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Thursday, 17 May 2007
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How to Fix American Health Insurance in 4 Easy Steps

I'm constantly amazed at the idea that a nationalized health insurance system is considered by many to be the only viable solution to our current problem.  When you look at all the types of insurance, health insurance is the only one that seems to be a problem.  And interestingly enough, health insurance is the one with the most government regulation.  I know... shocking isn't it?  So what is the typical liberal solution a problem that has been caused by government over-regulation?  More government regulation... of course!  So for your benefit... here is Nick Schweitzer's solution to the health insurance crisis.

Step 1:  Abolish All Laws Requiring Company Sponsorship of Insurance.  I make this step one because it is the biggest problem in health insurance today!  Forcing companies to sponsor health insurance plans has caused the majority of our problems.  One of the primary issues with company sponsored plans is that they are group underwritten.  That means that a corporation asks an insurance company to underwrite the company as a whole, not the individual people.  The result is that young healthy people pay more than they would normally have to in order to subsidize the older and less healthy people that work at that company.

This does a couple things.  The first is that it discourages people from making healthy choices in their life because they have young healthy single people to subsidize them.  Secondly, it discourages real competition to lower prices, because insurance companies are really trying to woo corporate clients, not individuals.  You end up having to pay whatever your company tells you to, so price becomes less of a deciding factor for you as an individual.  And because of the tax liability that comes with buying your own insurance, you're stupid to not use your company sponsored insurance.

You don't get car insurance, or home owners insurance through your company.  Why should you get health insurance?  And if I leave my current employer, why shouldn't my health insurance go with me?  It could, if I'm willing to pay for COBRA... but the COBRA rate for me will always be higher than if I were to go to an insurance company and ask them to underwrite me as an individual.  The only reason I continue to pay for a company sponsored plan is because of the tax liability.  Company sponsored plans are the only ones that can be paid for with pre-tax dollars.

Step 2:  Allow Any Insurance Plan to be Paid for with Pre-Tax Dollars.  As I said above, the only reason that I bother with company sponsored insurance is because it ends up being cheaper than an individually underwritten plan.  But the only reason it's cheaper is because I'd have to pay for an individual plan with after-tax dollars.  Believe me, given the choice, I'd rather get a raise equivalent to what my company pays for my insurance, and then buy my own with pre-tax dollars.  Then that plan is mine, no matter where I go.  If we as a nation want to make health insurance a national priority, then making any plan payable with pre-tax dollars is a no-brainer.

Step 3:  Remove Restrictions on HSA Plan Purchasing.  Currently you can only contribute to an HSA (Health Savings Account) with your pre-tax dollars if you have a "qualifying health plan".  Those qualifying health plans are generally high deductible plans.  But why is that?  If you want to store up pre-tax dollars to pay for medical care, why should you be forced into a high deductible plan?  Why shouldn't people with low deductibles be given the same option?  HSA's are a fantastic option for people, because it allows them to save up money for a rainy day, and not pay taxes on it.  The problem is that there are so many restrictions on them based on the type of health insurance you have, that they are a tax quagmire of confusion if you happen to go from a high deductible plan to a low deductible plan.

Step 4:  Remove Regulations on What Must Be Covered.  If we do the first three steps, then this fourth one ought not be a problem.  If we allow people to buy their own insurance from whatever company they choose like they do for every other insurance in existence, then there shouldn't be a need to force insurance companies to cover certain things.  When people go to a company to buy their insurance, they would get to weigh the cost of certain coverage vs. the benefit.  If they decide that they don't want to pay the increased rate, they wouldn't have to.  If you combine that with the safety net of an HSA plan, it's actually a pretty good deal.  I'm always amazed at the liberals who argue for increased regulation in what has to be covered, and then complain that people can't afford health insurance.  That's like requiring that all cars have V8 engines, climate control, and GPS, and then complaining that not everyone can afford a Cadillac.  We should let people buy a Chevy Metro if that's all they can afford.

That's it.  If we were to do these four simple things, I guarantee that health insurance rates would begin to go down.  If people are curious, I can go into more detail on any of my four steps.  I have a surprising amount of knowledge in these areas.  But remember Step 1.  Group vs. Individually underwritten plans are the dirtiest secret in health insurance today.

