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Low Cost, Consumer Oriented Health Care
One of the most dangerous trends in America today is a belief that if a problem exists, government can and must fix it. So too, with the current crisis in American health care.
One government proposal to solve the problem of costly health care was the Medicare and Medicaid programs initiated in 1965. These programs have grown dramatically since then. While providing a safety net for the very needy, they have helped drive up health care costs for all Americans significantly. Considering the number of people they serve, they constitute an immense and disproportionate amount of the national debt. Unfortunately, they show no signs of becoming more fair or affordable without significant remodeling. Medicare and Medicaid should not serve as a model for health care policy.
However good the intentions that created it, Medicare/Medicaid has failed for several reasons. First, consider what happens when you (or the government, or an employer) offers a product or service at less than market value or virtually free of charge. This is a powerful stimulus to demandand government-funded medical programs, as well as low-or no-deductible health care insurance programs, have greatly increased demand for medical services. By itself, increased demand without a corresponding increase in available supply drives up prices. This same principle applies to high prices from ticket scalpers for special sports events or rock music concerts.
Second, Medicare/Medicaid only pays the amount of health care costs determined by the government for services performed. Often, these proscribed rates do not reflect true costs. In order to recover losses, health care providers commonly resort to cost-shifting. That is, they charge privately-insured patients more for the same service than publicly-funded patients, because private insurance companies will pay more. This overcharge covers losses.
Cost-shifting is not the result of a doctor or hospitals unbridled hunger for profits. Many hospitals whose clientele were primarily Medicare/Medicaid patients have had to shut down over the last 20 years because they could not meet basic costs. Price controls drive affected industries out of business. Health care is no exception. Limiting supply through price controls and subsidizing demand via public policy is a recipe for price explosion.
In addition, government regulation through state and federal mandates and United States tax policy have inflated demand and thus pushed up the costs of health care. IRS regulations favor Cadillac type insurance policies because those costs are 100% deductible. If, instead of benefitting the employee through these insurance policies, the employee were given a raise in pay, he would have to pay taxes on the increased wage. Moreover, these Cadillac policies carry with them many services mandated by the state (such as fertility therapy in Illinois) that increase the costs of care and insurance. State governments enforce over 700 health care mandates, costing health care consumers as much as $60 billion annually. On top of that, the federal government mandates free health care services (care for all minor children, for instance) without providing the funding. This forces states to raise taxes or develop their own methods of price control-without-cost-control.
As we can see, tax policy, mandates, subsidies, price controls, and other government regulation have caused a tremendous increase in health care costs. Private health care insurance rates now escalate at 25 percent per year, paid largely by employers. To solve the health care crisis, do we want more government intervention?
Armed more with emotion than reason, some people do. One proposal is universal national health-care insurance, where everyone is covered and funding comes from the federal government as Single Payer. Another is the Pay or Play program, under which government would compel to provide employee insurance or pay a proposed nine percent of payroll into a health insurance fund for the uninsured. A third option, Managed care also provides universal access (everyone is covered), with all health care services managed through one gigantic governmental HMO (health management organization) bureaucracy. This agency would dictate where consumers go for health care, what treatment they receive, and how much will be paidby a mix of government and private insurance carriers.
All three proposals if implemented would increase spending for health care. Universal accessibility, by its nature, encourages the use of health care services. That plan may cost over $339 billion to implement. To pay for that program would require a huge tax increase. Under Pay or Play, while employers contributions initially would be kept at the proposed nine percent (or whatever figure Congress agrees upon), a likely result is that private insurance would be priced out of the market, forcing most employers to abandon their private policies. Costs for government-funded programs would skyrocket, sending the nine-percent figure into double digits.
Managed Care, by mandating certain types or sources of health care, would drive unapproved health care providers out of the mainstream, thus reducing the options (therapy/providers/facilities) available to health care consumers, and also reducing any basis for competitive services and/or pricing.
All of these programs would undoubtedly increase taxes considerablyby as much as 15 percent more in income withholding for some of the proposals, according to Congresss own calculations. Further, even the most rigidly-enforced price controls would not make health care more affordable and accessible. Judging by recent experience, price controls would, instead, force the closing of many sources now available, increasing the demand on the facilities that remain open.
The net result is that consumers will have to stand in line for health care, or that health care would be rationed by the government to those considered to be the most needy or the most deserving: the best risks. The best risks, however, would not be determined on a statistical, actuarial basis as they are now; rather, they would be selected through the political process.
