November 20, 2010

Shrugging Off the Individual Mandate in New Healthcare

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The outgoing system is wasteful, makes you buy (and pay for) “cover” for the problems you do not have, and still makes you pay about the real price when you do need to access that care. The new system from 2011 is a Gross Improvement - in that the prices of healthcare services will come off the stranglehold and manipulations of Big Insurance, seeing a direct pricing mechanism between providers and consumers. There will be Great complementary benefits in finding a way to shrug off the Individual mandate (for buying health insurance), using the New System as base. That is, a Market mechanism that also incorporates consumer freedom to not buy (thereby rejecting the price offered) an, or any, insurance plan is highly desirable -- to square up an end-to-end wholistic solution to the healthcare conundrum.
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The new healthcare is a giant leap forward from what we have until the end of 2010.
The current system on its way out is the equivalent of a Govt run Healthcare system, except that it is ‘managed’ by Big Insurance rather than Big Govt. And it is worse, for it is not only wasteful (like Govt run systems do have a tendency of becoming) but also extortionary. We and our employers together pay a hefty medical ‘insurance’ premium like a tax, irrespective whether we use much medical service or not - we pay for being ‘insured’ for those services anyway. And the infuriating part is that when you do use any service, you end up paying for its fair market value one way or the other. I just got had a deep cleaning of my teeth/gums and ended paying out of pocket $85 – after paying more than $400 in annual dental insurance premium! And I am left wondering, “Isn’t this $85 pretty much what this should cost to someone that chose not to have insurance!?” It seems the price of service shown to the ‘insured’ and the uninsured is not the same.

The new system is geared towards a Pay Directly for What You use, with Insurance kick in when expenses in a medically bad year escalate beyond the ordinary. It becomes imperative for the consumer to ask the price of a service upfront and go another door if it’s too expensive, while the insurance companies too now want the prices to be competitive so that their own payments do not have to kick in. In stark contrast, in the outgoing system the Insurance Companies have the perverse incentive to have the Care providers show a very high price to send people into the hands of the insurance companies in order to have just about bearable payment (‘Out of pocket’) for the services taken through the year, while paying premium for a overwhelming array of services most of which are never taken through the year. The Premium paid is really a protection against fleecing (with ‘prices’ ‘negotiated’ for the services by the Insurance Companies!) when you actually choose to take any care.

But plugging the market mechanism and the price discovery process between the consumers and the providers, making direct access to the service financially disastrous, is not the only atrocity committed by the medical insurance companies so far. On top of it is their ability to deny coverage for “pre existing conditions”. Break the first limb of their self created rent extortion successfully and the other limb becomes less important to break. The New Healthcare, however, has gone ahead to make it binding for Medical insurance to provide cover to people with pre existing conditions. The compromise that has made this possible is to stipulate an individual mandate to buy medical insurance, so that you do not approach medical insurance only after you actually get sick!

Now, there are mandates around the use of drugs, alcohol, wearing safety gear while operating vehicles, etc. I, for one, am not incensed at this individual mandate on Principle. But it can scarcely be denied that the individual mandate is not exactly pro freedom or pro choice. Further, a market mechanism needs to be restored not just between the patient and the care provider (which the new system does), but also between the patient-to-be and the insurance provider. And a key part of the market mechanism is the freedom of the consumer to withdraw from the buying of the commodity or service. Towards that the removal of the individual mandate is in order. An employee should have the option of not participating in the Employer provided Health Insurance “Plan”, and in lieu of it, receive the entire employer spend on his health insurance in 2010 into a combination of Health Savings Account credit and salary increase. The employee can then choose to either buy the insurance that fits him (with some tax incentive to do so) from the open market or go without full medical insurance. However, what will still be necessary to mandate would be to buy insurance against Catastrophic illness like Cancer, Heart ailment et al. Else, who foots the bill when you get one of these?

Once the market is fully reinstituted between BOTH the (consumer and care provider) AND the (consumer and insurance provider), and large sections choosing not to go through the ‘insurance’ system for regular ailments, the need to handle pre existing conditions via insurance will greatly subside. I would be much happier spending say $150/month on say, diabetes medication and advise that I buy directly without going through insurance, taking cover for catastrophic ailments at about Life Insurance rates, rather than paying $200 a month as Medical Insurance while still paying $100+ out of pocket.

The current system is wasteful, makes you buy (and pay for) “cover” for the problems you do not have, and makes you pay about the real price when you do need to take care. The new system from 2011 is a Gross Improvement - in that with stipulations on Minimum Medical Loss Ratios (and refund of premium when they are not met), incentivizing Direct buying of services with insurance coming in only when the expenses get too high, the prices of healthcare services will come off the stranglehold and manipulations of Big Insurance.
However, there will be Great complementary benefits of finding a way to also shrug off the Individual mandate, using the New System as base.
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