Tuesday, September 22, 2009

Proposal - Healthcare by Insurance is Not the Way.

My original intent was to begin with, smaller, less weighty topics, offering observations and possible solutions, but it would seem that that notion has been overrun by events. I have read a great many essays of late discussing health care generally and, usually, some narrow area of interest to the author along with his or her solution to that piece. These are often quite logical from that narrow perspective and utterly useless or even counterproductive in arriving at a systemic solution. On the national political stage I am struck by the muddled, stumbling lack of clarity in defining what we are talking about.

It seems to me there are two distinct topics of discussion that have become commingled:
1) Health Care - the system that takes care of people
2) Health Insurance - the current system for paying (or avoiding paying) for Health Care.

Some say the current system doesn't work, that it is expensive and inefficient, that we need the government to intervene to fix it. This strikes me as a stunning leap of optimism in the face of extensive evidence that grand government programmes are never cheap or efficient (post office, Amtrak, medicare, social security) In fact, the current system is what it is because of the Federal Government. "That can't be" you say. Consider this. Employer funded health benefits exist because the Federal Government sanctioned them with tax benefits. It seemed like a good idea at the time.

It is my position that we need to rethink how we pay for health care and what role health insurance should play in that.

First, Insurance. Insurance is about Risk. If you think about it, risk carries with it the notion of uncertainty. The entire premise of insurance is the likelihood that something will or will not happen. If it doesn't, the insurance company profits, and let's be clear, insurance companies are all about profit. We shouldn't begrudge them that, it is the reward for risk.

These days, however, there is nothing uncertain about the need for medical attention, if only to make sure that we are as healthy as we think we are. For good or ill, it has become a routine part of our lives. This being the case, the business model of insurance companies is wholly unsuited to the role they are currently playing as part and parcel of the health care delivery system. In the absence of risk, the only mechanisms for profit are to increase the price of the service or drive down the cost (not for the consumer, but for the insurance company). The latter almost always means drive down the quality and/or quantity of service provided. Neither of these is desirable for the consumer.

So, in a free market system how do they survive? Who would tolerate paying more or getting less? Well, we do. We do it because we don't see money flow to the insurance companies, so we have no idea how much we are spending (rather similar to the way we pay taxes). Nor do we have any idea how much the services we receive really cost because we aren't the ones writing the check, nor do we shop around for the best service for the dollar. The truth is that we are neither the buyer nor the customer, so why should our interests even be considered?

Are you shocked? You should be. Consider the following analogy.

A dairy farmer has under his care a herd of cows. The milk processor pays the farmer for the milk he harvests, and some of that money is used to feed the cows, and occasionally to pay the Vet to tend to the health of his cows.

Now when the vet is taking care of the cows, you you really think he sees the cow as his customer? Of course not, the cows aren't paying him, the farmer is. The farmer is the real customer, and you can bet the vet is mostly focused on what the farmer wants or what he can get out of the farmer in fees. Do you think the farmer really cares what the cows think of the service they get? Of course not, they are simply a source of revenue.

I realize this is not a perfect analogy. There are only two entities deciding the fate of the cows in question. The perfect analogy would be much worse, with a third party between the farmer and the vet. Be that as it may, do you really want to be the cow?

When viewed from the perspective of incentives, this system is a disaster. Neither the insurance company nor the doctor is in the position or has any incentive to contain costs. You, as the consumer, are the only one in a position to judge if the cost is worth the service, and you have no idea what is being spent or what the real cost of service is. Is it any wonder costs are out of control?

Which begs the question, Why do we need this middleman when his primary motivator, profit, works against our interests? If marketplace insurance funded by employers isn't the way to pay for health care how should it be accomplished?

The Federal Government? Why do you think the Federal Government would be any different? This simply substitutes one third party for another. Both of them bring unwanted overhead without adding anything to better the position of the consumer, you and me. Truthfully, it would be different, it would be much worse. While an insurance company might not fund the health care services you want or need, or help curtail rising costs at least they can't coerce you into doing things you don't want to do. The same can't be said of the Federal Government.

So what should we do? Considering the analysis above, formulate your own ideas and check back for the next installment to see if your plan matches mine.

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