Accompanying these likely, primary effects of a universal health care program are other secondary repercussions. Businesses would become more capital-intensive. Employers would have to reconsider hiring workers into low-paying jobs due to the increased per-employee costs for mandated health care coveragein a worst-case scenario, such costs might equal or surpass entry-level wages. This, in turn, would aggravate unemployment among unskilled or minimally-skilled workers. And tax increasesinitiated for any reasonhave a predictably dampening effect on the economy as a whole.
In responses to an apparently impossible situation, J. Patrick Rooney, president of Golden Rule Insurance Co., Lawrenceville, IL, has proposed Medisave Accounts, which target market reforms rather than government intervention.
At present, one of the central problems in the health care industry is that the health care consumer only rarely knows what his or her health care or health insurance costs. The consumer does not pay the whole amount of medical expenses or insurance premiums directly. The consumer, therefore, has no reason to shop and compare the price and value of health care services offered by different providers. In fact, in many cases, consumers are restricted from using any but assigned providers. However, in a free enterprise system, it is such shopping that controls costs and pricing and enforces quality.This market mechanism is entirely lacking in the health care industry. For example, call your local doctor or hospital and ask how much is charged for a tonsillectomy. More likely than not, the answer you get will be a question: What type of insurance do you have? Pricing is based on the ability to pay, not on the value of the service performed. Medisave Accounts are designed to correct this by restoring the price/cost/quality controls of the free market.
Currently, the average cost of an employer-paid family plan in this country is $4,500. Because of present tax laws, the employee health-care consumer has no incentive to shop wisely for health care, no motivation to monitor costs, no encouragement to forgo frivolous treatment. Health care is pre-paid through the employer whether it is used or not.
Remember, insurance was originally designed to minimize risk. One buys insurance with the hope of never having to use it.
With pre-paid low-deductible or no-deductible company health care policies, employees use their health-care policies for normal non-risk health care costs, not primarily for insurance. Why not? Its already paid for.
Under the Medisave Account proposal, employers would provide an umbrella catastrophic health care policy for $1,800 per employee per year. This catastrophic policy carries a $2,000 deductible.
To cover the first $2,000 of health care expenses, employers would deposit $2,000 into a Medisave expense account for each employee. Throughout the year employees would draw upon this account until meeting the deductible requirements; at that point, the insurance policy would kick in. However if the employee manages to spend only a portion or none of the expense account, whatever part of the $2,000 he doesnt spend, he can keep in a Medisave Account that would be treated the same way by the IRS as other Individual Retirement Accounts.
In addition, the fund may grow every year, by adding new employer contributions to the unused portions of last years deductible fund. This money belongs to the employees, and if they leave their jobs, they are free to take it with them, or to apply it to an individual insurance policy of some kind. They can also use the money to pay for health care with no tax liability on the money. Just like an IRA, at age 59 the employees can spend the money on anything they choose.
Under a Medisave Account program, the employer pays out a total of $3,800 per year per employeeless than the $4,500 average now paid. In addition, the fact that the employee keeps any unused portion of his Medisave expense account serves as a strong incentive for him or her to use the money frugallyto question costs and treatment and to shop for value in medical care. Yet employees are covered for emergencies and for most types of routine medical attention.
By directly involving the employeethe health care consumerin selecting the medical services needed and their sources, the free market mechanism would work against rising costs and extravagant or redundant medical testing and services. Medical care providers would have to compete for consumer dollars, keep costs low, quality high, and pricing competitive. Beyond spending wisely, consumers are encouraged to work toward not spending their Medisave Accounts at allthat is, maintaining their own good health. Such preventive medicine can only be provided by the consumer for him or herself.
Full benefits of the Medisave Accounts would require a change in the tax laws so that the benefits of spending economically on health care are not taxed at usual rates, but are treated the same way by the IRS as Individual Retirement Accounts.
Bear in mind that Medisave Accounts represent only one alternative to turning over our health care industry entirely to one or another form of government management. In a nation that espouses free enterprise, the options available should be very nearly unlimited. Insurance carriers and health care providers, particularly those interested in expanding their own businesses, should view current difficulties as opportunities to provide new cost-efficient services. The choice available to consumers should not be confined to the imaginations of our legislators.
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