What The People Want in Reform

This is not particularly complicated, and you'd think that certain simple reform measures could be accomplished without one dime of taxpayer money being spent. Of course, you might have to annoy some special interests in order to actually serve the people.

Here is my list:

1) Lower cost insurance (at least catastrophic coverage should be available inexpensively for everyone, but especially the young and healthy that don't want to spend money on a lot of other frills they have no use for).

2) Portability--meaning that your health insurance should NOT be tied to your job. This requires that "groups" are eliminated and that all individuals in an insurance company's entire portfolio are the only "group" that is recognized (which happens to be true, though for some reason we've all bought into the thought that our "group" was a company, a union, or something. This is what has made buying insurance so difficult for individuals and small businesses. It's arbitrary and counterproductive. See THIS post.) Also, if you are already insured and you want to change your coverage, the insurance company could not drop you for de-selecting certain menu items (for example, if you lose your job, you may want to keep the insurance the company was paying for, but, given you are now unemployed, you may need to drop back on your deductables until you are employed again to lower the cost).

3) No dropping people because they get sick, or actually use their insurance.

4) Insurance for people with pre-existing conditions. Obviously, some conditions are more major than others. I would have no problem some things simply being waved, as long as they can be covered with some other mechanism, such as a high risk rider policy that covers only that condition--all other conditions are charged under the "normal" policy, or perhaps an insurance cooperative that is funded by insurance companies and an extra fee by the client. Someone with a severe pre-existing condition (like cancer), should definitely be able to find a secondary insurance source specifically tailored to that condition. This could take some thinking, but I'd think that it would not be too difficult to figure out a way to do it without it becoming a government program.

5) Provide the same tax break to an individual paying for their insurance as a company gets. (Note that the company would only provide the insurance as a sort of convenience, because the policy would be portable with the employee, not tied to the job).

6) Tort Reform! Take a bunch of cost OUT of healthcare in one sweep.

7) Allow policies to be sold across state lines.

8) Disallow state mandates of what must be covered so that people could choose from a menu of items beginning with high deductable catastrophic coverage, then increasing in price as more items are added. For example, a gold-plated package might include everything from catastrophic coverage with no deductable, to office visits for the sniffles, where a mid-range plan might have a lower deductible on emergency room visits and catastrophic care, but you're paying out of pocket for your check-ups. I'm certain that, if forced to do it, insurance companies could come up with a great set of options that appeal to people and also allow them to be profitable.

This simple list would end up with more people covered by insurance (because it's cheaper). Frankly, I wouldn't even mind a mandate that people have at least catastrophic coverage. I don't like that kind of interference with personal choice, but if the cost was low enough, it could be like the mandate that you carry some form of auto insurance to drive. It would also make insurance just as affordable for the self-employed as the large corporation, because there would be no difference (no "group" to worry about).

It seems to me that THIS is all the majority of people want. They want security without having to pay through the nose for it. They don't want the government involved in it, other than setting some rules that work to favor the individual. Why should this be so difficult?

And Furthermore...

Why isn't your auto insurance tied to your employment? Why isn't your life insurance tied to your employment? Do you notice the price of either does not go up if you buy it as an individual, and that it's portable whether or not you have a job? How about the menu of options available, like, higher deductibles, full glass coverage, liability?

Other than government regulation and entrenched business practices, why isn't health insurance the same?

Regarding the Post Below...

Some might wonder how, in the absence of "groups", people could get varying levels of service in their health care plan. First of all, you know that the insurance companies would adapt to the "no group" reform to find ways to be profitable. That's capitalism--adapt and create!

One thought would be that the company takes an "every policy holder" baseline, which is their cheapest insurance: catastrophic with a high deductable. If the risk pool for this insurance is every policy holder they have, this should be extremely inexpensive. As the deductable gets smaller (another option the company offers), the price goes up. As a person starts to add from the menu of options (drug benefits, maternity care, etc.) the price goes up. But, it is all spread across a "risk pool" that includes every person insured by the company who is purchasing a particular benefit (with the baseline price still based on the catastrophic coverage for everyone).

Imagine the competition this would create for your insurance dollars. Imagine how low the prices would be for young, healthy single people who every insurance company would want in their plans because having them is money in the bank (they are, after all, young and healthy and are great risks).

