So we talk a lot about the policy costs of different healthcare reform. Personally I have said before that my solution and the solution that makes sense to me is that government can most lower the cost of insurance by deregulating instead of increased regulation. A nationwide marketplace with a single set of regulatory laws would go a long way in reducing the cost of both med-mal for doctors (something I’ll bring up later) and health insurance for individuals. Both through increased competition but also decrease administration costs at insurance companies who spend fortunes on state by state compliance with very complex state specific law and code. Secondly, the federal governments push towards employer purchased healthcare through various incentives and laws like ERISA and the tax code on deductions are a couple of major problems. The employer based health care is a nice idea but it takes the choice of coverage away from individuals and hides the true cost making it difficult for people to make their own choices based on their own needs and often leads to costs for coverage individuals don’t need and often gaps where they would like more coverage leading to a lot of inefficiencies. But the issue with rising costs isn’t just an insurance issue we need to do more than just defeat the big bad insurance companies because remember the doctor bills are what is climbing as well and with rising claims insurance has to go up to cover the costs so there is a medical cost component as well as an insurance market component.
But what else is there in this issue? Well a lot. 1 big concern is why we are here in the first place. I think that government tends to create many of the very problems they debate fixing. For example when we consider why we are in this mess to start with let’s define the mess. The mess is rising cost of healthcare at a rate twice the increase in wages and three times inflation for the most part. So let’s analyze why this is happening.
From a simplistic point of view this problem is a simple supply and demand issue mixed with a high fixed cost problem so let’s address both separately and then perhaps together. The supply demand issue is multi-pronged but can be boiled down to a few simple mistakes.
1.) Medicare and Medicaid. These are great programs but with a rising number of covered individuals not bearing their own costs for medical procedures the demand for medical care increases greatly and has been since the programs where started. I’m not saying they are good or bad, right or wrong, only that they are a major contributor to the problem. What is the solution to that problem, well, when government budgets for programs like this they should consider the externalities which in this case is increased demand and ultimately higher costs to non-Medicare patients competing for limited services and try to compensate in some way such as never inventing government programs of that nature because they are unconstitutional or more simply subsidize supply as part of the budget to increase supply to match the new demand and eliminate that negative effect to everyone else.
2.) Tax incentives. People who want to be doctors have choices to make and our tax system discourages people from going into fields like medicine. Doctors incomes are based on massive initial investments of ¼ - ½ Million dollars in debt and the sacrifice of 8-12 years depending on the level of specialty. That’s years where they could be working earning an income and having a life or starting a family all forgone. When they finally start earning that income it is a high income but our tax system taxes based on income without regard to the investment they initially put in. They might be able to write off the interest on the debt but not the debt or the lost time or the lost enjoyment of their youth. Most doctors start and end their careers in a very high if not the highest tax bracket which means it is naturally less profitable than a job that makes a steady income over a longer period of time such as those initial 10 years that the doctor was in college because when you spread income out you pay a lower percentage in taxes. Also doctors have a short career because involuntary retirement is a real threat. A surgeon for example could have a vision problem, a stroke, tremors in his hands, o even something as simple as a broken wrist or hand that could limit or destroy their ability to continue that career. This leads to an extremely short career. Finally under tax law careers that require 40+ hours a week such as doctors who typically put in over 60 are punished for doing so because once they break certain thresholds they pay higher taxes as a percent of their income because government doesn’t care if you work 30 hours a week or 90 they only look at the paycheck and think people who make more should pay more regardless of the time, effort or investment involved. This discourages people from entering the field and increases prices for 2 reasons. The first is because supply is lower than it should be and so doctors charge more because their time is limited and it’s a market rationing mechanism but secondly doctors have to charge more to make a living plus pay their loans and other expenses with after tax income so a lot of that tax gets passed on to patients in the form of higher medical bills.
3.) Tort Costs. In many states it is almost impossible to sue doctors because they are protected a million different ways to prevent discovery of mistakes. We need to make discover easier and make more openness in the process but we also need to change the law so that doctors don’t face 10 million dollar pain and suffering verdicts. I’m in favor of a comprehensive tort reform to make the process more open but also limit the top side risk to doctors in a way that will bring down the risk of doing business without removing protection from patients.
So let’s look at the real problem. Regulation creates both direct costs and indirect costs while also throwing supply and demand out of wack so isn’t it fair to say that government involvement is mostly responsible for where we are now? I recommend that Medicare and Medicaid make an investment in doctors paying for their school in exchange for services. This helps lower the cost to Medicare because they can require services far greater than the cost of medical tuition in repayment from the doctor while helping the supply side through reducing the upfront risk the potential doctor’s face. There should also be a committee convened to look into making Medicare more efficient and to reward seniors for opting for their own medical coverage in lue of Medicare. We need to lower the administrative costs of state by state regulation while increasing competition by making it a national market instead of a state market and we need to reduce the risk to doctors through smart tort reform. Finally we need to address the inherent disincentive for higher education created by our tax system which punishes people who have a large part of their lives earnings cut into 15 or 20 year careers like doctors, lawyers, researchers and professors just to name a few. There are many ways to do this but the best would be addressing it like a business allowing people who have long education to write off a little of that investment each year like a business would depreciate a building. This lets them spread that cost over their career and makes it less of a disincentive. Also I’m an advocate of setting any progressive tax to be based on hours worked and not annual salary because if I earn twice as much as you because I work twice as many hours as you we should pay the same tax rate. THAT’S EQUITABLE! I can’t imagine an argument that says we both earn $25 an hour but person A works 40 hours and person B works 80 hours so it’s fair that since person B makes twice as much as person A person B should pay 30% of his earnings in taxes and person A should pay 15%... that just sounds like punishing the person who wants to work hard and advance a very un-American idea.
