Thursday, December 10, 2009

The Right Medicine for Healthcare - Part IV: Get 'Em the Money

A final necessary step in healthcare reform is to devise and enable new forms of healthcare financing. Health insurance is not a health-related but a financial issue. Generally speaking, the quality of healthcare in America is quite good. Although there are certainly instances where it could be more efficiently provided, few Americans question the available technological level of American health services or the requisite knowledge and skill of American doctors.

Under the American model, personal financial decisions are left to the individual (or family) to manage. While some base level social-safety nets are provided by the government, the majority of an individual’s financial decisions are left to one’s own planning. Individuals are responsible for saving and spending within their means, as well as preparing for their futures.

Insurance is one model that allows people to remove the financial risk of large, unforeseen circumstances. This is why millions of Americans purchase a wide range of insurance products – from auto, to natural disaster, to life. All of these are financial decisions based on an individual’s relative probability of some event happening, the perceived cost, and ability to pay. In any rational model, insurance should only be purchased if the math indicates that it is financially cheaper.

Health insurance should be no different. It should be one tool, out of many, that Americans can choose to rely upon if financially sensible. A number of new, financial tools should be developed to facilitate an individual’s access to affordable healthcare. All of these can and should be established in the private markets.

One of the current problems with health care provision is nonpaying emergency room patrons. This has sparked calls for a legislative individual mandate, where all Americans are required to purchase healthcare. The mandate, while undoubtedly unconstitutional, is a gross misappropriation of government power. Not only does it invade on the fundamental liberties of American citizens, but it drastically distorts the market. It forces individuals to make unwise financial decisions.

Without a mandate, proponents argue that hospitals have to unjustly bear the cost of these freeloading individuals. Ultimately, these costs get passed on to consumers via higher hospital bills and insurance premiums. This is undeniably a correct assessment of the current system; however, the mandate does little to allocate the costs of health to the appropriate recipient.

This is precisely where new financial instruments can alleviate some healthcare cost issues. Arguably, every individual (except for maybe the most indigent) should be responsible for paying for their own healthcare. This is particularly true for those who, under the current system, can afford health insurance but for personal reasons decide not to purchase any. If some do not buy private health insurance, due to poverty or personal decision, the burden of their health care should not fall on those who made the financially astute decision to invest in insurance.

However, under the current system there are few, if any, methods for those who gambled and lost to pay for expensive procedures. Providing new methods would not only benefit willing financiers (and the economy) but those who decide to opt out of the health insurance path.

First of all, private hospitals need to have greater say in how their emergency rooms treat patients. Within limits, private hospitals should be able to refuse care to individuals who cannot pay. [For instance, I don’t necessarily think hospitals should be able to refuse care if such refusal would lead to imminent death.] Hospitals should have the ability to decide whether they will open their doors to everyone and eat the costs or refuse care to the non-paying. From the hospital’s perspective there would be a tradeoff between cost savings and image. Like many environmentalists who pay a premium to ‘save the environment’, some individuals may feel comfortable paying higher prices to use the services of hospitals that cater to the common good.

Much of this tradeoff, however, could be erased with new financial mechanisms. Hospitals, for instance, should be encouraged to accept credit cards in lieu of health insurance [imagine the frequent flier miles!]. Likewise, hospitals could establish on-site financing departments that provide emergency care funding. Such funding could come in the forms of loans – like mortgage loans – that allow individuals to pay their hospital bills with interest over time.

This would enable individuals to take personal responsibility for their health care and prevent freeloaders from weighing down the rest of the system. It would allow individuals to design financially responsible systems for providing for their own health care. People would be able to choose what the most sensible way of covering potential expenditures, given their health and ability to pay. For instance, young, healthy individuals who want to save or invest extra disposable income could purchase minimalist health insurance policies given the low probability of needing coverage. They would be able to supplement this risky decision with on-site funding in the rare case of disaster.

Naturally, such credit related solutions could have significant impacts on individual’s debt situations. Bankruptcy laws would need to be reworked in order to make financing opportunities appealable to lenders. Alternatively, payment systems can be designed that move away from the fee-for-service model. For instance, rather than purchasing health insurance individuals could buy access to unlimited care at specific full-service facilities. Monthly membership dues – like a gym membership – would give individuals access to healthcare whether they use every specialist or just an internist.

