The ongoing debate over healthcare and medical insurance has taken a new turn, now that we have a new US administration that has pledged to repeal the existing Federal ‘Obamacare’ and ‘replace’ it with something else. In the ensuing debate over the nuts and bolts of Federal and State policy, one overriding value is liable to get lost, and that is the foundational principle of the United States: liberty, the freedom and dignity of the individual. Is it possible to reconcile this value with the need to make sure that some 350 million citizens of the Republic have access to medical services, and to medical insurance (a term that would have been foreign to our Founders)? I think that it is possible; what follows are some of the principles that will help us to work through the complex issues of healthcare while maintaining our focus on the freedom of the individual. Those who want a quick summary may skip down to Section 12. But please come back and read the whole thing.
1. Insurance is Not Healthcare
Health insurance and medical care are not the same thing. The idea of an insurance plan covering routine and minor medical treatment is like having your homeowner’s insurance pay for repairing a leaky faucet. The confusion came about with the growth in the mid-twentieth century of prepaid ‘group’ health plans that included routine care in addition to insurance against serious or catastrophic events.
My parents in the Washington, DC area in the late ’40s belonged to such an organization, called appropriately Group Health, Inc. I think at the time it was a relatively rare setup, but the idea spread over the succeeding decades, to the point where giant insurance companies now employ armies of clerks and computers trying to keep track of every pill and preventive service their clients receive. You can see right away this is bound to be a system that only a dedicated bureaucrat could love. In point of fact, it has proved to be such a huge burden on private doctors in small, local offices, that they are all now on the verge of giving up and joining large groups that can (more or less) afford the staff to process the constant stream of real or electronic documentation, without which no one in the group can get paid. Or they ‘go concierge’, essentially forming a club of well-to-do clients willing to pay membership fees for personal service.
2. Third Parties Destroy the Free Market
The inevitable consequence of turning over all the payment for medical-care transactions to third parties is the loss of freedom. Health care, like auto repair, or home repair, or computer repair, is a service, and like any other service is best managed between provider and consumer, in the free market. Free-market competition keeps prices reasonable, and allows consumers to shop for quality. Anything a third party pays for will require a multiplicity of rules and regulations, and specialized managers and clerks to administer them. The third party inevitably inserts itself into the management of patient care, not only rejecting treatment options, but requiring many the patient never wanted and the physician sees as unnecessary.
It has now become routine for doctors proposing tests or a course of treatment to employ staff who must contact the patient’s insurance company and obtain ‘pre-authorization’ before they can proceed. Not only does this delay things; all of these people working in the doctor’s offices and the insurance companies, all of them have homes and families; they have to be paid. In addition to driving a wedge between the doctor and the patient, how could it not drive up costs?
Some years ago, Medicare (the biggest third-party of them all) was said to have 40,000 pages of regulations. Imagine, as some argue we must have, ‘a Medicare for all’!
3. Expertise Is Not an Impediment
It has been argued that because medicine is such an arcane and difficult subject, generally imponderable to the layman, that a free market in healthcare is not possible. Between different doctors, or different courses of treatment, how can the patient make an informed decision? The same argument, of course, could be made in any other service industry, like auto repair, or investment advice, or for that matter veterinary medicine. The evident fallacies are that John Q. Public is incapable of learning enough to make an informed decision, that medical professionals are incapable of (or resistant to) explaining things clearly, and that patients will never compare notes. These all might have been true to a degree, but given the incentives (i.e. a free market), you’ll find consumer groups sprouting all over like wild flowers in the spring, and the Internet will provide the fertile ground. It’s already happening; just go to WebMD.com, and dozens of sites devoted to specific ailments and conditions. Nothing interests people so much as their own health, and rare is the patient who wants to know less.
