OK, you caught me stalling. Healthcare is incredibly controversial and massively important. I have identified some issues which the Radical Pragmatist can help address the healthcare debacle in the U.S. In this column I will give you my argument and the macro issues; in my next one I will tackle some details related to lowering the costs.
Economists define insurance as a form of risk management used to hedge against the risk of a contingent loss. Another way of viewing insurance is as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss.
Healthcare has come a long way from leaches and purges. Until the twentieth century healthcare did not do a whole lot for us. It was easy to pass the costs off to the individual or, more likely, the family. For the most part people got sick, you performed palliative care, they died, and you went on. The real loss was the departed’s earning power. Now healthcare can do lots to heal but the cost of it exceeds most people’s earning power.
My argument is against the insurance model in the first place. Unlike fire insurance, not all houses will burn down, but all people will die and most will do so after a lifetime of treated ailments to some degree or other. Insurance is not an effective model because all policy holders will use it and the costs associated with using it are likely to be higher than a lifetime of paid premiums. Hence both the cost of healthcare and insurance has outpaced inflation for the last ten years.
Since we all get sick and will die – and all of us in America need as many healthy, living people working to make our economy function and grow – I argue that healthcare is a social cost sort of like bridges. Now those of you on the right stay with me, despite the fact I used that nasty social word. The more efficient the bridge system, the better it facilitates for goods and services; this improves our quality of life. There is no getting around the fact that bridges wear out and needs to be repaired from time to time and eventually replaced. Sounds familiar doesn’t it?
I say instead of treating healthcare like a juggling act robbing Peter to pay Paul, as the insurance model does, let’s look at healthcare as a systems cost not unlike transportation. While no one can predict what any individual’s lifetime healthcare needs will be, we can fairly well forecast a population’s lifetime healthcare needs. There will be so many traumatic accidents, cancers, heart attacks, all predictably distributed along the demographics of the U.S. population.
The job of government should be to create a system that recognizes this and focuses on cost containment, efficient healthcare delivery and, the big one in my book, the bulk purchase of healthcare goods and services to gain economies of scale and ultimately the best price.
We can achieve these goals through efficiency of processes, competitive bidding, tax incentives and I know what will really make some of you cringe a public option. The key word here is option. If you believe in the free market then creating a public option to increase competition should not bother you at all. Unless of course you own stock in a large health insurer or are an executive of one. Those profits and salaries have been pretty healthy lately.
For a public option to be successful we need to set some ground rules. First, fair competion. That means no breaks for the public insurer that others don’t get, except the low cost of capital the government can access. Second, eliminate pre-existing conditions as an excuse not to insure. All insurance companies must offer coverage without regard to pre-existing conditions or else we will have shifted all the risk from the private sector to the American taxpayer. This is about creating competition to lower the total U.S. healthcare costs, not a corporate welfare project. Third, all residents of the United States must carry health insurance. There can be special programs for the poor the same way we have programs to make sure people can keep the electricity on in the winter. Failure to have health insurance and the premium comes out of your salary or assets like a tax lien. We all benefit from lower healthcare costs if all are covered and we all suffer for everyone who is not. By the way, if everyone had health coverage, the wait in emergency rooms will get a lot shorter.
I want to stress that nothing I have written here is particularly new or original. All I have done is taken what is out there on the World Wide Web hopefully, stripped the propaganda away and added a little common sense. I know you all will be waiting with baited breath for my next installment where I hit some details. Until then, question everything and try to be pragmatic.
Andrew Stein has worked in commercial real estate and banking since 1986. He currently consults to private companies and municipalities on real estate, finance, government, political and energy issues. Mr. Stein is Board Chairman of the $22 million Sustainable Energy Fund. He is a graduate of the Wharton School of Business at the University of Pennsylvania.
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