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Thursday, July 9, 2009

The Coming Health Care Bubble...And It's Solutions

One thing that both Conservatives and liberals alike need to acknowledge is that we have a health care system that is on the verge of not merely falling apart but ready to take the entire country down with it. There are so many problems with the system that it's difficult to unravel them all. For instance, there are far too many different entities that are dependent on the health care system: lawyers, doctors, patients, insurance companies, medical records, etc. By the time everyone gets their piece of the pie, the whole thing becomes too expensive for everyone.

There are two corrosive problems with the system and these two problems spread like a cancer. First, the system is far too litigious. A typical doctor will pay a premium of somewhere between $18000-$50000 yearly for malpractice insurance. That will cover suits up to $3,000,000. If you work out the numbers, that means something like one in four doctors will face a law suit in their professional lives. Now, either the whole profession is filled with incompetents or there is far too much litigation.

The second reality everyone must deal with is that employer funded health insurance is crushing the system at large. By making employer funded health insurance the standard, it creates all sorts of unintended consequences. First, it gives the insurance companies power they shouldn't have. Second, the patients nearly stop being consumers. Third, we create a system where there is far too much insurance. Because we have a system with too much insurance, the patients stop being consumers. That leads directly to higher costs for everyone.

Today, we are debating taxing so called "gold plated" employer provided health insurance policies. The better question is why are there even "gold plated" health insurance policies. The whole point of health insurance is to provide for catastrophic events that a patient can't afford on their own. "Gold plated" health insurance policies insure for just about everything. That's the equivalent of car insurance that insures oil changes, tire re alignments, etc.

When someone has health insurance, especially health insurance that someone else pays for, that covers everything, they never question the cost of any medical procedure. Those patients are the subject of many unnecessary tests and procedures they would never have if they were paying for them themselves.

So, what do we do?

Tort reform:

This is a very basic and simple concept but it is very complicated to put into practice. In reality, there would need to be a team of experts that would need to draw up all sorts of new rules.

First, everyone needs to know just how much of a problem litigation is. If a doctor ever misdiagnosis something like sepsis, meningitis, or any other malady that can potentially be life threatening, their career is likely through. This reality turns medicine on its head. Not only do doctors then run all sorts of unnecessary tests and procedures in order to accomplish the medical version of CYA, but their entire manner of practicing medicine is changed. The term defensive medicine is often overused to describe the manner in which doctors deal with the threat of suit. Put yourself in the shoes of a doctor. On top of diagnosing the patient, you also have to think of all of the potential law suits and do every test and procedure necessary to make sure and avoid it.

While tort reform is a concept that would take a full research paper to cover, there is one change that can be implemented right away. That is making the loser pay any law suit. This simple change would cut down immediately on the number of law suits. Putting a cap on damages is another idea however it's hard to put a price on a life especially when it is taken with negligence.

the relationship between the insurance company, the patient, and the doctor:

The perfect medical system would be one in which all parties shared power equally. If doctors were given too much power (like if malpractice was eliminated entirely for instance) there would be wide spread arrogance and neglect.

If we had a choice, we'd want to power in the hands of the patients and the doctors. Instead, right now, the power is in the hands of the insurance companies and the lawyers. We couldn't have picked two worse entities to consolidate power in.

The reasons for this are complicated but unless they are unraveled the system WILL collapse. Much of this has to do with employer funded health insurance. By having the employer provide the health insurance, the patient becomes a by standard in the process. If a doctor misbehaves, the patient runs to the insurance company. What happens if the insurance company misbehaves? If you're one employee in a major company, they aren't going to switch their plan just for you. That's because consumers don't choose their insurance company, employers do.

The other problem is that health insurance companies have created regional monopolies. For instance, in Texas, Blue Cross Blue Shield insures about one third of all patients. In Illinois, it's about the same total. In most states, one insurance dominates. As such, each major player in the insurance industry carves out its territory. It almost becomes like gang turf. No one crosses onto anyone else's turf. So, if you're a doctor in Texas, you have to be part of BCBS' network. If you aren't, you won't make enough money to survive. Who has the power in that relationship?

That happens for two reasons. First, health insurance providers received an exemption to the Sherman Anti Trust Act. As such, BCBS can dominate in the state of Texas and no one can stop them. Second, you can't cross state lines to buy health insurance. So, a health insurance plan available in Indiana is not available in Illinois. That's because each state creates its own set of regulations and so crossing state lines is impossible. There's been a plethora of legislation to soften this restriction, John Shadegg's being the latest, but until this phenomenon is ended, there will simply not be enough competition to bring down health insurance costs.

The biggest problem though is that most people get their health insurance through their employers. If individuals got their own insurance, then this idea of health insurance "networks" that insurance companies set up for doctors would be nearly non existent. Now, health insurance companies create networks of doctors that they accept. If a doctor misbehaves (in the view of the insurance company), then they're thrown out of the network. So, doctors are afraid to challenge billing disputes too often for fear that insurance companies would view them as disruptive.

If every individual had their own insurance, that would no longer be an option. A good doctor with lots of patients couldn't be removed from the network because that would mean losing the patients. Those patients would merely find another insurance company that accepted their doctor. Furthermore, when consumers buy their own insurance, a lot more people would move from the "gold plated" insurance plan to one that only covers catastraphic insurance situations. By paying for most procedures themselves, patients would no longer accept series of unnecessary procedures.

In order to fix this, you would need to tax health insurance benefits. At the same time, the government would need to offer major tax breaks, in the form of health savings accounts, to not only discourage individuals from getting their health insurance through their employers but to encourage the individual to get insurance on their own. By allowing insurance providers to cross state lines you would also increase competition. Finally, you remove the exemption from Sherman and begin to break up state monopolies.

