Last Tuesday night (Election Day), I was listening to two rational people irrationally discuss healthcare. Here’s the short summary:
Liberal: We need universal healthcare.
Conservative: You want socialism?
We need a more informed discussion. So, let’s start with some basics.
- According to the Milliman Medical Index, the average American family of four spends $28k per year on health care, which includes the cost of insurance that is either purchased by that family or purchased for that family by an employer, as well as deductibles, co-pays and other out-of-pocket expenses.
- Health care costs can be crippling to the average American family, even if insured.
- Health care costs are a major financial burden to businesses that provide health insurance to their employees.
- Insurability based on the absence of pre-existing conditions makes sense to profit-driven insurance companies which have a compelling business reason to define and measure foreseeable risks and avoid known costs (i.e., pre-existing conditions).
- Private profit-driven insurance companies take on millions of dollars of risk on a per person basis even if the insureds have no pre-existing conditions.
- For any given insured risk, premiums are lowest for the largest pools of participants as risk is spread across that large population.
- Private health insurance is not the only way to provide access to healthcare.
- Health insurance is not the same thing as healthcare.
- “Free” goods and services are used without regard to cost but they are not truly free; someone is paying for those goods and services.
- The presence of cost is the market “rationer” of all resources — including health care.
Let’s imagine a new system which takes all of these truths into account. We will call this system “New Medicare” and discuss its impact on a family of four (with lower costs assumed for smaller families and unmarried persons).
Under New Medicare, each family would be responsible for health care costs up to a maximum amount of $28,000 per year (subject to a CPI adjustment).