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An Innovative Healthcare Plan

|Includes: Aetna, Inc. (AET), CI, UNH

I’ve been criticizing the Obama administration’s healthcare plan recently without really offering an alternative solution.  Rather than continuing to point out the faults within the plan currently being offered up, I’d like to lay out my vision of what a comprehensive, national healthcare plan should look like.  This is a plan that I think will work, particularly because it is driven by the fundamentals that shape any successful free market economy.

The healthcare system I am proposing is designed to fix the elements of our current system that don’t work, and leave the elements that do work with relative effectiveness as they are.  One rarely hears complaints about the quality of U.S. healthcare; rather the complaints are centered around coverage and cost.  And so, I feel that if a healthcare system is to work, it should strive to maintain the level of quality we currently enjoy, while at the same time driving down costs and increasing coverage.

Right now, the economics of healthcare are shaped by consumers, who through private insurance or Medicare, are allowed to purchase healthcare as if they had a credit card with an unlimited credit line, and for which they never saw a bill.  There is no incentive to weigh the cost of each individual doctor’s visit, test or procedure.  Instead, Americans who have medical coverage pay their insurance bill (or get their insurance for free through Medicare or their employer) and from that point on, operate without financial consideration or obligation.  They are not encouraged to shop comparatively for their healthcare and so they don’t.  They don’t ask questions of their doctors concerning cost, nor are they concerned when doctors request excessive tests or inflate costs with unnecessary office visits.  Because of the system’s current design, the U.S. health insurance market is dominated by a handful of providers, including Aetna (AET), Unitedhealth (UNH) and Cigna (CI), who make decision on rates and payments without any motivation to keep their prices competitive.

Lack of competition in healthcare and the inflation of its costs are made worse by our justice system’s American Rule, which drives up malpractice insurance costs and forces doctors to over-treat patients in order to cover all contingencies, and to provide maximum protection against lawsuits.  Of course, the costs associated with these excesses are passed on to the consumer and the price of healthcare is ratcheted up even higher without any system in place to keep these costs in check.
It’s not plausible to recommend that we simply take the current system and put it into the hands of the federal government.  This solution does not address the problems that plague our system now.  A government run healthcare system already exists in the form of Medicare, and it has all the problems of privatized healthcare if not more.  Perhaps it’s time for a fresh and fundamentally different approach.

The first thing that would be implemented under my system is the abolishment of the American Rule.  This would lower costs, which are currently being driven up by astronomically priced malpractice insurance that all doctors are required to have.  Further, eliminating the American Rule would decrease excessive treatment as a practice, carried out by doctors who think they must overcompensate for fear of being sued.  Lastly, abolishing the American Rule would put an end to frivolous lawsuits that in addition to driving up healthcare costs tie up our court systems unnecessarily.

Under my plan the privatized healthcare system would be kept in tact, but would be modified to be regulated at the federal level.  This would dramatically increase efficiency in our healthcare system, as well as lower costs.  Additionally, as things stand now, there is little to no competition in healthcare at the national level.  This is because under our current healthcare system, each state has its own regulatory procedures, which makes the cost of doing business nationally extremely high for small players in the health insurance market.  This would level the playing field for insurance companies who, at present, only have the capacity to operate locally or regionally because they can’t afford to comply with 50 different versions of regulation.

The purchase of health insurance from a private company would be mandatory for all legal U.S. residents, and the minimum package would include an initial $1,000 of coverage to encourage yearly preventative care.  Under this minimum package, a 20 percent copayment would be charged once the initial allowance of $1,000 was surpassed.  Mandatory health insurance for all would ensure that taxpayers are no longer offsetting the citizens who aren’t covered.

Although I am a proponent of keeping privatized health insurance in place, I would make it illegal for insurance companies to deny coverage or increase premiums based on preexisting conditions.  Instead premium prices would be assessed based on a predetermined and federally conceived list of criterion including; gender, age, county, weight and habits.  But keep in mind that if you are a bungee jumping skydiver who smokes five packs of cigarettes a day, your premium would be more than the average person’s under my system.

The most unique and final feature of my healthcare plan involves a government loan program that would offer interest free assistance to anyone who is forced to pay for healthcare costs exceeding a certain percentage of their income – the out-of-pocket quota.  Monthly premiums would be counted towards the out-of-pocket quota, as would employer contributions towards  health insurance.  For example, let’s say a person making $50,000 a year was expected to pay up to ten percent ($5,000) of their annual income towards their out-of-pocket quota.  Under my plan the government would step in to pay for anything over the annual out-of-pocket quota, with the understanding that the money would be paid back if and when the consumer’s out-of-pocket medical expenses fell below their quota for a particular year. These zero percent medical loans could be taken out to cover outstanding insurance co-payments or to pay the initial premium of the required minimum health insurance.  And, once a person died or if they became permanently disabled, their loan would be written off.

Repayment of these loans would be contingent upon the consumer being below their out-of-pocket quota.  To be clear, let’s imagine a person making $50,000 in 2010 had to take out a loan for $10,000 in excess of their $5,000 out-of-pocket quota.  Now imagine that in 2011 that same person had $1,000 in healthcare costs and the same out-of-pocket quota (i.e. $5,000) – in that year they would be required to repay $4,000 of that $10,000 medical loan.  In no single year would anyone have to pay more than their out-of-pocket quota.

Of course, changes in income from year to year would affect the repayment of the loan as well.  If income for the year went down, so too would the amount to be repaid.  Conversely, higher incomes would demand higher rates of repayment.  With this system in place, everyone is assured healthcare, the system is secured through its backing by the federal government, and by demanding personal accountability through my proposed loan program, consumers become the engine that drives down costs for the system as a whole.  

Hypothetically, we might imagine this system in action.  The unemployed and destitute would be afforded healthcare and asked to pay back their federal loans only when they became healthy and financially stable enough to do so.  People with unhealthy lifestyles would begin to amass healthcare loan balances and would, therefore, be encouraged to practice healthier habits.  Alternatively, those who strive towards remaining healthy and fit would draw less on government support by remaining within the limits of their private healthcare’s coverage.  In summary, those who choose to be healthy are rewarded, those who choose to be unhealthy are a burden only to themselves, and healthcare is available to everyone.

The strength of this system is that it doesn’t require the government to continually pay out money towards a healthcare system that is broken at its core.  Because overages in healthcare costs are covered by loans, we will all pay attention to the cost of our healthcare, and most importantly no American citizen will ever be forced into bankruptcy or foreclosure because of their inability to pay their medical bills.  No system is perfect, and certainly under my proposed plan, exceptions and alterations would have to be made for specific circumstances.  However it is far better to fund healthcare with an eye towards consumer accountability, and free market competition than it is to create a healthcare system that requires huge federal deficits and indiscriminate taxation.

Disclosure: No positions