Medical Lines of Credit, a solution to overconsumption (Geocities Rescue
Limited health insurance reform has occurred, with the inclusion of Medical Savings Accounts on a limited basis. This may yet reduce the demand for health care and lower medical costs. However, their usefulness is limited to those with full time jobs or government benefits. They do little for the under-employed and the newly employed, or for low income elderly who are not yet offered prescription coverage. This essay offers a new tool to lower health care costs, the Medical Line of Credit.
Medical Lines of Credit (MLCs) are credit lines available to employees to purchase routine medical care, satisfy co-payments and obtain health care services, such as chiropractic and message therapy, which are outside of traditional health care plans. To settle outstanding balances 8% of annual use plus interest is withheld from employee pay or benefit checks. This automatic withholding keeps MLC interest rates down. To further depress interest rates, sponsoring employers are required to guarantee the balance. Balance repayment is on pre-tax income, cutting individual tax liability.
Medical Lines of Credit for co-payments give people access to doctors and medication that otherwise do not have it. Co-payment requirements force individuals with marginal incomes to choose between food and medicine. For sudden emergencies, MLCs remove this dilemma. As part of a more comprehensive reform, adjust co-payment and repayment requirements by income level, with partial repayment by the government under a medical care tax credit.
Medical Lines of Credit are provided in concert with a catastrophic health insurance plan. MLCs act as a disincentive to overuse because the balance is eventually paid back. Elective and non-critical care are demanded less, reducing the use of the medical care system and thus lowering cost. Individual economic incentives are a much more effective means of cost control than top-down measures, such as those used to control social security costs, which often hit the least able to pay the hardest. MLCs are designed to provide greater access to the working poor in a way other plans do not.
A maximum-balance trigger for non-elective expenses is included to have a portion of the outstanding balance covered by insurance so that families are not driven into bankruptcy by sudden high expenses or chronic illness. The inclusion of such a trigger expands the scope of "catastrophic insurance" portion of the health care plan, allowing higher premiums than normal catastrophic insurance because more risk is covered.
An alternative to such a trigger is a tax credit for MLC costs above a certain level based on income, paid at withholding. For individuals dealing directly with the health insurance provider, this would adjust the premium, with the provider billing the Internal Revenue Service for the balance. For example, if an individual had a payment obligation of $90 per month but was entitled to receive a tax credit for any payment over $45, the employer adjusts the federal tax obligation or the provider bills the government $45 per month.
Finally, the Medical Line of Credit is also be used in concert with MSAs, as MLCs cover the gap between the catastrophic deductible and the MSA contribution or to cover expenses once the MSA is exhausted for the year.
The Causes of the Health Care Cost Explosion
The debate on the causes of the health care crisis has not, as yet, explained all the factors leading to the health care cost explosion experienced by firms and individuals. Although mismanagement and cost shifting explain much of the recent cost explosion experienced in recent years, they do not explain all. Over-consumption by the insured, especially when that insurance is employer provided, also deserves some large share of the blame.
Over-consumption is easily understood using economic theory. Health insurance obscures the total cost of health care consumed, i.e. the user directly pays only a small fraction of the true cost, the rest being paid by insurance (which is paid for directly or indirectly by the beneficiary - often through an employment benefit in lieu of income).
Originally, insurance was meant to ease access to health care in an emergency through risk sharing, so finances do not stand in the way of medical need. However, in recent decades non-price competition by the insurance companies to offer more benefits has led to an expansion of health insurance to an omnibus system of health coverage, which over-covers the insured - thus taking away the emergency nature of it and causing costs to skyrocket. This happens because the economically rational consumer seeks a level of health care at a level corresponding to out of pocket costs, as the indirect costs are paid for him or paid directly in a periodic premium regardless of use. As the out of pocket costs are much less than the total cost, a much higher level of health care is purchased than is the case in the absence of health insurance.
Over-consumption by insured individuals leads to an over-demand for health care. To meet this demand, health care providers who once charged $15 for an office visit or procedure now charge $75 (assuming an 80% deductible the patient pays $15) to provide the same level of service (even after inflation is factored in). If the provider did not increase her fees she is working harder for less or the same money, which is hardly fair or rational. These fees increase to meet the over-consumption of health care have resulted in the cost increase currently being experienced in the health care system (which eats up an increasing share of the gross national product and continues to in the foreseeable future unless action is taken to curb it). The vast majority of people don't feel the impact of increasing costs, as insurance provides a buffer. Only the uninsured feel the pinch. Further, this lack of visibility by the average consumer into cost has taken visibility away from the other sources of cost increase, the malpractice crisis and the over-purchase of high technology big-ticket items.
The increase in cost has led insurance companies to an effort to control costs elsewhere by reducing coverage - adding such things as pre-existing conditions clauses and limitations on the insurance of high risk activities and limiting coverage for small group clients. This is only rational, as costs are out of control. The result of this const control is mandated coverage rules on behalf of the insured through their state insurance commissions (such as the right to mammography in the District of Columbia), which further increase costs and lead to even higher premiums (for both corporations and individuals) and the rise of the legions of health care bureaucrats who keep up with the paper chase required in both doctors' offices and insurance companies.
The hardest hit by over-consumption by the insured are the uninsured. Without insurance their out of pocket costs are up to five times higher than they would otherwise be, effectively pricing them out of all but emergency health care. Without over-consumption some basic level of care might have been possible. However, because they often cannot afford insurance, due to low income or a marginal employer who cannot afford to provide insurance and stay in business, they go without health care, as do the chronically ill who change jobs.
