What would a capitalist health INSURANCE system look like?

A fundamental problem with using the word “capitalism” is that it has come to be associated with the idea of “favorable to big business”.  For this reason large corporations proclaim their love for “capitalism” while simultaneously, intentionally or not, doing everything in their power to subvert its basic principles.  Also for this reason, those who are not happy with what they, sometimes correctly, see as bad behavior on the part of large corporations, loudly rail against the evils of “capitalism”.  One is just as wrong as the other.  I argue that capitalism is not necessarily favorable to big business, in fact if fairly applied, capitalism would never result in the large mega-corporations we see today nor the influence that they have on our economy and government.

The health insurance industry is a prime example of an industry that is about as far removed from the spirit of capitalism as it would be possible to be.  Of the people that have health insurance, only 10% of us are able to purchase health care on the open market.  The remaining 90% either get it from our employers (60%) or our government (30%).  That means that most consumers have very little choice in what health insurance we get.  Either we are enrolled in medicaid/medicare, or our boss decides who our insurance provider is for us.  While some are fortunate to have altruistic bosses looking out for their best interests, the vast majority have bosses who feel compelled to appease stockholders demand for more profit and thus choose a health care provider for their employees based on cost.  Insurance companies do not compete on the basis of who can provide the best health care for us but on who can provide the most attractive (read cheapest) plan to our bosses.  Worst of all, once they receive our premiums, every payout is a loss on the books and dissatisfying to stockholders and therefore there is an incredibly perverse incentive to deny health care.  And they do.  Doctors in America sometimes spend more time fighting with insurance companies to pay for the care their patients need then they do treating the patient in the first place.

The 10% who do  choose their own health insurance are faced with an array of plans whose true value is hidden behind enough small type to confuse even the most brilliant lawyers.  We see options like X amount of dollars for this procedure and y amount for this procedure but making a decision about which is best for us would require a crystal ball.  How can a person decide which policy is best for them if they don’t know what illnesses/accidents might befall them in the future?  Its impossible and I believe its deliberately confusing to prevent people from making good decisions.  Finally even if a consumer were to have the information that they needed to make the best choices based on the policy, the most important piece of information is whether the insurance company will actually pay the money they are contractually bound to pay.  They can just say no, and very often they do, and we are stuck with very few options.  Sure we could hire a lawyer if its bad enough but very few lawyers will take a case unless there is a big payoff possible for them.  Even if you were denied payment on $10,000 of treatment you will likely have to pay a lawyer up front and who can afford that?  Unfortunately many times treatment is given on the assumption that it is insured and when it turns out to NOT be insured the patient is stuck with a $20,000 or $50,000 bill in their hands.  For this reason half of the bankruptcy’s in this country are the result of unreasonable medical bills.

Lets see, we have consumers with almost no choices available to them, competition not on the basis of providing good care but on the basis of saving your boss some money, obscuring the information required to make good choices, and perverse incentives.  Yep, I’d say that’s exactly the opposite of a capitalist health insurance system.  Is it any wonder that our health care system is so inefficient?  But before we build our perfect system lets look a little deeper into the business of insurance.

When you drive through the suburbs of any city in America and see those big shiny insurance company buildings you might think that they were full of people dealing with peoples health care issues.  If you were a cynic you might think that they were full of people trying to figure out how to deny people health care.  Either way you would be wrong.  What those buildings are full of is financial analysts trying to figure out how to invest your premiums.  This is the real business of health insurance.   Get your money up front and try to find a way to make it grow, betting that they will end up with more money in the end than you will spend on health care.  There is nothing inherently wrong with this model.  The problem comes when you have a for-profit insurance company under immense pressure from shareholders to generate a profit in an investment environment that doesn’t have many sure-fire options for making peoples money grow.  Even non-profit insurance companies need to at least break even.  Add to that the perverse incentive for denial of payment and you have a recipe for the subversion of capitalist principles and extreme inefficiency.  And its easy for them.  Easy because they do not have to fear losing their customers because the customers usually do not have a choice.  They cannot just drop the insurance company and get another because they were not the one who chose it in the first place.  This gives the insurance companies power that they would not have in a capitalist system.

