What happens to the premiums that we send in, to the tune of $2000 annually? They go toward financing three things:
1. Inefficiency. This happens all down the line, from the doctor's offices each of which has a receptionist, a nurse, an accountant and a parking lot to hospitals within the same town who could share a MRI machine but won't.
2. Medical Heroics. Most of our premiums go toward financing medical procedures that have very little justification. We are all quite resigned to the fact that most of us can not afford to drive Ferraris; however, few of us will accept that we can not afford $3 million-dollar surgery.
3. Unexpected Costs. These are the reasons we buy insurance in the first place; when we fracture an arm or break a leg, when we get breast cancer, etc. Part of our premium pays for the likelihood that we will need unexpected medical care.
So, what is my solution to the health-care mess? Modify health insurance. Instead of paying 20% of everybody's health-care costs upto a limit and 100% beyond that, let insurance pay NOTHING upto maybe $10,000 a year. Beyond that, it can pay 95%. How will this solve anything?
Most regular services will have to be paid completely out of patients' pockets. Doctors will then start to compete both on price and on service, just as every other business now does. Medical costs will come down significantly because the customers will be price-sensitive. That is the role that paying nothing upto a limit will play. Of course, that limit can change -- the higher the limit, the lower your premium. You could have a limit of zero and still have lower premiums because of the second rule.
Making patients pay at least 5% of everything they consume will ensure that medical heroics get reduced. You won't find too many parents wanting their newborn being saved at $60million if it turns out that they have to pay $3million. Under the current system, the whole of society pays for that baby. Under the new system, society would still pay -- $57 million; but the $3million that the parents will have to pay may prompt them to think about whether the costs are worth it.
All that these things will do is to make healthcare follow the economic discipline that governs every other business. Unless we get rid of the notion that everyone is entitled to the best care possible, regardless of cost, those costs will keep spiralling up and we, poor sentimental suckers, will continue to pay for our notions.
