Not Only Possible but Preferable to Anything Put Forward to Date

Say what?  Again?  Universal coverage?  Is Bernie Sanders on to something?  Well, in a way yes, as far as good intentions go.  What will be explored here, is the possibility and preferability of achieving the good intention, not by methods of command and control central planning, but government policy that embraces market forces and trusts individuals, making free choices in their self interest, enticed, even when using the money of others, to act as if it is their own, thus avoiding the proverbial road to hell.

The Inspiration

The policy concept presented here, though original, does not deserve to be called The FreeMktMonkey Solution.  It is the expansion and adaptation of  a seed idea presented in the final chapter of David Hogberg’s 2015 book, Medicare’s Victims: How the US Government’s Largest Health Care Program Harms Patients and Impairs Physicians.  In deference to Hogberg’s brilliantly simple but arguably far too timid, solution to Medicare’s flaws, the idea of conservative universal as a replacement to Obamacare, will be presented as the Hogberg Solution, from which it arises.

Starting Points

1. Just because it’s a policy of the central government does not preclude the possibility of protective legislation that insures and embraces natural forces of voluntary free exchange in the marketplace to achieve desired solutions superior to central control.
2. The market best achieves optimal setting of prices, and allocation of scarce resources through the direct interaction of the seller and the buyer,  not via the seller and a third party agent of the buyer, who will never share the same level of self interest as the buyer directly.
3. A person’s life and immediate need for necessary treatment to maintain and extend it is not the same as losing a car to a crash or a home to a fire, or investment to bad advice of a broker.  It’s a tough position for anyone of compassion, including conservatives to stand for denial of treatment in someone’s moment of need, when life is at stake, due to inability to pay.  Accepting this, is to make a strong argument for an individual mandate, that “shared responsibility payment” thing in Obamacare, as an acknowledgement of the implied responsibility of each individual to accept their part, to the limit of their ability,  to protect their neighbor from the potential to have to pick up after their inability to pay.
4. Medical science has made very rapid advances over the last century.  There are many more treatments, medications and devices available that have drastically improved both quality of life and longevity.  This alone will involve more spending simply because of availability.  It’s sometimes hard to believe that routine use of antibiotics, did not commence until the early 1930s, still about 15 years from being one century ago.
5. While condition of health is clearly within control for most, it is certainly not for all.  Thus the ability, by healthful living, to protect others from an obligation to have to cover one’s own inability to pay for treatment, is limited.  Sudden unexpected disease, injury, or congenital defects can affect anyone.
6. As outlined in what remains a gold standard June 1994 study, by Stan Liebowitz, writing for Cato Institute, Policy Analysis No. 211, Why Healthcare Costs Too Much, central to the mess we have in costs of US healthcare, is overreliance on third party payment.  The illusion of free or almost free, in coverage of what can normally be afforded otherwise, adds significant cost by promoting overuse (that must be baked into premium) along with expense to interact, often combatively, with third party payers, to obtain payments that should be made efficiently, directly, at the discretion and choice of the buyer, in direct dealings that preserve the purity of the doctor-patient relationship.  The Cato study suggests the solution is utilization of the highest level of direct payment possible, by health savings accounts and catastrophic insurance.
7. Only a small percent of healthcare spending is for emergency situations, where there is no time or opportunity to check prices or treatment options, and make informed choices on how to direct resources.  Even this Brown University study that claims previous reports of emergency spending have been far too low, at most estimates emergency spending does not exceed 10% of our total $2.6 trillion.  This argument is often made by those favoring a government single payer system as evidence of why a market in medical treatment cannot exist.
8. In both the Medicare and non government civilian healthcare markets, use is heavily concentrated into a very small percent of the respective populations, with little of that being priced by normal market forces through the direct interaction between the buyer and seller of services.  This argues for insurance or some backstop protection for the big items, even as the vast majority in most years would have no trouble paying their entire bill without it, and over the long haul, most would be better off by banking premium otherwise spent.
9. Only small minorities of buyers need to be active in finding the best deal possible to elicit response from sellers that benefits all market participants.  Hogberg notes this as the concept of “marginal consumers” that drive the market, producing price and quality benefits for the non-marginal majority.  This truth is central to the viability of Hogberg’s solution for Medicare (and its extension to universal).
10. It may not be necessary for buyers to spend their own money to achieve the benefits of the marketplace,  if means can be employed to entice them to spend the money of others as if it was their own, through a system of rewards, that more effectively produces desired results than schemes of central planner bureaucrats.

