by Christopher D. Munchhof
The debate over health care in America has been going strong for decades. The most recent attempt by Republicans to repeal Obamacare has brought renewed intensity to the debate. While most Santa Clarita residents who oppose the repeal take the position that the Affordable Care Act provides health insurance to low-income families, plus individuals with pre-existing conditions, and taking those benefits away would be unconscionable, those who support the repeal cite the ever increasing premiums and deductible costs. Indeed, the majority of Americans are paying more for insurance policies that offer less protection.
Both sides of the argument are missing a bigger point, namely, that the structure of our health care system is flawed. The implementation of Obamacare, in the scheme of our overall health care system, was really only a set of minor adjustments. The repeal of Obamacare would, therefore, only be another attempt to meddle with the semantics of our existing system. Whether repealed or not, Obamacare and the GOP-proposed American Health Care Act work on the same basic premise: Giving Americans a health insurance policy is the best way to provide health care.
We have forgotten to ask this basic question; what is the function of insurance?
Insurance is best used to provide financial protection against an unlikely and unexpected event that would otherwise be financially devastating. The less likely a loss is to occur, the less the insurance costs. When covering an event that is a virtual certainty, insurance has to be very expensive relative to the event that is covered. For example, life insurance that covers you for 10 years is much cheaper than life insurance that covers you for 20 years, because you are less likely to die within 10 years than 20. Of course, permanent life insurance, which stays in place until you die, is very expensive, both because it is a veritable certainty that the insurer will have to pay out the benefit (and also account for administrative fees and profits for the insurance company).
When we look at the way we use health insurance policies today it’s apparent that these policies are designed to cover events that are relatively certain to happen, such as regular checkups, nurse visits, eye exams, etc. Even today’s so-called “catastrophic policies” are required to cover several regular checkups a year, immunizations, and lab tests. When we use insurance to cover us for goods or services we are certain to use, it has to be very expensive to cover the cost of the service we receive, as well as the administrative costs between the care providers and the insurance company, plus some profit for both. Imagine how expensive your auto insurance would cost if it included oil changes and brake jobs and eliminated your ability to shop around for those services.
Health insurance still has a role to play in American health care. I am not opposed to health insurance providers earning a profit, but they should not profit at the cost of a diminished health care system. If we begin to use health insurance like we use most other insurances, to help cover unexpected and costly expenses, we can minimize the services we receive from insurance providers and therefore minimize their profits. By moving towards a system where individuals pay out-of-pocket for expenses they almost certainly need and use insurance only for unexpected and financially devastating expenses, we can lower costs and improve service. By paying out-of-pocket, individuals are able to pick and choose exactly the services they want and obtain those services from practitioners they choose. This will force medical practitioners to compete for your business by offering their best pricing and service. Those who don’t provide great service and competitive prices will go out of business. Additionally, since we would be relying less on insurance companies for our health care, the cost of insurance — whether private or government run — will drop dramatically.
Of course, not everyone can afford to pay out-of-pocket for their regular medical care. One way to help address this could be to give every American a type of simplified health savings account to be used for out-of-pocket expenses. We could establish a system where workers have mandatory payroll deductions set aside into their personal health savings account from each paycheck, ensuring that they can always afford doctor visits and minor treatments. This is a streamlined approach to funding their medical care by eliminating the third party for many services and it also creates a sense of empowerment for the individual, knowing that the money belongs to them. For low-income families, instead of providing $42 billion a year in subsidies directly to health insurance companies and hoping they provide quality care, we could deposit at least some of that money into the individuals’ health savings accounts, giving them the power to choose the care they want to receive.
It seems like most Americans look at the challenges in our health care system through a myopic lens of having only two types of systems available, either entirely private insurance or entirely government run. I think there is still a lot of room for American ingenuity when it comes to our health care, and both the ACA and the GOP proposal fall short of serving the entire country well.
Christopher D. Munchhof is a licensed tax professional, investment adviser, life insurance agent and 30-year Santa Clarita resident. You can reach him directly by emailing firstname.lastname@example.org.