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Thursday, September 08, 2005

Medicare B and the Denial-of-Reality-Right

This is the second part in an ongoing series about health care costs and Medicare B. The first part is posted immediately below this.


I am forced to admit that, as much fault as I find in Ayn Rand’s Objectivism philosophy, she did provide one of my favorite quotes in arguing for it. “A lie,” she writes in Atlas Shrugged is the worst insult you can give a man. It tells him that you find him incapable of dealing with reality.”

Reality is certainly a problem for many people on the political right. Take, for instance, this quote from the 2004 State of the Union Address, “A government run health care system is the wrong prescription. By keeping costs under control, expanding access, and helping more Americans afford coverage, we will preserve the system of private medicine that makes America’s health care system the best in the world”. Actually, it is the last part that shows a distance from reality. The Heritage Foundation was quick to pick up the lie to push its own agenda for health care, though.

The truth, however, is that by almost any objective measurement, the US does not have the best health care system in the world. For instance, Health Policy Reform actually finds that the US lags behind such countries as the UK, Germany, and Switzerland. Groups like Physicians for a National Health Program are even pushing to implement systems that emulate those in other countries.

Such efforts, however, are as much lacking a touch of reality as those of the far right. The truth is that there are too many interests vested in the current system to implement such a huge upheaval. While I believe all elephants can be eaten one bite at a time, it would be pure gluttony, and foolish, to try to eat the biggest elephant simply because it looks tasty.

Health care reform is badly needed, but it must begin with where the system is now. It isn’t exactly broken, because it works for a lot of people. What is needed is a way to make it profitable for those who lack access to the system to gain that access. That means finding a way to enlarge the system while still operating on sound. Specifically, we have to utilize the principle of risk averaging and the law of large numbers.

Risk averaging is exactly what it sounds like. Let’s say there is a ten percent chance of every person in America incurring a one hundred dollar health care bill this month. If you have a group of one hundred people; then you can be sure that ten of them will need to pay one hundred dollars worth of medical bills each. You don’t know which ones, and it doesn’t matter. What matters is the risk is averaged among the whole group. To be profitable, you only have to charge the hundred people enough to pay a little more than the total of the medical expenses. In this example, you only have to charge each of the hundred people ten dollars to break even. If you charge eleven, you make profit.

The law of large numbers says that such percentages are more precise in larger groups. The ten percent chance in the above example is for every month, so some months you’ll have more and some you’ll have less. To remain solvent, you have to maintain a large amount of reserves to cover the months when lots of people get sick. If you increase the pool from one hundred people to one thousand people; the monthly expenses get larger, but the percentage fluctuation from month to month gets smaller. If you increase the pool to a million people; then the law remains true.

In other words, insurance works best when it insures a lot of people who might need it, but won’t necessarily need it all the time. If you have a small group; then it doesn’t work so well. If you have a group that has a lot of sick people; then it doesn’t work so well. Interestingly enough, a large portion of people who do without health care fall into the first group and a large portion of people in the second group are covered as a group in violation of good insurance principles.

The first group is the seventeen million people in the country who work full-time in this country but do not have health insurance. The vast majority of these people work for small employers (less than a hundred people) where it is too expensive for the employer to provide health care benefits. These people, who are generally between twenty-five and fifty, usually have at least one child to take care of – who usually doesn’t have health insurance, either.

The second group is the forty-one million people who are enrolled in Medicare. Since only the elderly and disabled are eligible for this program, it operates against principles of good insurance. Rather than spreading risk between members, it builds risk cumulatively. The result is higher costs to the government, higher costs to beneficiaries, and higher costs to taxpayers who ultimately pay for the program.

The solution is simple. Combining the two groups would create a larger group – which by itself averages costs downward – and a healthier group – which pushes average costs downward. Providing small business owners a tax incentive to help pay for this coverage would also allow them to compete more effectively with larger companies who can afford private benefit programs. Opening Medicare B for full buy-in to all Americans (and even non-Americans – why deny a foreigner the ability to see a doctor if they can pay for it?) accomplishes this and does it in a way that makes sense – and dollars.

The only thing standing in the way of this plan is an ideology that is blind to the real suffering of both elders and working people. It is an ideology that defines as good the effects of any tragedy so long as the government does not try to mitigate the effects. It is not too much of a stretch to say it is an ideology that is killing people. It is certainly an ideology that denies reality. As Rand would say (though she would choke in fury at my using her words to justify helping people), it is an ideology that hands us, the American people, the worst insult possible.

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