Thursday, February 9, 2012

The MS&L from a Global Perspertive

Let's do a thought experiment. Let's take the total income made in America and compare it to total health care expenses.

In my thought experiment, I discovered that Americans spent exactly 10% of their income on health care. Go figure?

The Medical Savings and Loan looks at the lifetime earnings of people and compares it to lifetime health care expenses. This figure will average out somewhere near the magic figure I stated above … 10%.

Because a small number of people have a really high health bill compared to average income, most people would be below the average. The mean will be below the average.

We are likely to find that the first three quartiles of the population under another magic number (say 12%).

The Medical Savings and Loan would have actually actuaries look at the data. After much deliberation, they will boldly proclaim that everyone under a given magic number (say 15%) of their income should self fund their care.

The actuaries will also calculate how much money is needed to provide for the care of the people with extraordinary care. This data will be used to calculate how much money needs to be held aside in grants.

Do you see what the actuaries are doing? They are calculating the amount that people can reasonably be expected to pay. They identify the number of people who have health care costs that they cannot be expected to pay. They will calculate the total short fall.

This short fall is the amount of money that we need set aside for grants.

The short fall will be significantly less than our total health care bill. The short fall is likely to be something like 5% of the total.

Anyway, our team of actuaries works for a solid three months with no breaks studying the data. To everyone's amazement, they discover that the short fall is exactly $500.00 per person.

The salesman for the Medical Savings and Loan would go to a company with exactly 20,000 employees and suggest that they replace their insurance package with one where they give their employees the bulk of their current premium and hold aside say $600 per employee in their grant program (over funding the shortfall). This company would be setting aside $12,000,000 in grants each year. If other companies follow suit, there will be billions available for grants.

The Medical Savings and Loan will tell the employees that they are now responsible for their health care expenses up to the first 15% of their income. In my simple example, A person with an expected lifetime income of $2M would be responsible for the first $300,000 of his care.

The money that was going into insurance is now going into a savings account held by the employee. This would be a massive pay increase for most workers.

The money would go into an account that could only be used for health expenses.

The policyholders would get assigned a health care advocate. The advocate is a financial adviser, but don't tell anyone. The advocate has a computer simulation that shows people their projected health care expenses. The advocate will help people with their structured savings program (which they've been compelled to join by their employer).

The advocate will help policyholders with recordkeeping and help negotiate with health care providers. The policy holders will pay cash for services.

If a person has inadequate funds for preventative or emergency care, the advocate will have the ability secure a loan.

People are expected to repay loans.

If a person has medical expenses that fall outside of their ability to pay, the advocate will then apply for the grants. (You remember the billions of dollars that we held back for grants a short bit ago. The advisers will apply for grants from that over-funded treasure chest.)

The Medical Savings and Loan is a essentially an insurance policy with a lifetime deductible based on a percentage of one's income. The program allows people who can self fund their care accomplish this goal. By helping people self-fund their care, the Medical Savings and Loan identifies those who cannot accomplish this goal.

The program sets aside billions upon billions of dollars to help the people who cannot self their care.

(BTW, the numbers that look like they were made-up, were made up. Every single step of a real program would be driven by real numbers. If I had $10,000 to bet, I would take any bet that the average amount people spend on their health care is not exactly 10% of their income. The actual model I would use in the above program is far more complex than the one in this post that begins with the word "thought experiment.")

Creating a structure that helps people self-fund health care reduces the public policy discussion to only the portion of care that cannot be self-funded.

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