While such proposals will not be a complete panacea, they will help to alleviate some of the issues. More importantly they may encourage people to be more proactive in planning and managing their health and finances. Ultimately, the goal is for each American to be able to pay for and afford healthcare, not necessarily health insurance.


  1. I think many hospitals do accept credit cards, but there are many circumstances where the charges will exceed the credit limit of an individual; I would imagine that those who opted out of health insurance for whatever reason might also have trouble establishing unsecured credit, at least in the amounts needed to cover extraordinary medical expenses.

    Great post, and I agree with much of what you say. My view is that as part of learning as a society (and individuals) to make wise economic choices, we have to allow the downside of poor economic choices to play out. That means some will be shut out of expensive health care in the midst of sometimes dire circumstances.

    It's interesting that while many object to the crass determination that personal economic status will determine one's ability to receive certain kinds of health care, that is exactly the determination being made through "rationing" in government plans.

  2. I agree wholeheartedly. If the government (or any other person or institution) lessens the negative costs of some action it will alter the decision making process to encourage the negative behavior. This is true across the board. The same can be said, for instance, regarding the government bailouts of Wall Street.

    I think your last point is particularly poignant. I would even take it a step further. The crass determination that you refer to in the market is blind and unbiased. No one person is selecting winners and losers, rather the winners and losers are selected by themselves and the probability of the market to some degree. The government system precisely does the opposite. It seems to be a lot more brutal and biased to me. While I think the concept of "death panels" is overblown and sensationalized in the media it does speak to the general concern that the government is taking power from the people.

    Thanks for writing.

  3. Nice set of articles.

    I think the article Part II peripherally related to someting that I believe is crucial in health care reform - that is state vs federal.

    State Medical Boards exercise a great degree of control over state-by-state practice - they can, if they wish (and have done so in some states) ban both inter- and intra-state telemedicine. These Boards are fairly loose and not subject to much scrutiny, and easily swayed by lobbyists and protective self interests. This is why the eventual battle here willbe fought at the state level by any serious opponent of reform - it is their strongest ground.

  4. Thanks for your comment.

    I am not too familiar with telemedicine. Is it generally between doctors or doctor and patient (or both)? I presume you believe an expansion of telemedicine is a needed reform. How do you picture it expanding competitivness (especially in comparison to reducing costs)? I'd be interested to hear more about this.

    Thanks again.

  5. Telemedicine allows a lot of patient management to take place remotely. In an ideal setting for low risk drugs such as for overactiev bladder, it is very easy for a physician to diagnose a patient online and prescribe. Within state, you could have physicians in low cost areas managing patients in high cost cities. They could integrate with their primary care physician. Across state lines, the benefit is even greater - imagine a physician network i New Mexico managing patients in NY or CA. Good telemedicine requires good EHR.

    The broader point in my comment is just that states will be able to limit the effectiveness of any federal level reform.

  6. Well telemedicine sounds like a good idea to me.

    As to the states I think that is valid, but I imagine it depends on how the federal level legislation is written. States' independence though speaks to some of the beauty of the sytem. We are able to experiment in smaller areas to find best practices.

    Thanks for writing.

  7. In the second sentence of your post there is an error which slightly weakens the premise of your post

    "Generally speaking, the quality of healthcare in America is quite good."

    In fact, the quality of healthcare system in the U.S quite poor. While the World Health Organization ranks our system over at # 37 (, we spend the most amount of money per person per year than ANY OTHER COUNTRY in the world.

    The U.S comes in last in nearly EVERY healthcare metric compared to other industrialized nations: "The U.S. ranks at the bottom of 19 industrialized nations in the number of preventable deaths by conditions such as diabetes, epilepsy, stroke, influenza, ulcers, pneumonia, infant mortality and appendicitis ("

    There is one metric in which the U.S comes in at #1 though. On a per capita basis also the U.S. spent the highest with a total of $7,290 which is two-and-half times the OECD average (

    All that said, I see you have a few proposals on how to fix this problem. One that I especially like is, "Within limits, private hospitals should be able to refuse care to individuals who cannot pay."

    Is that the kind of country that we want to be? One that leaves it's citizens in the street to die like an animal if they cannot pay?

    You also make this claim: "If some do not buy private health insurance, due to poverty or personal decision, the burden of their health care should not fall on those who made the financially astute decision to invest in insurance."

    Unfortunately, the way that insurance companies operate, they can also deny insurance coverage to otherwise willing customers b/c of preexisting conditions. This happened to me, actually, and so I had no choice but to join Medicaid.

