The Health-Status Insurance Solution

How free markets can provide health security

Ronald Bailey | March 3, 2009

"Health care reform that reduces costs while expanding coverage is no longer just a dream we hope to achieve—it's a necessity we have to achieve," declared President Barack Obama as he announced his nomination of Kansas Gov. Kathleen Sibelius to be the new Secretary of Health and Human Services. On Thursday, President Obama will convene a health care summit of stakeholders representing insurers, pharmaceutical companies, physicians, policymongers, Congress, and patient advocates at the White House to discuss just how to achieve these goals. The president set out eight principles for guiding the process of health care reform, including protecting families from being bankrupted by medical expenses, making insurance affordable, aiming for universality, portability, and choice, focusing on prevention, improving patient safety, and being fiscally sustainable.

Summit attendees will break into various working groups that are supposed to engage in "outside-of-the-box" thinking. As it happens, they now have some fascinating "outside-of-the-box" thinking on health insurance reform to draw on. Earlier this month, University of Chicago economist John Cochrane published an intriguing policy analysis for the libertarian Cato Institute that looked at how "health-status insurance" can provide health security for Americans. Cochrane claims that with health-status insurance, free markets can solve the vexing problem of how to insure people with pre-existing medical conditions and "provide life-long, portable health security, while enhancing consumer choice and competition."

So how does health-status insurance work? As Cochrane explains, "Market-based lifetime health insurance has two components: medical insurance and health-status insurance. Medical insurance covers your medical expenses in the current year, minus deductibles and copayments. Health-status insurance covers the risk that your medical premiums will rise." Cochrane offers the example of a 25-year-old who will likely incur $2,000 in medical expenses in a year. His medical policy component would thus cost about $2,000 per year, plus administrative fees and profit. For purposes of illustration, Cochrane then assumes the 25-year-old has a 1 percent risk of developing a chronic medical condition that would increase his average medical expenses to $10,000 per year. In that case, he would be able to buy medical insurance for $10,000 per year—which is a big financial hit. That's where health-status insurance comes in: It insures that you can be insured in the future.

The 25-year-old could pay for insurance against the 1 percent risk that his premiums would jump by an additional $8,000 per year. To pay for his increased insurance premiums until age 65, Cochrane calculates that at a 5 percent interest rate, he would need a lump-sum of $148,370. To cover a 1 percent risk, the premium for the health-status component of his insurance would be about $1,480 per year, so the 25-year-old's total premium—medical and health-status—would be about $3,500 per year. Again, this is just an illustration. Cochrane shows that actual health-status insurance premiums would more likely be around $700 per year at age 25, rising to $900 per year at age 55.

Under Cochrane's proposal, if an insured person develops an expensive chronic condition, a lump-sum payment would be deposited into a health-status insurance account that would be available only to pay medical insurance premiums. This restriction would limit the temptations to commit fraud (faking an illness to get the money and then run) or to spend it and then show up at an emergency room unable to pay. In addition, if the insured becomes unexpectedly healthier and his premiums decline, the money could then be returned to the insurer.

Creating and selling separate health-status insurance policies would mean that medical insurance companies would no longer have an incentive to offload sick people. Instead, because those with pre-existing conditions would have the funds to pay higher premiums, insurers would compete for their business. "Constant competition for every consumer will have the same dramatic effects on cost, quality, and innovation in health care as it does in every other industry," argues Cochrane.

Health-status insurance also helps delink medical insurance from employment because employees would always have the ability to purchase medical insurance. For example, a worker diagnosed with diabetes would receive a lump-sum payment in his health-status insurance account. That means he can switch jobs without worrying about whether or not he can obtain medical insurance. In addition, health-status insurance would be cheaper than medical insurance, so people between jobs might drop their medical insurance but continue to maintain their future insurability by paying health-status insurance premiums.

But what about people who are already sick? As Cochrance acknowledges, "Private insurance cannot cover events that have already happened." So at the start, the government might deposit money into the health-status insurance accounts of people with pre-existing conditions who would then purchase private medical insurance.

If health-status insurance is such a good idea, why don't insurers already offer it? Cochrane believes that it has been stalled because health insurance is a highly over-regulated market. "Any insurer who rolled this out would quickly have both regulators and lawyers going after them," Cochrane says. In addition, there are strong regulations in place that discourage insurers from extensively using risk-ratings to set premiums. Eliminating the tax and regulatory preferences for employer-provided group health insurance would go a long way toward encouraging the development of a robust health-status insurance market.

