James Stotter

Imagine using auto or home owners insurance the way we use our health insurance. Disaster! Those premiums would be ridiculous. Home and auto policies are designed to cover expensive, unexpected incidents. On the other hand, we use health “insurance” to pre- and co-pay for goods and services that are consumed regularly and which collectively make-up what we call healthcare. In the current system, health insurance is not true insurance as it is with cars, businesses, and homes. With healthcare accounting for approximately 15 percent of our over 15 Trillion dollar GDP, it is no wonder our so-called health insurance premiums are so high!

The insurance industry is a controlling force in the American economy.  Health insurance was instituted to protect a person’s assets from the unexpected financial burden of catastrophic illness.  In today’s environment, health insurers have evolved into enormous lucrative and philanthropic machines fueled by the wallets of the American public. Insurance companies donate huge sums to hospitals, schools, and civic organizations. Sure, the public benefits, sometimes a lot. The companies gain goodwill, which they need to help mitigate their exorbitant premiums that fund very pricey advertising gimmicks like naming rights**.  Is that what we want to pay for?

Why not do away with healthcare insurance as it now exists? More accurately, can we go back to healthcare insurance as it existed prior to Medicare? That would make healthcare policies true insurance, to protect us against the occasional major expenses. Then, third-party insurers would not interfere with the direct market transactions that comprise the whole of what is called healthcare. We would pay for upkeep on ourselves the same as we pay for upkeep on our homes and cars-—by shopping around in a competitive market. Then, true emergencies would be covered, and there would be EMS just as there are roadside services, except EMS would probably remain public.

Customers, now known as patients or “cases,” would then have incentive to ask healthcare retailers, now known by the godly name of “providers,” about prices. This would lead customers to shop around for good deals from hospitals, doctors, nursing homes, and other healthcare facilities. Additionally, requests for less expensive and probably not-as-new treatments would grudgingly become accepted by those selling such goods and services. The point is, sellers would be forced to face price competition and buyers forced to shop for price. The costs of production, that is sellers’ operating costs, would be greatly reduced because of substantially less paperwork and cutting out insurance companies. It is estimated 20 percent of healthcare employees to have nothing to do with healthcare. These employees simply deal with paperwork, primarily from insurance.

Most drug stores (formerly pharmacies) already are general retail stores, and many general retail stores include pharmacies. Such stores understand the process of conveying to manufacturers the message that some products do not sell as well as others. When drug stores reorder, they request less of the products that do not move quickly, which are often the more expensive versions of the products that are reordered. The pharmaceutical companies would soon get the message, as sales of their newer, and often much more expensive medications declined in favor of older, less expensive medicines. Would that discourage innovation?  Probably not. Instead, it would encourage the astute pharmaceutical companies to reconsider the price of the newer medications they want to sell. For their part, buyers (patients) would have to decide on trade-offs such as taking a less costly, older-style medication longer, versus taking a more costly, newer medication for a shorter time. One function of markets is to force both buyers and sellers to make such decisions.   

The present “healthcare system” is not really a system. It is basically a collection of oligopolies:

 1) Relatively few insurers;

 2) Consolidated doctors’ practices;

 3) Hospital conglomerates;

 4) Pharmacies now chain stores; and

 5) Networks of facilities like nursing homes and urgent care centers.

There is nothing wrong with size per sé. However, reduced price competition resulting from substantially fewer suppliers makes wise shopping exceedingly difficult. This is exacerbated by federal regulations describing what must be offered to participate in the profitable, government-mandated Medicare market.

That’s great! Now we have an oligopoly contributing millions of dollars to legislators who write the laws for healthcare regulators to follow. This combination cries out for change. 

A market-based healthcare system should be re-established in one swoop, not incrementally. For example, when some countries have switched from driving on one side of the road to the other side, they did it in one well-publicized moment. Such a change would have major benefits:

1) Freeing up health insurance dollars for other spending;

2) Lower administrative costs for most purveyors of healthcare which competition would convert into lower patient costs;

3) Insurance companies would lower premiums comparable to “true” insurance;

4) Insurance companies could invest elsewhere for profit and the better run companies would find it; and

5) Recalcitrant governments would have less rationalization to intercede and to find excuses to raise taxes.

A market system, such as described above, would give this country a sporting chance of returning to the pre-Medicare days of only two generations ago. That’s when we actually had a first rate healthcare system that functioned much more in accordance with market principles and was approximately five percent of GDP instead of today’s 15 percent.

Unless some of the Obamacare taxes or restrictions start taking effect in time for people to feel it before the election, the view here is that healthcare may be a bigger issue in the 2014 Congressional elections than in the 2012 Presidential election. Americans tend to focus on the here and now rather than what’s coming. If that were otherwise, our national debt would be much lower.

**The following links provide a few examples: