In Which I Solve Healthcare

I try not to get into my own politics to much, mostly because (a) I like having a broad audience that isn’t angry at me about something and (b) because by nature I’m uncertain about pretty much everything softer than physical chemistry, which makes political pronouncements tricky.

But, I got to thinking about this problem we have in the US, where (ruling out idiots and assholes), we have two arguably reasonable factions – one group that thinks healthcare would benefit from a market in which prices are known and insurance functions like insurance in other markets*,  and another group that would like a European style socialized system where you’re taken care of regardless of your wealth or condition.

*That is, insurance should insure you against something rare or risky, as opposed to just being a pass into the hospital like it is now.

I like the idea of caring for everyone, but I also think it’d be good if people knew the cost of the care they were getting. People then might make better choices (for example, purchasing generic drugs) that would drive down cost over time. That is, socialization sounds nice, but I can see the value in a market.

So, why couldn’t you come up with a market that worked like this:

1) Once a year on their birthday, each person gets X$ deposited into a personal “healthcare account.” This would be an inverse parabola based on average medical cost per person per year. That is, a typical 1 year old needs more medical care than a typical 20 year old, and a typical 80 year old needs more care than either. So, the money deposited reflects that.

2) The money may *only* be spent for healthcare. There might be some fringe cases on what constitutes healthcare, but this could be managed by using pre-existing certification systems.

3) When people want healthcare, they can buy it with regular dollars or healthcare dollars.

4) Healthcare institutions may trade healthcare dollars for the equivalent amount of dollars. This would stop the healthcare institutions from preferring “real” dollars over the healthcare system.

5) Anyone else can trade healthcare dollars at an agreed upon price with anyone else. Presumably, healthcare dollars would be worth less than regular old dollars, so people in need of more healthcare could buy up healthcare dollars cheaply.

6) In the case of catastrophic health conditions, where extremely expensive care is required, some sort of separate federal insurance system kicks in.

By this means, the system is essentially socialized, but at the point of purchase the buyer is in a market. This incentivizes the purchaser to pick what they actually need. For example, it’s been shown that robotic surgery doesn’t necessarily give better results than conventional surgery, but it certainly costs more. A buyer who has to pay (even in fake healthcare dollars), might be more likely to choose the cheap but effective option.

On the seller side, the one big downside I see is sellers would try to push product onto buyers, which may not be desirable in the case of drugs and surgery. But, this already happens, unfortunately, so it wouldn’t necessarily be worse. Plus, sellers would be obligated to offer the same service at a better price, which might allow individuals to consume more overall, if that’s what they want.

So, that’s my pitch. Probably a terrible idea, but it was kicking around my head, and I’d love to hear your thoughts.

Zach

 

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22 Responses to In Which I Solve Healthcare

  1. Diogo Almeida says:

    If one is able to trade healthcare dollars to regular dollars at a loss, and if healthcare institutions are able to trade the healthcare dollars to dollars at a 1:1 rate, it seems like the chance of having ‘blackmarket trades’ increases a lot, isn’t it? I mean, it’s not difficult to imagine a scenario where someone in an institution finds a way to buy lots of healthcare dollars and then trade them back to dollars with a profit. Besides that, seems like something that could work.

  2. Sam Hardwick says:

    Don’t you see some conflict between

    2) The money may *only* be spent for healthcare.

    and

    5) Anyone else can trade healthcare dollars at an agreed upon price with anyone else.

    ?

    • ZachWeiner says:

      I don’t think it’s a conflict. Just a choice. I can spend 100 healthcare dollars on healtchare are sell it to someone for, say 70$.

      • Pelird says:

        So, you’re giving people 100 $ and you say : “you can pay only health expense with it, or you can have 70 $”.
        I know what people will choose, and it’s not health :/

      • Alan says:

        I can sell someone my healthcare bux for US currency, but not for a sexy hat? How do you police that?

  3. emraistlin says:

    I’m biased, for I’m french, but the whole point of socialized care is that health, being something you cannot work on your own will, and that nearly everyone agrees to the fact that it’s awful to let people with bad health, awful morally, but also as a health matter, for being around unhealthy people doesn’t help you to keep a good health, Is something that anybody deserves, unrelated to her being Lucky and Born in a wealthy family, or being a worker with barely enough money to pay The rent (because being sick won’t help her pay either…)

    Thus The socialised health acre, which doesn’t Works like putting money away for bad Times, but by paying for others, knowing others Will pay if you need it.

    Only problem ? No breaking Bad would ever be thought about in France.

    • Oliver says:

      A practical example regarding France.

