Thursday, June 30, 2005

Ending Employer-Sponsored Healthcare

A healthcare plan that I think everybody can agree on. Businesses would benefit from the added flexibility of being able to hire part time workers. Employees benefit from an increased ability to strike a work-life balance by working part time during some periods and full time in others without having to worry about finding insurance. Periods of unemployment will not necessarily immediately imply a loss of coverage. If only there were some way to eliminate Employer Sponsored Insurance without eliminating the insurance companies that sponsor powerful political lobbies.

First off, why do we have ESI in the first place? Group insurance is necessary because healthy individuals will drop out of expensive insurance plans because it isn’t worth it for them, making the plans even more expensive for the remaining people. Healthy people will congregate in insurance companies that are cheap if unhealthy people can be screened out (getting sick is an awful obvious sign of ill health), leaving unhealthy people to congregate in their own ever increasingly expensive insurance companies. The market will naturally try to determine who is going to get sick before they actually get sick and charge them accordingly, thus defeating much of the purpose of insurance. I’ll call this the non-insuring insurance problem.

So employers step in as a quasi-random group allotment. Since the quality of a person’s output is almost totally unrelated to their health (workaholics), unhealthy get stuck in with healthy all in the same group purchase. So the insurance works the way it is supposed to by reducing the risk borne by individuals, not simply identifying it. But when you are fired or if you don’t work enough hours to justify the sunk cost of enrollment, you are back as an individual with the non-insuring insurance problem as above.

Why not let the Government step in as a randomizer of group allotments? It would be just like the GSEs that run the mortgage industry, Ginnie Mae, Fannie Mae and Freddie Mac. Have a couple or a triplet of GSEs buy up individual health contracts with politically correct indicators for risk. Obviously age would be included, but also tobacco use and potentially some measure of exercise or obesity like a body fat measurement, but probably no prior history. They would then sort those contracts into balanced lots and auction them in a secondary market, just like mortgages.

Ideally there would be levels of coverage that would go from a very broad level, covering standard stuff with a low cost/benefit ratio; and then there would be higher levels that cover more experimental or higher cost/benefit procedures. Coverage in higher levels would imply coverage at lower levels, so purchasing more or less insurance would not be a way to segregate: if you want heart attack insurance, you need level 1, level 2 gets you boner pills or some such thing. So everyone that has rich people insurance will share risk of boner pill need with other rich people, but also have to share heart attack insurance with the masses.

So we’ve got individualized health insurance without the non-insuring insurance problem. By eliminating the non-insuring insurance problem we are rendering a large part of the expertise of the companies obsolete. There is a lot of invested in sorting out who will get sick and who won’t. So what do the insurance companies get out of it?

Well, the market for health insurance will almost certainly expand to include people who were excluded because of working only part-time or unemployment. In addition, much of their expertise can be easily adapted to the new securitized environment. There still will be a need for accurate forecasts of trends in medical costs based on the approved factors as well as cohort analysis. In addition, there will be a lot of expansion into individual marketing because individuals need more marketing. Also, unlike the Clinton plan, there is no government ordained limit on healthcare spending. Hypochondriacs and the wealthy can buy access to as much medical technology as they deem appropriate. There would be no cap on funds to research future technologies if the demand exists. Plus maybe we’ll subsidize the individual insurance purchasers more then we subsidize the corporations currently; that would of course translate into more money for health insurance companies.
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