Monday, July 2, 2012

Affordable Healthcare?

The cost of healthcare is increasing at two or three times the rate of growth of the economy, becoming a progressively greater percentage of total expenses.  Last time I commented on healthcare (April 16, 2012),  I listed 8 factors behind this on-going cost increase.  One was the design and structure of current health insurance programs.  As the US Supreme Court upheld the Affordable Care Act  last week, I invite you to review that posting and others listed there where I explain simply and briefly why insurance as it exists today is part of the problem, not part of the solution, and how making insurance more affordable is masking the path to real progress.

As I followed the news, I wondered, "What other item can't be purchased by someone without insurance?"  It occurred to me that if the subject weren't healthcare, we might see how insane the path we are on really is.  One issue that separates healthcare from every other purchase is that everyone feels entitled to the very best, top of the line, leading edge resources and expertise.  When we buy a car or groceries, we don't feel like everyone deserves a BMW or fillet mignon with caviar.  Some people can afford the luxuries and the rest buy what we can afford, but with healthcare, with our well-being or lives on the line, there is no room for compromise (despite the fact that this has never been the case through all of recorded history).  Given that difference, let’s do a little thought experiment to help clarify the issues.

Noticing that your gas tank is getting low, you drive to the gas station to find that things have changed.  Before entering, an attendant asks to see your insurance card.  She looks at it and tells you that they used to accept that insurance but no longer do.  If you really need gas, they will fill you up, but you will have to pay them at a higher rate or your insurance will charge you more for “out of network" service.  You wonder why you weren’t notified of this, and you don’t want to pay the higher rate.  After all, you and your employer pay good money for the premiums (which cover fuel, and minor or major repairs).

So you drive out and head to another station.  Your insurance is accepted and you drive in and get gas.  At the same time your car is tested for various problems.  You notice a few things:  the price of the gas is not posted anywhere, all the readings for the pump are inside, and the tests they do differ from the ones your old station did.  You wonder whether all these tests are necessary, but are assured that the attendants are professionals and know what they are doing.  When you drive out, you don’t pay.  They will send the information to your insurance company who will process it and in about a month or two, send you information telling how much they will pay and how much you owe.  This information is very vague about the tests done with some "reason codes" referring you to general explanations of what isn't covered and why.  (Some of these services you may not even recall getting.)  A few weeks later you will get a bill from the gas station and you hope the numbers match.  If they don't you have a 3-way argument with them and your insurance company - good luck!  Sometimes this process becomes so complex that your employer provides the services of an insurance advocate to help sort out discrepancies, an activity that may last several months.

Not everyone has insurance.  They can’t be left stranded on the road, so the stations send tow trucks to help.  The uninsured pay what they can, but the difference is passed along to regular customers.  Another factor that adds to the cost is that everyone demands the very best in fuel, fuel delivery systems, repair diagnostics, and so forth, forcing all the stations to invest heavily in top of the line products and equipment, even those rarely needed.  This only-the-best mindset leads to further costs as attendants and mechanics are held to stricter standards of performance and must pay extraordinary amounts for liability insurance, passing those costs along to their customers.  You drive carefully and take care of your car, but others drive recklessly and neglect their cars; the cost is averaged over everyone.  Finally, there is a small minority of stations that game the system by filing bogus insurance claims, likewise adding to the overall cost.

One thing few people notice is that in areas where insurance is more generous, stations tend to more readily recommend additional repairs and maintenance.  If you live in one of these areas and don’t pay strict attention, you may drive away with windshield wipers or even new tires whereas another station might have let you drive a few more miles with the ones you have.  Two months later you find that your less generous insurance doesn’t cover these and you are stuck with the bill – too late to do anything about it.  Those with the better coverage don't object to the extra services because it's not costing them anything, so the practice continues. 

Now if someone came along and said, “We’ll fix it by making it easier for people to buy insurance and by forcing more regulations on the companies or by setting up a government insurance pool", do you think that would improve the system or provide the incentives needed to bring the long-term cost down?  I don’t think so.  I think anyone who considered the problem critically, seriously and objectively would conclude that the entire system is messed up.  Easing entry into a messed up system doesn’t un-mess the system.  It just exposes more people to the complexity and the mess.  Think about it.

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