Healthcare: Paying for It

While my brilliant 5-step plan laid out below is certainly the only possible way to go (he said with a wink), there will apparently be some form of significant government sponsored healthcare reform or coverage passed in the relatively near future. No matter what plan is chosen, it will be expensive.

Those who choose an unhealthy lifestyle should pay for this. Rather than taking away choices, we should tax those things that are voluntary and universally recognized as unhealthy for everyone. If my picture does not give it away, I am not a health nut. I am 50 pounds overwieght and adicted to high calorie foods, so I hate this idea. It is nonetheless the right way to go.

The tax should begin relatively small and should be set to automatically rise gradually, but increasingly, over 10 years to a point where the tax causes the bad stuff to be nearly prohibitively expensive. This should be made very clear so that all Americans have 10 years to develop a healthy diet or go broke. By gradually increasing the tax over time people will change their behavior at about the same rate. As a result, the tax should remain about the same as the stubborn pay for their unhealthy lifestyles to the bitter end, and fund the system.

If the government is going to pay for healthcare, then we should do our part. The problem is that we, and by "we" I mean "I," want our double cheeseburgers with Super-sized fries and a chocolate shake. This plan will not eliminate these options. Over ten years it will just make a “Value-Meal” cost $50 instead of $5. McDonald's will adjust.

So what are those things that everyone knows are bad for you?

Tobacco
Calories

That’s it. No one can argue that fewer of these two things will make us healthier and thus reduce health care costs.

Taxing “Calories” allows us to cover all the bad stuff you would otherwise target on its own: Alcohol, sugar, white flour, red meat. Over ten years the producers of these products will develop lower calorie versions that taste great.
- Beer will all be “light” and we will all be used to it.
- Hard liquor will become lower proof (80 to 60 to 40) with better ingredients to retain the taste. Fewer drunks would also reduce healthcare costs.
- Bison will gradually replace some cattle and beef will be leaner.
- We will eat more chicken and fish and maybe Ostrich.
- We already have many versions of substitute 0 calorie sweeteners.
- All soda will become “diet” soda and there will be no such thing as “regular” soda. Zero calorie soda will have no tax.
- Restaurants will serve smaller and healthier portions. Fettuccini Alfredo will either leave menus or be made with lighter milk because the restaurant will be hard pressed to afford the tax on heavy cream.
The key is that it will take ten years. We will adjust gradually. We are innovators. We, the poor, middle class and eventually even the wealthy, will all learn to eat better, providers will sell smaller portions, and food producers will learn to make healthier food. We will adapt and innovate and be able to afford healthcare.

Tobacco: This is easy. Tax it at every stage of production. Seeds to cigarettes. Start with the significant taxes we impose now and gradually raise them over 10 years until a pack of cigarettes is $50 in today’s money. Each year 10% of smokers will quit or not start due to cost alone. In ten years, there will be no remaining tobacco products to purchase. Rehab will be the cheaper alternative.

Calories: This at least seems more difficult, but it really is’nt.
The tax would occur at the point where the US distributor sells to the US retailer, whether the retailer is a restaurant or a grocery store or a farmer’s market. The US distributor may grow the products or purchase the products domestically or overseas. Where they get them is not relevant.

Establishing the tax is also not difficult.
We already rate meat based on how lean it is. The distributor can reduce his tax by trimming it closely. There is probably a simple way to do this that scientists understand.
Produce is pretty easy. Broccoli has a pretty standard number of calories per ounce.
Anything in a box has the calorie count right on the side panel.
Sugary cereals, candy, ice cream, etc will go the Splenda route or become very expensive. Pure perfect ice cream will still exist for really special occasions.

In the beginning the tax will be relatively low. Twice each year it will go up a few percentage points for ten years. It should accelerate as the ten years nears its end. At the end of ten years it will level off at a rate that will seriously dissuade Americans from eating too many calories.

The only exception would be baby food for those under three years old. Babies need calories. Adults do not like baby food, so I doubt this will create a calorie abuse problem.

Combine this with cultural changes we are already working on. Eat less. Exercise. But every medical practitioner will tell you that you lose weight by eating fewer calories, not by exercise alone, though it helps.

Healthcare Crisis: Step 5 – If Needed

Years and years of tradition and entrenched industries will bog down sweeping reforms to the healthcare system. In this series I have suggested that a step by step approach would work, perhaps without getting too far past step 2. You can find steps 1 through 4 below.

Step 1: Remove State regulation. Create one level national set of regulations. Everyone but the States will favor this and it will lower costs and increase options.

Step 2: Allow any group to band together to buy health insurance or set up self-insured plans, inside or outside corporations. Every union, charity, trade association and Chamber of Commerce will favor this one.

Steps 1 and 2 increase supply and lower demand, which will lower prices. They will also reduce costs, allowing for profits at lower prices. There is a good chance that just doing this will significantly decreases costs and prices, increase options and insure nearly everyone who wants insurance. Most important, there is no reason these should not be relatively easily passed AT LOW to NO COST to the government.

