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Health Care - Problems and Solutions

In the past several years, tensions have arisen between the quality and cost of health care, access to health insurance, and patient choice of physician and treatment. The solution imposed by government and big business has been "managed care" through "health maintenance organizations (HMOs)."

Doctors and consumers are not happy with HMOs, because under managed care, critical medical treatment decisions are often made by non-medical insurance employees, implemented (with varying degrees of reluctance) by physicians and received (with varying degrees of frustration or dissatisfaction) by patients. Managed care has marginally slowed the rate of increase of medical costs, but at the expense of quality and patient choice. It has had little impact on access to insurance.

Implicit in managed care is a top-down forced rationing of medical services, justified, in part, by past wastefulness. However, the violence that has been done to the medical system in the past few years by managed care suggests that there must be a better way to address the problems of cost, quality, access and choice. We believe a better way exists.

A brief history lesson

Twentieth century American medicine, for all its technological successes, has been a triumph of special interest politics. Prior to World War I, organized medicine succeeded in closing half the medical schools in the country, thereby restricting the supply of physicians, and increasing the incomes of those who remained. During the Depression, Blue Cross and Blue Shield created the reverse of normal insurance: covering minor conditions, yet leaving major illness uncovered. The Blues, through effective lobbying, also obtained sweetheart legislation in most states which enabled physicians to name their own prices -- in effect, to be paid as much as they wanted. Both these situations remained true until the start of the current decade. (There has not been a "free market" in medicine in this country, within living memory.)

The effect of such an irrational incentives system was extreme cost inflation. And yet, despite all the waste, patients retained the ability to choose their physician and, to some extent, their treatment. There was enough competition between doctors to keep the medical system reasonably patient-centered. Doctors made decisions on medical (not economic) grounds, and patients were reasonably satisfied. Quality and patient choice were well-served.

Cost and access were not. Politically-influential employers found employee health benefits too expensive. Health insurance was priced beyond the reach of many families. Medicaid programs paid doctors less than their overhead, so access to primary care suffered, especially for poor women and children. Nonetheless, emergency care was excellent, and available to all.

Something had to be done. The solution chosen by big business and government, managed care, has done little to cut costs, but much to harm quality and choice. Access remains an unsolved problem.

Towards a solution

Solutions are more likely to be found when all the relevant parts of a problem are taken into account. In recent health reform, cost has been almost the sole focus. Quality and choice have been largely ignored. Successful reform must consider all three, and also maximize access to quality primary and specialty care.

Carrots make better incentives than sticks. Managed care creates a paternalistic system which, in practice, rations care away from those least able to defend their interests towards those most adept at working the system. The much-touted "Health Consumer's Bill of Rights" accepts the legitimacy of top-down rationing, and merely provides a structure within which those denied care are allowed to ventilate their frustration. If they live long enough to do so.

We can do better than that.

The chief problem with managed care is that the locus of control is the insurance company; doctors and patients must settle for whatever crumbs fall from the insurance company's table. To bring this into line with our campaign theme, the insurance company is currently the center of the medical "wheel" - put there by the government. In effect, this means that the government, through its insurance surrogates, is able to determine what care families will receive.

We believe families - health care consumers - should be in the center of the medical "wheel," able to choose their doctor and have a say in their treatment (instead of being forced to settle for the minimum the insurance company thinks it can get away with providing). This can be done through high-deductible catastrophic health insurance and Medical Savings Accounts, which have been tested extensively in various states, and proven to preserve quality, control cost, extend access (including welfare patients) and maintain patient choice much more effectively than managed care.

Medical Savings Accounts have been vigorously, almost hysterically, opposed, apparently because they shift the locus of power (and much of the money) away from the insurance industry and government to the consumer.

Our proposal

Any solution to our medical delivery problems must take all four factors into account. If cost is to be controlled, it should be controlled where the bulk of wasteful treatment occurs, in everyday care of minor problems (not through rationing of vital major treatment, as is common in HMOs). If quality and choice are to be maintained, then patients and doctors must regain decision-making power. If access is to be general and across economic groups, then means to broaden access must be found.

Medical Savings Accounts

The Medical Savings Account is the only solution which successfully addresses all four goals.

Medical Savings Accounts (MSAs) are quite simple, both in concept and in practice. They involve the purchase of major (catastrophic) insurance, which can be had for a fraction of the cost of low-deductible insurance. The consumer then deposits the difference between the catastrophic premium and the low-deductible premium (usually two to three thousand dollars a year) in a medical savings account, and then draws on that account to pay minor medical costs, up to the price of the deductible.

