Wednesday, July 29, 2009

Understanding What's Going on with Healthcare

This post is going to examine in shallow depth a lot of what's going in with Healthcare reform right now. I feel like the confusion that a lot of people are feeling is making them risk-averse (at least that's my impression among friends and family), so I'd like to take a stab at explaining things.

There are two major issues with healthcare in this country that Washington is attempting to fix. 1) Healthcare costs 16% of every dollar made in America and the cost is growing faster than inflation, which is unsustainable and too expensive already and 2) we're the richest country on the planet and many people in this country can not afford sufficient healthcare. Since the lack of coverage problem appears to be less present to people than the financial issues, it is useful to reformers to note that getting universal coverage will help to reduce the cost of the system.

Healthcare costs are increasing for many reasons. High priced and cutting edge treatments is just one cause. The system is tilted toward doctors spending more money (since they get paid for each test they run, rather than for successful results, quick fixes are discouraged even if they're the better treatment). The insurers take a large percentage for profit. Every service essentially has a tax built in for the uninsured as we need to subsidize the costs of emergency room treatments.

It is known that a large number of people are uninsured. The White House claims it is 46 million people, reform opponents say it is much lower - but that entirely misses the point, I believe. This is the United States, richest country in the world and in all of human history; and we are not the top in the world in providing care for our citizens? The Declaration of Independence does state: "We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." However, even beyond the general understanding that there is a problem, people always think it's someone else's problem, since most of us do have insurance. However, that's because most people don't realize how easily they could lose their insurance. Whether being fired or changing jobs, we can easily find ourselves without insurance and excluded due to a pre-existing condition.

So how can we solve these issues... There is much saving that could occur if we bring uninsured people into the system. Emergency care is the most expensive type of care, but the only type available to the uninsured. If we get everyone insured, emergency costs will decrease greatly. We can also save money by taking away doctors' incentives to order extra tests. Certain institutions (like the Mayo Clinic) have gotten great results putting doctors on salaries so that they are not rewarded based on the number of tests they order, but instead by healing their patients. However, this is only going to amount to some of the cost (estimated at $100 Billion a year) required to fund the new covered people. We'll need to raise more money from some other sources, possibly 1-3% taxes on earners making over $1 million a year. However, the way the system is currently designed, if we institute reforms the savings will just disappear into the insurers pockets, costing citizens the same amount. That is the purpose of the public option (explained below).

Under the reform plan, all citizens will be required to have insurance. If you can't afford it, then the government will pay for it for you. You can choose any plan that is available for the value of the government subsidy, whether public or private. The public option will be based on Medicare. Medicare guarantees all seniors in this country a minimal level of coverage. If you (or your employer/former employer) can afford more or better coverage you are welcome to it, and many people do. However, if all you can afford is Medicare, then that is usually sufficient. If you can afford insurance and don't have it, the government is proposing penalizing you. The current penalty appears to be half the cost of the public option (likely around $2,000).

One of the most common arguments I hear against government involvement is that this threatens the free market, the driver of all innovation. The first point is, if the free market is more efficient than the government plan, then people will stay with private providers and there won't be an issue. However, if the government is more efficient then that undermines the argument.

And that is the bigger point here. We use the government's size and reliability to do many things in this country where they are more appropriate than private business. Public transit, roads, army, the courts. Just because healthcare has been a non-governmental function in the past, doesn't mean that's appropriate. Moreover, free markets don't really work for healthcare. For one, most people never think of the cost of healthcare, especially those that spend the most on it. People have their workplaces take care of all or part of it and rarely if ever choose employers based on healthcare. Also, humans are very bad at rationally understanding large numbers.* Free markets only work when there is full information available to all. Since citizens can't really conceive of healthcare's value to them until they actually need it, they are not rational actors when they purchase healthcare - making an inefficient market, exploited by healthcare companies.

The bottomline here is that the system is unsustainable as is and we know this. The current proposal will address the need for cost controls, give universal coverage and not alter most people's coverage. Ignore the fearmongering, it's simple and it's needed.

Please comment on this post if you'd like me to clarify or explain anything further.

*I'm currently at home with a knee healing from an ACL reconstruction. My surgery likely cost my insurance company $40,000. What are the odds that you'll tear your knee in the next month? (I have no idea what the answer is, but it's pretty low) Now how much would you pay to insure against that happening?



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