Skip to comments.How to Deregulate Insurance, Tame Malpractice, End 3rd-Party Healthcare, and Desocialize Medicare
Posted on 07/17/2004 2:29:42 AM PDT by Remember_Salamis
How to Deregulate Insurance, Tame Malpractice Awards, End Employee-Provided Healthcare, and Desocialize Medicare
By Remember_Salamis (My Name Removed)
Citizens for a New Contract with America
Insurance Deregulation Nearly every state in the nation has mandated health insurance benefit laws. Mandated health insurance benefit laws require that insurers provide at least a set group of benefits. Many times, these mandates demand that alcoholism be covered, mental health, acupuncture, massage therapy, and possibly even cosmetic surgery in the future (the medias obesity epidemic may prompt states to mandate coverage for liposuction and stomach staples). Most of these mandates are unnecessary, adding to the cost of health care. According to one study done by the National Center for Policy Analysis, these unnecessary mandates increase the cost of coverage by 15 30%. Interestingly enough, these mandates hurt small businesses and entrepreneurs the most. The Employee Retirement Income Security Act (ERISA) has a provision that exempts companies who self-insure from complying with these mandates. However, the smaller a company is, the harder it is to set up one of these plans. As a result, small businesses end up at a disadvantage when competing for talented workers and, in the end, cost competition. Removal of these mandates would allow small businesses to compete more fairly with large businesses. It would also allow many of the millions of Americans who dream of working for themselves to pursue their goals. Entrepreneurialism is the engine that drives our economic growth, but these catalysts are stymied by archaic benefit mandate laws. By reversing the trend of insurance regulation growing since the 1960s, we can allow millions to pursue the American dream and ensure a brighter future for us all. We can fix this problem by enacting the HR 3423, The Health Care Choice Act, sponsored by Congressmen John Shadegg (R-AZ), which would allow individuals and small businesses to purchase health plans across state lines (or over the internet) without regard to mandates. It would also allow employees who elect not to participate in employer subsidized health plans an exclusion from gross income for employer payments in lieu of such participation, and expand Medical Savings Accounts (MSAs). Speaker of the House Dennis Hastert has joined Rep. Shadegg in this effort.
Controlling Malpractice Lawsuits - Although malpractice rates have increased at only half of the rate of overall health care costs since the mid-1980s, the cost of malpractice is greater than the rate itself. Roughly $10B is spent on actual Malpractice insurance each year, but it is estimated that over $100B is spent each year on needless "preventive" tests in order to prevent lawsuits. Nobody has a true answer to the problem. Capping awards, the knee-jerk reaction, doesn't really work as shown in California and other states, but merely fattens the pockets of health insurers. Today I present a unique idea: tying malpractice insurance rates to the juries (and their respective populations) that award them. As a result, every time a jury awards a malpractice suit, they'll be raising their own taxes! There are two ways to accomplish this: government-provided malpractice insurance, or a voluntary agreement between responsible parties and the local government. The first option would simply socialize yet another one of the free markets functions. Option two would work much better by making the population from which the jury is drawn (county, city, district, etc.) to pay a certain percentage of the award given by the jury. The rate would be regressive so that the jury pool would pay a higher percentage of small awards and a lower percentage of large awards. This arrangement would be set up by a trilateral contractual agreement between (1) the municipality, (2) the insurer, and (3) the caregiver (hospital or doctor). The municipality would agree to pay the certain sliding percentage, the insurer would agree to a certain discounted malpractice rate, and the hospital or doctor (doctor if a private practice) would agree to lower fees. All agreements would be on a case-by-case basis, strictly voluntary, and all parties must consent (i.e. not mandated by law). What are the implications? Malpractice insurers share the burden of court decisions with the taxpayer, caregivers receive lower malpractice rates, and the public receives cheaper medical care. And what happens if a caregiver doesnt want to participate? If a caregiver who chooses not to participate is sued, the jury can award as much as they want without raising their own taxes. However, a caregiver who chose that option would be in effect raising his own malpractice rates and by allowing a generous jury to go unpunished, making his rates go up even farther. Benefits to the insurer are obvious (the government picks up part of the bill) and the local government benefits by receiving cheaper medical costs, which would be especially beneficial if that local government itself offered health benefits or health insurance. The only loser in this system is the trial lawyers, who will suffer from less malpractice suits. Of course, for this to work best there would need to be (1) a deregulated market as mentioned in section one and (2) at least a partially consumer-driven health care system, where we have pay-as-you-go insurance instead of the warped employer-provided type. The consumer-driven health care system will be discussed in section three.
