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Health Care

Corporate healthcare was initiated by companies (small businesses and corporations) after WWII to be competitive and win over workers.  Demand for workers was high due to the creation of many new businesses.  Over the decades, as workers increased in number (adding women created a major influx of workers) and the number of large companies declined (some failing and some moving offshore), the demand for workers went down and offering Healthcare benefits were no longer necessary to attract workers.  Since then wages have become stagnant, not keeping up with inflation.

What is needed is to increase the number of companies and increase the demand for their products. This would increase the demand for workers, pushing up their pay and benefits.  Companies again would start offering healthcare benefits to attract workers and with the baby boomers retiring the number of workers will be falling.

The Liberals have two solutions depending on companies and the government.  Liberals stated that companies should be forced to provide Healthcare to employees.

  • True Liberals (3% of population making up 7% of Democrats) aspire for the government to provide healthcare for everyone and have the top 20% of taxpayers pay 100% of healthcare for everyone.
  • The more moderate Democrats’ solution to this is to force companies to offer Healthcare benefits and government to provide the remainder.

How has price controls hurt the healthcare industry. You are probably asking where are the price controls? Medicare pricing of healthcare is price control.

Why are healthcare costs so high and why have costs been rising over the past decade. My theory is that government intervention has caused this rise in healthcare cost. I think it will continue to get worst as long as government is involved. The government forces healthcare organizations to provide healthcare at a price lower than their cost. So to make up for the loss (Cost-Price), the healthcare organizations raise their price for everybody else. Consider this example.

Take for example a procedure that costs the hospital (healthcare organization) $600 to provide. But the government will only pay $564 under the Medicare system. So the hospital must make up that $36 loss on the individual who has private insurance or those individuals without insurance. So for those individuals and the insurance company the cost is $636.

When there is a 1:4 ratio of people on Medicare versus those with Private Insurance, the price is $609. Those with insurance will see their partial payment goes up. But as this ratio changes due to more people moving to Medicare then the price has to be adjusted higher to make up for the loss.

The following table illustrates the problem when the ratio is 1:4 (One Medicare patient for every four Private Insurance patients). The loss from one Medicare patient has to be spread over four privately insured patients: 1:4 ratio.

Category Medicare Ratio Multiplier Private Insurance
Procedure Cost $600.00 $600.00
Medicare Pays $564.00 (94%)
_______________ _______________
Hospital Gain (Loss) ($36.00) 1:4 $9.00 (1.5%)
_______________ _______________
Adjusted Cost $609.00

Now what happens as the number of Medicare patients increase. So what happens to the cost of healthcare when the ratio is now 1:1? (One Medicare patient for every Private Insurance patient)

Category Medicare Ratio Multiplier Private Insurance
Procedure Cost $600.00 $600.00
Medicare Pays $564.00 (94%)
_______________ _______________
Hospital Gain (Loss) ($36.00) 1:1 $36.00 (6%)
_______________ _______________
Adjusted Cost $636.00

It has been stated that medical providers charge private insurance companies 36% more than their cost. What does this mean with our example? Does it mean we have six times Medicare patients than private insured patients? Maybe so!

Category Medicare Ratio Multiplier Private Insurance
Procedure Cost $600.00 $600.00
Medicare Pays $564.00 (94%)
_______________ _______________
Hospital Gain (Loss) ($36.00) 6:1 $216.00 (36%)
_______________ _______________
Adjusted Cost $816.00

Project for yourself what this mean for the future with the baby boomers moving into Medicare. This will happen as the baby boomers move into retirement. Remember that as people reach age 65, their primary insured moves to Medicare and the private insurance becomes secondary.

This example shows only a small portion of the problem. Other criteria is that care for the elderly is usually at a higher cost especially toward the end of life. Thus private insured patients must pay a higher burden because their medical costs are usually lower. The following shows the problem when the medicare cost is just double.

Category Medicare Ratio Multiplier Private Insurance
Procedure Cost $1,200.00 $1,200.00
Medicare Pays $1,128.00 (94%)
_______________ _______________
Hospital Gain (Loss) ($72.00) 6:1 $432.00 (72%)
_______________ _______________
Adjusted Cost $1,632.00

And this is why healthcare cost have been rising. The sooner we get government our of the healthcare business the better it will be for everybody. The government needs to compete in the open market for healthcare. The government forcing healthcare organization to limited payments pushes the cost up for everybody else. The government should provide cash payments or equivalents so that individual can purchase private healthcare insurance.

The conservative solution is to have individuals provide their own Healthcare through insurance with assistance for lower income groups coming from the government.   Companies are encouraged to offer Healthcare.  Individuals and families are encouraged to build tax deferred medical saving accounts to care for themselves.    The Healthcare industry is encouraged to provide two levels of insurance (as you do for the other things in life: auto, property, etc...):

  • Basic Healthcare coverage for maintenance and normal medical problems and
  • Catastrophic insurance for major illnesses (The younger you are when you start purchasing insurance the lower the premiums.)

Our solution as citizens is to build an economy where companies are begging for workers and thus offering healthcare benefits to win them over; or, provide money for their medical saving accounts (the best of both worlds).