September 15, 2009

How to Lower the Immediate Cost of Reform, and...Republicans "trapped in a cul-de-sac of their own making"

(Note: this is not the coming-topic post I mentioned a couple of days back, but this is a post on exactly where Congress should go right now.)

Republicans have driven themselves into a cul de sac. They agree on the basics of insurance reform, and they should.

Consider the people they represent (Bloomberg poll):

Americans overwhelmingly approve of President Barack Obama’s goals for remaking the U.S. health- care system even as they express skepticism he can achieve them, according to a Bloomberg News poll.
More than 8 out of 10 people support covering the uninsured, curbing costs, creating an insurance-purchasing exchange, and preventing insurers from dropping coverage or refusing to accept people with preexisting medical conditions. Majorities say employers should have to offer insurance and individuals should be required to have coverage.

NPR offers a good summary of the political situation in health care reform.

In brief, if you prevent insurance companies from excluding preexisting conditions without also creating a requirement for individuals to have health insurance (a mandate), then you have an overwhelming problem: people could simply wait until they get sick and then buy insurance, only when their claims would be high. This, in turn, would cause the premiums to rise sharply, which in turn would cause those who are not sick to drop coverage and wait until they get sick, etc.

Therefore it is necessary to require everyone to buy insurance -- a mandate. Because otherwise health insurance doesn't work.

Unlike life insurance or home insurance or auto insurance, an illness (medical loss) doesn't always happen in seconds or minutes, and the expenses are not all incurred within a day. They continue.

There's no way around the conclusion that an individual mandate is a necessity if you outlaw the exclusion of preexisting conditions.

The whole purpose of health care is to treat the sick, not to keep insurers profits higher or avoid costs by refusing the sick.

And health care costs require insurance -- very few can afford to pay for good health care for non-routine illness or accidents out of pocket.

Very few could afford, say, $50,000 or $140,000 out of pocket.

Thus health insurance is a reasonable idea, a good idea, cannot work for sick people without laws. For instance, at an absolute minimum, laws about enforcement of contract -- that the insurer cannot drop coverage on whatever pretext when a person has an expensive condition.

Once we outlaw excluding preexisting conditions -- in other words we require insurers pay to care for sick people -- then individual mandates become necessary.

But the cost of comprehensive health insurance today with reasonable deductibles (that a household could actually pay off in a year) is higher than lower income households are able to pay.

Thus the individual mandate requires subsidies to allow lower-income households to be able to afford to purchase the required insurance.

As Republicans generally are opposed to higher taxes and/or deficit spending, they end up in a trap -- a political cul-de-sac of their own making.


I and others have proposed specific ideas to make health insurance less expensive, both in terms of holding down long term health care inflation (read this,) and in terms of immediate cost by carefully outlining what is a reasonable "basic" required health insurance policy that would be mandated for young, currently healthy people as their minimum required insurance.

These proposals are not partisan in any fashion. It does not make sense to think that a 25-year old should be required by law to have a health insurance policy that costs $6,000 or $7,000/year regardless of their own preferences.

Most 25-yr-olds would prefer a policy that provides for routine checkups and some basic coverage -- their minimum requirement could be a policy that would provide inexpensive clinic care for occasional need such as infections, and of course coverage for the unlikely expensive condition such as cancer or an accident.

Such coverage for a 25-yr-old need not cost $7,000/yr, nor should a 25-yr-old be required by law to help subsidize in a large way the average health care costs of a 50-yr old. Proposals to allow significant variations in policy cost by age are entirely appropriate. Older people have on average more earning power, and higher health care expenses.

The mandated minimum "basic" policy should truly be basic. It should be no-frills health care.

Anyone could choose, as in other marketplaces, whether to go economy-class or to go first-class -- whether to get their routine and occasional care in a low-cost clinic or in an upscale doctor's office, according to the policy they choose.

If such no-frills policies were available, most lower-income households would choose such a basic policy, which would neither be especially generous nor would it contain tricky loopholes or caps meant to fool the policy holder or avoid paying for reasonable care. Such basic policies would be considerably less expensive.

That lower cost would in turn reduce the need for and total cost of subsidies a great deal.

The most common failure we see in the thinking in Congress, year in and year out, is an appreciation of scale and cost that corresponds to the actual means of the average American household. Congress should not mandate expensive health insurance. It should mandate very basic health insurance that is sound and reliable.

What is an example of "basic" insurance? In the past, some instances of less expensive care got a bad reputation. Consider the old-style, unpopular HMOs (Health Maintenance Organizations), or "managed care", which were carefully structured to reduce expenses and costs. HMOs were popular initially due to lower cost, but became less popular since they offered less choice and stories spread of long waits and denied care, creating an impression of not enough quality. But, some HMOs provided and provide health outcomes of quality as good as that of more expensive plans.

But a better version of managed care is offered by isolated providers here and there -- coordinated or cooperative or "integrated" care. This managed care actually offers superior quality at lower costs.

Consider Mayo Clinic for instance. Mayo is one of the best providers in the world, and...Mayo costs less than most of its competitors. Superior systems like cooperative care spread slowly since the structure of health care payment does not reward their cost-effective quality. When a health care provider heals someone faster with less proceedures, they get less compensation under most of American health care delivery structures. (See link below for a better way to pay for care. )

There are yet more ways to cut costs while maintaining quality in a basic plan. A plan could specifically require doctors follow "best practices," make extensive use of nurse practitioners in clinics, and other cost saving features. When value (quality/price) itself becomes a goal, organizations are able to respond and create new innovations and efficiencies. They only need a reimbursement structure that encourages quality, value, and effectiveness.


  1. We need to expand our understanding of health care. Health care is exactly that caring for health. We all need to care for our health. Health care is not about going to the doctor or the hospital, it is about raising awareness as to what healthy means.

    Mandating health insurance is not the issue; we all need it. It means expanding the scope of services the health care system provides. Everyone, not just those that need doctors and hospitals can improve their health.

    My favorite way to do this is a health tax. Tax those products that contribute to poor health. Every product can have a safety and health (toxicity) rating. Tobacco and automobiles are two products that would be heavily taxed.

    The safer and healthier the product the lower the tax. Taxing the rich could supplement this tax enough to provide insurance for everyone no matter how rich or poor. It would cover emergency room care, primary care, and catastrophic care.

    Health care can be differentiated into different levels of care. Each level offers more services than the lower level. Proactive care, optional surgeries, club memberships, access to alternative care practitioners, etc.

  2. I agree that generally the costs inherent in activities should be included in their prices. Cigarette taxes are a good example. Gasoline taxes are also, as gasoline real costs include naval forces in the Persian Gulf, overseas troops, various level of health costs in pollutants, etc.