This is not the first time I've addressed the health care reform package that President Obama is championing. However, today I feel a little bit torn about it.
The conservative and the economist inside of me knows that if this health care bill passes, it will dramatically change our health care system as we know it. As I have previously stated, a government option that offers health insurance with lower premiums than private insurance will eventually lead to the end of private insurance as we know it.
And that's where I'm torn. Private insurance companies, by design, were intended to help individuals obtain health care when they need it most and not avoid bankruptcy for doing so. But recently, it seems that health insurance companies are more worried about their bottom line profitability.
And that's what has always scared me (and maybe even you) about health insurance companies and the health care system. It's part of the reason I avoid hospitals at all costs and minimize my dealings with health insurance companies. I'm always afraid of something being considered a "pre-existing condition" or a procedure not being covered by insurance.
As much as I despise the rhetoric of the Obama administration and the Democrats who are fighting for this health care bill, I have to admit I have heard these horror stories more than once; people being dropped from health insurance coverage or being denied a life-saving surgery because a health insurance company considers such a procedure as "experimental".
Some pressure needs to be put on these insurance companies, but not so much that it will cause them to fall like a house of cards. Insurance companies are essential to health care. Without insurance companies, who pay for the full cost of health care (minus premiums and out-of-pocket costs), essential medical advancements will discontinue. Scientists don't research and develop advancements in health care because it makes them feel better about themselves, they do it in part because the procedure will net them a return on their investment (as well as recognition and fame).
Some action does need to be taken to correct the problems with insurance companies addressed in Part I of this column. One of the first steps in correcting this problem is to introduce a national not-for-profit (NFP) health insurance company. This company will not be publicly traded and will not seek to exclude the "uninsurable" to retain profitability. In essence, it would act much like heath insurance companies were originally intended to act.
This national NFP insurance company would have lower premiums (due to a minimized focus on profit) and would entice individuals (both healthy and sick) to obtain coverage with this new company. This would increase competition with other health insurance companies, making private insurance companies decrease their premiums to appear more attactive to consumers.
There are currently local NFP health insurance companies. All I'm arguing for is a national NFP insurance company that everyone could be insured with. Have the government provide this company with additional tax breaks (more than the traditional 501(c)(3) not-for-profit) so a local NFP establishes itself nationally to compete with the private insurance companies. This government investment would be a considerable amount less than the current price tag of the bill in the Senate. With this private solution to the market problem, a government solution would not be needed (i.e., the proposed health care bill). Let me be clear, this is not a government run health insurance company, this is a government incentivized private health insurance company.
If the government still wanted to mandate health insurance coverage, they could. If the government mandates that all insurance companies have to accept applicants, regardless of pre-existing conditions, it would probably just mean more business for the NFP health insurance company.
With an NFP insurance company that has lower monthly premiums, more individuals with less income would be able to afford coverage. The government could even further incentivize the success of the NFP health insurance company by offering individuals that take out coverage with the NFP a tax break or rebate for their coverage. The government could go further and still create a government run option so long as the option was designed only for those individuals who fit between the gap of those covered by Medicaid and Medicare and those who can afford the NFP insurance company premiums (an even smaller subset of those estimated to benefit from the health care bill). This way, only these individual can obtain coverage under the government run plan and people could only obtain coverage if they meet income qualification criteria.
The point is, rather than push forward a bill that is very cumbersome and dramatically reforms our current health care system, our Legislature and President both need to look at incentivizing better health care rather than legislating it. The price we would pay for incentivized care is far less than we would pay for the heath care bill as it stands.
Wednesday, November 11, 2009
Part I: Incentivizing Health Care: The Problem with Health Insurance Companies
Let's face it; there's money in medicine. When was the last time you saw a doctor (not a medical student) driving anything other than a Mercedes Benz, BMW, Jaguar, Volvo, or another expensive car? We spend a great deal of our gross domestic product on health care; everyone knows that. But the problem is we have too many people trying to extract profit from our health care.
The biggest culprit today, and the focus of the health care bill, are the health insurance companies. The purpose of insurance companies is to allow people to pay a small premium so that if a qualifying event were to occur (auto accident, surgery needed), an individual would have that event covered.
People can provide insurance for themselves; it's called self-insurance. The problem is people are reluctant to self-insure but at the same time want to avoid risk.