      It’s been a dozen years now (more or less 2y) than illegal immigrants are given functional free healthcare. Nothing fancy or “useless”, but the main medical protection is free.

      And whenever a political party goes saying this is a shocking socialist scandal, that “these illegal assholes come to steal our money and our jobs and we’re even paying their medical bills”, the opposite argument comes : letting them get seriously sick would, overall, cost MORE to the country.
      Because there would be massive infections reaching everybody eventually, because seriously sick people would end up in hospitals, unconscious and on the brink of awful conditions, and would be given very expensive emergency survival care without being able to know if they have coverage.
      Because people without medical cover would be (that’s the real Breaking Bad argument) actually turning to crime in actually greater proportions.

      All in all, it’s been calculated over and over, a socialist system covering everyone is less costy for the community.

      Plus, nobody needs a PhD to understand the system, as in Zach’s case.

      The minus side : people tend to become ingrateful and forget how much they’re given without even realizing it.

    • Oliver says:

      (not sure if comments are put on hold or if there has been a bug, pasting again the text that I, for safety, copied)

      A practical example regarding France.

      It’s been a dozen years now (more or less 2y) than illegal immigrants are given functional free healthcare. Nothing fancy or “useless”, but the main medical protection is free.

      And whenever a political party goes saying this is a shocking socialist scandal, that “these illegal assholes come to steal our money and our jobs and we’re even paying their medical bills”, the opposite argument comes : letting them get seriously sick would, overall, cost MORE to the country.
      Because there would be massive infections reaching everybody eventually, because seriously sick people would end up in hospitals, unconscious and on the brink of awful conditions, and would be given very expensive emergency survival care without being able to know if they have coverage.
      Because people without medical cover would be (that’s the real Breaking Bad argument) actually turning to crime in actually greater proportions.

      All in all, it’s been calculated over and over, a socialist system covering everyone is less costy for the community.

      Plus, nobody needs a PhD to understand the system, as in Zach’s case.

      The minus side : people tend to become ingrateful and forget how much they’re given without even realizing it.

  4. Dave Fried says:

    Won’t work, for a few reasons. I’ll try to break it down as best I can, but I’m not a policy expert.

    First, the problem with health care is not catastrophic coverage, unless you count “catastrophic” as anything over a few hundred dollars. The vast majority of people can’t absorb the retail cost of a basic procedure like an MRI into their normal budget, never mind an emergency surgery. So what you’d end up with would be a bunch of people falling into the “donut hole” between subsidized coverage and catastrophic coverage, and we’d have mostly the same issues with medical debt as we have now.

    Second, this approach ignores preventive medicine. Preventive medicine – and in general, regular doctor visits – cut long-term health costs, but they cost money in the short term. People are not good at managing risk in these types of situations, and you will have people who expect to have medical expenses in the future forgoing necessary preventive care in the short term because they’re afraid of running out of subsidized health care $$.

    Third – and this I think is the most insidious thing – by creating a market for health care $$, and with our serious problem of poverty in this country, you will inevitably see the poor trading away their health care dollars at a fraction of their actual value in exchange for real dollars they can spend on food, fuel, heat, and housing, thus defeating the purpose of the system for the very people that could benefit the most from it.

    I would actually argue that both single-payer and the private-insurance-backed system implemented by the ACA (and already in use in countries Germany and Austria) are superior to what you’ve proposed. Single-payer, though it contains potential for waste, can see its performance improved through education (health education should be part of all K-12 curriculum anyway).

    The insurance marketplace set up by the ACA establishes standard products and creates functioning (if heavily regulated) markets at both the insurance purchasing level and the medical services level, since it gives insurance companies a much stronger bargaining position with providers but at the same time prevents them from skimming extra profit off the top.

    There’s one more point we’re not really looking at here, and that’s the cost of medical education. One of the reasons medical services are so expensive (and by far not the only reason, but definitely up there in importance) is that even doctors starting their careers need to make a crap ton of money to be able to pay off their quarter-to-half-million dollar student loan debt. For my wife, who is at the low end of the medical student debt scale, that will still be over two thousand dollars a month – more than a lot of normal people even take home in a month! Many other countries subsidize medical education; we’re one of the few places that doesn’t. I think that also needs to change.

    • Alex Roederer says:

      I was going to write a comment, but its contents would have been virtually identical to this post. Your proposed system is worse than both socialized medicine and an ACA style insurance marketplace for the reasons outlined above. All that would happen is people would exchange their healthcare bucks for cash, hospitals would buy up all the healthcare bucks and cash them out for a profit, and people would continue going to the emergency room for care.

