Tuesday, August 1, 2017

Health Care Liberalization

For the last eight years I've had the goal of attending a meeting about free market health care.

My goal was to find candidates to support.

To my horror, I could not find any conservative candidate or conservative group that was making a strong appeal for real free market reforms.

The conservatives I encountered suffered the illusion that insurance was health care. At best they sought reduced regulations on the insurance industry.

I worked for a state run insurance company writing computer programs to track claims and calculate premiums. I realized that the insurance industry was creating more inequities than it solved. I decided to leave what I considered a morally bankrupt industry.

After leaving insurance, I worked on a little project where I reverse engineered an insurance pool into individual accounts. This simple plan created an account that tracked an individuals income and net savings. It supplemented the account with a loan reserve and grants. It replaced the insurance agents and claims adjusters with a new position called a Health Care Advocate.

The program I created eliminated the inequities that made me leave insurance.

Back to the health care debate.

Unable to find a candidate who was talking about free market health care reform, I decided to host a presentation. This presentation would present the model I used for health care reform. I would then use the model to expose the inequities caused by group insurance.

I put a lot of work into the presentation.

For example, I introduce the concept by creating a business. I chose this path because I want to emphasize that funding health care is a business problem. As it is a business problem we need to think in terms of creating new businesses.

In the presentation, I create a new business. I chose the name "Medical Savings and Loan" to invoke images from the movie "It's a Wonderful Life." In this movie, George Bailey (played by James Stewart) runs a local savings and loan and competes against big finance.

After creating the Medical Savings and Loan, I compare it to the model used for group insurance. I show how group insurance creates inequities and concentrates wealth.

Insurance does something even worse. Insurance takes individual risks. Puts the risks in a huge pool and creates a systemic economic risk.

I highlight this by looking at the collapse of the savings and loan industry. Savings and Loans were insured by a Federal agency called the FSLIC (Federal Savings and Loan Insurance Company).

The Carter Administration sought to stimulate the economy by increasing the interest paid at savings and loans and encouraging savings and loans to take on more risk. Many savings and loans developed absurd portfolios and the FSLIC became untenable.

Reagan tried to address the problem by further deregulation. The federal government program that insurance savings and loans collapsed and wiped out an entire sector of the banking market.

The FSLIC is an example of a Federal insurance program creating systemic risk that wiped out a sector of the economy.

I think the name "Medical Savings and Loan" is adequate for the conversation I wanted to have.

After I talk about the insurance industry. I then talk about using the basic model of the MS&L in social policy.

This is where things get progressive.

The Medical Savings and Loan creates an interesting framework in which one can create income brackets.

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

(A corollary to the statement is those who can't need assistance.)

The program will encourage people to save for their health care.

Lets imagine two people. The first person makes $10,000 a year. We might deem it reasonable that this person saves $1,000 for health care. A second person makes $500,000 a year. This person might save $50,000 or more for care.

(Much, if not all of this money is invested in a loan reserve).

After 10 years, the first person has $10k and the second $500k. These people have a $300,000 health care expense. The first person takes out a loan. I guess the second person could pay in cash.

Repayment of the loan is based on the ability of the person to repay the loan.

The person who made $10k a year sees his income drop to $5k a year. This person can't repay the loan; so we write it off. The second person saw her income drop to $100k after the health problem. This person could pay off the loan.

The program creates a vehicle for means testing medicare. Let's imagine two retires. The first has $100k in assets. The second $10M in assets. They both have $300k of end of life expenses.

The person with $100 can't pay back the whole loan. Maybe the person should payback $50k leaving $50k to heirs.

The person with $10,000,000 in assets could payback $300,000 and still leave heirs with a tidy inheritance.

Note, asking the person with $10,000,000 to pay back a loan for medical services is not a tax. It is the way a free market is supposed to work

NOTE, the formulas created by the Medical Savings and Loan are far more versatile than those used in standard insurance. It is possible to replace the pools used in the current health care system with loans over a period of time.

To recap, the Medical Savings and Loan works as follows. It starts with the statement that those who can self fund their care should. It creates an accounting system that tracks a person's income, net worth and health care expenses. The program creates a loan reserve to assure that people have access to sufficient funds to pay for care at any given time.

The program gives everyone a Health Care Advocate. The advocate will help people find doctors and apply for loans and grants when people need care.

The money in the system flows from individual accounts to the health care provider. People are now paying for their care with their money. They have a knowledgeable advocate to help negotiate bills. This will restore the pricing mechanism in health care and drop prices.

Most people can self fund their care. The program will identify the people who can't self fund care. The loan reserve will write off the loans for people who can't repay their loans (my presentation talks in detail about the grant process).

So, while the Medical Savings and Loan is built around the ideal: "Those who can self fund their care should." It also creates a mechanism that transfers money from the rich and healthy to the poor and sickly.

The program is not about eliminating wealth transfer in health care. What the program does is determine the amount needed to transfer for a good health care system and is more efficient in transferring the money than either insurance or socialism (A reminder: Single Payer Health Care is insurance made totalitarian).

There is a lot more to my health care presentation than this blog post.

The Medical Savings and Loan creates a new mathematical model for funding health care and compares this model to insurance.

The really hard part to convey in my presentation is conveying the versatility of the mew mathematical model. The presentation shows how the model can be implemented as a small business. It ends by showing how basic concepts from the model could be used by policy makers to identify the people who need assistance, how assistance they need and it creates mechanisms for transferring resources to the people who need assistance in an efficient manner.

It is actually an intriguing presentation. I've been hoping for the last several years to find people brave enough to discuss alternatives to the current group insurance market.

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