American-Style Health Care Reform
Paul Goodell
Health care reform seems to many Americans to be an issue whose time has come.
The reform option proposed by President Obama and Congressional Democrats is modeled on foreign, un-American systems, however, and aren’t consistent with the basic values and historical culture of the USA. It is true that America’s health care system is broken, but there are better ways to fix it than the one currently up for debate in Congress. Those better ways constitute American-style health care reform.
There are at least four factors that drive up the cost of health care. (Insurance company profits don’t come close to cracking this list, by the way. They constitute less than 5% of the cost of health care in America.) They are:
- Excessive litigation
- Coverage mandates required by state governments
- Insurance company administrative overhead
- Insurance company denial of coverage (often for pre-existing conditions)
Addressing these problems would likely eliminate 4/5 of the high costs of our current health care system. Slashing costs by 80% would make health insurance significantly more affordable for the millions of uninsured Americans, which would solve the problem of coverage. Americans would start purchasing insurance at the same rate they’ve purchased TVs and cell phones (two products that at one point were only enjoyed by the very rich, but which are now common even among the poor).
The question, of course, is how we can address these problems. I suggest four reforms that would directly do so:
- Institute a cap on “pain and suffering” malpractice awards.
- Allow people to buy coverage from out of state.
- Allow people to buy insurance with pre-tax dollars.
- End HMOs’ statutory immunity to lawsuits.
Allow me to explain.
Institute a cap on “pain and suffering” malpractice awards.
- This wouldn’t be a cap on malpractice awards per se, only a cap on the parts of an award that aren’t required to fix whatever went wrong. If a doctor’s mistake caused you $4 million of actual damage, you’re entitled to an award of at least $4 million. But such costs rarely constitute the largest part of malpractice awards. Usually the biggest part of such awards is the amount required for “pain and suffering”. Capping such awards at a reasonable amount — somewhere in the neighborhood of $500,000 to $2 million — ensures that malpractice litigation will address the problem it’s intended to correct: gross negligence or malfeasance on the part of a practitioner.
- Doctors often pay annual malpractice insurance premiums in the hundreds of thousands of dollars. Malpractice caps will lead to direct savings for patients because practitioners won’t have to pass on the exorbitant costs of malpractice insurance to patients, the way they often do now.
- There is no cost the health care delivery system that is not grossly inflated by the prospect of litigation. Insurance companies, pharmaceutical companies, manufacturers of durable medical equipment (like wheelchairs) or of standard medical equipment (like syringes), medical practitioners — all of them build the cost of malpractice litigation into their products or services, and pass them onto the consumer.
Allow people to buy coverage from out of state.
- Right now each state has a monopoly on insurance offered in its borders. People can’t buy insurance from a company in another state; they can only buy insurance from a company licensed to do business in the state they live in. This arrangement becomes a problem because of the many procedures and conditions state governments require insurance companies to cover. These coverage mandates drive up the cost of insurance by anywhere from 15-50% (depending on the state).
- For example, nearly every state requires insurance companies to include alcoholism and mental health treatment in their policies. Most people, however, aren’t alcoholics and don’t suffer from mental health ailments. Requiring every company to offer just those two treatments drives up the cost of health care by up to 13%. (This isn’t even taking into account mandates for expensive procedures like baldness treatment, fertility treatment, and breast reduction surgery that cost Americans who never use them countless millions of dollars a year.)
- It doesn’t matter how many mandates or how many fees or taxes a state government imposes on the health care system. That state doesn’t have to worry about losing businesses (and the tax revenue they provide) because its monopoly ensures that some companies will operate within its borders; most people need insurance, after all. Insurance companies can pass on the costs of coverage requirements and high taxes and fees to customers who have no choice but to buy their overpriced products.
- If someone who currently has to buy insurance from a company licensed to operate in New York (a state with a large number of coverage mandates and, hence, some of the highest rates in the country) could buy coverage from a company in Arizona (which has much fewer mandates and, hence, much lower rates), he’d save thousands of dollars a year.
- This would also force the New York state government to lower the cost of selling insurance there. If insurance companies could sell their products to anyone in any state then they would flock to states where the cost of doing business is lowest, and just sell their products from there.
- Also, allowing insurance companies to sell policies to people in any state means that they won’t have to follow the (literally) millions of pages of rules they currently need to in order to do business in 50 different states. This is the biggest cause of the many inefficiencies in so many coverage plans, and eliminating it will allow them to dramatically slash their overhead expenses.
Alter the tax code to allow people to buy insurance with pre-tax dollars.
- Today, most Americans have insurance through their jobs. This arrangement is really a relic of WWII, though. Because of the wage freeze enacted during the War — and not lifted for years afterwords — the only way for companies to compete for employees was through the benefits they offered. The IRS altered the tax code to accommodate this arrangement and allowed employers to use pre-tax dollars to purchase health insurance. The wage freeze ended in the ’50s, but the tax code was never rewritten.
