Health care reform in 2009

As with all economic fiddling, it’s important to think about how changes in health legislation will affect people in unintentional ways. I’ve been following the health care reform debate with some special interest because I am “self-employed,” working for a small business, and paying way too much for health insurance.

For starters, let’s take a look at what I consider to be the fundamental problems with our current system, and why they exist:

Health Services Cost Too Much Money

It takes about two seconds to find a chart showing the increase in health care spending in the US over the past several years. As a nation, we now spend between 15 and 20% of our GDP on our health, which, as many critics correctly point out, is ludicrous.

The reason our health care spending is so high is that in the United States of America, Things Cost More. Malpractice insurance costs doctors money, and medical school costs money, so doctor’s salaries must be high, so office visits cost lots of money.

Pharmaceutical companies are forced to charge low rates in other countries, so they make up for it by charging extra-high rates in the US. MRIs cost lots of money. Equipment costs lots of money. It all costs a lot of money.

And frankly, it doesn’t have to.

The reason that health care costs so much is that nobody has an incentive to keep costs down (except the consumer, who isn’t part of the process).

Think about it. The more money it costs for a drug, the more money the drug company makes. The more money the doctors make, the more money…they make. The more money that health care costs, the more money insurance companies make…

wait a second.

As far as capitalism is concerned, there’s no check on the cost of health care, because:

1. The consumer never sees the price
2. Your health is supposed to be worth “whatever it takes”

So our normal pricing system doesn’t work. It probably wouldn’t work even if people knew what they were paying beforehand, because when it’s your health, you’re supposed to just pay up.

Apparently this is now being referred to as the health-care wedge---the way that consumers demand health care without regard for cost.

Health Insurance Is Not A Business

There is a significant difference between the goals of a business and the goals of a public service; in one case, you are trying to maximize your profits, and in another, you are trying to maximize the amount of good that you do. In the case of medical care, those two goals are completely contradictory.

Here’s a thought experiment. Let’s say you have a treatment for late-stage rabies that is fast, painless, and costs you $4 to administer to each person. Let’s assume you have enough of this treatment to heal 35 people. And finally, let’s assume that people with late-stage rabies are generally willing to pay $50 for the treatment, if they have $50 to spend.

40 people come in to your clinic (let’s be realistic; there are always more patients than medical services are able to treat).

If you’re operating a public service, you would do your best to treat $35 for $4 each - it might be the first 35 people, or the “best” 35 people by some other metric, but the point is that 35 people would be treated, and after paying for your staff and the medicine, you’d end up where you started; no profit and no loss.

If you’re running a business, the shots go only to the people who can pay you $50 for the treatment; maybe about half of the 35 people. At the end of the day, you have 17 dead people with $20 in their wallet, 18 happy people with $0-$100 in their wallet, and and extra $828 in your wallet.

It’s my opinion that in a modern and wealthy society, health care is more a right than a privilege, and scenario one provides, as some in philosophy would say, “the greatest good for the greatest common number.”

Unintentional Consequences In Legislation

From a practical standpoint, I worry about some of the options on the table. While I consider myself a liberal, I often find myself thinking that we’d be better off getting rid of ALL current legislation (medicare, medicaid, rules, regulations, etc) and start over with a blank slate.

At this point, things are so messed up that adding additional layers isn’t going to solve anything, and might create some very real problems in (technically) unrelated areas.

For example, some members of congress have proposed imposing a tax on small businesses that don’t provide health insurance equal to 8% of their payroll. An exception would be made for businesses with a payroll smaller than $250,000 / year.

While the goal is nice (to provide insurance to more americans), a better way to do this would be to make insurance cheaper. This particular scheme imposes a weird growth cap on startups - one of the few sectors of the economy that seems to ignore recessions.

Every startup would now have a strong incentive to keep their payroll below $250,000 / year for as long as possible, or face a minimum penalty of $20,000. Or they could opt to provide health insurance to their employees, which probably costs a little bit more than $20,000 / year.

How might a business keep their payroll below the $250,000 cap? They might hire only two or three people for a volume of business that would comfortably support four or five (two jobs lost to the economy, two more people who can’t afford health care), or they might cap salaries at $49,000 / year for up to five people (five people who can’t afford health care, and aren’t provided health care by their employer).

For me personally, working at a business where my earning potential is artificially capped by health care legislation would be…annoying.

Can We Fix This Mess?

A funny thing happened this morning. I read an article in the Wall Street Journal about the French universal health care system, and judging from the fact that it’s in the Journal, plus the fact that the headline is “France Fights Universal Care’s High Cost,” I assume that it is supposed to dissuade me from liking the French system.

You know what? I love it.

With a few minor tweaks, the French health care system sounds fantastic to me. People get the health care they want, when they want it. What are the catches?

1. Doctors don’t get paid as much.

OK, that kind of sucks, and we’d have to change the way medical school works here in the states (i.e. it shouldn’t cost eight bajillion dollars), but many people pick careers for reasons other than money. As long as standards are kept high, it should still work.

2. They’re running out of money.

If I were dictator of France, I’d probably change the health-care tax so that it is retroactive, meaning the amount of tax citizens pay is proportional to the cost of health care in the preceding year. If people stay healthier, taxes go down. If people get sicker, taxes go up. No matter what, the costs of care are covered.

Yeah, new taxes suck, but I’m willing to bet that a “pool” the size of a nation can effectively amortize health care costs a lot more efficiently than a smaller, private insurance firm. The government isn’t even going to pad it up with a double-digit profit margin.

My guess is that for most people, trading a health care policy out for a French-style plan would be a money-saving move.

Anyways, I’m sure there’s a million objections to it, but, the short answer seems to be: let’s be France.