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.