Health Care Reform

by Kent M. Pitman (Thursday, May 26, 2005)

De-Coupling Employment from Health Care

Companies used to hire people for a long time, sometimes even for life. Modern companies may not even last that long, but even if they do, their commitment to employees is far less. The practice of coupling health care with employment may have once made sense, but in the modern world, it makes less and less sense.

The practice limits personal choice. It's hard to find a good doctor, an hospital in an appropriate location, and appropriate specialists. And, moreover, these needs are personal choice issues that should be left to individuals. By limiting people to what their company offers, the choice of proper care is made by a party that is not directly involved in medical decisions of the individual and is less likely to make good choices.

The practice causes health care companies to focus on selling to companies, not individuals. As long as they keep the companies happy, the individuals have little say.

The practice of insurance companies excluding people for pre-existing conditions means that when people move from insurance company to insurance company, there is an opportunity to lock people out of coverage they need. It's bad enough being laid off without having to concern oneself with the possibility of being excluded from treatment for a diagnosed illness. COBRA and other measures help to paper over this somewhat, but they don't always fix the problem.

When medical care is directly supervised by the individual, it's easier to make sure the money is well spent. When the insurance company is selling to company, there's less chance that a dissatisfied party will switch because it means convincing the company tochange. If the insurance company has to sell to each individual, it has to be responsive to each individual or it will lose their business.

Rather than companies offering "health insurance", it would be better if they were able and encouraged to offer tax-free subsidies for individually managed health insurance plans. If not required to do this, it should be possible for an individual who has a private plan to require the employer to pay into that plan at an equivalent level to what the employer was prepared to pay the company plan, so that the employee isn't forced to decide between canceling their own plan or, worse, carrying the cost of two plans.

Eliminating Pooling

Pooling is the practice of giving one or several people a preferential rate because they are statistically less likely to cost money to the insurance agency. This practice is unfair and should be eliminated.

If you're healthy, you might disagree. You might ask: Why should I have to pay more when I'm not getting a benefit? But you are getting a benefit: You're healthy. People don't stay healthy their whole life, and we need to think of the entire system, not just individuals. For one thing, you pay even when you're not sick because it's hard to pay when you are. For another thing, some people are just lucky enough not to have bad problems, but is it fair to say they deserve an economic windfall in addition to the good fortune of a medical windfall? Is it fair to say that people who have the bad fortune to have poor health deserve, as well, the bad fortune of paying more?

Insurance used to be about a simple proposition: No one knew who was going to get sick, so everyone paid into a single big pool, and whoever got sick got the money. But increasingly, insurance has become a science in which the insurance company makes it its business to know precisely what each individual will cost and charges each individual precisely that amount (plus a profit markup, of course). As we know more and more about the human genome, and as large databases about our personal habits are accumulated by Big Business, there is more and more known about us and this can be done with great precision. The day is not far away when prospective parents will receive notice not just that they are pregnant, and that it's a boy or girl, but the precise dollar amount that it will cost the would-be child to insure. Or certain people may be told that they might as well not reproduce because the chances are that their kids will be too expensive to insure.

The dilemma is this: Certain knowledge about what you have to worry about should be a good thing. If you're susceptible to skin cancer, you should know it. If you have a gene that makes you likely to get this or that syndrome, you should know. Because you're going to have to deal with it. But the practical effect is not that you can prepare. The practical effect is that you'd better start saving money, because before you know, the insurance industry probably knows. And they're busy raising your rates because they don't want to have to pay for a problem they know you have.

The only rational solution is to say that insurance companies may not use data about predispositions and pre-existing illnesses as a basis of fees. They must simply advertise a price for a level of care, and then treat people regardless.

The government probably needs to monitor whether there turn out to be illnesses that are not being covered by providers because companies don't feel they can accomodate the risk. Maybe in those cases some form of subsidy or re-insurance for rare and expensive coverages that are unevenly distributed among providers will be required. However, this is still overall better than having those same companies simply fail to cover people for such illnesses.

Using the Free Market

In general, it's important to use the free market where it can be used. Clearly, the free market cannot operate entirely freely in this situation because there are strong economic incentives for insurance companies and medical providers to shy away from treating certain situations. Government must confront these effects directly and not pretend they do not exist. It should be self-evident that extorting the weakest members of our society for huge amounts of money in order to save their lives is neither fair to them nor even a good trade for society, which would benefit enormously from having these people healthy in the workforce.

Competition, however, is to be encouraged among health care providers. Incentives should be put in place that give monetary benefits to health care providers that provide improved care at lower costs, not simply those that lower costs by cutting care.