End The Employer-Provided Health Care System - Simultaneously eliminating corporate taxes and the welfare that goes along with it (the two are roughly the same amount) while expanding President George W. Bush's Medical Savings Accounts (MSAs) to all Americans would (1) eliminate the tax incentive to "pay people in benefits" (2) allow Americans to save for their own high-deductible health insurance. This would lead to a truly consumer-driven market. There is very little cost awareness among insured consumers of health care services. If the cost of consuming a good is relatively low, consumers will generally consume more of them! This is especially true if a consumer gains little financially from minimizing their consumption. This is precisely the case in the healthcare industry, and it should be fixed by making American consumers, already cost-conscious in other facets of life, become cost-conscious about healthcare costs. This can only be done by making consumers pick their own healthcare plans. The consumer-driven health care system can be achieved by passing the Fair Tax Act of 2003, known in the House as HR 25 and in the Senate as S 1493. The FairTax would replace all income and payroll taxes for both individuals and businesses with a tax-inclusive 23% NRST. After implementation of the FairTax, all forms of corporate welfare will be eliminated. As a result, (among thousands of other benefits) corporations will no longer receive tax breaks for giving employees health insurance. Companies can then either (1) negotiate with healthcare providers for a lower price, (2) let employees pay for their own health insurance, or (3) provide nothing. Although some would keep their current benefits system, most would decide to give their employees extra money in their paycheck and let them pick their own health care plan. It is highly unlikely that companies currently offering benefits would choose to do neither. Disgruntled employees would either reduce productivity or quit and cost a lot to replace. The new system would be consumer-driven, with cost-conscious consumers making their own decisions for their own well-being. Just like employers have moved from the unaffordable defined pension plan to the affordable 401(k), so too will employers soon shift the burden of choice to their employee. Americans should choose the policy that best fits them. Some individuals might decide to purchase high deductible policies, minimize their use of health care, or countless other decisions. Introducing more aggressive price competition to the health care marketplace will lower prices and give consumers more bang for their buck. Eliminating employer motives to give employees a cookie cutter health plan by eliminating the tax advantage of doing so will go a long way towards opening the market up to competition.
A HealthCare Commodities Market? Long-term, the best option to provide medical care would be to provide universal catastrophic health insurance (CHI) to all Americans, coupled with Medical Savings Accounts (MSAs). Universal catastrophic health insurance is health insurance that provides fairly complete coverage against the high cost of treating severe or lengthy illnesses or disability, usually with little or no coverage for relatively minor expenses. CHI would ensure that all Americans are covered, encourage cost-consciousness for minor medical care among consumers, and bolster the entrepreneurial spirit by allowing employees to change jobs freely without worrying about health coverage. Just like any type of government-provided service, however, costs will spiral upwards over time due to a lack of competition, and is the reason that many conservatives oppose the idea.
I have a solution to the problem of competition in regards to CHI. I propose securitizing the health care market by setting up a commodities market for the buying, trading, and selling of insurance contracts. Heres how it works: Step 1: The federal government will establish requirements for what catastrophic health insurance entails (i.e. what will be covered under CHI).
Step 2: A universal evaluation process will be adopted that will assess health risk for every American, just like health insurance companies currently do. Each individuals risk will be represented by a number of points. For families, risk points can be combined so that an entire family is under the same plan, if they so choose.
Step 3: The federal government will establish a top price for providing CHI for six months. Medicare recipients will be under a slightly different system where entire health insurance plans are securitized and put on the auction block. Over time, these types of sales will be phased out as more and more Americans reach retirement with a MSA large enough to get them through retirement.
Step 4: Each American family or individual will be listed in a large database with their corresponding risk points
Step 5: Qualified health insurance carriers will then be allowed to bid on each individual contract.
Step 6: Bids will then be presented to Americans whose contracts are being bid on.
Step 7: Upon their approval, that carrier will become that Americans CHI provider.
Step 8: The price difference between the federal governmentss established fair Price and the cost of the contract will be reimbursed to the CHI recipient.
Step 9: A secondary market will be established where individual investors can purchase risk points bonds from the insurance carriers who own the contracts on the risk points. Insurance carriers can offer dividends or interest on these bonds.
Heres an example of how one individual contract would work:
The federal government has decided to pay up to $50 for six months of coverage for each risk point. Our case family was given the following risk points by the federal evaluation system:
Dad: 11 pts.
Mom: 12 pts.
Child: 6 pts.
Child: 6 pts.
