Friday, March 26, 2010


The following is a revision of the initial plan posted in September and includes more information on how past legislation has created the problems we are facing today. 

 As a Certified Nurse-Midwife with 35 years experience in the American health care system, I have a very different perspective than do politicians on what is needed for effective health care reform.    The new reform bill is, at best, misguided.  The usual suspects, doctors and the costs generated by the amazing advances of the last several decades, have not made health care and health insurance unaffordable and restrictive for many Americans.  Government regulation has.
 Over the last several decades, third party payers, either the government or managed care insurers, sanctioned by government regulation, have taken control over virtually every act of routine health care.  The massive bureaucratic control and the billion dollar profits for managed care insurers have added on tremendous cost to medical care with absolutely no benefit for health.  At this same time malpractice litigation was escalating along with multi-million dollar jury awards and the defensive medicine this engendered .  Probably half of the total expense of American health care is generated by these add-on costs, yet they seem to be permanently off limits as far as reform is concerned.    Instead, these unnecessary costs have been used as justification for the  slow but steady path toward a government takeover of the actual  practice of medicine, now dangerously close, which  threatens the  availability of major advances now,  and further innovation in the future.

The sound-good initiatives  forced down the throats of physicians and their patients, currently being touted as better care, are euphemisms for rationing care. These limits are not only unnecessary but dangerous.   Good physicians rely on their training, education, judgment, and experience, and the appropriate evidence as it may or may not apply to each patient, not on the initiatives currently being pushed by the Obama-Pelosi- Reid government.   Presented as “quality care” they are subterfuges meant to transform the entire US medical system into a beacon of third world care

 The issues of cost reduction and control of care are now intertwined.  Appropriate resolution for one allows resolution of the other.  The government intervention that created the quagmire we are in today is clear and deliberate.   First, the "right" for a tax exemption for health care insurance to be given only to employers is based entirely on the 1942 Revenue Act   .
allowing a tax exemption for health insurance only to employer based plans.  It could be amended to simply allow the same exemption to individuals and to then allow any conglomerate of individuals or small businesses to form the large groups needed for the reduced premiums based on shared risk.   This could have and should have been amended 20 years ago.  It would take a three sentence bill to accomplish. 

Next, until the early 1970’s health insurance meant a major medical indemnity policy and a choice for some coverage for outpatient care.  In 1973 the Health Maintenance Organization Act, passed by Congress and signed by Richard Nixon, required employers who provided health insurance to also offer a managed care plan that covered all health care, apparently to start the ball rolling toward government controlled health care ( some say it was Ted Kennedy’s pet project and was signed by Nixon to appease the Left)).  These plans, at first not for profit, were heavily subsidized by the government until the premiums were so much less expensive than any other plans that employers essentially started to offer only managed care options.   However,  before the liberal dream could be realized, the concept of total care was co-opted by private managed care insurers who were soon making billion dollar profits on every act of medical care by  forcing large fee reductions from hospitals and physicians, sanctioned by government regulation ( McCarran-Ferguson), and controlling access to care.  The  2500 page manifesto just passed by Congress might be considered an effort from the Left  aimed at taking back control from managed care insurers. 

For  Americans who want to control their own health care the precedent of this 1973 legislation requiring employers to offer a managed care plan may hold the solution.  Turn the tables and require employers to include an Independent Option Plan (IOP).  This alternative would allow employees to select  a  Major Medical  Indemnity Insurance policy, completely separate  from any other type of health care insurance or health care savings, along with an account for funding all ambulatory and preventive care, and any out of pocket expense incurred by inpatient care.  The employer contribution would be the same whether for a managed care plan or the IOP (currently about $7000 annually for an individual managed care plan).  This same option should be available to everyone without employer coverage, probably with a tax credit for low income Americans.  We all must remember that everyone of us is potentially someone without employer coverage.

