THE MEDICAL INDUSTRY CRISIS: A PRIVATE INDUSTRY SOLUTION

The fundamental cause of our health care crisis is how health care is paid. The insured pay premiums, annual deductibles, and, for some, fixed co-payments. Beyond these payments, their health care is mostly free. But anything that is free will be squandered. Patients don't care about whether a medical visit is really necessary, unless the reception room wait is too long. Patients don't care whether a medical test or treatment is really necessary, unless it is painful. Hospitals seem more concerned about the improved reputation they get from expensive new equipment than about how useful it is. But then, no one cares about the cost of hospital services. None of these cost the patients significantly after they pay their fixed costs and modest co-payments.

Health care is not free to the insurers, however, and they must exert control over the costs. Such controls are intrusive, are necessarily crude, and are expensive. And they don't keep costs from soaring. Health care premiums, consequently, keep rising, and people find it increasingly difficult to obtain or to keep insurance.

To address this crisis we need new kinds of health insurance policies. We need policies that require those who are insured to pay a sufficiently high portion of the cost of their medical services that they will assess their real needs more carefully. Coverage of routine and common medical expenses should be, at most, very light. Expensive and long term treatments should be heavily, but not entirely, covered. This would relieve health insurers from the current costly task of paying all covered medical bills. These policies I would then protect against financial disaster. They should make possible much lower premiums by encouraging careful use of medical services, by shifting numerous smaller costs to the insured, by reducing operational costs through elimination of many small-claim payments, and by eliminating or, at least reducing, the insurer's claim control expenses. Patients would soon become careful to avoid overly expensive medical service providers. Patients and their doctors would become careful to avoid unnecessary services.

These policies would appeal to those who are young enough to believe that they will never be ill. It also would be attractive to those who cannot afford today's high insurance premiums and seek an affordable policy that will protect them from financial disaster. Employers, too, would see these policies as a way to reduce increasingly costly employee health insurance payments by paying only lower premiums. Employee acceptance, however, probably would require some compensation with higher wages. With widespread acceptance, these policies would eventually replace today's wasteful insurance practices.

Although many kinds of policies can be conceived to meet these objectives, development of a viable policy of this sort might not be easy. The insurance industry, however, certainly has the capacity and the historical data needed to define a variety of promising approaches. Insurers might need some government encouragement. And they might need the government to get out of their way in some situations. Some large insurance companies might consider that changing to provide such policies is too drastic. But this could make them vulnerable to small, flexible, companies that are willing to develop new kinds of policies.

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