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Home > Opinion and Editorial > Donald Kenning's BLOG > BLOG#2 > Part 4  

BLOG #2: PART 4: Wake Up, Grow Up And Do The Math. The Answer. 3/1/10.

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There is no miracle pill for our country to take that will solve this "problem" without any effort. Many smart people have put their heads together to try to help the many people out there who do not have fair access to health care in this country. I will wrap up the discussion in this part.

 

Introduction: The Answer.

I am sorry to disappoint but I do not have the answer. However, what I would like to do here is explore the path to the answer. What I am seeing coming out of Congress may be the answer, but I don't think so.
     You see, I have not found a single thing in this whole debate that defines the problem, the actual problem with the health care system. When the problem is actually defined, then one can come up with a solution (an answer).
Let me see if I can try to define the problem. Then let us try to come up with some solutions.
     The other three parts of this discussion where not only laying the ground work to find the solution, they were also showing how some arguments that some people present are subterfuge.  Hopefully, we can finish the rest of the discussion now with more truths and logic and less emotion  and whimsy.

The Problem Finally Defined:

Many news programs and reports tell us the problem that exists in this country regarding health care. What we will do here is list some of the common ones stated in all the reports. I think that we can agree that these are the common ones reported and that they probably make up the bulk of the "problem" with health care.
  1. There is a bunch of waste in all corners of the medical profession, wasted medicine, wasted tests (un-necessary tests), un-necessary operations and other procedures, and so on.

  2. Not only are there uninsured but there are under insured people in the U.S. These are people with insurance but the deductibles are high (like $10,000 or more).
  1. People are dissatisfied with the care that they get so they will sue.

  2. If you have pre-existing conditions, you will not be able to be insured.

  3. Even if you have medical insurance coverage, if you get sick, the insurance company will drop you.

  4. Even if you have medical insurance coverage, the prices go up much faster than the rate of inflation.

  5. There are people from other countries in the U.S. illegally (15 million) that are eating up some of the health care resources with out paying for it.

But First, A Quick Lesson:

The origins of health insurance. Since this will become important in the later part of the discussion I am going to give a quick perspective about health insurance. Originally (BlueCross/BlueShield) was basically set up as a savings account at a hospital. If you get sick or need other services at the hospital, you would have pre-paid for their services.
     Later, as the program gained momentum, they had the money to pay for more services given an amount paid by the policy holder. And so on ... (see part one for more detail). My point is, health insurance is not a god given right. If you are healthy, and can afford any kind of coverage, then you should buy it. Why? This is not protection against a disease, this is protection of your estate if you get a disease.
     In other words, you should get health insurance so that a disease (or accident) will not bankrupt you in order to pay for the treatment. Many people think that health insurance should pay for every penny of their treatment and will spend every penny they have to do that. Do you see the fallacy here?
     Let me give you an example from my life. An employer offered us (our family - husband, wife, one child) a high option and low option for health insurance. The high option meant we pay $300 more per month and promised to have no more than a few hundred dollars of out of pocket expenses if we made a claim. With the low option, of course, we would pay $300 less per month, and the policy says that the most out of pocket expenses we would have is about $3,500 for the year. That maximum "out of pocket" expense would be reached if we had more than $20,000 in medical expenses.
     Which one is the better deal, the low or high option? If you said the low option, you are right. Yes, you are taking a small chance for the first 6 or 9 months of the contract (where am I going to come up with $3500?) but you will be paid $300 extra a month every month for years. You will be paid an extra $3,600 a year. So now, how big of a risk is that?
Be on the look out for how I feel health insurance should be bought at the bottom of this page. However, for now, I would like to say something about congress trying to regulate pricing of health insurance.
     If the insurance company has expenses that out strip the premiums that come in, you will make that company go out of business. If you make it too low, you will drive all insurance companies out of business and the federal government will step in like a "white knight" to save us all from the collapse of the "evil greedy" health insurance companies. A collapse that they themselves caused. They will show themselves to be doing us a favor, but what they did was take over a part of the economy. This is very old politics. I fear that most people will not see that.

