Wednesday, August 05, 2009

Pre-Existing Conditions in the MS&L

Before I read the section on pre-existing conditions, I thought I would pound out my personal thoughts on this issue.

Pre-existing conditions are a big challenge for insurance systems.

Interestingly, the Medical Savings and Loan to handle select pre-existing conditions better than traditional insurance.

The goal of an MS&L is to create a system in which people can self fund their health care.

The determining factor on a pre-existing condition is its effect on the patient's ability to repay a loan. A patient with a condition like asthma, diabetes, smoking or other chronic but no-debilitating disease could join the program with the understanding that they are paying their way and they must save more for health matters than others.

Standard insurance balks at patients with chronic higher than expected health care costs because it causes them to raise premiums on other policy holders.

The trick to making the MS&L work in the ER is to have the ER share a portion of the premium (the cost of the loan).

The billing clerk at the ER would assess the patient. If they have the ability to repay, they would sign up for the MS&L. The clerk would take a loan from the MS&L for the services. The patient would then start paying back.

It is important to have the ER paying the premium. If they diagnose well, the loan portfolio will be sound. If they diagnose poorly, it would be unsound. the ER would share in the losses for the loan. This system is better than having the ER pay the full expense.
As the MS&L is all about self funding, the system could even work in an Emergency Room. If a person shows up at the ER with a curable condition, the ER could sign up the patient for the MS&L. The patient would then start repaying the loan and saving up for new expenses on recovery.

The MS&L program can handle those pre-existing conditions that fall within the policy holder's ability to repay the loan. For example a twenty-year-old with asthma or diabetes could join the MS&L with the understanding that his medical costs would consume a greater portion of his earnings than others. So, he would have to save more.

The MS&L could also handle those unemployed who are actually willing to work. The system would make the loan. The need to repay the loan becomes a big incentive to work. One can usually find work for the truly motivated.

Unfortunately, like private insurance, the Medical Savings and Loan cannot handle patients with a debilitating condition. Such people will not have earnings. That means they can neither save nor pay back loans. Lending to a person without the ability to repay the loan is just plain wrong.

At first this inability to handle patients without the ability to earn income seems to be a category killer for the MS&L. In actuality, I believe that it would prove a great benefit as it would help make a clean distinction between those who are able to self-fund their care and those who require charitable assistance.

The Tragic Flaw of Pooled Funding

The tragic flaw in standard insurance is that it redistributes benefits from healthy members of the pool to those with chronic conditions. If a person with a chronic condition can find a way into a pool of healthy people; they will have it really good.

This redistribution of wealth germinates the thought that could bring utopia to earth if we just found a way to sneak everyone into an insurance policy.

What we fail to realize is that, as the pools become overloaded, they start to severely under serve everyone in the pool.

A good analogy is the lottery. A lottery works by distributing costs and concentrating benefits on one lucky winner. A system where everyone won the lottery is untenable.

It would cost $300,000,000,000,000.00 (three hundred trillion dollars) to have a lottery where all 300 million Americans were a million dollar winner. A system where everyone won the lottery sounds like utopia, but the dream fails to recognize the costs.

Recognizing the Costs

When politicians look at insurance they develop the illusion that they could create a utopia if they just found a way to sneak those with chronic, debilitating conditions into the system. The delusion fails because it fails to recognize the costs.

IMHO, the Medical Savings and Loan is superior to insurance in that it forces the system to recognize costs. It starts by forcing people with chronic conditions to recognize that they have higher costs than others.

We could also benefit by recognizing the cost of debilitating conditions.

The health care costs of people with debilitating conditions are already a liability to somebody somewhere. The costs simply are not accounted for well.

Moving from a system of pool funded health care to self-funded health care would help us recognize where these liabilities exist. Finding the liabilities would help us start developing programs that directly fund the costs.

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