Nevertheless, the individual health insurance market is already moving in this direction. The UnitedHealth Group now offers a Continuity policy that guarantees purchasers the right to buy an individual medical insurance policy in the future even if they become sick. For example, in order to guarantee future access to a $3 million lifetime benefit policy with a $5,000 deductible, a 50-year-old male Ohioan would pay 20 percent of the policy's current $172 per month premium, or about $34 per month. While this is a step in the right direction, Cochrane points out that health-status insurance would not tie people to any particular insurer in the future. Their health-status insurance would enable them to shop around for policies from various carriers.

While Cochrane acknowledges that his proposal is not a comprehensive health care reform program, adopting it would go a long way toward satisfying President Obama's eight health care reform principles, especially affordability, aiming toward universality, portability, and choice, and being fiscally sustainable. "Health-status insurance can simultaneously give us complete and portable long-term insurance, great individual choice, and cost-containment beyond the dreams of any health policy planner," concludes Cochrane. Asked if he has been invited to the president's health care reform summit this week, Cochrane said no, but quickly added, "If I got the phone call, I would definitely be there." Mr. President, there's still time for your summiteers to hear about this outside-of-the-box thinking.

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

Comments

|3.3.09 @ 3:35PM|#

They can do a lot to make healthcare affordable without socializing it.

De-regulate so insurers can offer plans tailored to the customer. If I only want catastrophic coverage, currently I'd have to get a comprehensive plan I don't want or need. Likewise, I could be rated with a whole group of people and be supplementing smokers and chronic over-eaters who are at greater risk and are driving up premiums due to the expenditures they incur.

Currently, family plans cost the same whether you have 1 child or 15. Customers should be rated according to their risk profile.

Legalize drugs. Opiates and cannabis have medical benefits. Don't criminalize pain suppressors.

Ward S. Denker|3.3.09 @ 3:55PM|#

I like the picture, but I don't think Jackson has a pulse anymore, and the pulse of the twenty dollar bills he's printed on these days is thready at best.

The next photo should depict defibrillator paddles on the currency instead of a stethoscope. That would more accurately portray the state of our market as well as predict the necessity which bill be brought on by national health care and the host of other new, new deal type programs designed to kill it.

|3.3.09 @ 3:59PM|#

"Health-status insurance can simultaneously give us complete and portable long-term insurance, great individual choice, and cost-containment beyond the dreams of any health policy planner,"

You've just explained why it won't even get a seat at the table.

|3.3.09 @ 4:18PM|#

This idea sounds good at first but suffers from some obvious flaw. One needs not only insurance from chronic conditions, but from age. You see being old makes your premiums go up, and for good reason, if you are 55 insurance is expensive no matter how healthy you are. It can't be avoided. Why sell this insurance to older people? Does this insurance pay off as you age? Also how do you figure out the lifetime value a chronic condition adds to the cost of insurance premiums? There is no reliable way to do that, and who wants to be 60 and have the diabetes payment run out. This also can't possibly save money, you are insuring against the same set of risks, just separating them into two different tranches but adding them together they should be equal. Essentially covering somebody over their life costs what it costs, you want me to pay insurance to equalize the payments, but really, it doesn't change the cost. Its just funny math. You could do the same thing by mandating insurance co's take all comers and charge 1 price for all customers. It spreads risk the same way, and it also doesn't save any money.

Tacos mmm...|3.3.09 @ 4:19PM|#

De-regulate so insurers can offer plans tailored to the customer. If I only want catastrophic coverage, currently I'd have to get a comprehensive plan I don't want or need.

I expect that this strategy would become quite common, leading young people to choose cheaper, more limited plans. The result would be that the smokers and chronic-eaters you describe would become be affected by rising prices in their health plans, and as a result, the number of insured would drop among people most likely to use health services.

They would probably get less primary care, and rely on emergency rooms, which are much more expensive that PC docs, or delay treatment until their chronic conditions exploded and they needed dramatic and expensive therapies.

|3.3.09 @ 4:19PM|#

"""Cochrane offers the example of a 25-year-old who will likely incur $2,000 in medical expenses in a year. His medical policy component would thus cost about $2,000 per year, plus administrative fees and profit."""

How much should the 25 year old pay a year for that policy?

Insurance is anti-market. It allows to people to collect a higher fee on their services than what the people could afford. It sort of socializes health care in that those who do not use it helps cover the cost for those who do. If you really want to make real market rate medical care. Get rid of medical insurance and make everyone pay their own way.