Steps 3 and 4 might correct themselves if the above are accomplished. These involve eliminating volume bonuses paid to brokers to sell more of one company’s products. Step 4 is a limitation on malpractice if someone dies or becomes disabled because “extra” tests were not run to save everyone on medical costs.

If, and only if, Steps 1 and 2 (perhaps with 3 and 4) do not solve the problem sufficiently, then we should consider the following:

Government Funded Universal Catastrophic Healthcare Coverage
Any expenses over some significant number, like $200,000, in a year or for one illness or injury (cancer, Alzheimer’s for life), would be covered by the government. This will lower the risks to insurers and will thus lower premiums. Self-funded groups always purchase catastrophic coverage. This would eliminate that expense and lower self-funded costs.

To reduce costs, there would be no malpractice claims permissible against doctors performing work for the government.

There may be only specific doctors who are approved to do this work. A doctor could opt-in and take want the government paid or opt-out and look for private pay clients or cease work on cases above normal insurance levels. As with Medicare now, most will opt-in.

Anyone could opt-out if they want to use another doctor, but that would be a privately paid or insured risk.

Healthcare will remain privately provided. Competition, creativity, self-funded health coverage and professional negotiation by experts hired by the groups will drive insurance prices down. Groups with interests in helping certain people currently uninsured (Charities, Unions, Trade Groups, Hispanic Chamber, NAACP, Urban League, Churches, etc), would drive broader coverage. No State regulations, lower risks in groups, wellness programs in self-funded groups, some protection from lawsuits and ultimately a cap on liability will lower costs.

Just some thought from the peanut gallery. Good luck up there on Capitol Hill. You will need it.

Healthcare Crisis: Step 4 Malpractice

As we consider how to change healthcare, we might want to try to do this slowly. You can find Steps 1 - 3 below in this blog.

Price is a function of supply and demand. This is true of healthcare and health insurance. Every participant, even the government, must make a profit or at least break even for the system to work. That means that as we increase supply and options in health insurance and work to lower demand, or slow its growth through wellness, we must reduce costs so that providers can make a profit charging lower prices.

Step 1: Remove State regulation. Federal preemptive national regulations will level the playing field. Eliminate oligopolies by large insurers who can afford these regulations, allow innovative players into the market, both of which increases supply.

Step 2: If groups of people can band together to purchase insurance or self insure, using professionals to negotiate and set up the plans, insurance and care will become more efficient and wellness will be encouraged, thus lowering demand.

Step 1 and Step 2 increase supply and lower demand, which will lower prices. They will also reduce costs, allowing for profits at lower prices.

Step 3, commissions and volume bonuses paid to brokers may self-correct once Steps 1 and 2 are undertaken. Larger groups will negotiate better rates using professional insurance consultants, making brokers obsolete. In the short term, commissions and especially volume bonuses create conflicts of interest and impact the rising costs of healthcare.

Step 4: President Obama received promises from health care providers that they will reduce the costs of health care by, in part, lowering the number of extra tests and procedures.

This will only happen if there are no negative ramifications for doing so. If tests are reduced and a person dies or becomes permanently disabled, the plaintiff’s attorney will argue that a simple $2000 test covered by insurance would have uncovered the illness and saved the child. When the plaintiff and the weeping mother win that case for millions, doctors and hospitals will be forced to perform that and any other possibly relevant test again. The costs of the test are far outweighed by the potential costs of litigation. The insurance companies will pay for the tests and costs will skyrocket.

I think that trial attorneys provide a valuable check on incompetence and negligence. That being said, there will have to be some very clear guidelines set that establish what tests are warranted in what circumstances. Those laws and regulations MUST protect healthcare providers against liability if they follow those guidelines. These guidelines can be adjusted over time, but not retroactively.

In a cheaper system, people die or become disabled from unusual diseases that present as normal diseases and require special expensive tests to identify. If we are not going to do these tests routinely, providers cannot be punished when that is not enough.

Governments of the people have a hard time sacrificing a few to reduce the costs of the many, even if it is so that the many can receive a basic level of care they cannot get now, without which even more children die or become disabled. This will be a tough, but necessary decision.

Unfortunately, even if passed the law will last until the first parent goes on national television holding their dead or profoundly disabled child who did not receive that $2000 test that could have saved her. The law will be changed. Healthcare providers will be forced to provide all the extra tests again. Costs will rise.

Healthcare Crisis: Step 3 Insurance Brokers

This week the country is beginning to create a new health care policy. A broad sweeping change is something that may be desired, but is nearly impossible to either accomplish or do well. I am proposing a multi-baby-step process to resolve the healthcare crisis. You can find steps 1 and 2 below.

The over-arching goal of these thoughts is to create a national, highly competitive market for health insurance where there are many sellers with many options creating growing supply and sophisticated buyers making wise healthcare and insurance decisions, all of which will drive health care costs down more than any government plan.

