Wednesday, March 28, 2012

Open Mic

On Twitter @GregWHoward said: "@yintercept You've got an open mic. Tell us all about it."

PPACA (ObamaCare) was premised on the assumption that insurance (group funding of individual consumption) is the only viable way to fund health care.

If someone created a viable alternative to insurance, the program would strike at the foundations of ObamaCare.

Conversely, if insurance is the only viable way to pay for health care, then we need something like PPACA to protect the consumer.

A health savings account plus high deductible insurance is still an insurance product. So, I created a theoretical product called the "Medical Savings and Loan." This program supplements a health savings account with loans and grants. The MS&L replaces insurance agents and claims adjusters with a new position called the Health Care Advocate.

The program uses a different mathematical model than insurance. (I worked as a programmer for an insurance company.) Insurance analyzes the experience of a group over a year.

The MS&L analyzes the experience of an individual over a lifetime.

The program looks at an individual as a whole being. So, let's say someone has a job for \$40,000 and their employer pays \$10,000 a year in insurance (I am ignoring the amount taken out for medicare for the moment).

This person is really earning \$50k a year. Ignoring inflation, the employee will make \$2,000,000 in a lifetime.

CMS.gov says we spent 17.3% of GDP on healthcare and this number will grow to 19% in upcoming years. Let's say it is reasonable to assume that a person should self-fund their health care up to 15% of their income.

This person with a modest income can self-fund \$300,000.00 in care. If we put the cap at 20% of income, this person could self-fund up to \$400,000.00 in care.

The Medical Savings and Loan puts forward the ideal that those who can self-fund their care should self fund. The MS&L creates a structured savings program supplemented by guaranteed loans to help the person self fund care up to a reasonable limit.

Most people can self fund their care.

If a person has an unusually high ratio of expenses to income, the health care advocate will seek grants on behalf of the client.

The Medical Savings and Loan is still information driven. The program hires actuaries to analyze medical expenses and incomes to determine how much money needs to be set aside for grants.

Using a different mathematical model, I was able to create a new structure that funds the same amount of health care as insurance (or socialized medicine for that matter).

With this structure in hand I can now begin to argue that our problems in health care result from the use of group funding for individual consumption and that the solution to our economic problems is to revive the concept of self funded care.

For example, I can argue that portability is a problem unique to insurance. In the Medical Savings and Loan, you have money in the bank and it follows you.

The issue of pre-existing conditions is different as well. There are some people who have medical problems that exceed their ability to pay. No matter how you approach the argument, people who do not have the funds to pay for care need to get assistance from others. So, the best way to help this people is with overt grants.

For the most part, the question of pre-existing conditions is a direct result of poor financial planning in the current insurance regime. People who expect their employer to pay for their care lack the financial skills to self fund their care.

I can argue many other issues as well. For example, I can argue that insurance artificially concentrates wealth.

Insurance companies tell us that, if we pooled together our health resources, we could buy more care. My model shows that people actually will receive less care and that putting our money in pool concentrates wealth in the hands of the people who control the pool.

With my model I can argue that group-funding of individual consumption broke the pricing mechanism in health care. Restoring the concept of individual funding of individual consumption will restore the pricing mechanism.

The Medical Savings and Loan uses a different payment structure than insurance: The MS&L uses the fee for service payment structure. Patients pay cash for services rendered by a doctor.

With insurance people put their health care resources in a group pool, then file a lawsuit against that pool when they need care.

With insurance, every transaction is a legal claim. When you see a doctor, you enter a legal claim against the pool. The filing of this claim must be made to the specifications of the court that oversees the claim.

Insurance billing is so complex because every transaction is a legal claim and must be filed to the specifications of the courts that oversee the claims.

The reason that you cannot buy insurance over state lines is that doing so confuses the jurisdiction.

Since the Medical Savings and Loan uses a fee for service model and cash payments, there is little problem using the money at any hospital that accepts money.

Conservatives love to yammer about tort reform. I can show that the insurance model leads directly to legal abuse. This argument requires a full post.

Comparing the Medical Savings and Loan to Insurance leads to a large number of interesting philosophical discussions as well. For example, conservatives love to complain about regulation.

Insurance was designed as a tool for regulating health care. Health care involves a number of irregular expenses. With insurance, people fund their care through regular premium payments into a pool.

When people demand insurance regulation, they are actually demanding to regulate a regulator.

Insurance played a major role in the financial collapse. Government re-insurance of mortgages, mortgage-backed-securities, credit-default-swaps, CDOs, hedge funds, etc., are all insurance products. Our financial system is an unstable mix of insurance product piled on insurance product which insure other insurance products. This unstable mix of products was bound to implode.

From a theoretical standpoint, the idea behind health insurance is that people can fund health care through a mathematically stable Ponzi scheme.

But there is no such thing as a mathematically stable Ponzi scheme. When you pay current investors with proceeds from new investors, the system will collapse as soon as people lose confidence in the confidence game.

Anyway, the Medical Savings and Loan is a fascinating topic.

A small group of people could make a huge impact in the health care debate if they just sat down and had a conference on alternatives to insurance.

In three years, I have not been able to get any local Republicans to talk to me. The second they hear me say I want to discuss self-funded care as an alternative to insurance, they slam the door in my face.

I discuss this issue on HCA.me, MedicalSavingsAndLoan.com, medicalsavingsandloan.blogspot.com and this blog.

If anyone wants to take part in a conference on alternative financing of health care, please contact me. I live in Utah, but am willing to travel.

NOTE: I have an invitation to visit San Diego. I am trying to save up enough money to pay for that trip. If I can find people between Salt Lake and San Diego (eg Arizona, Las Vegas, LA), then I will hit the road in April.