This would create an entirely different system. Now, individuals would buy their own insurance. They would have choices. Each would buy the insurance they could afford. Doctors would no longer be at the mercy of the insurance companies. No longer could insurance companies threaten doctors with the threat of removal from their "network". The patient would have more power. The insurance company would have less power. The doctors would spend a lot more time dealing with the patient and a lot less time dealing with the insurance companies.

11 comments:

Anonymous said...

Of course there's one major question:

How do you convince companies to rebate the money they spent on health insurance benefits back to their employees as cash? Without that, most people would essentially be hit with a simultaneous pay cut and insurance cost increase.

mike volpe said...

I'm not sure what you mean. I don't necessarily want to outlaw employer funded health insurance. I just want it weakened so that it isn't the dominant way of getting health insurance.

Yuck Fou said...

Great, let's make health care a totally free market based system where everyone must individually purchase their insurance. So if you are middle-class and have a precondition you're screwed, you won't be able to buy a health care insurance plan since there won't be any plan on the market that you can afford. Therefore, if someone has a precondition and gets cancer, he can just lay down and die with no treatment. Great ideas you have there for the benefit of society.

mike volpe said...

First of all, it wouldn't be a totally free market. Second of all, people would get health insurance with a "pre existing condition" but they would have to pay a lot more for it. In your world, insurance companies should be forced to lose money by insuring those with a "pre exsiting" condition.

Yuck Fou said...

No, in your world those with a precondition would not be able to get health insurance, plain and simple. That's the way it would work IN THE REAL WORLD. In your world, masses more people WOULD BE DYING LEFT AND RIGHT OF TREATABLE ILLNESSES, as well as never getting basic care for things like broken ankles that don't heal right. That's the way it is today, unless they get a good health insurance plan through their employment--or if they are extremely wealthy. You want to even take away the employment option, stripping these people of any option but to die (unless they are rich--then of course they deserve to live in your world).

mike volpe said...

My world is nothing like what it is today. In my world, you should be able to pay for a broken ankle on your own. You shouldn't get health insurance for things like a broken ankle. You should only get health insurance for catastrophic events. That's what insurance is for. It's to pay for things you can't pay for on your own. In my world, those with pre existing conditions would also get health insurance but it would cost them a lot more, just like it costs a smoker a lot more to get life insurance.

Anonymous said...

Folks, back in the 1940's used to prepare for illness and maintain insurance. So - pre-existence would not matter. Today's fat and lazy society - would rather buy it when they need it, or have the employer provide it so they can abuse themselves but be covered as part of a mass of folks instead of an individual.

You buy car insurance, and are rated by how you drive - why should your personal behavior not also be part of your rates for insurance.

The system would adjust properly given his scenario - as the demand would reduce given people would HAVE to come to grips that medicine is not an antidote for personal irresponsibility.

Cancer - BTW- would become far less costly, given an environment where doctors were not worried about being sued, since most of the "cost" is due to all the "dangerous" things they do "trying" to save you.

Matt Osborne said...

The most recent data shows the number of malpractice suits filed nationwide has dropped since 2002. So have awards. But during that same time, premiums shot up.

Think about this: doctors are required to carry insurance -- they are a "captive market." Insurance companies always hammer these people. Since my state finally mandated auto insurance, my premiums have grown 500% in ten years...with no accidents or tickets.

Tort reform is a red-herring. If you want to address costs, attack the single biggest factor: people going to the ER for indigent care. They delay care and stay away from the MD's office due to lack of coverage. When the get sicker, they use the ER and declare themselves indigent. This is about ten to twenty times as expensive as a simple doctor's visit.

This just happened to my next-door neighbor. Had he been insured, his infected tooth would have cost him about $75 and would have cost the insurance company around $2000. But because he was laid off a few months ago, his eventual hospitalization and emergency surgery will wind up costing the taxpayer $20,000.

This is what a public option amounts to: paying $2000 when he gets sick instead of waiting until he's dying to shell out $20,000.

Anonymous said...

Yes, there is too much litigation, but let's not forget how malpractice premiums are calculated by insurance companies, you know the ones with the biggest profit margins. In a lawsuit, something called discovery must occur to figure out who really is at fault. That means in the case of say an operation, everyone in the operating room is deposed and questioned and initially named in the lawsuit for that purpose. Unless the practitioner was negligible, after discovery, he or she will be dropped from the law suit. BUT, the insurance cos will still mark it as a black mark against that practitioner and charge higher malpractice rates. That drives up the cost of healthcare. What about the fact that we have an aging population with the baby boomers and yet there are little to no new pharmacy schools or medical schools? Could that be because the professional accreditation boards made up of practitioners in those professions don't want to accredit new doctors/pharmacists to create scarcity of supply with respect to practitioners and thus drive up wages, increasing costs for all? In other countries, practioner salaries are regulated, there is less litigation and less middleman costs with insurance, and those are major factors that keep costs down. Let's not blame everything on the lawyers, as popular as that may be.

Shanika said...

My beef is what may be considered to be a pre-existing condition. 1 abnormal papsmear will exclude a woman from getting individual health care. An abnormal pap could be a blip on the readings chart and never equate to needing future care. If insurance companies can be that petty about what they consider to be a pre-existing condition, there may be a lot of folks paying high premiums or having exclusions for individual health insurance.

Having said that, I am totally with you on paying for your own damn ankle. We don't have dental insurance, so we negotiate with our dentist for cleanings.

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