The analogy:
     The way I see it, the federal government regulating the cost of health insurance is like trying to clean up a polluted lake without finding the causes of the pollution.
     If you clean the lake of the pollution, it will just get polluted again in a few years. In order to clean up the lake, you first need to find the big polluters on the streams and rivers that feed the lake.
     If you help them find ways to put less or stop the pollution they are dumping into the stream, the clean up of the lake will be much easier. If you clean up the streams, you can re-evaluate the lake, so that by then the lake may not need any remediation or it may need just a little. The streams that feed the expenses to the lake we call the health insurance industry are covered in some of the points 1 through 7 in the previous section. Let's Take a look at those now.

Issue 1: Reduce Waste.

This is the favored topic of Greencompletely.com, efficiency. We are not going to go to every hospital, clinic, pharma company and so on.
     However, I trust PriceWaterhousCoopers to do a thorough job of looking into the issue. In 2008 they published a bit of research called "The Price of Excess" (referenced below).  They say many things in the report but the main thing they are saying is that there is about $1.2 trillion in wasted spending in the medical field. They do not go into any pharma company issues. This is mostly spending by clinics, hospitals, doctors and so on. They put these wasted into a few categories; Behavioral, Clinical, Operational. Click PriceWaterhousCoopers to go to their web site.
     Now, about these categories. What they say in some of the report is very valid and if I were the government I would give a few billion dollars a year if it would mean that the industry would save a few hundred billion.
     In other words, to help them "clean up"  their clerical issues, their cross contamination issues and other things. So, if they were subsidized maybe $5billion/year for the next 5 years and they made their operations $200 -$300 billion more efficient (every year) I would say that is a good investment by the federal government (us taxpayers). This subsidy would have to have a sunset so that this program is not sucking the life out of the tax payers.
     The other parts of the study would be hard to do. The preventative medicine and the Behavioral part are a bit of a problem.
     The preventative medicine deals somewhat with people having regular check ups and other regular medical maintenance work done. In America, we may change our oil every three months or 3,000 miles but we only go to the doctor when we are sick (or really sick).
     The Behavioral part isn't much easier. Here they talk about fat people, smokers, drinkers and other people that do "undesirable" activities that lead to big medical problems. I will not make any judgment here in this blog, but I think the government's strategy of taxing something out of existence does not work as well as they think it does.
I have seen prices go up on tobacco and beer and that has made some people quit. However, some will spend the money on that stuff over other things like, food, utilities, or even health insurance premiums.
    As for fat people, there are two things. Not everyone who gets a few pound over weight develops a major medical condition and everyone needs food to survive. We can not tax food out of existence nor should we ban food that a select few think we should not eat. If that is truly the goal (to get people skinny, and get them off tobacco and stuff) of the government what course of action should they take?
     Should they dump several billion dollars into educational programs? Taxation? How well has that worked in the past? I would like to propose a radical idea. When an American sets his/her mind on a goal, they will find a way to achieve it. Whether it is to get the corner office, get the girl, or run an 8 minute mile, most of us will find a way to do it.
     This is what I propose, let it be our idea, we don't need money, or the fed to tell us exactly what to do. Let us find our own way, and if we need to turn to a friend for help, you (the federal gov) could be there as a friend to provide support in our journey toward the goal, not an overlord to crack the whip to tell us what is best for us. I would bet that every person that does those kinds of behaviors knows what it might be doing to them.
     If we "clean up" this stream we go a long way toward health reform and we probably will not spend more than $50 billion over the next 5 years to do this.

Issue 2: Under Insured (People With High Deductible Insurance).

