Status Update

Financially, February was another bust.

The Arizona election really has me down. I am so sick of this game in which we pretend that Conservatives are interested in restoring freedom, when conservatives consistently vote for the stooges of big centralized economics and big government.

I've written to every "Tea Party" and "Libertarian" group I can find in Arizona to see if anyone was interested in hosting a meeting on "Health Freedom" or "Self-Funded Health Care" and have not gotten any firm response; so, I've decided to scrap the idea of a trip and concentrate on the important matter of survival.

What is killing our country is that politicians use freedom in their rhetoric, but systematically favor economic centralization in their actions. Conservatives and "Liberals" are both playing a game that undermines the liberties that the Founders sought to establish.

Dialectics is a game in which politicians take a false dichotomy and shrilly debate thesis/anti-thesis while consolidating power in their grips.

The false dichotomy of health care is: Who should own the group pool: Big business or big governmentment.

Neither. The individual should be the owner of their body and should be the one to own their health care resources.

Now, the restoration of liberty cannot come through dictates.

To restore liberty, there must be an open dialogue about freedom. People must be engaged in a conversation about themselves.

This "Medical Savings and Loan" project, from the start, has been a call to engage people in this dialogue.

Monologuing cannot solve the problem. I hate the monologues of Rush Limbaugh, Sean Hannity and Glenn Beck. These monologues are part of the problem.

Restoring freedom must come in the form of a dialogue. It cannot come from a single book, a single dictate, or even a product.

I know, I present my idea as a product: "The Medical Savings and Loan."

I chose this name because MSA was a term in widespread use before 2003, and I wanted to emphasize that the HSA included in the MMA Act of 2003 was inadequate to put us back on a path of restored health freedom.

The name is just a gimmick to start a conversation.

My goal for the last four years has been to find a group willing to discuss self-funded health care and to challenge the politicos by saying that the out of control spending in health care is a direct result of the use of group funding for individual consumption.

Oddly, neither the tax free savings account nor the interest free loans are fundamental to my real argument. The foundation of my argument is self-ownership and property rights.

Property means "say-so." Property rights means that you have say so over your health care and you have say-so over the resources you build to provide that care.

You cannot sell the risk associated with your body without losing the say-so over your body.

Group funding of individual consumption leads to corruption (the tragedy of the commons) even when the group is owned by a corporation.

My hope was that the name "Medical Savings and Loan" would be catchy enough to grab peoples attention and help start the conversation and that the name for the effort would change before going public with the conversation.

It is possible that I was wrong on that calculation.

Anyway, I have a program to start a conversation about self-funded health care. I am dead broke. I would either need to borrow money or find a way to generate an income stream to pay for my travel. I have a fundraising gig at the ready.

I would still hit the road if I could find a group willing to debate this concept, but there must be enough people in the group for my fundraiser to raise enough money to pay for the gas and a hotel.

It is devastating to think that in three years of letter writing, tweeting and actively engaging in this health care debate, I've been unable to achieve my goal of a dozen people in a room to discuss self-funded care as an alternative to

Selling Insurance Across State Lines

The Conservative approach to health care reform is as paradoxical as the progressive. Conservatives pound the drum of "States' Rights" but then turn around and advocate buying insurance across state lines.

Before allowing people to buy insurance across state lines, conservatives should ask "why doesn't the market does not already allow this?"

The answer is actually simple:

Insurance is a legal product which is dependent on jurisdiction. In our union of states, the jurisdiction is the state.

Insurance works as follows: People put their health care dollars into a pool. To receive health care they file a law suit against the pool. That lawsuit is under the control of the state courts.

Yes, every single transaction in insurance based health care is a legal claim against a pool. That is why we use the term "claim." Processing of these is controlled by a court system.

Attempts to buy insurance across state lines confuses jurisdiction. Insurance in California might be higher than Arizona. That is because the courts in California load insurance with excess baggage. Attempts to sell insurance over state line is equivalent to selling local legal precedents over state lines.

