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Health care reform: back-to-market basics

Massachusetts has the highest ratio of doctors to patients.  With world-class hospitals, there are people in the Boston area that get exemplary medical care.  Eventually this will change.  Reform is coming; it is only a matter of what will change and by how much.  What will that reform mean for all the area's doctors, and by extension out health care?

This is actually a hard question to answer because there are several versions of reform under debated.  There are four different bills in the House of Representative, another one in the Senate, and the rumor is that soon

President Obama will finally propose his own version of a health care reform bill.  Some specifics about the changes, and who will pay, can finally be debated.  So many competing versions allowed legislators to have both sides of the issue.  Specific ideas could be in one bill but not another, so depending upon whom asks a question the desired answer is available.  The strategy of being vague backfired from the start, however.  Citizens want to know specifics, which are never given.  However, review of the bills themselves reveals some basic principles being the focus of reform.

 The much-maligned public option is in each version of the bill and establishes a federally run national health insurance exchange.  This is supposed to promote competition and keep insurance companies honest, however, government programs do not have to be responsible to investors or remain efficient to earn profits.

Costs are supposed to be controlled does not work in government programs compared to private plans.  Medicaid only pays $0.66 on the dollar for the costs a doctor incurs.  The other $0.34 is shifted to private insurance.  This is a significant source of the year on year rise in health care costs.

Cost control would have to come by federal regulation of health insurance.  But competition is not a piece of office equipment and competition is the best way to control cost.  It is a consideration for business generated by market forces.  Massive subsidies for health insurance and expansion of Medicaid would increase health costs and result in greater dependency on government. 

To expand further upon the government expansion, employer-mandated insurance would also be enacted to cover more people.  It will also set a minimum coverage standard, and the new imposed costs reduce wages.  Massachusetts when it deployed its own universal health care saw a drop in employer coverage.  Either companies dropped their coverage, favoring the state to absorb the costs, laid off workers or, more prevalently, reduced their private health care coverage to match the state minimum.  Lastly, all people would be required to buy health insurance, this is not new to us in Boston, but it would be the first time Congress forced individuals to buy into federal programs whether they want to or not.

But even without these proposals simple changes can dramatically reduce costs.  Next time you are at your doctor, ask about his insurance premiums, the legal ones to combat frivolous lawsuits.  Or try to find out just how many tests are necessary for a diagnosis, and how many are to provide evidence for the doctor if he is sued for malpractice.  Simple tort reform would reduce unnecessary tests faster than government controls.  Start asking questions of all these doctors.  Not just about your personal medical condition but about how that is determined, and paid for.  In addition to legal option of tort reform, an economic perspective can reduce costs.

In business and economics there is the problem of information asymmetry - both sides of a transaction do not know all the relevant information, or even the same information.  This problem holds over in the health care reform debate.  Patients using health insurance do not know how their premiums are spent.  So they cannot make reasonable judgments about the value to their insurance.  Some 80% of people surveyed report liking their insurance coverage, but they only see their coverage.  People cannot see the efficiency of their doctor or their insurance provider.  Regulatory changes making public to insurance customers and prospective insurance customers basic financial information would create competition.

 If consumers were allowed to change health care providers with more frequency and have greater choice of providers, the financial information makes for direct comparison of plans.  Consumers can see what they get and are paying for, how much of their money goes to executive compensation, doctor compensation, staff costs, and test costs, for example.  If a consumer things executives or doctors are being paid too much relative to the care received, they can opt for another plan.  Or consumers can make value judgments of health care providers based upon the allocation of revenues received.  Health care providers would be forced to compete with each other for the insurance income.  This would work similar to a mutual fund releasing a prospectus and annual reports.  The oversight would then be to ensure the provider follows their prospectus.

  With more than enough doctors in the Boston area, consumers benefit from the introduction of market forces and principles into health care.  Medical services will have to be provided at the best price.  Costs cannot be shifted to private health plans.  Health care will have to be more responsive to people not government, or health care providers can start to learn to be economists and realize that only the government can print money.  Patients have to earn their money.