# Posted at 09:22 by Nick  |  Comment Feed Link 8 Comments  |  No Trackbacks

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Thursday, 17 May 2007 10:32:28 (Central Daylight Time, UTC-05:00)
I think your four steps work well for fixing the problem from the client side. But the interaction between health insurance and the health care profession should be examined too. Most doctors pay more in malpractice insurance than I earn in salary - this in turn elevates the doctors' salaries, which in turn elevates the price of health care, which elevates health insurance premiums. More directly, health care prices are artificially inflated so that when a slightly more honest price is given to an insurance company, the company thinks it's getting a deal. The health care and health insurance relationship is complex enough that I don't feel confident suggesting a solution - but any complete answer to the problem will address both your four steps and this side of the equation.
Thursday, 17 May 2007 10:33:32 (Central Daylight Time, UTC-05:00)
I agree completely with all but #3. Well, I'd agree with number 3 if you also removed the requirement that hospitalas have to treat people even if they can't pay. Because that's basically what the requirement of high deductible catastrophic policy is for. In case someone who only has $5000 in his HSA ends up with a $1,000,000 injury, the catostrophic policy, not the Hospital, would cover the cost. In fact, I think that people should be required to have a high deductible policy even if they don't have an HSA (just like we're required to have auto liability insurance). And I would even support some sort of government funded voucher to help poor people buy it. This is essentially the plan advocated by libertarian economist Arnold Kling.

Other than that though, I'm totally with you. All of the regulations have turned health insurance into something that is most definately NOT insurance. It's just splitting the check, or passing the buck.
jesusisjustalrightwithme
Thursday, 17 May 2007 11:50:36 (Central Daylight Time, UTC-05:00)
One more Nick, open up interstate commerce.

We are stuck in say Blue Cross Wisconsin land, well we might get a better deal from some outfit in Idaho.

Now we are forbidden from buying from that out of state insurer.

Removing trade restrictions and stupid federal and state laws are the key, let the free market sort things out.
Thursday, 17 May 2007 12:13:46 (Central Daylight Time, UTC-05:00)
Not necessary Fred... as long as step 4 is followed. The only reason why that idea is being pushed (mostly be Sensenbrenner) is because some states have over-regulated their own insurance companies. But if Step 4 is followed, then the need for it disappears.
Thursday, 17 May 2007 13:05:32 (Central Daylight Time, UTC-05:00)
"The result is that young healthy people pay more than they would normally have to in order to subsidize the older and less healthy people that work at that company."

Yoou won't complain about this any more when you are twice your current age and have a wife with diabetes and high blood pressure who is awaiting a little more technical progress before getting her knees replaced.
Friday, 18 May 2007 14:50:53 (Central Daylight Time, UTC-05:00)

I didn't quite catch how this was going to help with covering the 64M people in the US without insurance. Isn't that the real problem?
Vic
Thursday, 24 May 2007 23:01:44 (Central Daylight Time, UTC-05:00)
Very well thought out ideas. However, couple of inaccuracies. Insurance plans implemented at large corporations really don't take into account age, disease succeptability etc. barring some rare cases. In fact, they realize that they will probably engage in profitable concerns with a client for less than three years. Hence preventative medicine is the major stumbling block in efficient total disease management under our current private enterprize system. Why should we pay for preventative drug treatments that could mitigate later more expensive hospital engagements, when these patients will no longer be under our management...It's classic pass the buck. The other major problem is that there is no transparency in hospital billing. Clarity in pricing alone (what insurance companies pay healthcare providers vs. what they bill) could eliminate many inefficiencies
todd turner
Friday, 25 May 2007 08:00:23 (Central Daylight Time, UTC-05:00)
Actually Todd, I cover that briefly when I talk about the differences between Group Underwritten vs. Individually Underwritten plans. If more people used Individually Underwritten plans, then things like preventative care, and risky behavior (smoking, obesity, etc) would be taken into account when determining your premium.

Also, if people were to shop around more for health insurance like they do for car insurance or home insurance, then that would force more transparency, and force more accountability on hospitals. Because most people can't shop around due to their employee sponsored plans, this accountability really isn't there.
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