Tuesday, June 23, 2009

Increase Accountability

With all of the coverage on health care reform right now

1. Seems like of the RCP cover articles today were on Health Care
2. Google News in the last week shows 169,998 results. Mar - Apr Archives show 39,700 results. 3. For those wanting a one-sided view, the WSJ Op-Eds and the NYT Op-Eds have been feeding you a steady diet of their representative viewpoints.

I thought that I would give my two cents on an area that I feel is underrepresented in this argument--choice! I'm not talking about a public option (aka, the "we'll-admit-this-is-socialized-medicine-once-we-crowd-out-the-competition" option. In fact, I'm not going to talk about that at all. Nothing that I've read will actually make the system better... it will just change who is primarily responsible for how bad it is. I can't pretend to have a holistic solution, just an observation on what I think would be a positive improvement.

My major gripe about health care is that it comes through my employer. Now, you can pretend that a private, individual or family plan is available... and you'd even be right... but no one would take one of those for two reasons. 1) My employer subsidizes my coverage when I get it through them and 2) Uncle Sam subsidizes my coverage only if I get coverage through my employer.

I am about to leave my job and thought about getting Cobra. Now, with Cobra you have the right to retain your current health coverage for a period of time... but with one catch. You actually pick up the tab! You pay 100% (in some cases a couple of % more in fees) of the cost of insure yourself medically. Currently, I pay about $300 for a family health insurance. My Cobra bill when I asked HR would have been $1,800/month. I would have to earn $1,800 after-tax to in order to pay for this insurance on the open market, assuming a 25% tax bracket that's $2,400 I would have to earn in order to get the $300 care I get through my employer -- an 87.5% subsidy. This is why you get credit offers in the mail and not offers from Aetna Health insurance.

I don't have a PhD in Economics, but I think you can safely assume that there are two major problems here: 1) bigger companies (with more negotiating power) will be able to have the lowest health insurance costs. Think Costco prices for milk v. 7-11 milk prices. This makes it harder for small companies (you know, the ones that provide job growth not funding my mortgaging your childrens' future for government pensions). Fact: small companies provide more job growth than big companies. The Inc 500 provides more new jobs than the Fortune 500. So, our current tax and health care structure creates a hurdle for small companies.

2) Since it's common industry knowledge that people who have another option wouldn't buy private insurance, there is every incentive for prices to be as high as possible. This is exactly the same as loan sharks. The loan shark you meet at Peppi's Pizza (or worse, pay-day loans) already knows that Capital One wouldn't extend the line of credit on your 24% interest credit card before you come to him asking for money. So, welcome to 250% APR and Joey and Tony coming by to collect. $300 or $2400 for the exact same coverage.

Here is something that I think would be a helpful solution. Portability! Remember when switching your cell phone company meant that you had to switch your cell phone number? It was horrible. They used it as leverage to keep you on their plan. Luckily for Americans, the cell lobby wasn't too well funded compared to the desire for politicians to seem tech-friendly. Unluckily for us, health care is huge and spends a lot of money on lobbying -- over $125 million so far this year.

If health insurance weren't tied to my employer, but to me, then my life would be a lot easier, and people would be competing to provide me the best service. Let me vote with my dollar. Let REAL free markets test prices. Making health insurance portable would help in the following ways:
  1. Less hassle. What if you had to get new car insurance every time you switched jobs. Or a new cell phone numbers. It's just stupid. This is the new economy, jobs are temporary steps for most people now... having permanent long-term health insurance means worse service because I generally have to switch doctors, too.
  2. More accountability 1 - Customer Service! This should have really been number 1. Let's say you have State Farm insurance and you get into a car accident. They nickle and dime the auto body shop, the assessor takes forever to file his paperwork and your car takes forever to get fixed. I know what I'd do. I'd spend 15 minutes and save 15% or more on Geico as soon as the last reimbursement check cleared. I'd also tell of my friends how much State Farm was horrible, I'd blog about it, I'd say something about it in my facebook status, I'd tweet about, and I'd mention in my Annual Family Christmas Letter to friends and family. (two quick notes: a) never had State Farm, no offense intended, and b) I really did save a LOT of cash by switching to Geico -- definitely the cheapest choice for me and in CT). Right now? After I get shafted by hidden fine print on my insurance coverage? Nothing. I have no recourse. My first predicted health insurance improvement - preclearing an operation would get much easier, very quickly.
  3. More accountability 2 - Price Competition! You can switch insurers based upon cost/service/value.
  4. Stop subsidizing big companies with higher costs borne by small business owners. These are the risk takers.

Let's throw up some Cons:

  1. Higher out of pocket costs. True, if the subsidy goes away then costs increase for everyone. Well, everyone actually perceives the increased costs. With the soft labor market, you can certainly make a strong argument that wages wouldn't increase accordingly with firms no longer directly paying health care costs (high unemployment = elasticity, yes!). Here's an idea (which, requires agreeing with McCain) give a huge tax credit to cover health care premiums and/or costs paid for by a payroll tax. That's a form of socialized medicine that gives power to the people!
  2. Mass confusion on switch. People would be very afraid of losing coverage. And possibly rightly so.
  3. More junk mail. Maybe we'll have to throw away Blue Cross Blue Shield letters now along with credit card.
  4. More commercials because they'll have to brand.