WASHINGTON, March 6, 2014 — The Affordable Care Act cannot survive in its current form. Some argue that it needs to be fixed, while others want it repealed. Either way, the law must be changed. If those who voted for the act had completely read it before voting, they would have seen that this bill was doomed from the start.
Adding 30 million people who can’t afford to pay for their own insurance or health care to the insurance rolls has to drive up medical costs for everyone else. This is especially true when an increase in demand for medical services is not accompanied by a proportionate increase in the supply of doctors and other medical professionals.
Prior to the law, the cost of healthcare for 300 million people was enormous. The costs for 330 million will only be greater.
Polls generally indicate that most Americans do not want this law and many actually fear it. Small businesses are afraid that the increased cost will reduce their profit significantly and may drive them out of business. Young people fear that having to buy insurance that they don’t really need will be a heavy burden on top of their school loans and the lack of opportunity that the president’s economic policies have produced.
Everyone else fears higher taxes from the individual mandate tax, the employer mandate tax, the surtax on investment income, the excise tax on comprehensive insurance plans, the increase in the Medicare payroll tax, the medicine cabinet tax, the HSA withdrawal tax, the cap on spending accounts, the tax on medical device manufacturers, the reduction in medical itemized deductions, the indoor tanning tax, an increase in the excise tax on tobacco, the excise tax on charitable hospitals, the tax on innovative drug companies, the tax on health insurers, and the “black liquor” tax.
There are a total of 21 new or increased taxes.
But the public does seem to raise one very interesting point: While the House of Representatives is trying desperately to repeal Obamacare, they have not suggested any specific replacement plan.
The problems are that: 1) The price of health care is too high and rapidly increasing; and 2) there are not enough reasonably priced services available to cover the needs of the population. As a result, some individuals do not receive sufficient medical services. In other words the price is too high and the quantity too low.
The basic concept for a solution is not that difficult to see. If the price is too high and the quantity too low, we can fix the problem by increasing the supply. This puts downward pressure on price and increases the quantity available. In the market for healthcare services, a better plan is to vastly increase the supply of doctors and other medical professionals. By doing this, there would be more services available to the market. This would add competition, which always results in significant downward pressure on price and vast improvements in the quality of services. When supply increases, prices fall, the quantity available to the market increases and the the quality of the service improves.
There are numerous qualified applicants to medical school for every opening. If we built more medical schools and increased enrollments at existing medical schools, it would take a few years to see the increase in supply reach the market. Once there, the doctors would compete for business by offering lower priced and more efficiently delivered health care services.
If the lower price was still out of reach for some Americans we could simply expand Medicaid or construct clinics. Perhaps we offer a voluntary program to medical students where, instead of them having huge debts from medical school, the taxpayers would cover the medical school cost. In return the new doctors pledge to work in Medicaid type clinics for a four year period at a modest salary.
The other part of the solution would be tort reform. Lawyers are encouraged to seek huge rewards in malpractice cases, primarily because they receive a percentage, often one fourth to one third or more, of the settlement. This encourages large settlements. To cure this we change the way attorney’s bill from a percentage of the award to a multiple of their normal rate. The higher rate recognizes the increased risk to the lawyer of taking a contingency case, even though the risk is not that great since data indicates lawyers win about 90 percent of the contingency cases they represent. In other words, a lawyer agrees to contingency billing only when she is about 90 percent certain of at least some reward.
If their hourly rate were $500 for regular cases, lawyers could charge $1,000 for contingency cases. This would likely reduce the size of the settlements and eliminate the incentive for lawyers to build a huge case.
Repealing the Affordable Care Act is probably the best way to start, perhaps leaving in place those components that the majority of people want.
Then we replace it with a plan that was similar to what we had before ACA with some revisions to recognize special issues like pre-conditions and portability. Next we quickly move to vastly increase the number of doctors and other medical professionals, while instituting tort reform which changes the billing practices of attorneys. For those still not able to purchase health care services, Medicaid or some type of government clinics, staffed by new doctors who use their employment in these clinics to satisfy the cost of medical schools, would be available.
This is a true market based solution.