Fixing Health Care

Abstract: Fixing America's health care system requires the Federal government to establish one set of rules for all states and health care related industries. This includes standardizing rules for insurance companies, hospitals, and doctors. Doing this will create an atmosphere of true competition among providers and help turn health care into a commodity. Once that happens, performance will improve and prices will drop.

Discussion
For my first blog post I'm going to aim high: Fixing health care! I'm not going to waste your time talking about the urgency of this issue. Volumes have been written on that. For a good read and some staggering statistics, take a look at the following article from the National Coalition on Health Care (NCHC): http://www.nchc.org/facts/cost.shtml.

The question now is what can we do to fix the system? A common theory is to nationalize the system. A major problem with this is it simply changes the payment structure, not the costs themselves. You may no longer have to pay when you go to the doctor, but that's because 20% (or more) of your paycheck will be going to the government's health care plan.

The next idea is to combine a nationalized health care system with cost restrictions on health care providers. Limit how much those nasty hospitals and doctors can charge. I'm not sure that's a good idea either. The medical profession is already losing doctors at a staggering rate due to malpractice and other legal concerns and expenses. Start capping their salaries and you will discover that few talented people are going to be willing to sacrifice their 20's to get into the profession.

"But it works for Canada," you protest. You're right, the Canadian system does seem to work. It has its problems but in general every Canadian I've talked to much prefers their system to America's. Before you start patting yourself too hard on the back for this counter argument, ask yourself this: Which country provides the majority of the world's medical breakthroughs? The answer is the United States where the profit incentive motivates the best and brightest minds to enter the medical field. Remove that force and Canada (along with every other country) will soon find medical breakthroughs slowing to a crawl.

So there are your options with a nationalized health care system: Pay a significant amount of every paycheck to the government to cover costs or reduce the payouts and, hence, the quality of care that people receive.

Like most of our politicians and political analysts, all I've done so far is point out what won't work. I promised at the start to give you something that will work. So here it is: A standardization of health care regulations nationwide.

Consider this example:

Company ABC decides to get into the widget business in the state of Illinois. They spend years developing a great product. They also invest in creating industry leading software and processes for managing customers and vendors. In short, they become a lean, mean machine that produces the best widget in Illinois. Within 5 years they are dominating the Illinois widget business because they're providing the best product at the lowest price.

Then Company ABC decides to go after Wisconsin's widget business. After all, they've got all the infrastructure in place already - great product, procedures for dealing with customers and vendors, and a management team that knows how to succeed because they've already done it in Illinois. So company ABC moves into Wisconsin...then Iowa....Indiana...and so on.

At each step of the way, Company ABC encounters new competition. This forces both ABC and their competitors to work harder and harder to provide a better product at a lower price. If they don't, they'll start to lose customers. To see this in action, just change Company ABC to be Dell Computers or Crest Toothpaste or Suave shampoo. All of these companies work in a truly competitive environment and provide good products at a low price because that's what competition does.

Now let's change the rules. Let's say that when Company ABC decides to sell in Wisconsin, the state legislature tells them they can only produce their widget in Red and White, they must use paint manufactured in Wisconsin, have to register every purchaser with the state commerce department, must offer 3 different kinds of insurance to customers at purchase time, widgets must come with a 5 year warranty, the product must be sold through stores only (no online sales), 4 different warning stickers have to be placed on each widget, and the packaging can only be made from recycled news paper.

What do you think happens to the price of the widget in Wisconsin? It goes way up because ABC has to hire a bunch of new staff to deal with the new laws and regulations, they have to redesign the product, and they have to rewrite a bunch of their software and procedures to deal with the new rules. Now what if every state had a completely different set of regulations for selling widgets? The answer is that ABC would either not try to branch out or it would take them years to expand. It would also make their internal processes and structures much more bloated and harder to manage. This would mean a significantly more expensive widget for everyone.

This is exactly how the health care system in our country works. If you're an insurance company, you have to rewrite a whole new set of rules every time you try to go into a new state. That's expensive. It also means that all the efficiencies realized so far by a company are pretty much useless. And insurance companies aren't the only ones. What if a hospital really mastered great care in their state. Shouldn't they be able to branch out? Just like Wallgreens or Target? But this won't happen because the rules governing each state are so different and complex. It's not worth the cost for companies to do this and those that do must charge much higher prices to recover their investments.

The other side effect of all these different regulations is a significant reduction in competition. If Company XYZ know it's very expensive for ABC to move into their territory, they're going to charge rates that are just barely low enough to discourage ABC from investing in coming to their territory. While low enough to keep ABC out, those rates are going to be much higher than they would be if Company ABC was actually in town.

Conclusion
If people really want to see a reduction in health care costs, then start petitioning your politicians to nationalize health care regulations - not the health care system itself - so that we can see legitimate, nationwide competition amongst all health care providers. This will drive quality service up and costs down.