American Universal Health Care

America leads the world in medical science and technology. At the same time our system is plagued by inflated cost, grossly excessive third party interference, lack of incentive for efficiency and innovation of services as well as considerable variation between individuals in accessing the system. It is time for us to address these problems and become the leader in medical care delivery as well as technology with a uniquely American system. The basic principles for doing this were laid out in the last post. They involve the following: 1. There should be direct payment for ordinary medical expenses rather than through third parties, 2. Incentives should be given to individuals to devote a portion of their income to savings while they are young and healthy for inevitable future medical costs, 3. Low cost, personally owned, medical insurance should be widely available to pay for unanticipated catastrophic medical events, and 4. A government safety net, supplemented by charitable organizations, should be in place to provide basic, good quality medical care limited to those who need it rather than the general public. This safety net system should be individualized and as free as possible from waste and abuse.

There are good practical steps which health care economic experts have been proposing for many years that would make the transformation. Some of these ideas actually coincide with substantial parts of the long term goals of the recently proposed Republican health care plans. Unfortunately they were released to the public in a hasty and obscure way, without much debate or explanation, leaving many uncertain and reluctant. Some of the reason for that is that from the political standpoint achievement of these principles would need to be done stepwise over time so as not to disrupt those who have planned and adjusted their lives to the present system.

Since the 1940's the federal government has excluded the value of employer based health insurance from both income and payroll taxes. This is an unfair government subsidy which favors those who receive this employee benefit over those who do not and which favors those with higher incomes who pay more taxes. Healthcare tax incentives are a reasonable policy of government but if they are to be given they should go equally to every individual. Moreover our reliance on employer provided health insurance has a number of disadvantages. These include an overdependence on using insurance to pay for medical services, severely limited choice of policies, and a constraining linkage of medical care access to one's employment. The system obscures the actual value of wages and it involves the employer in an area in which he has little expertise. (For a fuller discussion see http://tinyurl.com/yayxdrpj). This tax exemption policy should be converted to one which applies to all and which incentivizes savings for medical care and promotes medical insurance policies which are personally owned and which are not linked to one's employment.

The best way to do this is through the idea of Health Savings Accounts (or HSA's) which are individually owned funds used to pay healthcare expenses. Although at present HSA's form only a small portion of the health insurance market they are its fastest growing segment. The owner of the HSA pays ordinary medical expenses directly from the account instead of through insurance, usually using a credit card or check. HSA's are administered by banks in a manner similar to a personal checking account. but, like an IRA the savings are tax deferred. Money in these accounts can be used for a much wider range of health related expenses than standard insurance and any savings by prudent shopping remains the property of the owner rather than the insurance company. Over time substantial amounts can accumulate and in essence the owner is self insured. Funds can be used only for health related expenses but under present law they may be withdrawn for any use after age 65. (For a fuller discussion see http://tinyurl.com/y7srksxh).

Despite their growth, the market for HSA's has been significantly restrained by government imposed funding limits and utilization regulations. In general those who favor government controlled medical care have opposed the concept. Under present law they are required to be tied to a high deductible insurance plan and cannot be used for health insurance premiums. Such restrictions should be eliminated and any amount of funding should be allowed. HSA ownership should be widespread and strongly encouraged to be the primary mode of payment for medical goods and services. Ownership of an HSA at an early age, similar to the social security account, should be the standard in our country and would become the "universal coverage" that so many desire.

Funding of personal HSA's can be done by individuals themselves and this is encouraged by the tax benefits and their eventual possible use for retirement savings. However others, such as employers, can contribute to them and ideally this could be the primary source of funding for many. Money that today goes to insurance companies would go directly to the private tax deferred accounts of employees to use as they see fit. Those with chronic disabilities, severe illness and low income would also be HSA owners which would be funded from government or charitable sources, thereby replacing the patchwork of present day government programs with their wasteful policies and oppressive costly regulations.

For the HSA owner, insurance assumes its rightful place as a protection against very high cost unexpected events and not as a payer of ordinary expenses. HSA funds would be used for premiums and thus policies would be personally owned, independent of one's employment and suited to one's medical needs. Such high deductible insurance is cheaper but changes in federal insurance laws would help to lower insurance prices further. These would include allowing health insurance to be sold nationally, elimination of coverage mandates, and authorizing associations other than employers to sponsor policies so as to take advantage of group coverage. Most importantly if direct payment for medical expenses became the dominant mode, market forces would cause substantial price reduction generally which would strongly affect insurance prices.

