Solution - Healthcare by Insurance is Not the Way

Some weeks ago I offered some analysis of the current health care and health insurance environment, detailing in large strokes the incentives that move the current players. I also promised to offer some ideas on how we should act to improve our condition. So, here goes.

First, as our current commander-in-chief is fond of saying about his predecessor, we didn’t get into this in a day, and we won’t get out of it in a day. But we can get out of it, and government DOES have a role in it. It only seems fair, a president and a congress long gone are responsible for our arrival where we are today. In 1943, as a war measure, Roosevelt and the IRS created the tax exemption for employers who, prohibited from increasing prices or wages, provided health benefits for their employees. In 1953, Congress refused to lift the exemption, and the whole misshapen system has grown more and more ingrained ever since. They now need to intervene to undo what was done.

To put the consumer back in charge of his own health care, the employer incentive should be shifted. Instead of providing tax incentives to provide services through an insurance company, employers should only receive the full exemption for funds ear marked for employee health care PROVIDED DIRECTLY TO THE EMPLOYEE. These funds should also be tax exempt for the employee, but only when retained or expended for health related purposes. That’s how it gets paid for.

Here’s how the money gets spent. There are three parts. First, to actually deliver health care a new kind of health provider needs to be created. New tax incentives need to be created to encourage the creation of non-profit health organizations. Further, doctors in these organizations need to be protected from excessive law suits for bad outcomes – malpractice insurance, lawyers and “expert witnesses” and all the rest do nothing but escalate costs. That’s the governments part in this, and it doesn’t mean surrendering our national wealth to make it happen.

How does this organization get funded? It is owned by customers, like a credit union, individuals who become subscribers using a portion of those funds from their employer. In truth, this is not really all that new as an idea. Ever heard of an HMO? A good model totally ruined by corporate or insurance company ownership. Call it a MOHO instead – MEMBER OWNED HEALTH ORGANIZATION. The doctors the health union hires will be paid a salary by the organization. Driven by peer review and patient evaluations, doctor incomes will be set by merit and quality of service, not procedures. Driven by customer evaluations, doctors will not be allowed to drift into mediocrity or driven to it by profit driven cost cutting. Doctors that can’t cut it will be found out and fired – not sued - a much better policing than the current self-administered licensing controls. Without having to deal with insurance companies or the government, administration overhead can be reduced to manageable levels.

Secondly, while the MOHO can take care of routine issues, they could not reasonably be expected to be completely self insuring. Enter the insurance company, doing what they were designed to do, mitigate risk. To deal with the rare or catastrophic events rather than certain expense, supplemental policies, at much lower rates than those currently offered, should be possible. Owned and paid for individually, they would be permanent, portable and inescapable. Purchased anywhere. No more preexisting condition loopholes, no cancellations, group rates or any of that nonsense.

And finally, every individual should have a fund in the vein of the now ubiquitous 401k that is specifically designed for building a reserve to cover health care costs. If health care funding is a national priority, these accounts should be untouchable by the government, not only during the lifetime of the owner of the account, but transferable from generation to generation for the same purpose. I can even see the potential for mandating such health savings to some minimum level.

None of this would prohibit a doctor from running his own practice just as he does now, if he wants to be a free agent and thinks his individual skills are in such demand that he can compete. If he bears the burden of running his own business and the legal and market risks that those in the current medical business run, then he is entitled to the additional rewards of his entrepreneurship. None of this would prevent employers from providing health benefits as they are doing – after all, an organization as is proposed here may not be available everywhere. I do believe, however, that this would represent a step on the right path to rational, cost effective health care.

As Congress and the President charge headlong into the abyss of socialized medicine, a non-solution that can only escalate costs and diminish service, we need to act to save ourselves and our posterity. This may be a way to do it. There is much more to be said and many devils in the details, but that is the crux of it for now. Digest what you have read for a bit, then offer your observations. I look forward to hearing from you…