Heartland Musings

The Triangle of Healthcare Confusion

The misuse of key terms in the discussion of healthcare does much damage to the quality of the discussion. It is important that we recognize that the “healthcare” discussion is actually commingling three separate issues.

Firstly—health insurance is not health care. Insurance companies do not provide health care. Care comes from medical professionals like doctors and nurses and other aides that assist them. Care is what is consumed by a healthcare consumer.

Health insurance is a scheme of risk mitigation. The idea of insurance is to protect a consumer from financial ruin associated with a costly medical care event or series of events. At least that's how it once worked. Now, health insurance is the primary middleman in complicated scheme of regulation, welfare, and payment approvals. It is the only form of insurance commonly purchased or discussed that is 1) often linked to employment status or employer benefits, and 2) used mostly as a payment scheme rather than an insurance scheme.

Finally, there is the element of wealth transfer or welfare.  This is one of the government's primary roles in our health care system. It is a substantial contributor to the mess our system is in.

 

The only way a functional system can be built is Health, healthcare, health insurance, and welfare and considered as distinct concepts with small overlaps if any. If we decided the insurance should mean care, wealth transfer should mean care, and so forth, then the basic roles in the system disappear and we end up with a disaster like our present system.

It's time we let providers be providers. It's time we limited insurance companies only to insurance. Welfare systems and wealth transfers must be done only at the very front or back of the system, not in between all the stages.

The issue of "healthcare" isn't nearly as complicated as we are led to believe it is. What 's missing is moral courage and political will, not knowledge or understanding. Too many people are getting too rich off our present system of dependency, and nobody in political power seems willing to confront that.

NPR Covers the ACA Change to "40hr full time"

Lately I've been taking in more liberal media and 'mainstream' media than I'd normally. I feel like much of the media I'd been consuming had become nothing but an echo chamber, and frankly you can't really refine or develop an effective argument if its weak points are never challenged.

This morning, I was listening to NPR's coverage of the Republican proposal to amend the ACA to define "full-time' employment to 40 hours a week or more rather than the present definition of 30 hours per week or more. The Republicans are arguing that the ACA definition of 30 hours creates an incentive for employers to limit weekly hours for workers, thereby reducing the number of people they must offer health insurance to (under penalty of law). NPR interviews someone from the American Enterprise institute to represent this argument.

On the other side of the argument, NPR gives us a Dean of the School of Public Policy at NYU. They say she argues that the 30 hours definition is a good idea based on a couple points:

• Very few people work about 30 hours. Only ~2.5% of all workers have schedules that are between 30 and 34 hours.
• Vast majority of people are working about a 40-hour week, so by only reducing hours to 39, employers can move people below the threshold.
• The is an argument that most 40-hour workers already have coverage, so they aren't affected by the change, but the 'research' iundicates that even if you count only those who have no coverage, there is "twice as many people at risk of losing hours" if you raise the full time definition to 40 hours from 30, and "the facts suggest that describing this legislation as an effort to protect workers is a smokescreen."

So which is the better argument? That depends on the answers to some other questions. What is the best measure of the impact? The total number of people affected? The total number of hours lost? This is why the Dean of the School of Public policy (like many academics) gets it wrong: she asks the wrong question.

The Dean argues that there are 'twice as many people at risk of losing hours' under the 40 hour definition, even after you exclude those who already have insurance and aren't an additional burden on the employer by working 'full time' hours. But the Dean is basically arguing that it's worse for a huge number of people to be taken down to 39 hours than it is for a smaller number of people to lose hours-- though they admittedly lose more hours (per person).

The Dean is arguing that more people losing a single hour per week that represents 2.5% of their total hours (from 40 to 39) is worse than a smaller number of people losing more than 25% of their weekly hours (from 40 down to 29). This is bad thinking. Moreover, the Dean is making the classic mistake of looking at how things are now in a static snapshot. "Hardly anybody works 30-34 hours per week." she says. Not only is this NOT an argument for the 30hour definition, it also ignores the probability that this number of people working 30-34 hours is likely to be impacted by this legislation. Indeed, the *facts* indicate that this is occurring and is precisely the motivation for re-defining the ACA limit.

 

Article: How the Health Care Bureaucracy Killed Me

This article demands attention.

 

What can be done?

One potential solution is an idea of mine (and perhaps others) based on something closer to term life insurance, and somewhat like a mortgage.

Imagine at age 25 you buy a 'health emergency" term policy-- one with a fixed term of perhaps 30 years. Let's say this entitles you to $500k of medical expense payments. Term life insurance of this kind would be veyr cheap-- perhaps $25/mo in most cases. Consider that low price in the context of the two variables: the probability of death (very low on average) and the liability to the insurer: $500k.

For a major health emergency policy, the probability of payout is much higher; after all, most people are far more likely to get sick than to die.