4. Health Insurance and Employers Are Not Natural Partners
It was an accident of history. Wage and price controls during World War II left employers with no way to reward employees with raises. So they started offering what are now called ‘benefits’, principally health insurance. So why does the practice continue today? There are a couple of reasons: insurance companies offer better rates for defined groups, as opposed to random individuals; and employees pay premiums with pre-tax income. But employers do not offer other kinds of insurance, and, increasingly, there are good reasons for divorcing health insurance from employment. Among them:
– It will prevent employees from losing their health insurance when they lose their jobs.
– It will level the playing field for individuals and the millions of self-employed, by eliminating the discounts that large employers enjoy.
– It will eliminate the need for different rules for full-time and part-time employees.
– It will eliminate the fiction that employers and not the employees ‘pay for’ health insurance. It’s really just compensation, and it discriminates against employees doing similar jobs who do not subscribe to the company plan, e.g. those who have a spouse getting health insurance elsewhere, or those working part-time.
– It will remove a complex payroll accounting burden from employers, large and small, and reduce personnel (‘HR’) costs.
– And, most important, it will provide an incentive for individuals to look for rational, cost-effective ways to manage their own healthcare. Most employers offer only a few ‘health plans’, sometimes only one. If an employee wants health insurance, he either submits to the plan offered, or pays more in the individual market. Getting employers out of the market will increase individual freedom.
5. Government Has No Business in Health Insurance
The biggest third party insurer of all is the Federal government, through Medicare and Medicaid. Actually, this is also a consequence of employer-paid ‘benefits’. Once people retired, where could they get insurance? Individual policies were expensive, especially when most applicants were elderly and increasingly high-risk, and their incomes were disappearing. So, with an amendment to the Social Security Act in 1965, the government became the insurer of last resort. It made a certain amount of sense, given the history. But government insurance perpetuates those very conditions: private companies cannot compete with government agencies funded by taxpayers, so options become even more limited. And given high demand and enormous overhead, rationing of expensive care becomes increasingly likely.
Moreover, when citizens become dependent on the State for an essential service, they inevitably give up a component of their freedom as individuals. The Third Party, now the State, intrudes further and further into your private lives. Medicare, for example, as part of its annual ‘Wellness Check’ is telling physicians to ask about guns in your home. Is ‘MYOB’ an acceptable response?
Can we eliminate the Federal government from healthcare? Maybe not entirely, but we can surely restrict it; read on.
6. Save Insurance for Disasters
Back to basics: You don’t need to buy an insurance policy to cover your bandaids, over-the-counter medications, routine check-ups, and the like; any more than you need one to hang a picture on your wall, or have an electrician install a fan in your living room; or one for changing your oil, or to tell you to make sure your spare is inflated. You do need insurance for drastic, unanticipated expenses that your resources can’t cover. Catastrophic medical insurance is not very expensive, because it aims to cover you for what on average are rare circumstances.
It is true that the analogies with home or car, or even life, insurance are imperfect. Car crashes and house fires happen suddenly and present clear and obvious need. But illnesses sometimes come on gradually, not all at once. People often get sick for long periods of time. Much as medical insurers might like to, they cannot simply write off the insured body, pay the claim, and tell the customer to get a new one. Healthcare catastrophes may go on for years, even decades. If this happened with your car or your home, your insurance rates would skyrocket.
The limiting cases are ‘pre-existing conditions’; the same principle applies: If your car is a wreck, or you have a history of drunk driving and crashes, or if your house is deteriorating or hanging over an eroding cliff, you won’t get insurance. Or maybe you will, but it will cost you a lot more. It’s called underwriting, and it’s simple enough in principle: the greater the risk to the company, the more the insurance will cost. At some point the cost becomes prohibitive, so you ‘go bare’.
Life insurance companies routinely require a medical exam and health history before accepting a customer. Health insurance can work similarly, but then underwriting becomes a political minefield: if you’re a 53-year-old wreck, with a history of heart disease, emphysema, drug abuse, and violence, who would want to insure you? “Unfair!” cries the Left; “Everyone must be able to get the care they need!”
