ON HEALTH CARE IN AMERICA

By Camden W. "Cam" McConnell

Explains what is wrong with the health care system in America today and gives a prescription for fixing it.

Many feel that we should progress towards a "single-payer" system. They are wrong.

Let's try to consider "health insurance" with regard to real people who make economic decisions based on their own self-interest, not on idealizations by bureaucrats. The principle complaint is that health "insurance" costs are excessive. Since almost all such "insurance" is paid for by others, as the costs rise, the payers are interested in transferring the cost to the user. The missing ingredient in our healthcare system is the consumer, making rational decisions based on personal economics. The spider at the center of the web, pulling the strings and causing irrational behavior, is government. In this article, I will discuss: (1) the trend that results in reduced consumer participation in decision-making and its causes; (2) the consequences of the absence of the consumer; and (3) what we must do to correct the trend and return to a market-driven system that delivers the desired care at the best possible price to all Americans.

First, the trend. The absence of the consumer in the system is a result of the purchase of medical services by others for more and more Americans. Government policies and actions are the direct cause of the trend.

For those in a typical employment setting, their employer buys a "group health insurance policy" that provides specific benefits. Since the impression is that the individual is not paying for the policy (which is not correct), the individual always wants more benefits. The result is that most policies are actually pre-paid health plans more than insurance policies.

In addition to those in a typical employment setting, our present situation includes pensioners from government and private employment alike whose post-retirement benefits include health care insurance. This "insurance" again has the character of a pre-paid medical plan. Again, the removal of the choice from the consumer hurts the operation of the market-place.

Finally, we have foolishly established medical care for those over sixty-five years of age as an entitlement. Again, the result is a removal of those consumers from the decision-making process. What is worse, since Medicare is paid for by a tax on current wage-earners to provide care for the beneficiaries, it is a financially unsound system likely to fail in the near future and require transition to a more rational system.

Next, the consequences of the absence of the consumer from the market-place.

The first consequence is that the consumer is inclined to ask for more than the amount of service actually needed. Individuals who are asked to pay for the service make a more discriminating choice of occasions of need. Without that consideration, it is easy to decide to see a doctor for a simple cold which is clearly going to pass on its own. The individual is also not very attuned to price of service, since the price to the consumer is not affected by the price the provider charges. Since the service is over-used, the costs to the "insurer" to provide those services necessarily go up. This is the primary cause of the ever-increasing cost of coverage that is causing distress among those asked to pay for the coverage. Since the consumer does not make the decisions regarding providers or choosing on the basis of cost, providers are at liberty to increase their fees without regard to the opinions of the consumers. They need only convince the insurers of the "usual and customary fees" and their schedule will go up. From the providers' perspective, this is not as favorable as it sounds, as their fees are determined by bureaucrats at very remote locations from the point of service.

Finally, what can be done to correct the situation? Since government interference is the main cause of the irrational behavior, the first objective should be to get government out of the picture.

If individuals were to enter the market and purchase their own health insurance, they would typically purchase a true insurance policy, which would pay only when expenditures exceeded a "deductible" that reasonably represented the typical years' health care needs. For most people, in most years, at the end of the year the individual would add up his receipts for medical care, find the sum less than the deductible and simply throw them away. Neither the doctor nor the insurance company need file any paperwork. It would operate just like my life insurance. I have been buying life insurance for forty-five years, and have yet to file a claim!

Individuals, realizing that they would not be reimbursed for routine medical care, would then be more discriminating as to both use of facilities and prices charged. By not going to the doctor for every cold, the doctors' time would be more efficiently spent on those with greater need. By considering the fees charged by doctors and selecting providers accordingly, the consumers would keep pressure on doctors to reduce fees. Doctors who charged too much would simply go out of business, just as people in other lines of work do.

Doctors, for their part, would be able to reduce fees considerably from the present situation because they would not have to have employees to file the claims for the patient. Their operation would be more nearly confined to the actual practice of medicine and related record-keeping. They would, however, have to address collecting their fees, which most would probably do by collecting them at the time of service.

The beginning of the solution, then, is exactly the opposite of the demands heard from "activists": Transfer all the costs of the "health insurance" to employees and beneficiaries, and let the market-place work to reduce costs. As with all of the corrective actions needed to eliminate government interference in things it ought not to be interfering with, there will have to be a lengthy transition for portions of the problem, in this case, Medicare, for which the current beneficiaries have been paying for many years.

In order for this solution to become politically acceptable, all citizens must understand that the total cost to the employer is the value of their services. Employers provide "health insurance" because there is a tax benefit to encourage it, and they must provide with-holding and its related accounting anyway. It is the tax incentives that keep employers from paying their employees the full value of their services in cash at the time of service. Typically, the "salary-related expenses" for office workers are approximately one-third of the nominal salary. Employers would happily pay the full value to the employee in cash and avoid the accounting, but the laws requiring with-holding of income tax, Social Security tax, Medicare tax, state income tax, etc. and providing that such sums as are spent directly by the employer are not taxable to the employee guarantee that the present system will continue until we correct our tax laws.

If elected, I will work to eliminate the tax advantages of employers buying for the employees that which the employee should be buying for himself. I will work to eliminate tax with-holding by employers to (1) reduce the cost of that administration to businesses, and (2) to cause Americans to realize how much they are paying in taxes. You can be sure that the career politicians will oppose this change, as it will result in Americans being much more critical of government.