Monday, August 27, 2007

What Kind of Universal Health Insurance Plan

One new thing on the campaign trail is John Edward's advocacy for universal health insurance. To explore what kind of a program makes sense I want to start with an analogy.

I'm a homeowner like many of you. Even though my mortgage is paid up, I still purchase homeowners insurance. My policy covers fire, storm, and major theft, with a large deductable. These are the BIG RISKS. And that is what insurance is for, spreading the BIG RISKS so that no one has to face them alone without adequate resources.

If your house is like mine, it occasionally needs a new roof. If it has lovely cedar shingle siding, it has to be painted from time to time. These maintenance operations do not come cheap. So why wouldn't I insure my roof or shingles?

The answer is: these are issues of predictable maintenance. They are not RISKS to spread. I have to install a new roof every twenty years and paint my siding every ten years, and so does every other homeowner. There is no point in sharing the expenses through insurance, as we would all pay exactly the same as if we paid out of pocket, PLUS the markup and profit for the insurance company.

Now of course there are other unpredictable risks in home ownership. A neighbor's kid once hit a golf ball through my kitchen window. Lucky for me, his dad paid for the repair. But if he hadn't I would have paid for it myself -- about $100. So in this case I SELF INSURE for these risks because they are not BIG RISKS -- I don't have to get an insurance company involved and pay its fees and profits -- I can afford take care of the problem myself out of pocket and not spread the risk.


Now lets apply these to universal health insurance.

Any one of us can be hit by a rare brain cancer or heart irregularity, entailing hours of expensive specialist care, hospital visits, expensive drugs and operations. These are BIG RISKS. Because they can hit anyone but only hit a few, and because these few can rarely cover the expenses out of pocket, we use insurance to spread the risks. These are akin to a fire burning or a storm blowing my house down.

It might not be a bad idea to get a physical exam every year (or every decade). Actually, it may be a bad idea, but I don't want to consider that here. OK. That is ORDINARY MAINTENANCE. It is like painting your cedar shingles. The costs may be a tad high but can be handled by working and middle class families by starting a special budget line called "home maintainance" in their budget, and putting in a few dollars a week. It makes no sense to involve insurance in ordinary mainteninace as there are no risks to spread but many additional costs to add if an insurance product is used. The insurance is a cost without any benefit.

Finally, I might occasionally get a cold or the flu, or feel chest pains or feel dizzy. These things happen. All of us make our own judgments about whether and when to visit a doctor to get a prescription or a medical test. Here the initial risks are real but they are SMALL RISKS, like the chance of a kid hitting a golf ball through your window. The costs are real but manageable for middle class families, so, just as in the case of the golf ball in the window, we should SELF-INSURE. Suppose the doc, in his $100 visit which I fork out from cash in my pocket, discovers that what we took to be a cold was TB, or what we took to be gastric discomfort was stomach cancer? Well, then we are back to BIG RISKS, which should be spread. So you pay the first $100 through your deductable and your insurance covers the rest.

OK. Well, that leaves a few questions about kids, poor people, and seniors. This gets us deeper into the area of health policy.

The very young, the very old, and the very poor are all also very vulnerable. With children and seniors a little thing can become big unless handled swiftly. Society may want to have broad health insurance for its youngest and oldest members, without humiliating means-testing, so a worried MOM or the CHILD of an AGED PARENT can get her family member to the doc right away. It might be argued that from a narrowly economic point of view this is ORDINARY MAINTENANCE and hence should simply be handled in the family budget. Maybe. Maybe not. Maybe the peace of mind that comes from being able to rush off to the doctor without concerning yourself about money makes it worth bearing a small extra-rational cost. This may be the basis for broad universal Medicare coverage even for those who can pay their own medical expenses.

Very poor families, however, simply cannot put the necessary money in a household budget line. Every penny has to be allocated to food and shelter and clothing. Clearly basic health care for those who are very young or very old, and also very poor, should be covered by social insurance. This is a matter of simple human dignity. This is why we have Medicaid and why so many are willing to opt for universal coverage of kids on analogy with Medicare's universal coverage of seniors.

