Health Insurance, Competition, and Socialization

I am no fan of government involvement in commerce, even when the industry is health care. As with most government programs, the three arguments are simple: First, it is quite illogical to think that we can funnel money through a string of middlemen, each of which receives their cut, and come out ahead. Second, the more the government controls the money, the more they control everything else. We see this in the recent bailouts of banks, where CEO’s were deprived of their prearranged bonuses by force, and also in the car manufacturing fiasco where the government first handed the money and second forced a government-arranged bankruptcy. The fear is that when the government is funding health care, the government will tell doctors and patients their options. Finally, every other experiment the government has made in taking over an industry, however charitable, has been a money-draining disaster with worse results. For example, consider social security or the public education system.

Obviously there are other concerns with a socialized, or even a partially socialized health care system. If things go as they have in Europe and Canada, lines will be long, doctors scarce, and treatments almost rationed (or chosen for their cost efficiency rather than effectiveness). Private health insurance companies (which insure no such thing) may be put out of business. Perhaps they ought to be put out of business, but the government is hardly an improvement. We might worry about fraud, or about people taking advantage of services that cost them nothing.

The Problem with Health Insurance

There are two reasons why the people want the government involved in health care: Many individuals are not insured and cannot afford the high costs of treatment or even of preventative checks. As an act of charitable compassion, some people argue, the government should take responsibility for these “underprivileged.” Others, many of whom work in the industry, agree that the present health insurance system is not as good as it ought to be, and think that the government should fix it. Not surprisingly, these two groups of constituents are looking for very different things from their government. But they each voted for the same man as president because he at least sounded concerned about the issue.

Status Quo

I realize the relatively-free-market health insurance system is not meeting needs, though I believe a free market solution would be better. Let me describe the problem. An insurance company takes money monthly to insure you and your family. They put that money into a pot, part of which goes to pay their employees. The rest is a bet they make that you will not need the full amount of your premium. Sometimes they lose the bet, but as long as they don’t lose too often, they can apply the extra money they charged you to the bills for other people. To keep their costs down, insurance companies tend to be selective and difficult about accepting claims. They use different ploys, like keeping the most expensive treatments out of formularies; claiming that the treatments are experimental or cosmetic; restricting the doctors you see to those in a pre-approved network; or by prohibitive referral processes. Insurance companies sign contracts with in-network doctors agreeing to pay a certain amount for specific services – usually an amount less than that which the doctor would usually bill. This though it actually costs a doctor more to bill an insurance company, due to the amount and hassle of paperwork required. On top of this, the insurance company usually requires you to pay a copay or percentage of your bill. Or another old-fashioned, lower-priced option is to have a deductible. In this system, the patient pays for routine care and emergency expenses up to a certain amount (which they may or may not exceed in a year, and would probably do better not to exceed), at which point the insurance kicks in with a discount or normal coverage. More on this later.

To compensate for the arbitrary reductions that insurance companies make to the amount of a doctor’s fee, doctors are almost forced to raise their prices to fool insurance companies into paying them what they need to make a living. Competitively low prices have been eliminated by an across-the-board amount insurance will pay. What is to be gained by a doctor charging the insurance less than they have agreed to pay?

The Corporation Aspect

Insurance companies, except for Medicaid and Medicare, have been private enterprises, required to compete for customers. To gain a competitive edge, there are several options. The most obvious is advertising. Name recognition is important. Companies can advertise having a large pool of doctors in their networks, easy paperwork, comprehensive coverage, low premiums, small deductibles or copays, perks like inexpensive prescription drugs, or customized get-only-what-you-need plans. The problem is, insurance companies as a rule have become accustomed to advertising to corporations or businesses, not to individuals.

Enter Government Interference

I have not studied how the benefits became a normal offering from a corporation to its slaves, but I suspect taxes (translate: government interference and manipulation) have something to do with it. This is what I know. Businesses are taxed on the amount of money they pay their employees. Employees are taxed on their income. Some things on which people spend their money are tax-exempt (food and medical expenses in most cases). Perhaps businesses sought to increase the incentive to work for them by offering the untaxed add-on’s?