The other area where this could create competition is this: if people are buying from a menu, many will choose to forego insurance payment for check-ups and routine tests. It will become reasonable to pay for these things out-of-pocket rather than pay a higher premium for something seldom used. Therefore, some smart doctors and nurses will doubtlessly create neighborhood clinics specializing in cash-payment check-ups and testing. Competition will be created that will lower the prices, and increase the services. Think "veterinarian". We might even find ourselves in a situation where the "house call" returns, either by doctors, or nurse practitioners.

Two things have to change for these things to become a reality: A mandated end to the business model of "groups" (or "pools"). And, the ability for insurance companies to sell insurance across state lines (not only does this increase competition and lower prices, but it's a bone to the insurance companies because it allows them to create a larger customer base, which means a larger risk pool).

One Simple Change Could Have Huge Results

There is an insurance company business practice which, if altered, could make health insurance affordable for millions more Americans, and reduce the cost for everyone. Changing this practice would also make insurance portable. Those are two of the biggest goals of insurance reform that nearly everyone would agree upon.

This practice is grouping policy holders into pools. Your “pool” is usually your company. The problem is that this practice is an artificial structure that is intended to maximize insurance company profits by segmenting each pool (or group) as its own profit center. In fact, the insurance company’s real “pool” is every individual holding a policy with the company.
I have no problem with insurance companies making profits. I understand the business model of segmenting profit centers so that, if each one is managed to maximize profits, then if one or more do not make a profit in a given year, the profitable ones more than make up for it.
However, let’s look at the results of this practice. If you are an employee of a large company, that company, because it is a large pool, gets its insurance at a lower cost. A smaller company pays more for the same coverage. An individual can’t even afford that coverage, nor can really small businesses.

For example, let’s say there is an insurance company called Purple Shield. If I am self-employed, I can’t afford good coverage from Purple Shield because I have no “pool”. Purple Shield treats me like a one man (or one family) “pool” whose risk is spread across only itself. However, if next week I give up my attempt at self-employment and I am hired by Mega-Corporation, which is insured by Purple Shield, suddenly I can get a policy for a fraction of the price I would have paid as an individual. What has changed? I’m still the same risk. They could have thrown me as an individual into the pool with the employees at Mega-Corp when I was self-employed and let me pay the premiums. Plus, now if I lose my job at Mega-Corp, I’m out on the street again without insurance.

The only way to bring down the cost of insurance to individuals and smaller entities is to stop this practice of artificially grouping the insured by the company (or union) for which they work. Pricing is done based on spreading the risk across the group that is insured. The real group for which the insurance company is providing insurance is every policy holder they have.
Mandating the elimination of this “group” (or “pool”) business model will accomplish two things: It will allow everyone to buy insurance at lower prices because everyone will have the risk they represent spread across the largest possible number of people. Secondly, it will automatically make insurance portable, because the individual will no longer be tied to the pool they were in when the company they worked for purchased insurance for them.

Expanding the risk pool even more by allowing insurance companies to sell insurance across state lines will also help lower the cost.

Companies could still purchase insurance for employees as a perk, but that insurance would be of the employees choosing and would still be available at the same price to that employee if the relationship with the company is severed. In addition, if the tax rules were changed to give individuals a write-off for insurance, more people would be willing to buy lower cost, tax deductable policies.

This is “health insurance reform” that could make a difference. It’s also incredibly simple. It is no more complex than mandating something like “mark to market” (which didn’t work out very well because of what it was, but the point is that the government CAN mandate a business practice).

This “pool” (or “group”) concept is so ingrained that people don’t seem to be able to even consider that it is, in fact, artificial. I keep hearing experts talk about allowing small businesses to group together to form larger pools, or allowing individuals to group together to form larger pools in order to bring down costs to these smaller entities. That conversation misses the point. The risk to the insurance company is NOT really spread across whatever the insurance company defines as the pool you are in. The risk to the insurance company is, in fact, spread across everyone they insure.