However, the payout liability is also much lower. Many major illnesses can be treated and resolved for less than $500k .

Each time a person draws on their $500k entitlement, they value of their entitlement is reduced by that amount. If a person completes the end of their term with residual value in their account, they are awarded some proportion of that residual value as "cash value" at the end of the term.

With this approach, the insurnace company is not involved in making care decisions and managing cost. Instead, the consumer does. When he runs out of money in his plan, he runs out. The policy will be fulfilled and terminated when cumulative expenses reach the face amount.

This not only frees the consumer to make his own decisions, but also gives him the consequences of shopping wisely or poorly for medical care. Moreover, it would also have a minimum deductible (within a rolling 12 month period) that would have to be met before one could draw on the benefit.

The actuarial value of the policy is really just based on a series of cash flows and timing, and is pretty easy for actuaries to value.

Insurnace companies need to be removed from any decision making about what care is appropriate or not. All they need to know is what something cost and how much benefit remains to the insured.

 

Beware the "Incentive Cliff" of ACA

In yet another illustration of how foolhardy are so many government policies, we learn now that there is a vicious wage cap in Obamacare so severe that earning even $1 more than the cutoff could cause a theoretical increase in insurance cost of up to $20,000.

 

More HERE.

CBO Report Blasts Obamacare

I will direct your attention to the excellent commentary here on the recently release CBO report. It is devastating to the Obama admin to have the non-partisan CBO report such strongly negative findings as the likely future effects of Obamacare upon our economy.

Try to contain your utter befuddlement that the not-very-witty gentleman in the video below is Chairman(!) of the Council of Economic Advisers in the White House.

Suddenly, the terrible economic policies of this admin start to make more sense.

Related articles

CBO Sends Death Blow to Obamacare

A National Medical System that Might Work

Thanks to a Facebook "friend" I found myself in a lengthy back-and-forth about single-payer national insurance versus a "private" system.

The advocates of single-payer systems do have some key points. First, there are several countries that have single payer systems that are doing just fine. Their economies are not in shambles as a result of those single payer systems—at least not exclusively as a result of such systems. Second, it does offend our sense of justice that someone can lose everything and become destitute just as the result of a major illness or injury. Can't "we" do better in providing a better way?

The advocates of a private system have all the right points on their side in an abstract sense-- the idea of individual responsibility, etc. But none of these are arguments in favor of our current system.

The reason is that our current system is not a private system. The myriad amount of government subsidy, mandate, regulation and such have assured that it is NOT a free market. What we have is something so dysfunctional that a single-payer system could possibly even be an improvement.

But rather than adopt the next-worst model of national healthcare, couldn't we instead come up with a much better system? What reforms would go a long way towards improving our healthcare system? What should such a system do?

With that in mind, I've applied my little grey cells toward the task of imagining a possible system that might accomplish several goals at once, while completely eliminating all Medicare and Medicaid.

1. Utilize the free market to ensure cost control
2. Assure that the wealthy do not get subsidized by the poor (as they presently are under Medicare)
3. Preserve maximum freedom to choose in the open market
4. Lower costs as much as possible while producing better outcomes.

It's a tall order, no?

But I think it's possible. Here are a couple key reforms that would be needed to produce a vastly improved national healthcare system.

Intellectual Property Reform

Right now, those who have intellectual property in either prescription drugs or in medical devices like CT scans can milk that cash cow into many billions in profits. We want these fabulous inventions to come into existence. But do we want someone to obtain a nearly perpetual revenue stream from such an invention?

The purpose of intellectual property law is "promote the Progress of Science and useful Arts." (per the Copyright Act of 1790) In other words, your intellectual property should only be protected long enough to ensure it will still come into existence. If it costs you $3B to invent and test a new wonder drug, should be entitled to enough money to justify the hassle of inventing it-- and perhaps a little bit more. Curtail the period in which a company can make money off of intellectual property and the public domain will grow while the costs of using that public domain technology plummet. Generic drugs cost a fraction of the brand name.

Medical Education Reform

Medical care follows supply and demand curves just like any other good or service. One thing that drives up medical cost is a relative scarcity of doctors. The accreditation of medical schools by the AMA allows the AMA to limit the size of medical school classes and control the number of new doctors that are made every year. It also can, through it accreditation power, auction that accreditation off to only the schools with the most money to buy it.

The resulting system drives up the cost of medical school by reducing competition in the education marketplace while also driving up the cost of a doctor by artificially constraining the supply of doctors. Government programs to grant unlimited lines of credit for purposes of education also increase the demand for services relative to supply, ensuring that costs will escalate to the great financial benefit of the AMA and their accredited schools.

Medical school accreditation needs to be stripped from the AMA, which essentially is acting like a union. It needs to be handled by the various State boards that could easily arrange that accreditation.

