A Radical Idea for Healthcare

I read two articles from the Wall Street Journal today, both very provocative columns on Healthcare. The first reviews the current state of the Health Insurance industry and government intervention in it; the second takes a more philosophical approach to health care and the role of the individual.

From: The Truth About Health Insurance

… Nine out of 10 people under 65 are covered by their employers, most of which cover all employees and charge everyone the same rate. President Obama’s horror stories are about the individual insurance market, where some 15 million people buy coverage outside of the workplace.

Because the tax code subsidizes private insurance only when it is sponsored by an employer, the individual market is relatively small and its turnover rate is very high. Most policyholders are enrolled for fewer than 24 months as they move between jobs, making it difficult for insurers to maintain large risk pools to spread costs.

Mr. Obama wants to wave away this reality with new regulations that prohibit “discrimination against the sick”—specifically, by forcing insurers to cover anyone at any time and at nearly uniform rates. But if insurers are forced to sell coverage to everyone at any time, many people will buy insurance only when they need medical care. This raises the cost of insurance for everyone else, in particular those who are responsible enough to buy insurance before they need it; they end up paying even higher premiums. And the more expensive the insurance, the less likely people will buy it before they need it.

That’s one reason that only five states—Maine, Massachusetts, New Jersey, New York and Vermont—have Mr. Obama’s proposal for “guaranteed issue” on the books today.

Another proposed reform known as “community rating” imposes uniform premiums regardless of health condition. This also blows up the individual insurance market, by making it far more expensive for young, healthy or low-risk consumers to join pools—if they join at all.

New York, New Jersey and Massachusetts have both community rating and guaranteed issue. And, no surprise, they have the three most expensive individual insurance markets among all 50 states, with premiums roughly two to three times higher than the rest of the country. In 2007, the average annual premium in New Jersey was $5,326 for singles and in New York $12,254 for a family, versus the national average of $2,613 and $5,799, respectively. ObamaCare would impose New York-type rates nationwide.

And, from: The Whole Foods Alternative to Obama Care

Many promoters of health-care reform believe that people have an intrinsic ethical right to health care—to equal access to doctors, medicines and hospitals. While all of us empathize with those who are sick, how can we say that all people have more of an intrinsic right to health care than they have to food or shelter?

Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That’s because there isn’t any. This “right” has never existed in America

Even in countries like Canada and the U.K., there is no intrinsic right to health care. Rather, citizens in these countries are told by government bureaucrats what health-care treatments they are eligible to receive and when they can receive them. All countries with socialized medicine ration health care by forcing their citizens to wait in lines to receive scarce treatments.

Although Canada has a population smaller than California, 830,000 Canadians are currently waiting to be admitted to a hospital or to get treatment, according to a report last month in Investor’s Business Daily. In England, the waiting list is 1.8 million.

Rather than increase government spending and control, we need to address the root causes of poor health. This begins with the realization that every American adult is responsible for his or her own health.

Unfortunately many of our health-care problems are self-inflicted: two-thirds of Americans are now overweight and one-third are obese. Most of the diseases that kill us and account for about 70% of all health-care spending—heart disease, cancer, stroke, diabetes and obesity—are mostly preventable through proper diet, exercise, not smoking, minimal alcohol consumption and other healthy lifestyle choices.

American Ideals in Conflict

I’ve come to a realization that the tension at the heart of the healthcare debate is a conflict between two fundamental American Ideals.

One the one hand, we are a compassionate people. We want to be generous to those in need, and we know that we have the resouces to help other people.

On the other hand, we are firm believers in individual responsibility and accountability as the price of individual freedom and opportunity. The freedom to succeed is inseperable from the freedom to fail.

This idea is at the core of our national ethos: work hard and you will be rewarded, but if you don’t work you don’t eat.

How are these tensions reflected in the healthcare debate?

The left-overs

So, the problem everyone is talking about is in the individual health insurance market. People who are covered by their employers are able to do pretty well.