Over the decades multiple interventions into our health care system has left it in a highly complex disordered state. Many people find the discussion of how to correct the system confusing. The idea of complete government takeover is tempting to many because of its apparent simplicity. But impersonal government programs bring with them waste, inefficiency, stifling of innovation and oppressive bureaucratic regulation. The next post will detail how the plan outlined above promises to dramatically lower medical prices, make services far more efficient and personal and open the floodgates for innovation in medical care delivery.

Should The U.S. Have Government Controlled Medical Care?

We're always being told that America should get with it. Let the government be in charge like in all the other advanced countries. But I don't know about that. First of all America isn't like other countries. It's a lot bigger, a lot more diversified and has a culture with a strong element of personal independence and skepticism about government functioning. Besides that, if you really look into it there is no such thing as generic "single payer". The systems in all these other countries differ greatly from one another and most have a considerable amount of private pay. The majority are having financial problems of their own and many are encouraging more private involvement to relieve the pressure.

Moreover, the fact is that the American health care system has a great deal of government involvement and control. Between Medicare, Medicaid and various other government run programs such as the VA, the military, and the whole host of State sponsored programs, and also funding of insurance for government employees, as well as the tax exclusions for employer insurance, somewhere in the range of 65% of our health care is government financed as compared to about 71% in Canada. http://tinyurl.com/y7cw3kxl

Some complain that the problem with the American system is it's fragmentation. I would say that that's a blessing in disguise. Our poster child single payer system, Medicare, must compete with our private insurance system in the benefits it offers so that Medicare finds it difficult to economize by rationing services to cut costs as is done in other countries and so it continues to rush headlong into bankruptcy. It's the same situation with Medicaid and the VA which both get poor grades when held up to comparison to the private system.

Not that the American system is so good; it isn't. Technologically speaking American medicine is the best in the world despite the idiotic ranking of the World Health Organization statistics that put us just below Costa Rica and just above Slovenia. But regarding economics and efficiency we're nowhere near where we should be. And I'm not just talking about Obamacare. I'll give the Democrats credit for good intentions but their attempt to fix a flawed system has made things worse. Somehow these bright people don't seem to understand basic economic principles, natural human behavior or the inner workings of medical interactions. The reason I think is that they're in love with central government control, and just like many lovers, are blind to their loved one's many flaws.

So what should a real American health care system look like. One that emphasizes personal choice and individualization. One that incentivizes efficiency and low cost and innovation of services. One that encourages involvement in one's own health behaviors. And, yes, one that is generous in helping those who have disabilities, or who suffer medical misfortune, or even those who bring their medical troubles on themselves. The basics of such a system are well understood by many of the thought leaders in medical economics. The politics of getting there are difficult considering that all of us have individually adjusted our lives and efforts to the present system so that any policy changes for the better will have to be gradual and carefully done. In the interests of time and space that discussion will be left to a companion post.

The Health Care Solution - Basic Principles

The health care debacle we are presently witnessing is a great example of why we should get politics and government out of our medical care. What is government other than a collection of politicians and bureaucrats whose primary interest is in maintaining their positions by satisfying their particular constituents. So they fight interminably about who gets what. Their plans and policies help some and hurt others. What is the point of that? You and I are interested in our own specific situation and the decision-making should be left to us.

Although good medical care can be found throughout the world, technologically speaking America clearly remains the leader. Government had nothing to do with that except at the NIH. But for the last 50 years or so the politicians and bureaucrats have told us that they know how to manage the delivery of our health care and we've gone along with them. What we've gotten is a hyper inflated, highly bureaucratized, complex system that is distorting medical practice, stifling service innovation and generally pushing us toward impersonal, paternalistic medical care.

The best thing the politicians can do for us is get out of our way. Give some assistance to those who need it and for the most part leave the rest of us alone. I think to some extent that this was the intention of the Republican plan but they crafted and explained it so ineptly as to leave the public in confusion. They committed the Obamacare sin, asking us to pass it to find out what was in it. There are in fact some basic principles about health care economics that could be followed to lead us back to sanity and some specific readily available ways the principles can be applied.

