THE COST OF HEALTH CARE: AN IMMODEST PROPOSAL

The issue of health care in the United States is presently a political football, and, because it is seen as a useful political tool, current discuuion of the topic, if one can call them that, bear little resemblance to reasoned discourse.  If one were able to put politics aside and view the subject on a rational basis, two things about health care in the United States would appear inescapably true.  The first is that we do, in fact, have a system of universal health care in the United States.  Some way or other, if you get sick enough, you will get medical treatment of some sort.  The second inescapable truth is that, for our Byzantine and hole-riddled health care system, we pay far more than any other developed nation in the world.

From these two inescapable truths, there comes one inescapable conclusion.  The real core issue in health care is not whether we should have a system of universal health care coverage.  We have that, willy nilly.  To twist the old saw about philosophy, not to have a system of universal health care is to have a system of universal health care.  The real core issue is how to make one’s systme of health care cost efficient.  The need for health care is universal, like air and water.  There is no question as to whether we should pay for it.  We will pay for it, are paying for it, whether or not we do so in a rational manner.  The only subject open for rational discussion is how we might provide adequate health csre in the most cost-efficient fashion.

When one approaches the subject of health care in the United States in this reasoned fashion, an odd paradox appears.  One of the problems with the cost of health care in the United States is that, rather than too little insurance, we have too much.  A large segment of the population is covered by a multiplicity of policies for medical expense.  To illustrate, suppose that a truck driver gets injured in  a multi-vehicle accident while in the course of his employment.  He likely has medical insurance to cover his medical bills.  He also has coverage for these bills through worker’s compensation insurance.  He also has a medical pay provision in his truck insurance to pay the bills.  Each of the other vehicles also has a medical pay provision to cover the same bills, and each of the vehicles’ liability insurance coverage has exposure for the bills.  If the truck driver’s injuries are sufficiently severe, he might also end up with coverage from Medicare and/or Medicaed.

Each one of these various policies was underwritten with the potential for the truck driver’s bills in mind, and therefore coverage for this one set of bills was redundantly charged in the premium of each of these policies.  There is, however, a far greater expense that arises from these redundancies.  Each of these insurers, aware of the likelihood of other available coverage, have place in its policy a provision excluding payment where other coverage is available and allowing it to recover any payments it made if it is determined that another coverage is applicable.  This is generally referred to as a subrogation clause.  So, for instance, if the truckdriver has his bills paid by his medical insurance, that company may puruse the worker’s compensation insurer for reimbursement.  If the accident is determined to be the fault of one of the other drivers, then the worker’s compensation carrier can pursue the liability insurer of that other driver.  Each one of these insurers has an entire subrogation department dedicated to the pursuit of this kind of reimbursement.

The utter wastefulness of such a system may be illustrated by a simple thought experiment.  Imagine that there were only two insurers in the entire world.  Imagine that the two insurers were of identical size and ability.  They each carried the same lines of coverage.  They each had the same number and type of clients, and they each had the same number and kinds of claims.  They each had subrogation departments of identical quality and diligence, and they each achieved the same success in pursuing their subrogation rights.  What would be the net result of their efforts?  Zero.  Each would extract from the other the same amounts in subrogation.  However, each would also pay for the entire machinery of its subrogation department, and each would suffer the expense of responding to, and defending against, the subrogation efforts of the other.  So each would undergo the expense of a large bureaucracy that, in the end, produced absolutely nothing.

That, in net effect, is what is happening in the insurance industry in the United States today.  Multiple policies are charging premiums calculated upon exposure for the same medical bills, and the claims on each of these policies are referred to a subrogation department where efforts are made to obtain reimbursement from some other policy, the issuer of which is, in its turn, handing the matter over too its own subrogation department.  By and large, these multiple efforts work, in the end, to cancel each other out, leaving only the substantial cost of each of the subrogation departments.

You need to be in this sytem to realize how wildly inefficent it is.  Whole law firms exist solely to pursue suborgation claims.  There are people, many, many people, who do nothing but make phone calls all day long to identify and pursue subrogation claims, and that means that there are many, many people who have to answer those calls.  There is likely no way to quantify the cost of these efforts, but it is safe to say that all of it is very expensive and, as is evident, all of it is, in the end, an utter waste of time and money.

In all modesty, I suggest a simple solution.  First, we need to install a reasoned program of universal health care coverage.  The details of its structure and funding are  subject to rational debate, and politics will likely play a central role in shaping the details.  The point is that the universal health care that we have is in dire need of revision on a rational basis.  Universal health care is inevitable.  Cost efficiency is possible only if we reconstruct the system along rational lines.  My own preference is to run it like a utility.  We all seem somehow to pay for water and electricity.  So divide the country by a grid, and sell of the segments to the highest bidding provider or insurer.  Give the highest bidder a monopoly in the areas they purchase, and put a public service vommission in place to control profits.

Then — outlaw subrogation.  Remove medical expense as an item of recovery in all litigation.  Since all medical expense is paid, it is not to be considered an item of loss.  So, for instance, medical expense cannot be claimed as an element of award in personal injury claims, medical malpractice claims, products liability claims or premises liability claims.  This should result in a drastic reduction in the cost of malpractice insurance for doctors and for products liability insurance for manufacturers.  In worker’s compensation, it is estimated that about 60% of the moeny paid for work injuries goes for medical expense.  Therefore, if subrogation is outlawed, all employers should experience a very substantial reduction in the cost of worker’s compensation insurance.  Not only that, but the cost of running an insurance company should be greatly reduced, since the entire subrogation department would be eliminated.  There would, in other words, be across-the-board savings to individuals, professionals and cocmpanies that would remove an appreciable part of their costs and make them more competitive in the global market.

There is likely some way to quantify the extent of savings that would be realized by eliminating subrogation, but at the very least it would reduce the country’s entire real cost of medical care by ten percent.  If one accepts the estimate that medical expense in America is over a trillion dollars per year, that would mean a saving of one hundred billion dollars or more.  This is a saving that is not just reasonable.  It is dictated by reason, and, if we ran our country on the principles of reason, it would be easily done.  Until we install something like a reasoned universal health plan, however, we will continue to carry this worthless and expensive burden.

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