Financial Roots
By Dr. Lon Jones, D.O.

THE PROBLEM:

Experts looking at our health care system agree that it is broken. 

• Most of them have some idea on how they wish to fix it. 

• Few of them look at the roots of our problem—how we got here in the first place. 

• We continue to use it and patch it because it is the only health care we have, but it is broken and can’t last forever, and our patches amount to pruning leaves and branches and expecting different fruit. It won't happen. 

Most people are satisfied with their health care because our system is all they see. 

• When we compare our country against others we get a different view. 

• We pay more, as a percentage of our gross domestic product, for health care than any other country (currently pushing 15% with the next advanced country Germany at 10.6%). 

  • Yet in comparison to other countries our life expectancy is dropping; in 1977 we ranked 17^th among developed nations and we are now 24^th.

  • We are not even listed among the top 25 with the lowest infant mortality rates. 

  • Something is wrong. 

The dictum of Lord Acton that "every institution is destroyed in the end by an excess of their first principles" is as appropriate to our health care system as it is to our government. 

• Founded on private payment for services our health care system is rewarded only when people are sick. 

• With the increased use and expense of surgery insurance became a good idea. These expenses were catastrophic and justified insurance.

• But when health insurance became more standard it covered everything, not just the catastrophes.

• This is contrary to sound insurance principles and led to making health care into a commodity.

• Marcia Angell, professor of Medicine at Harvard and past editor of the New England Journal of Medicine, said that this change has been responsible for the deterioration of America's Health Care. (See her editorial  in New York Times, 13 Oct. 2002). 

• When health care is a commodity it's like a car.

  • If insurance paid for our cars we'd all want Caddy's or BMW's.

  • Our health care system is glad to provide their equivalent.

  • Which is why insurance premiums are escalating; someone has to pay for the expensive commodity. 

All this means that the system benefits from a persons illness; the system benefits only when we are sick. There is no reward to the system for an individual's or the public's health.  How the system is paid is one of the roots, or first principles, of our system that is excessive.   

• This is why Brent James M.D., who is in charge of quality insurance at a large health care organization, told Reed Abelson of the NY Times (see his article 5 Dec. 2003) that the "system is perverse. . . . The payments are perverse. It pays us to harm patients, and it punishes us when we don't."  

• Doctors, hospitals, and pharmaceutical and health insurance companies are paid only when people are sick; as long as this is so there is no incentive to improve their health.

The correlation between the passing of Medicare as part of President Johnson's Great Society and the persistent increases in health care expenses is profound. 

• Our health care expenses in 1960 were around 5% of our gross domestic product (GDP). 

• They are now around 15% and rising at roughly four times the rate of inflation. 

• This connection makes clear that a root problem of the expense of health care is how it is paid.

Members of the health care system, hospitals and doctors, are paid on the basis of the severity and the complexity of the patients illness. The more complex and severe the illness or condition the more the system gets paid. 

• The challenge to profit oriented members of the health care family is to maximize what they can get from the system. 

• When the system is gamed like this patients are less important than their conditions and costs skyrocket.

THE PROBLEM AND POLITICS

Politicians are waking up to these problems. 

• Newt Gingrich is a leading Republican policy planner working at the American Enterprise Institute. 

• While commenting on the recent Medicare Drug Bill Mr. Gingrich stated that shifting away from "the failed bureaucratic third-party-payer model" back to a "market-mediated binary-payer model" would be the "single most significant reform that can be made in saving the country from skyrocketing health costs." (Christian Science Monitor 9 Dec. 2003) 

  • I had to read this three times before it sunk in that Mr. Gingrich was advocating doing away with health insurance and going back to paying for it yourself—the "binary-payer model."[It's not often that a politician speaks openly about such radical change so they have to use double talk.]

  •  Fortunately the now available Health Savings Accounts (HSA's) make it so that you don't have to throw out the baby with the bathwater. 

HSA's combine the benefits of a high deductible catastrophic insurance that, in accord with insurance principles, covers catastrophes, together with pre-tax dollars placed in a patient controlled savings account from which the person can pay for the smaller health care costs or use in their retirement. 

• Such programs put the individual back in the position of negotiating for care and thereby looking for the best deal. 

• The system gaming, the current health care standard, would no longer be an option.

• They will be very useful and cost effective for the healthy and wealthy; and , if the South African experience with them is applicable here, they will curtail rising health care costs.

• But they will leave out those in our society who do not have the funding to invest in the 'Ownership Society'; and since there is a strong correlation between poverty and ill health these are the people who will need most of the services.

• But even among the poor, if HSA's are funded and given as an option to those who are not able to afford it on their own, the fact that they have a fund they consider their own, that will be theirs on retirement if it is not used up, is a powerful drive toward responsible choice in health care.

HSA's provide today the best option at dealing with the problems Mr. Gingrich, and many others, see as stemming from the 'failed bureaucratic health insurance programs', but they need added consideration for those below the poverty line.

The democratic side seems to look to the savings of a single party payer as we have experienced with Medicare. 

• While such a system would be more efficient it does nothing to address the commodification that Dr. Angell sees as the main problem.

• Nor would it address the economic forces that have led to gaming the system. Indeed, with a single payer (the government) with a deep pocket, it would act to stimulate the gaming.

The best option may well be a combination of the two ideas. A government controlled HSA, with a variety of options, under Social Security: 

• would include everyone,

• would have the efficiencies of scale, 

• would allow people to control their health care choices, 

• would eliminate abuse of insurance (what insurance people call moral hazard), and 

• would be able to address the inequities of grouping.

  • Grouping by industry or employer means that healthy people are paying for the sicker ones. Since many illnesses are brought on by unhealthy behaviors (smoking, overeating, motorcycle riding without protective gear, etc.) sharing the risk is not equitable.

  • My auto insurance premium went up by 30% when I had two moving violations within 2 years, which reflects risky driving. Should not health insurance be reflective of the risks to health?

  • Insurance reflecting such risks would exert pressure toward a healthy life style, just as my auto insurance exerts pressure on me to be a more observant driver.

More on Medical Savings Accounts is available at the National Center for Policy Analysis