Lets first clarify that what we're talking about is purchasing goods and services provided by others. Medical services are not free and they never will be. They must be paid for or they will not be provided and even in a socialist or communist arrangement this would be the case. There are many necessary things in life, food, clothing, shelter, and so forth. In our economy most of us pay for all these things directly and for those who are disadvantaged our society arranges help. For reasons mostly having to do with government policies over the previous decades we have come to treat medical care differently in that most of us pay for it indirectly through third parties, mostly insurance purchased by others in our name or government entitlement programs.

Indirect payment has proved to be a dysfunctional arrangement. The reasons why gets into some economic theory but it's not hard to understand. We give our money to a third party which then pays our bills but adds an administrative expense. But this is a minor cost compared to the much larger one of loss of market forces and regulation. With indirect third party payment there is no limitation by prices on consumer demand. Moreover patients have no interest in price shopping or seeking substitutions. They accept any service offered which does not entail danger, discomfort or great inconvenience. Medical providers, for their part, are not required to compete on price and are guaranteed payment as long as they comply with documentation requirements. In our free market economic system prices regulate the market but appropriate pricing by a central bureaucracy for millions of transactions is simply not possible since they cannot have knowledge of individual circumstances. Producers are incentivized toward providing overpriced and away from underpriced items. Items not included in the pricing and payment schedule will not be provided. The system produces price inflation, waste of some items and services, scarcity of others, uneven distribution of services and stymying of service innovation. Moreover the need to control overutilization requires the payers to introduce ever increasing costly regulation and ultimately rationing. Considering all of this, what instead should be the makeup of an American health care system?

For the majority of us, for ordinary medical expenses like the other necessities mentioned above, the ideal system should involve getting back to direct out of pocket payment which would work to drive prices down, would provide us what we really wanted and needed and not otherwise, and would largely eliminate the complicated and extremely costly administrative and regulatory system.

Medical care is a little different from some of our other needs in that the requirement for it generally increases with age. The obvious way to address that issue is by saving. This is not a unique situation. We save for many future needs. For example most of us as we age want to slow down from work and eventually retire. So those who are sensible make arrangements for this time by saving when they are younger and this should include eventual medical needs. The great deal of funds being wasted on extremely high cost insurance premiums and taxes for government entitlement programs, much of which are not even used directly for medical care, would be better put to use for this purpose. The government has a legitimate interest in promoting such savings in order to minimize the number of those who eventually might call on it for help. There is a good way to do it which will be discussed in a further post.

Some small number of us suffer major costly medical crises before our time or before savings can be accumulated. But costly untoward events are not limited to illness. Houses burn down, weather catastrophes occur, accidents cause major injuries. Risk management for such events is the highly beneficial reason for insurance, but using insurance for payment of ordinary expenses is an absurdity that none of us would do ordinarily. Like other types of insurance we would hope never to have to use it thereby leaving funds for generous coverage for those who have misfortune. Such insurance for very expensive untoward events would cost much less than the prices we pay presently. Ideally its premium prices would reward and incentivize good health behavior. In addition government policy changes can affect the insurance market to make it more efficient and competitive and reduce the price even further. Ideally medical insurance should be owned by individuals, kept long term and not be dependent on changes in life events such as employment or family or marital status.

And then there is the case of need. There are always those at the lower end of the income scale or whose costs outstrip their ability to pay and who need the help of society. Charity can help but here is an appropriate role for government. However, the malfunctioning Medicaid system must be replaced with something more rational. The cost of this system is rapidly outpacing the inflation rate. It is filled with waste and subject to fraud but at the same time it grossly underpays providers, often less than their expenses, so that many will not accept the patients. It does not discriminate between those who make no effort to help themselves and those who are truly disabled and needy and treats both the same. It has a sharp income cutoff line, giving full benefits to those below and nothing to those just above. The Obamacare strategy of pushing people into this program is a truly bad idea.

It is important that everyone in our country have access to basic good quality medical services but, regarding the Obamacare solution, it is extremely important to point out that a direct payment system in which the costs of medical services are dramatically deflated is far better for the uninsured than providing them with insurance with a very high deductible expense or allowing them into a program which many providers will not accept.

