The biggest tenant of economics is that people will do what is in their best interest. So often it is easy to determine the flaws in economic policy, if only those in charge would think logically. Over the last few days, I have been hearing that the President is going out to "sell" his signature health care plan, the Affordable Care Act (ACA).
Now selling may or may not be in your best interest, but in this case let's look at it logically. First let's look at what the plan is supposed to do. It is supposed to eliminate the uninsured among us. The theory is that if everyone has insurance, then the competition will drive prices down. On the surface that is a logical outcome. To deeper thinkers it becomes obvious that not everyone wants health insurance. So the law proposes a tax on those who choose to not carry insurance. That tax, or penalty is supposed to encourage participation. It will not, primarily because the tax is too low. If you are 30 years old, still feeling bullet proof, and no health problems, why carry insurance? Sure it is a gamble, but the gamble is often times the safe bet in an economic sense, for the same reason Life Insurance is a tough sell to the same age group. To further complicate it, there is a group of the very poor, who just don't have the money to buy insurance. The key is why pay $1200 or more per year when you can pay just $100? It is in your interest to gamble to have more money at the end of the year, isn't it? And the law still requires hospitals to care for those regardless of ability to pay, so the worst that can happen is a big medical bill. But even that may be less than the difference between the premiums and the tax.
The economics of the law require that all people are insured. Spreading the cost of health care across the broadest segment of society is how it will hope to reduce costs. This means that a 60 year old, with more health costs and potentially higher risk, needs to be paired with a 30 something so that the cost is affordable. The trade off is the 30 something knowing that they have health care when they are 60, at affordable rates. The flaw is that most people at 30 or under, do not fully understand the costs. It is also the time when they are earning less than they expect to earn later, and it is when family building begins, and families are expensive, especially young children. Here's a personal example: When I was about 30, I worked for a company that provided health insurance. Little did I know that because of tough financials of the company, the owner just stopped paying the premiums. I did find out when we did have an incident with one of our kids, and at least he paid the bill. It was months or even a year that the premiums had expired, I never used it, so how would I know? The boss paid a $300 or $400 bill, but he saved all those premiums. If I had been the age I am now, it would have been much sooner, as we are transitioning towards being a net user of health care.
So the logical choice for the healthy young, the choice that stands to make or save money at that stage in their life, would be to pay the fine. Some will opt to not pay a fine, but as time progresses, more and more will when they see no harm coming to friends. Which means the higher users of health care will have a smaller pot to divide it up in, raising their premiums. Some of them, especially middle and lower class will opt to not pay if they are healthy, because they can no longer be turned down for a preexisting condition. Literally they can go out the day of a heart attack and enroll, minimizing any expense.
But wasn't the goal to make health care affordable? Yes it was, and because people who are healthy may not participate at a rate the government needs, the only option left is another part of the bill, which would in effect ration care. The less that health care is used, the cheaper, and therefore will lower premiums.
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So how can we fix it? Good question! I believe our health care system can be repaired, but not through an insurance system that every one needs to enroll in. Do things that are in peoples best interests, and they will do it voluntarily. We need to address the costs of health care. And not like the Medicare system currently does, that cost fixing only lessens care, and causes doctors to not want additional patients with the program. The per capita health care costs have zoomed past the rate of inflation. In 1925, the per capita costs of health care was $22. Adjusted for inflation, that would make it equivalent to about $275 today. In 2010, our per capita costs were $8233, or almost $8,000 more than 1925. What caused the costs to skyrocket?
There is more than one thing. However, the 2 primary reasons are that there is more health care today. In 1925 there were no MRI machines. There were few patent drugs. There was no health insurance, at least on the scale we find today. People paid all of their costs, no copays, no insurance in the general population. As a result, they watched were their money was going. They would ask up front what it would cost to see the doctor. Doctors had small staffs, they didn't need people to process claims. With lower overhead, came lower costs. Am I suggesting we go back to 1925? No Way! I like the idea of medicine making our lives longer and healthier. But can we learn from then? Absolutely!
One vehicle, currently available, is the HSA account. HSA has a high deductible policy of around $5000 per year. That means, you have to pay the first $5000. Anything over than is covered by insurance. At the same time, there is an attached savings account that works much like an IRA. It is money you put in an interest earning account, before taxes. If you need it, it is there, if not it rolls over until you need it, or you hit retirement. So it is to your advantage to watch costs, and limit frivolous trips to the doctor. You control it, you determine what is right. You do not lose that money, just the premiums on the policy, which because of their high deductible is relatively small. It saves taxes, it helps savings rates, and it helps health care costs. Would you buy a gallon of milk for $35? Milk, which has been mostly pure market on the consumer side is virtually unchanged since 1925, when adjusted for inflation. (If milk rose as much as health care, it would be about $3000 a gallon).
Imagine if we could get costs under control, use market forces to make them lower. Would not that be affordable health care reform?
Spend Wisely!