First of all, how many people are in this situation? If you look at the U.S. News and World report as of June 10, 2008, they estimate that 25 million people fall into this category. Looking in CNNMoney.com March 5, 2009 they echo that same 25 million. Most of these people are making 200 percent of the poverty level or less. That is about $40,00 a year more or less depending on where you are. Many are young people who aren't buying it or buying with high deductibles.
     My story: I got married a week after graduating from college. There weren't any big fancy jobs waiting for us when we graduated so we took low paying jobs while hunting for the better job. I brought in a little college debt and she brought in a little money into our marriage. Our net worth was just about $0.
     After two years my wife went back to school to get an advanced degree so we had to move. She received a small stipend and I did low paying jobs for the next 5 years. After graduating, we moved back and it took another 6 months before either of us got a job in our field. During this whole time we never got 200% above the poverty level and we had a baby a few years into our marriage.  Since none of our employers provided insurance we bought private insurance, and owned private insurance until we got jobs in our fields (7 years).
     The insurance had a reasonable deductible ($2,000) I think and luckily we did not have to use it much (mostly when our child was born). During that whole time, we were able to save up an emergency fund, keep our cars serviced, insure our cars and apartment, and eventually fund our IRA's and dabble a little in the stock market. All while making 125% - 200% of the poverty level.
    
How? We did not spend our money on other things, we did not have cable for a while, we went out to eat maybe once every 2 months or so, we just did not spend our money on much of anything. Why? Because we knew that at that point of our life, our estate was fragile. One car crash, or big medical bill could ruin the estate. So we worked hard and gave up a lot of things to build up an estate and to protect it with good insurance that we paid for.
     Why is that relevant to this discussion? Well, first of all, if we made less than what we made, I know it would have been hard to afford some of our insurances.
     However, in most states now and back then, they will help you with insurance (Medicaid) on income levels up to 150% of poverty level. Everyone else, Suck it up!!! Cover your estate and build up savings to cover the short fallings. If you want that American Dream, you will have to make it happen yourself, no one should be doing it for you. If you don't have health insurance, get it!  If you are facing not having cable or the possibility of bankruptcy the choice is easy. Don't think about the here and now, think of your future. Come on people, this is not nuclear physics, the more you save, the more you will have when you need it!!
     I am not insensitive to those who can not make it. I pity this kind of short fall in a persons budget. The main thing that I am trying to stress is that you should not rely on insurance companies to pay every penny. Y9ou should think and make good decisions. Save up for this threat on your estate.

Issue 3: People Will Sue If Dissatisfied With Medical Services.

I don't quite know what to say here. The premise seems to be obvious. This may be a small stream that we need to "clean up" or it may be large. I am no expert on the law, that is for lawyers. Doctors, hospitals, clinics and many other entities have to retain the services of legal counsel as part of doing business.
     If a law suit is directed at a doctor (frivolous or otherwise) they have to spend money on a lawyer and time dealing with this. Time they could be using to see patients. So just speaking as a casual observer, there may be some ground to reform this. I could quote some statistics that I have researched carefully here, but I do not want to go there right now.
Incompetent doctors and poorly administered hospitals need to be called out. So we do need the legal system to fight those battles. However, doctors and hospital administrators are human beings. Generally, smarter than the average human beings, but human beings none the less.
     Therefore, it is reasonable to assume that some will make mistakes and maybe even cost a few lives. Some of us who are on the receiving end of a few bad diagnoses until they found the answer are grateful that they had the knowledge and kept trying. I could say more here, but I don't think I will bother. There are bigger fish to fry.

Issue 4: Pre-Existing Conditions? You Will Not Be Able To Be Insured.