These are the basic principles of what is needed. The next post will describe some good ways to fulfill these criteria.

Donald Trump, Jr Was Right To Meet With The Russian Lawyer.

Donald Trump, Jr was not interested in colluding with Putin, he was interested in information on illegal activity by Hillary, whatever the source. He didn't seek the source out, the source contacted him. He was interested in the information and not where it came from. Suppose it came from England, or Brazil, or Tanzania, who cares. It's nonsense to think he should have just informed the FBI and not first found out the nature of the material, and no political operative in this day and age would have done any differently, certainly not any of the Democrats. Of course he would have been happy to receive it and use it.

And what is the point about who exactly came to purportedly give information. It wasn't Donald Trump who was giving out information, it was someone supposedly coming to give it to him. He didn't know any of them to begin with. There isn't the slightest suggestion in his email chain that he was willing to enter into some sort of shady deal to get the information, as the Democrats and the media, who actually did make such deals, are I suppose trying to imply.

And what would he have done with such information? Would he have kept it a secret? If it was truly illegal activity he certainly would have informed the authorities, and in the meantime made sure it was leaked to friendly press people so it wouldn't be kept under cover by the Obama FBI and Justice Department. Can anyone imagine him doing otherwise than making the information known to the authorities who could then start a further investigation on Hillary?

The only ones colluding here are the media and the Democrats. Their hysteria makes no logical sense. It's frustrating how few on the Trump side are putting out a forceful and logical response.

Price Fixing by Medicare. The Premiere Medical Monopoly.

United States antitrust law, starting in 1890, has regulated the conduct of business corporations to promote fair competition for the benefit of consumers. Government prosecutors bring cases against monopolies and major corporate mergers which appear to be stifling business competition so as to interfere with the functioning of the free market. Sometimes such cases are controversial and are litigated in court. However, some practices are deemed by the courts to be so obviously detrimental that they are categorized as being automatically unlawful, or illegal. The simplest case of this is price fixing, in which a group of businesses, known generally as a cartel, collude to set the price of a good or service so as to avoid competition. In a competitive market producers try to reduce their costs through efficiencies and innovations so as to reduce their prices and gain market share. Those who do so the best will prosper the most and consumers are the beneficiaries. Those who do not measure up will fail. The cartel is set up to protect its members from such competitive forces at the expense of the consumers.

In 1975 the U.S. Supreme Court ruled in the case of "Goldfarb v. Virginia State Bar" that the antitrust statutes applied to the professions as well as other businesses. The ruling was primarily to prevent State law bars from setting minimum legal fees, but the ruling applied to the medical profession as well. The fact is that before Medicare it was customary that doctors entering practice in a community were obliged to adhere to a minimum fee schedule imposed by their local medical society. Doctors were concerned about preventing price competition and maintaining the financial security of their membership. The Supreme Court decision affirmed that such an anticompetitive arrangement was harmful to consumers of professional services. But the reality for doctors was that the introduction of Medicare in 1965 made this a moot point by securing their fees which, in the absence of any consumer restraint, then entered a period of rapid inflation.

The Medicare bureaucracy, after failing to control this period of fee inflation by other means, in 1983 introduced a fee schedule for hospital care, and in 1992 fixed fees for medical services. Thus was introduced the very monopolistic anticompetitive system for which the government prosecutes business entities and which the Supreme Court has ruled against. The price fixing extends beyond the Medicare beneficiaries since almost all private insurance reimbursements other than for pharmaceuticals are based upon the Medicare fee schedules.

Medicare price fixing has the good intention of controlling price increases but has the unintended consequence of precluding price competition thus inhibiting market forces which lower prices. Medical providers set fees based on insurance reimbursements rather than on costs, consumer restraints and competition. Efforts to maintain and enhance income are directed toward providing procedures which are tied to fees that offer the highest profit margins, complying with fee enhancing regulations and simply increasing the number of procedures which are paid for and decreasing those which are not. Doctors of course are in the business of treating patients and are motivated by a number of forces to do the best job they can. However this situation produces a number of perverse incentives that inhibit efficiencies and innovations, produce waste and cause considerable distortions of provider supply some of which I will detail in the next post.

