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An unhealthy cure

Health-care reform proposal won't solve underlying issue of escalating costs

By Steve Hyde,

Published December 29, 2007 at 12:05 a.m.

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The Colorado Blue Ribbon Commission for Health Care Reform, after soliciting and reviewing health-care reform proposals from numerous organizations, recently approved recommendations that were reported to closely mirror its own "fifth proposal." While this proposal has a number of beneficial features, its major recommendations would do little, if anything, to contain rising health-care costs, while significantly increasing both taxes and the regulatory burden on employers, health-care providers, insurers and consumers.

A big mistake

Some people believe this proposal has a chance of winning approval. But based on my many years working in the health-care field, I think that would be a mistake. A big mistake.

The commission recommends that all legal residents of Colorado be required to have health insurance, with basic plan coverage. But that's like requiring that we all have auto insurance that pays for oil changes and dent repair, but not for a totaled car. The basic benefit plan, with its emphasis on low-cost primary care, anemic hospital coverage ($25,000 maximum) and low maximum total benefits ($50,000), is not so much an insurance product as a prepaid primary care product.

Real insurance is intended for people to pay relatively small amounts into large risk pools to fund major, unpredictable and otherwise unaffordable events. But with acute medical conditions often far exceeding $25,000, the basic plan is anything but catastrophic insurance. People needing it most will be left high and dry, with huge bills to pay.

True high-deductible, catastrophic insurance would be no more expensive than this basic plan, but offer far better, real insurance coverage for the currently uninsured. As a bonus, those so insured would be eligible for significant federal tax benefits via health savings accounts.

The emphasis on primary-care prepayment over acute-care insurance further perpetuates the patronizing but commonly held view that mandating artificially low-cost primary care will cause consumers to seek preventive services and early disease detection, thus saving money overall. However, 30 years of managed care, with just such low-priced primary benefits, have failed to engender such behavior or lead to reductions of most preventable diseases.

Thus, there should be no expectation that the proposed basic plan will result in either improved prevention or lower costs. In fact, the basic plan's incentives are exactly the opposite of those that motivate people to become price-savvy health-care consumers.

Hiding the cost

Fixed-dollar copayments hide the actual prices of health care and insulate members from any knowledge or concern about the true cost of their care. Such payment mechanisms have been a key driver of the double-digit health-care inflation we have seen since the advent of managed care. Far more effective is the use of (1) significant deductibles combined with (2) coinsurance (i.e., percentage-based out-of-pocket payments), (3) contributions to individuals' tax-free HSAs to cover out-of-pocket costs, and (4) information on how to be a price-sensitive consumer.

The proposed basic benefit plan is anti-consumer.

Making the basic plan mandatory is a tacit admission that consumers would not buy it by choice. Nor should they, for the reasons outlined above. It would be better to enact true health-care reforms to allow a purely voluntary system that, properly structured, would enroll more of the uninsured than this mandate likely would.

Nor is it clear how the insurance company side of the commission's proposal would work.

Would existing individual policies be outlawed? Would guaranteed issue be limited to annual open enrollment periods, or could people wait until they're sick enough to adversely select themselves into the program, thus leading to costs and premiums spiraling out of control? Will this drive even more employers into self-insurance, thus further cherry-picking the pool of healthy consumers? How does it prevent an exodus of insurers from the state?

Continuing a flawed system

Setting minimum benefits merely continues and further complicates the current, deeply flawed defined-benefit system of health benefits.

Such approaches have utterly failed to provide consistently high quality health-care at affordable prices to all our citizens. Getting the state out of the benefit-setting business and properly enabling a more market-based solution will allow the use of a more rational defined-contribution approach. That will allow the state to apply its subsidies in a much more precise and targeted manner to aid those most in need of assistance, while relying on market solutions to make health care increasingly affordable.

No matter how low one sets the level of basic benefits, even the most inexpensive plan will eventually become unaffordable if health costs and premiums continue to rise by two to seven times the rate of wage growth. We need reform that will truly contain costs, not just pump more money into the current, dysfunctional system.

There is nothing in the Blue Ribbon Commission's plan that will result in cost containment and much that will exacerbate the problem.

Steve Hyde is the president of Hyde Rx Services Corp., and former CEO of Peak Health Care. He is the author of the book, Prescription Drugs for Half Price or Less, and the forthcoming How I Destroyed American Health Care, And Why We Need To Do It Again. Reach him online at sshyde@hyderx.com.

Comments

  • December 29, 2007

    9:11 a.m.

    Suggest removal

    RS writes:

    The truth is that the resulting state actions for health care "reform" could either help or, more likely, harm the state's economy in dramatic ways. Too strong a restrictions on providers, too large a tax increase on people who already have insurance, etc. could result in an exodus of providers, or taxpayers, or both from Colorado. The focus in the media always seems to be the "800,000 uninsured" with no explanation or analysis of how the number is obtained. Expecting the people already paying for their own insurance, plus significant income taxes, to increase those payments dramatically without a corresponding increase in benefits is simply not realistic. Increasing marginal tax rates on individuals has as much impact on behavior as cutting compensation rates - both impact the bottom line decision to accept a job or continue working excessive amounts of overtime with very low return on the effort. Providing universal health care may mean many workings leaving highly compensated and benefitted employment for less stressful, and less taxed, work that provides less to the states economic engine. Behavior does count and is still the choice of the worker given individual circumstances.

  • December 29, 2007

    10:45 a.m.

    Suggest removal

    BrianSchwartz writes:

    Excellent article, Steve. Don't be surprised if people impugn your motives by claiming, with no evidence, that your positions derive from wanting to increase your company's revenues.

    Thank you for pointing out that what most of us consider to be medical "insurance" is really prepaid medical care. In case you haven't seen it, economist Arnold Kling has written about this in an essay titled "Insulation vs. Insurance" at Cato Unbound. (Google the article title to find it.)

    As I wrote in an article for the Independence Institute: (tinyurl.com/2vaxjv)
    * * * * * *
    A rationale for such compulsory insurance is to make the uninsured "responsible" by not allowing them to shift costs to the insured through higher insurance premiums. To address this, the Commission has proposed $1.1 billion in taxes for subsidized insurance and Medicaid expansion. This will cost $400 per privately-insured Colorado resident. Yet, the Commission's website shows the relevant cost shift from the uninsured to be around $200 million, or just $85 per privately-insured resident.

    Compulsory insurance is unethical regardless of cost. Government should protect us from aggressors, but compulsory insurance is aggression. You'd face fines and ultimately prison for peacefully refusing to purchase politically-defined insurance.

    Politicians love compulsory insurance because lobbyists will throw money at them in hopes of having their services covered. As P.J. O'Rourke observes, "When buying and selling are controlled by legislation, the first things to be bought and sold are legislators."
    * * * * * *
    Also, check out the Colorado group Freedom and Individual Rights in Medicine at WeStandFirm.org.

    Brian (wakalix.com)

  • December 29, 2007

    1:41 p.m.

    Suggest removal

    gary writes:

    My parents never had any health insurance. My grandparents never had any health insurance. I lived for more than 40 years without health insurance. The problem with health care...is...health insurance. Health insurance has caused health care prices to soar and soar. Do some studying and look into the past. Health care was reasonable until "everyone needs health insurance" came along.

    Also...health care is not something that is guranteed to anyone and we do not need socialized health care by our government!!