The current debate regarding health insurance and health care is really a discussion over two distinct issues. Health insurance is a risk management product sold by insurance companies, while health care involves medical services provided by hospitals and doctors. This distinction is very important when discussing the reforms proposed by lawmakers, and an examination of the issues surrounding each is important to reform.
Health Insurance
Health insurance is a product sold to those who cannot afford to pay for the service of doctors and hospitals out of their own pocket, and this includes most Americans. While there are various types of health insurance programs, they are all designed to accomplish one important task; to provide the funding necessary to pay for expensive medical treatments that the policyholder would otherwise not be able to afford. The economics of health insurance companies is based on a general insurance concept known as the “law of large numbers”. This means that many people together will pay money to an insurer. Some of them will need to use some of that money at some point, but not everyone will. The insurance company takes a chance that enough people will not need to use the coverage so that they will have enough money from premiums collected from everyone to pay for the medical bills of those who do need to use the insurance. In other words, everyone pools their money so that the sick and injured can get their bills paid. Insurance companies primarily make money from the investment income derived from the premiums. If there is money left over at the end of a year in premiums not used to pay claims, insurers will have what is called an underwriting profit. Insurance companies do not often realize an underwriting profit, especially during down economic times.
Insurance companies use people called actuaries to make a best guess as to what type of customer is more likely to need to use the insurance and health insurance rates are determined from this data. In some cases, those more likely to use the coverage are charged more, and sometimes the costs are spread around to everyone.
Health Care
The cost of medical care in the United States has risen at a rate higher than the growth rate of GDP since 1970, and the trend is expected to continue. There are many causes for this growth including technological advances in medicine, more frequent need for health care as baby-boomers age, and widespread fraud and waste. Many also argue that the high cost of malpractice lawsuits make medical care expensive.
When insurers pay more for health care, it follows that they will charge higher premiums to avoid an underwriting loss.
Reform
The current reform debate involves proposals that will change the way health insurance works, but may also change the way that health care is administered. This has become a very contentious issue as people consider the possibility that government administrators may have control over decisions that their doctors will make. It should be recognized that health insurance companies currently have a significant role in deciding what treatments are covered. With the current system of health insurance however, an appeal process exists that may not be available under a government run program.
Health care is simply too expensive, and that is why health insurance was developed. The problem now is that health insurance is also becoming too expensive for many Americans and that is why lawmakers are working hard on a reform bill to address this issue.
There is plenty of discussion about healthcare reform throughout the country these days. The bills currently under discussion in Washington thee days are over 2000 pages of ‘reforms’. In reality, the main emphasis these ‘reforms’ is who will pay the bill. There are some true reforms around the edges of the bills, but very little of real substance.
Rather than impose a government run healthcare plan on everyone, which many opponents claim will actually increase demand for healthcare (after all it’s ‘free’, right) and subsequently the cost; true reform would emphasize personal responsibility which would reduce demand and cost throughout the healthcare system. The current system which has developed over the years has no responsibility anywhere in the system. The three main players in the healthcare system:
The payer (usually the employer)
The provider (usually a doctor or hospital)
The patient (you)
all have different and opposing interests. Very rarely do all three parties get together in the same room and talk. The payer wants to pay as little as possible, the provider wants to get paid as much as possible for as little as possible, and the patient wants as much care as possible. These interests are diametrically opposed, so there is not much communication between the three factions.