Tacos mmm...|3.3.09 @ 4:23PM|#

"Constant competition for every consumer will have the same dramatic effects on cost, quality, and innovation in health care as it does in every other industry," argues Cochrane.

Healthcare isn't like any other industry, because insurers are limited in the say that they have as to how their money is spent.

Tacos mmm...|3.3.09 @ 4:31PM|#

Insurance is anti-market. It allows to people to collect a higher fee on their services than what the people could afford. It sort of socializes health care in that those who do not use it helps cover the cost for those who do. If you really want to make real market rate medical care. Get rid of medical insurance and make everyone pay their own way.

That's true. But as a society, we've decided that leaving little kids with cancer to die because their parents can't afford $$60,000 for treatment is unacceptable. By taking the oposing position, you marginalize yourself and make libertarians look like heartless assholes.

The reality is that we are not going to go to a system that denies healthcare to those who cannot afford to pay, and libertarians need to deal with this reality.

|3.3.09 @ 4:34PM|#

"""By taking the oposing position, you marginalize yourself and make libertarians look like heartless assholes."""

Who said I was taking that position?

Tacos mmm...|3.3.09 @ 4:36PM|#

Who said I was taking that position?

Hmmm... lets see:

Get rid of medical insurance and make everyone pay their own way.

|3.3.09 @ 4:38PM|#

If one were to take that position, I would agree. It's pretty heartless to say fuck you and die because you can't afford it. That's what complicates the issue. Few really want to be that heartless, but few want to foot the bill for others.

|3.3.09 @ 4:41PM|#

That's a statement alright. And a statement about how to make medical costs market rate. That is what the thread is about. That doesn't mean I support it.

|3.3.09 @ 4:49PM|#

Matt & Tacos mmm: With regard to the age problem -- doesn't the example of the UnitedHealth Continuity policy take care of the problem? To maintain access to a $3 million lifetime benefit policy even if he gets sick, a 50 year man would spend less than $400 per year.

In any case, from Cochrane's analysis:

. Bradley Herring and Mark Pauly use data on the incidence of a long list of chronic diseases to provide a realistic estimate of the sum of medical- and health-status insurance premiums. Their annual medical-insurance premium for a low-risk individual rises from $800 at age 25 to $3,038 at age 55, while a high-risk person pays $2,300 at 25 rising to $10,023 at age 55. Clearly, jumping from the low-risk to the high-risk category implies a large financial penalty. They estimate that the combined medical- and health-status premium starts at $1,487 at age 25 and rises to $3,936 at age 55. Subtracting, health-status premiums are $687 at age 25, rising to $898 at age 55. Total premiums for younger enrollees are still lower than for older enrollees, unlike in my example. That fact reassures us that young healthy people, who typically have lower incomes than later in life, will not shy away from purchasing insurance even though the premiums are front-loaded. ...

Calculating present values of premiums sounds complicated in the real world. However, in the real world we don't insure people down to the last dollar, so it is not necessary to key health-status payments precisely to the exact present value of each person's premium for a given plan's premium schedule. Home insurance markets work, even though the payment is never equal to the exact value of the home.
Health-status insurance companies could offer three or four levels of coverage, keyed to surveys of the costs of three or four standard levels of medical coverage. Similarly, medical insurers would probably have a short number of classifications, say a 1-10 scale of "low risk" to "high risk," rather than publish a premium schedule for every conceivable disease history. This would make their job and the health-status insurer's job much easier at a small cost.
A health-status insurance contract could then be very simple. For example, the policy could say "pays $50,000 if you are reclassified from category 3 to category 5." A simple table could advise people in a given medical insurance plan that this is the right level of coverage.

Tacos mmm....|3.3.09 @ 4:53PM|#

Matt & Tacos mmm: With regard to the age problem -- doesn't the example of the UnitedHealth Continuity policy take care of the problem? To maintain access to a $3 million lifetime benefit policy even if he gets sick, a 50 year man would spend less than $400 per year.

It's a good plan for dealing with one of the major problems with obtaining or transferring health insurance - pre-existing conditions. I'm less certain about the major issue, which is universal coverage.

|3.3.09 @ 5:16PM|#

Ron,

1. the age continuity policy from united is unrelated to health status proposal, all it proves that you need at least 2 types of insurance. You win that the problem can be solved, but it isn't solved by Cochrane's proposal.