 A Major Medical policy should cost about $1800 a year, allowing  $5200 for the IOP account. Employees could contribute  to the accounts  with no limits until the maximum was met. This account, meant to eliminate a third party payer from routine health care, should be the sole property of the insured, is tax free, can accumulate to a generous maximum (perhaps $100,000), must be invested in safe instruments, with compounding interest,  and can be carried over after retirement to cover out of pocket costs of Medicare, including home care.  Funds remaining after death can be transferred to the IOP Accounts of survivors or taxed to subsidize  a high-risk fund.   Individuals could also have the option to pay ten or twenty dollars a month into a high risk fund to cover heavy expense prior to adequate time for accumulation or are low income with no employer contribution.  The table below demonstrates how funds can accumulate.  If accounts could be started for newborns a contribution of $25 a month (not tax exempt), would yield $11,000 by age 20. 

The IOP offers many benefits.  It allows security in the event of job loss.  It allows choice of practitioner and hospital.  It allows the patient to choose care based on his or her individual needs and without risk of rationing. The IOP simply bypasses the third party payer for outpatient care without need for any other legislation.  Not everyone will select this option but  for those who do, cost can be controlled within the context of ongoing first world medical care.

Released from the fee reductions imposed by managed care and supported by government (Mccarran-Ferguson) physicians who wish to could return to private practice.  The physician-patient relationship  would be re-established without referrals or policy limitations.  Patients could be treated based on their individual status, not on the findings of an irrelevant study or whether enough lives would be saved to warrant the cost.

The add-on costs could literally disappear as every act of routine medical care no longer involved billion dollar profits for managed care insurers, costly billing fees, and salaries for multiple layers of bureaucrats.   Alternative dispute resolution could be an option for those choosing significant fee reductions in exchange for a guarantee of just and generous compensation for a preventable bad outcome, in lieu of hoping for a hypothetical multimillion dollar jury award. Costs would then be further reduced as both patient and physician would be spared from the practice of defensive medicine. Individuals, paying out of their own accounts might consider a less expensive medication that worked as well as the much more expensive one advertised on TV. 

The same option should be available to those without employer insurance with a 12 month open enrollment period for the indemnity insurance  which would allow for preexisting conditions and  with the same tax exemption as given to employers. 

The Republicans in Congress are wrong to consider a tax exemption for health insurance as spending.  Health care is not a right but it is a need.  In a free society needs are not taxed.  When the citizens are taxed to the point they can’t take care of their own basic needs it is no longer a free society when the Constitution was amended in the second half of the 19th century to allow a national income tax, the individual exemption was comparable to $52,000 in today's dollars). The Left depends on dependency.  A Democracy depends on the strength of its citizens.   
The IOP also does not require the Republicans in office to take on any of their special interest financial supporters they seem to be fearful of offending. They are simply bypassed without any need for further legislation.   No one needs to challenge McCarran-Ferguson. That being said, Democracy has thrived in the United States by securing the ability of every citizen to be independent.   Anti-trust legislation has been essential to achieving that.  If the Republicans are not willing to take any risk on lost campaign contributions in order to achieve the reform necessary to assure high quality health care to the citizens, then maybe we do need a Tea Party.        

The simple alternative proposed here may put a big dent in the hopes and dreams of proponents of  government controlled health care.  President Obama believes that Americans want the United States to be more like Europe.  He needs to brush up on his history.  The Europeans liked Europe.  They stayed.  We left.    


1. Based on Individual Insured working from age 22 to 62
2. Contribution of $100 a month at 6%compounding interest (many Americans with an employer provided fund and minimal outpatient expense could save as much as $400 a month to invest in their IOP).
3. Results based on today’s dollars. 

YEARS OF ACCUMULATION                       AMOUNT
($100 a month)

5                                                                        $7000
10                                                                   $16,500
15                                                                   $29,000        
20                                                                   $46,500
25                                                                  $69,700
30                                                                 $101,000
35                                                                 $143,000        
40                                                                 $200,147

John and Mary each have an employer funded managed care plan with a $7000 premium. They switch to the IOP.  Each pays $1800 for the indemnity policy, John spends $500 on outpatient care and Mary, $2500 the first year.  The following year John spends $1500 and Mary $2000.  After two years, even without any compounding interest, they would already have $14,300.