      Additionally, it does nothing to address the extremely high cost of medicine in the US. If you look at what hospitals across the US charge for, say, an MRI, not only is it much higher than the cost in other countries, but it varies wildly based on what hospital you happen to go to. This wouldn’t be a problem in a normal marketplace, as you could just shop around to find the cheapest product, but healthcare suffers from two problems: prices are not public (chargemasters are usually kept secret), and in healthcare, service is often rendered BEFORE prices are negotiated (since I’m not in a great place to negotiate if I’m bleeding or sick or dying.)

  5. Brian says:

    The first thing that comes to mind is a potential parallel with the “credit card premium effect”, where consumers appear to be willing to pay more with credit cards vs cash (potentially– linked two studies about this below. I’m not too keen on the reliance on priming and games here when they could be looking at actual spending patterns over time. But that’s just me).

    So this seems to challenge the idea that folks would be frugal with their AmericaHealthBux™, as that currency might be equally divorced from cash as credit cards, or perhaps even more so (assuming that it’s the abstraction/distance that causes the effect). If that’s the case, people would probably end up being more wasteful with this system. Although you could say that other aspects (perceived scarcity of or demand for AmericaHealthBux™) could have the opposite effect by making people more frugal, and “balance” it all out.

    Prelec & Simester (2001) “Always leave home without it” in Marketing Letters
    http://web.mit.edu/simester/Public/Papers/Alwaysleavehome.pdf

    Chatterjee & Rose (2011) “Do payment mechanisms change the way consumers perceive products?” in the Journal of Consumer Research
    http://www.jcr-admin.org/files/pressPDFs/111411131134_chatterjee–article.pdf

  6. You’re idea can’t work.

    When a insurance company sell a product, they have a lot of clients, so lucky people pay for unlucky people. That’s the law of large numbers : http://en.wikipedia.org/wiki/Law_of_large_numbers

    Your system does’nt solve anything because people who need heavy medical treatments still have to pay a lot of money.

    This is why in some countries, like France (I talk about what I know), there is a compulsory medical insurance (also called the social security).
    In this system, healthy people pay for ill people because nobody can get out of the system (at least when they work in France).

    But your idea show the main difference between english (and american) and french point of view about insurance :
    The english point of view is based on liberty : if you have an accident, you will have money, and you spent it as you want, even on cars, hookers, …
    In France, we think that people are dumb and wouldn’t spent money on health expense. So, if you have an accident, the insurance will pay for every health expense (hospital, drugs, … ) and, if you can’t work anymore, you’ll get annuities.

    Well, i did a – little – digression, but I hope you’ll understand. It’s not easy to explain properly insurance.

    • phanmo says:

      @just an actuary
      Just a little correction…
      You’re making the same mistake that many other French people do; confusing the US with the rest of the English-speaking world. As far as I know, the US is the ONLY (developed) English-speaking country that DOESN’T have some form of national health-care system covering everyone (or at least citizens).

      When I moved to France eight years ago, I was relatively shocked to find out that France doesn’t have a single payer system. Now I can see some of the advantages (and disadvantages) of having a two-tiered system (public and private) but as a Canadian I was taken aback to be asked to pay for medical care with money.

    • phanmo says:

      Not sure if my previous post went through…

      After a little more reading, I found out that the French health-care system was inspired by the British system, changed slightly due to lobbying from more well-off professionals.

  7. JJ says:

    I live in one of those countries with “socialized healthcare” and it’s not at all the way you think. First of all, you can’t use the healthcare system at will and expend its funds however you want. In general, only specific medicines are covered (partly if you’re not retired or in full if you are) and if there exists a generic brand for the specific drug, you get coverage only for the generic. So, no waste in much more expensive but equally effective drugs.

    Second, we DO have a health insurance market. The only difference with yours is that our private health insurance policies are way cheaper than yours (30€/month for general coverage and 50€/month with dental). Why? You might ask. Well, turns out private companies also benefit from a public health system. Our government put out to tender who gets to sell us their treatments, medical machinery and supplies, that’s a great deal of money (A LOT of hospitals and health centers), and the contract goes to those who make the lowest offer. The competence lowers the prices and private hospitals and insurance companies benefit from those lower prices (to a point).

    To sum up: we pay cheaper private insurances and if we need major surgery or contract a chronic disease, we are covered. Heart surgery? Covered. Cancer treatment? Covered. And nobody has to go bankrupt because of a heart attack or a liver transplant (nor face unavoidable death). There’s a lesson to learn somewhere in the first season of Breaking Bad :-P

    And if you’re wondering, we spend less that 2% of our national budget in public healthcare and we’re in the top ten according to WHO (USA is 38, being number 1 in expenditure). Your healthcare system is broken and you have to accept that fact. I’m not even saying that ACA is the answer, but you have to do something because it’s not working. You have the lowest life expectancy in the civilized world. Do something, seriously.