(excerpt from an article at http://www.ebri.org/publications/facts/index.cfm?fa=0302fact: “In 1910, Montgomery Ward entered into one of the earliest group insurance contracts. Prior to World War II, few Americans had health insurance, and most policies covered only hospital room, board, and ancillary services. During World War II, the number of persons with employment-based health insurance coverage started to increase for several reasons. When wages were frozen by the National War Labor Board and a shortage of workers occurred, employers sought ways to get around the wage controls in order to attract scarce workers, and offering health insurance was one option. Health insurance was an attractive means to recruit and retain workers during a labor shortage for two reasons: Unions supported employment-based health insurance, and workers' health benefits were not subject to income tax or Social Security payroll taxes, as were cash wages.

“Under the current tax code, health insurance premiums paid by employers are deductible for employers as a business expense, and are excluded, without limit, from workers' taxable income.”)

Why is this adverse? As long as the employees of the company are not complaining – or in worse cases, not threatening strike or resignation – the corporations are under no pressure to do what is best for the patients. They will buy insurance plans that cost them the least money. Even if two plans cost the same low price, how is a corporation to know which health insurance provider will offer better service?

Starbucks and Competition

Let’s compare this to something simple and familiar: Starbucks. On every corner, there is a Starbucks. One might be on your way out of your neighborhood when you’re headed to work. Your grocery store might have one in the corner. Or there may be that chic spot where you always have coffee with your girlfriends. Which Starbucks do you patronize? There might be a friendly Starbucks, a convenient Starbucks, the one with the drive-thru or the excellent customer service. You might prefer a clean Starbucks or a less busy coffee location. A few Starbucks offer different selections for their bakery, or later hours. If you ever have a bad experience at one franchise, you can switch loyalties and frequent the Starbucks across the street.

Now what if the company you work for, as part of your compensation package, had agreed to fund your Starbucks addiction? Yet for their convenience they bought a package with a single Starbucks site for all of their employees. To use your benefits, which your company already paid for, you must go to the Starbucks they chose. The person who selected the corporate Starbucks didn’t even like coffee, has no idea where you live or whether you like bakery items or drive-thrus. But now you’re stuck. To take advantage, you have to drive clear out of your way, get out of your car and walk in, only to find they don’t have the muffins you like and the barrista is grumpy every day. If you get ambitious, you may complain to your human resources department in hopes that they would change coffee shops for you. But then someone else is unhappy, because they don’t like the busy, cramped feeling of a drive-thru when they’re reading their novel in the corner, hugging a cardboard-ringed cup of coffee.

What’s more, as this trend catches on, more and more businesses start choosing a Starbucks for their employee benefits. Starbucks realizes that they can earn as much by pleasing one corporation as they could by catering to a thousand individual customers. Once the contract is landed, there’s almost no possibility the business would pull out. Service wanes, options are reduced, prices inflated, and soon no one who is not part of a corporate plan can afford to buy Starbucks. Opting for your old favorite Starbucks near your house with the drive-thru and muffins costs you an arm and a leg – and they don’t even have muffins anymore, because that isn’t part of the plan the corporation who chose them wanted. Your neighbor has to give up his Starbucks addiction because he is self-employed and can’t afford it.

And the economics get worse, because your wife and kids used to love Starbucks. The corporate plan includes them (and the trend has made it impossible to afford mocha frappachinos anywhere else), only at that one Starbucks. To reduce corporate costs, though, they start to restrict the family plan. Wives and kids under 18 can be included for now for a monthly fee. After 18, if they enroll in college, the company will still fund their Starbucks life – who knows why the company cares. Then all of a sudden, at 25, no matter what your family values or circumstances, your kids are no longer covered. “So get over it,” my reader says, “It’s only coffee.”