FDA Approval Reform

Right now, drugs must be tested for safety AND efficacy-- that they do what they are thought to do. Instead, the drugs should only be tested for safety. The efficacy part is up to the market to sort out. Some will be better than others.

Liability Reform

We must establish national monetary caps on compensatory and punitive damages awarded in medical malpractice torts. If an action is so reckless or so malicious to justify severe consequences, then it should be a criminal action. Perhaps a one or two million dollars is appropriate for a tort compensation cap.

Lawyers love to convince juries that somehow "justice" is served by getting a jury to dish out big tort awards. But who benefits? More than anyone, the lawyers benefit. The victim often only gets to "keep" 2/3rds of that award, and the government takes another third (or more) in tax. Who pays the cost, though? The company or doctor? True, to some extent. But the doctor has insurance, as do huge hospitals. When a large judgment against them is made, the cost of that insurance goes up—but not just for that particular doctor or hospital. All doctors and all hospitals tend to see a portion of that increased insurance cost. Who pays? Ultimately, we do. The consumers. Even those very jury members who thought they were serving "justice."

In effect, it is a massive wealth transfer event from the taxpaying, insurance-buying public to 1) lawyers, and 2) government. But I repeat myself.

As for the lawyers who like to grandstand about the infinite value of human life, let them grandstand. Humans are infinitely valuable, but this is intrinsic value and not economic value. No human being is of infinite economic worth. Most people actually hold their lives to be rather cheap, between our poor diet and exercise habits, and our propensity to take on risk just for entertainment value (skydiving, snorkeling, swimming, etc). If we truly thought we were infinitely valuable, then no level of risk at all would be justified, would it?

No, we can assign a "value" on human life for purposes of tort liability limits.

Insurance Reform

This is the big one. This is where we have the most improvement to make. Here's what I would propose apart from pre-existing conditions. I will not discuss pre-existing conditions here; that aspect gets its own treatment later.

First, we must outline some general principles of cost control. Most importantly, coverage must be rear-loaded. That means the consumer must bear completely the cost of the first dollar of incurred cost, with the last dollar of cost born completely by the government. Then you have to establish transition points. Note that high-deductible plans in the private insurance market often work this way. Any system that doesn't have the customer bear the first dollar of cost is assured to create incentives to overspend.

Here's how something like that might work. Let's say our consumer purchases a high deductible plan on the private market that has deductibles of $3k per person, $6k per family. Once that deductible is satisfied, the consumer will pay only 20% of costs ("coinsurance") up to an out-of-pocket maximum (let's say $15K). Now the insurance company is bearing 100% of the marginal cost. The insurance company is essentially in its "deductible" stage with the government. Once that "insurance company deductible" is satisfied—let's call it $100K for illustration purposes—the insurance company now gets "coinsurance" from the government, perhaps at 80/20, perhaps at 60/40. The actual fractions matter less than the concept. Finally, the insurance company maxes out the maximum "out of pocket" expense with respect to the government at some threshold—let's call it $500K—and the government will cover 100% of all costs above that point.

In summary, a person's insurance kicks in only to cap their maximum losses in a given year, and the government only steps in to act as "reinsurance" for the insurance companies to cap *their* maximum losses.

The private insurance market can then devise any number of possible combinations of coverage, deductible, coinsurance rates, etc and customers have a LOT of choice in terms of what they want to pay for in the market.

Rather than arbitrary annual cutoffs in terms of cost caps, perhaps one could set the limit in terms of rolling time periods (rolling 12 months instead of annually, for example). This may offer some benefit to consumers, but likely at the expense of higher premiums because the actuary calculations get a little trickier.

It all seems so simple, doesn't it? In reality, it *is* somewhat simple when you focus on the insurance aspect narrowly. Our current medical insurance climate doesn't do this. Instead, it commingles insurance with wealth transfer. In doing so, we lose track of which costs are which, and the cost of wealth transfer are commingled with the costs of actual medical insurance. Thus, people complain about the high costs of "medical insurance" when perhaps much of those costs increases come from wealth transfer payments.

How should we handle wealth transfer and pre-existing conditions?

Pre-Existing Conditions

How to deal with pre-existing conditions is perhaps the biggest challenge of any national healthcare proposal. How does my proposed scheme account for those who have pre-existing conditions? The proposed reforms above will cut insurance costs, the cost of prescription drugs, and drop premiums throughout the medical insurance market. Still, those with pre-existing conditions may find their costs too high to afford. Still others will struggle to afford basic insurance even without a pre-existing condition. It is appropriate to lump together premium supports for the poor as well as those with pre-existing conditions because they essentially do the same thing—they lower the burden of the actuarial value of the insurance they want or need. They are both forms of wealth transfer, but I'm OK with that. Let me indulge an aside about public goods.