But, because the vast majority of people who are employed full-time are already covered, shopping in the individual insurance market tends to reflect that you’re a financial risk because you don’t have a stable job with benefits. Further, the tax incentives that help lower the cost of employer provided insurance don’t extend to individual insurance. Higher risk + less subsidy = higher prices.

Compounding the problem is the fact that young people who might be in the individual insurance market often don’t buy insurance because of the price and the hassle: it doesn’t seem worth the price if you’re never sick. So, the people who are left tend to be disproportionately in need of medical care, as compared to the population as a whole. Thus the risk is higher still, which pushes prices up even more.

This is why there’s a strong movement arguing that mandatory universal coverage would lower prices — forcing people who don’t think they need insurance to buy it anyway means the insurers can spread out the cost further than they would otherwise be able to.

Mandating coverage is contrary to the American value of individual freedom — but leaving those with the greatest need with the greatest difficulty and highest cost is contrary to the American value of generosity and compassion.

The irresponsible

Let’s take another look at the statistics the Journal Presented

…many of our health-care problems are self-inflicted: two-thirds of Americans are now overweight and one-third are obese. Most of the diseases that kill us and account for about 70% of all health-care spending—heart disease, cancer, stroke, diabetes and obesity—are mostly preventable through proper diet, exercise, not smoking, minimal alcohol consumption and other healthy lifestyle choices.

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… Nine out of 10 people under 65 are covered by their employers, most of which cover all employees and charge everyone the same rate.

So, 90% of Americans get coverage from their employers, and are charged a flat rate no matter what their personal health situation is. At the same time, 70% of the health care spending in the nation is directly related to preventable diseases brought on by unhealthy lifestyles.

That doesn’t fit our American values at all. If you choose to live a healthy lifestyle, and I don’t, shouldn’t I pay more for my health insurance? But for 90% of Americans that isn’t what happens.

A radical idea for Healthcare

All the discussion in Washington is currently focused on mandating coverage, on making all employers provide coverage or be penalized, on making individuals get coverage or be penalized, on creating a government plan for everyone to join, and so on.

What if we reversed the discussion?

What if we required that employers not be allowed to provide coverage – therefore making everyone a customer of the individual insurance market. If we did this, every individual would have responsibility for his or her own medical care – responsibility for finding benefits and coverage levels that were appropriate for him or her, and responsibility to live a healthy lifestyle or pay higher costs.

How much cost could we take out of the system if we truly held all individuals accountable for their own health?

As an example, let’s compare health coverage to private retirement. If you have a 401K or an IRA your employer can make contributions for you. If you have a 401K then the employer is probably taking some or all of the responsibility for managing that investment – but the money in the account belongs to you. When you leave an employer you don’t leave your retirement money behind, you roll it over to a new 401K or an IRA.

Why isn’t healthcare this way? If we make health insurance portable, require it to be tied strictly to the individual and not a corporation, we could eliminate some of the biggest problems in health care right now.

Studies show that when individuals assume responsibility for their own care they spend less money. If everyone was suddenly more conscious of how much money their health care cost, that would promote individuals to spend less and live healthier. This would create downward price-pressure on the healthcare industry, which would now have a vastly increased need to compete on price.

As for the most needy, Medicare and Medicaid could continue to exist as they are now, or could be converted to an incentive program for the provision of affordable private coverage. I’d lean towards the latter. My gut feeling is that we could provide strong financial incentives to private insurers to make low-income and old-age healthcare available and affordable – and that we’d get it with better service and a much lower cost than the current government administered plans.

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I realize that this is a fiery issue, and that this idea is pretty far outside-the-box. So tell me what you think! Am I right? Am I wrong? Most importantly, share your alternatives. What would you do to fix healthcare? The more we discuss these kinds of problems the better ideas we’ll come up with. Then, when the right idea comes along, we’ll have healthcare reform worth implementing. Sound off by leaving your comments below!