Monday, April 13, 2009

We Are Medically Over Insured:
Thoughts On Government Health Care

We are medically over insured and paying excessive premium costs because of it. We also need to distinguish between private health insurance purchased by employers and individuals and the government entitled medical care systems of Medicare, Medicaid and other government-mandated health programs. They are two different problems with two different solutions.

The private insurance system is fixable without a need to resort to a government medical health care system. It requires a reinstatement of market pricing mechanisms. The government medical entitlement system, Medicare, etc., is much more difficult to fix. Obama's call for government medical health care is really an attempt to broaden the coverage base of the Medicare system to include all individuals under 65. It would increase the tax base, dilute the voices of seniors about benefits and costs, and allow for an increase in premiums and a decrease in medical benefits to seniors.

Fifty years ago families had major medical insurance. It covered the in-hospital costs of the hospital stay, including doctors, medicine, diagnostic procedures, surgery, anesthesia, etc. It did not cover doctor visits to his office or prescription medicines filled at a pharmacy. People paid the out of pocket costs for medicines and doctor visits. It did not cover voluntary surgeries, but it did cover the hospital costs of a pregnancy including birth. The insurance was affordable.

Thirty years ago, employers only provided major medical and it covered the hospital and doctor costs of the birth of children. People paid for doctor office visits and medicines. They did not overuse the health care system because they were aware of the costs to them.

A decade ago, one could not purchase a major medical insurance policy for their family and themself because no insurer in my state offered that type of coverage. Recently a TV advertisement offered an ala carte medical plan where the insured could choose their own medical benefits. However, some state do not allow insurers to offer that coverage to its residents. Some states are forcing their residents to buy more health insurance than they want. They are forced to buy a comprehensive health insurance policy that covers doctor visits and medicines.

Under a major medical plan, people would save money even if they paid the full costs for daily medicines and regular doctor visits. They buy more coverage than they want or need. They overpay and they have an economic incentive to get back the value of their overpayment by visiting the doctor more often than they would with a less comprehensive but more affordable policy. Their medical coverage unnecessarily increases their use of medical services and increases health care costs. Also, they are subsidizing the patients and doctors who overuse the medical system and they have no economic incentive to monitor their costs. In addition, neither major medical nor comprehensive health insurance covers their potential need for long-term care and catastrophic insurance.

In all other types of insurance, people have freedom to design their own plan. They can choose and purchase basic minimum coverage and add extra benefits for an additional cost. In health insurance, the available benefit options are much more limited.

A simple change that would permit an insurer to offer a minimum policy with add-ons in all 50 states would lower health insurance costs. Also, changes that allowed policies that distinguished between hospitalization and doctor visit benefits would lower costs. Additionally, consumers would have a true incentive to monitor and restrain medical costs because there would be more patients paying their own out of pocket medical costs. Those patients that want full medical coverage could get that type of policy but at much more realistic costs, that reflects their usage patterns. Employers who offer medical benefits would also offer both types and employers would see a cost reduction because some employees will choose the less expensive option.

Health insurance costs are excessive because the market pricing system is not working. Part of the failure of the market pricing mechanism for health care is due to our tax system of allowing employers to deduct the cost of employee medical benefits and part is due to restrictive state regulations. Changing both would allow market pricing to work and influence demand and costs at the consumer level.

Fixing government entitlement medical systems, such as Medicare, are much more difficult to design. These programs are the real costs problems facing our government and taxpayers and not private health insurance. Political ramifications constrain the choices and discussions of changes to these government medical systems. The fix however is not to bury this problem in a broadened government entitlement health care system.

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