So that’s my 2 bits on how to fix healthcare costs and health insurance costs without taking on more debt and without letting government have say in our health choices. I think it is a win win.
But what else is there in this issue? Well a lot. 1 big concern is why we are here in the first place. I think that government tends to create many of the very problems they debate fixing. For example when we consider why we are in this mess to start with let’s define the mess. The mess is rising cost of healthcare at a rate twice the increase in wages and three times inflation for the most part. So let’s analyze why this is happening.
From a simplistic point of view this problem is a simple supply and demand issue mixed with a high fixed cost problem so let’s address both separately and then perhaps together. The supply demand issue is multi-pronged but can be boiled down to a few simple mistakes.
1.) Medicare and Medicaid. These are great programs but with a rising number of covered individuals not bearing their own costs for medical procedures the demand for medical care increases greatly and has been since the programs where started. I’m not saying they are good or bad, right or wrong, only that they are a major contributor to the problem. What is the solution to that problem, well, when government budgets for programs like this they should consider the externalities which in this case is increased demand and ultimately higher costs to non-Medicare patients competing for limited services and try to compensate in some way such as never inventing government programs of that nature because they are unconstitutional or more simply subsidize supply as part of the budget to increase supply to match the new demand and eliminate that negative effect to everyone else.
2.) Tax incentives. People who want to be doctors have choices to make and our tax system discourages people from going into fields like medicine. Doctors incomes are based on massive initial investments of ¼ - ½ Million dollars in debt and the sacrifice of 8-12 years depending on the level of specialty. That’s years where they could be working earning an income and having a life or starting a family all forgone. When they finally start earning that income it is a high income but our tax system taxes based on income without regard to the investment they initially put in. They might be able to write off the interest on the debt but not the debt or the lost time or the lost enjoyment of their youth. Most doctors start and end their careers in a very high if not the highest tax bracket which means it is naturally less profitable than a job that makes a steady income over a longer period of time such as those initial 10 years that the doctor was in college because when you spread income out you pay a lower percentage in taxes. Also doctors have a short career because involuntary retirement is a real threat. A surgeon for example could have a vision problem, a stroke, tremors in his hands, o even something as simple as a broken wrist or hand that could limit or destroy their ability to continue that career. This leads to an extremely short career. Finally under tax law careers that require 40+ hours a week such as doctors who typically put in over 60 are punished for doing so because once they break certain thresholds they pay higher taxes as a percent of their income because government doesn’t care if you work 30 hours a week or 90 they only look at the paycheck and think people who make more should pay more regardless of the time, effort or investment involved. This discourages people from entering the field and increases prices for 2 reasons. The first is because supply is lower than it should be and so doctors charge more because their time is limited and it’s a market rationing mechanism but secondly doctors have to charge more to make a living plus pay their loans and other expenses with after tax income so a lot of that tax gets passed on to patients in the form of higher medical bills.
3.) Tort Costs. In many states it is almost impossible to sue doctors because they are protected a million different ways to prevent discovery of mistakes. We need to make discover easier and make more openness in the process but we also need to change the law so that doctors don’t face 10 million dollar pain and suffering verdicts. I’m in favor of a comprehensive tort reform to make the process more open but also limit the top side risk to doctors in a way that will bring down the risk of doing business without removing protection from patients.
4.) Illegal Immigrants. Another way to help correct supply and demand as well as overall costs would be to remove the 15 million of those “un-insureds” we have who happen to be illegal aliens or the dependent children of illegal aliens. That would take a huge burden off of our hospitals and lower the costs of services like Neonatal care across the board by a HUGE margin since treating illegals who are pregnant and their children is a major budget item! These are people here against the law who increase demand as well as cost because they have to be given care and they can't pay
So let’s look at the real problem. Regulation creates both direct costs and indirect costs while also throwing supply and demand out of wack so isn’t it fair to say that government involvement is mostly responsible for where we are now? I recommend that Medicare and Medicaid make an investment in doctors paying for their school in exchange for services. This helps lower the cost to Medicare because they can require services far greater than the cost of medical tuition in repayment from the doctor while helping the supply side through reducing the upfront risk the potential doctor’s face. There should also be a committee convened to look into making Medicare more efficient and to reward seniors for opting for their own medical coverage in lue of Medicare. We need to lower the administrative costs of state by state regulation while increasing competition by making it a national market instead of a state market and we need to reduce the risk to doctors through smart tort reform. Finally we need to address the inherent disincentive for higher education created by our tax system which punishes people who have a large part of their lives earnings cut into 15 or 20 year careers like doctors, lawyers, researchers and professors just to name a few. There are many ways to do this but the best would be addressing it like a business allowing people who have long education to write off a little of that investment each year like a business would depreciate a building. This lets them spread that cost over their career and makes it less of a disincentive. Also I’m an advocate of setting any progressive tax to be based on hours worked and not annual salary because if I earn twice as much as you because I work twice as many hours as you we should pay the same tax rate. THAT’S EQUITABLE! I can’t imagine an argument that says we both earn $25 an hour but person A works 40 hours and person B works 80 hours so it’s fair that since person B makes twice as much as person A person B should pay 30% of his earnings in taxes and person A should pay 15%... that just sounds like punishing the person who wants to work hard and advance a very un-American idea.
So that’s my 2 bits on how to fix healthcare costs and health insurance costs without taking on more debt and without letting government have say in our health choices. I think it is a win win.
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