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.

Should Access to Healthcare Be a Universal Right?

Unless you've been under a rock for the past 6 months you are aware that the US is engaged in a debate over the future of healthcare for Americans. There are many important issues to be addressed, but I am most fascinated by what I see as the fundamental philosophical question: Should access to healthcare be a universal right? As I see it, the healthcare debate is an argument between two fundamental rights. From the Declaration of Independence:

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain inalienable Rights, and that among these are Life, Liberty, and the pursuit of Happiness."

On one side, there is a compelling argument that the inalienable right to life comes first for a reason. Without life, there is no liberty or happiness to pursue. Healthcare is already a collective effort - anyone can walk into an emergency room and be treated independent of their ability to pay - and research has shown that in systems like those in Canada, Britain, and France the overall mortality rate is lower than in the US and for less cost, so why not embrace a single-payer (or pseudo-single-payer, which is really what a public-option is) system? It will allow more Americans access to life. (Check out this argument in the New York Times.)

On the other side, there is an equally compelling argument that the rights to liberty and the pursuit of happiness are compromised by government run or mandated healthcare. The current American system does a better job of providing the best healthcare for those who do have insurance - why should that opportunity be taken away? Shouldn't I have the liberty to choose my coverage or lack thereof? The more the government interferes with healthcare the more it restricts the freedom of doctors and patients. Private healthcare provides more liberty. (Check out this argument in the Wall Street Journal.)

So which one will win? I don't know. To be honest, I'm not even sure which one I'm rooting for. I like life and I like liberty. The trick, as always, is finding the optimal balance between the two.

I Survived the Swine Flu (Maybe)

Many of you have been following the progress of the swine flu, or more correctly the H1N1 virus, as it threatens Western civilization with near certain doom. Well it turns out I may have just shown the world how to save itself. You're all welcome.

Last Thursday I came down with a fever, headache, body aches, sore throat, and upset stomach. These are your standard flu symptoms with only one complication - it's August. Who gets the flu in August?

So being the concerned citizen I am, I checked the student health center website at CU and, sure enough, CU was experiencing an outbreak of swine flu. It seems that as the masses of undergrads returned to campus, some of them had brought death along for the semester. AND IT WAS SPREADING! TO ME!

After checking that my symptoms matched those infected by the swine flu, I called up my ever-reliable student health center (yay for student health care!), who informed me that I probably had swine flu, but that since I didn't have cancer, bullet wounds, or an advanced case of polio, they had to leave me on my own and save those weaker than myself. So with nothing more than generic cold medicine and orange juice, I was left to fight for my life.

And fight I did. I fought for nearly 60 hours between Thursday night and Monday morning. To the untrained eye this fighting may have looked like sleeping, but I tell you it was intense. And when it was done, I stood alone on the cellular battlefield. I DEFEATED THE SWINE FLU! (maybe)

So if any of you come down with swine flu, follow my lead. Take generic cold medication, drink orange juice, and sleep your heart out. You too might make it through this flu season alive.

Krugman's Take On Health Care

We recently discussed the free market solutions to health care. Now I will let Krugman give the other side of the story. Krugman is the Nobel Prize winning economist who is the most read and influential living columnist on earth.

Krugman's claim is a health care system cannot work without government intervention. All data shows nobody except young healthy people could ever get coverage without government intervention.

Example: Most people's private insurance comes from their employer whom the government, not the free market, forces to provide coverage regardless of things like pre-existing conditions. Without the government, working a full time job would not bring you and your family coverage if you or you family was sick or had preexisting conditions.

Outside of such government mandates, sick people or those with pre-existing conditions just can't find coverage. => If you are sick or have pre-existing conditions probably the only reason you would have coverage is because of government intervention.

Here are the relevant articles:

1. Why markets can’t cure healthcare: where he describes a "definitive" economics paper that argues health care can't be marketed "like bread or TVs" and thus can never work with a free market.
2. Health Care Realities: Where he describes why the government is needed for health care coverage to work at all. "And that government involvement is the only reason our system works at all."
   

Now, I took the time to read dozens of pro-free-market articles to try to find if the free market can solve health care issues.

I think the only way we can have a truly unbiased view of these issues is if we now read the take of the other side.

I'd appreciate comments if people have any.

Answering My Own Question. Maybe.

A while I asked if any of our blog readers knew of an actual proposal to bring universal health care through the free market. I honestly thought at least one reader would know of at least one such proposal. So far no such luck.

However, being as I am interested in economics and health care, I spent some time searching myself and I found one. (Maybe.) It is touted as being as universal as the current plan being voted on in congress. It won't cover everyone uncovered, but will cover most. It isn't detailed enough to be voted on in congress currently but is more detailed then some op-ed saying nothing more that "Obamacare is socialized medicine."

It was proposed by John Cochrane, an economist at the University of Chicago. It's complicated but here is what Forbes says:

Congressional Republicans have criticized Obama's approach... But as of yet they've failed to offer an alternative that meets Obama's criteria for a successful health care reform.(Ain't that the truth!)

Enter John Cochrane, an economist at the University of Chicago Booth School of Business. Professor Cochrane has long advocated a proposal he calls "health-status insurance," an approach that could guarantee long-term health security while also freeing medical insurers to compete for customers...

So how does Cochrane reconcile robust competition with health security? In addition to medical insurance, he proposes that individuals and families purchase health-status insurance. In the event that one develops a chronic illness, the health-status insurance policy would pay for the lifetime increase in medical insurance costs. Medical insurers would be free to adjust premiums upwards, but the consumer would be insulated from the economic shock. For those who already suffer from chronic conditions or other expensive ailments, the government could step in and deposit money in a health-status insurance account to cover the higher costs.

