Democratic dilemma

The great Democratic dilemma of the 20th Century began in 1936 with the establishment of social security. This program has been the most successful and most expensive in the history of the country. When it became apparent the many people had reached retirement age and lacked the finances to take care of themselves the government stepped in to help. While the program started with modest goals it grew quickly and today represents 21% of the federal budget. Today two thirds of wage earners pay more social security tax than income tax.
This program was viewed in such a positive manner that the Democratic Party took control of congress and maintained a majority for more than 40 years. This idea of the government offering direct help to individuals gained additional momentum in 1965 with the passage of Medicare and Medicaid. Today these programs represent an important part of most peoples financial plan and have fostered a dependency on government. It is acceptable because the people pay into these programs so they are not welfare.
Other ideas have branched off from these programs, which in most cases are not paid for by the recipients. Some of the better known are food stamps, (WIC), housing allowance, S-chip and utility payments. In order to keep these from being considered welfare they are justified by the doctrine of fairness. We have a moral obligation to care for those less fortunate. Other areas of fairness are things like minimum wage and consumer protection laws.
More recently we have turned to the idea of rights to cover government benefit and the most prominent of these is the right to health care. Others feel there is a right to a job, a place to live and food to eat which to those who don’t have these items health insurance is not a top priority.
So what is the dilemma? Many elected Democrats feel that people need government to get them through the rough spots, which is another way of saying that they cannot care for themselves. They realize that offering government assistance helps to get re-elected and they want to continue along this path but they cannot allow voters to feel that congressmen think they can’t take care of themselves. This means that they must not reveal the real truth as to how they feel about the voters and thus they are living in the uncomfortable position of not being up front with people. When Bill Clinton said welfare should be a helping hand and not a way of life he understood the concept but to get votes it has to be more than a temporary help. For many it has become a way of life and many are expecting more benefits in the future.

This is my take on where we stand on health care.

Of the 47 million uninsured there are 14 million who are eligible for Medicaid who have not signed up. Medicaid is now the nation’s largest health insurer acting as a source of assistance to 52 million. Many of these are low income and the coverage is free but if your income is above $1,400 per month you must pay $80 per month. Since there are no pre existing conditions in this plan most people who have to pay do not take the insurance but wait until they get sick to sign up.

There is a program called S-Chip that covers 11 million children from low-income families.

It is estimated that there are another 10 million illegal aliens who are not insured and are included in the 47 million. There are also about 12 million young people who could afford insurance but have chosen not to purchase any since they feel they do not need it.

It is from this group and from those who chose not to sign up for Medicaid who go to the emergency room when they have a problem.

While these so called uninsured are put forth as reasons to change the system they are not the main problem, which is the cost of health care.

The best way to reduce cost is by using health savings accounts. To understand how these work let us first look at the present system but use an analogy. Suppose you could purchase a food insurance policy. You would pay a monthly premium and when you went to the super market you would select your food items and present the clerk with your food insurance card and the insurance company would pay for the food. As time past you would become more concerned with the quality of food and the location of the store and less concerned with the cost of food since you would not pay any attention to the cost. Most likely the price would not even be marked on the food items. The result of this is that over time the increase in the cost of food would far out pace the cost increases of other items which is precisely what has happened with health care cost.

Now let’s introduce the health savings account concept. You work for ABC Company and they currently offer you the standard health plan with a deductible, co-pay and stop loss. A typical plan would have a $100 per person annual deductible, a 20% co- pay and a maximum $2000 annual out of pocket expense. You go to the hospital and find out they charged you two bucks for a cotton ball and five bucks for an aspirin but you don’t care. As a matter of fact I have heard people joke about such things.

The company comes to you with a health savings plan and says this is how it works. We are currently paying $10,000 per year for your family plan with us and we want to offer you a plan where you have to pay for all of you health care each year up to $5,000. In return for that we can purchase a plan for you that pays everything over $5,000 but that will only cost us $5,000 per year so we will take the other $5,000 we have been paying to the insurance company and we will put that into a tax deferred account in your name. You can withdraw that money any time tax-free as long as you use it for medical expenses. What ever you have left in that account at retirement is yours to use as you please but you will have to pay tax on it if you take it out for reasons other than health care.

So how will this affect your life? Let us look at the worstcase scenario. The first year you have serious health problem that cost you $10,000. You must pay the first $5,000 up front and the company plan pays the remaining $5,000. You don’t have the money so you go to the hospital and tell them that you want to pay them monthly until the end of the year at which time the plan puts $5,000 into your account and you take it out and pay off the hospital.

Now consider what is more likely to happen. You have your regular medical expenses throughout the year but you don’t just accept any charge. You shop around like you do for your other purchases and this brings competition into play. When you go to the doctor your bill is $500 and you just pay it like you pay for other items. The doctor is satisfied and he can charge you less because he doesn’t have to pay a clerk to keep track of insurance and such. It is estimated that the administrative cost in our present health care is 30% and since 95% of all claims are less than $5,000 this approach will eliminate 95% of all claims. This savings alone to the industry is enough cover the uninsured.

What is stopping us from going to health savings accounts? The answer is the vested interest in the current system. This 30% for administrative cost is now going to the insurance industry and they don’t want to give that up. A private company such as Blue Cross could be set up to handle all of the remaining 5% of claims for all people. They actually do this right now as they handle almost all Medicare claims.

It is important to understand that social security and its affiliates Medicare and Medicaid are all going broke so adding another government program to these three should not be expected to reduce cost. The last government program, which is the prescription drug plan, is the most cost effective yet and it is handled by private companies competing for business. It is still costing the government but less than other government plans.

While all this is well and good it is not going to happen so what can we expect from the current attempt to revise health care? My guess is that we will retain most of the present system with a couple of helpful adjustments. First is to allow health insurers to do business across all state lines, which will increase competition. Second, to make it mandatory for young people and those eligible for Medicaid to sign up. You can do this by adding a waiting period for coverage to kick in so they couldn’t wait until that got sick to sign up.

After this, a new law will pass this fall and all the congressmen will go home and praise their accomplishments as health care reform and the whole thing will be forgotten until the next time.

Then everyone will get back to the economy, which is the real issue. As this comes back which is always does the final issue, which will be the most difficult will be Afghanistan.