Wednesday, October 08, 2008

Random Musings on Health Insurance

In reading articles and comments on the candidate's health plans, there seems to be some things that aren't being said. Everyone knows the problem: costs are skyrocketing. Some blame can be attached to big drug companies, etc., for recouping costs of drugs in such a short time - drugs they most likely got government grants to develop in the first place. Some can be attached to medicare and medical insurance allowing prices to skyrocket out of the reach of the typical consumer (you can't win bidding against a consortium). Regardless, it's insane. Take for example a recent bout I had with companies about some back problems D has. First they want to call it a pre-existing condition. Then they argue about referrals. Finally they pay their share of the MRI and a few physical therapy appointments, and we're down to the copay. Over a grand of copay. As for myself, thank God I got onto his plan. Costing more than my house payments, COBRA was totally unaffordable.

But from what I'm seeing, we're not really wanting health insurance. Recall how insurance works normally. We know that disasters happen. We know that they aren't common, but they inevitably will occur. We know that an individual faced with disaster can be wiped out. So we decide to pool resources - we all pay in a little, with the money from the pool going to cover any one of the pool members who faces a disaster. In the interim, the company is supposed to keep the money safe (Listening, AIG?) and pay it out when needed. Pretty easy to understand when we're dealing with homeowner's and so forth. The thing is, the pool won't want to allow a guy who, say, builds his home next to a river that floods every year. Then they keep paying out to that one guy more than they ever get in from him, so they eventually go bankrupt. If they do let him in, they want to charge more from him to cover those losses.

Health insurance works much the same way. Pool the money, pay out if there's an unexpected disaster. Problem is, they don't want people in the pool who are facing expected disasters. Particularly at these rates. See, if you've got that guy who is living in a body that is flooded every year with health problems, you can't possibly charge him enough to cover the amount you'll pay out (unless he's Bill Gates, and then what the hell does he want to pay you for anyway other than the collective bargaining power over prices). They want that guy out. And if that guy is you, or your father, or your kid, thay don't care. Letting you in screws up their actuarial tables.

Last night, McCain indicated that healthcare was a responsibility, and Obama said it was a right. Neither works under this model. Seriously. It doesn't matter how responsible you are, you're not gonna get in the pool if they can find a way to keep you out. And guess who writes the contracts? You got it. I was in-house in insurance a while back when it became fashionable to declare that black mold was responsible for a gagillion different medical conditions, from the logical (respiratory issues) to the illogical (everything including hangnails). The first thing the homeowner's companies did was to write an exclusion to keep out mold claims, either by limiting them to cleanup costs, or excluding them altogether (that latter being huge overkill IMHO). Risk managed. And, really, you can't blame them. Letting you in would mess up the pool. So it really can't be a right, either, or it's simply not insurance.

But nobody wants to be the guy who isn't in the pool. Nobody wants to be told: there's this simple procedure that will save your life and your health, but it costs $5,000 and you're going to die because you can't afford it. Nobody wants their parent to be the guy ouside the pool, and especially nobody wants their kid to be that guy.

IMHO, it's time to talk about the elephant in the corner. We talk about "fixing" health insurance, when really what we're talking about isn't insurance at all. But nobody wants to be the one who says it, because then we conjure up words like "socialism" and images of rationed medicine. Nobody wants to be the guy who has to wait eight months to get a procedure, either. We want to be able to walk in, get fixed, and walk out. There's kind of a mob mentality hovering in the background - we would like to think we're pro-healthcare for other people, but if it means that me and mine might not be able to get it right away, well, screw them. We're afraid that if we try to open up the pool to everyone, it's not going to be convenient, it's not going to be as nice, and hell, people could die anyway if we do end up having to ration things, so why not keep things how they are?

It seems we're screwed either way, so many people are saying "what the hell, let's do it" and many are saying "don't mess with it, in case what we get is worse." Here's a suggestion: Call out the elephant in the room. Call it what it is - healthcare entitlement. Don't be afraid of it, it's just an idea. We're thinking about it anyway, let's just be brave and name it. Now, let's take a look at the thing. What have other countries done? What's worked? What hasn't? Is there a way we can hybridize the thing, to capture both the benefits of the free market system and the entitlement system? Are there ways of making it less dangerous - like attacking medical costs, not just how we pay for it? For example, many people have mentioned tort reform. I'm not a big proponent of "loser pays," but I would like to see the rules for throwing out frivilous suits enhanced. I would also like to see the rules for mass torts changed so that it doesn't end up that a law firm makes $4 million out of the deal and anyone who was harmed gets a $5 coupon for their next purchase. Are there ways of lessening the costs of a medical education? How about prices for procedures - any way to make bidding more competetive or price fixing? I happen to know that in tort settlements, the medical bills are routinely slashed in half as the last move, which makes them roughly on par with what medicare/medicaid pays for the same stuff.

With regards to the plans actually on the table, I think Obama's is better, for a few reasons. First, tax credits don't mean a damn thing until after you pay the premiums. Unless you can afford it up front, you won't get the credit. Second, it seems more cost-effective. According to this Wall Street Journal article: 1) McCain's plan will be slightly less expensive than Obamas, at 1.3 trillion as opposed to 1.6 trillion over the next 10 years. 2) The extra .3 trillion in Obama's plan will eventually (no clue what that means) cover 34 million more people. Third, I think that if we really want to make sure everyone has "access" to health care, we're eventually going to have to go with this model anyway.

The insurance industry is a business, it is not an entitlement program. It cannot, and will not, allow everyone in the pool. You just can't do it, based on risk/loss calculations and actuarial tables. If we want entitlements, we'd best (sigh) give it to the government. Obama's plan is nice because it allows for both - private if we can get it, public if we can't.

We need to understand what it is we're talking here, and stop misnaming it "insurance" as if that will magically make it so. We need to break out the evil word "entitlement' and make a rational decision, calling this puppy what it is. If we decide to go there, we do have to be informed and prepared for adjustments to be made as we shift systems - waiting longer for care, possible shortages, etc. If we decide that we don't want to change, then we can certainly stay with the insurance pooling model. But we really should look the damn thing in the eye as well and make that decision, that we don't care if anyone's left out of the pool, in fact we agree and accept that people will be left out of the pool, and we promise not to bitch if and when we're that guy standing at the edge of the water and fighting for our lives, watching everyone who is in the pool ignoring us while we die.

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