  8. Some Hong Konger says:

    For those who say this idea can’t work, Singapore has a system like this and it works. What is required is price controls and a rather heavy government.

    Does it work in keeping costs down and people healthy? Yes. Would it work in the US? That’s the real question.

  9. notfake says:

    Any system that complicated will ultimately screw over the people who don’t have the time or education to exploit that system, because those with the time and education will exploit that system. Your proposed system is too complex.

    What’s the problem with saying: “a basic concept in human decency is that no one should profit from others being sick”. This is why ALL health care should be undertaken by the government (i.e. people who do not profit from the activity). If your so-called “socialized” health care involves drug companies making billions of dollars, you’re doing it wrong. Those drug companies should also be socialized to not exploit human suffering. Hospitals should not be private, hospices, mental institutions, prisons, etc should not be private. Profiting from human suffering (even a flu!) is basically evil.

    We (especially you in the US) currently live in a world where the status quo is so right-ring and privatized that suggesting a semi-private health system actually sounds reasonable to you. This is madness, please come back to a world where profiting from suffering is not acceptable.

  10. Lizard says:

    This mirrors things I’ve said. The key issue is that “insurance”, as the article notes, is misnamed. I don’t have car insurance to cover my monthly, regularly scheduled, car accidents. I don’t have fire insurance because I’m virtually certain I’ll have a small fire or two once a year, and a major fire exceedingly probable every 2 or 3 years. (And it’s not considered cruel or inhumane if a fire insurer noted I had had four prior homes burn down under Mysterious Circumstances, and decided I wasn’t going to get covered for number five.)

    But I instantly see one flaw with this proposal: The poor, healthy at a given moment, will be well-tempted to sell their healthcare dollars to the rich (at a discount), and then have nothing when they need it. (This already occurs with other forms of pseudo-cash; it is very easy to buy someone’s food debit card for well under the value of it, because the seller wants the cash more than they want the food. This is criminal, of course, but hard to enforce, as both buyer and seller are consenting partners who have limited motive to turn each other in, and the places which take such debit cards are not strongly motivated to check IDs.)

  11. Sergio says:

    People will never be able to tell from what is important and what it is not. We will choose to spend the money in a fancy doctor or in something stupid like homeopathy. So letting users/customers/patients choose in which to spend the money will result on a waste of money.

    The government needs to decide what treatments are useful and in which specific conditions, the quality of the care depending on the amount of money we decide to spend as a society.

    The free market works well for fun things like ipads and restaurants.

  12. liz says:

    i am not fun of the consept of insurange of anything. even there were not any profit or operational costs, people who make very reasonable choices; like for health, tests for baby during pregnancy, main preventable tests which are not immediate so prices can be checked beforehand, careful about weight, some exercise, no drug or alcohol abuse and protected long term sexual relationships; are almost certainly punished and wrong choices are rewared. in addition noone mentioned what government restrictions would be to decrease costs like interrupting what we choose to eat (% 100 security sounds like an excuse what government says to put surveilance everywhere. ) results of this is not only the direct costs of wrong choices but more general, like not giving freedom in educational choices because some might waste their time not studying. i am not sure about insurange history but it seems that are created by finance industry for fees not for the public.

  13. Sara Klips says:

    For people with chronic illness, insurance is a lifesaver. There are many highly intelligent and functional adults contributing to society in novel and valuable ways who could never afford care at even 70% cost. We rely on insurance to keep us relatively invisible and functional because even the medication (not to mention the constant medical appointments) would be way too much for even the high-income individuals.

  14. liz says:

    it should not be assumed that people will be spending same income when government not involved. imagine we take care of weird so called nonprofits by forcing nonprofits be actual nonprofit. we lift restrictions of supply as much as techinically possible like accept immigrant professional licences here, open up professional education by putting memorized texts online and formal training for much less time after passing that. increase internships’ place in education. instead of weird political debate about how much rich people’s taxes should increase, we tax heavily stupid spendings they do easily. increase incentives to save for everyone. police labor not wasted for drugs, underage drinking, prostition, illegal immigrants etc. people take care of health by mostly reasonable preventive choices. people take care of expenses of their children by “expected” reasonable reproduction and education by using online resources, forums, good books not 100 dolar waste of paper, meetings with similar interest students and mentoring, fraction of the cost today by eliminating babysitting whole day. no putting our nose in foreign countries business. how would be federal and state budgets would be and how much the taxes would be.

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