WASHINGTON, April 30, 2017 — The GOP again failed to pass a new health care bill last week. President Trump has said that health care is much more complicated than he thought. There is a very simple reason why the problem seems so complicated and unsolvable and why a reasonable compromise is so difficult.
Conceptually, insurance is a complicated business. From the consumer’s perspective, insurance is purchased to avoid the consequences of a catastrophe. For what seems like a somewhat reasonable monthly fee, the consumer is protected from the potentially very high costs of a catastrophic event. Car insurance, for example, will pay the associated costs of a serious accident. Home owner’s insurance will pay for a house that has burned to the ground.
Insurance companies depend on the enormous statistical databases compiled by their actuaries, data that can predict with uncanny precision how much the company is likely to pay in benefits in any given year, and even to whom. The companies then add in their costs for administrative overhead and profit. In the simplest case of identical policyholders, they would divide that total by the number of policyholders, arriving at the annual premium per policy.
Insurance was originally designed to protect individuals from the ruinous physical and financial results of catastrophic events as well as death. The total costs of the benefits were divided among the participants according to their different levels of risk.
Shouldn’t a solution to America’s healthcare insurance problem follow this logic?
The real reason the solution is so difficult is because policy makers are not working to solve the correct problem.
Congress is working on a health care bill that focuses on lowering health care insurance costs while maintaining or improving the availability of health insurance to all Americans. They want to reduce the cost of health care premiums and keep the deductibles for these policies as low as possible. They also want to help pay for health insurance for low-income earners who otherwise may not be able to afford it.
But the problem is not the cost of healthcare insurance. The problem is the cost of healthcare.
That’s why the legislative solution is proving so difficult. Legislators are simply trying to solve the wrong problem. Nothing has been said by leaders of either party regarding healthcare cost. The focus is always on healthcare insurance cost.
If the focus were changed, there would be a simpler solution to this dilemma. Healthcare costs are rising and there is not enough quality healthcare available to all Americans. Congress can easily solve this problem by taking the same approach that they are taking toward the health care insurance market.
Our leaders have said they want to increase the supply of companies offering insurance in every market. They know that competition always results in lower prices and higher quality products and services. The same approach should be taken when attempting to reduce healthcare cost.
Vastly increasing the supply of physicians and other medical professionals would be one solution to the problem. Today, there are many qualified students who want to attend medical school but can’t due to a lack of space. An investment in increasing the size of medical schools and corresponding internship/residency programs would eventually result in more doctors and more competition. This, in turn, would result in lower prices and higher quality.
There are several other options that can also be explored. For instance, since medical school is so expensive, the government could offer to pay four years of tuition for some students. In return, such students would agree to work for four years at a reduced salary in a clinic providing healthcare services to any American who could not afford to pay for healthcare.
Americans would only need to purchase a catastrophic health insurance policy, as the lower prices and likely direct payments could reduce and eventually eliminate the need for a comprehensive policy. Health savings accounts could be set up. That works simply enough as those who hold such accounts today have already seen.
Let’s say an individual is currently paying $1,000 per month for health insurance. If he or she purchased just a catastrophic policy, the cost could be as low as $300 per month. The individual could then deposit the remaining $700 into a health savings account each month, to be used to pay medical bills. The consumer would then be more sensitive to the price of coverage, using the health savings account judiciously, which also results in lower prices over time.
With all the talk today about inevitably higher prices for medical care, shortages of physician services and complaints about healthcare quality, increasing the supply of doctors and other medical professionals seems like an obvious solution.
It is incomprehensible that this solution is not discussed.