We Do Need To Revamp Health Care

Obama has put forth his health care plan.  Understandably, within the constraints of this blog we cannot dissect every detail.  So let’s look at the broader points.  First, it takes much of the private market for health care and puts it under government supervision and administration.  Secondly, it taxes some segments of the population early, and promises benefits later.  Third, there has been a lot of horse trading to get the bill through, so special interests were able to lobby benefits that other groups couldn’t get.  For example, comprehensive plans offered by unions to their members come away scot free from any changes.  Plans that small to mid size corporations offer are taxed heavily.  By now if you have been paying attention, you know that certain Senators and Representatives were able to eek out tremendous advantages for their own states as well.

My question is “Why do it this way?”  Why not do it the simple way, that will cover even more people at a more cost effective price?  Changes in the way health is doled out in the US have to happen.  No one really argues with that. Here is how I would do it on a macro level.  As Wendy Gramm once said in a CME Board meeting before we started on the CFMA in 2000, “The devil is always in the details.”.  But you need a framework to build on.

The goal is to cover the largest amount of American citizens at the lowest price(not cost which is different than price)

First, let’s start with doctors.  The supply of doctors is restricted by the government via Medicare/Medicaid rules.  They only admit so many doctors to med school.  This supply is further narrowed because the AMA will only allow a certain number of doctors in each specialty.  You can only have so many specialists per specialty.  So when demand spikes, supply is constrained and prices go up. End the restrictions.  Train more docs.  Let them choose to practice medicine in any specialty or place they want.  They will make economic choices that are best for them.  The choices they make will be best for the entire medical market.  Coase theorem works.

I am not advocating admitting unqualified people into medical school.   Just admit more qualified people.  If you don’t have space, start more medical schools.

Once a doctor enters a practice he needs an army of people to keep up with insurance company bullcrap. Most of a doctors’ overhead will be to employ number crunchers to extract payment from insurance companies-or to pay insurance company premiums.  One of the reasons for this is the majority of bills in America are 3rd party payed.  You don’t pay them, your insurance does.  That is probably good for major operations and medical needs.  However, most of America just needs basic commodity care.

Next time you are at your doctor, ask him how much they charge for a vaccine or shot?  They won’t be able to tell you, they will have to look it up and see how they are going to charge you.  For commodity procedures, doctors should post the price in their office. Then you can comparison shop and choose where you want to go.  There are lots of places to get this sort of thing done besides a doctors’ office.  Take Care Health Clinic’s at Walgreen’s are a perfect example.  Posting prices now injects lots of competition into the doctor market.  The amount you pay will go down, and the amount of care being given will go up. Doctors will still make a profit, but they will have to figure out how to price things to make more or less on certain procedures.  Price will not be set by a central government controlled agency.

Everyone hates insurance companies.  They have mini-monopolies state by state.  End it.  Force them to compete.  They will innovate.  New policies will emerge for different segments of the market.  The price of insurance will come down, and the amount you can get will go up.  End restrictions on people trying to buy insurance as well.  Allow people to group up in creative ways to purchase insurance.  This will force companies to innovate more, and the price you pay will come down.  Insurance companies will also innovate to cover “pre-exisiting conditions” that they don’t cover today.  Why?  Read the next paragraph.

People of the US today choose if they want insurance.  Give them that choice if they are above a certain asset level.  Otherwise they have to buy insurance.  Bill Gates probably doesn’t need insurance.  Even the worst medical condition wouldn’t break him.  But a person like me needs insurance.  Single people after the age of 18 would have to buy at least catastrophic insurance.  This increases the pool of insured people.  That spreads out risk among a far greater population, and insurance companies will cover everything.  Besides that, we have already increased competition among insurance and doctors, so costs have come down.  If people are truly indigent, then the government would issue them a voucher to purchase insurance for their family.  We would “Nudge” (Richard Thayler) them with a few simple choices to choose from.  They could comparison shop for the best priced insurance like everyone else, but they would have to spend that voucher on some policy.  Whatever was left over they could keep for themselves. 100% of the US citizen population would be covered.

Lawyers are the bane of everyone’s existence.  They are the root cause of a lot of the high prices that you pay.  We would have to have tort reform to curb crazy or unending lawsuits.  The lawsuits over asbestos, and now mesothelioma, went from lawyers truly trying to help people to gigantic unending fishing expeditions that have bankrupted companies and courtrooms. Tort reform is a key component of any health care reform.  Doctors insurance premiums would also come down with tort reform.  35-50% of their premiums are charged because of the threat of lawsuits from lawyers.

Lastly, if the government were truly concerned with providing health care to all American citizens they wouldn’t tax it.  Incentivize citizens to get health care by allowing Americans to open a tax free account (like and HSA or MSA) and let the account grow tax free.  If you don’t need a lot of medical care, you won’t have to spend the money on it.  You can spend it on yourself.  This also makes it pay for Americans to take care of themselves.

That’s a pretty broad outline.  Democrats certainly have not proposed anything that resembles this.  Republican’s have proposed bits and pieces, but their proposal isn’t really bold.  It seems that both parties really want some government involvement so they can keep control.  What we really need is to own it and control it ourselves.  All the bits and pieces of legalese and restrictions and mandates that come out of the beltway just keep us further away from doing what’s best for us.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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