This statement is not 100% true. First of all, if you have an uninsurable condition, you still may be able to get insurance that covers everything but that condition. I have also seen insurance company ads locally here that say they will take you even if you have pre-existing conditions.
     What is a pre-existing condition? Well, in general it is a condition (disease) that you already have before you sign up for the insurance. Yes, pregnancy is one of those diseases. This link will show you some of the conditions that most states think are uninsurable (this is the one from Ohio). Check with your state to see their list. If you have one of these conditions you may still try to apply for insurance in your state.
     If you fail to get insurance because of one of these conditions you may want to look into a Risk Pool. Just about every state has a state run risk pool. Click to find your states risk pool. Also, if this condition means you can't work and your income is low, you may want to consider Medicaid.
There seems to be a bit of debate about the number of people with uninsurable conditions (2.5 - 12 million). This is an area that I believe the federal gov can step in and provide a little help. While it is clear that this segment of the population needs much much more medical care than everyone else how much help should the federal government provide to the people in the risk pools?
     If they were to make available an extra $10,000 for each person and there are 2.5 million people signed up in these programs that is $25 billion dollars each year. This help could be in lowering the premiums that individuals pay or trying to make a greater % of their medical expenses covered. They could also try to increase the efficiency of the risk pool management which may help in the long run.
     The main point I am trying to make here is that if you do find yourself in the situation where you do not think you have a choice, all hope is not lost. Keep digging (or have your loved ones keep digging). This is a bigger problem than I can address in this short blog.

Issue 5: Even If You Have Insurance, If You Get Sick, Your Insurance Company Will Dump You.

This is a bold statement. I have heard it time and time again during this debate. First of all, a health insurance policy is a legally binding contract. You enter into it when your are accepted  and you start paying your premiums. The reasons not to cover a claim are for non-payment of premium or for any exclusions you see in the contract. In other words, you are told what they do not cover up front.
    Some of these insurance companies have been around for several decades. A company can not survive that long if they do not make good on their contracts. When you sign the application form you verify that all information you put on the form is true and you understand which conditions they pay for and what exclusions exist.
      As a matter of fact, it is illegal for an insurance company to drop you (individually) because you contracted an illness that they cover.
     However, it is not illegal for an insurance company to stop coverage of a certain illness to all of its policy holders. If you have the illness at the time they drop coverage for that illness, guess what, you are no longer covered. Now, some insurance companies are kind enough to grandfather you in, but most will drop you.
There is another practice the insurance companies do that should be stopped, in my opinion. Sometimes, when someone gets sick, the insurance company will go back over a persons application. If they find that the person lied in any part of the application, they will drop them regardless of how long ago the policy was issued. I think the policy should be that when you sign up for the insurance, they do not grant you coverage until your application has been verified. If you lied, they tell you and you do not get the coverage (two month process). If they accept you, lying or not, you should be covered until you stop paying premiums.
     I am not a proponent of lying. However, there should be some point where the lie is no longer relevant. In life insurance, if you commit suicide within the first two years of having the policy, they will not pay the death benefit. The argument here is that you intended to commit suicide before you signed up for the policy.
     Cleaning up this part may help with some of the issues discussed.

Issue 6: Insurance Rates Are Spiraling "Out Of Control". Employers Are Reducing Coverage Or Paying For Less Coverage.

