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The Medical Benefit Account: A Free Market Health Care Reform

By Kevin Christner:

No other issue has split American public opinion and invoked more passion on both sides than the debate over health care reform.  The Democrats, for their part, passed a deeply unpopular and by their own admittance very flawed bill.  Politically, they felt the results of doing anything would be better than nothing.  The Republicans, for their part, failed to offer any meaningful alternative.  The one thing that all sides seem to agree on is that the system as it currently exists in fundamentally broken.  Without a radical change insurance costs will continue to spiral out of control, the national debt will increase, and taxes will have to be raised to a level that render the American economy uncompetitive.  

The goal of universal healthcare is both just and necessary.  It is just because in a modern society we have an ethical duty to provide emergency medical care to those in need, regardless of financial means.  It is necessary because the individuals unable to pay create a “free rider” problem.  Service providers must overcharge those with insurance or the government through the Medicaid and Medicare programs to make up the sunk cost of treating individuals without the ability to pay.  An example of these costs are emergency room visits by uninsured individuals with an “emergency” that isn’t serious but they know they will be treated for free.

Advocates of increasing insurance coverage point to the fact that “free rider” costs push up the cost of insurance for those who currently have it.  They argue that insuring more people will drop the cost of insurance and this may very well be true.  The total amount of healthcare spending, however, would not decrease.  Someone still has to pay for the new insurance that pays the service providers.  With everyone insured, you just pass the costs around in a different manner.  In fact when we insure more people the total amount of healthcare spending may actually increase.  All the newly insured individuals could demand services they previously would have gone without because they were unwilling to shoulder the costs themselves.  And therein lies the major problem with health insurance as we know it today.

When individuals are separated from the cost of the choices they make they are not in a position to make educated choices.  Medical technology is advancing at an ever-increasing rate and the costs of this new technology are growing exponentially.  Take an ankle injury for instance.   While a suggestion of ice and rest might have sufficed for an upper ankle sprain twenty years ago, today such an event requires a 3D MRI followed by multiple follow-up visits. In the end, the diagnosis and treatment is the same, except with substantial added costs.  The body itself is a wonderful healing machine.  Its amazing what a little rest can do.  This is just one example of how the medical-industrial complex has just bilked the insurers or the government out of quite a lot of money.  The doctor might order a few extra tests to cover himself from liability, a practice known as defensive medicine.  Since the unfortunate athlete is separated from the thousands of dollars of expenses he just ran up he will continue to return to the doctor who is happy to collect for each visit.

Today we have an insurance system that I would call the dirty patchwork model.  Most working age adults and families receive their health insurance through their employer.  Many lower income individuals are eligible for Medicaid while Medicare covers those over 65.  Those on the left have proposed that the only way to get healthcare spending under control is a single payer model.  In a single payer model the government becomes everyone’s health insurer.  Its a giant version of Medicaid/Medicare.  Because the single payer system still insulates the individual from the cost of the healthcare choices they make, they will tend to consume medical treatments that they would otherwise go without.  To prevent costs from spiraling out of control, medical services must be rationed.

This is the “death panel” concept that was repeated vociferously by health care reform opponents.  There are cancer treatments on the market that cost tens of thousands of dollars a month and might extend someone’s life expectancy a few months.  Should the taxpayer bear the burden of such expenses?  Or do such expenses actually represent a resource misallocation?  Could these funds be redirected to extend the overall populations life quality and expectancy?  These are some of the questions we must address however difficult.

Although not a perfect solution, I propose a model called the “Medical Benefit Account.”  It is best to envision this new system working similarly to the current auto insurance laws.  The foundation of this model is the MBA account through which every person will buy his or her own insurance.  There are several ways that an MBA might be funded.  Employers could be required to make a minimum contribution based on payroll similar to the way they make contributions for Social Security and Medicare today.  This would help alleviate the “free rider” costs that many large corporations that do not offer significant health benefits such as Wal-Mart and McDonald’s place on the system.  When you are negotiating with an employer for a job or a raise, one part of the negotiation would be for the employer to contribute additional funds to the MBA.  Medicaid and Medicare recipients would get similar contributions to an MBA account from the government.  

Each individual would then take their MBA funds and choose an insurance policy that best fits their needs.  Carriers would be required to cover everyone and there would be minimum coverage requirements similar to minimum auto insurance requirements.  At the beginning of each year you could change your policy if you felt another policy better met your needs.  MBA funds could also be used to purchase other forms of insurance such a life, disability, vision, and dental.  When every individual is exposed to the cost of their insurance they are likely to make better use decisions.  Do I really need that $2,000 MRI, or is my upper ankle sprain likely to heal itself?  

If the policy they purchase costs less than the MBA contribution, the remaining funds would stay in the account and could be used to fund out of pocket health care costs or roll over to the next year, similar to current HSAs.  Individuals could accumulate MBA funds over the course of their life that would help cover end of life expenses or they could choose to use some of their MBA funds to purchase long term care insurance.  Any MBA funds left over at the end of life could be willed to another’s MBA account whether it be child, grandchild, sibling, or friend.

Employers would love to be able to use this model.  First off it would help provide employers with some cost certainty.  Secondly it would eliminate certain disparities that currently exist.  For example if you have a married employee with a family one spouse or the other chooses to be covered by their employer’s health insurance.  The “unlucky” employer who has to cover the whole family runs up expenses while the other spouses’ employer has no expense.  In the MBA model families would combine their MBA funds to insurance for the family.

The MBA account reaches the primary goals of each political party.  Democrats would be able to say they had helped insure many more if not all Americans.  Republicans would be able to say that the government was out of the insurance business and unleashed the marketplace on a problem with no easy answers.  Millions of Americans being exposed to the true costs of what they consume is the only way to drive down long-term
health care costs.  The ability to change carriers will create a completive marketplace that will offer a multiple policies that meet individual’s needs.  Lets create a true marketplace where each person can get the health care coverage and services they want and need.  Let’s liberate the healthcare market.

Visit Kevin Christner’s blog

Written by WCPerspective


Buffalo and development junkie currently exiled in California.

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