Free Enterprise Solutions to the Medical Care Problems in Ou

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Free Enterprise Solutions to the Medical Care Problems in Our Country
Wednesday, February 13th 2008

By Floyd Fitzgibbons

As an insurance agent I have listened to all types of proposed solutions to the medical care problems in our country for long enough. Without exception, every proposed solution is inherently flawed for one reason or another. I am going to advance a real solution that is fair and realistic.

THE CIRCUMSTANCES

In the first place, let’s examine some truths: there are some basic true principles that must be accepted. Under current conditions of civilization, people are free to choose what types of health habits to live by. Some choose to get regular physical checkups. Some brag that they never go to the doctor. Some choose unhealthy eating habits. Some adhere to rigid dietary restrictions. Some exercise regularly - others do not. It’s the principle of free agency.

Then there are the conditions of mortality. Some are born with birth defects. Most are born appearing completely healthy. Disease strikes some early. For others it comes later in life - or not at all. Some participate voluntarily in risky activities. Some are more cautious. Serious accidents happen to some people - fortunately not very often.

Now what are our rights? If we intentionally make bad choices do we have the right to be sheltered from the consequences? What would it do to our individual character if we were? Would we ever have incentive to be responsible? Do we have the right to have food if we are physically able and refuse to work? How about clothing? Or housing? How about medical care?

HOW DID WE GET IN THIS MESS?

We have medical care problems in our country. Why? Some say there are too many citizens who have no health insurance. Some say that we should not be providing free medical care to illegal aliens. Some say the pharmaceutical companies charge too much for drugs. Some blame the lawyers; others, the insurance companies charge too much. Some doctors say they cannot afford to stay in practice with increased costs and reduced revenues. Maybe the government is responsible.

Health insurance companies devised a plan to reduce expenses by agreeing with certain doctors to accept a set fee for each type of visit and procedure. Employers bought into the plan because it reduced costs for them in purchasing health insurance coverage for their employees. When doctors saw their patients leaving and going to the doctors who accepted their health insurance, more doctors caved in to the plan until now almost every doctor does. In this arrangement the health insurance companies gain the upper hand by dictating such low reimbursement levels for doctors that doctors are pressured into seeing more patients for less time in order to make ends meet. The patients get the short end of that deal.

Other factors also need to be considered. Many employees have come to expect that a good job comes with health insurance. They gladly give control of their medical care to their employer to decide what benefits are covered. Then they complain if they have to pay more than $20 in a co-pay for a doctor visit or $500 deductible for a hospital stay. Employers feel pressure to purchase health insurance for employees in order to attract employees. But employers also seek to reduce costs. It’s the nature of business to keep overhead low. So it becomes a balancing act between attracting and keeping employees with a good benefit plan while trying to remain profitable against competition.

Health insurance companies also compete - against each other. So in order to reduce premiums they go back to the doctors and tried to negotiate even lower reimbursement costs. Or they try to lower their overhead costs by reducing staff which causes service to suffer (ever been on hold for two hours trying to speak to someone in the insurance company’s claim department?).

Because the basic premise of how we currently pay for medical care is flawed, no one in this crazy equation can be happy. And when people start to cry “foul” big brother is more than willing to come to the rescue! Once government starts dictating the rules under the force of law, it’s their way or the highway - and in many cases there is no highway!

Thus, most presidential candidates encourage some form of universal medical care. Nationalizing it will result in higher costs or taxes, rationed care, delays in receiving treatment, government mandates – in short less freedom. So, before we take a step in the direction from which there is virtually no return, let’s take a hard look at the real problem and the real solution.

THE SOLUTION

We are told that 45 million people in our country are uninsured - or have not purchased health insurance. Assuming 45 million is an accurate number, how many of those could buy insurance but won’t? Currently if they get sick or injured they get treated at a hospital emergency room at the expense of you and I. What’s fair about that? Then there are those who would like to buy health insurance but can’t either because they cannot afford it or they are declined for coverage because of their health conditions.

So what is the solution? True insurance. Generally what we have now is not true insurance. You can’t buy a life insurance policy on someone after they’ve died. Yet we purchase health insurance after we’ve got health problems.

If your medical coverage comes through a group plan purchased by your employer, comparatively speaking very little underwriting or actuarial work went into determining how much premium to charge you in particular. That’s because insurance companies are forced to cover people who are already burdened with expensive health conditions. As such the consideration is not so much to underwrite people individually but to have them subsidize the expenses of the entire pool of insureds. Insurance companies are not in business to lose money so they charge sufficient money to cover their claims expenses, overhead, and profit for the next 12 months or so. The masses of people simply trade dollars with the insurance company. We need to put the “insurance” back in health insurance.

