Health Care: Structure

In its current state, the health insurance industry is structured in a way that enables customers to procure their insurance coverage through both public and private programs. Within the public option, customers generally enroll in government sponsored programs via medicaid and medicare, which are sponsored at the state and federal levels. These plans are generally designated for those who are 65 years or older, impoverished, or meet the standard income qualifications. Based on the structure of these plans, those who want to pursue affordable or government subsidized care may participate if they qualify.

Requirements for medicaid and medicare can be found at the U.S. Department of Health and Human Services.

In addition to public plans, private health insurance options can be procured individually or through employer based pooling. Similar to the pooling practices that occur by public plans, small business and employer based plans also establish premiums by profiling large groups of individuals by age and relative health. Below I have included a few links to articles that discuss private health insurance options for both employed and unemployed individuals.

Buying Private Health Insurance
Looking Beyond the Public Option
Health Insurance Debate Turns to Issue of Coops

Within the current insurance schema exist the following issues:

  • Risk / Reward / Premiums: Regardless of whether an individual is in a employer based plan or government sponsored plan, total costs of coverage are transferred from those that are higher risk or perceived as higher risk to those that are not. Also, those that consume more health services are being subsidized by those who consume less services. This issue would not bother me as much if the flexibility to save tax free dollars for long term insurance benefits and future expenditures was automatically built into all insurance programs. This additional flexibility would encourage those paying additional premiums to benefit from long term health savings opportunities. As a proportion of income, younger individuals (within employer or government pools) pay a larger portion of their income for health insurance despite receiving the least amount of benefits. Risk sharing is a necessary evil in the current structure; however, it is also something that must be evaluated over longer periods of time.
  • Behavior Concerns: When benefits are deferred for a longer period of time, it is possible for individuals to not exhibit optimal health behavior – potentially deferring healthy activity until it is necessary. Also, the health insurance structure, through risk sharing, encourages individuals to consume additional health services instead of optimally consuming health services.
  • Cost Controls: Within the current structure, both public and private insurance plans negotiate with health service providers to establish preferred pricing – unfortunately, this does not always result the lowest cost to deliver. Traditionally, the role of the insurance provider is to estimate their expenditures over and above expected premiums and then build in a profit margin. This presumption implies that insurers really are not taking a proactive role in developing the care cycle to ensure that the total costs of care is reduced (see video below).

Pooled resources (government or private) are the most efficient method of benefiting from economies of size and scale (negotiating power); however, I am not convinced that the current structure really supports what I would deem to be an optimal value proposition for customers. Future legislation should not be focused on increasing federal expenditures to create a duplicate plan – instead, it should establish incentives and penalties to encourage healthy behavior, long term health savings, and cost reductions. I do understand that there are a large majority of uninsured Americans who would immediately benefit from expanded services; however, I am not convinced that expansion of services solves the underlying issues. If we create an efficient cycle of care and encourage the right behavior, uninsured individuals will also be able to afford health care even without explicit health insurance benefits.

Like everyone else, time will eventually catch up with me. I realize that health today is no guarantee of health tomorrow. I believe that it is imperative to plan your health the same way that you plan your career, family, and retirement – considerations should be made for both the best and worst case scenarios.

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