Here is a 12 page more detailed explanation of what exactly he is proposing.

I would appreciate if our readers would read that 12 page summary and comment whether or not they think it is a reasonable "free-market" based approach to universal health care and explain why. Brownie points if you can provide data to back up your claims.

Is A Free Market Based Universal Health Care Even Possible?

I know we have a lot of free market supporters out there who read the blog. I would like them to weigh in on this one.

The Cato institute is a libertarian think tank that tries to find policies to solve the world's problems by free market principles and and limited government. These are the type of libertarians whom I admire. Not just ones that say the free market is best but one who do the really difficult task of coming up with policies that work.

Now, single payer health care solves the universal health care problem. Having a public option may accomplish the same thing. However, is there an actual workable proposed plan to bring about universal health care using free market principles and limited government?

If anyone knows of such a plan I would like to see the details. Just wanted to know if such a plan existed and if universal health care is even possible under libertarian principles. (By the way, calling the currently proposed plan "Obamacare" or "socialized medicine" is not an example of a workable plan. :) Just thought I'd remind everyone that because many pundits seem to forget that.)

Also, if any data exists to back such a plan: it would nice to see that too.

Public Health Car Plan Is Self Financing.

In response to a comment I want to just say the public health care plan being introduced is self financing. This means it will not be subsidized by taxes:

Proposed healthcare reform legislation, including its public option, has provoked intense debate. I therefore visited the actual text of the House bill as proposed by the chairmen of the three committees with jurisdiction over reform legislation - see

http://edlabor.house.gov/documents/111/pdf/publications/AAHCA-BillText-071409.pdf.

The following conclusions can be extracted from that text, and below them, I've cited relevant text sections as documentation. I thought that readers discussing the topic might be interested in what is actually proposed, as opposed to second hand reports and circulating myths.

1. The proposed public option is non-profit and self-financing (i.e., paid for by the premiums it collects). Its non-profit character permits it to be a strong competitive force to drive down insurance costs. Its self-financing mechanism means that it does not add to federal expenditures - i.e., it is not a part of the costs of reform that are currently debated.

2. The public option can negotiate with drug companies to reduce costs of drugs not already the subject of Medicare negotiated prices..

3. The public option can also negotiate with providers to increase the efficiency of health care.

4. The proposed surtax on high income earners is designed to cover the entire program, but not to subsidize the public option.

I'm not endorsing the whole health care bill, as there is a lot of problems with it. But I will endorse a self financing program that beats the free market options.

I just do not feel sorry for the private sector if it can't compete with a self-financing government sponsored plan.

New Government Health Plan

This comes from the office of Kevin Brady in the House (original file here). This is intended to give a map to the new government bureaucracy that we will have if the Democratic Health Care bill passes. Sigh...government bureaucracy at its best.

Highly Political Quote of the Day

"The last thing I want is the guys managing the Katrina cleanup managing my health care system."
-Mitt Romney

Support Universal Toothbrushing

Everyone agrees that brushing one's teeth is important. Major tooth decay is preventable if everyone would simply brush their teeth twice a day and floss once a day. The problem is that under our current system of private home dental supply purchasing, there is a great inequality among tooth care products. Millions of Americans are using out-dated toothbrushes (the American Dental Association says you should replace your toothbrush every 3 months). Even worse, millions more suffer from preventable tooth decay. We can only assume that this is because they have inadequate access to the latest toothbrushes, toothpaste, and dental floss.

My solution to this crisis is to start a federally funded universal home dental supply program in the U.S. Instead of everyone buying their own toothbrush, toothpaste, and floss, the government will purchase a new toothbrush for every American every three months. The government will also make toothpaste and floss freely available to every American. Of course, this will require a national database to track every American and send them their new toothbrush every three months. Also, the government will have to implement programs to make sure people aren't taking too much toothpaste or floss. But let's face it, the current system of private home dental care is unfair. The richest Americans get sonic toothbrushes that beep after you've brushed the needed two minutes, as well as advanced plaque-fighting toothpaste that also whitens their teeth. Meanwhile poor Americans get a generic, stiff toothbrush and some generic, knock-off toothpaste made in China that might contain anti-freeze. The only way to have a fair system of tooth-care in the U.S. is to create a universal home dental care system. This way, all Americans will have equally beautiful teeth and the needless poor oral hygiene that has plagued out nation for too long will disappear.

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Does that seem a little silly to you? While it may be tongue-in-cheek, it represents the way I see the calls for universal health care in the U.S. I certainly don't mean to belittle the difficulties many Americans (including myself and my wife) have in getting quality health care. But I tend to agree with Ronald Regan's view that "The government solution to the problem is often times as bad as the problem itself". While the government can certainly take steps to improve health care in this country (for example, by increasing funding for medical schools so that there are more doctors and nurses available or requiring individuals with so-called "gold plated health plans" to pay income taxes on those plans), I do not believe that a government run universal health care system could ever be more efficiently run than private health care.

One of the arguments used for universal health care is that private health care is not fair. The rich get better care than the poor. My response to that is "Welcome to capitalism". Our country was founded on the principle that all men are created equal, not that the government should keep them equal. Inequalities should and will exist as long as we live in an imperfect world filled with imperfect people. That doesn't mean that rich have no duty to help the poor - I think they do. Right now, the rich do not do enough in the area of health care to help those less fortunate, in my opinion, and I would support the government taxing them a bit more to help out the less fortunate. But the key is that the free market system of health care must be maintained.

For me, it comes down to this: do you believe that individuals are more capable of taking care their health care (and dental hygiene) themselves than the government is? If you answer yes, a private health care system is the only way to go.