Wednesday, February 10, 2010

Foster Friess Joins The Fray

This is from a critique I was asked to give on the Health Care Stakeholders Plan that Foster Friess has put together.

As you will see, I disagree with Mr. Friess on validity of some of his proposals, but I do want to highlight the fact that he has put his money where his mouth is by donating large amounts of money to help people who are truly in need, especially those who suffer from lack of access to health care. So while we may disagree to some extent on how to solve our nation's health care problems, there should be no doubt that he is sincere in his efforts to help.

This is from an email which Foster sent regarding his plan, and which he was gracious enough to allow me to reproduce here:

1. Healthcare Reform should be implemented incrementally, slowly and with time to digest the ramifications of the changes and to become aware of unintended consequences. It should not be a “one shoe fits all” approach but allow states great latitude in altering healthcare reform to the specific needs of their geographic locale.

45,000 people a year are dying from lack of health care insurance. This is an unintended consequence of needless delay, and we should be aware of that as well.
I don't believe that we are suffering from a lack of information. The rest of the industrialized world has given us plenty of examples, and there are over a dozen countries with demonstrably better health care systems than ours, some of which have been in place for over a century. The one advantage we have is that we let these other nations take the risk of experimenting with and refining these systems; we would be foolish to ignore what they've learned and to try to reinvent the wheel.
I do not believe that states differ that much in their health-care needs, although I will grant that they differ greatly in their political will.

2. The first step the Federal Government must take is changing one line in the IRS Code that disallows deductions employers make to insurance companies or health maintenance organizations, but allows them to deduct that exact same amount into each individual employee's health savings account. The tax and revenue implications, therefore, remain constant and the government, the employee and the employer are exactly in the same position they were before this one line change.

The key difference is the employee has now been empowered as a cost control center and it is portable so the employee is not locked into a job because he's uncertain about his next employer's health insurance policies. Cost to taxpayers---ZERO.

Why don't we take this one step further and disallow all deductions? Is there some reason that employers should be involved in making health insurance choices for its employees? Furthermore, ANY subsidy for employer-provided health insurance is a transfer of wealth from those who do not choose to work for a large corporation to those who do. And it subsidizes large businesses who have the economies of scale to manage health care plans at the expense of small businesses.

Obviously, removing the deduction in the absence of any true systemic reform would result in massive increases in the numbers of uninsured, and so I could not support that on its own.

Your point about employees being locked into a job is well taken, however. The conclusion I would draw from it is that employment should be divorced from health insurance entirely, as there is no logical or rational connection there at all.

3. In order to make this work the Federal Government must mandate that all suppliers of medical/healthcare services must post prices and outcomes. Taxpayer cost- ZERO.

I wish that standardized pricing was possible. However, given the fact that the United States currently has four completely different methods of allocating health care (government-owned, single payer, private health insurance, and out of pocket), each with its own associated costs and pricing structure, this is currently impossible. Hopefully, we can work together to create a less complex system in which price transparency is possible.

Outcomes are similarly difficult to quantify, but a universal health care system, with a single method of reporting outcomes would make what is undoubtedly valuable information much easier to obtain.

4. Because insurance companies do not want to deal with the gazillion health savings accounts that would be spawned across the nation, the Federal Government must remove any impediments to more robust aggregating so any individual can join a pool of his choice...his Rotary club, his church, former employees of United Widget, Taxi Cab Drivers of America, or the pool of his choice. Tax payer cost –ZERO.

Because I do not think that HSA's are the answer to our problem, I will only note that any system which requires patients to perform cost/benefit analyses on their health care choices (which they are manifestly unqualified to do) will inevitably lead to a less than optimal amount of preventative care, which will lead to inefficiencies in treatment and higher systemic costs. Keep in mind that higher systemic costs affect everybody, not just the people who make poor decisions.

I would like to take this opportunity to say that I understand that it is important for people to have skin in the game, and for minor health care issues, or things like cosmetic surgery or truly elective procedures, they make perfect sense. The difficulty is in determining which procedures are minor or elective. Who should make this decision? And does the economic benefit of this "skin in the game" warrant creating a new and complex system of HSA's, which many people will not understand or take advantage of?

Furthermore, the "zero cost to taxpayer" attributed to HSA's ignores the externalities. HSA's will result in healthy individuals canceling their insurance policies, which will leave the insurance pools with more sick people, resulting in a feedback loop where the healthiest people continue to drop out of the pools, and only the sick remain, until no one can afford insurance at all. Now this may be a feature of HSA's, rather than a bug, but simply forcing everyone into HSA's leaves us with another problem: What do we do when these people don't have enough money to pay for health care? If we let them die, then it's a political nonstarter (as it should be.) If we help them out anyway, then there is no incentive for people to put money in their HSA's.

5. The Federal Government must require that each state have two offerings of "mandate light" insurance policies so that we return our culture back to one of "insurance" rather than "prepaid health care." One "mandate" that would be in it is that a base physical exam followed with additional ones at appropriate intervals without going against the deductible. High deductibles would be encouraged in order to make the plan work. Taxpayer cost ZERO.