However, John and Mary could be seriously injured in an auto accident their first year on the plan.  All their hospital care is covered by the indemnity policy but they have $25,000 in outpatient costs.  Their IOP this first year only gives them $10,400 so they owe $14,600.  Some solutions:  the government could create legislation allowing them to borrow from their IRA and pay back as time goes on or borrow from a shared risk fund.  

Tuesday, September 29, 2009

Memo to the Lean, Mean, and Superior

 If this is your first visit to this blog, please note that the first two posts present a plan for health care reform that allows you to "own your own health care" without reliance on the government, your employer, or your insurance company and are the basis for all that follows.

Today's post addresses an issue that has unfortunately come to be considered relevant to health care reform.  As a health care practitioner I am  concerned with our society's rush to blame those Americans who are overweight for much of our escalating  health care costs.  I hope the following essay puts a more appropriate perspective on this. 

                             MEMO TO THE LEAN, MEAN, AND SUPERIOR

 Wherever we are, whatever we’re doing - walking along the reservoir in New York’s Central Park, enjoying a sunny day on Chicago’s beautiful lakeshore, or sun bathing on Venice Beach in Los Angeles – my husband and I can never help but notice the smug look on the faces of the tall, toned, and beautiful runners as they sprint past us on their daily jog.  Their skin glistens with what for most of us – the less fit masses - would be the smelly sweat of strained effort, but for them is the glow of the sweet serum of superiority.  Of course, reason tells us that the fit are most definitely fitter than the unfit.  And if the unfit – the obese, the overweight, and the flabby - assume the habits of the fit, if they eat healthy foods and become more active, these efforts should make each a healthier person.  But it won’t make any one a better person.  You can be the perfect weight for your height, even with your shoes on, fully-clothed, and your keys in your pocket, but be mean to your children.  You can be tantalizingly toned but be cheating on your spouse.  You can eat 10 servings of fruits and vegetables daily, of five different colors, and never visit your mother in the nursing home.

We need some perspective here.  None of us will get diseases caused by second hand fat.  We can drive down the street without fear of being hit by an obese driver. I know we are
very concerned about the added costs of health care caused by obesity, but, we spend a lot on sports injuries, and on rescuing mountain climbers, skiers, and hikers. And many of us have diabetes, heart disease, knee problems, and asthma without being a pound overweight.

Just a short time ago headlines proclaimed that the next generation’s life expectancy will be reduced for the first time in centuries because of the increasing numbers of obese.  This is quite a distortion.  Yes, if there are more obese and the obese die younger, the average life span will decrease.  But the longevity of those who remain slim will not be compromised by those who do not.

Perhaps it’s time to give the obese and the overweight a break.  We have been relentlessly haranguing them to lose weight and shape up. We have been bemoaning the drain they are on our health care spending.  We have been heaping advice upon them as to how simple and easy it is to lose their extra poundage.  Don’t eat anything with sugar, fat, or cholesterol (i.e. everything you like); reduce the quantity of what you eat (i.e. go hungry); exercise moderately to vigorously for 60 to 90 minutes every day (i.e. go jump in a lake).  Pretty soon overweight Americans will be loathe to venture out on our streets, walk in our parks, or swim on our beaches for fear of being captured by the mini cam of 
a fabulously fit news team who will broadcast close ups of their ample abdomens and bountiful backsides on the six o’clock news. We’re almost at the point of legislating what people are allowed to eat.   Prohibition may be on the way back, but the stills will be filled with potato chips.  The corpulent will be knocking three times on the doors of “Eat Easy’s” that feature foods fried exclusively in trans fats. .

Guidelines for healthy eating are good.  Awareness is good.  Losing weight, though, is much more complicated than just following some good advice.  We all have different metabolisms, different genes, different personalities, and different motivations.  We need to concentrate on health, not weight, and rely on common sense, not headline generating studies.  The simple truth underlying all of these headlines is that statistics can say almost anything we want them to.  

