fixing the insurance problem…

It's slightly related...

It’s slightly related…

the problem:

Medical care is expensive and inaccessible.

the cause:

Health care is expensive because of the existence of health insurance.

There are two ways insurance drives up the cost. First, it removes the “direct to consumer” pricing approach, masking costs from the beneficiary, thereby reducing market pressure to keep prices down. The second reason is more complicated. The initial rationale for health insurance was to reduce the impact of catastrophic medical costs on a budget. For example, a life threatening emergency, or cancer, could easily exceed a person’s ability to pay for it. However, this is a service at a cost; to get this security, insureds as an aggregate pay more fees into the insurance than they receive from it. This is expensive, and insureds are all making the Vegas bet, hoping they will “win” the insurance lottery by getting more benefits over a lifetime that they pay in premiums.

Unfortunately, this model eventually grew to encompass all of medicine. Today, insurance pays for medications, regular doctors visits, simple procedures, medical equipment, therapy, and a whole range of other things. This, of course, exacerbated the pay-in problem. See, for an insurance company to make money, they have to take in more in premium than they pay out in benefits, or they collapse and go away. Therefore, the insurance industry, simply by existing, inflates the cost of medical care nationally in an amount equal to it’s gross profit. Keep, in mind, from gross profit, taxes, fees, and operating costs must be reduced, forcing insurance companies to increase their gross profit (i.e., the total cost healthcare) until they earn a net profit, otherwise, they would again, go out of business. Further, this covering of “everything” gives people the false idea that insurance is supposed to be “cheap”, when it is, in fact, an expensive hedge bet in favor of catastrophic cost. The entire system is a total mess.

the solution:

There are three necessary steps to fix this problem:

#1 Teach people how market economics works; that they have no RIGHT to cheap insurance any more than they have a RIGHT to force BMW to sell them a new car for $100. Let them remember they have to earn quality medical care as a product, just like they earn everything else: by having a job or a business, budgeting their earnings, then paying for it.

#2 The healthcare market, in the interim, needs to transition to HSA’s, where people save then pay for their own procedures. This will drive down the cost of medicine because simple procedures will no longer by inflated by the cost of insurance overhead.  In addition, when consumers see the bill for care, they will shop for lower priced providers, creating market pressure to drive cost down.

#3 Finally, we need to transition away from the insurance model completely and teach people to create and manage their own healthcare funds. People with catastrophic medical needs they didn’t plan for financially should be funded by private charity (or for the few who still delusional enough to think the government can manage anything successfully) by a limited government program.

Unfortunately, many Americans have developed the attitude that the world owes them free or inexpensive things, and healthcare seems to be top on the list of items, so #1 is probably unworkable.  #2 and #3 would require control of the healthcare market to be taken away from government and large corporations.  In today’s America, any attempts to limit the power of the political class or the corporations that buy the politicians typically fails.  Further, #2 and #3 would required planning and the assumption of risk, something that the myopic and “safety guarantee” obsessed American public would have trouble stomaching.

So, the healthcare system will continue to be expensive and work badly.  If the Affordable Care Act doesn’t get canned at some point, it will get more expensive and work even more badly.  Cheers!

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