A final factor in over-consumption of certain services, particularly the emergency room, is the lack of sick leave among the working poor. Even given the most generous insurance package or adoption of single-payer, these individuals continue to demand services on Sunday nights at the E.R., which is the only time they are able to take a break from work to take family members to the doctor. Any solution to the problem of over-consumption need also include the right to sick leave for every worker.
Medical Lines of Credit (MLCs) are credit lines available to employees to purchase routine medical care, satisfy co-payments and obtain health care services, such as chiropractic and message therapy, which are outside of traditional health care plans. To settle outstanding balances 8% of annual use plus interest is withheld from employee pay or benefit checks. This automatic withholding keeps MLC interest rates down. To further depress interest rates, sponsoring employers are required to guarantee the balance. Balance repayment is on pre-tax income, cutting individual tax liability.
Medical Lines of Credit for co-payments give people access to doctors and medication that otherwise do not have it. Co-payment requirements force individuals with marginal incomes to choose between food and medicine. For sudden emergencies, MLCs remove this dilemma. As part of a more comprehensive reform, adjust co-payment and repayment requirements by income level, with partial repayment by the government under a medical care tax credit.
Medical Lines of Credit are provided in concert with a catastrophic health insurance plan. MLCs act as a disincentive to overuse because the balance is eventually paid back. Elective and non-critical care are demanded less, reducing the use of the medical care system and thus lowering cost. Individual economic incentives are a much more effective means of cost control than top-down measures, such as those used to control social security costs, which often hit the least able to pay the hardest. MLCs are designed to provide greater access to the working poor in a way other plans do not.
A maximum-balance trigger for non-elective expenses is included to have a portion of the outstanding balance covered by insurance so that families are not driven into bankruptcy by sudden high expenses or chronic illness. The inclusion of such a trigger expands the scope of "catastrophic insurance" portion of the health care plan, allowing higher premiums than normal catastrophic insurance because more risk is covered.
An alternative to such a trigger is a tax credit for MLC costs above a certain level based on income, paid at withholding. For individuals dealing directly with the health insurance provider, this would adjust the premium, with the provider billing the Internal Revenue Service for the balance. For example, if an individual had a payment obligation of $90 per month but was entitled to receive a tax credit for any payment over $45, the employer adjusts the federal tax obligation or the provider bills the government $45 per month.
Finally, the Medical Line of Credit is also be used in concert with MSAs, as MLCs cover the gap between the catastrophic deductible and the MSA contribution or to cover expenses once the MSA is exhausted for the year.
The Causes of the Health Care Cost Explosion
The debate on the causes of the health care crisis has not, as yet, explained all the factors leading to the health care cost explosion experienced by firms and individuals. Although mismanagement and cost shifting explain much of the recent cost explosion experienced in recent years, they do not explain all. Over-consumption by the insured, especially when that insurance is employer provided, also deserves some large share of the blame.
Over-consumption is easily understood using economic theory. Health insurance obscures the total cost of health care consumed, i.e. the user directly pays only a small fraction of the true cost, the rest being paid by insurance (which is paid for directly or indirectly by the beneficiary - often through an employment benefit in lieu of income).
Originally, insurance was meant to ease access to health care in an emergency through risk sharing, so finances do not stand in the way of medical need. However, in recent decades non-price competition by the insurance companies to offer more benefits has led to an expansion of health insurance to an omnibus system of health coverage, which over-covers the insured - thus taking away the emergency nature of it and causing costs to skyrocket. This happens because the economically rational consumer seeks a level of health care at a level corresponding to out of pocket costs, as the indirect costs are paid for him or paid directly in a periodic premium regardless of use. As the out of pocket costs are much less than the total cost, a much higher level of health care is purchased than is the case in the absence of health insurance.
Over-consumption by insured individuals leads to an over-demand for health care. To meet this demand, health care providers who once charged $15 for an office visit or procedure now charge $75 (assuming an 80% deductible the patient pays $15) to provide the same level of service (even after inflation is factored in). If the provider did not increase her fees she is working harder for less or the same money, which is hardly fair or rational. These fees increase to meet the over-consumption of health care have resulted in the cost increase currently being experienced in the health care system (which eats up an increasing share of the gross national product and continues to in the foreseeable future unless action is taken to curb it). The vast majority of people don't feel the impact of increasing costs, as insurance provides a buffer. Only the uninsured feel the pinch. Further, this lack of visibility by the average consumer into cost has taken visibility away from the other sources of cost increase, the malpractice crisis and the over-purchase of high technology big-ticket items.
The increase in cost has led insurance companies to an effort to control costs elsewhere by reducing coverage - adding such things as pre-existing conditions clauses and limitations on the insurance of high risk activities and limiting coverage for small group clients. This is only rational, as costs are out of control. The result of this const control is mandated coverage rules on behalf of the insured through their state insurance commissions (such as the right to mammography in the District of Columbia), which further increase costs and lead to even higher premiums (for both corporations and individuals) and the rise of the legions of health care bureaucrats who keep up with the paper chase required in both doctors' offices and insurance companies.
The hardest hit by over-consumption by the insured are the uninsured. Without insurance their out of pocket costs are up to five times higher than they would otherwise be, effectively pricing them out of all but emergency health care. Without over-consumption some basic level of care might have been possible. However, because they often cannot afford insurance, due to low income or a marginal employer who cannot afford to provide insurance and stay in business, they go without health care, as do the chronically ill who change jobs.
A final factor in over-consumption of certain services, particularly the emergency room, is the lack of sick leave among the working poor. Even given the most generous insurance package or adoption of single-payer, these individuals continue to demand services on Sunday nights at the E.R., which is the only time they are able to take a break from work to take family members to the doctor. Any solution to the problem of over-consumption need also include the right to sick leave for every worker.
posted by Michael Bindner at 10:47 PM
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