Thursday, January 21, 2010

Health Care Revisited Part 1.

As some of you may know, my "day" job is as a computer programmer for Dell Perot Systems (Perot Systems was purchased by Dell last October). I work in our Health Care area and I work with Health Insurance companies, designing and writing programs for our Claims Payment and Premium Billing system, Xcelys. I've been working in the payer side of health care for 13 years now.

Now when we talk about Health Care Reform, we are not talking about reforming health care in the US. We aren't even talking about reforming how it is delivered. We are talking about how to pay for and ration health care. Now "rationing" is a "bad" word. But as everyone who has taking any courses in economics can tell you, almost everything is rationed one way or another. We ration most things in the US by ability to pay. Not everyone who wants diamonds has them. Only those who have enough money to pay for diamonds have them.

Currently, health care is paid for, primarily, by insurance. The purpose of insurance is risk management. You buy home owners insurance to mitigate the risk of catastrophic loss because of damage to your home. You don't buy home owners insurance to fix a leaky toilet or replace the filters on your air conditioner/heater. We don't buy insurance to pay for someone to cut our grass or even trim our trees. Those things are considered normal costs of owning a home.

One of the problems with health insurance is that we ask too much of it and we are using it for too many things. I submit that there are three types of health care
  1. Primary Care - this is the normal health care that we receive. It is doctors visits for routine physicals and immunizations or when you get the flu or a cold. I don't believe that insurance should cover this type of care. Covering primary care is like asking your car insurance to pay for oil changes or tune ups.
  2. Catastrophic Care - this consists of things that are rare, but expensive when they happen. Examples could be specialized tests or surgery or trips to the emergency room or catastrophic illnesses like cancer. These cannot be planned for on an individual basis
  3. Chronic Care - this consists of chronic diseases such as diabetes or asthma or even some mental illnesses. Maintenance care for these diseases is necessary and relatively inexpensive, but it can grow to be very expensive and, if the maintenance care is not received, the chronic disease will turn into a catastrophic one. Some form of payment sharing should be done by insurance because both parties have a strong interest in avoiding the costs of catastrophic care.

My next post will concern other impacts to the costs of delivering health care such as defensive medicine and legal fees as well as the friction costs of insurance and how we can reduce them.


Phil Snyder


deck said...

Dcn Phil,

I whole heartedly support your approach. I am in my late 50's and was speaking with my mother (in her 80's) in the last few months about this. This is the way insurance was run back in the late '50's into the early 70's. I don't know what would happen if we went back to this vision of health care as the costs of primary care have increased much more than could be accounted for by inflation. I don't think we would see a roll back in costs. More likely a leveling in costs till inflation caught the rest of the economy up with those costs.

The one outstanding issue is help for those that are unable to pay in full or in part for primary care. I am sure some would be helped by charities and maybe even most.

Charlie Sutton said...

I have wondered to what degree the very availability of health insurance has increased the costs of doctor's visits, tests, etc, because it seems reasonable to me (although I have not studied economics) the more money there is available to pay for a given class of products, the more prices will increase.

Of course, some of the increase in the cost of health care is that now more can be done than ever before. It takes more, specialized equipment and testing, and these things cost money. Perhaps the very availability of insurance money meant that it was feasible for researchers to develop new tests and equipment, as there was a way to pay for it relatively painlessly by the average patient.