Tuesday, October 13, 2009

My Problem with Health Care - or - The $12,000 Baby

Recently I had two experiences that coincided with each other and quite frankly, proved the point of the other. Both dealt with American Health Care. The first is that my wife had a baby (several months ago) and over the past three months we have been receiving and having to pay the bills from having a baby. Fortunately (this is odd that I am saying this and I will explain why in a moment) we had insurance, so insurance covered most of the cost, but we were also left with a hefty bill. For some it may not be hefty but on a grad student's salary it came out to approximately one month's salary. The second experience that I had was that I recently read an article in The Atlantic magazine about American Health Care. It is a fairly long article, but definitely worth the reading. It gives an interesting, and very honest, assessment of the American Health Care industry. I won't comment too much about the article, it speaks for itself, but I will say that after reading it I could see several things about health care in my own experience with a new baby that were mentioned in the article. Basically it left me convinced that the current American Health Care system is fundamentally dishonest in its method of payment (not in its level of care), which breeds all kinds of problems and burdens everyone with ridiculously expensive health care (or prohibitively expensive). From this I have concluded that the only way to fix the problem (i.e. paying for health care), or to really reform health care, is to burn the entire system to the ground and start over.

I offer two practical solutions to reform health care:

1.First, Prevent employers from providing health care benefits to their employees. Exceptions can be made for high risk occupations, such as coal miners, fire fighters etc.. But do university professors, attorneys, sales clerks and bag boys really need health insurance through their employer?

For those who object and say it makes perfect sense to provide health care through an employer, I ask, does your employer also provide auto insurance, home insurance or gas insurance? (Gas insurance, what is that? See below.) Does your employer contract with a grocery store to provide you with groceries? If the answer to these questions is no, then why should they pay for health insurance? You only expect them to do it because that is the way it has been done for many years. It does not mean it is a good way of paying for health care.

The benefit of this is that individuals are wiser with their own money. If they have to pay for their own insurance, they will make absolutely sure that it is the cheapest option out there. Because I am a graduate student I am automatically enrolled in the TA/RA health plan with the University. In other words I really don't care (or even know) how much my department is paying for my health insurance. But if I had to pay my own, I would make absolutely sure that it was as cheap as possible. My wife and son are not automatically covered under my plan, we have to get our own insurance and we found that it was cheaper to use a different plan rather than adding them onto mine (about $1000/year cheaper, which is about 5% of my annual salary. That's quite a difference.). So imagine the effect if everyone payed 5% less of their annual salary for health insurance.

2. Second, have health insurance only cover catastrophic health care, things that require hospitalization or special extended care, including elder care. These are the major costs of health care. To understand why I say this consider this example. Every time you go to a gas station you have to pay for your own gas. Now imagine instead of actually paying for your gas you contract with a third party and pay them a flat rate per year to get gas from certain suppliers. Each time you fill up you also have to pay a percentage of the total price, but you have no control over the price and you cannot negotiate the price. As a matter of fact you cannot even find out what the price of the gas was until the third party sends you a bill in the mail two weeks later. Any gas station you visit unconditionally refuses to quote you a price until you have actually received the gas and are notified of the price by the gas insurance company. If you insist on paying for your own gas and refuse to use one of the gas insurers then the gas station will arbitrarily raise the price of the gas by 250% (I'm not making that number up) and then inform you of the price and offer to negotiate the price with you, but only after you have already taken and used the gas. If this sounds insane to you, then I ask, why should we do the same with health care? We have have auto insurance for accidents, not for common maintenance and gas. Why not do the same for health care?

If you argue that we can't this because health care is so expensive, then I respond, the only reason why it is so expensive in the first place is because the system (we, ourselves) made it expensive.

These solutions may be simplistic but at least they are a start. So why did I decide to go on a rant and offer these ideas, well that brings me back to my first experience that I mentioned. I am convinced that it should not cost $12,000 for a baby to be born in a hospital, even if it is a very good hospital. It doesn't make sense, nor do I think it is honest, for an institution to say, "The total cost will be $12,000. But because you have insurance we will knock off $6,000 from the price and after they pay up you will only have to pay $1,400. Doesn't that sound good? Because if you didn't have insurance you would have to pay the full $12,000. Thank goodness for insurance *smile* *wink*." (Actual prices used. I rounded to the nearest $100.)

Babies are precious but $12,000 for 3.5 days in the hospital is dishonest.


  1. Quantumleap42,

    I appropriate your post and admit there might be a case for having an extreme free market solution where you take away all influence over forcing employers to provide insurance etc... I have heard good arguments in this area.

    What I fear is, and I've quoted Krugman saying this, that the only people other than the young and healthy who will ever have health insurance are those the government gives insurance either through something like medicare or by forcing employeers to provide insurance to their employees even if they are sickly. In short, there is a compelling argument to be made that it takes government intervention to get health care to people who are sickly.

    Now, I keeping seeing very laissez faire claims that if there could be "true" competition and allow people to search for good health care deals like we can with auto insurance maybe everything would be cheaper and more universal this way.

    I just wish there was some data on this. It is hard to get such data when the entire "advanced" world, other than us, has government provided universal health care.

  2. Absolutely Brilliant Quantumleap42!! I couldn't agree more! This sounds like an excellent solution to our problems.

    What's interesting to me is that as you said, we (well, the gov't + insurance companies) are the ones who have made it so expensive, yet the solution seems to be to increase our involvement in trying to control it. Just like everything else gov't touches, to improve things, add more control.

    Re: Josep Smidt
    I agree, it would be nice to see some good hard data. I do think, however, that some interesting conclusions can be inferred by examining industries that are truly free vs. those that are heavily regulated. The truth is, if an effective method for aggregation of the market is available (usually via opinions of free agents (humans)) then we are much better off trusting in the collective opinion of the market than to entrust the industry with rules and regulations that move at a snail's pace, are subject to small group decisions, groupthink, and other problems associated with regulation of markets.

    In some sense, yes, we are just recapitulating the laissez faire claims without a lot of "proof." I grant you that. But even looking at things from a moral perspective, I find it disturbing that we're (as a country) okay with the concept of forced altruism, and general lack of liberty (Atlas Shrugged anyone?). We are valuing safety and security over liberty everywhere we turn. We are so bent on ensuring nothing bad happens to anyone that we tromp all over individual rights to (supposedly) save the few.

    I think this is why the idea of a truly free market is offensive to some people. The truth is, some folks are gonna die, some aren't gonna get the help they need. I truly feel this is regrettable and would do my part to help those in need. But, as has been shown time after time throughout history, a society based on forced altruism will not only stifle innovation, and eventually lead to degradation of society as a whole, but will fail.

  3. May be it is because the culture in France is too much Catholic, but when you use the notion of God in your work (even if it is not about religion), you feel like people do not think you want to have any baby, even if it is exactly the opposite of your position. But this is true that it is possible to find some Catholic priests who have some babies (more or less hidden).


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