But there is another (somewhat radical) possibility that doesn't involve keeping the present insurance-based system or turning it over to the government. The point of insurance, as we all know, is to pool people's resources so that when something fairly expensive--but relatively rare--happens to someone in the pool, his expenses are significantly lessened. So you might pay for car insurance so that if you get into an accident you're shielded from most of the costs, but your insurance doesn't pay for you to fill up on gas, get routine maintenance done, and so on. The less expensive every-day stuff is paid for out of your pocket.
A common complaint about health insurance is that it doesn't work the way other forms of insurance work. Health insurance does pay for all the routine "everyday" things. Since people aren't directly handling their own money, the normal urge to be prudently frugal is significantly reduced and quite a bit of money is potentially being spent that might otherwise not be spent. Moreover, when you go to a doctor you've got to find one who takes your insurance (i.e. has a deal with your insurance company)--not exactly a very competitive situation.
That's why some people advocate for a system in which health insurance only applies to catastrophic (i.e. highly expensive) events with the rest of the costs being borne by individuals, who are free to shop around and force health care providers to compete more directly with each other. If you get some time, there's a thought-provoking article along these lines in The Atlantic: have a read (I highly recommend reading the whole thing). The author gets to his policy suggestions on the last page. Here's a bit of that:
First, we should replace our current web of employer- and government-based insurance with a single program of catastrophic insurance open to all Americans—indeed, all Americans should be required to buy it—with fixed premiums based solely on age. This program would be best run as a single national pool, without underwriting for specific risk factors, and would ultimately replace Medicare, Medicaid, and private insurance. All Americans would be insured against catastrophic illness, throughout their lives. [. . .]
How would we pay for most of our health care? The same way we pay for everything else—out of our income and savings. Medicare itself is, in a sense, a form of forced savings, as is commercial insurance. In place of these programs and the premiums we now contribute to them, and along with catastrophic insurance, the government should create a new form of health savings account—a vehicle that has existed, though in imperfect form, since 2003. Every American should be required to maintain an HSA, and contribute a minimum percentage of post-tax income, subject to a floor and a cap in total dollar contributions. The income percentage required should rise over a working life, as wages and wealth typically do.
All noncatastrophic care should eventually be funded out of HSAs. But account-holders should be allowed to withdraw money for any purpose, without penalty, once the funds exceed a ceiling established for each age, and at death any remaining money should be disbursed through inheritance. Our current methods of health-care funding create a “use it or lose it” imperative. This new approach would ensure that families put aside funds for future expenses, but would not force them to spend the funds only on health care.
What about care that falls through the cracks—major expenses (an appendectomy, sports injury, or birth) that might exceed the current balance of someone’s HSA but are not catastrophic? These should be funded the same way we pay for most expensive purchases that confer long-term benefits: with credit. Americans should be able to borrow against their future contributions to their HSA to cover major health needs; the government could lend directly, or provide guidelines for private lending. Catastrophic coverage should apply with no deductible for young people, but as people age and save, they should pay a steadily increasing deductible from their HSA, unless the HSA has been exhausted. As a result, much end-of-life care would be paid through savings.
Anyone with whom I discuss this approach has the same question: How am I supposed to be able to afford health care in this system? Well, what if I gave you $1.77 million? Recall, that’s how much an insured 22-year-old at my company could expect to pay—and to have paid on his and his family’s behalf—over his lifetime, assuming health-care costs are tamed. Sure, most of that money doesn’t pass through your hands now. It’s hidden in company payments for premiums, or in Medicare taxes and premiums. But think about it: If you had access to those funds over your lifetime, wouldn’t you be able to afford your own care? And wouldn’t you consume health care differently if you and your family didn’t have to spend that money only on care?
For lower-income Americans who can’t fund all of their catastrophic premiums or minimum HSA contributions, the government should fill the gap—in some cases, providing all the funding. You don’t think we spend an absurd amount of money on health care? If we abolished Medicaid, we could spend the same money to make a roughly $3,000 HSA contribution and a $2,000 catastrophic-premium payment for 60 million Americans every year. That’s a $12,000 annual HSA plus catastrophic coverage for a low-income family of four. Do we really believe most of them wouldn’t be better off?
As a bonus, here was Ted Kennedy's reaction to George W. Bush's push for greater reliance on HSAs: Bush's Health Savings Accounts Will Make A Bad Situation Worse. Of course, if you read the above article, you'll note that the author at least tries to address many of the shortcomings Kennedy points out in the Bush proposal.
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