2. You say in the real world "we don't insure people down to the last dollar", I understand this, but if my status insurance doesn't pay off enough to pay my premiums its the same as it not paying at all. Remember we can't use this money to pay for anything other then health insurance. Imagine you are diagnosed with stage 4 cancer and will definitely die, in a free market for insurance you would expect my premiums to rise to the price of my guaranteed to be needed care.

3. Can I buy insurance against my status insurance costs rising. After all once I become diabetic, my likelihood of going blind increases.

4. Again, this entire plan is about evening costs not reducing them. That's fine, and I think that it's basically a good idea, but it won't save any money. Tacos is correct that works well for pre-existing conditions but not for much else.

|3.3.09 @ 6:12PM|#

Interesting idea, but it really doesn't do anything to contain costs. It doesn't do anything to keep people healthier, or to get them to use more cost effective treatments.

Bottom line, you need a system that bases premiums based on lifestyle choices, but not on things outside of your control. IE, if you choose to be an overwieght smoker, you pay more for insurance, but if you happen to be born with a rare genetic disease you don't.

We need to containt overall healthcare costs born by out society, not just shuffle them around from one payer to the next.

Craig|3.3.09 @ 7:08PM|#

The whole concept of insurance for routine medical expenses is ridiculous. We don't have government mandated, employer provided insurance plans for our home heating bills, our gasoline bills, our food bills, or our electricity bills, all of which are also necessities. Making medical insurance cover routine treatment is just a government subsidy to the insurance industry.

Insurance should be for catastrophic events we can't afford to pay out of normal emergency or routine reserves. It shouldn't be tied to employment, especially when people change jobs every few years, setting them up to lose it if they develop a serious condition.

Why not just have term medical insurance, like term life insurance? The more years you buy for, the higher the premium, but you know you're covered for that number of years.

And no, Americans aren't so heartless that we leave children untreated simply because their parents can't afford the care they need. That's why we have numerous well funded charities like the Shriners' hospital, Ronald McDonald charities, etc.

Libertarians don't like government involvement, but Medicaid for low-income people by itself would be a lot less costly than extending Medicare-type coverage to people based on their age rather than their financial need.

KD|3.3.09 @ 10:39PM|#

I sense that, as with people who don't want to purchase health insurance but can afford to do so, the government will somehow feel the need to be involved with health-status insurance, because I think most people don't tend to think long term enough to invest in health-status insurance. And then there will be the outrage that there are people without health-status insurance and their costs went/will go up. Though maybe having "universal health-status insurance" from the government would be better than them taking over the system entirely.

Tacos mmm...|3.3.09 @ 11:03PM|#

The whole concept of insurance for routine medical expenses is ridiculous. We don't have government mandated, employer provided insurance plans for our home heating bills, our gasoline bills, our food bills, or our electricity bills, all of which are also necessities. Making medical insurance cover routine treatment is just a government subsidy to the insurance industry.

This highlights another problem with insurance-based systems. Many medical catastrophes - i.e., things you want covered by insurance policies, like strokes, heart attacks, etc. - occur because of essentially asymptomatic underlying chronic disorders like hyperlipidemia, hypertension and diabetes.

Because these disorders are not uncomfortable, many people ignore them. Incorporating paid-for primary care visits is a way of providing incentive for people to actually GET primary care. The idea being that if you can control someone's hypertension and diabetes, you can prevent sudden expensive disasters like gangrenous legs and strokes with the attendant expense of disability.

In other words, it's cheaper to prevent disaster than to try to sweep in afterwords and clean up the pieces, and it certainly provides a better outcome for the patient.

And no, Americans aren't so heartless that we leave children untreated simply because their parents can't afford the care they need. That's why we have numerous well funded charities like the Shriners' hospital, Ronald McDonald charities, etc.

I assure you that charities are completely inadequate to the task of providing much more than a token contribution to the price of healthcare. We're talking about a significant percentage of the GDP.

trollumination|3.3.09 @ 11:56PM|#

I use 2 simple rules to help me handle buying things. First rule is buy the second cheapest, because the very cheapest has something wrong with it every time. The second rule is that cute ways to pay for things are a good way to get fucked.

This idea won't work in the real world, because it allows more cuteness.

So . . I want to go see a doctor. But if I walk in there, I will be handed an exhorbitant bill, - 10 times more more than any insurer would pay, and this is legal, it is enforceable in court, and I know that a whole pig pile of you morons will hop up to defend this situation, although this is exactly the opposite of a 'free market' situation. Hint - a 'free market' doesn't just mean the absence of regulation. Read Adam Smith, like, really read him.