There is an element of socialism in every public good. If there is anything other than perfect correlation of costs to benefits, you have an element of redistribution and socialism. Our schools are funded by property taxes that not everyone pays to educate kids that not everyone has. Our local library is funded by taxes, but I assure you that very few people in our town benefit from it more than I do, and there are many who never patronize it at all. The limits on what is defined as a "public good" are ultimately arbitrary, but it matters a lot where those limits are placed. But the conclusion of this aside is that there can be no sharing at all of resources or risks without an element of redistribution. Indeed, such redistribution is the entire purpose of a shared resource or risk.

This is as true of insurance as it is of any public good. All insurance is "Socialism" to some extent—a disconnect of costs from benefits.

Because the federal government is acting as re-insurer, it can not only require the coverage of pre-existing conditions, and it can remove most of the disincentive to offer any coverage of these conditions—namely, the inability to quantify risk. With a maximum cap on the insurance company's liability, they can offer insurance to those with pre-existing conditions, albeit at higher cost than those without such conditions.

I would propose that means-tested voucherized subsidies could be given at the State level (not the federal level). This is important to preserve an element of competition among the several states, rather than each State believing it can spend the money of the other States. It is also important that these subsidies are ONLY available to lower the annual-out-of pocket maximum. They are NOT to be used to pay insurance premiums. This way, the taxpayer is paying second, after the insurance consumer. An actuary will tell you that there are several ways to construct plans of equivalent actuary value by stretching deductibles and premiums in opposite directions. But I think it's important that the subsidy be indirect in the form of lowering the AOP maximum rather than the actuarial equivalent of subsidized premium. There is where the actuarial values and the real world occurrence will likely differ.

For example, let's say the person with the condition can only afford a high deductible plan where the annual out of pocket cap would be $25k while those without the condition can get an annual out of pocket cap of $10K for the same premium. If the subsidy comes in at $10K, then the person would effectively have an out-of-pocket (AOP) maximum of $15k instead of $10k like the person without the condition. This assures a couple important principles are followed. Even though the person has a higher AOP by $5k, they are benefiting by far more than that increased cost. They pay $5k more than a well person, but the net contributors have kicked in $10k in subsidy. I think this is a reasonable compromise. Those who cost more should pay more.

Also, the means testing of the assistance will ensure that only those who truly need the subsidy should receive it. The subsidy isn't there because a medical expense is annoyingly high and you'll have to wait another year before buying a new car. No, it's there to preserve someone from destitution. That means the means-testing of this assistance will be somewhat draconian and ignominious. Do you have $40k in cars in your garage? Do you have a $200K house or land that could be sold to fund your medical expenses? If so, your subsidy will be reduced or eliminated.

The means testing could kick in on a prorated schedule based on a combination of net worth and income. The idea is that the taxpayers should not be subsidizing those with decent incomes (even if they have mismanaged it and have little net worth to show for it), OR those with decent net worth (those who could sell stuff to raise money to pay for their needs). The maximum subsidy should only go to those who have BOTH low net worth AND low income. Then it is reduced on a curve until a threshold of income/net worth is achieved at which no one is eligible for subsidy.

The only subsidy available up front should be preventive care. All the data suggest that spending money on preventive care saves money in the long run. Even a modest $500/person/year subsidy to the needy would afford annual checkups and would likely reduce overall cost in the system.

Conclusions

None of the reforms proposed in this plan can do anything significant by itself. Instead, it must be sought as a comprehensive package in order to achieve the full improvement. It solves several of the perverse incentives in our current system. The current system raises cost by increasing demand for services (through an artificial decrease in the price to the consumer). It subsidizes the wealthy elderly as well as the poor elderly. It subsidizes the poor in such a way that it punishes them for making enough money to be disqualified from Medicaid.

This system can lower overall costs for all those who consume medical services. The only people who do not benefit from this system are doctors and lawyers. Last I checked, they are going to be OK.

Physician Firearms Affidavit

Since it appears that many physicians are now inquiring about firearms in the home per President Obama's executive orders, you may find the this useful.

Old School Safety Razor Outclasses Gillette Fusion

Interesting. A tester has confirmed that for his thick beard, an old-school Merkur Safety Razor does far better than the latest Gillette Fusion.

Not to mention that the Feather blades cost about $0.60 a pop compared to the $4(!) for the Fusion!

Buy yourself a nice safety razor and don't look back. Gillette's glitzy marketing is making you pay $4 for a cartridge that costs $0.08 to make and doesn't work as well as a razor design from 1901.

Someone Else Sounds a Similar Note

This article echos much of my previously posted thoughts (Conservative Hypocrisy). Once you accept the idea that gov't power should be used to control people's behavior, you accept the power that it will be used to control YOUR behavior.

The Original Silent Scream (1985)

Referred to in the post below is this video clip  of the staggering response of a first trimester baby to abortion procedures. It is graphic.