What that means, in practice, is that we turn to the third party of last resort, the government (or society in general—the emergency room, with rules against denying service). And that practice leads inexorably to the idea that the ultimate third party should just provide ‘healthcare’ for everyone, cradle to grave. Never mind that, at this point, we have completely confused the idea of insurance against disasters with the idea that somebody else, not we ourselves, should pay for all our medical care. Surprise! That’s where we came in; remember point 1: Insurance Is Not Healthcare.
7. How to Separate Insurance from Routine Healthcare
Ideally, everyone who wants medical care should be able to get it. In our historically affluent society, most people should be able to afford routine care: regular checkups, vaccinations and other preventive services, common medications, urgent problems of a minor or transitory nature. A budget comparable to what people spend on cable TV, telephone, and Internet service would probably be enough. There is really no justification for including such medical services in insurance coverage.
To make it easier, in the last couple of decades the Congress has created tax-free, self-directed, Health Savings Accounts (HSAs). You can put aside money for medical expenses before paying income taxes, and the money if not spent can grow tax-free. The money can be used for any defined medical expense; it can also be used to buy premiums for catastrophic (high-deductible) health insurance—in fact, having such insurance is currently an HSA requirement, though by rights that should be a personal decision. This device, the HSA account, makes it possible to draw a line between routine, or minor, medical expenses which do not require third parties to approve and pay; and major expenses where insurance is wise. And, it allows the use of pre-tax dollars, like employer-sponsored plans.
The line between routine or basic medical services and major or catastrophic ones is not always easy to define. ‘Prevention’ can become costly. Modern medicine enables people with chronic conditions, e.g. hypertension or diabetes, to manage them with medications, which are often expensive, and require frequent doctor visits to monitor. Does this cross the line between ‘routine’ medicine and ‘catastrophic’ events? The number of such questions would easily overwhelm any attempt to make rules (despite third-party payors constantly doing so).
Clearly the solution is to let the market decide. Insurers will quickly discover if they can cover the treatment of chronic conditions and keep premiums manageable. It is already well-known that management of diseases like hypertension help keep medical disasters at bay, which ultimately saves money. And competition among insurers will make sure that the companies will pursue this kind of analysis aggressively.
There is no reason for a hard-and-fast line between insurable events and routine healthcare. Rich folks may simply self-insure, betting that no untoward event will bankrupt them. People of modest means may buy memberships in pre-paid ‘group health’ or ‘health maintenance’ organizations (HMOs) that cover practically everything, as many think ‘insurance’ should do today. Probably the group will be buying insurance policies for catastrophic events, so in effect you will be paying for routine medical care, and an insurance premium together. The HSA system in principle just makes it easy to distinguish the two, and enables the medical consumer to shop around, both for everyday medicine, and for insurance against disasters. It enhances freedom, which in America, ought to be the point.
8. Should There Be Underwriting?
In a free market, yes, insurance carriers must be free to underwrite, and adjust their premiums accordingly. Insurance is always dependent upon risk assessment: guess wrong, you pay out more than you take in, and you’re out of business. Risk in turn is always dependent upon population: spread the potentially high-risk clients among enough low-risk participants, and you can keep premiums down to a low level. In medicine, that means enrolling lots more healthy (usually young) people than sicker (usually elderly) ones. You can do this easier with a defined population, say a group of office workers (average age 45, retiring at 65); if you are insuring the public at large, then you have to make sure you enroll enough healthy youngsters to keep your payouts at the other end manageable.
But pre-existing conditions present a problem for underwriting. The patient has heart disease or diabetes, he’s higher risk, and his insurance will cost more. If, as the laughably-named Affordable Care Act (aka ‘Obamacare’) did, you outlaw underwriting for existing problems, you create an incentive for people to ‘go bare’ until a crisis develops, then sign up for coverage. It’s as if you waited to insure your car until you had a crash; it makes no sense. Forbid underwriting for pre-existing conditions and your costs will balloon. The only way to cover them is to get the young and healthy to buy premiums, so you’re almost forced to require everyone to have insurance.