One of the first things I learned in Economics 101 was about self-insurance. If people were to take the same amount of money they paid in health insurance premiums and just save it (or invest it), if a qualifying event were to occur, they would be able to cover themselves. The problem is (as mentioned above) people are reluctant to self-insure. The growing account balance is too much to resist and people are tempted to use that money for things other than health care. So people who are risk averse elect to pay health care premiums and essentially never see that money again until a qualifying event occurs.
But because health insurance companies have a responsibility to their shareholders to remain profitable, their best interests are not your best interests. Your best interest is to have that life-saving surgery or receive treatment for what they call a "pre-existing condition". Their best interest is to (1) extract the maximum amount of money from you without you dropping their health insurance or (2) cover your health care costs as long as the premiums you pay are greater than what you cost the company.
But insurance companies don't just charge monthly premiums; that was just not enough. Never mind you pay them anywhere from $100 to $1,000 in premiums every month, if you do get sick, need prescription medicine, or go to a doctor, you have to pay a co-pay. If, God forbid, something life-threatening happens to you, then you have an out-of-pocket expense that is paid in addition to your premiums. Even worse, if something else life-treatening happens to you in the same year, then you pay more money to hit your maximum out-of-pocket expense and then insurance benefits cover 100% of the remaining costs of health care. Exactly how much money should we pay to a company for our health care?
When you add that insurance companies drop the coverage of select individuals because they are "uninsurable" (which means they can't turn a profit on them) and do not cover some "experimental" procedures, it just adds more evidence that the insurance market has had a breakdown.
Insurance companies had to fight moral hazard (when people abuse insurance programs with the overuse of health care) by introducing co-pays and out-of-pocket costs. This was because there was no disincentive to seek medical care anytime someone thought they needed it. Introducing a co-pay makes people forfeit more money to seek medical care. Insurance companies made the co-pay small enough so that it wouldn't completely dissuade people from seeking needed medical care, and large enough to stop people from seeking medical care for trivial ailments). Since insurance companies were first created to help people insure themselves against bankruptcy in case of a medical emergency, their incentive changed to consistently being profitable once these health insurance companies became publicly traded (and had share holders to keep happy).
A capitalist government is supposed to step in and correct a market problem with either policy or incentive. But the incentives in the health care bill are the ones being discussed today. The health care bill will create an incentive for healthy individuals to switch from their private or employer provided health insurance to a government option because it will, no doubt, be cheaper than their current health insurance premiums.
Another main concern of the health care bill is that, much like the health care plan in Canada, a government run health insurance plan will result in long delays for care. Some estimates say it may take 6 months for someone to receive care for a pre-existing condition. However, emergency care will be provided on an emergency basis. That being said, healthy individuals will worry less about the long waits for health care, as select the government plan in order to capitalize on costs savings on health insurance premiums. The healthy individual will only care about the speed of which emergency care is administered (which will be the same as under any health care plan) as they will not require regular or frequent doctor's visits. Only (1) the individuals with pre-existing conditions and (2) the sickest individuals that have private or employer provided health insurance will avoid the government plan. This will cause the same death-spiral of health inurance discussed in one of my previous columns.
Previously, I argued that the best solution is to put the uninsured on an expanded Medicaid program. However, this may not necessarily address the problems we have with insurance companies. The biggest problem I've identified with insurance companies is that they are profit-seeking companies because they are publicly traded. My solution to this problem will be discussed in Part II of this column.
The biggest culprit today, and the focus of the health care bill, are the health insurance companies. The purpose of insurance companies is to allow people to pay a small premium so that if a qualifying event were to occur (auto accident, surgery needed), an individual would have that event covered.
People can provide insurance for themselves; it's called self-insurance. The problem is people are reluctant to self-insure but at the same time want to avoid risk.
One of the first things I learned in Economics 101 was about self-insurance. If people were to take the same amount of money they paid in health insurance premiums and just save it (or invest it), if a qualifying event were to occur, they would be able to cover themselves. The problem is (as mentioned above) people are reluctant to self-insure. The growing account balance is too much to resist and people are tempted to use that money for things other than health care. So people who are risk averse elect to pay health care premiums and essentially never see that money again until a qualifying event occurs.
But because health insurance companies have a responsibility to their shareholders to remain profitable, their best interests are not your best interests. Your best interest is to have that life-saving surgery or receive treatment for what they call a "pre-existing condition". Their best interest is to (1) extract the maximum amount of money from you without you dropping their health insurance or (2) cover your health care costs as long as the premiums you pay are greater than what you cost the company.