- If someone wants to buy insurance as an individual, she has to wait before the IRS, the state department of revenue, Social Security, Medicare, and Medicaid each deduct their share of her paycheck. This means that she probably has only 60 cents of each dollar she earns to buy health insurance with — in stark contrast to her employer, who buys insurance with pre-tax dollars and has the full 100 cents. If she were allowed to buy insurance with pre-tax dollars, she would could afford better insurance products.
- This change would have far-reaching implications. If individuals themselves were customers on par with companies, and if their plans were allowed to follow them wherever they lived or moved to (which, if their coverage were tied to them, not to their jobs, would be the case), then the over-250 million insured individuals would together constitute a massive purchasing pool with tremendous influence. Then, the price of insurance would respond to consumer demand the same way the prices of most products (like cars, TVs, and cell phones) do: by going down.
End HMO and PPO statutory immunity to lawsuits.
- HMOs can almost never be sued for denial of coverage. They have the kind of legal immunity enjoyed only be foreign diplomats. Consequently, HMOs (and PPOs) bear almost no responsibility for denying coverage to people who may be entitled to it based on their insurance contracts and the premiums they’ve paid. Stripping these companies of their immunity will guarantee that HMOs will be much more attentive to the needs of their customers, and will only deny them coverage for clearly defensible reasons.
These reforms wouldn’t in themselves increase coverage. Instead, they would drastically reduce costs, which would allow the market to increase coverage naturally. More importantly, however, these reforms would be entirely consistent with the historical culture and values of America. They would provide for a robust private market; they would put the responsibility for health care primarily on individuals (who, in most cases, bear the primary responsibility for their own health status); they would drastically limit the scope and power of the federal and state governments.
The plan currently up for debate in Congress would accomplish none of these goals. It would increase costs; it would quash the private market for health care services; it would put the responsibility for health care primarily on the government; it would drastically increase the scope and power of the federal and state governments.
The lesson is clear: we do have a choice. The Obama administration and Congressional Democrats repeatedly claim that we have no choice, that we must accept their plan or permanently resign ourselves to the dysfunctional status quo. As has been demonstrated in this article, however, that is a lie. We do have a choice. We can choose American-style health care reform.
August 11th, 2009 at 2:42 pm
Paul, a couple of points:
1) You need broader tort reform than just malpractice to achieve the goals stated. Medical device manufacturers, for example, can’t be sued for malpractice, only for products liability. You would need to reform products liability damages. This would drive down not only the cost of health care, but of virtually everything purchased by consumers. It would also save businesses a lot of money, since there would be far less need for multi-million dollar commercial general liability insurance policies.
2) The best idea of all is to reduce severely state mandates on coverage types. For example, if auto insurers were required by law to provide full collision insurance, as well as coverage for the costs of maintenance, new tires, and brake pads, car insurance would be prohibitive expensive, as well. Auto insurance is affordable only because people can choose to purchase a fig-leaf’s worth of coverage if they want to. There’s no reason why, once the worst of the government-created market distortions are taken out of the picture, health insurance couldn’t work the same way. Of COURSE health costs are high when the government won’t permit affordable policies with minimal coverage to be offered.
This leads to a point you did not address expressly, but which underlies your entire post: health insurance is a commodity, subject to market forces, and amenable to market solutions. What it is emphatically not is some sort of “right.”
August 11th, 2009 at 11:38 pm
You’re right. Leaving out product liability tort reform was something of an oversight. I stand corrected.
As for the idea that health care is a right, it suffers from the fatal flaws that afflict any concept of “positive rights” — rights the state gives to you. Traditionalists and conservatives understand that rights can only ever be negative — rights you have that state what others cannot do to you.
So, for example, the 1st amendment to the US Constitution recognizes that citizens have a right to free speech. What we have understood that to mean is that citizens have a right to say whatever they want, wherever they want, to whomever they want (with very limited restrictions) without the government muzzling them. We haven’t understood it to mean that the government is obligated to provide every citizen with a platform and microphone to state their views. The right is a right to make our views known without government interference. Conceiving of it in any other way becomes highly problematic and entirely unworkable in practice.
So it is with any “positive” right. If the government were to treat health care like a real right — if they ensured that people could access health care whenever and however they chose (with very limited restrictions) — it would quickly bankrupt society. In truth, the government has to limit who can access it, when, and how. They have no choice. Those who claim health care as a “right” implicitly acknowledge this point whenever they propose or defend the idea of a panel that will review how health care decisions are made to maximize efficiency — i.e. to decide how (or whether) people can access the health care system. Any “right” that must be rationed, as health care must be (through the market or through the government), is simply not right.
To demonstrate this point, imagine a commission or panel of experts with a mandate to determine the legitimate expression of any right in the Bill of Rights. Would anyone accept it as legitimate if that panel told someone that he could only go to church for 30 minutes a week (to allow equal access for others) — or that he was allowed to worship Vishnu, Allah, or Buddha, but not Jesus or Yahweh? The very idea is ridiculous, and can only exist in a Statist regime like Soviet Russia or North Korea. That’s because freedom of religion is a real — that is, negative — right. It exists apart from any government action, and is prior to any such action. Any right that the state has to provide is simply not a right. Period.