The Solution

Hogberg comes to the conclusion in Chapter 8, after noting typical failed attempts to get a handle on Medicare spending involve politicians, bureaucrats, and all manner of experts, engaged in elitist planning, at the exclusion of spontaneous order that arises through market forces of individuals freely making choices in their best interest.  He states, “It never seems to occur to them that the best way to align incentives is to let the patient control the money that pays for the care.”  But how to do that in a way that does not promote waste and abuse when it may not be their money?

This is where Hogberg encounters sheer brilliance, that if not so timid with the idea, could have led him to propose an extension of his Medicare Solution pre-Medicare to the entire healthcare sector of our economy, opening the potential to achieve the universal coverage goal of the left in a way that does not make healthcare a right without obligation.

Hogberg’s solution is simple.  Pay the patient, through incentive rewards, to do a better job than various schemes, by CMS, to fix prices, assess quality and value by questionable metrics, determine reimbursement, even direct treatment, all by artificial means far worse than a free market would accomplish on its own.

To do this Hogberg suggests, since we spend all this public money anyway, provide each Medicare beneficiary with 2 annual accounts: a basic account of $5000, and a major medical account of $70,000.  For anything not spent out of the basic account the beneficiary would be paid 10% at the end of the year to use for any purpose whatever.  For anything not spent out of the major medical account 1% would be paid to the beneficiary.

Here is where Hogberg makes a flaw, as he suggests the 1% from the major medical account would only be paid if that account was reached following total depletion of the basic account.  He recognizes the moral hazard of this in producing an incentive to spend out the basic account ($500 max rebate) to get to the $700 max rebate of the major medical account’s 1% rebate.  The obvious way to correct this would be inclusion of both rebates, so the individual who spent nothing in a given year would get $1200, with perhaps only the $500 going to any purpose and the $700 dedicated to an HSA for future medical expenses, also protecting future rebates.

He points out that in 2012 25.7 million of 37.7 million (68%)  Medicare recipients spent <$5,000, and only 3.9million (10%) spent over $25,000, with their average about $57,000; so a $75,000 total account would be more than adequate for most beneficiaries in any given year.  Expenses beyond that could be covered with a private personal $75,000 (or greater) stop loss policy.  This, due to its low cost due to low use, would likely attract widespread voluntary choice, thereby allowing limited government exposure without the need for rationing either by availability or delay.

Hogberg also missed, or was too timid, to entertain a logical extension of his concept pre-Medicare as a solution to the entire national system, unique in all the world, and compatible with extra governmental market solutions being developed and growing rapidly by efforts of pioneers such as Surgery Center of Oklahoma in transparent honest competitively priced surgery or Atlas MD in Wichita KS, leading development of models of Direct Primary Care, both now entering into direct cash relationships with self paying individuals and the approximate 60% of employers who self fund health benefits they provide their employees, bringing competition, quality and value as seen nowhere else.

Indeed, Hogberg’s suggestion of a demonstration project for Medicare, belies his otherwise strong faith in the power of market forces, such that it is Medicare itself that may better serve as the demonstration project to extend his seed idea to the entire healthcare sector of our economy.