We don’t even distinguish between the moderately overweight and those who are obese, or recognize the natural weight gain that can accompany aging.  For many women, some extra weight after menopause can actually be beneficial.  Fat cells provide a natural source of estrogen that may help prevent some types of heart problems and the potentially permanent disability resulting from hip fractures.  Maintaining an active lifestyle is probably just as important for your health as maintaining your ideal weight.  In fact, some recent studies indicate that middle aged women who are overweight but exercise are healthier than those of ideal weight who do not.

Of course, it’s good if awareness encourages overweight people to try to eat more healthy foods and fewer high-calorie ones and to become more active.  But it also can frighten many, currently in good health, into seeking quick fix diets or even surgery that can compromise their well being, both physically and emotionally.  We all know of someone who spends thousands of dollars on an expensive weight loss program, loses a hundred pounds, looks great, buys a whole new wardrobe, is ecstatically happy, only to be devastated and depressed six months later having gained it all back.  Quick weight loss programs work best for those who have recently gained weight due to a temporary lifestyle change, for example pregnancy, stress, or travel, that caused them to change their usual eating habits.  If over the course of thirty years you have gained sixty pounds, lose it all in three months on a rigid diet, and then return to the habits of the prior decades, it will all come back.  Permanent weight loss is a life long process.  Although health benefits begin immediately, the dramatic results we want reflected in the mirror are depressingly slow to be seen.

Profit obviously motivates those who sell quick weight loss schemes but the well meant advice from the media on how easy and enjoyable it is to assume a healthy lifestyle is also problematic.  One health reporter writes of the camaraderie of getting together with a group of friends every morning at 6 am to walk or swim for five miles, followed by a breakfast of green tea and a dry whole grain muffin.  She goes to the gym for her lunch hour and then has a delicious filling granola bar with an apple for lunch.  Dinner is a sumptuous lentil loaf accompanied by four different colored vegetables.  This may be admirable, but I can’t do it.  I don’t even want to do it.  And, of greater importance, it is not even necessary to do it.

I love eating sensuous delicious French, Italian, and Spanish meals with my husband, late in the evening, that include cream and butter and meat, even, sometimes, red meat. Needless to say, the next day goes much better if I sleep in and pass up the 6 am swim.  Yes, my indulgences are somewhat balanced by a job that keeps me on my feet most of the day, and by active past times such as gardening and cross-country skiing (which I consider to be fun not exercise).  If you like to run or work out at the gym that’s great.  But it just doesn’t work for everyone. A few months back a study indicating that moderately overweight people live slightly longer than those of ideal weight made the headlines.  Maybe the statistical benefit that comes from being a little overweight has something to do with enjoying life!

Americans can probably best manage their weight by balancing quantity eaten with energy expended and healthy choices with satisfying ones.  I know I cannot eat a big piece of chocolate cake every night, but I also cannot, in spite of the efforts of the “experts” to persuade me otherwise, be just as satisfied by a piece of carob cake made with nutrasweet and canola oil.  My personal solution is to have the real chocolate cake sometimes and not to waste my “satisfaction” calories on make believe desserts that taste awful!  I know I’m not going to run five miles a day or attend an exercise class four times a week.  But my husband and I enjoy a long walk or swing dancing with some tango thrown in after dinner.  These activities surely use more calories than watching TV.  Each of us must find our own balance of fun and fitness.

As a health care professional I have a responsibility to help my overweight patients achieve a healthier status.  Yes, it’s helpful when the media and the government make the public aware of healthy habits and the risks inherent in obesity.  But perhaps the slim and fit need to be more moderate in their zeal to rescue the overweight from their excesses.  It may be worth considering these words from the Roman Stoic Epictetus, written in the 1st century AD:  “These reasonings have no logical connection:  ‘I am richer than you, therefore I am your superior.’  ‘I am more eloquent than you, therefore I am your superior.’  The true logical connection is rather this:  ‘I am richer than you, therefore my possessions must exceed yours.’  ‘I am more eloquent than you, therefore my style must surpass yours.’ But you, after all, consist neither in property nor in style (Epictetus, Enchiridion).”  Updating this to the 21st Century AD, we might consider: The true logical connection regarding the superiority of the fit and thin is simply: “I am fitter than you, therefore I can do more push ups.  I am thinner than you, therefore I wear a smaller size.” I hope the many late night talk show hosts with their endless cache of “fat” jokes will take note. 

