Friday, May 1, 2009

Costs - Listen Closely to Health Reform Debate

Listen closely to the health reform debate, and you’d think it boils down a contest between government and private enterprise.

Government focuses on Medicare, collectivism, comprehensive coverage catastrophic protection, and health care as a right. The private sector harps on markets, individualism, choice, personal responsibility, and patients’ rights. You gain the impression there’s no middle ground – that never the twain shall meet.

Maybe the time has come for government and private efforts to stop fighting and combine the two approaches. We’ve now had 44 years of Medicare, 43 years of Medicaid, 35 years of managed care, and 50 years or so of private care (using 1959 as a target date because that’s when health costs began to escalate).

I don’t include consumer-driven care, dating back to December 2003, when Congress made HSAs and high deductible plans widely available. That’s too short a time frame to make an impact but enough time for 6 million Americans to sign up for HSAs.

Whatever time frame you take, the results have been dismal. We’re spending 16% of the GNP of health care, twice what any other country spends, and 16% of us remain uninsured.

The reason for this sorry state of affairs?

Bob Herbold, retired Chief Operating Officer of Microsoft and a member of the Board of Trustees of the Heritage Foundation and the Board of Overseers of the Hoover Foundation, says in Real Clear Politics it’s because nobody in the U.S. has any interest in controlling costs.

He says.

Physicians, for example, have little incentive for keeping their rates low. Actually, doctors are eager to try all kinds of remedies and procedures on an individual because cost is not an issue; either the patient has insurance or some government program can usually be tapped. As for the very poor, they often just go to a hospital emergency room and get free care.

The insurance company is in the same situation. The more the system is used, the greater the opportunity that insurers have to make additional profits. The same is true for hospitals. They like patient flow because it means revenues and profits.
The individual loves to get all those tests and fancy new drugs from their doctors to try to get over their illness as soon as possible. And all kinds of state-of-the-art technology is used to quickly figure out what may be wrong with an individual.

Herbold’s solution? Consider the Singapore health care model, which covers everyone and costs only 3.7% of the GNP and which mixes universal coverage and private enterprise by making individuals responsible for their health and for medical care spending.

Each Singaporean has a mandatory savings program, a "Medisave" account. Individuals are required to pay a small percentage of income each month into that account, and employers contribute. The government subsidizes unemployed individuals. Singaporeans also engage in a "Medishield" program, a national catastrophic illness insurance plan. Premiums for the Medishield program are small, and are paid for out of an individual's Medisave account.

When individuals in Singapore go to a physician, they select the doctor based on cost and quality. Physicians compete for the patient's business. Individuals select carefully since it's their Medisave account money that pays for the chosen physician.
Individuals can use Medisave accounts only for medical use. These accounts grow steadily over time because the government invests these funds for the individual in a safe and modestly performing investment fund.

What's important here is that the money is not the government's. It's the individual's money and, at retirement age, people actually have access to these funds. That's why individuals use the funds wisely.

I'm a realist. I don't believe the Obama administration will consider transitioning from Medicare to Medisave. Going from government dependency to consumer-responsibility, even if government subsidized and even if it makes economic sense and even if consumers are well informed, is simply too great an emotional and political switch. To trust doctors and ordinary citizens and to pit them against the collective wisdom of Washington isn't in the political cards.

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