Step 1 (Tuesday): Remove State regulation. Eliminate oligopolies by the large insurers who can afford these regulations. Allow innovative players in. Create more options and lower costs. There should be one, unified federal set of regulations that applies to all insurers and plans. One layer. One level playing field.

Step 2 (Wednesday): Allow groups of people to band together, local or national, employees, companies, unions, associations, charities, or new groups set up precisely to negotiate, purchase or develop health insurance plans, including self-funded plans which are optimal.

Step 1 and Step 2 alone will dramatically reduce healthcare costs within the federal government’s universal regulatory regime.

Step 3 has to do with how insurance brokers are compensated. Currently the insurance companies pay brokers a commission to sell their policies. This encourages brokers to encourage the highest cost option. The broker has a clear conflict of interest.

Far more troubling is the bonus practice. At the end of each year, insurance companies pay substantial bonuses to insurance brokerage firms for selling large volumes in their products. This encourages brokers to guide customers toward the firm that will pay the largest bonus, rather than to the one that may be best for the buyer.

I personally witnessed a proposal by a prominent brokerage firm presenting four options. United Healthcare was the preferred provider of this firm. If they focused on driving their clients in that direction they make the largest possible bonus at year’s end. Of course United Healthcare’s quote for the coverage was lowest.

We independently ascertained the real quotes from the other three providers. One was higher than United, but both of the others were actually lower for the same coverage. The broker intentionally marked up the quotes to make sure United Healthcare was the lowest option.

Theoretically the market should correct for this. The victims in this case were relatively small firms with limited resources trying to do the right thing by providing coverage for their employees. The broker was a friend of the head of HR who secured the quotes. These bonuses, at a minimum, should be outlawed.

These issues may correct themselves once Steps 1 and 2 are undertaken. Larger groups will negotiate better rates using professional insurance consultants and making brokers obsolete. Nonetheless, the bonuses are a factor in the rising costs of healthcare.

Healthcare Crisis: Step 2 Let People Unite

Yesterday I proposed a multi-baby-step process to resolve the healthcare crisis.

Step 1, in yesterday’s post, is to get the State governments out of the mix thus reducing layers of regulation, oligopolies by the large insurers who can afford these regulations and thus allowing smaller innovative players to get into the mix and create both options and lower costs.

Step 2 would be to allow any group of people to band together as an insured group. Let the people work this out. Any groups would be allowed and encouraged, whether employees in a corporation or several corporations, members of a union or association of any kind (e.g., AARP), those helped by a charity, trade associations, industry groups, etc. The group could be set up precisely to purchase health insurance.

Groups could be local or national. Since Step 1 is completed, this is not an overly burdensome proposition.

The groups would be able to hire a professional health insurance negotiator. This person would help the organization decide how to create the best possible insurance solution given the nature of the group. Perhaps self-insurance with a Third party Administrator and catastrophic coverage above a significant cap. Self-insurance drives wellness because the group saves money if claims are lower than anticipated. Self-insurance allows for greater consumer-driven healthcare because again, lower healthcare costs benefits the group.

In other scenarios the group might be better off buying insurance from an existing provider, or perhaps a combination of providers. The group will decide what is provided and at what deductibles and co-payments. Chiropractic care? Psychiatric or psychological treatment?

Almost everyone will have a choice. There will be an affordable option for everyone. People will get creative. People will find their best personal solution. Groups will grow and change as demand changes. If there are holes in the system at this point, the government can look at next steps.

Most important, increased competition will drive costs down. Increased professionalism in developing and negotiating healthcare coverage will drive costs down and options up.

Step 1 and Step 2 alone will dramatically reduce healthcare costs within the federal government’s universal regulatory regime.

Healthcare Crisis: Step 1 Get the States Out

The government is beginning again on its long and to date ill-fated trek into the world of healthcare. We have all heard the cries about rising costs, the aging population and millions of uninsured. The task is daunting and I like the consensus building that President Obama is beginning prior to crafting an ultimate strategy.

Competition has a bad name these days, but it is what drives efficiencies and costs reductions more aggressively than any other factor. Right now, State by State regulation of health insurers prevents open competition in many parts of our country.

These regulations require separate corporate entities in each state, differing reuired coverages, and layers of fees, costs, rules and regulations. Each State adds layers of costs to every insurer. Most important, however, State regulations help prevent smaller players with innovative ideas from getting started. The State-by-State regulatory gauntlet is too great a barrier to entry into the markets.

Unlike the past, nearly all companies are multi-state. Most, even the smallest producers and service providers, are national or international in scope. State control is no longer relevant.

If we want to really make headway in crafting a strategy, we should take baby steps.

Step One should be to nationalize regulation of the health insurance industry, pre-empting the separate regulations of the States. This would open competition, reduce costs and expand options for everyone.