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If there was a truth drug we could secretly administer to all politicians, you would almost certainly hear them agree the current health care services are broken. The reason is easy to state. As it stands, doctors and hospitals operate under the fee-for-service system. This gives them a direct financial incentive to do more work than may be strictly necessary. Even though they may explain everything to the patient and get “informed” consent, not all the tests are strictly necessary and many of the procedures they recommend have little chance of improving patient outcomes. So the best way to improve health care in this country is to change the incentives. Instead of paying for more care, we should be paying for better quality care.

Yet if you look at the proposals made by Rep. Paul Ryan, the Republicans are now committed to changing the cost base of health care. In particular, they want to change the entitlements our seniors have under Medicare. It’s undoubtedly true the service is buckling under the rising burden of spending. Way back in 1965 when we created Medicare and Medicaid, the government spent 2.6% of its budget on health care. Last year, our government spent 26.5% of its budget on health care. If you look at the projections published by the White House, President Obama is projecting this will rise to 30% by 2016. To give you a context, the projected spending on our defense is only 20% of the budget. Just think, all those weapons and people, fighting wars in Iraq and Afghanistan. Something has to be done to bring costs under control.

The unanswered question is how you can bring out-of-control spending under control. For Medicare, Ryan proposes introducing a voucher system in 2022. He believes that, if you give our seniors control over their own budgets, they will seek out the lowest-cost medications and treatments. If you do that to the 48 million seniors expected to be a part of Medicare in ten years time, this will either make or break the system entirely. But there’s no guarantee seniors will have the knowledge and determination to insist on less waste in the system as a whole. Take a simple example. If the effective treatment is ten pills spread over five days, will patients refuse twelve pills? Now scale that up across all treatments. It would be far better for government to regulate, setting national care standards so that our health care service only offers treatments where the evidence clearly shows them to be effective. This is the European approach where the public purse will only pay for the treatments approved by their local quality assurance departments. (more…)

Back in June 2010, a special-interest Proposition 17 appeared on the ballot papers. It was pushed through the electoral process by Mike D’Arelli of the Alliance of Insurance and Brokers. Before it got on to the ballot, there was a court case – a rite of passage for anything affecting consumer rights in California. Both the “for” and “against” camps pushed for changes in the wording of the proposition and of the rebuttal. Judge Allen Sumner tweaked the wording on both sides leaving no one satisfied, but the Proposition went to the voters. There was a major advertising campaign paid for by Mercury Insurance. It’s estimated it provided a war chest of $16 million. There were ads everywhere and, when the dust had settled, the Proposition was defeated by 52 to 48% – not the most convincing of rejections. So what’s the issue?

Mike D’Arelli argues insurers should be allowed to look at your past coverage history to decide on the premium rate. So, for example, if you currently enjoy a loyalty discount from your current insurer, and you are looking around the market to decide whether to switch, all potential insurers should be allowed to match that discount. The expectation is that this will improve price competitiveness and, in the long run, reduce rates for drivers. But, let’s say there’s a gap in the coverage history. Perhaps you moved into an inner city area where it was inconvenient to garage your car and there was good public transport. Giving up your vehicle while living there looked at good option. From the point of view of insurers, this means you are losing experience. When you practise a skill every day, you consolidate what you know and adapt to the evolving behavior on the road. Take a break and there’s a slight increase in the risk of an accident while you get back into the groove.

The “no camp” seized on this as an excuse to raise premium rates during a recession without having to explain or justify premium hikes. Young drivers going off to college, members of the military going overseas, and seniors could all face rate increases if there was a gap in coverage. This could be hundreds of dollars at a time when everyone was facing financial hardship.

Well, Mike D’Arelli is back again with a newly worded initiative. He claims to have listened to all the objections raised last year. The new wording will ensure more people see rate reductions than increases. If this survives a review by California’s Attorney General, the next step will be collecting half-a-million signatures from registered voters to qualify for the next ballot. (more…)