That, of course, became the lynchpin of Obamacare: the infamous Mandate. The idea that the Congress could require the citizens of the United States to buy a product, in this case health insurance, was immediately challenged as an intrusion on individual rights; it goes far beyond the Constitutional responsibilities of the Federal Government. But the Supreme Court, in a ludicrous 5-4 decision nevertheless declared the Mandate a ‘tax’. You didn’t have to buy health insurance, but you could be punished for not doing so. If ever there were a distinction without a difference, this was it. Whatever else happens with healthcare, freedom requires that we remove the Mandate.
Of course, some will argue, many states do mandate that you purchase insurance—auto insurance, that is. But this is entirely contingent on owning a car. And car insurers certainly do underwrite, adjusting premiums for age, location, driving history. As a result, some people cannot afford insurance, or cannot get it all, and so cannot legally drive a car. If we get rid of the health-insurance Mandate, and get rid of the prohibition on underwriting for pre-existing conditions, then that will drive premiums up unacceptably for some very-high-risk people, and so deny them health-insurance coverage. What then?
9. High-risk Pools and Loans
Many states require auto insurers to build in coverage for ‘uninsured’ motorists. This is protection for insured motorists who get hit by drivers with no insurance. Mandatory auto insurance is mainly for liability; in a car, you are a danger to others. Health insurance is different; you are only a danger to yourself. So can we have uninsured coverage for yourself? Sure; before the ACA, many states created ‘High-Risk Pools’ to deal with the problem of people deemed ‘uninsurable’ owing to pre-existing conditions. They were funded in various ways, but essentially amounted to a form of welfare. The difference is that you don’t have to be dirt poor to be to be uninsurable because of risk.
The Obamacare ACA attempts to take over the role of the state high-risk pools, with chaotic results. The turmoil it has created in the insurance industry would take pages to describe, and in any case most of its devices will probably be repealed in the new Trump administration. We will be left with the same dilemma of underwriting versus risk.
It has been suggested that the Federal government allocate ‘block grants’ to the States to help fund State high-risk pools. But whether the source of funds is the Federal budget (i.e. taxpayers nationwide) or from taxpayers and surcharges on insurance payments in-state, the issue is the same: we are re-creating a new category of public welfare: the Uninsurables.
But wait a minute. Remember, we need to separate basic medical care from catastrophic insurance. Many high-risk folks will still have enough money to start Health Savings Accounts, which do not require any underwriting. They do not have to buy enormously-expensive all-in-one ‘healthcare’ that pays for every scratch and sniffle up to massive cancer therapy. They just need help getting insurance against medical disasters. It will still be expensive because of their pre-existing conditions, but less of a strain on the high-risk pool. And we can make it still less, by making it a loan. Let’s call it a Medloan.
A Medloan is not welfare; it should be repaid. Not immediately, maybe not for a long time. But circumstances change: the pre-existing condition that made you uninsurable may dissipate with time and treatment. Your financial situation may improve, and with new underwriting, you may find yourself both insurable, and able to pay the premium. At this point, you can begin to repay the Medloan.
The Medloan is an idea that can be carried well beyond the High-Risk Pool. It could revolutionize how we deal with medical care for the poor.
10. The Problem of the Poor
Some people will not have money even for basic healthcare, nor be able to afford Health Saving Accounts, not to mention premiums for castastrophic insurance. In times past, when healthcare was limited to private doctors with black bags and to primitive hospitals (by modern standards), there was charity: the civil society filled in for the elderly, the poor, or others who could not earn a living. There were, and still are, families, churches, fraternal organizations, aid societies of one type or another, to pitch in and lend a hand. But charity was not considered an entitlement, and many who received it ‘gave back’ when they were able, later in life, if not in cash then in volunteer work.
Today we also have free clinics in urban areas, and of course Emergency Rooms. By law the ERs cannot refuse patients, even if they have unpaid bills, so the ER becomes an extremely inefficient free clinic of last (or first?) resort, ultimately financed by hospital revenues, so driving up costs for the insured and and for the taxpayer, via Medicare and Medicaid.