No matter what happens in Washington concerning healthcare, you need to provide for your family’s healthcare One way to make sure that you are able to get the healthcare that you and your family need is through a Health Savings Account (HSA) also known as a Medical Saving Account (MSA) coupled with a high deductible, catastrophic healthcare insurance policy. There are many advantages to having an HSA in your own name:
• You have personal responsibility of your own health
• You can control your healthcare costs
• There is a true incentive to live a healthy lifestyle
• You can visit the providers that you want to visit
• The account is funded through tax advantaged dollars
• Your employer can contribute to the account
Here’s an example of how an HSA works:
You set-up an HSA through a ‘qualified’ trustee/custodian. These are banks, credit unions, or other entities set-up to handle an HSA. You must purchase a High Deductible Health Plan (HDHP) in conjunction with the HSA. Generally, these plans are much less costly than traditional insurance plans. The money you save on premiums may be enough to fund the HSA portion of the plan, which should be in the amount of the deductible of the HDHP. Routine medical costs are paid for through the funds in the HSA. Normal doctor’s visits, prescription drugs, chiropractic visits, licensed acupuncture treatments, massage therapy, and nutritional supplements can all be paid for through an HSA. If the deductible of the HDHP is met, (and the funds in the HSA are exhausted) the insurance portion kicks in to pay for medical expenses. If there is money remaining in the HSA account, that money can be rolled over into the next year, to help fund the next year’s HSA.
There is a true emphasis on preventative healthcare through the availability of alternative car and nutritional supplements paid for with pre-tax dollars. The incentive to staying healthy is real because you are spending to own money on healthcare. Personal responsibility is also emphasized, because you are spending your own money. Any money not spent from the HSA is carried over, and grows tax-free, similar to a self directed IRA. If executed correctly, an HSA can save money and actually provide you with better overall health and the peace of mind that you are covered in the event that you require extensive medical treatment.
Let the battle begin!!
Late on Saturday night, November 21, 2009, the Senate voted to begin debate on a healthcare reform bill. On a strictly party line vote of 60-39 the Senate vote allowed the debate that could change the future of America. The bill is aimed at providing health insurance for the uninsured citizens in America, whether they want healthcare insurance or not. Max Baucus (D-Montana) calls the bill the largest piece of social policy legislation since the great depression
There are many issues that are currently under debate within the 2000 page bill. The different bills that have come out of the different Senate committees contain many points of distinction, that all need to be discussed and voted upon.
The bill passed out of the Senate Health, Labor. Education, and Pensions (HELP) committee is billed as The Affordable Health Choices Act. It calls for the establishment of dozens of new agencies and commissions to regulate and monitor the healthcare of citizens. The non-partisan Congressional Budget Office (CBO) estimates the bill to cost less than $615 billion over 10 years. The bill requires:
- Everyone to obtain health insurance
- Mandates minimal coverage in every policy
- Prohibits denial for pre-existing conditions
- Eliminates annual or life-time caps on benefits
- No changes in existing plans
The bill will pay for the expanded coverage by:
- Fines of $750 per individual who does not comply (There are exceptions)
- Taxes on medical devices
- Savings from switching to medical Intelligent Technology (IT)
- Savings in fraud and abuse
- Promoting preventative care and healthy lifestyles
There are provisions for a ‘public option’ (really a government-run healthcare plan), with the option of states to opt out of the program if they meet certain requirements. The bill aims to make Americans healthier, have better access to healthcare, and to promote better and less costly healthcare to the average American. The bill claims to provide health insurance for up to 94% of all American citizens.
A separate bill was passed out of the Senate Finance committee in a 14-9 party line vote. The CBO estimates its cost at 856 billion over 10 years. The main differences between the Finance committee’s bill and the HELP bill are:
- No mention of a ‘public option’ in the Finance bill
- Tax on ‘Cadillac health insurance plans’
- Ban on federal funds for abortion
The latest polls show a declining support of the healthcare reform bills as they are currently being discussed in Congress. Rasmussen’s latest poll shows only 35% of Americans believe passage of the current healthcare bills would be better than no bill at all. 54% of those polled say no bill would be better than any bill introduced into congress thus far.
The main issues to watch as the bills undergo revisions and amendments are:
- Extent of ‘public option’ funding and opt-out provisions
- Federal funding for abortions
- Cuts in Medicare to pay for the Healthcare plans
- Mandates on minimal insurance policy requirements
- Penalties for not complying with the plan
We will keep you updated on the progress of these bills, any amendments, or revisions as the debate unfolds on Capitol Hill. We will also report on the latest poll numbers as Americans follow this process over the coming weeks.