But insurance companies don't just charge monthly premiums; that was just not enough. Never mind you pay them anywhere from $100 to $1,000 in premiums every month, if you do get sick, need prescription medicine, or go to a doctor, you have to pay a co-pay. If, God forbid, something life-threatening happens to you, then you have an out-of-pocket expense that is paid in addition to your premiums. Even worse, if something else life-treatening happens to you in the same year, then you pay more money to hit your maximum out-of-pocket expense and then insurance benefits cover 100% of the remaining costs of health care. Exactly how much money should we pay to a company for our health care?
When you add that insurance companies drop the coverage of select individuals because they are "uninsurable" (which means they can't turn a profit on them) and do not cover some "experimental" procedures, it just adds more evidence that the insurance market has had a breakdown.
Insurance companies had to fight moral hazard (when people abuse insurance programs with the overuse of health care) by introducing co-pays and out-of-pocket costs. This was because there was no disincentive to seek medical care anytime someone thought they needed it. Introducing a co-pay makes people forfeit more money to seek medical care. Insurance companies made the co-pay small enough so that it wouldn't completely dissuade people from seeking needed medical care, and large enough to stop people from seeking medical care for trivial ailments). Since insurance companies were first created to help people insure themselves against bankruptcy in case of a medical emergency, their incentive changed to consistently being profitable once these health insurance companies became publicly traded (and had share holders to keep happy).
A capitalist government is supposed to step in and correct a market problem with either policy or incentive. But the incentives in the health care bill are the ones being discussed today. The health care bill will create an incentive for healthy individuals to switch from their private or employer provided health insurance to a government option because it will, no doubt, be cheaper than their current health insurance premiums.
Another main concern of the health care bill is that, much like the health care plan in Canada, a government run health insurance plan will result in long delays for care. Some estimates say it may take 6 months for someone to receive care for a pre-existing condition. However, emergency care will be provided on an emergency basis. That being said, healthy individuals will worry less about the long waits for health care, as select the government plan in order to capitalize on costs savings on health insurance premiums. The healthy individual will only care about the speed of which emergency care is administered (which will be the same as under any health care plan) as they will not require regular or frequent doctor's visits. Only (1) the individuals with pre-existing conditions and (2) the sickest individuals that have private or employer provided health insurance will avoid the government plan. This will cause the same death-spiral of health inurance discussed in one of my previous columns.
Previously, I argued that the best solution is to put the uninsured on an expanded Medicaid program. However, this may not necessarily address the problems we have with insurance companies. The biggest problem I've identified with insurance companies is that they are profit-seeking companies because they are publicly traded. My solution to this problem will be discussed in Part II of this column.
Thursday, November 5, 2009
Breaking Down the Election Results
The election results from Tuesday have people on both sides of the political spectrum talking. The Right and Left are debating if the election results are a referendum on President Obama.
I initially thought the election results demonstrated the voters have shown their dissatisfaction with the President's policies. However, after doing my research, I've come to the conclusion that you can't make that conclusion from this past Tuesday's election results. Here's what I found.
I looked at the three major elections covered Tuesday night. They were the Gubernatorial elections in New Jersey and Virginia and the election in New York Congressional District 23. I first had to ask myself if these states were traditionally blue or red states (traditionally Democratic or Republican) as this should play a large role in each respective election.
New Jersey is a traditional blue state where Democrats over the past two decades have enjoyed a 10 to 15 percent advantage over Republican opponents. I must admit a Republican win in this state is a very impressive one. In New Jersey, Chris Christie (R) defeated John Corzine (D) with 49% of the popular vote to Corzine's 45%. This is the only election from Tuesday that may resemble a referendum of Obama.
Virginia traditionally slightly favors Republicans over Democrats, making Virginia a red state (or really, a pink state). Over the past two decades, Republican candidates in Virginia have experienced only a 1 to 5 percent advantage at the polls. But if you look at the 2008 Presidential election, you will see that Virginia was one of the states Obama won (with 52.7% of the popular vote). Obama's win in Virginia in the 2008 Presidential election marked the first time in 44 years that a Democratic Presidential candidate has carried the state. Obama's win in Virginia was more of a referendum (of former President Bush) than Bob McDonnel's (R) Gubernatorial win in Virginia could be considered a referendum of President Obama. In essence, McDonnel should have won this election and did so in landslide fashion (winning 59% to 41%). The recent elections results show me Virginia is moving from a slightly red to swing state status.
