Friday, December 29, 2006

WI Healthcare Primer

The Wisconsin Policy Research Institute has a good overview of the coming healthcare reform debate. I think it is important to understand that one major reason for the increasing cost of healthcare is that the historical insurance model began as a means to insure the hospitals and doctors were paid for their services. In other words, from the beginning the focus of third party financing has been on the right of the providers to be paid.

Wisconsin Healthcare Cost Primer (pdf): How did the Wisconsin health care consumer become a passive cog in a very expensive machine? Interestingly, the answer has its roots in the Great Depression when health care consumers were divorced from decisions about spending on their health. Hospitals, hit hard by the Great Depression, rushed to embrace plans for prepaid health care as a way to survive. In 1939 the American Hospital Association began allowing plans that met its standards to use the Blue Cross name and logo. State legislatures agreed not to treat Blue Cross plans as insurance, based on the rationale that they were owned by hospitals. This permitted Blue Cross plans to operate as non-profit corporations, escaping the 2% to 3% premiums generally charged private insurance companies, and exempted them from insurance company reserve requirements.

Worried that the hospitals would expand the Blue Cross concept into physician services, physicians began thinking about their own organization. By 1946 all of the prepaid physician services plans had affiliated and became known as Blue Shield. Since the primary concern of the early Blue Cross and Blue Shield plans was to ensure that hospitals and physicians were paid, the plans covered all costs, and everyone in the same geographic area paid the same price. This encouraged patients and their doctors to use medical care without worrying about costs. …

Two clear choices face those who would shape future U.S. health care policy. Continuing to follow old habits of layered regulation, third party payment, and increasing government control will continue the current cost spiral and the recent deterioration in patient care. To protect a bankrupt Medicare program, government involvement will be extended into every nook and cranny of U.S. medical care. The regulatory overload will end private medicine and encourage those who can afford it to purchase their health care abroad.

The other choice is to deregulate, returning insurance to its traditional role as protection against bankruptcy and promoting savings to pay for the higher health expenses that generally accompany old age. Let consumers spend their own money on health care, free of interference from professors with statistical studies and bureaucrats with specific notions of how people ought to behave. This is the choice that has the potential to stop the cost spiral, lower costs, and provide better health care for all Americans.

Americans can be good value consumers, but the medical community has successfully positioned themselves as deserving to be above market demand because of their special knowledge. Admittedly, medicine has increasingly shifted from a diagnostic to a therapeutic service and pricing should reflect the quality of service, but medicine is still fundamentally a commercial exchange, as opposed to a social entitlement, and consumer market forces need to come back into play.