OK Wise Guy, What Would YOU Do?

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Expert Perspective by Grahall’s Robert Cirkiel (with quotes from Grahall’s Greg Loehmann)

expert perspective telescopeOK , I’m a wise guy.  I admit it.  Also, I am Grahall’s resident expert on health care reform, or so I thought.  I posed the following question to the Grahall “inteligencia”, and had a specific answer in mind.  The question:   “What’s the difference between approving everyone for a mortgage regardless of their financial health and approving everyone for medical insurance regardless of their physical health?” (Read Robert’s original blog:  “Riddle me this Tax Man”).

Obviously, it was a loaded question.  Coming on the heals of an economic meltdown caused in large measure by the abandonment of sound lending policies in the mortgage world, I wanted to make the point that providing full, unrated health insurance benefits to sick people will have the same disastrous economic outcome as lending mortgage money to people regardless of their credit worthiness.  

I was not anticipating the answer I got from one of Grahall’s economic gurus, Greg Loehmann.  Greg’s response was:

“Major differences are with collateral and loss distributions.  A mortgage lender’s loss is capped both by the nature of a loan and by the existence of the home to back it.   An insurer’s loss can be an uncapped liability.  So as the probability of a serious illness approaches 100% the cost of insurance should converge with the cost of treatment (that’s they way insurer’s would like it at least. this results in denying coverage).  Likewise, given 100% probability of default you won’t get a mortgage.  But generally with any reasonably low probability of default I can still price a loan at a level that will make money for me over a reasonably large number of loans and given that I can also reclaim the home.”

This knocked me off my high horse pretty quickly.  Was Greg saying that the offering of health insurance to sick people would actually have a worse economic consequence than offering a mortgage to a non-credit worthy people? So I asked him and his response was:

“Exactly.  The divergence in how insurance and mortgages are handled is a very natural free market economics outcome.”  

I didn’t understand a word he said but got my answer and left it at that.

For the record, I am in favor of universal coverage, and much of what the administration is proposing, but I do not favor the “everyone gets everything and for the same price” component fearing a resulting economic disaster potentially greater in likelihood and possibly size than the mortgage meltdown and Greg confirmed my fear.  So what do I propose instead?  I’ll answer that below as well as offer my other proposals to ensure the success of a National health care program.  My proposals reflect the fact that I am not bound by political correctness.  That said, I think I solve the major political hurdles and logjams.

1.       Pursue all the cost savings possible in the areas of technology, unnecessary payments, etc.  There is too much inefficiency and redundancy in our current system.  There should be universal claim forms, enrollment forms etc.  All providers should be submitting claims and retaining records electronically. 

2.       The system needs to be integrated so that tests and medical histories can be shared with all providers.  This will enable better care to given sooner and eliminate the need and cost of redundant testing. 

3.       In return for allowing for the creation of a Federal plan, the insurance companies should be allowed to apply medical underwriting and not be required to accept any and all comers.  I alluded to this earlier.  This will ensure that the Federal plan does not become the predominant plan as many fear and if anything it would become the insurer of last resort.  The insurers would end up with fewer insureds but would shed themselves of the highest risks.  Thus, the insurers would become more profitable (or not) based on their underwriting acumen rather than the number of bodies under contract.  In recent years the analysts have rated the health insurers based on number of bodies under contract so this will represent a new way of thinking but they’ll get the hang of it.  The Feds would be left with the dregs but if the goal is to make sure everyone has full coverage regardless of their health, this would be the fairest way to solve this “social insurance” concern as the cost of providing this safety net would be borne by all.   In any event it would solve the political hurdle that the Federal plan currently creates.

4.       Eliminate the incentives for more, more, more. Right now too many parties in interest are rewarded for the amount that is spent.  This includes insurance brokers, providers, and insurance companies.  Pay them based on outcomes instead.  No self respecting engineer would build a system that encourages and rewards waste, inefficiencies, over testing, over treating, and over pricing.

5.       Limit universal coverage to citizens and legal residents.  Illegals would not be covered, or would need to come out of hiding and register for coverage.  Health care would only be given to those carrying an insurance card. Unregistered illegals seeking care would need to pay cash, receive charity care, or send the bill to their home country.  Politically incorrect?  Maybe but solves a number of political problems.  First, what we spend as a country on health care would be reduced significantly. Second, the illegal alien debate would be solved because the illegals would either be identified or would leave.  If this is too harsh for you an alternative would be for illegals to receive care only at teaching hospitals by residents.  This would increase the number of residents and ultimately the number of doctors which could help drive doctors’ fees down.  If more hospitals need to built and more health care professionals need to be added, that smells like economic stimulus to me.

6.       Tie the Federal plan to the plan that covers our Congress.  The idea is that if costs are not managed well and Federal plan loses money as a result, whatever cutbacks are required to balance its budget should be equally applied to the plan that covers our esteemed elected officials.  So, if the Federal plan needs to be cut in half, the Congressional benefits get cut in half too.  Think that will engender fiscal responsibility?  I do.

7.       Make all Americans go for an annual check up.

8.       Encourage the return of indemnity plans.  Until about 15 years ago, this was the predominant form of plan design.  It meant that you could go to any medical provider you want and the plan reimbursed you after a deductible was met and you paid a percentage of the claim, say 20% or 30%.  After you paid out of pocket a certain amount, say $5,000, coverage thereafter was free.  Why do I propose this?  Because the managed care model resulted in the elimination of virtually all of the health insurance market.  Prior to managed care there were over 200 health insurance companies.  Because of the overhead costs related to building and maintaining the managed care platform (in the 80’s CIGNA and AETNA each invested over $2 billion in managed care) there remain only a handful of national health insurance companies and as a result, competition has disappeared. This lack of competition is cited as the major reason for a Federal plan.

That’s my thinking on this for now.  Lower overhead costs.  Integrate care. Interject some competition.  Stop providing free care to illegals. Force some “tough love” on Congress. Get healthy. Interject some more competition.

I’ll have more to say as the bills get released.  In the meantime I expect and encourage vehement disagreement and alternative suggestions so please feel free to fire away by posting comments below!


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  • Bundling episodes of care rather than our current fee for service which encourages overuse and readmissions is going to change everything. As for the illegals quesiton they are already mostly treated by residents at our public hospitals which are teaching hosptals anyway. Linking primary and inpatient for information sharing will be a big part of holding down cost.
    by Thundercap Newman on July 16, 2009 at 10:45 am
  • [...] Robert Cirkiel offered this in his blog Ok Wise Guy What Would you do?: “Lower overhead costs.  Integrate care. Interject some competition.  Stop providing free care [...]

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