Medicaid has become the ‘safety net’ for the indigent. It typically reimburses providers at low rates, which means that many doctors and medical groups will not accept Medicaid patients, and that in turn almost guarantees a lower standard of care. Because there is an income test for Medicaid, it becomes essentially a form of welfare, which in turn leads inexorably to dependency, as it punishes increased income with loss of medical care, no matter how high risk you are. Welfare is enforced charity, where, as conservatives are fond of pointing out, the government reaches into your wallet without your consent, and gives your money to others, deserving or not.
But now we have a better solution:
There is a way to help all citizens, both those in need of funds for medical care, and those otherwise ‘uninsurable’, without subjecting them to State welfare and creating dependency. That way is to lend them the money with Medloans. But how can you obligate people to pay back money when they may have none of their own, and quite possibly no prospect of ever earning any? First, by denying the assumptions of indefinite poverty or unremitting illness. Many people who fall on hard times eventually do recover from them, and go on to lead productive and even prosperous lives. Indeed, the idea of fulfilling an obligation to repay a debt can be a motivating factor. Many families today resort to Medicaid not for themselves but for their children, whose very presence drives up insurance premiums. Eventually, the children grow up.
The obligation is crucial. If the Medloan recipient cannot ever repay the loan, which over the years could become substantial, it will fall to his descendents, if he has any, and even to his wider family, again if he has any.
But what of the truly long-term uninsurable, the severely infirm, the elderly, the chronic sufferers of a multitude of ills?
They too will immediately qualify for Medloans. It will sit there in an account, theirs, and nobody else’s. It will buy a Health Savings Account, and a catastrophic insurance policy, and it will enable them to visit any doctor or clinic of their choice, just as everyone else does. Maybe there will be limits on how the HSA money can be used, but it will be there for anything medical. There will be no requirement to pay back the Medloan so long as the recipient or a dependent family member falls into the ‘uninsurable’ category, whether for medical condition or lack of resources, or both.
How is this different from Medicaid? It is based on risk, and not just income. It will offer more freedom to chose care, better options and fewer restrictions. And it will help preserve the individual’s sense of belonging to the civil society, knowing that he is not just accepting an anonymous dole from the State and its often resentful taxpayers, but a loan that, just maybe, he’ll one day repay. Unlike Medicaid, it won’t disappear if he earns more; he can just begin to repay the Medloan.
The exact rules would have to be worked out, and modified as experience will teach, but here’s the governing principle:
If you receive aid from society at large, you and your family are expected to repay it.
Repayment might not require cash; it could be in service, military or civil, employed or voluntary. Again, the details will have to be developed through trial and error. But the ultimate result, it seems to me, would be to strengthen the ties that bind us together as citizens of a free country, and to maintain the dignity of the individual. That has to be the ultimate goal if we are to keep from descending into a land dominated by a giant bureaucratic Federal government that spreads its tentacles into every detail of daily life, with increasing restrictions and dependency. That is the inevitable result if we cannot find a way to make free choice and free markets work in the increasingly complex world of contemporary healthcare.
12. A Summary of Principles
A. Basic healthcare is not the same as insurance.
B. Third parties should be restricted to insurance, and basic healthcare left to the free market.
C. Educated citizens can make rational decisions about their own healthcare, including prevention, diagnostics, and treatment.
D. There is no necessary connection between healthcare and employment; they should be separate, with no tax incentives for employers.
E. There is no place for Government in health insurance, aside from making general rules to protect consumers and business.
F. Health insurance should be limited to extreme need, ‘catastrophes’.
G. Basic healthcare and insurance should be treated as separate markets, both paid with pre-tax dollars from HSAs.
H. Insurance companies must be able to underwrite coverage, and must be free to compete as other insurance companies do.
I. Income-based welfare does not contribute to dignity and freedom, but creates dependency and under-employment.
J. A system of Medloans will create a medical Safety-Net that will help bring the poor and high-risk individuals back into society.
[UPDATE 24Jan17: Please see the following post, “The Principles: Addendum” for a little more. /LEJ]