In an attempt to keep costs low, insurance companies dictate to doctors the prices that they are willing to pay.  These prices are not set by the invisible hand of the market but rather by a committee in one of those big glass buildings.  Doctors have little choice but to go along.  If they don’t they will lose the business of ALL the insurance companies clients.  Their only way to earn money is to perform procedures that the insurance company will pay for.  Doctors have been turned into piece rate workers, rather than health care professionals.  There is little incentive for them to take time to listen to their patients and do thoughtful research into the issue because the only way they get paid is to perform billable procedures. Another perverse incentive.  In essence insurance companies have gotten a stranglehold on the health care industry.  They tell patients what doctors they can see, they tell doctors what procedures can be done and how much they will get paid, they decide what patients they will accept and burden the rest of us with those that they deem not healthy enough to be worth insuring.

There is nothing wrong with the basic model of insurance and I think it would be  possible to have an efficient capitalist health insurance system but it would look very different then what we have today.  I also think that there might be a better model than insurance for achieving health care but I will save that for later.   If we are going to stick with the concept of insurance we need to reform it drastically.  I’ve already made the point that from a business perspective, insurance is about investing.  From the consumer perspective insurance is about shared risk.  A hedge against the possibility that a health catastrophe will lead to financial catastrophe.  If a deer runs into your car, you use your car insurance.  If a tree falls on your house you use your car insurance.  If you drive your car into your house you probably need both.  But you do not use you car insurance to pay for gas, or for new tires.  You do not use your house insurance to buy light bulbs or pay for cleaning service.  In the same manner, health insurance should be reserved for major catastrophes, not pulled out every time you get the sniffles or sprain an ankle.  Some things you just need to accept as a normal part of life, like light-bulbs burning out and buying new tires for your car.  This would be my first reform.

Next on the list would be to completely divorce insurance from employment.  This may have seemed like a good idea 50 years ago when American manufacturers were trying to attract workers during strong economic times and when employees were often hired for life.  In reality it was probably a bad idea then and is most definitely a bad idea now.  Why should my employer be involved in my health care at all?  It makes no sense whatsoever especially now when both employer and employee fidelity are virtually non-existent.  It puts American businesses at a competitive disadvantage.  $1500 of every American cars goes to pay health insurance for factory workers but manufacturers in Japan and Germany have no such burden.  In addition it gives business owners a stranglehold over their employees who are afraid to quit because of losing their insurance which interferes with free-market forces.  It also prevents many people from joining the entrepreneurial class for the same reason, especially those who have health issues that would make it impossible for thme to find private insurance. This robs our nation of all the great ideas those people might have.

Under this system insurance companies would not be able to compete for your bosses business, they would have to compete for YOUR business and you could fire them if you wanted too.  This alone would be a HUGE step forward.  Even so they could continue to mislead you through pages of legalese.  They could still deny you care. They could continue to dictate procedures to doctors, they could continue to tell you what doctor to see.  You’d now be able to quit and get another insurance company but if they could continue to turn you down for pre-existing conditions you might still be out of luck.  How do you eliminate those possibilities?  Simple you take away the option.  The business of insurance is investing.  Competition between insurance companies should therefore be about who is the best investor.  Period.  If you want to be an insurance company you start on an even footing with other insurance companies.  Your sole purpose it to take peoples money, invest it and return it them when needed.  You don’t get to tell them what doctor they can see, you have no influence on what procedures get done or how much the doctor charges, that is up to the doctor and determined by competition with other doctors.  Finally you don’t get to change your policies.  There will be a few standard policies but they will be incredibly simple.  Other than that you just make your money with investing and if you are good at investing, you can charge less money and get more clients and make more money.  If you are bad at investing you will fail.  Good riddance, try something else.  That’s capitalism buddy.

In short

1)  Doctors compete on the basis of who can provide the best health care the cheapest

2)  Consumers are given the information they need to make the best choice of doctors (possibly with the assistance of a health care consultant) but pay out of pocket for general health care needs.

3)  Insurance companies are used to spread the risk but they compete only on their ability to invest your money.  They have nothing to do with health care decision making.***

4)  Employers have absolutely nothing to do with any of it.

At a later date, I’ll discuss what I think might be even better.  Health care co-operatives.

***  The government could do this quite well.  One thing it is very good at is collecting money from people and giving it to other people.  This is what they do in other civilized countries. The competition is still between doctors.

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