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.

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