At worst, if there is a major illness, the consumer breaks even. (This happens about 6% of the time.) Catastrophic insurance pays all costs after the deductible is met. Other years, when there is no major illness, the consumer keeps the money remaining in the account, to use as needed.

To illustrate, in suburban Philadelphia, a typical family of four pays about $ 5000 a year for health insurance with a $100 deductible and a 10 to 20% copayment on major medical expenses. That same family can buy catastrophic insurance, which covers everything over a $3000 deductible, for about $ 1800 a year. Therefore, catastrophic insurance would be $3200 cheaper than conventional. They can put that $3200 into a Medical Savings Account which they can use to cover routine health expenses. They control that money and decide how it is to be spent.

In a worst-case scenario, they encounter a major illness and pay the first $3000 in expenses out of their MSA. Then their catastrophic insurance pays the rest. The result: after every medical expense is paid, they still have $200 left in their MSA. Which is theirs to spend as they wish. And, since they pay no deductibles, their total savings are much greater than just the $200. They suffer no medical debts.

Most families do not suffer a major illness. The average family uses about $600 worth of medical care annually; therefore, their MSA would have $2600 left at the end of the year, which is theirs to save or spend as they see fit. Many people seek no medical care whatsoever; they would have the entire $3200 at the end of the year.

The money is theirs, not the insurance company's - which is why MSAs have been fought against so desperately by insurance providers.

When MSAs are made tax-deductible, as has been the case, for some, since 1996, the situation is even more appealing.

Medical Savings Accounts return rationality to health insurance by increasing the coverage of major illness, and decreasing the coverage of minor illness. Universal (catastrophic) coverage of major illness removes the fear of medical bankruptcy. At the same time, by increasing personal responsibility for minor illness, MSAs give doctors and patients the incentive to stop overutilization of minor services - the single most important source of wasted healthcare dollars.

MSAs cut the overall cost of medical care, and medical insurance, by increasing the efficiency of utilization, and by removing the incentives for doctors to overtreat and for patients to demand overtreatment. They return quality to its previous high standard, by returning decision-making to doctors and patients, removing arbitrary rationing from major care, and basing decisions on medical, not economic, grounds. They return choice of physician and of treatment to the patient, who controls most of the money. They make access more widely available by reducing the cost of insurance and by giving welfare patients the same quality insurance coverage as everyone else - thereby making welfare patients more attractive to physicians, at lower cost to the state.


  • "MSAs won't work for the poor"
    Pilot studies of MSAs in California, by the RAND Corporation, reveal that welfare patients are as able to use the medical system intelligently as anyone else. Welfare recipients with good-quality catastrophic coverage and MSAs are as attractive to physicians as anyone else; welfare patients with a state-funded Medical Savings Account "shop smart" if they are allowed to pocket a proportion of the balance remaining at year end. They do not neglect their children, nor shun necessary preventive care, but they do stop abusing emergency care - a major source of unnecessary public expense. And since expenditure of MSA money is overseen by case workers, there has been little abuse in the pilot studies.

    Since administrative costs are lower, MSAs allow broader welfare coverage and better service for welfare clients at lower public expense.

  • "Parents will neglect immunizations, preventive and medically-necessary care"
    This has not proven to be the case. There was no difference in the RAND study in immunization rates between MSAs and other forms of insurance, and no evidence of child neglect. But there was a significant reduction is wasteful use of emergency rooms for routine care.

  • "People aren't smart enough to run their own health care"
    Insulting and elitist as this statement is, it ignores the fact that people rely on physicians to recommend treatment. The limiting quality factor is the ability of the physician, not the intelligence of the patient. This objection should be seen for what it is, a figleaf to cover government/insurance company reluctance to return power to the people.

  • "How can you persuade workers to forsake their usual insurance for MSAs?"
    Explain it to them. In large private trials of MSAs in Virginia and Ohio, workers overwhelmingly chose MSAs, when offered them, and renewed with enthusiasm (since they liked having that money left in the account at the end of the year).

  • "Are MSAs strictly voluntary, or would MSAs be a negotiable benefit for employees?"
    MSAs have been offered as another option in the annual menu of insurance coverage; since they involve significant savings to all concerned, the distribution of the savings would be a matter for negotiation between labor and management.
"Where can I get more information about MSAs?"

The National Center for Policy Analysis in Dallas, the Evergreen Freedom Foundation in Olympia, WA, and the Heritage Foundation in Washington DC have all published numerous articles reviewing real-world experience with MSAs.

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