October 24th, 2016


Providing Health Care to the Poor and Sick

We don't feed the hungry by setting up government food stores that are the only places they're allowed to buy food. We have some giveaways (where they're not banned) but the biggest form of support is food stamps. People get a cash equivalent that can only be used for food and spend it where they want (Yes, there's cheating. Everything has cheating). That also lets people control what they get rather than being fed what some bureaucrats picks for them.

Imagine if we did make the poor get their food from government stores. Stores with the décor and employees of the DMV. Carts would be piled high with corn and cheese. The produce aisle would require separate permissions. And meat would only be available part of the year, depending on how much money the legislature had allocated and how much the other customers ate.

That's how the poor and very sick get their health coverage. They're forced into particular programs that decide which doctors they can see, what medicines they can take, whether some procedures are currently affordable, and all of that varies program to program and person to person depending on their exact status.

We need to create a food stamp-like system to make sure that the poor and sick can get what they need instead of falling between the cracks of multiple programs. That's more difficult given how much health varies among people. Two same-sized people will eat about the same number of calories. A cancer patient will need orders of magnitude more care than a healthy person who has a sprain every couple of years. So the amount of "doc stamps" will vary by someone's diagnosis.

A big chunk of the problem is that the existing payment system drives up the cost of medical care for everyone. David Goldhill's Catastrophic Care has a detailed look at the forces driving up prices.

Insurance companies want to bargain down prices, so hospitals mark up their list price so they can make concessions. It all works out, except when someone walks in without insurance and gets stuck with the list price. If they're savvy and/or connected they can negotiate a cash discount with many providers (which might be even cheaper than what they charge the insurance company) but if you're poor, clueless, and/or really need to be treated fast that's not an option.

The some process happens with the government insurance programs. This leads to swarms of staff at doctor's offices and hospitals just handling the paperwork for all those programs, providing the documentation to prove a treatment is necessary when the insurer decides to not cover a claim. And all those people need to be paid for, which drives up costs.

Part of why the health insurers fuss so much over claims is that they're not really insurance. Getting a by-pass covered after a heart attack, that's insurance coverage, the way car insurance pays for repairs after a collision. It's a rare, unexpected event. My car insurance doesn't cover oil changes. My homeowner's insurance wouldn't even talk to me if I tried to buy a policy after my house had burned down. Real insurance is about dealing with low-probability future events.

Most of what happens with health insurance is tax evasion.

Originally it was about evading wage restrictions. To damp down inflation during WWII employers were prohibited from offering big raises for new employees. They got around it by adding benefits such as health insurance. The government not only tolerated that, they encouraged it by making health insurance payments tax deductible.

If I pay my doctor $100 out of pocket I'm paying after income tax was taken out of my salary. But if my health insurance company pays the doctor with $100 of my pre-tax income, it's really only taking $67 out of my available cash. So that's a big incentive to use the health insurance company to pay for everything.

That leads to therapeutic massages, healthy food, and gym memberships all becoming "health" expenses to take advantage of the tax loophole. The health insurers either push back by rejecting claims or charge more up front to pay for all the stuff people submit. Which means more clerks at the health insurance companies to go through the paperwork, more time spent by patients on paperwork, and more clerks at the offices of doctors and providers.

The government doesn't reduce the amount of paperwork. Sure, we need to make sure that providers are competent and facilities meet basic standards. But the government routinely exerts more control than that. A classic example is the "Certificate of Need." Anyone wanting to build a new hospital in 35 states, or using Federal money, needs to get a CoN proving that the area needs another hospital.

Naturally the existing hospitals deploy their lobbyists to try to keep the competition out. Having a local monopoly lets them keep their prices up. Epi-pens were in the news recently because of price hikes. The FDA shut down the manufacture of epi-pens by several companies, leaving the one run by a Senator's child as the surviving monopolist. And prices went up.

Meanwhile medical procedures that fall through the cracks of regulations such as laser eye surgery wind up with multiple providers competing for customers and prices go down.

A Lasik center can innovate because it deals directly with its patients. If patients don't like how they're treated they'll leave, and tell others. Someone dependent on a health insurance program can complain to the insurance company, but can't stop paying for it without pressuring their employer's accounting department or finding a new job (if we go a national single-payer system the feedback loop will be doctor-insurance organization-cabinet department-congressman-patient . . . I expect that to be worse).

The health insurance companies restrict which providers their clients can access because that's their strongest bargaining power. If a doctor charges too much the insurance company takes him off the list. This is promoting consolidation among both insurance companies and providers. Doctors are merging independent practices with hospitals or other large provider organizations so they'll be too big to be excluded. Insurers are merging to get more bargaining power. And that makes it more expensive for the patients as large organizations become more cumbersome.

We can avoid most of that by putting purchasing power in the hands of the patients. Shorten the feedback loop to get a better response.

An effective doc stamp program would have a basic level for everyone which would cover checkups, flu shots, and the typical number of office visits to deal with colds. Actual insurance would cover trauma and unexpected hospitalizations. If you want some additional routine treatment, pay out of pocket. It was coming out of pocket anyway, after being filtered through the employer and health insurance company.

When someone discovers an illness will require more care than the insurance covers it's time to see a diagnostician. That doctor will evaluate the illness and recommend a level of coverage. Then the patient receives a higher level of doc stamps to cover the additional treatments. Pick your own cardiologist or oncologist. They're all in-network, because there is no network.

There'll be review panels for the allocations, and arguments over whether they're treating people right, but we already have that problem. This way we'd be focused on a straightforward question: "Is this sick person going to have enough money to get proper treatment?"

Right now the Federal government is spending over a trillion dollars a year on health coverage and tightly regulating even more spending through private health insurance plans. They're inefficient because they're trying to use "health insurance" to cover people too poor to pay for any treatments, other people so sick their treatment is expensive beyond an average individual's means, and provide tax discounts to the middle class. Juggling all those conflicting needs is driving up the costs for everyone and still screwing over people who fall through the cracks (such as this poor SOB). We need a new system that will give each group the support they need.

If we're really lucky, we might even save some money in the process, which we can use to retrain all those people filling out health insurance forms for productive jobs.
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