Dire Consequences

But I’m not talking about coffee. I’m talking about health care, without which you will live with chronic pain or illness. When you break a bone and can’t afford the X-rays and doctor’s visits, you forever cripple yourself, limiting your employment possibilities. Or you may die, after exposing your community to sickness. And remember, the reason an average uninsured person cannot afford basic health care is because the prices are inflated due to insurance policies and corporate-appealing non-competition.

Every Man for Himself

In the Starbucks illustration, I even skipped a step, eliminated the middle man. That middle man not only harms you, the patient, but also the doctor. And the less lucrative it becomes to be a doctor, the less people want to be doctors. When there are not enough doctors for immediate care, you wait. The service gets worse, more and more limited because all these unnecessary people are skimming off their share, and there isn’t enough money to pay for what is needed at the inflated prices. But everyone is out for themselves, including the patient. They’re going to get the most they can out of their coverage, too, taking advantage of any free or fully covered procedure, necessary or not. These procedures have their place, and their price, but are not for everyone. Someone is paying for them, even if it is not the patient, and no one is benefiting.

How the Government Makes Things Worse

An astute observer may already have realized that if the government takes over the Starbucks plan system, the problem is only going to get worse. There will be even less competition; more cost-cutting standardization of inventory; and less incentive for providers leading to less providers and longer waiting and higher costs. This is not even to mention the regulation that will accompany the government plan, or the government-funded coverage for those who could not afford health insurance under the old system.

Creation Rather than Creativity

Nevertheless, the Obama administration presses on towards a government option for health insurance. A nation already so much in debt that it cannot hope to get out of it, threatened with economic collapse, high unemployment, and runaway inflation is going to invent more money (and possibly also increase your taxes) with which to provide health care to its poor. The US may be able to create dollars ex nihilo, but it cannot create doctors, and we are going to run low.

Government Advantage

What’s more, this government plan will have the unmatchable advantage of an endless supply of money for which they will have to give little account, as opposed to the private competitors who have to make do with what they can collect by way of premiums. Analysts fear that private insurance companies will be shouldered out of business by the government “option.” Corporations will not choose to carry the expense of health insurance when their employees could get coverage from the government.

Rationing

Others who risk prophesying anticipate a responsible government (don’t know where they got that idea), which will limit the amount of imaginary money they’re spending, and be forced to ration care. Even aside from the money, as I said, fewer providers in business may demand rationing, too. The most fearful consequences of this potentiality are the way decisions will be made. Would a rationing system choose a younger person for care over an elderly person? If your condition is the most expensive to treat, would you be left untreated? Or perhaps your chances of survival are small, so there will be no attempt made to save your life. An extreme government might choose by party loyalty or by race. When choices like that have to be made, motives become suspect.

Forecasting Good Things

Now for the bright side. Barring a law prohibiting paying for your own care or health insurance, the private half of the system might be improved by this sudden competition. If under a national health care system you cannot get treatment or if you doubt the quality of the treatment, you may take your savings and pay dearly for health care yourself. It will be interesting to see if all doctors will be required to accept the government health plan, or if they will have the option of demanding private pay.

Free Markets Fight Back

When corporations start dropping benefits from their compensation packages, employees worried about the level of health care they might receive under a government-run plan will have the competitive option of buying health care for themselves and their families outside of the corporate insurance model. I believe the best option for reforming the health care industry is to make just this shift, to competing for the business of the individual rather than the company. Already I see insurance companies marketing to that class of consumers. Such policies would be most efficient as catastrophic coverage, for medical expenses exceeding tens of thousands of dollars. Patients would pay out of pocket for routine medical visits and simple treatments like antibiotics, but in case of surgery, hospital stays, or a disease like cancer, those high costs would be covered.

The Answer for the Poor

In either case the solution requires that you have enough money of your own to pay for health care. Most people do not. So in the end we may survive this government takeover only by prevention and caring for each other in community. Eat healthy. Wash your hands. Get enough sleep. Join a community of people who are going to watch your back – maybe even an insurance community where you all save your money together, agreeing to help each other if any of you incurs a major medical expense.

To God be all glory.