Total: 35 risk points
So, the Federal Government is willing to pay up to $2000 for six months of CHI coverage for this family. One insurance carrier bids $42/pt., another bids $43.50/pt., and another bids $41/pt. The family receives these offers and decides to go with the lowest offer, $41/pt. As a result, the insurance company receives $1435 from the federal government. The Family then receives the difference in the form of a check for $565
With a Health Care Commodities Market, the federal government will be able to provide quality CHI at an affordable price through competitive bidding. Insurance carriers will be able to compete for insurance contracts in a free, open, and deregulated environment. Insurance carriers will also be able to easily pay out claims on CHI plans due to back-end funding through risk points bonds sold to investors. State and local governments will gain relief for medical services provided to poor children and the elderly (like Medi-Cal in California, which provides socialized medicine to over 6.5 million Californians). American corporations will benefit from no longer having to worry about providing health care to workers in an environment of skyrocketing prices. Small businesses will be able to fairly compete with the big boys for talented employees because the advantage of offering large group health plans will be greatly diminished, allowing small businesses to offer the same benefits packages as large corporation. No American will go uninsured any longer; Medicare will be phased out and replaced by MSAs. History has proven time and time again that free markets provide the best venue for the exchange of goods and services. One day, we will look back to today, when we decided to unleash the power of the securities market to save the American health care system.
It's going to be essentially a constitutionalist/libertarian group who is somewhere between "Austrian" (Von Mises) and "Chicago School" (Milton Friedman) when it comes to economics, and mildly neoconservative on foreign policy. Let me know if you're interested in joining up with me.
What about my boat insurance?
Can I still save a load of money with GEICO?
I concur with your thoughts on health insurance. Steve Forbes tried to make this the centerpiece when he ran for the white house. He just couldn't explain it succinctly like you just did:
To compare the current health insurance to your boat, it would be like having your boat insurance pay for scratches resulting from rubbing up against the side of the dock. Or with home insurance, like fixing a leaky faucet or a broken window.
I also endorse your doing away with the Employer-Provided Health Care System. This was started during WW II because of the wage price freeze. So the only means for attracting employers was to provide this benefit. That Employers can write this off as a cost and individuals can't isn't equitable.
I'll admit that I suffered from MEGO concerning your formulations for "state run" catastrophic health insurance market. Reacting from the gut I'd be against Federal involvement. That said, I'd say you've made a good start. I'd like to see some input from the insurance industry people.
My initial perrusal suggest you are quite serious about the issue, and it may have merit.
Of late insurance companies have been pressuring to have many prescription drugs (i.e. cholestrol reducing drugs) designated as OTC (over the counter). This sounds good at first, but once a drug is OTCed the drug companies can charge any price they want. That is why medical insurance providers own drug stock. I'd fly this past BC/BS... get their input. If they don't like it..., I'd vote for it.
Very important topic. BTTT
Malpractice cases should be tried in special courts, with juries consisting exclusively of physicians who are specialists in the field in question. The idea of a bunch of average citizens trying to determine whether a physician's handling of a patient was correct, is preposterous, as is the idea of letting these people determine the amounts of awards (Philadephia, for example, is notorious for assembling juries of barely literate welfare leeches who treat the award process as if it was handing out lottery winnings -- and needless to say, these dimwits are easily misled about facts by John Edwards-type attorneys). The regular court and jury system should only be used for physicians in criminal cases, where the alleged wrongdoing doesn't involve medical judgement -- e.g. the case of the NYC surgeon who carved his initials into a patient's abdomen, and the case of the Boston surgeon who abandoned a patient for over an hour mid-surgery while he went to the bank to deposit his paycheck.
One of the best things about your scheme is that reinsurance becomes a matter of simply creating derivatives against the original instruments that you created.
The human animal much prefers the intoxicated state and the medical industry is happy to oblige, until this is made opprobrious, nothing will likely change.
Probably the best paper EVER written on the problems facing Health Care in America was written by Milton Friedman.
Thanks I've saved Dr Friedman article for future reference.
What about the free stuff?
"Healthcare" is "free". The government gives it to us.
Most people, especially if they're from a great generation, really, really like free stuff.
What about that?
Bad idea for several reasons.
First as physicians, especially those within a given specialty walk in the same circles, go to the same meetings, are friends or are sometimes competitors who intensely dislike one another. To think that they will ignore their personal relationships is unrealistic
Second as a physician I don't want to be pulled away from work, from my patients, for a week or more at a time to deal with a court case. My patients won't like it either, at all. Yes I have some collegues who could cover but alot of private physicians don't. What do they do shut down their practices for a week? What do their patients do?
Three, not all malpractice cases involve just doctors. Many involve hospitals- what are you going to have a jury comprised of hospital administrators and doctors. Some involve medical supply companies (like a Johnson and Johnson case from some years back in which they distributed faulty surgical sutures). What's going to be done in that situation include corporate executives with the physicians
As for the awards the economic damages are all statutory. A person who is X old making Y amount of money is worth Z. A brain damaged baby (product of a botched delivery) is worth 1 million dollars (unless the statutes have changed in the past few years)
As for pain and suffering damages, alot of states have already capped it. In Texas, the amount is $250,000 dollars for all litigation, medical, industry, whatever.