So we've got one level of 'cute' already. I cannot directly purchase medical care for the prevailing price (that which insurers pay) - rather, I must pay regular premiums to an insurer, who can actually make the purchase. Or at least, most of it, I can pay for some of it too. Isn't that much cuter than going in and buying it?

And now you all want to introduce a second level of cute. Your theory is that I should pay even more money, regularly and throughout my entire life, in order to gain access to the market for purchasing insurance, which in turn allows me to pay the prevailing price for medical care. There will, of course, be substantial profit-taking during both transactions.

So your theory is that it's not enough that I have to purchase what amounts to a call option with heavy, monthly maintainance fees on medical services itself - but I must purchase a second call option, with recurring maintainance fees, on the first call option!

Nope. I won't stand for it. Neither will the rest of us. Have any of you guys noticed the political environment lately? Shit, if you jerks call THIS a market, give us socialism!

|3.3.09 @ 11:59PM|#

Matt: In re your (3) -- of course diabetes implies all kinds of conditions, including higher risk of blindness, amputation of limbs, etc. That's why, as I understand it, risk categories would be created capturing the likely sequelae of various disease processes.

All: In re lowering costs, Cochrane's idea (and I agree) is that health-status insurance encourages competition which will lower costs in various ways including policies that encourage preventive steps.

All: In addition, as was correctly pointed out by Tacos mmmm, many disease processes that result in catastrophic outcomes take a while to develop. In the coming era of comprehensive diagnostics, people will be able to catch such processes earlier and intervene either via lifestyle changes and (more happily) medically before the catastrophe results. For example, statins have already cut into heart disease and strokes.

|3.4.09 @ 12:34AM|#

Yo, Bailey! Going to ignore the troll? You better ignore me. Cuz I'm out for blood. I'm here to bite you in the ass so hard that you actually sit down and rethink your entire life. And how could you stand that?

Can't you see what this funny-money bullshit has done to the entire industrialized economy worldwide? Let me clue you in, shall I? A call option squared does not equal actual goods or services. It is disconnected. An actual transparent monetary price is directly connected to goods and services. This disconnect has already caused amazing damage. Why do you persist in creating more of a gap between transactions and the raw supply/demand interaction underneath?

Secondly, Bailey - and if you don't answer, I'm just gonna say that silence shows assent - do you people get some sort of master bad-idea feed or what? Is it kinda like the radio stations? You know, how the USA is rotten with identical-sounding clone radio stations which all get their playlists from a central source (in New Jersey, I'm told). Kind of like that? See, I can see these bad ideas popping up like clockwork until they're shouted like a chorus from a host of old-fashioned megaphones posted on lightposts in some freaky dystopia. Like, first some jackass insurance company that, were it not completely on the government tit, offers insurance-rate insurance on its own products when any sensible person could easily see that this company is very likely to be in no position to fulfill such a deal. But this is just testing the waters! Soon you libertard right-anarchist bastards are all over the Internet touting the benefits of insurance rate insurance. Probably at some point next week it'll move into conservative talk shows. First, maybe, Glenn Beck and Neil Boortz. Soon, the big Rush man himself! And O'Reilly and all the other angry men of Fox. This bad idea will be shouted from the rooftops. And, were it the Bush years, it would definitely be exalted in various regulatory codes into a monoplized business area, and perhaps you'd squeak a bit of token protest but you wouldn't really mean it, would you? You've done this just too many times before. But it's not the Bush days and . . . we're all sick of giving you all a cut.

We're all sick of giving bigger and bigger slices of what little we have to you financializing assholes.

$35 a month is a hamburger a day. Which, for a sedentary person, is sufficient protein to survive. There are too many people who are on the edge already.

Wanna be a REAL free marketeer? Go home, sharpen up a pencil, and think of a way in which transparent allocation of resources by supply-demand interaction can encourage the desired social goals of availability of health care. You might be amazed! Put aside your duckspeaking financial option-squared quackery, and figure out some basics.