Possibly the worst aspect of this fee control system is the necessity to tie it to ever increasing complex regulation designed to define the procedure which the medical provider must perform to justify the fee which is claimed. In an attempt to preclude gaming of the system documentation is required which has become absurdly complicated, time consuming and expensive. Items such as the number and type of questions asked about the illness, the number of parts of the body inspected, whether aspects of the patient family or social history are included must be counted and have substantial impact on the fee received. In 2009 as part of the federal government stimulus package electronic record keeping was set as a "critical national goal" and various financial stimuli and penalties were put in place for doctors to adopt computerized records. Unfortunately government mandated computerized documentation has added dramatically to the cost of medical practice, has substantially interfered with patient doctor interaction and has virtually destroyed medical records, converting them from a means of medical communication to one of payment guideline documentation. In fact none of this has any positive impact on actual patient care or outcome. Although most physicians have adapted to the system, the way a frog in a heating pot of water adapts and remains in place, it is madness, the stuff of Franz Kafka and Alice in Wonderland. Does any patient with a medical concern care about such things?

What's Happening to Independent Medical Practice?

"Single payer" is another way for saying somebody else pays. Of course the single payer is using our money, but it is convenient to let somebody else worry about the cost. Nevertheless we've forgotten about the old adage, "He who pays the fiddler names the tune".

 

Medicare has been our single payer for everyone over age 65 for the past 50 years. We've given the job to the CMS bureaucrats to worry about the cost, but what can they do? They're not in the doctor's office with you to decide whether you really need this or that test or how often you should come back for a visit and so on. How are they supposed to figure out what the right fee should be for any of the millions of medical transactions that go on every day. So they do the only thing they can under the circumstances, they issue regulations. They put out fee schedules and tell medical providers what they have to do to qualify to get the fees. And this is how they name the tune and run the show.

What's going on in the present bureaucratic highly regulated system reminds me of when I was in the Army and I found out that the way to prosper in that environment was to learn the regulations and use them to get what you wanted. The master sergeants were the ones who played the regs like a Stradivarius. Not that they were bad guys - just the opposite. They just did what any smart person would do considering the incentives. Later when I worked in the VA for a couple of years it was pretty much the same thing.

Well bureaucratic regulations seem like a necessity in the military, but in medical practice? Unfortunately that's where our Medicare single payer has lead us. Complying with regulations is a large part of what your doctor does every day. And to a considerable extent it's taking away from his thinking about you, sometimes even more than he realizes. For the young guys it's the environment they're used to. (For you gals I'm sorry but it's just too cumbersome not to keep using the default English male gender).

In all the medical economic blogs we keep reading that independent medical practice is rapidly declining, now under 50% and even around 35% of doctors in one source I read. Doctors are fleeing to salaried jobs with hospitals and big medical organizations. It's the regulations folks! They're just too complicated and expensive for the little guy. Well you say, what else is new. Isn't consolidation what's happening all over the economy? Well I think it depends on the type of business and how personal you want it to be, and it's hard to think of anything you want more personal than your medical care. I clearly understand the lure for doctors to work for a medical conglomerate as opposed to having an independent practice. I've been in both situations. Especially in the present difficult environment the temptation is great to abandon your independence and leave the complex legalistic and economic headaches to others. But there is a subtle difference in your allegiance. As long as the dominant mode has been independent practice, looking out primarily for his patient's interest was the norm that all doctors adhered to but I fear for how things will go when all doctors become employees of big entities, the point toward which our system seems to be rapidly heading. Then will doctors become just the highly skilled technicians following disease protocols that the medical leaders and bureaucrats envision? Then not just doctors but more importantly patients will be part of the medical brave new world where it is more society's and less individual interest that determines the nature of your medical care.

Medicare, the American Version of Central Payer

Medicare is the American version of "central payer" for everyone over
65, a segment of our population which consumes a disproportionate
amount of medical services. Medicare is popular because it seems like
a good deal, so much so that politicians like Bernie Sanders want to
extend it to the whole population. Unfortunately Medicare has a fiscal
problem in that every day it is substantially adding to our
dangerously high national debt and is rapidly heading toward
bankruptcy.