"Mandate-light" policies, coupled with for profit insurance companies, will ensure that customers continue to get policies that will be virtually worthless.
And of course, when people buy worthless policies, it costs the federal government (taxpayers) more because many of people will end up on Medicaid after declaring bankruptcy.

6. From this point forward the states are unleashed to experiment with how they want to deal with preexisting conditions, the safety net for expensive healthcare costs, tort reform, medical records and all the other issues. The creativity that exists in each state exceeds that of Congress.

These experiments have already been run. They've been run by all of the world's other advanced nations. We don't need more information on how to do these things. At the top of this page you said:

"Healthcare Reform should be implemented incrementally, slowly and with time to digest the ramifications of the changes and to become aware of unintended consequences.

and yet this proposal is to radically alter our system by replacing it, not with one of the other systems that have been demonstrated to work far better than ours, but with a system (HSA's) that most health care economists say will not work. I believe these two ideas are contradictory.

Also, health care policy is a de facto and a de jure federal responsibility. Determining the efficacy of dozens of competing state plans will be impossible, if for no other reason than sick people will be permitted to leave one state for another with better benefits. Taken to the extreme, this would result in the state with the best benefits having all the sick people. Obviously, this effect would be greatly mitigated by the fact that people won't move unless things become really serious, but the point stands.

Now, on to the things that I can agree with you on! (And please correct me if I am incorrectly characterizing your positions.)

I can agree that the Senate health reform bill, as currently written, is unacceptable. And I will enthusiastically join you in advocating against it.

I can agree that tort reform is necessary. I realize that studies have shown that tort reform will not save much money, but this primarily because most potential malpractice suits are never filed! This means that the tort system is not very equitable, and if we were to make it more equitable, it would be prohibitively expensive. The dirty little secret of medical malpractice is that resolving cases in the judicial system is terribly inefficient, and usual very inequitable (a small percentage of the injured receive the vast majority of the money.) These cases would be better off resolved by a committee.

However, in a free-market system such as the one we think we have, malpractice lawsuits are basically a patient's only recourse. So I would not support tort "reform" without a reform of the entire system. A single payer system in which punitive awards were prohibited entirely would be acceptable, for example.

I can agree that more transparency is better. However, as I noted above, reducing complexity is the single most important thing we can do to improve transparency. Single payer would do more to reduce transparency than any other thing we could do.

I agree that the people making the decisions should have skin in the game. At the moment, the people making the decisions are often insurance companies, and they have no skin in the game, in the sense that they have no interest in your long term health, because they will just drop your coverage if you get too sick (read: expensive) for them. Single payer, or even government-run health care systems, have an interest in keeping you healthy for your entire life, since they don't have the option of dropping your coverage. (This also results in a far greater focus on public health initiatives, which, while not as exciting as the latest high-tech surgical procedure, often have a much larger impact on the overall health of a population.)

With that said, here are a few basic principles which I believe are important for us to accept.

Basic, necessary health care should be a right in United States. 

This principle is generally accepted by a great majority of the public. Our policies should reflect that in a more sensible way. Requiring emergency rooms to accept anyone with a life-threatening condition is an acknowledgement of that principle. Requiring them to be dying before granting them treatment is a reflection of the failure of our country to implement this principle in a rational way.

For-Profit health insurance companies should be eliminated.

They add absolutely nothing of value to the system. They extract huge sums of money in the form of profits, bonuses, needless overhead, added complexity, and, to top it off, are not in business to provide health care, but to collect as much money as possible while providing as little health care as possible. This is, in fact, their business model. And this is the industry that Congress has inexplicably decided to bestow one of only two anti-trust exemptions upon (the other being baseball.) At a very minimum, if we decide to keep insurance companies around, they should be required to be non-profit, and should be heavily regulated. At this point, we might as just have single-payer, and eliminate the redundancy as well.

Healthy people will have to pay for sick people.

There is no way around this. It's nothing new; it's happening today. It has happened throughout history. Medicare, Medicaid, charitable organizations and hospitals, and your own praiseworthy initiatives have helped to do what the free market cannot. But this means that we're all in this together, and that we should be trying to find ways to lower systemic cost, and not to reward people for the good fortune of being born with healthy genes.

I would like to counter with another proposal. Why not just allow everyone to join Medicare? It works, it has lower overhead, it's outrageously popular, it's been proven, the infrastructure is already there, and it will immediately lower our systemic costs. Medicare has been around for decades, so it's not like we'd be rushing into anything. I realize Medicare isn't perfect, but no system is. Medicare For All, at the very least, would indisputably reduce costs and provide universal coverage. Isn't this what we really want?

We can do this now. It will save lives, and save them now. If nothing else, it would be a great way to stop the bleeding until we can take the time to work out something better, if indeed there is something better out there.

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