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April 3, 2004

An Unhealthy System

Even people with high thresholds for tedium will have topics that cause their eyes to gloss over. For me, healthcare is just such a topic; even when I have a direct interest in figuring something out, words and phrases like "premium" and "primary care" do to my comprehension what staring at the sun does to my vision. For all I know, that's a deliberate accomplishment of the folks who run the industry. There are more than enough complicating elements, however, that no corporate conspiracy to bore is required.

For one thing, I've a somewhat latent hypochondria, and unpleasant notions linger everywhere in discussion of health coverage and treatment. It's also emotionally difficult to work up righteousness in defense of professionals — doctors — who move out of state because the low-end of the salary range has dropped 15% to $105,000. Doctors provide a valuable service, of course, requiring a tremendous degree of investment and devotion. Moreover, one can hardly fault folks for working in neighboring states where the money is better. I'm merely suggesting that the dollar amounts in question are high enough that the average person will slip into cry-me-a-river mode.

But then the complexity of the issue kicks in. Financially speaking, insurance companies hardly qualify for sympathy. Doctors, at least, directly provide their crucial service, whereas most people don't know, really, what the purpose of filtering all medical costs through insurers might be.

These matters could all be straightened out in the public mind, however, if it weren't for the involvement of the government. Andrew Morse put it well in an email that he sent me offering some answer to my confusion about the reason any large group of people couldn't negotiate health insurance rates: Our system "combines the compassion of raw capitalism with the efficiency of bureaucratic socialism." Here's part of his explanation:

insurance sold through employers legally insulates insurers from the consequences of their decisions. This is an unintended consequence of a federal law called ERISA - The Employee Retirement Income Security Act of 1974. Under ERISA, when insurance is sold through employers, damages from lawsuits over denied claims cannot include costs (such as death) incurred because treatment was delayed; they can only cover the cost of treatment. Also under ERISA, states cannot regulate HMOs any more stringently than federal government can.

That last part raises further problems, because states can regulate the businesses that are compelled to offer health benefits to their employees. However, as Sydney Smith explains, another layer of big-pocketed folks slip out of the regulatory constraints, which then become nooses to those who remain:

The small business, (as well as the individual) insurance market is a tightly regulated one, and it's regulated by fifty different states with fifty different sets of rules and mandates. A large employer or a union -- and the insurance companies that insure them -- can get around the byzantine maze of regulations and mandates by providing self-funded insurance programs to their employees. Self-insured programs are exempt from state regulations and mandates. Because the large, self-insured businesses and unions turn the money for their insurance programs over to traditional insurance companies to administer, the self-funded programs are just like any other insurance policy -- except that the premiums are cheaper and the risk is assumed by the company. It is an option that small businesses just can not afford. As a result, small businesses and their employees have less choice since they are limited only to insurance companies willing to comply with whatever state regulations may apply in their area. And they pay higher premiums to cover state mandates for care.

Smith notes that one potential solution, the Small Business Health and Fairness Act of 2003, is currently stuck in the Senate. It would allow "small businesses to purchase insurance across state lines through their professional and trade associations." While this sounds like a reasonable, quick bandage on the part of the problem deriving from over-compassionate state governments, it would seem likely to tighten that noose on those who can't slip out through the new opening and to add a further layer of complexity to the issue. In the long run, there may be no other factor that is more important to avoid. As Morse noted in his email:

No one is really sure about how to unravel the tangle of laws, regulations, and precedents that allow insurance companies to restrict the choices of the insured. Because the problem has become such an incomprehensible mess, a lot of people are buying into the idea that the poor quality of health insurance has been created by inevitable socio-economic globalizing forces, and that the only way average citizens can protect themselves is to support a government takeover of healthcare.

The answer that's beginning to take shape beyond my thoroughly glazed eyes is exactly the opposite. Paul Craddick makes a good initial suggestion:

What to do?

Not National Health Insurance;
Not piecemeal tinkering around the edges of the current "system";
Not laissez-faire in health care;

Rather, mandatory, private, health Insurance - "universal coverage in exchange for universal responsibility."

That, it seems to me, might be the American way to create a universal health plan. It puts the onus on the individual, while providing for his well-being. Think of auto insurance if everybody were born with a car. Like auto insurance, more companies would spring up with varying products tailored to differing priorities; right now the underlying customer priorities are those of the companies negotiating the rates. Also like auto insurance, interested and relevant groups could pick up rate negotiation, as AAA and some companies already do for auto. Churches, for example, could secure group discounts — even offering a charitable component for those who cannot afford the premiums.

Employees might benefit from companies' newfound need to develop other ways to attract and keep employees, once risking temporary unemployment is no longer to risk one's life. Salaries would surely go up. For the companies' benefit, they would no longer have to administer a large program outside of their competencies, and human resources departments could save time now devoted to attempts to comprehend and explain the mind-numbing ins and outs of a system whose critical offering enables a complicated delivery that leaves many going without care and services that would improve their lives — and that they may not know they're already paying for.

Posted by Justin Katz at April 3, 2004 12:31 AM

I believe that the next step in figuring this out involves learning more about insurance law (do I sense eyes glazing over everywhere? Fight it!).

Here's the basic question: Suppose every auto dealership in the country decided it would only sell autos at a reasonable price to people who worked for a company who had bought into some sort of group plan. In other words, Andrew who works for ABC corporation can buy a car for $5,000 but Justin who works for XYZ corporation has to pay $20,000 for the same product.

Is such an arrangement illegal or simply bad business? If it is simply bad business, why does it work for health insurance, but not other areas of the economy?


Posted by: Andrew at April 3, 2004 8:28 AM