Yes, big insurance companies love the idea of confused jurisdiction. Big insurance companies will be able to use confused jurisdiction to their advantage. But that is not good for the people who suddenly lose access to the pool their health depends upon and are left with no legal recourse.

Insurance is dependent on the court system. We've been sold an absurd product that makes every single transaction a legal claim. The fact that you can't buy insurance outside your jurisdiction is a symptom of this underlying absurdity.

I favor a different approach to health care. In the medical savings and loan, people build equity for use in their health care. Payments to your doctor are straight cash transactions. Because you are using cash transactions (instead of legal claims) you can use your money anywhere that cash is accepted.

Since the Medical Savings and Loan is just a collection of financial tools and not a legal product there is not the same state line issues involved in the program.

As an investor, I would have the right to invest my health savings anywhere I see fit. Foundations, giving grants from their own money, have a right to use the money as they see fit. It is possible that a foundation could have a contractual obligation to use money in a state. I could start a Utah Charity that demands all funds are used in the Beehive State. This is a contractual obligation added to the product. Such contractual obligations are not inherent in the product.

Insurance is a legal product and dependent on jurisdiction. We know this from the terminology. Every transaction is a legal claim. Since every transaction is a legal claim, people must be in the same jurisdiction as the insurance company.

Conservatives have clearly not thought through the foundations of health care. They yell "states' rights" in one sentence and demand insurance be sold across state lines in the next. This paradoxical thinking will not result in quality health care reform.

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A quick note on the MS&L: In the Medical Savings and Loan, you will have access to a person called a Health Care Advocate. Ideally, the advocate will be an independent agent with whom you have multiple face-to-face meetings. While there will not need to be artificial restrictions on where you invest your money, the program is highly local. The financial tools in the plan could be used across state lines. The heart of the program is intensely local.

FSLIC and Fractional Reserve Lending

My goal is to re-engineer health insurance in a way that would restore the concept of self-financed health care. The two central features of this plan are the Medical Savings Account and the Health Care Advocate.

I chose name name "Medical Savings and Loan" because I chose to supplement the Savings Accounts with a combination of loans and grants instead of high deductible insurace as was done the MMA Act of 2003.

This name brings up a conversation about the collapse of the Savings and Loan System.

The Savings and Loan collapse was a classic equity bubble caused by a fractional reserve lending made worse by Federal backed insurance.

The set up of the Savings and Loan failure was the creation of the FSLIC (Federal Savings and Loan Insurance Corporation) by the National Housing Act of 1934. In case you failed to notice, I highlighted the word "Insurance."

This program sought to spawn a housing boom through fractional lending from the Federal Reserve. It started a classic business cycle. The start of a business cycle is always good times and people loved their savings and loans that lent more than they took in.

The Savings and Loan were on the down side of the boom in the 1970s and the industry was in a state of crisis.

In the 1980s, the boneheads in charged decided to revive the beloved Savings and Loan by deregulating lending.

It is important to remember that the call for deregulation only comes when an industry is in a state of crisis. On the upside of a bubble people praise their regulations. Only the lunatics of the Austrian school of economics scream about regulations in up cycles ... and they are routinely dismissed as lunatics.

Anyway, the savings and loans were on the downside of the business cycle and the boneheads in charge decided to deregulate the lending while keeping the federally backed insurance in tact.

Rogues in the Savings and Loan industry were now free to make risky loans backed by the Federal Government. There was an immediate boom in the construction of houses no-one wanted followed by a bailout.

Fractional reserve lending always creates a business cycle. The social engineers who created the FSLIC thought they could take the edge off the business cycle with insurance. The federally backed insurance actually made things worse. When the market was in crisis on the downside of the cycle, politicos took the bone headed move of deregulating the fractional reserve lending with the insurance in tact making the end of the business cycle worse.

The Medical Savings and Loan does not use fractional reserve lending. Because of the high default rate in medical lending, people would avoid fractional reserve medical lending. The MS&L is a mechanism for unrolling an insurance pool into individual accounts. Although it has a name similar to the Savings and Loan, it is doing the exact opposite of the National Housing Act of 1934.