Justen|3.4.09 @ 3:26AM|#

@trollgasm: so essentially you want... what? Some kind of law against people entering into agreements that are too complex (/cute) for you to comprehend (/digest)? Great. We'll call it the No-Troll-Left-Behind Anti-Usury Act. I mean, I don't really see any constructive proposal in there, just a lot of angry spewing and some awkward misapplication of terminology, a few buzz words and a name drop. You imply that you're on to some great truth that the rest of society could figure out if they just sat down and labored to be as brilliant as you. Yet for all your conviction you're not too quick to produce answers, just a lot of condescension and hot air. Yeah, pretty lame. Sorry for taking the bait, I'll leave it at that.

|3.4.09 @ 11:31AM|#

@ Justin,
Should it be illegal for people to enter into a contract to get this type of insurance on insurance, no, but that doesn't mean it's a good idea. It totally ignores the real issues.

1. We need to be concerned with reducing TOTAL healthcare costs, ie, as a percentage of GDP, so that it doesn't bankrupt our country. Attempts to push costs around and make the "other" guy pay, are futile.

For example, the government reduces Medicare payments to supposedly save the tax payer money, but then providers just raise the rates for insurance companies, which raise their premiums. Politicians love to use these hidden taxes to hide the true costs of medical care, but the costs are really still being born by all of us.

Therefore, we need to focus on getting people to consume less healthcare services, and when they do use services, choosing effective ones. Therefore, you have to reestablish the financial connection between healthy lifestyle choices, and costs of healthcare. Also, you need to have easy access to information about what really is effective treatment.

The following is a proposal of mine I developed after attending a symposium on CA healthcare reform. It acknowledges that we really already have a national healthcare system, it's just hugely inefficient right now.

The following is what I came up with, if anyone can come up with a better more realistic system that is more free market based, I would love to hear it.

|3.4.09 @ 11:32AM|#

(from a prevously developed essay)

Currently there are several promising avenues for reducing the cost of the services provided. One great example is clinics where a nurse/physicians assistant diagnoses and treats most of the everyday stuff for which people commonly seek treatment. Of course a physician is on staff for consultation, and to handle conditions that actually need a doctor's treatment. Another example is letting pharmacists write prescriptions. In most cases it's simply not necessary to pay for another doctor visit to take care of routine treatment. Steps like these can let doctors concentrate on the types of conditions that require their medical expertise, and let the routine cases be handled by others. This will reduce the overall costs of medical care, and also result in speedier service. Finally, we need to induce more incentives for cost reduction into the profession, but more on that in a moment.

The second challenge to reduce costs is to reduce the amount of healthcare services demanded without reducing the quality of health. The keys to this are healthier lifestyles and better preventative care. The old maxim that an "ounce of prevention is better than a pound of cure" is doubly apt for the healthcare system. The healthcare system should provide a direct link between the costs of unhealthy living, and lifestyle choices. While still giving people the freedom to make unhealthful decisions if they so want. The best way to do this would be to return the savings from choosing a healthy lifestyle to those that do it, while letting the people that choose not to pay for their own decisions.

When designing such a system we should acknowledge some facts about how healthcare is provided. The first is that we already have universal healthcare we just provide it in an extremely inefficient manner. We make those without insurance go to the emergency room when younger (which is very expensive), and then after not providing adequate preventive care for years, we put everyone on Medicare and pay for everything. Thus missing many years of opportunities to provide cheaper preventive care, and promote healthier living in return for much higher bills later. Thus the proposition that we can keep healthcare costs down in the short term by having uninsured just leads to higher long term costs and financial ruin.

Therefore, I propose a single payer system to provide health insurance for all (insurance not actual medical services). The system would collect enough in taxes to provide for healthcare to all, but then provide a monthly rebate system to reimburse those people who were living a healthy lifestyle and thus reducing system costs. For example, if it costs $2400 a year to insure a person living a healthy lifestyle, and $4800 to insure a person who is unhealthy, then if a person "chose" to be "fit" and live a healthy lifestyle they would get a $200 check each month. If they chose not to, then that would be ok too. Individuals would be examined once or twice a year to see if they were healthy, and living up to their part of the bargain. Criteria for being fit could be determined by a panel of medical experts and could include criteria like being a healthy weight, being a non smoker, evidence of regular exercise etc. People would not be required to be a health nut, but would have to be living a healthy lifestyle with a balanced diet and regular exercise. Basically all the things that doctors always tell you to do, but that so few actually do.

For some the extra money would not be worth it. They could continue to live their lives as they see fit, without placing the burden of their unhealthy choices on the rest of us. I do think many families though would take advantage of this program thus lowering overall healthcare costs and freeing up income for savings, investing, or other consumers items. And because we are currently spending so much on healthcare even a 10% reduction in costs due to healthier living would save the nation over $200 billion a year now, and much more in the future when Medicare etc will be trying to bankrupt our country.