On the other hand, those annual adut physicals and the like are ORDINARY HEALTH MAINTENANCE, and for working and middle class families this is simply not a sensible item for insurance, any more than roof replacements or home painting. Adding the insurance costs and profits -- PLUS all of the unnecessary doctors visits, prescriptions, and medical tests -- PLUS all of those excess employees in the doc's opffice doing the paper work, PLUS all the crazy insurance gate keeping --can drive the docs nuts and bankrupt the country, without adding anything socially useful. There are simply no risks to spread in such cases. If the society wants to encourage personal health responsibility, it can promote personal health accounts where families can contribute a modest sum tax free each year.

SMALL RISKS like colds and dizzy spells are appropriate matters for SELF-INSURANCE, just like the small risks of the golf ball sailing into the kitchen. Spend your own money (from a household budget line called "health and medicine") to go to the doctor. If she or he finds anything serious, that is, a BIG RISK, then as that is the sort of the risk that can sensibly be spread, insurance should kick in.

Turning to long term care for seniors, it is a basic fact of life that we grow old, decline, lose our ability to function individually, and die. Fortunately for those enjoying basic good health the period of severe decline and loss of function is brief. In the meanwhile Universal coverage PLUS medicare do the job. GETTING OLD, NEEDING CARE, and DYING, however, are not RISKS, any more than a roof getting old, needing care, and dying are RISKS. They are predictable, inevitable, elements of a life.

Working and middle class families will have to plan and budget for the care of seniors in their last months and days. Yes, this can be expensive, and again, the government has an interest in the dignity of its seniors and should provide tax-free vehicles for this kind of planning and saving, tax breaks for home care and hospice care. But put simply, getting old and dying are not RISKS to be shared: everyone faces similar predicaments. There is nothing unpredictable or risky to spread here -- just as there is nothing risky about ordinary home maintenance. It is a cost but not a RISK, and hence not a risk that can be SPREAD.

Society has a powerful interest in the dignity of its very old. But insurance, whether public or private, is not the appropriate tool to address it. SAVING and DISINTERMEDIATION are the tools of choice. The high operating costs and profits of Insurance companies and care-provider agencies make the price unmanageable. A rational market in independent care providers would be a big help. Ask anyone who has lost a loved parent after a period of decline whether they liked and trusted the care taker more or less than the associate at the agency that employed her and secured 60 or 70% of the price. Make it easier for care-takers to market their own services through co-ops or group and indivisusll web sites,

Finally, how about hospital based medical treatments for those in their passage to death? We now use public insurance, Medicare, for treatments having nothing to do with health preservation or restoration and I think everyoine knows this. The availability of insurance simply encourages irrational levels of medical expenditure for useless, dignity destroying treatments in the final months and days of life. This accounts for a huge proportion of the public health budget. It breaks the bank and provides nothing valuable in return. Any sensible person should write a legally binding living will. Any costly treatment of a fragile, very old person should require certification by at least three doctors and a patient advocate that it can restore reasonabe health and functionality. Otherwise it is medical assault and a waste of scarce health dollars.

We started by asking what sort of universal health care we might reasonably wish to establish. The answer is this:

1. BROAD COVERAGE for the very young and very old. For the very fragile old, this coverage should be restricted to treatments reasonably believed (and certified) to restore health and functionality. Death-defying ritual magic, like other forms of entertainment and self-delusion,, should be paid for out of pocket.

2. Catastrophic coverage for everyone in a single payer system to spread the BIG RISKS. A flexible single payer system, like a charter schools system, can make room for a number of equal cost options appealing to different individuals in different circumstances and communities of moral value.

3. Tax advantaged health saving accounts to ease the costs of both ORDINARY MAINTENANCE AND END OF LIFE SENIOR CARE and the self-insurance of SMALL RISKS.