Here is where I am going to drop the biggest bomb of all. And I said this in earlier parts of the discussion.
     Employer provided insurance is not a right it is a privilege. A privilege more than 65 years in the making. Employer provided or employer supplemented health insurance provides insurance to about 60% of U.S. citizens that is 180 million people.
     It is unfair to the rest of the working people out there that have to pay 100% of their insurance premiums. Also, the portion that the company pays is not taxed at all. However, if you pay for your own insurance you are taxed on that as normal income.
     This practice became legal during WWII when the federal government imposed a wage freeze on all U.S. businesses. For more information on that see Part One of this discussion. Since we are not involved in a world war and the government does not have a wage freeze on U.S. businesses I think we should do away with this practice.
     Now you are screaming, "where am I going to come up with the money to pay for the taxes on $12,000 more in income?". Two things 1) people who buy private insurance are already doing that. 2) I see this phased in over 5 years (say 20% a year) so that you get used to the extra income tax. That should end this part of the debate.
     Furthermore, I don't think there should be medical savings accounts. These are savings accounts that you put pre-tax dollars into every year so that if you have medical expenses during the year, you can pay for those expenses and not pay taxes on those dollars. If you don't use all of the money in those accounts by the end of the year the government takes what is left. These accounts only benefit the federal government and those who can fund them exactly.
     These are yet another type of tax protected account that has strings attached. If you want to save money to pay for things like deductibles, then just save the money. If you do not need it or it gets too big, put it into another investment or spend it. Why would you put your money into anything that the government gets if you do not use?
Assuming that the 180 million people are covered by 60 million policies (3 per policy) and assuming that employers are paying an average of $6,000 a year for their part of these policies let's look what that might be for a possible tax revenue.
     Assuming that the amount will be taxed at about 15% that is $900 per policy. If you have 60 million policies that is roughly $55 billion in extra tax revenue for the federal government every year (on average $900 per policy). According to the Department of Treasury about 3 million people have the medical savings accounts, look here. That is $1 billion put into these plans every year. If that were taxed at 15% that would be $150 million in taxes collected.
     I wonder how much the federal government collects at the end of each year on this program. $100 million? $200 million? And if this program is allowed to grow, $billions a year. Why don't you save your money and spend it the way you want (or need) to spend it. You see, I like the government encouraging people to save their money, however, they always attach strings to how you can save and what you can spend it on. They are already doing that to your retirement plans (IRA, 401K, 403B, and so on) and other savings plans (child care savings, those stupid 529 plans).
     I guess my main point here is if your employer drops medical insurance to the employees, do not spend weeks  fighting the company for "fair" benefits. What that employer has done is "leveled the playing field". Go get some health insurance. This may also help people evaluate what health insurance means in their household and make smarter health insurance purchasing decisions. 
     Maybe more people will realize that health insurance is protection to your estate if you get hurt and not a program to pay every penny of their medical bills. If you try to get health insurance that pays every penny of your medical bills, you will waste tons of money on insurance premiums in your lifetime, especially if you stay healthy. Of course, that applies to all insurance  (life, health, property, casualty).  Far too many people are convinced that insurance should pay for everything if they have a loss and I feel sorry for them, because an insurance agent has probably talked them into that belief. Wise up and do the math people.

Issue 7: Illegal Aliens Are Sucking Up Health Care Resources Without Paying.

Let's start with the 15 million illegal aliens (undocumented citizens is not correct because most are documented citizens of some country, and they are not currently working toward citizenship in this country). The largest fraction (1/2)  are from Mexico (source taken 3/3/10) and let's assume for a second that if we work with the Mexican illegal aliens that will provide us with a template to solve the health care issues for all illegal aliens.
     I am not making judgments of the people, all I am addressing is the hospitals, clinics and other health facilities get paid for services they provide.
     Now some stay in this country year round and some come in for 4-8 months and go back to Mexico each year for several years. These are not the actions of people who want to become citizens. I have a sneaking suspicion that not everyone who comes here actually want to become U.S. citizens.
     In Mexico, there is a health care system, some of it run by the government and some is private. Mexico collects taxes from its citizens to help pay for the healthcare that they provide. However, many pay their medical bills out of pocket (more that 50%). Many people who are illegally in this country that need health care do not want authorities to know they are here.
This is what I propose, when getting health care, they state their citizenship. To a hospital it does not matter that they are illegal, they just want to make the person well. If the person pays the bill "out of pocket" then that is O.K. (no harm no foul no reporting to authorities). If they skip on the bill, then the nation and the amount of the bill gets reported to a national database. At the end of a year, quarter or month, that national government gets a bill from the U.S. government. This database could be maintained for a few million dollars a year.
     Mexico and other countries may not pay, however, they do collect taxes from their "citizens" for the purposes of providing health care. If they are out of the country when they need the health care, that should not make a difference, these are still citizens of Mexico. Mexico may have to impose special clauses in their tax code to accommodate these citizens so they can pay the quarterly bill they get from the U.S. I don't know, but since they collect taxes for that purpose, they should cover them. I will leave that to the diplomats of U.S. and Mexico to work out. This "cleans" a big amount from the discussion.
Now, the other 30 million people. Well I think I have talked about 28 million of them earlier (25 million under insured and 3 million uninsurable).
     there is some overlap here, some of the uninsurable are covered on an employers plan or through a spouses plan or a parents plan. One thing I would like to say about the number of under insured. Some may have 2 insurance policies from two employers, therefore one of them is secondary and is not a big deal if it has high deductibles.
     Some of these households may just have one insurance policy, but the policy holder is buying the health insurance in a smart way (providing protection to the estate) but to the outward observer (the government) they are in dire straights.  I am not going to do the research to find out what fraction of the 25 million are in that boat, my guess is that is probably 10 million of the 25 million (if it matters in the discussion you can re adjust the math later).
     That leaves 15 million that are under insured and would be in dire straights if they made a claim. Some will be making less than 150% of poverty level and in just about every state, they can get help (in Massachusetts they can make 300% of poverty level and get help).
     How, do we help the rest? First, I would say many do not want help from the government and want to make it on their own. Some may want just a little help, so I would say that those special people who qualify may get an AFLAC type policy from the government (or administered privately) where they pay a small premium (say $10-$15 a month) to get a maximum protection of say $5,000 if they have a claim. These policies should have a end of 5 to 7 years. Maybe you get half of your premiums back if you don't use it and you could put it into a savings account to help you if you have a claim from then on. I do not think that the government should supplement people who do not manage their money well. That is their problem not the governments.
     I could have missed the point here. That 30 million could be other people. People who, for whatever reason, have no contact with a health insurance company or a government program. Some must be the healthy young people who have jobs that do not pay this type of benefit.
     I do not know how to speak to those people who have trouble figuring out how to manage their money. The healthy working young may say that they can't afford health insurance but at that point in their life it is the cheapest. A reasonable plan may cost $30-$40 a month.

