Solving Heath Care Insurance
The US has gotten into a spiral of health insurance spending with
no viable alternatives in sight. As the cost of heath care goes
up the insurance becomes more expensive and covers less of the
cost. In addition large segments of the population are left out
altogether. They are unemployed, underemployed, working for
companies with no plans or in poor health and thus uninsurable.
When these people need health services they either get them from
public sources or charities or do without. This leads to poorer
health, raises the costs of supporting these people and makes
them less able to contribute to a productive society.
Those that have insurance are paying for two different services.
The one that most people notice is the routine, minor or
recurring care. This includes drug maintenance programs for
things like diabetes, HIV or high blood pressure as well as acute
care for non life threatening incidents. This type of care can
cost from hundreds to the low thousands of dollars. It's a lot of
money, but for most people in the middle class does not threaten
their financial stability.
The second service is protection against catastrophic health
events such as heart surgery, cancer or severe trauma. These
events can cost in the tens of thousands of dollars or more. Very
few people can pay for this without financial ruin. It is the
fear of this type of cost which motivates us to buy health
The solution to the insurance problem is to separate these two
cases. If insurance covered only catastrophic events the premiums
would be much lower. The money saved on premiums for routine care
can be applied directly to the payment of those expenses. One
approach would be to set up a quasi-public corporation like
Fannie Mae (Federal National Mortgage Association) to offer
catastrophic coverage. The buying power of a entity like this
would enable the company to negotiate fees and drug prices and
help keep costs down. In addition as a government sponsored
entity it would not be necessary for the company to make a
Another approach is a private, non-profit corporation such as
TIAA (Teachers Insurance and Annuity Association) which provides
retirement plans to college staff and professors. By being
private it would be free to compete with existing insurance plans
and would not be covered by restrictive limitations such as those
in the Medicare drug plan.
Companies could choose to pay the premiums on this catastrophic
plan as a fringe benefit of employment if they wished. Let's
assume that a typical current family plan costs $14,000 per year.
If we assume that catastrophic insurance would be in the range of
$4000 (since the number of incidents expected would be relatively
small) then an average family would have $10,000 per year to
cover routine or moderate expenses. Most families don't typically
have average annual costs of this magnitude so there would be a
net savings for them or their employer.
Costs would be lowered since people paying with their own money
will be more careful shoppers for health services and the
negotiating power of the catastrophic insurance company will help
restrain other expenses. Private, existing insurance companies
would be free to offer competitive plans as well as gap insurance
for the amount before the catastrophic policy applies. Different
thresholds for catastrophic insurance could be offered for
different levels of premiums.
Can this work? Well TIAA has been providing non-profit services
since 1918. It was started with seed money by Andrew Carnegie and
has sustained itself ever since. Perhaps some forward thinking
foundation will follow suit.
Moral: Follow the money
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Copyright © 2004 Robert D Feinman
Feel free to use the ideas, but the words are mine.