Tuesday, September 8, 2009

On Taxing Needs

I do not believe that health care is a right. It is a need.  In a free society, however, the citizens have the right to be allowed by the government to keep enough of their income to be able to meet their needs.

Currently, the total tax deduction/exemption for an individual who does not itemize his income tax is about $9000, hardly enough for housing, food, clothes, and transportation of even the most austere nature, let alone the cost of individual health insurance (In the late 1800’s, this deduction was equivalent to $52,000 today).  

The covenant between government and citizen in a democracy requires that the government take from the citizens only what property is needed to provide what the citizens cannot provide for themselves, for example defense against external threats or protection of the environment.  It does not give the government authority to pass laws that prevent the citizens from meeting their own needs and then taxing them even more so that the government can take control of meeting those needs in whatever way the government determines.  When taxation is so excessive that the citizens are unable to meet their basic needs it is no longer a free society.  I think that John Locke would agree with me.  I'm not sure which of our legislators would.

Should Health Insurance Be Voluntary

I would not be surprised if many of you who read my first post were not comfortable with the idea of mandatory health insurance even if made affordable.   Of course this would be impossible under current circumstances.  It would be just too expensive for too many people especially without the benefit of a tax exemption.  What makes matters worse, you can have health insurance through your employer  for decades but if you lose your job any pre existing condition is held against you if you have to get individual insurance.  Universal health care insurance means we must make it universally affordable.  That is why creating the dual system of Major Medical Insurance and Health Savings Accounts can work, if accompanied by the needed tax exemptions and credits.

Even if made affordable, though  many still see this is a matter of rights.  No one should be forced to buy something they don't want to buy.  But that presents a long term problem.  Health insurance will be very expensive if you can wait until you need it before you buy it.   Insurance executives are businessmen, not martyrs.  They won't drive 1997 Fords and live in apartment houses for your right to wait until you have diabetes before you get health insurance.   If health insurance can be made affordable as described in the first two posts, and Americans want to preserve the right to choose whether or not they purchase it, then we must accept that people may be unable to pay for their care once it is needed and may lose their homes, go bankrupt, etc. (It is very rare for care to be denied when needed, but you get the bill.  You can make payments, negotiate cost reductions, etc, but in the end you can lose all you own).

As long as health insurance is voluntary  insurers make the assumption that any individual who is buying it must know he needs it.  This is called "assumed risk," and is one reason why health insurance is so expensive for everyone and prohibitively expensive for those with pre-existing conditions.   That being said cost can be greatly reduced based on the concept of shared risk which results from forming large groups, the larger the better.   What no one seems to mention is that allowing only large employers to form the groups that  reduce cost is an absolute contrivance that has nothing to do with risk.  Any conglomerate of individuals or small businesses allows for the benefit of shared risk (unless maybe it's a group of people currently hospitalized for heart attacks) and should be allowed to buy group insurance without undue regulation.  That should have happened decades ago.  Government regulation has caused the problems and only deregulation can resolve them. The only reason that health insurance for small businesses and individuals is so much higher than for large companies is because government made it that way.  The same goes for why employers but not individuals get a tax break on health insurance.

In the short term the number of uninsured could be  greatly reduced by one act of Congress today allowing 1) the large groups that support greatly decreased premiums to be formed by any conglomerate of individuals and small businesses and rated by insurers similarly to the current groups, 2) the same tax deduction as given to employers ( tax credit to low income workers who don’t qualify for Medicaid),   3) choice for limited benefits, including major medical care only, and 4) a six month open enrollment without any penalty for pre-existing conditions. 

