Wednesday, October 17, 2012

Creating a Viable MS&L

Once again, during the Presidential Debate, Mitt Romney reiterated that his position on health care is to force everyone to buy insurance. In Romney's plan the mandates are at the state level instead of the Federal level. Other than that RomneyCare is identical to ObamaCare.

The health care debate is premised on the false assumption that the only way to fund health care is with group pools (insurance or socialism) and that challenge for government is to figure out how to force everyone into the pool.

I contend that the problem in health care is the use of group funding for individual consumption and that the solution is to create a viable alternative to insurance, which I've done.

What I need now is for a small group of free market thinkers to engage in a peer review process help creating a finalized accepted version of the program. With intense peer review, the plan can be presented as a recognized viable alternative.

I gave my project the campy name "Medical Savings and Loan." I developed this program in the 1980s, prior to the current HSA/HDP program of the Bush Administration. At the time people used the term "medical savings account."

The MS&L is different from an HSA/HDP program. The HSA/HDP is simply a high deductible policy with a savings account attached. It is still an insurance policy. The Medical Savings and Loan is built from the ground up  around the savings account.

My program starts with the claim that the problem in modern health care is the use of group funding of individual consumption, which creates inequity and distortions. The solution is to restore the concept of individually funded care.

The program starts with the statement: "Those who can self fund their care should."

Those who can self fund are expected to directly pay their expenses. We will then create a well funded system of grants for those who can't.

The first step is to separate those who can self fund their care from those who can't. To do this we will perform a full lifecycle analysis of individual. Imagine that we looked at a large random population and compared their lifetime medical expenses to income. If a person had lifetime earnings of $1,000,000 and had $150,000 in medical expenses, their ratio of expense to income is 0.15. If a person had earnings of $100,000.00 and $300,000.00 in medical expenses, the ratio is 3.00.

The first person could easily self fund care. The second person cannot.

If we graphed these ratios from low to high, we'd see some sort of hyperbolic curve similar to the following: Health agencies report that the US currently spends some 17% to 19% of the GDP on health care. The hyperbolic curve will have two legs with most people consuming less than average with a small number of people experience health expenses multiple times their earnings.

The graph of expenses to income shows that most people can afford to self fund care. A small number of people need supplements.

Policymakers in health care tend to start by looking at the people who cannot fund care and then makes the mistake of muddling the health care of everybody to pay for the care of a few.

The Medical Savings and Loan starts with the observation that, if everyone who could self fund care did so; the public policy issue would be much smaller and could be handled through private grants.

To help those who can self fund care, the Medical Savings and Loan creates a system of savings accounts with a loan reserve carved from the savings.

The program sets aside a massive amount of money to supplement care for those who cannot self fund their care. We would determine the amount to set aside by the real world experience of the population.

Imagine that we looked at a population that had an expected $10B in health expenses. Our analysis showed that $7B of the expenses could be self funded, while $3B of the expenses could not be self funded. Mitt Romney's health plan would want an insurance company to take $10B plus 10% profit from the group to fund health care. The MS&L would let the workers keep the $7B in savings account and hold aside $3B  for the grants.

Administering grants is less expensive than administering insurance. The key element of insurance is that people have a legal claim against the pool. This involves expensive law suits. In contrast a grant agency will hold funds with a legal obligation to dispense the funds. Both programs disperse funds, the grant process is more efficient and more equitable.

Of course the real difference between the Medical Savings and Loan and insurance is that that he MS&L allows people to keep the bulk of their money.

Like insurance, the program is scientifically oriented and data intensive.

For this plan to work there must be a large number of professionals who help people record their income and expense data. So, I created a new position called the Health Care Advocate that replaces the insurance agents, claims adjusters and medical transcriptionists of industrial health care.

Advocates will work one on one with each member of the Medical Savings and Loan to set up record keeping system and maintain records with a document management system. The program will include simulations of expected lifetime health expenses and income projections and will encourage preventive care and fitness. The advocates will help clients set up and maintain a structured savings program to prepare for expenses.

The advocates will be familiar with local health offerings. When a person needs care, the advocates will help clients find care providers and help negotiate expenses.

Payments to providers will be on a fee for service basis, which would eliminate expensive medical billing.

If a client does not have sufficient funds for care, the advocates will have the ability to approve loans.

If a client has health needs that exceed their ability to pay, the advocates will apply for grants.

Note, the grants are based on ratio of health expenses to income. The grant system is structurally means tested. A person with a lifetime income of $500,000 might only be able to self fund $50K in care while a person with a projected income of $10,000,000 would be expected to pay $2,000,000 in care before receiving grants.

If you are rich, you will pretty much be expected to pay for all of your care. It turns out that the rich are the ones that set the trends. If the rich are paying for their care directly, we would see a quick restoration of the pricing mechanism in health care.

A casual reader might notice that this program is substantially more "progressive" than ObamaCare. It lets the middle class keep more of their money and forces the evil rich to pay more for care.

My direct observation in life is that insurance is the primary driver of the growing gap between rich and poor. Insurance takes all of the health care resources of the workers, put the resources in a pool and the people who own the pools get immensely wealth.

A case in point is Warren Buffet. Yes, Mr. Buffet is a great investor, but the real source of Buffet's wealth is that he owns multiple insurance pools and gets a return by investing the pools.

If we replaced a $10B pool with $7B going into the savings accounts and $3B set aside for grants, we would see a break up of the pools which are concentrating wealth.

The Medical Savings and Loan has the same amount of money as insurance. Since people are better with their money than they are with other's, people will be able to buy more and better care.

The primary difference is between the ownership. With insurance and socialism, the resources are owned by a collective. With the Medical Savings and Loan, the resources will be owned by individuals.

Let's end by looking at an individual.

Imagine that a worker earned $40k/year and had a health insurance policy that cost $10k/year. This person's income would be $1,600,000.00 with $400,000 taken to provide care over a 40 year career. (This is not counting the money taken for Medicare).

The Medical Savings and Loan would put the bulk of the $400,000 in the worker's savings plan with a good portion held aside for grants. We might put $300K in the savings plan and hold aside $100 in grants. The worker would then be expected to pay up to say $400k in health expenses before receiving grants.

People who live a healthy lifestyle and who keep their health costs low will be rewarded. People with high health expenses will end up paying a little bit more, but people with extreme health needs will have access to well funded grants.

Now What?

The Medical Savings and Loan is a free market alternative to insurance. The program breaks apart the insurance pools that concentrates wealth and gives people direct control over their health care resources. The program empowers individuals by replace insurance agents with advocates.

I believe that such a program could be used in the fight to restore freedom in America by directly challenging the false assumptions at the base of ObamaCare and RomneyCare.

What is needed at this point is for a brave soul to engage in peer review. After peer review, I would like to set up a legal entity that owns the definition (a DBA is sufficient).

Once there is a peer-reviewed alternative to insurance, it would be possible for patriots to stand against ObamaCare and RomneyCare and argue that pooled insurance is the cause of the problems. Rather than having government force people to buy insurance, we need small businesses to create a self-funded alternative to insurance.

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