Lastly there is the election in New York's 23rd congressional district. In this race, Bill Owens (D) defeated Doug Hoffman (Conservative Party) for New York's seat in the U.S. House of Representatives. This was a highly contested seat as the 23rd congressional district has been traditionally Republican since 1993. The only reason this seat was up for grabs was because President Obama appointed the sitting Congressman, John M. Hughes (R), as the Secretary of the Army leaving a vacancy.
New York is one of the most heavily fortified blue states in the nation. Democrats here enjoy an advantage of 20% at the polls. The fact that Secretary Hughes maintained this district for 16 years is very impressive and most likely a testament to the work he accomplished for New York. In one of the bluest of blue states, where Democratic candidates enjoy a 20% advantage in the polls (exception to Secretary Hughes), was it really a surprise that Bill Owens (D) won the race? He defeated his challenger with 52.03% of the popular vote (Doug Hoffman received 47.97% of the popular vote). The fact that Hoffman was so close to Owens does not necessarily hint towards a referendum of President Obama, but may mean the district kept some loyalty to the Republican party after Hughes vacated his seat.
Needless to say these three elections boast some referendum qualities, but the others do not. The data is so inconclusive, I wonder how some people can consider these elections a referendum on President Obama. I'm conservative and not even I can make that leap.
The point is, people have tried to read too much into this election and are making predictions as to the results of the 2010 midterm elections. Only time will tell what will happen and although I anticipate Republicans winning back some seats in Congress, using this election as a litmus test for President Obama's policies goes a bit too far in my opinion.
I initially thought the election results demonstrated the voters have shown their dissatisfaction with the President's policies. However, after doing my research, I've come to the conclusion that you can't make that conclusion from this past Tuesday's election results. Here's what I found.
I looked at the three major elections covered Tuesday night. They were the Gubernatorial elections in New Jersey and Virginia and the election in New York Congressional District 23. I first had to ask myself if these states were traditionally blue or red states (traditionally Democratic or Republican) as this should play a large role in each respective election.
New Jersey is a traditional blue state where Democrats over the past two decades have enjoyed a 10 to 15 percent advantage over Republican opponents. I must admit a Republican win in this state is a very impressive one. In New Jersey, Chris Christie (R) defeated John Corzine (D) with 49% of the popular vote to Corzine's 45%. This is the only election from Tuesday that may resemble a referendum of Obama.
Virginia traditionally slightly favors Republicans over Democrats, making Virginia a red state (or really, a pink state). Over the past two decades, Republican candidates in Virginia have experienced only a 1 to 5 percent advantage at the polls. But if you look at the 2008 Presidential election, you will see that Virginia was one of the states Obama won (with 52.7% of the popular vote). Obama's win in Virginia in the 2008 Presidential election marked the first time in 44 years that a Democratic Presidential candidate has carried the state. Obama's win in Virginia was more of a referendum (of former President Bush) than Bob McDonnel's (R) Gubernatorial win in Virginia could be considered a referendum of President Obama. In essence, McDonnel should have won this election and did so in landslide fashion (winning 59% to 41%). The recent elections results show me Virginia is moving from a slightly red to swing state status.
Lastly there is the election in New York's 23rd congressional district. In this race, Bill Owens (D) defeated Doug Hoffman (Conservative Party) for New York's seat in the U.S. House of Representatives. This was a highly contested seat as the 23rd congressional district has been traditionally Republican since 1993. The only reason this seat was up for grabs was because President Obama appointed the sitting Congressman, John M. Hughes (R), as the Secretary of the Army leaving a vacancy.
New York is one of the most heavily fortified blue states in the nation. Democrats here enjoy an advantage of 20% at the polls. The fact that Secretary Hughes maintained this district for 16 years is very impressive and most likely a testament to the work he accomplished for New York. In one of the bluest of blue states, where Democratic candidates enjoy a 20% advantage in the polls (exception to Secretary Hughes), was it really a surprise that Bill Owens (D) won the race? He defeated his challenger with 52.03% of the popular vote (Doug Hoffman received 47.97% of the popular vote). The fact that Hoffman was so close to Owens does not necessarily hint towards a referendum of President Obama, but may mean the district kept some loyalty to the Republican party after Hughes vacated his seat.
Needless to say these three elections boast some referendum qualities, but the others do not. The data is so inconclusive, I wonder how some people can consider these elections a referendum on President Obama. I'm conservative and not even I can make that leap.
The point is, people have tried to read too much into this election and are making predictions as to the results of the 2010 midterm elections. Only time will tell what will happen and although I anticipate Republicans winning back some seats in Congress, using this election as a litmus test for President Obama's policies goes a bit too far in my opinion.
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