CMS, the agency that runs Medicare, has been trying hard to get out
from under this financial difficulty by imposing increasing amounts of
new regulations which thus far have added to costs rather than
reducing them. The reality is that if the program is to continue in
its present form the solution must reside in some combination of
either major increase in taxes and fees, serious rationing of
services, or substantial reduction of payments to providers, the same
devices that are used in other advanced countries with government
controlled medical care. Understandably politicians are reluctant to
do any of these things, which would be highly unpopular and in many
ways counterproductive. Americans have been enjoying life on their
credit card but eventually we're going to reach our limit.

Medicare's fiscal problems are well known even though they are too
unpleasant to be talked about much. Less obvious is that Medicare
through its regulations has been adversely affecting the nature of
medical practice for decades but in recent years there has been a
regulatory firestorm which is having major bad consequences for
patient care. I would contend also that Medicare, through its dominant
influence, and government intrusion generally in our healthcare
system, has been a major factor in causing inflated medical prices,
which mostly hurt the poor, as well as disruptions of services
including distortions in distribution and impedance of innovation.
Thus we have a system which was designed to make medical care less
costly and more accessible causing the exact opposite effect.

But first let's examine the fiscal problems. CMS sets the price paid
for every single medical item, large and small, and allows payment
only for those which it deems to be necessary. Why then its economic
troubles? The answer is the same one that has always caused centrally
controlled economies to be consistently outperformed by the free
market. It's the conceit that somehow a central committee of experts
can make economic decisions for individuals better than they can make
for themselves.

The free market works to distribute goods to their best uses and keep
prices as low as possible. Consumers seek around for what satisfies
them for the best value. They behave differently depending on how the
bill is being paid. If you send your teenager out to buy himself a
pair of jeans you can give him your credit card or you can give him a
$100 bill and ask him to bring back the change or you can give him the
same bill and let him keep the change. In either case the result will
probably be serviceable clothing but a world of difference otherwise.
From the producer's standpoint the competitive market makes them work
to produce things that people want at a price they are willing to pay.
Whoever succeeds best will gain market share and prosper. Whoever does
not will fail.

Some contend that medical care is different, that it's too highly
technical for individuals to make their own decisions. But we purchase
high tech things like cars and computers all the time without knowing
the details of their inner workings. And in fact patients also make
medical decisions all the time, including those that are critically
important. Except sometimes in emergencies they decide when and in
what way to interface with medical care providers, and whether or not
and in what way to follow their recommendations. If I recommend a test
or procedure is the patient obliged to accept? Of course not. The
patient, like the consumer in every other area, is the final
decision-maker. And in fact it is the patient who makes the economic
decisions as well, but in the context of a distorted system bad
results follow. When offered items at no or little cost there is no
incentive to decline except where there is risk or pain involved.

Those who jump to the "central payer" idea will accuse me of being
hard-hearted, of having no sympathy for the poor and unfortunate. On
the contrary! It is they who are unwittingly favoring high prices and
restrictions, not just for the poor, but for everyone. Medical goods
and services are not free. Doctors and nurses and technicians will not
work without being paid. Likewise hospitals and nursing homes and
medical equipment must be paid for. The question is how to pay. In the
central payer scheme I give my money to government bureaucrats to take
their share, then parcel it back out, while regulating the providers
and restricting my choice. When I pay directly and control the funds I
select what service suits me the most and the market works to lower
prices. I buy insurance, not for ordinary costs but for unlikely and
unforeseen circumstances because in such cases I want the money I
spend on insurance to provide generous coverage. Yes there are those
who through misfortune or lack of foresight or indolence are unable to
afford basic care and for whom society should provide. Other than that
the intervention of society does more harm than good.

But if the truth be told it is not the unfortunates who are the chief
interest of central payer proponents. In such a highly commercial
society as ours is we should be immune from ads that claim to give us
items that are "absolutely free". But the idea that someone else is
paying is a siren song that is too sweet to be resisted. The
government will arrange things so that "the rich" will pay more and I
will pay less, the rich being anyone with an income larger than mine.
The link between this arrangement, high taxes and restricted services
is papered over as much as possible. But what is completely lost sight
of is the tremendously destructive effect of eliminating market forces
which bring down prices and reward efficiency and innovation. I've
tried to give some examples from my personal observations in previous
posts and I'm going to continue doing that.