The reality check is this: Mid-sized Company A is insured by my mythical Purple Shield insurance company and the cost of insurance is based on the size of the risk pool represented by the employees of Company A. There’s a toxic gas leak at Company A and every employee is affected. They all have to go to the hospital and receive expensive treatment. The premiums paid by Company A do not cover the massive expense. Where does Purple Shield get the money to pay the extraordinary hospital bills? From the premiums paid by all of the other people they insure! The risk is, in reality, shared across the entirety of Purple Shield’s portfolio of insured people. Profits will go down a bit for Purple Shield as a result of the extraordinary expense. But, if the reality was that Company A’s risk was only spread across its own employees, Purple Shield would never have been able to pay the hospital bills. Purple Shield is not bankrupt, and is in fact still highly profitable because the risk for each individual working for Company A is actually spread across every policy Purple Shield has sold. If that is the reality, why continue to price policies as though the person insured is part of a smaller subset group, making it difficult for small businesses and individuals to buy health insurance?

This very simple change to insurance company business practice, combined with allowing insurance companies to sell across state lines will result in lower cost to the consumer, more competition as insurance companies vie to create the largest risk pools possible, and create policies that attract more people into their “pool” to share the risk. It will also automatically make policies portable, because your policy will no longer be tied to your employer because your policy is no longer based on the risk pool your employer represents.

Isn’t this what we’re actually clamoring for when we ask for health insurance reform?

Health Insurance Reform

1. Tort Reform. This is an obvious omission from the current bill. Threat of lawsuits (often frivolous) costs doctors too much money in malpractice insurance and also results in too many extra and costly tests being performed.
2. Three Simple Rules insurance companies must follow:
a. An insured person cannot be dropped from their insurance, or have their premium go up as a result of illness.
b. A mechanism must be put in place to insure people with pre-existing conditions.*
c. Insurance must be transportable for an individual, not tied to a place of employment.
3. End state mandates of what must be covered in an insurance policy so that individuals can choose from a menu of items they want to have covered, rather than forcing insurance companies and individuals purchasing insurance to provide and have coverage they don’t need or want. (This dovetails nicely to point 4 below.)
4. Allow sales of insurance across state lines. This will increase competition and increase the number of insured people in the risk pool, both of which should have the effect of lowering the cost of insurance.
5. End the practice of “grouping” the insured. Currently, insurance companies sell insurance to groups (like the individuals working for a company, or in a union, etc.) as though the risk posed to the insurance company from that group is limited to the number of people in a particular group. For example, I worked for a company employing 45 people. The cost of insurance to the company was based on the risk our little “group” posed. The same insurance for a larger company where the risk was spread across more people would have been less expensive because of the larger risk pool. The insurance would not have been available to the self-employed because there was no “group” across which to spread the risk.
The problem is that this is an artificial construct. An insurance company ultimately spreads the risk across everyone they insure, not merely the members of a particular defined group. I understand the business model, because it’s clear that if each “group” is managed for maximum profitability to the insurance company, even when a few “groups” end up upside down because of illnesses or injuries, the other profitable groups more than compensate.
This artificial construct of relating to the insured as members of “groups” rather than as all belonging to the overarching “group” of ALL of the people the company insures (which is the reality) is a cause of insurance being more expensive overall, and mostly unaffordable to individuals who are self-employed.
Ending this practice of “grouping” will make insurance more transportable, because the cost of insurance for an individual in a company will no longer be tied to that company “group”. It will also make the playing field level for the self-employed and for people who want an insurance option that their company is not willing to pay for (as part of the employee’s compensation package).

Summary: These five simple things will drive down the cost of insurance and of medical care. If insurance is more affordable, far more people will purchase it. If providing medical care is less expensive due to tort reform allowing for less money spent on malpractice insurance and unnecessary testing, a lot of waste and unnecessary cost will come out of the system. This is true “health insurance reform” that will make a difference to people.

*Perhaps a non-profit entity can be created that is funded by an X% contribution from all insurance companies (possibly also getting funding from other sources as well) making it a “re-insurer”. This would allow an insurance company to sell the person with a pre-existing condition a normal policy for all care not specifically related to the pre-existing condition, plus provide insurance for the pre-existing condition via the non-profit re-insurer. This would allow the insurance companies to insure people with pre-existing conditions knowing there was a fixed cost in doing so. The person with the pre-existing condition might be required to pay into the non-profit, but the cost would be limited.

Progressives?