In addition a single payer system would provide cost savings by simplified billing and reduced overhead. Doctor's offices and hospitals would only have 1 payer to deal with and would no longer need to maintain large collections and billings departments. Thus allowing providers to focus on care. Costs could be further reduced by calculating a median price for services (cost + a certain percent for profit). Providers that could meet or beat that price would make extra profit. Those that could not would go out of business. Over time as efficiencies increased the median would naturally lower thus continually encouraging cost savings.

Other side benefits to a single payer system would include more entrepreneurialism because people would no longer have to worry about health insurance when starting their own business. And employers could focus on providing goods and services instead of trying to manage their healthcare costs.

Once again we are not talking about socialized medicine, but socialized insurance. Which is basically the case now but it's just run very inefficiently. This new system would preserve people's choices while lowering the overall healthcare costs to the economy. It would put long term solutions in place that would prevent our nation's unfunded healthcare liabilities from bankrupting us, and also result in a higher quality of life for us currently. The economics of the matter are clear. Our current system is massively inefficient. It deals with healthcare issues in the most expensive way, and does not reward good decision making on individuals. It's time for a change.

Tacos mmm...|3.4.09 @ 2:06PM|#

In addition, as was correctly pointed out by Tacos mmmm, many disease processes that result in catastrophic outcomes take a while to develop. In the coming era of comprehensive diagnostics, people will be able to catch such processes earlier and intervene either via lifestyle changes and (more happily) medically before the catastrophe results. For example, statins have already cut into heart disease and strokes.

This is, in essence, correct. However, I have great tool for identifying high blood pressure - it's called a sphyngomanometer. And it does me little good to know at age five if someone has a 60% risk of developing high blood pressure, since I won't treat them before the condition emerges in any case. The situation is the same for hypercholesterolemia (which is more of a risk factor itself than a disease) and diabetes. All are easily and cheaply detected already.

The problem is not that we can't detect these disorders easily and cheaply. It's getting people to the doctor, and getting these conditions diagnosed and treated.

|3.4.09 @ 2:11PM|#

"The problem is not that we can't detect these disorders easily and cheaply. It's getting people to the doctor, and getting these conditions diagnosed and treated."

Agreed, thus the prebate system I developed. Most people would live healthier, and get checkups more often.

|3.4.09 @ 2:15PM|#

Government workers all have insurance and very decent benefits packages. Why should they care if you don't have medical insurance? You could argue that restricting access to medical care improves the position in society of those that have health insurance, for example government workers. Health insurance is highly rationed and restricted because the people who count like it that way. Americans are not paid in money as much as they are paid in health insurance.

Tacos mmm...|3.4.09 @ 2:17PM|#

Kroneborge touches on the central issue, which is that we _already_ have a single payer system. We left the free market for healthcare behind a long time ago, and trying to apply free market solutions at this point is simply trying to fit a round peg into a square hole.

Take the following proposition:

Everyone who has an emergent medical condition should get treated, whether they can pay or not.

As soon as you accept it (as essentially all western nations have, including ours), you abandon the free market. From this proposition, we have developed systems for paying for indigent care. However, a hybrid system has a number of inefficiences: it's cheaper, for example, to prevent medical catastophes than treat them when they occur, so primary care gets rolled into the system. Then there are inefficiences introduced by having a combined public/private system, which can be eliminated by going to single payer...

It's all a slippery slope. Libertarians need to face the reality that we are going to get some kind of national healthcare system that covers all of us. That much is inevitable. We just have to pick the form that it will take.

Tacos mmm...|3.4.09 @ 2:20PM|#

Agreed, thus the prebate system I developed. Most people would live healthier, and get checkups more often.

Your pre-bate system would fail on the grounds of being discriminatory against the obese-disabled, among others. If the disability lobby didn't kill it, the courts likely woud.

|3.4.09 @ 2:52PM|#

Why, it's totally voluntary, you don't HAVE to go in for a checkup, and you can still make all the unhealthy lifestyle choices you choose.

