Health Care Legislation

I am fascinated how the health care bill debate has shifted focus since it was presented in Congress on a take it or leave it basis in August, 2009. As I understand, the reasons for the bill were twofold. First, many Americans (the number is in dispute) does not have health insurance coverage. Second, the amount society pays for health care in America is growing at an alarming rate. The various bills in Congress have one feature in common. They all serve to separate the "who pays" side of the equation from "who receives".

The proponents have recently steered the debate from universal coverage to cost savings. I think the source of public skepticism is centered on the concept that more government involvement in health care will save money. If there has been an instance in history where government administration of anything has been more efficient than private industry, I am not aware of it.

The Obama administration points to the huge administrative burden hospitals and insurance companies operate under as being the major source of potential savings. It's hard to imagine a government can function with less bureaucracy but let's imagine the government can administer its health care contribution with zero overhead. This leaves two avenues for the government to pursue to reduce costs. First they can take business away from insurance companies. The administration stresses their plan will not take away insurance coverage from private industry. So, this is not a direction they plan to exploit. Second, they can reduce the administrative burden on the insurance companies. To see how this may be possible one has to examine the reason the current burdens exist. I don't think insurance companies want to generate miles of paper. They want to be as efficient as possible in order to earn profitable returns. They must be forced to. Why? The simple reason is the current system was formed as a continuous response to the thousands of pages of government regulations and legal judgements that shape the health care landscape. An example is the different forms, standards and practices of different hospitals, doctors and insurance companies. Insurance companies are powerless to improve them. Are you aware that it is illegal for doctors and hospitals to get together to establish best practices to deliver services? Insurance companies similarly are legally prevented from standardizing forms, eligibility requirements, terms of plans, reimbursement policies, developing industry best practices, etc. It seems a lot of excess costs are do to the government being involved in health care.

A simple suggestion to legislators might be to examine existing legal obstacles to efficiency as a path to a more efficient and effective health care system. If government can reduce costs in the existing system by getting out of the way, perhaps the American people will become more receptive to plans to provide insurance coverage to everyone.

Then again, who said insurance is the best way for people to pay for their health care? Speaking for myself, my marginal cost to consume health services is lower than the marginal costs of producing it. From where I stand, insurance coverage increases demand, perhaps beyond what is strictly necessary for good health. Insurance executives can describe the phenomenon of moral hazard that is created when entities take out insurance policies. The best I can do here is offer an example of homeowners insurance. If there is a tree threatening a house the homeowner must pay to have it removed. But, if the tree falls onto the house the insurance company will pay to have the tree removed as well as repair the damage. There is little incentive for the homeowner to mitigate the risk. It is cheaper for the homeowner to wait for the tree to fall. The loss, when it does occur, is borne by all policy holders.

What do you think?

Richard L Ellis, Jr.