I always hear people on the left referred to as "progressives" (or, more accurately, referring to themselves as progressives.) So I ask myself: progressing toward what? Fairness? How is it fair to take something someone has earned and give it to someone who hasn't earned it? Equality? We're equal in a spiritual sense, we're equal in the sense that we should all have an equal opportunity, but the fact is we don't PERFORM equally. Bill Gates and I are not equal financially. I didn't start Microsoft, he did. Good for him. I'd better come up with a great idea too. Are we progressing toward a government that takes better care of us? Government is the least efficient, least adaptable, and most corrupt possible way to take care of anything, and even people on the left, when they have to actually interact with government, think it's a bureaucratic nightmare (yet they keep wanting more... go figure.)

So what are they progressing toward? More power over more people's lives is all I can really come up with. I don't think they're evil for that, because I'm certain that they have good intentions (most of them). The problem is that the basic assumption of that is that there is an elite that can make better choices for people than they can make for themselves, which diminishes the people, and puts power in the hands of a few that, by definition, are superior to the diminished masses.

The other problem, of course, is that rule by an elite has NEVER WORKED. I don't care how smart they are, life happens, and especially economies happen, in what could be called a positively directed chaotic state, where new things are created unpredictably, and things have to adapt nimbly to the new creations. No group of "wise people" can control it. Note how successful centrally planned economies were and are. Lots of new inventions and creative solutions coming out of the old Soviet Union, Cuba, and North Korea (not). Are the people there stupid? No. They're just not free or motivated because an elite is in control. Everyone's equal... equally miserable, except the elite because they're so wise... er, they have the power.

When someone says they're progressive, ask what they are progressing toward. It seems to me that what they're really doing is regressing toward what has never worked. Rule by an elite that sees all the peasants as the same didn't lead to progress in monarchies, facist states, or communist states. Freedom, and competition, has led to progress.

Government CAN'T Fix It (never could)

This is a comment I sent to William Katz at UrgentAgenda (which I highly recommend).

Hi William,

One of the interesting aspects of this latest Obama elitist flap is something you’ve mentioned a few times in passing: How he seems to be convinced that the government is the answer. Government should provide jobs. Or maybe just money. And he thinks the government should provide jobs while taxing the hell out of evil corporations. Isn’t there an intellectual disconnect there that is just incredibly difficult to overcome?

Government doesn’t “create jobs.” Entrepreneurs create jobs. Expanding businesses create jobs. All government can do to help is to get out of the way; less government intervention via taxation and regulation. But the people promising jobs want MORE taxation and regulation. Plus, they want to increase taxes on the “rich”, who have the means to invest in entrepreneurial (risky) enterprises. Take more money away from them, and they’ll want to risk less. How can government tax the sources of jobs more, and expect more jobs to be created?

Or, is Barack (and Hillary too) really saying that the pathetic losers in industrial states that have declined have only one hope, and that is that the government will take care of them, because they don’t have the drive, the intellectual capacity, the creativity, or whatever else it takes to create a better life for themselves. In most cases in the industrial states, the problem has come through government (high corporate tax rates and/or regulation), or through a quasi-government style anti-corporate bureaucracy called a “union” that has made it impossible for an industry to compete in a global market (or even a national market) while conducting business in that state.

My family comes from Hibbing, MN, once home of the world’s largest open pit iron mine. The unions killed the mining industry in Hibbing, because wages and benefits kept rising for workers who had less and less incentive to work or accomplish anything. Wages went up, productivity went down, and suddenly it was cheaper to import steel than pull it out of the ground in northern Minnesota. Hibbing nearly died (rescued only by the fact that it’s surrounded by beautiful lakes where people love to vacation in the summer).

The only positive thing the government could have done to help solve the problem would’ve been to act on the side of the steel industry by nullifying the union contracts and allow the companies to pay only those workers who were productive a good wage, and make the business competitive again, meaning that workers had to compete to be perceived as the most productive and the most deserving of the high wages, and the companies could have again made American steel competitive in the global marketplace (certainly competitive for the U.S. market).

I just find it interesting that people like Barack and Hillary think the government is the answer, when government has NEVER been the answer except when it gets the hell out of the way. How can they look at world history and still sell the proposition that a large unwieldy government bureaucracy can be the answer to anything? Particularly in the area of economics where creativity and competition is the only thing that truly drives expansion.

Thanks for you time and your blog. I really enjoy it.