Let’s look at the way life insurance is bought and sold. An individual decides to take responsibility and makes plans to address the financial consequences of his/her eventual certain death. Remember death is certain - bad health is not, and yet we seem to have more trouble “insuring” health than life! Then he determines how much he wants the insurance company to pay out at the time of his death (let’s say $2,000,000 for example). He then finds out the premium/cost. Most whole life insurance policies have a premium that remains the same throughout the individual’s entire life. He will then have to answer many questions about his past and current health conditions, allow medical records to be reviewed and likely submit to blood, urine and other diagnostic tests. Once this is done and accepted by the insurance company the life insurance policy is issued. As long as he pays the premiums the insurance company is obligated to pay his beneficiary(s) $2 million dollars at his death whether it comes in six months or 60 years.

If we did a similar thing with health insurance the issues we’re now having in our country would largely go away. Responsible people would purchase a true health insurance policy on themselves and immediate family members. They would purchase it while still healthy and the earlier in life they bought it the lower the monthly insurance premiums would be. They would purchase a policy with a lifetime limit of their choosing – one, two, three, or more million dollars for example. Whatever limit they chose would be the most the insurance company would have to pay out during their lifetime. They could go to any doctor they wanted. As long as they made their premium payments, the policy would remain in force. When they incurred costs for medical care, the insurance company would pay the claims out of the remaining limit of their insurance policy. If they didn’t go to the doctor very much and remained healthy without much medical costs, the insurance company could make extra money on them. On the other hand, since 50% of the medical costs of the average patient in the United States are expended during the last 30 days of life, if they are 90 years old and had $1 million of their health insurance limit remaining, they could afford to have an expensive heart surgery that might only extend their life one more year if that’s what they wanted.

In order to make this even more fair to all parties, the insurance companies could stipulate certain terms and conditions. In order to discourage policyholders from increasing the risk to the insurance company after the policy has already been issued, they might a assess a surcharge until such violations were corrected for becoming overweight by a certain amount, taking up smoking, or participating in extremely hazardous activities (bungee jumping from low bridges with long bungee cords, for example). To encourage continued good health and the early detection of costly diseases policyholders might be required to submit to an annual physical examination. And one other thing, events that are inevitable and expected would not be part of a true health insurance policy. Dental and vision care fall into this category. Expecting an insurance company to pay for dental care or purchase a new pair of eyeglasses every year is just begging for higher costs. Such things are not true insurance. They are trading dollars with insurance companies – and believe me insurance companies are not going to lose that game.

In order to insure children born with birth defects or diseases and not penalize parents of such children with increased premium costs through no fault of their own, the first of two requirements would regulate insurance companies. Remember, since there is no Constitutional authority for the Federal government to be involved in insurance, the states, which already have Departments of Insurance regulate insurance companies operating in each state. The first is they would have to insure these children without a premium surcharge. Since such births are random and rare, the actuaries would have to take such factors into consideration.

Health insurance needs to be purchased in the way we buy life insurance. Individuals take responsibly early on and purchase a true health insurance policy.

Can we do this overnight? For those that are fairly healthy the answer is an undeniable yes! I’m 50 years old and purchased an individual health savings account type policy last year for monthly premium of $185.

For those who are not healthy accommodations will need to be made until the mess is cleared up. The second regulation permitted by the Department of Insurance in each state would require each health insurance company operating in their state to insure unhealthy people with a surcharge on premium (life insurance companies do the same thing already). A similar mechanism (assigned risk) is in place in each state mandating automobile insurance and workers compensation insurance. Those who cannot find coverage through the normal marketplace, can purchase it through the assigned risk pool. Each health insurance company would insure high risk individuals through a fair and equitable assignment or distribution to each company.

EVERYONE WINS!

By making health insurance truly insurance again we can keep the federal government out of it, give individuals the freedom to choose their own doctor and how much medical care they want to receive, take control of medical care away from employers and allow doctors to spend quality time with their patients. Everyone wins!

Floyd Fitzgibbons, CIC

Certified Insurance Counselor, President, Fitzgibbons & Associates

DISCLAIMER

The reality is - this real solution is not likely to be put into practice. A large number (majority?) of the citizens of this country have been trained to avoid taking individual responsibility and will ride the backs of others until both the rider and the ridden fall. Those who choose not to purchase health insurance should be allowed that right, however they risk being at the mercy of finding a charitable doctor if they get sick or injured. Consequences are swift teachers.