Somebody named Clinton has decided to change (there's that word) the way 90% of everybody does the Medical Thing.
For all of the sound and fury, however, the proposal is the old system disguised by Play-Doh - each dab merely a response to the whining of one group or another.
This outcome shouldn't surprise anyone. It is precisely what one would expect from a committee. Rather than starting with a blank sheet, the administration's health-care task force wrote the plan as takeouts on an existing contract. This is not change; it is trivial evolution.
To make a true leap forward, one must think - deeply. No listing, no compromise, no trading - just deep thought. Like most lawyers, neither Bill nor Hil think deeply because it never was a choice under billable hours. Their proposal clearly demonstrates this. On the other hand, if you and I dwell on the fundamentals and answer only a few basic questions, the whole problem will come clear - voila.
For argument's sake, let's assume the Health Care premium for a family of four comes to $5,000 per year for coverage of a long list of benefits ("You're covered" as Bill would say). This scenario will cover surgery, diagnostic studies, office visits and medications for our $5,000; and it will cover mammograms and Pap tests, immunizations and calcium pills. So far, this sounds like it could come from Bill or Hil.
We would make one important change to their system, however. Rather than have one premium and one insurance pool, we have decided to have two. The first premium - say, $2,500 (and I don't care what the split is) - will be only for the biggies. This insurance will cover child birth, long-term cancer therapy, heart-bypass surgery and onerous chronic problems that accumulate bills of more than $2,500. This insurance has a major medical feel to it.
The remaining $2,500 premium will be for office visits, stitches, penicillin pills, flu shots - the kind of everyday things for which people go to the doctor's office instead of the hospital.
We put our system into effect and we start writing checks (or somebody else writes the checks for us, trying to trick us into thinking they are not using our cash).
After a couple of years, even Bill or Hil will notice the check we sent away to cover the major items is often "wasted." Whenever I write this check, I feel the same as when I pay for fire insurance on my house when it refuses to burn down. On the other hand, the premium we send away for the minor stuff is working hard. For this $2,500, we see results every week.
After three years, we make an accounting. We sent the hard-working insurance company $2,500 and we got some serious benefits. We sent the other company $2,500 and got nothing.
We ask our accountant, "What goes with this major medical policy?" The accountant explains the company is putting our premium into a fund and that it is building up interest and that the Big Dollars will be there when we need them next year or the year after or maybe just the year we die. We understand now.
While on the subject, our accountant points out the hard-working insurance company is only paying for $2,250 worth of service for every $2,500 we send in each year. Indeed, it pays year in and year out like clockwork, but still only about 90 cents on the dollar. Our accountant says they have expenses.
We start to wonder why should we send $1 to an insurance company only to have them send back 90 cents to the very office where we just waited for a half hour to see a doctor for 10 minutes. (I don't wait that long in the worst line at the Acme).
We wonder why we don't hand over the 90 cents directly and pocket the dime. This way it feels a little like buying broccoli, except I always check the price on broccoli not to mention I spend a lot more than $48 a week ($2,500 divided by 52 weeks) on food and think nothing about it.
The more we think about this subject, the more it becomes obvious that insurance is a process of applying statistics to paying bills. If we have a bill that is indeterminate in size and/or timing for one individual (like my next surgery bill) but is quite predictable for a group of 1,000 individuals (all surgical bills per year), then it makes sense to share the risk with the others and only pay the portion each year that balances the books for the entire group.
If on the other hand we have a small bill that is quite predictable - like gas or heating oil or clothing or shoes or tires or water or broccoli - it makes sense to shop hard and pay cash. Our periodic office visits and penicillin bills are in this category. Why then does Bill or Hil think this should be "insured"?
Because they are trunk to tail with the elephant in front of them, not stopping to ask where they are going.
The basic flaw in the Bill or Hil plan is that somebody else always pays the bill, regardless of the price or the type of expense. Consequently, nobody goes to the doctor's office with a cents-off coupon and nobody asks the price per stitch.
Since nobody asks the price, why should a doctor ever put out cents-off coupons for stitches?
This equals Price Gridlock. With Price Gridlock nothing ever changes; ceilings become floors and vice versa. We are forever shopping blind. Bill or Hil would institutionalize Price Gridlock and create 37 million more blind shoppers.
Lee W. Minton Jr. is chief investment officer of Minton Investment Management, Blue Bell, Pa.