What I wish we were talking about in the healthcare reform debates

My company, like many others, will be directly impacted by the outcome of the healthcare reform debate. I am deeply concerned that conservatives are squandering an opportunity to offer effective leadership on this issue. At this critical juncture, will we demand that the government return to its proper function in the marketplace, correcting abuses and imperfections, or will we allow the government to encroach on our self determination and free markets?

I believe that Americans, not representatives or bureaucrats , are best suited to solve the difficult problems we face if given a fair opportunity to do so. We'll have to wrestle with some difficult economic realities, but I believe we can succeed if the government truly gets out of our way. There are seven key talking points that I believe conservatives should focus on to help inform the public, develop a proposal and prevail in this debate.

1. Rationing - No resource is unlimited, so no resource, including healthcare, can be consumed without limitation. Therefore, under any system, healthcare is and will be rationed. The choice is between natural rationing, which is a result of price/demand, or artificial rationing, which is imposed by the government.  I believe the majority of Americans can understand the concept of limited resources, even for healthcare, which means not everyone will be able to enjoy the healthcare they could take advantage or even need because they or society cannot afford it.  We need to be honest with ourselves and concede that this economic reality will be the determinative factor with regard to how much healthcare we individually, or as a society, are able to consume. 
2. Price control - Over the past few decades, Medicare has become the dominant pricing force in healthcare.  When you look behind the curtain of healthcare pricing, nearly all pricing is based on or substantially influenced by Medicare reimbursement rates.  Due to its overwhelming influence as a market participant, the government has in essence set the price for healthcare services.  Imagine if the government decided how much a significant portion of the population paid for gas all in the name of trying to make gas cheaper or more accessible.  In time, the tail would wag the dog and the government would be determining the price of gas each day.  Price distortions would develop and the incentive for competition would deteriorate since the market is not free to respond to normal price/demand adjustments.  We could abolish Medicare/Medicaid as we know it and thereby remove price controls from the market.  This will leave us with some who cannot afford even minimal healthcare, which is where vouchers come in.
3. Vouchers - A credible argument can be made that there is a broad economic and moral good to be realized for supporting a healthy society.  Similar to the argument for grade school education, we can get the most out of our society if it is not only minimally educated, but minimally healthy.  The reality is that there are some who will be unable to pay for healthcare on their own.  If Medicare/Medicaid is abolished per my recommendation above, what should be done?  To ignore this problem is to lose the debate.  I suggest that CMS, which currently runs Medicare/Medicaid, be converted into an agency that does needs based evaluations for vouchers to help needy individuals purchase basic private insurance (HDHP w/ wellness benefits).  We as a society cannot afford to put everyone through college and we cannot afford to provide everyone with top tier healthcare.  We can afford to assist with basic healthcare and should for those who are truly in need (essentially, those who are already negative tax payors).  Otherwise, we'll exacerbate the free rider and uncompensated care problem discussed further below.
4. Interstate Competition - I'm a supporter of state sovereignty, but I believe there is much to be gained by allowing insurers and providers to compete freely across state lines.  I would like to see the federal government facilitate this cooperation by coordinating with the states to produce and adopt a uniform health insurance and practice of medicine code.  This would keep control with the states, but would allow for more competition, which I think would reduce healthcare costs.  This would be similar to how the states cooperate on the uniform commercial code, which is adopted by most states with few changes, as opposed to being dictated by the federal government.
5. Tax Deductions - Create a level playing field by extending tax deductions for health insurance premiums to individuals.  Unions won't like this because securing rich healthcare benefits is their bread and butter, but this is another economic distortion created by the government through the tax code.  Governments should focus their intervention in the economy on policing abuses and address abnormalities, not creating them.
6. Cooperative Plans - Large employers create self insured healthcare plans whereby they cover risk up to a certain point with cash on hand and then have a reinsurer for extraordinary claims.  This is attractive for a number of reasons, but one of the key benefits is that to the extent the employer is able to reduce healthcare expenditures, the savings are realized by the employer and can be passed on to their employees if desired (via rebate, premium reductions, increased benefits, etc.).  Unfortunately, there is no model that provides the same economic incentives for individuals or small employers.  Any gains from reduced healthcare expenditures go straight to the insurer's bottom line, but the insurer didn't create that gain - the insureds did.  Since the savings are not passed on, there is little to no economic incentive to get healthier and consume less.  There is an opportunity here for someone to create a cooperative alternative that passes on savings to those who generate the savings.  If individuals and small employers could get a rebate, premium reduction or increased benefits because they got healthier and consumer less, I believe people would respond.  If I am correct, these new cooperative plans would begin to take over market share and force other insurers to do the same.  There's still room for a profit, but it would only come from the insurer running a better company.
7. Free Riders - There will always be free riders in healthcare, even if we went down the road of an individual mandate, so this issue is a red herring.  In a civil society, to say nothing of the requirements of EMTALA, we would not tolerate letting someone bleed out at the hospital door because they cannot pay.  If we concede this point, then we will have free riders so what should be done?  Providers will need to account for some uncompensated care in their pricing, but if the market is setup to work better per the suggestions above, the amount of uncompensated care can be minimized.  In addition, I'd recommend that we give providers permission to aggressively pursue recovery of uncompensated care so as to severely penalize free riders.  So, the ER will take you even if you cannot pay, but it will cost you dearly as they pursue the debt as would any other creditor.  Society needs to accept and support this to mitigate the free rider problem. 

Thoughts or comments?

Comments

[Stephen Denton]

A great read (you need a social networking "share it" link on your blog). Where's Tommy Farmer's snippets about "Let 'Em Die" and "Population Control"? Just kidding...