insurance companies had to agree not to deny or drop coverage based on pre-existing conditions). But I think the costs are now outstripping the tax advantages and in fact have been for a while. Where does the balance of them money come from? The price of everything. It is a hidden tax, administered by everyone and controlled by no one. So the tuition at CMU is higher than it would be if there was a government paid plan. And make no mistake, yes, with a government run single payer plan your taxes would be higher, but your wages ought to go up and prices for products ought to go down. Plus there would be fewer bankruptcies caused by people with no or inferior health insurance going to the hospital. In fact, many low wage employees would be more productive than before because they would have no fear of going to the doctor and would get health problems treated and would have other problems averted with preventative care. Say what you want about preventative care, if you have a sore throat and go to the doctor and find out it is a staph infection, get it treated and get better, that is a better result than going to the emergency room and still dying, and sticking your family with outrageous bills.

A third piece of this puzzle is that health insurance companies in the US return a smaller amount of their premiums to claims people make than health insurance companies in other countries. Which is to say for every premium dollar US health insurance companies take in, they pay out about 80 cents. In other countries the amount is about 95 cents paid out. The US pay out rate is looked upon favorably by Wall Street, it means the companies are being that much more profitable, and can give that much more to investors (and higher level executives in the company as well). This level of profitability is only sustainable if the insurance companies can continue to deny and drop coverage on people with pre-existing conditions (those not in employer offered health plans).

I didn’t address medical malpractice. I was chatting with a lawyer the other day (a whole ‘nother story I will have to say something about soon) and he was saying that two groups that do a lousy job of “policing” themselves are cops and doctors. I think that malpractice needs to be treated carefully. I think that people who are harmed by doctors through negligence should be recompensed. I think we also need to take steps to make sure that doctors who make more than one serious mistake are dealt with in some manner, whether it is being given the option of giving up their license or taking some huge amount of remedial training or something else, I don’t know. But something does need to happen, and if Republicans want to make a big stink about that, that is one area were I will cheer them on.

There are probably issues I have omitted (pharmaceuticals come to mind), but surely you are getting tired (I am).

So I talked about three of the five participants in the US health care system: health care providers, health insurance companies and private employers. The other two participants are the customers (us the US) and the government. Of those first three, providers and insurance companies have perverse incentives, and private employers are unwilling co-conspirators in making everything more expensive than it really needs to be. Healthcare/insurance reform needs to address the first two issues at the very least, and if we adopted a single payer plan that would address the issue of how much employers are spending on health insurance for their employees.

Meanwhile, we, the customers of health care (all of us) and customers of health insurance (85% of us) are being influenced in interesting ways. I would think that if most people see the issue the way I stated it above, they would be in favor of healthcare reform. In fact, I can see no arguments for maintaining the status quo. Even if you are a well compensated health insurance executive, unless you can pull off living in another country you are still paying more for ordinary goods and services than you should have to.

Yet conservative entertainers have given us outright lies to try to frighten us into thinking that health care/insurance reform is some sort of plot to destroy the country. The effect may be that of the legislative branch of the fifth participant in health snafu, the government, just enough Democrats and all Republicans save maybe one or two will vote against all but the weakest plan for reform (basically a giveaway to health insurance plans) in the Senate. We have the power to do something about that, but we have to act. Anytime anyone says that healthcare/insurance reform is a plot to overthrow democracy, ask them how that is, specifically.

I don’t want to pretend that health care/insurance reform will be easy. It would be difficult to address the current salaries of doctors, for example, they will protest they should have to give anything up. Even if they don’t have to pay as much in malpractice insurance, even if prices come down, doctors will want to make at least as much next year as they did this year. But we do need to do something, and probably more than what is in Max Baucus’ bill.

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