The Best Health Care Solution

Due to the importance an timeliness of the issue, I wanted to get something posted rather than wanting until I had the time to polish it. I may be updating this post as I have time to fine tune it.

Ok, here it is. The (financial) solution to the health care debacle is composed of 4 components. The problem with current implementations and proposals is that is having a hammer as the only tool. The problem is that paying for health care is principally composed of three distinct components.

In the current situation, the only tool is that of "insurance." When your only tool is insurance, then you pervert and contort "insurance" to service these three distinctly different financial aspect. The first step in fixing health care and providing the best health care possible is to realize that the "problem" is not solved with one overarching solution, but is actually composed of multiple distinct issue that are each best addressed with targeted solutions. The three components are (1) ordinary and customary health care such as regular doctor visits, (2) "acute" care for things such as broken bones, heart surgery, hip replacements and the like that are of a one time nature, and (3) "chronic" health care problems such as cancer, diabetes, and other health issues that require ongoing care. The insurance hammer only deals well with category number 2. It doesn't handle either of the others very well at all, yet we try to contort "insurance" into servicing these types of costs as well. Our current health care implementation is like trying to use our auto insurance provider to finance our auto purchases and to pay for regular maintenance in addition to accident coverage. We intuitively understand that to do so would be inane, yet for some unknown reasons, this is exactly the approach we gravitate to for health care.

Similarly, the current proposed "solutions" are trying to apply the tool of government control which is not a good tool for providing goods and services.

Now, what tools do we really need for these distinctly different classes of problems?

(1) Two key issues driving the cost of health care are accountability and financial efficiency. The first level solution to this is to restore accountability and efficiency with the effective use of health care spending accounts (HSAs).

One of the biggest factors that drive of the cost of health care is that of accountability. That is, those receiving health care are not accountable for the cost. Who ever makes the payment is the one in control of the product. When some other agent, be it insurance or government, acts as the paymaster, control over the product is relinquished by the receiver of that product to the payer of that product. He payer becomes the driving force in how health care is provisioned, not the end user of that health care. That is, the utilization of health care is not accountable to a cost benefit analysis by those obtaining the service but to the whims of those who pay the providers of the service. One effect of HSAs is to restore control over health care to those actually receiving health care (which in and of itself is a good thing) so that those receiving health care make the choices such that they receive the best health care for their dollar. This drives prices down while driving up quality of service. This IS a fundamental property of free markets.

For ordinary expenses, the most effective and efficient means of dealing with this is the same way we handle all of our other day to day expenses - we simply pay directly for them. If we give our money to someone else to write the check for us, they will simply bill us the full cost, plus add additional expense to cover their cost of providing the check writing service. So the first step to reducing health care costs is to stop paying someone else to write our checks for us. Now, there are two arguments against this. One is that of getting people to see a doctor regularly or at least before minor issues become major issues. But on the other hand it is argued that people who don't go to a doctor regularly subsidizes the cost of those who do and if this "subsidizing" is not done then people will have to pay more to cover their full cost. Well, first, you can't have it both ways. If everyone took full advantage of what they are paying for, then there is no "subsidizing" and we all pay our own full cost. And if the goal is for everyone to fully utilize regular doctor visits, then achieving this goal means we all pay full price for regular doctor visits anyway. If "health care spending accounts" are used to pay for regular medicine, then people are incentivised to see a doctor regularly because they have money sitting in an account that is available to them for this purposes, which addresses the first counter argument. And how does the money get into this account? It gets there the same way our "insurance" premiums are currently paid. An additional benefit to this is that since we possess the money, we can see any doctor we want and obtain any services we want. Regular medicine now operates in a fully functional competitive market place which drives down cost and improves services. And the insurance companies don't take their cut.

This saves money because we are not paying a third party to write the checks for us. This drives down costs and drives up service because there is accountability and free market competition.

(2) For acute medical treatment, this is actually where insurance in conformance to the actual insurance business model actually works the way it is supposed to. It looks a lot like a regular auto insurance policy. You purchase a policy for a set period of time at a set price for set coverage. This doesn't pay for "regular maintenance" but only "accidents." Break a bone or have a heart attack or other emergency during the coverage period of the policy, and this policy covers the financial liability. This policy is cost effective and efficient because the financial liability to the insurer is well defined and they can construct an effective and efficient policy and premium structure. These types of problems are well defined and tractable, so we should isolate this class of problems so that we can at least keep the solution for this type of issue as simple as possible.

This saves money because the insurance company can focus on that which conforms to the well understood insurance business model and mathematics without have to also finance liabilities that are essentially 100% probable.

(3) The third category is somewhat trickier. This is where the conventional (as currently implemented) health care insurance fails as is a major contributor to the overall failure and expense of the current system. The problem is that what we have is what started as a conventional insurance business model that has been contorted to handle expenses and liabilities that don't conform to conventional insurance mathematics. From a perspective of current insurance, what we are expecting health insurance companies to do is the same as if we expected an auto insurance company to cover the liability for an accident we had before obtaining the insurance. The problem is that, as I have previously posted, insurance operates on a statistical mathematical principle called "expected value" which is a function of probability of an event. The problem with chronic illness is that the probability of a liability for treatment is 100%. When the probability is 100%, the price of the policy is simply set to include the cost of that liability. If you have an illness that it is known will cost $100,000 to treat, this means the "insurance" company know a priori that you will cost them $100,000. To charge you less that $100,000 when it is known in advance that they will have to pay $100,000 is not insurance, it is charity. And if they are going to charge you the $100,000, you would simply be better off just paying that yourself. Probably the best approach to this is something that would look more like a life insurance policy. You would purchase a lifetime insurance policy to insure against the onset of a chronic illness. Of course the issue remains as to what happens if you do not have such a policy in place before the onset of a chronic illness. Now, while this is still a form of insurance, it needs to be separate from insurance for acute problems. The issue is that these two type of insurance become unmanageable (read inefficient and expensive) when commingled. Separating these two forms allows the exclusive application of the most appropriate models to the particular needs of the particular issue.

The overarching objective here is to break the distinctly different factors apart so that the most appropriate, effective, and efficient mechanisms can be applied to each rather than an "every problem looks like a nail when your only tool is a hammer" approach. When we recognize that what we are dealing with is not one homogeneous issue but is comprised of distinctly different types of problems, we can separate them so that the best solutions can be applied to each. When we fail to do this, we have not only the complexities of each type of problem, but the added complexity of attempting to handle distinctly different problems with one all encompassing solution. The better approach is the peel away the simple problems and dispatch those with simple solutions. Paying for regular every day health care? Simple, just pay directly like any other regular every day expense. Have an isolated health issue? Simple cover that with insurance just like we carry auto insurance to cover accidents. We are already familiar with this type of insurance and it's operation, which is well defined. Now we are left with the somewhat more complex issue of chronic illness, but it is much more tractable now that we can focus on the specific issues of this type of problem without all of the distractions and complications of other unrelated types of problems.

This doesn't solve the issue of people who fail to properly obtain the necessary coverage and then become chronically ill. It also doesn't explicitly solve how to ensure that everyone has access regardless of financial means. However, what this does do is to peel away the "easy problems" and deal with those in a simple and effective manner. These "easy problems" are not held hostage by that which is at the kernel of the "hard problem." And once the kernel of the "hard problem" is isolated, it makes that much more tractable.

If we could adopt these solutions, we could then discuss how to make sure everyone has access. Also, once we have deconstructed health care into it's constituent problems, we can much more readily address how to handle government assistance to extend the availability of health care.