A Recipe for Reform

<< Back to Part I:  How Insurance Works
<< Back to Part II:  How Medical Insurance Was Broken
<< Back to Part III:  Medicare

“Reality is that which, when you stop believing in it, doesn’t go away.”
— Phillip K. Dick

In this last installment I’d like to propose some solutions for policymakers, for doctors and for patients.  My recommendations may be quite politically naïve, in that they are currently unpopular and are not likely to gain favor with politicians.  But I believe they are economically sound.  Popular opinion is fickle, but economic fundamentals are eternal.  So the ideas will wait for an eloquent politician to popularize them, and in the meantime we will race in the opposite direction.

Recommendations for Lawmakers

The employer tax deduction for health insurance should be abolished. This action by itself would have a major positive impact, untying insurance from jobs and unburdening companies from crushing healthcare costs.  Companies would go back to giving employees salaries and employees would do what they already do for houses, cars and food: they would shop around.  Healthcare spending would plummet, so doctors’ lobbies and hospital lobbies are against it.  (Another reason I’m not in the AMA.)  Patients would buy cheap catastrophic policies and get rid of their expensive “everything’s covered” policies, so the insurance companies would oppose it.  But patients and taxpayers would be much better off.  Who represents them?

Most importantly this change would shift the debate from the mirage of universal coverage to ensuring the availability of high-quality affordable care.  Getting everyone insurance isn’t the goal (unless you’re an insurance company).  Getting everyone many choices of healthcare with reasonable prices and good quality is the goal.  We should watch the universal coverage experiment unfold in Massachusetts very carefully before we spring this model on the nation.  Early observations suggest that everyone there is insured and no one can find a doctor.  I hope Part II of this series convinced you that insurance for routine care is the problem, not the solution.

A public debate should be reopened about the justification for Medicare. Why should age alone guarantee government sponsored insurance regardless of income or assets?  Remember, there is already another program (Medicaid) for the indigent and the disabled.  Any effort to limit Medicare benefits will be vigorously opposed by senior-citizen lobbies and by doctors’ and hospital lobbies.  And enough people depend on it currently that simply abolishing it would not give current beneficiaries time to make alternate plans.  My suggestion is that the age for Medicare eligibility should be increased by one year every two years.  That way, no current beneficiary ever loses benefits, but as time goes on the age for enrolment would creep ever higher.  So a current 60 year-old will not be able to enroll until the age of 70, and a current 40 year old will not be able to enroll until he reaches 90 (and will have plenty of time to budget for his health expenses).

In 1965 the first generation of Medicare beneficiaries never paid into the system.  They were already retired and their benefits were supported by the working employees of that time.  Conversely, there will have to be a generation which pays the payroll taxes for Medicare, but never gets the benefits, a generation which makes the financial sacrifice to phase out a destructive and unaffordable program.  Should we accept that burden, or pass it to our children?

Recommendations for Doctors

To the extent that each doctor can afford to do so, doctors should remove themselves from contracts with insurance companies, especially with Medicare. This would force doctors to adopt business practices that are standard in other service industries: transparent reasonable prices, attentive customer service, and competition with other doctors on both quality and price.  Doctors who opt out of Medicare save Medicare money, leaving more money for those with fewer options.

Doctors should donate some of their time to caring for indigent patients.

Doctors should not join physician lobby groups which aim to increase or maintain spending on healthcare.

Recommendations for Patients

To the extent that each patient can afford to do so, patients should buy catastrophic (i.e. high deductible) insurance and pay for routine care themselves.

Retirees should not join lobby groups which aim to increase or maintain spending on Medicare.

The national tide appears to be favoring taking ever more dollars and options away from patients and giving them to insurance companies or to the government.  This promises to worsen the problems we learned about in the previous sections.  Treating patients as customers is the only path forward.

“Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.”
— John Adams


Notes and Sources:

I owe much of my understanding of how insurance companies and doctors could function in free markets and how the healthcare marketplace has been corrupted to an article written in 2001 by Milton Friedman, the Nobel laureate economist, How to Cure Healthcare.  Though its conclusions may not be popular I have not seen its ideas convincingly refuted.  I recommend the article to anyone who wants a more detailed understanding of the economics of American healthcare.

A more thorough description of the American healthcare system and how to fix it is in Dr. David Gratzer’s book The Cure: How Capitalism Can Save American Health Care which I reviewed two years ago.

The fact (in Part III) that Medicare costs doubled every four years between 1966 and 1980 is found on the Wikipedia article on Medicare which has some other important but little-known facts about Medicare.

You can learn more about the effects of Massachusetts’ universal health insurance program in this Wall Street Journal Health Blog post: As Insurance Coverage Increases, ERs Get Busier and in this Wall Street Journal editorial: National Health Preview, The Massachusetts debacle, coming soon to your neighborhood.

Posting will be on hiatus for two weeks and will resume the week of July 13.