Saturday, September 5, 2009

Bypass Procedures:   How Health Savings Accounts Reduce Costs

Yesterday, the reasons why health care and health care insurance are so expensive were reviewed and the idea of separating reimbursement for major medical care from payment for routine care was discussed. I hope the information about how health savings accounts can accumulate and provide for high quality individualized health care was helpful. I'm sure that many of you would still be quite concerned about the high costs of health care. Today's topic is the potential cost reductions offered by these accounts by bypassing the add on expenses that have evolved over the last several decades.

Immediately, the separation of routine care from major medical insurance allows tremendous reductions in health care costs since most of the add on costs could be eliminated as the patient-doctor relationship would be revived.

Managed Care Insurers would continue to make billion dollar profits from major medical insurance, as they do with our other types of catastrophic coverage (homeowners, automobile), but the excess billions in profits for all routine health care costs would cease.

The billions spent on bureaucratic control over routine health care would virtually disappear as doctors could return to private practice. Over the last several decades many doctors, collapsing under the triple whammy of increased regulation, skyrocketing malpractice premiums, and decreased reimbursements from managed care insurers under the protection of law (McCarran-Ferguson), were driven out of their practices and forced to become employees of hospital based groups, managed by well paid administrators. Here they lost control over their caseloads, their schedules and their assistants which both increased the risk of error, and greatly escalated the cost of every act of medical care – every office visit, every injection, every throat culture – as multiple levels of bureaucrats received compensation for their part in either making or enforcing “rules.”

The savings potential here is amazing. The salaries for the layers of administrators would disappear. The 8 to 10% fees charged by the billing specialists needed to navigate the complicated billing procedures imposed by managed care would vanish as patients would pay their doctor directly from their Health Savings Account (doctors could purchase electronic record systems from those savings after the first year). A physician would be able to hire and train his or her own staff promoting safer care and greater efficiency. Americans would have access to the practitioner they choose. Patients, more aware of costs, could choose, with their practitioner’s advice, what would be best for them, not necessarily the most expensive drug advertised on TV or an expensive screening test unnecessary to determine their individual health status. Patients could choose to decline care based on “sound good” initiatives currently being espoused by Congress: “cost effectiveness” whereby a treatment or procedure may be considered inappropriate because “not enough lives are saved to warrant the cost.” If it’s your life, it’s worth the cost. Patients might think twice about a doctor who strictly practices “evidence based medicine.” The evidence isn’t always that good and even well designed studies often have conflicting results and virtually never apply to everyone. Good practitioners know the evidence but apply it only as appropriate for each individual patient.

Physicians could offer reduced fees in exchange for patients agreeing to alternative dispute resolution in the event of adverse outcome that would guarantee just and generous compensation for preventable bad outcomes in lieu of enduring a long trial in hope of a hypothetical multi-million dollar jury award. Costs would be further reduced as both patient and physician would be spared from the practice of defensive medicine, which in some specialties probably contributes to 30% of all care.

Many physicians would continue to give fee reductions but these would go directly to patients based on need, not to managed care insurers based on coercion.

Patients could keep their physicians based on choice, not as required by a new employer plan. This promotes safer care as a doctor would genuinely know his or her patients, not just their written history e mailed from cyber space. Those wanting all-inclusive insurance could still buy such a policy from their account.

Expensive monthly health insurance premiums which include “everything” are misguided and misspent and simply drain the resources that patients may need in the future. Paying from their own accounts patients will be much more likely to take more responsibility for their health status and health care.

The interest rate of 6% proposed here is about average for the last 30 years, although currently quite high. If the Fed can decree a low interest rate so we can borrow but never own, it can most certainly set a higher rate enabling Americans to save and take control of their own health care.

A Few Notes:
These individual accounts need to be managed strictly as a "No Bureaucrats Allowed" entity. Outright fraud would be punished as a crime but there would be one rule: funds to be used for health care. Patients would pay directly from their Health Savings Account debit card, and licensed health care practitioners and providers would be directly compensated, the same as with any credit card.