Such an extension would also be compatible with the single best reform proposal of any to date that respects freedom, that of Cato’s Michael Cannon, with his 2008 Large Health Savings Accounts concept, or as published here in July 2014,  after noting the failure of Republicans or conservatives, now in almost 8 years following the election of Obama, to develop a plan of their own that doesn’t dictate purchase of a qualifying product to obtain benefits from the government or retain a large proportion of third party payment, the post “GOP Stuck in ACA Replacement ‘Plan Trap’ as Magic Bullet Solution Hides in Plain Sight“, written prior to any knowledge of Cannon’s proposal, but very similar in approach and expected outcomes.

The Hogberg Solution as applied to the whole US system, as presented here, would require modification to Dr Hogberg’s seed concept, but allow market based universal to become a reality that would significantly, instantly create a system of near ubiquitous direct payment.  This is the game changer, as no other proposal to date has suggested such a virtuous possibility exists, and assuming sufficient popularity, could allow for voluntary participation.

Here’s how it would work.  Every participant would be required to pay a percent of all income into a personal health savings account to a limit.  To start, then periodically adjusted for inflation,  this may be 7.5 of all income to a $50,000 balance, then 5% of all income to a balance of $100,000, which would from that point only have to be maintained.  Employers, as enticements, could agree to match employee inputs.  A national tax would be required to cover additional expenditures, but factoring in market induced competitive savings plus elimination of 3rd party payment processing expense, may be little more than total taxes required to fund Medicare and Medicaid currently, and would replace those taxes.

Hogberg’s suggested Medicare accounts would be modified for the universal system.  For working people they would be accessed, only after exhaustion of personal health savings accounts.  One modification would be the creation of three layers of account.  The basic $5,000 with 10% of any unused portion rebated for any use would remain.  Then an intermediate account of $25,000, followed by a $45,000 major account would apply.  Unused portions of these accounts would be rebated at 2% ($500), and 1% ($450) respectively, but not for any use.  These rebates would apply to the personal health savings account, both providing future protection to the public accounts and allowing reaching one’s mandatory individual funding limits sooner as well as protection of future rebates.  Of interest, $950 is sufficient to fund unlimited direct primary care at many of the growing list of doctors offering this choice.

For anyone still working who exhausts their mandated HSA and taps the government pool, continuing work related payments to their HSA would always precede any government pooled funds in paying for services as used and bills come due.

As percentages of any other government cash assistance transfers (welfare) would be directed into individual health savings accounts as well, both Medicare and Medicaid would be rolled into the new universal system.  Opt outs could be allowed but then initial entry or reentry would be have to be prohibited lifetime.  The idea in the mandate is a requirement to buy nothing, just forced budgeting to protect others in a system where we can agree no one will be left “dying in the streets”, as Donald Trump has stated.  It raises the question also if a tax is not a tax, when that set aside is available for that person’s and their immediate family’s exclusive use.

The game changing nature of this extended Hogberg Solution should be obvious.  Price transparency would happen organically overnight as well as huge savings just from elimination of the cumbersome third party payment mechanism in place now.  Providers of treatment and devices would be instantly responsive to concerns of price and quality.  Even well past normal working years for many, into what are Medicare years now, carried HSA balances would continue to protect the government pooled funds, themselves limited without the need for rationing, by personal stop loss private insurance.  Any remaining HSA balances at death could be transferred to a beneficiary.

Private insurance protection expense beyond the government pool could be further lessened in cost by allowing stop loss policies in excess of $75,000 by including other personal sources, such as one’s HSA balance or other assets willing to be spent first.  Thus a person with $100,000 in their HSA and $25,000 in other assets available for medical expenses, along with the $75,000 government funds, would only need a personal stop loss policy to cover expense exceeding $200,000, very unlikely and very inexpensive.

By trusting individuals with control of the money, acting freely in their self interest, and having faith in the predictability of their response to properly presented economic incentives and constraints, along with a system of rewards, we can create a government devised system that respects the marketplace, innovation, and choice, while keeping government command and control decision making out of the equation.

For more please see followup Jan 09, 2017 article here.