Health Care: A Right or Responsibility?

The primary difference between the Medical Savings and Loan and insurance has to do with the contracts involved.

With insurance, you sign a contract and pay a premium which gives you a contractual right to health care for a set period.

I realize that the readers of this post understand the difference between a contractual right and a fundamental right. The enemies of freedom are skilled at blurring this distinction. They look at a market and see some people have "a right" to care and others do not and scream unfair!

The health care debate that led to ObamaCare was premised on the false claim that people who do not have a current contract with an insurance company do not have access to health care.

The Medical Savings and Loan is premised on the notion that health care is a responsibility. You own your body and you have a responsibility to save for the care of your body. The Health Care Advocate is a person who helps you understand and fulfill that responsibility.

The program has a lending program. If you borrow money to pay for care, you have a responsibility to repay the loan.

The MS&L issues supplements in the form of grants, but you do not have a right to the grants.

The grants work in the opposite direction. The program puts a large amount of money aside for grants. The grant agencies have a contractual duty to disperse the funds in a fair manner determined by negotiated formulas.

The clients in the program do not have a right to the money.

The grant organizations work much like an insurance company. The Medical Savings and Loan will study the risks associated with a group and use actuarial formulas to determine how much money should be set aside for a group.

The program will have the same amount of money and would distribute the money in much the same fashion as a catastrophic insurnance policy.

The program removes the contractual right inherent in insurance.
I started writing a long involved post about why grants are preferable in health insurance, but decided to cut the argument short to leave you to imagine why a grant organization with the same amount of money as an insurance company would achieve better results than an insurance company ruled by the courts and contractual rights.

To recap: The difference between Insurance and The Medical Savings and Loan is the difference between rights and responsibilities.

In insurance you pay a large premium in return for a contractual right to resources in a pool. With the Medical Savings and Loan, you keep most of the premium money in your savings account and have a responsibility to self-fund your care. Well funded grant agencies have large amounts of cash that they are obligated to distribute to people whose health care expenses fall outside their ability to pay.

The two systems provide the same dollar amount of care. One is uses a complex system of rights the other builds on individual responsibility. People taking responsibility achieve better results than those who game contractual rights.

HCA - Disqus

The Medical Savings and Loan replaces insurance pools with individual medical savings accounts.

This brings up a very interesting question: If a company made this change, how would it affect current positions in insurance.

For example, a Claims Adjuster reviews and adjusts insurance claims. The Medical Savings and Loan uses direct payments from patient to doctor. The role of the claims adjuster will have to change.

People in the Medical Savings and Loan still need the expertise of claims adjuster. The adjuster will move from an authoritarian role to more of an advisor role.

Changing the focus from an insurance pool to individual accounts would change the duties of people working in insurance. I just created a Disqus thread on HCA.me to discuss this interesting transition.

Restoring the Pricing Mechanism

(This post was written in response to Drawbacks of Catastrophic Health by Craig J. Casey)

Health care is the allocation of resources to the care of one's health. Resources include time, material and knowledge.

The pricing mechanism helps with the allocation of resources.

Third party-payer healthcare (insurance and socialism) break the pricing mechanism. This is bad because it adversely affects the allocation of resources in health care which adversely affects health.

To restore the pricing mechanism, reform must accomplish two things.

First, reform needs to get people to think of their current health issue in terms of their whole life. If spending a little effort today saves a big problem later; one should spend the little effort now.

The second, and really big trick, is to create a structure in which the patient sees the current negotiation as being the part of the bill that comes from their pocket.

The Medical Savings and Loan attempts to revive the ideal that people who can self-fund their care should self-fund their care. Most people can self-fund their care. Such people are expected to pay out of their savings. If their savings are short, they have easy access to loans that they are expected to repay.

People who understand that they are responsible for their entire health bill are likely to approach each health care expense as a negotiation.