    I don't know if you have ever left this country yourself, but I lived in Spain for four years (ranked #7 overall by the W.H.O, $2,671 per capita/year) and they provide health care to 100% of the people there while spending1/3 of what we spend AND with better outcomes.

    The SMARTEST thing to do would be to emulate, or at the very least STUDY how other countries are able to offer far better health care to EVERY citizen for FAR less money. Instead President Obama said we needed a "uniquely American solution to this problem" and here we are with a monstrous, compromised health care bill which is a gift to the health insurance industry.

    Thanks for listening.

  8. Hello,
    I am the author of the above post. I have one more thought:

    In the comments section, you said: "It's interesting that while many object to the crass determination that personal economic status will determine one's ability to receive certain kinds of health care, that is exactly the determination being made through "rationing" in government plans."

    The word "rationing" has become political poison because of, well, I dunno, Sarah Palin, Death Panels, whatever. In either case it is important to understand that PRIVATE INSURANCE COMPANIES ALREADY RATION MEDICAL CARE!!!! Ever heard of a
    "Lifetime Maximum?" It being the maximum care that an insurance company will pay for you throughout your life? If that's not rationing than I don't know what is.

    And btw, when insurance co.s reject potential clients for insurance, or when they deny coverage to clients (both have happened to me) for procedures, I believe that that decision comes from a 'panel' of 'bureaucrats' who have decided that providing me health care--that is to say my continued existence on this Earth--would effect their bottom line profits negatively.

    This doesn't happen in countries with National Health Care Systems because they do not make a profit, nor do they have an obligation to their shareholders, they have an obligation to their citizens.

    That is probably why, as my above post explains in more detail, these countries have better health outcomes at a lower price. while they cover everybody.

  9. Geoffrey~

    Thanks for taking the time to read and write. So I can't opine directly on these statistics you offer but the general premise of the four part series was not a defense of the current system but an encouragement for a third-path if you will. I wholeheartedly agree that there are severe flaws in our system, but there are also massive benefits (and has been pointed out elsewhere issues like obesity and measuring of issues such as deaths can skew statistics).

    To briefly respond to some of your comments. First, re: "Within limits, private hospitals should be able to refuse care to individuals who cannot pay." I absolutely do not believe this is the country we want; however, I do not believe the government should enforce this sort of morality. I thoroughly believe that competition in the free-market would convince hospitals not to pursue this behavior. For instance patrons of hospitals would know what policies hospitals had and could choose to take their business to the hospital that offered the service (to them or the community) that they wanted. However, this makes it an economic decision for the hospitals and customers which has broader financial implications.

    Second, I think your second point is very fair. However, I don't offer my solutions in isolation. I think that greater competition in the market-place (as indicated by other posts in this series) would help to minimize the pre-existing condition issue. Insurance companies in a true competitive market will compete for all potential customers. The reason they do not compete now for customers w/ pre-existing conditions is complicated, but I believe in part it is b/c they insurance companies are actually only competing for the average corporate employee. Since most companies that offer insurance have only two or three plans the special needs fall through the cracks. However, if the insurance companies were competing for individuals they would be able to specialize and diversify products to capture these segments of the market. There are many ways to structure plans that would cover all sorts of Americans. This is particularly true if health insurance was not dependent on the maintance of a job. [For instance, insurers could entice younger Americans to join plans at cheaper rates with a promise that they wouldnt drop them in the long-run. Or accept someone with a pre-existing condition if they agreed to a 10 year plan. Essentally this allows insurers to cover higher cost individuals b/c they could lock in premiums for a longer period of time.]

    Third, as to rationing I think that is true. The private market can ration and I think that is what I say. The difference is that the private market is 'blind' and the individual has some ability to change his situation. Lifetime maximums could be an issue, but as mentioned above if they are truly a bother to consumers in a genuinely competitve market the insurance companies will have to remove them in order to compete.

    Of course there are always tradeoffs, so removing one bad thing may raise a cost or change something elsewhere - but that gives the individual a choice. And that is what this is all about -choice - more choices allow greater flexibility, innovation, and allow the individual to pick what he or she thinks is best. One size fits all is bad regardless of who runs the monopoly - a government or a private company.

    But you are right, our system is broken and needs fixing. But we have to think of the side effects of our fixes before we just take the path that sounds pretty.

    Thanks for writing.



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