Friday, September 4, 2009

We Need Insurance For Cancer. We Don't For a Sore Throat

 I am starting this blog because as a Certified Nurse-Midwife I have a very different perspective from legislators and journalists on what's wrong with our health care system and how to fix it. During my 30 years of practice in both the public and private sectors of the American Health Care System I’ve witnessed what can only be called miraculous improvements in medical care - surgeries without incisions, diagnostics which eliminate the need for surgery altogether, prosthetics that allow double amputees to run in marathons, miracle drugs that allow so many to live so much longer. One would expect this first world medical care to be costly. And it is. But that is not why health care and health care insurance is too expensive. It is too expensive because of a combination of very powerful forces, rarely addressed by any of the proposed plans, that have added on increasingly more costs to both health care and health care insurance over the last several decades with no benefit. Failure to understand this reality can only result in a government take over of medicine, ironically, just as nations who have had socialized medicine funded by mandatory high taxes for decades are struggling to find private alternatives as their systems self destruct.

I am also writing this blog as an Aunt because I have nieces and nephews whom I dearly love who are starting careers, having babies, and buying houses, while facing not only the current crisis in health care costs and health care spending but also a deep recession. Anyone of us can lose our job and our health care insurance at any time. All Americans need to have a more affordable and secure way to fund their health care than we currently do. We can do this and we don't have to depend on the government.  But the government has to let us, not produce a series of ever increasing regulations that jeopardize our ability to manage for ourselves. 

I'm going to start by posting the first part of a plan that can help Americans afford high quality private health care. The government has essentially prevented this over the last several decades by regulation and seems to be having a very hard time figuring out how to deregulate. The first few blogs will be quite a bit longer than the blog-custom. But since Congress gets 1000 pages to offer us something that won't help, I hope you'll give me about 1500 words.

We Need Insurance for Cancer. We Don't For a Sore Throat

Imagine how much your home owners insurance would cost if it had to include reimbursement for every act of home maintenance that the most meticulous home owner could ever imagine and you’ll start to get an idea of why health care insurance is so expensive. Insurance is meant to over catastrophic events which virtually no one can afford but which are predictable on an actuarial basis. Just as homeowners insurance covers fire, theft, and natural disasters, health insurance is meant to cover major medical events, illnesses and injuries which require hospitalization, surgery or advanced ambulatory care. That is no longer the case. In the last several decades managed care companies in an effort to make the high cost and increased control of managed care more palatable to Americans started to add more and more routine care to their policies which simply led to higher premiums and more control. As a result what is called health care insurance is no longer insurance but rather an all inclusive plan to cover every possible office visit, test, and treatment for all routine and preventive medicine that the most hysterical hypochondriac could ever imagine.

Individuals manage their routine care very differently. Virtually everybody goes to the hospital for a heart attack or appendicitis. But some wake up with a backache, take Ibuprofen, do some back exercises, and hobble off to work. Others call their doctor, demand an MRI, and request an expensive muscle relaxant. Some get a complete physical every year, including every test modern medicine has to offer (and get sick anyway), others see the doctor only when they can’t stand up any more (and die in their sleep at age 95), and others seek only those preventive tests and evaluations they feel are appropriate for their individual needs. . To protect from loss the insurer sets premiums based on the expenditures of the heaviest users, since once forced to pay the very high premiums, the more laid back might want to get his moneys worth.

Of course, health care itself is very expensive which also contributes greatly to the cost of insurance. However, the cost generated by the high quality individualized care that prolongs life and preserves function is not why health care is out of control expensive. It is out of control expensive due to a series of add on costs which probably account for half of all health care expense while contributing nothing to our health: litigation costs and the practice of defensive medicine, multi-billion dollar profits for managed care insurers, and an army of bureaucrats that regulate every bit of health care and health care insurance that comes their way.

But that is still not the whole story. As premiums skyrocketed for all of the aforementioned reasons, many states mandated the inclusion of virtually all routine outpatient health care in all types of health care insurance, a misguided effort to assure that patients get a bigger bang for their buck. Instead, all the add-on players simply were able to add-on their cut of the take to every act of health care, making a sore throat today as expensive as a tonsillectomy a few decades back.

