Sunday, January 24, 2010

The Healthcare War

The Delegates to the Washington state Democratic primary convention are selected through a caucus system. In our 2008 neighborhood caucus meeting, the highlight of argument in support of Mrs. Hillary Clinton was her position for the universal health care coverage. This was argued for by a articipant. I spoke in support of Mr. Obama’s position on the issue of health care. I was not so much interested in his specific promises, but in his approach to the problem. I felt he was advocating the need to take into consideration the specific American realities. To take personal responsibility in one’s own healthcare needed to be a part of the solution. I was thinking of an American solution and betting that he would come up with a vision toward solving this pestering problem.

I knew very little about the complexities of this issue and what could emerge from the ensuing legislative processes. As an employee, the loss of a job and the subsequent loss of the healthcare benefits was an issue for me, and it is for anyone with a job that has coverage. Years ago, as a small business owner, I learned what a challenge it is to obtain and keep healthcare coverage and how often those needs went unmet. I also knew that many people who did not have healthcare insurance were relying on the emergency services at hospitals when things went out of control. My brother in law, Steve, made use of this service. He went to the ER after we noticed that he was falling down while walking. We found out that he had been dealing with these symptoms for a few months, and he was getting worse. He did not survive, although I believe he could have. We lost a good man and a talented marine engineer. His care was both expensive and an irrationally destructive way of providing healthcare to the uninsured.

There was also the practice of insurance companies trying to deny coverage when it was needed, categorizing them as pre-existing conditions or pointing to the policy’s spending ceiling. These issues were the obvious ones that many Americans have been affected by. Beyond that the problems are less personal and harder to understand – like the total national cost of this service which is creating a huge problem for the country. One has to read the experts’ reports to develop a sense of understanding for this important issue. Another impersonal fact is that Insurance companies in the healthcare industry are exempt from antitrust laws and some have virtual monopolies. This is in direct contradiction to the principles of competition, the cornerstone of a free enterprise system. Then there are others such as Medicare, Medicaid and Veterans health care systems. As venerable as they are, they represent separate silos of the healthcare system with problems of their own, even harder to grasp.

Soon after the inauguration of President Obama the discussion of his healthcare agenda turned into a political warfare between Democrats and Republicans; and at the extreme ends between the leftists and liberals on one side and the conservatives on the other. In Congress the discussion polarized between the anti government involvement in the health care and the anti corporate. The voices of reason, if any, had to respond and bend to these extremes.

The arguments focused on the obvious and have been hammered from the extreme political positions. The result so far has been two bills in the two houses of congress. By all accounts these bills only partially address the issues critical to the individuals’ interests, and minimally the ones which are of national interest. Both bills tend to expand the coverage, but are weak on affordability. They do not address the personal responsibility. If anything, they will marginally reduce the national cost and will not do much to make the US more competitive. None of them clarifies the role of the private sector.

Can there be an American solution? Can the insurance industry step up and do what it is supposed to do? In the present context no, but in a changed context, yes! The parameters that they can work within are not there and these parameters are questions of national policy that only the federal government can address. The insurance industry is good at determining the risks (these are the parameters), developing underwriting rules based on those risks and creating policies that would make sense to the industry. These would become products that the public would want to buy. Through competition the industry can refine and make this process more accurate and productive, create better products for the consumer, and be profitable.

Given the desired parameters, the insurance industry should be able to do it and do it right; that is their job after all. The argument that they have not been doing it is nonsense. If they have not been doing what we like to be done, it is because they are working under different rules.

They are monopolies that have cornered different segments of the market. They do not have to cover everyone. So what do we expect? Obviously they will start from the easiest and most profitable segments of the society, the healthy and better paid. They do not even have to worry too much about how the health services are delivered (they have to worry about this a lot more in personal lines, such as car and home insurance – there is no monopoly there!) They just have to calculate their cost, add to it their perks (usually a lot more than other sectors of insurance industry) and top it with a nice margin of profit. Some estimates have it at 27-30%. Is this horrible? Not really, the healthcare insurance industry is just working under the rules that the congress has created for them. Did they have a hand in it with their lobbies; obviously; but that does not mean that the rules cannot be changed!

Let’s imagine if we change the rules this way:

• Everybody should have health insurance (same as if you have a car).

• Government will subsidize those who cannot afford it.

• No one can be denied insurance, particularly based on a preexisting condition.

• Rates cannot vary too much from individual to individual. They can only vary to the extent it will create a motivation for healthy living and not be a barrier to seeking health care or acquiring coverage.

• There should be no coverage ceiling. A patient can seek all remedies, recommended by his/her doctor.

• Open up the market for competition and let health care insurance companies enter new markets (states). End their existing monopolistic position provided by law.

• The US health care cost is on average twice as much as the other developed countries. Here we have a target to cut the cost. The average premium must move toward the average cost in the developed countries. Insurance companies and their executives’ compensations that do not move in the direction of cost reduction should be taxed heavily on their profits. Insurance companies that exceed these expectations should be rewarded with tax incentives.

Is there anything in these rules that says the insurance companies cannot operate within them? These are just different risk parameters for the insurance industry to base their underwriting rules on. None of these risks are barriers that have not been crossed somewhere else. Could they create efficiencies that will be the base of their profits? Again, that is their job.

Of course there are other complications, such as inefficiencies of health care providers, hospitals and clinics. How can we promote individual initiatives in healthy living? These are additional factors that policies could be developed to encourage the patients’ involvement in their health care decisions. These complexities are areas of innovation for insurance companies to develop new products to cut costs and improve the average national health indices. We need a health care agenda that moves us toward a more competitive position internationally.

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