Who Or What Is Left?

I am not sure. Is anybody sure? I am not getting clear numbers from any source. Now, I would like to say something about the 3 million uninsurable which I discussed in Issue #4. I think this is the main part of reform that we need. Earlier I talked about a $10,000 per person help from the federal government for the state high risk pool, costing $25 billion a year and at most, any of the reforms I propose will cost the gov about $40 billion a year but the gov may get back more than $50 billion.
     Maybe, some of these excesses could go to help the uninsurable and to help strengthen Medicare, Medicaid and other programs.
     I would really like to know, besides the 3 million uninsurable, need the program to be reformed.
In the original version of this write up I wrote a story about a guy selling apples with an apple cart on the street. It was designed to help illustrate the upside down way insurance companies pay for medical services and how they charge for their product.
     I am (5/7/2012) cutting this story. I will just say it in a straight forward way (as if I were writing it on 3/1/10).
There are many groups that ruin it for insurers (unions, fed, people skipping out on their bills). These groups bully the insurance company in giving reduced rates for coverage for some. In doing so, the insurance company may have to charge more to their retail customers. Many companies do business this way, except instead of getting bullied, the rates are negotiated on both sides. 

Conclusions:

I may be missing major points to this argument. Maybe, I am simplifying things that are more complicated.
      After all, solving health care is complicated isn't it? What I found with many things in life, including Physics, and advanced mathematics is that most complicated problems are solved by solving several simple problems in a row until the complicated problem is solved. So my final suggestion is this. Let's solve a series of simple problems until we solve the whole complicated problem.
This approach may take some time, but it works!!! Trying to solve it all at once created the 20 year debate in congress from 1945 to 1965. As George Santayana said in 1905:
"Those who cannot remember the past are condemned to repeat it." Let's not take another 20 years to resolve a few of the issues.

References:
Special Note About Redesign (5/5/12):

I began a major redesign of this web site 1/7/12. It was a big job. This section is one of the last sections to be redesigned.
      Even though there is a change in wording and language through out the web site I chose to keep My blog basically the same. I changed the  formatting and some of the run on sentences and corrected other grammatical problems.
The arguments here are presented as they were in 2009-2010. I know a health care bill has passed in the meantime. Of course, I have more information than I did back then. However, the information presented here is what was used for the original debate.
      So, congratulations for making it all the way though this.

Donald Kenning
Owner, Greencompletely.com
         

 

 

See my view of how to buy health insurance (as well as other insurance).