Any effort to extract these culprits, each protected by partisan support, would be daunting and success doubtful. With that in mind, the plan offered here simply presents a workable, affordable private solution that bypasses a good part of the expense they generate, without need for government intrusion, by separating reimbursement for major medical care from coverage for routine outpatient care. We all need insurance to cover major surgery or cancer. We don’t for a sore throat. The new, improved Health Savings Accounts described below can do that.

The proposal requires all Americans not covered by Medicaid or Medicare to carry a basic major medical insurance policy, covering major illnesses and injuries requiring hospitalization, surgery, or advanced outpatient care. If universal, this should cost about $150 a month, depending on the deductible, applicable only to major medical expense. This should be affordable, if tax exempt, to virtually all employers and most remaining individuals (tax credit if low income). Even taking into account the lowest wage earners, $1800 a year would be comparable to less than a $1.00 an hour wage increase . If left voluntary premiums could still be affordable if deregulation allowed large groups to be formed by individuals and small businesses.

Routine and preventive outpatient care would be covered with individual, government mandated health savings accounts, funded by tax exempt employer and employee contributions (again, tax credit for low income workers without employer contribution). The total contribution for all large employers currently providing health insurance should remain affordable if frozen at 2006 levels, 2008 levels for employees currently over 40, and then increased based on inflation. These funds should be invested in safe instruments with compounding interest, with no yearly limits, with no forfeiture, to a very substantial amount. Funds remaining after age 65 should be applied to all out of pocket Medicare expense as well as home, assisted living, and long-term care expense, and possibly, to some specified end of life treatments. Funds remaining at the time of death could either be transferred to the health accounts of survivors or taxed at 50% . Employers would continue to fund health care insurance but not provide the plan itself. Once the maximum principal was met and maintained no further contributions or tax benefits would continue.

Understanding the growth potential of Health Savings Accounts requires embracing the miracle of compounding interest as demonstrated in the attached table. By saving even a small portion of your funds tax free and at a rate meant to help Americans own not owe, substantial sums accumulate that can make the increased health care costs that come with age manageable for even low income workers. Currently employer and employee might pay $450 a month for an individual comprehensive managed care insurance plan with minimal health care costs incurred, but after 10, 20, even 30 years of good health the employee has nothing, just at the time when he or she is more likely to incur both job loss and higher health care expenses. These accounts could be linked to Individual Retirement Accounts from which health care funds needed prior to accumulating adequate funds could be withdrawn, then replaced over time. Once the maximum allowed, lets say $100,000 was reached, the yearly interest, minus inflation, left at the end of each year would be taxed.

Next time I will discuss the benefits of this plan based on the potential for decreased costs of health care as Americans resume the doctor-patient relationship.

Health Savings Account
1. Based on Individual Insured working from age 22 to 62
2. Employer pays $150 monthly for Major Medical Insurance
3. Health Savings Account accumulates tax free with combined $300 tax free monthly contribution by employer and employee. Employee spends an average of $2400 yearly on routine health care for first 20 years(for most adults aged 22-42 spending would be less)
4. Assumes 6% compounding interest on remaining $100 a month

(remaining $100 a month)

5 $7000
10 $16,500
15 $29,000
20 $46,500
25 $69,700
30 $101,000
35 $143,000
40 $200,147

If after age 42 health problems required increased spending, an additional $46,500 is available, in excess of the $3600 a year of continuing contributions until Medicare kicked in.

If after 20 years employee lost employer contributions he would still have a minimum of $2000 a year to spend on routine health care until Medicare kicked in.

For every extra $25 a month employee adds to account, after 20 years he has an additional $11,000, and after 40 years an additional $50,000.

If $25 a month(not tax free to the donor) was contributed to a child’s account starting at birth, at age 20, the account would already total $11,500.

If accounts allowed tax free lump sum investments at any time accounts could grow quite quickly. For example a $5000 investment gleaned from buying a less expensive new car at age 22, would yield an additional $16,550 at age 42 and $30,000 at age 52.