When people have extraordinary expenses, my program actually does something sneaky. The program either writes off old loans or gives the patients a block grant for care.

If a person has had bad health experience, but has done a good job using resources, the Medical Savings and Loan will subsidize current care by either writing off old debts or giving a block grant. In this way, the patinet will be negotiating new expenses with their own money.

The ideal is that the money is always flowing from the patient to the doctor, and that the patient views the money for the current bill coming from their pocket.

Notable Exceptions

There is an exception to every rule. The first exception to the rule comes in the case when a person is unconscious or otherwise incapable of negotiating prices in which case a third party must step in to negotiate prices.

Likewise, charitable care is an exception. In true charitable care, the charity is providing health care with its own resources. A charity seeks to accomplish as much good as possible with its resources.

The HSA of MMA is High Deductible Insurance

@CraigJCasey asked: "is the MSL essentially an HSA?"

I developed the Medical Savings and Loan in the 1980s. At this time people used the term "Medical Savings Account."

Insurance was based by analyzing the experience of a group over a year. I wanted to create a product based on a full lifecycle analysis of an individual.

I wanted a system where people owned the first x% of their total health care experience. The value of x would be determined by looking at the distribution of medical expenses to income.

Let's say the analysis showed that 95% of people spent less than 18% of their income on health care. I would set the life time ratio of health care expenses at 18%. I would expect all the people living under that percent to self-fund care, and give charitable supplements to people living over that percent.

You could think of it as catastrophic insurance with a lifetime deductible instead of a yearly deductible.

As for Health Savings Accounts. These were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). This program gives tax deductions to a health savings account coupled with high deductible insurance.

I was critical of MMA for the following reasons:

MMA is still a traditional insurance product based on year-over year analysis of a group. I want a system a system based on a full lifecycle analysis of the individual.

The MMA creates perverse incentives that keep people from seeking preventative care. The program fails to provide a mechanism for cutting costs.

People with high deductible insurance develop a mindset where they skimp on care when they are below the deductible. They then splurge when they've passed the deductible.

People with high deductible insurance make decisions based on the cycle of their deductible and not on their health needs. Let's say a patient passed the deductible this year. The patient will try to buy a bunch of extra medical care, hoping that it will last through the next year during which the patient will not seek medical attention.

Insane!

Health Care Providers are intensely aware of who is paying the bill. Care providers are apt to do things like undercharge when a patient is below the deductible and overcharge when the patient is over the deductible.

A health care system is broken when the first words out of the doctor's mouth are: "Let me look at your coverage" when it should be "let me look at your problem."

The high deductible insurance of the MMA has proven problematic for lower income workers living on the margin. You pay the premium but don't have any money left for basic care. When you do have a problem, paying the deductible means that they can't pay the next year's premium.

The MMA is horrible for people with chronic conditions. Let's say you had a condition that cost $5000 a year. A person with a chronic condition has to pay their full premium and full deductible EVERY YEAR!

The MMA does not start to address the problems of tort reform. Pretty much all of the cases involving litigation are above the deductible.

My Plan Is Different!!!

The Medical Savings and Loan is innovative in the following areas: The program is based on a full lifecycle analysis of the individual. People essentially have a lifetime deductible based on their lifetime income. All supplements are based on the percentage of one's health care lifetime expenses to their lifetime income.

The MS&L creates a new position called Health Care Advocate who directly helps people with their spending and savings from dollar one.

The difference between the MMA and MS&L can be seen in the way people react to preventative care.

If a person in the MS&L was shown that a preventative care $x would save them $y later, they would buy the preventive care (assuming $x < $y). A person in the MMA is likely to make the choice based on the deductible thinking they should put off the care until a year when they've reached the deductible and care is free.

Conclusion: The HSA in MMA is really just high deductible insurance. It suffers the flaws of high deductible insurance. The MMA is problematic for the cause of health freedom. People are turned off the concept of self-funded health care because they don't like high deductible insurance.