I agree that it's unlikley to happen, but I can't think of anything else that will actually really bring down total costs.

|3.4.09 @ 3:48PM|#

Private sector insurance is a rip-off for most. My auto insurance rates increase if I receive a speeding ticket. I've never been in an accident that cost my auto insurance company a penny. Why then do my rates go up with a speeding ticket? Does the insurance company pay my speeding fine? No. Private sector insurance should be voluntary not made manditory. If Obama nationalizes health care, there will be many flaws. But advances in medical technology will still be driven by supplimentary private sector insurance which will thrive if we nationalize. America has millions of millionaires who would purchase it.

|3.4.09 @ 4:26PM|#

Health status insurance is market based and makes too much sense, and that's why the pinheads in Congress and the Executive Branch will never adopt it.

|3.4.09 @ 5:18PM|#

The post below is a timely reminder why medical care will never be affordable in this country. Our governments make sure that promising cost-effective practices and treatments will not be permitted.


March 04, 2009
Government: Keeping Medical Care Unaffordable
Posted by Lew Rockwell at March 4, 2009 03:31 PM

The criminal NY state government has shut down Dr. John Murray's innovative practice, which offered unlimited office visits, some tests, and in-office surgeries, for $79 a month, on the grounds that he does not have an insurance license. (Thanks to Anders Mikkelsen)

Justen|3.4.09 @ 6:14PM|#

@Kroneborge: that's a well-thought out proposal but honestly, I don't trust our government - having worked for enough years to know how incompetent and wasteful they are - to manage a single-payer system. As disgusting as the roughly 25% overhead on American insurance companies is today, I can only imagine our government could set new records in inefficiency. Most of your other ideas are solid, but I'd rather that we apply them to an insurance market. Let the government collect taxes and distribute them for health care according to some reasonable scheme, but let us choose how to allocate it.

The trick is that we need to supply the parameters, but let the market evolve the most efficient solution. If those parameters include reducing paper burdens on hospitals to increase efficiency and decrease costs, that's fine. There's no rule that says you have to have all or nothing; the market will always evolve to meet its environment. The only time you're really in trouble is when you cut the market out completely and throw all your eggs in one government appointee's basket. It's just right now the environment is structured in a way that's only beneficial to a handful of executives because that's how their lobbyists got the parameters arranged.

|3.4.09 @ 6:26PM|#

There is still one fundamental flaw with this - the idea that profit should be made when providing for the health of a nation's citizens. After all, ultimately the wealth of any nation is inextricably intertwined with the well being of its citizens. It seems to me that simply requiring universal coverage - with no cherry picking in terms of plans or rates - is more effective in managing risk and likewise reducing the cost to the nation. Complex risk management structures, multiple policies - they seem too much akin to the sort of Wall street machinations which we have just seen collapse. Insurance is a means of creating collective security - to truly be effective, insurance by definition requires that we adhere to the spirit of "United we stand, divided we fall".

In addition, some things, like a strong military defense, clean water, a seafe and secure food supply, good roads, education, safety of life and private property are "common goods. These "common goods" ensure the formation of a stable society and encourage the creation of markets in which individual businesses can thrive. It is through the many (and too often unnoticed in the U.S.) shared expectations of safety and stability, of law and order, that our nation's prosperity is secured - not only today, but tomorrow, and the generations after. (One need only travel to parts of the world where safety of life or property is not expected to see how economic growth becomes impossible.)

Think about it: Just as the direct and indirect benefits that our form of government and the social contract of our communities create are shared by one and all, so to are the costs. Health should not be an exception.

|3.4.09 @ 6:31PM|#

The fatal flaw in this plan is the money in the account. The patient can't spend it but his doctors and hospital sure can, and will, until it's gone. Then they'll ask for more from our taxes or from the insurance company.

Justen|3.5.09 @ 1:34AM|#

@Loren: part of the reason that sort of scenario is possible is because of the structure of and the way we (over) manage our medical industry right now. There's no real competition for local services in anything but the largest of cities. I don't claim to be an expert on the subject but it seems there is a reason why most medical care is centralized into one sprawling complex in any town with a population of 20,000 or more - and I doubt efficiency is the sole or largest reason. In the rare occasions you see a doctor in private practice somewhere, he still sends you off to a lab to have this or that done, his financial affairs are often handled by an outside agency, etc. There is no real competition with or within the hospital in most towns, though, meaning there is no market force driving down expenses and providing penalties for exploitation and malpractice. Hospitals are in some ways medical cartels, fixing costs, homogenizing care, and providing protection for bad doctors.

|3.6.09 @ 7:29PM|#

The article misses the point entirely. For the Democrats it's not about health care, it's about dependency. They want people dependent on the government for their health care, among other things. Dependent voters are reliable voters.

|11.12.09 @ 10:45PM|#

I wonder how many of the currently uninsured would buy insurance if EMTALA was repealed.