Americans want to help the disadvantaged and the elderly acquire quality healthcare. However, both The Patient Protection and Affordable Care Act (PPACA) and the current system will hasten a British like healthcare system where care is rationed. We need to take courageous steps and completely reinvent third party funded healthcare systems.
There are primarily two major issues with the current third party payer system. The first is inherent in the basic human response to incentives. Another is the impact of government price fixing.
When government or any entity picks up the cost of someone’s healthcare, the result is a lack of concern for costs. People become incentivized to spend. In many cases, they spend well beyond what they would be willing to pay themselves even if they had the resources. With no cost barrier, and as the supply demand curve of economics 101 shows, demand exponentially increases as the price falls. At zero prices, or free, demand is infinite.
Concomitantly, as the supply curve falls it leads to a significant shortage. Or, in other words, when there is no cost barrier, there is no end to the demand. With unlimited demand, there is no supply that can ever meet the demand.
The evidence of this is easy to find by looking at a healthcare system where 100% of people are covered for “free.” Though Utah has proven the point eloquently with his story concerning his sleep studies, I would like to expand his point. In England, mortality rates foremost diseases significantly exceed the US. Two examples are prostate cancer, mortality is 19% in the US and56% in the UK, and mortality for breast cancer in the US is 25% while in the UK it is 46%. As demand exceeds supply rationing, or whatever politically correct word you chose, must occur. The consequence is a system where screening occurs later in life.
Current abuse of the emergency department and other visits to physicians for conditions that our grandparents would treat on their own is taxing the system substantially. Much of the increased costs in our current system are due to unnecessary visits. For those on “free” or low cost systems, there is no incentive to save, and again no supply that can ever meet the demand.
An additional problem to the current system is the effect on health insurance and other payers when government sets the price so low. When Medicare and Medicaid decide to only pay X for a procedure, and X is substantially below the market equilibrium price, one of two things happens. Either providers stop doing that service and create a shortage, or they increase the price charged to others, a process called cost shifting.
The effect of cost shifting has devastated the Health Insurance Industry. As the government pays less, physicians, hospitals and other healthcare entities raise the price for others leading to increased cost of care for those with health insurance or no coverage at all. This increase is then in turn passed to their customers in increased cost. As the cost escalates, fewer people can purchase health insurance leading to a need for insurance companies to increase prices further (rationing of healthcare that we have discussed before). What followed was a vicious cycle and put us where we are today. The PPACA does little to almost nothing correct this, and in fact, the industry itself states that The PPACA in fact pushes us further down this road of cost escalation. This is one of the major flaws in the bill/law.
Essentially, with Medicare and Medicaid price fixing, the free market in healthcare is dead. The free market will drive price down for everyone, even in the healthcare industry. LASEK is an excellent example.
LASEK involves a very precise “laser,” trimming microns of cornea to reshape the cornea and focus the image on the retina. Health insurance and government medical care do not cover the price of this procedure. Meaning, true market forces are setting the price. What has happened? When LASEK was introduced it cost $5,000 to $6,000 dollars. Over the years, the price has dropped naturally ophthalmologists competed for the dollars people were willing to spend, the price fell. I saw an ad yesterday for LASEK for $499 per eye. Granted the average LASEK procedure is roughly $1,800 dollars, but even this amount is significantly less than where it started. This year’s average was less than last year’s. Falling price for a complex surgical procedure on the eye, in the face of healthcare inflation twice the standard inflation rate is proof; the free market can work in healthcare.
We need to compel the government to stop fixing the price. The free market will adjust itself and with competition find a price at a supply demand equilibrium point.
The challenge then is to design a government run program to help people who need assistance, and yet allow free market practices to set the price?
The government already has a program in place that does just that. However, our proposal would occur on the state level (if adopted), and I believe would work much better for business, physicians, and most importantly – the individual (you, the patient).
The food stamp program, now called the Supplemental Nutrition Assistance Program, or SNAP, is where millions of Americans receive assistance to purchase food. This program is an excellent paradigm for healthcare. People who qualify are given a debit card and allowed to purchase the food they desire. The market price for food remains unchanged for the most part because the consumer is choosing how to allocate the resources he or she has. The consumer recognizes there is a limited amount and thus chooses prudently on how to spend the money. Should the person foolishly buy filet mignon, they have little to nothing else for the remainder of the month.
Healthcare credits via a debit card would place the decision-making back in the hands of the consumer. We have the actuarial data and can calculate the exact amounts needed to be kept in reserve for catastrophic care. We can even tier the money based on the individual’s chronic conditions. The money used for routine visits as well as non-emergent use of the emergency department can be allocated to the health debit cards. The state government would issue qualifying personnel a set amount yearly in conjunction with a catastrophic health plan. The individual would chose to save money by waiting to go to a primary care doctor instead of an emergency department and thus have money remaining for preventative care should they desire it. The individual has a choice, the market forces of supply and demand are thus reinstated and assuredly the right price will surface.
Lastly we need to address the incentive issue. Patients who have dollars left at the end of the year will be given fifty percent of those dollars back as an earned income credit provided that their state has a state sales tax. For states that do not charge a state tax, the patient could be given this bonus money as a direct deposit to assist with their cost of living (this would also impact the costs of section 8 housing on municipalities as patient’s increase their net worth). This incentivizes the patient to spend less for their care. It may serve as a strong incentive to improve their health to increase the size of their credit. The remaining 50% can either stay in the program to cover expansion or better yet, be given back to the state taxpayers who ultimately funded this program.
This system reverses the current incentive to spend regardless of the cost. It would remove the local, state, and federal governments from price fixing and thus allow the market and competition to push the price down. This system also removes the need for the Federal mandating or punitive taxation of the individual. As this system is geared at the state level, it does not impact the national debt. Most importantly, this system maintains the all important patient/physician relationship … while giving the patient their choice.