Fixing Health Care by Michael Makover, M.D.

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Fixing Health Care^©
by Michael E. Makover, MD

The President and Congress are struggling to “fix” managed care and Medicare. It is a hopeless task and any compromise finally achieved will be only a minor stop-gap. Our current health care system is an inherently flawed institution and it is time that we consider a new way to provide health care.

Current health insurance programs simply do not work. They cost too much for increasingly poor care and by every prediction will only get worse. Equally important, it is patronizing and un-American for insurance companies and the government to tell citizens how to take care of their own health. It is presumptuous that business people and government bureaucrats think they can “manage” health care better than those whose lives are directly at stake. In our country, we do not tell people how to vote or how to run their own families. Neither should we invade their privacy nor tell them how to spend their own money on their own health. It is their money, paid in premiums, taxes and salaries that are lower to accommodate their employers’ payment of premiums. Furthermore, it is unethical for people’s health care to be financial investments for distant investors whose goal is personal profit, not the well-being of those receiving care. Neither insurance companies nor the government successfully micromanage health care, yet their efforts to do so erode the vital doctor-patient relationship and invade the privacy of citizens’ most intimate lives. While health costs continue to escalate, quality is declining. Nothing corporations or the government has done has helped the forty-three million Americans, including eleven million children, who have no insurance and the millions of senior citizens who are faced with choosing between rent or food and life-saving expensive medications.

No one is winning except a small group of investors and executives. Patients and doctors are losers, the government is struggling to “save” Medicare, employers are burdened with health costs, and even the insurance companies have discovered that their windfall profits were short-lived.

There are obvious reasons why all this is so. First, it makes no sense for employers to provide health insurance for their employees. Employers should be making cars and computers, not health policy. Health costs should not be a factor affecting the bottom line nor a point of friction between employees and employers. As Holman Jenkins noted in his recent column in the Wall Street Journal, tax policy is misdirected and compounds the problem.

The most important reason all current health insurance is doomed to failure is that it provides benefits. Recipients of benefits want all they can get. In contrast, when people spend their own money, they seek only what they need and can afford. By making health insurance a benefit, we make inevitable a destructive struggle between administrators and planners responsible for the total spending budget and the beneficiaries seeking to maximize their own individual proceeds. The result of this battle is a system so unwieldy that no one can make it work. Health regulations currently exceed 100,000 pages! Twenty-five per cent of health costs go to administration! That is an enormous waste of valuable resources. Most “reforms” favor a one-payer national health insurance. That would only institutionalize and magnify all that is already wrong.

There is a solution. We must scrap the current system entirely and start fresh. The new system would simplify health care to a manageable level. In fact, written into the law would be the requirement that all rules and regulations exceed no more than one hundred pages without any small print. The new system would reduce administrative costs from twenty-five per cent to fifteen percent or less, thus saving at least $117 billion dollars.

All employer-purchased health insurance would be discontinued. Employers would be obligated to raise employee salaries by the exact amount they would save on health insurance. For example, an employee earning $40,000 and receiving health insurance costing $7000 in yearly premiums paid by the employer would now make $47,000 per year with no insurance. There would be no tax loss to the employee because that $7000 would be used tax free for health care. All current insurance would be discontinued, including managed care, Medicare, Medicaid and veterans hospitals. Only the active military would be under a separate program. Veterans would continue to receive all the benefits they so richly deserve, but through the general medical system, where they would get better care.

In the new system, every citizen would have a medical savings account. That is a tax-free account that can be used only for medical purposes. There are enormous advantages to these. Most importantly, it would be people’s own money. They alone would decide how they spent it, what care they received, from any doctor of their choice. No one would invade their privacy. Suddenly, all patients would have a direct interest in spending only for what they need, as cost effectively as possible, because they would be spending their own money. Doctors and hospitals would have to compete for patients realistically, rather than in the artificial way they now do under managed care. Such real market competition would reduce costs and increase quality. The system would provide expert advisors that patients could call or access through the Internet. In most cases, the best technical advisor would be the doctor, but for those patients who had doubts or questions, the advisors would be non-profit, financially disinterested sources who would have no responsibility for health care budgets or other confounding factors.

In the example above, the employee would put $4000 of the $7000 into the MSA. Premiums paid to insurance companies are gone even if the person has a healthy year and no health expenses, but, under this system, unused funds remain in the account accumulating tax free interest for future need or eventual limited withdrawals for personal use.

In a year in which a person is ill and health expenditures exceed the funds in the MSA, then a secondary insurance would kick in. In the example used above, the remaining $3,000 dollars would pay for this insurance. This insurance would simply reimburse for bills, but with major differences from any insurance in the past. It would be a single insurance pool for the entire country, thus reducing costs by the size of the pool and the reduced administrative needs. It would be not only non-profit, but administered by an independent agency run by a commissioner who would be answerable for its actions, in some ways similar to the Federal Reserve Board. This agency would not be limited to a global budget for which everything must be twisted and constrained to fit. Instead, it would make a realistic survey of all services, finding from doctors and hospitals what would be reasonable fees that a majority of doctors would accept. This would become the reimbursable amount, but any doctor could charge more or less (which they might do to attract more patients).

In this insurance, costs would be constrained because, by law, every transaction would involve a large enough co-payment by the patient that the patient would think carefully whether the service was truly needed. Thus, here also, normal market forces would constrain costs, not hopeless external controls or global budgets.

Lastly, the enormous savings in administration and the efficient use of funds would finally permit all Americans to be covered. The agency would supply the funds for those that could not afford all or part of their contributions. Even those patients who pay in nothing would be given an incentive for wise spending by accumulating dividends that would be theirs after a suitable time. The secondary co-payments would be set at an amount high enough to make patients think carefully, but not so high as to discourage necessary care. Those that could not afford those levels of co-payments or the full contributions to their MSA would apply for discount status, documenting their income and liquid resources. Payroll deductions previously paid for Medicare would not be lost but would be paid out to contributors over time proportional to what they would have likely received under the old system.

This approach would limit inflation of health costs and improve quality by introducing competition and market forces, reducing wasted administrative costs, extending coverage to every citizen, ending unethical intrusion on personal privacy and care, freeing employers from an untenable burden and returning us to a health care system where patients and doctors decide sensibly what is best for each individual. That is the American way. What has made us a great nation can make our health care equally great again.

Michael E. Makover, MD is the author of Mismanaged Care: How Corporate Medicine Jeopardizes Your Health (Prometheus Books, 1999). He is a specialist in internal medicine, a faculty member of New York University Medical Center, and is in private practice.