By John F. Di Leo -
Again the nation is divided on health care, just like seven years ago.
Well, perhaps not “just like” seven years ago… because today, the nation is united in wanting Obamacare gone. The whole country understands that the ill-named Affordable Care Act was the single most destructive law in a century of destructive laws, so virtually everyone – except a few hack politicians and hack journalists – want it repealed, STAT.
The challenge before Congress is what to replace it with. We had a great healthcare system a decade ago, the best on earth, but it did have some serious challenges, chiefly centered around affordability… and these challenges took over the debate, warping the arguments and warping the system.
In order to properly consider our options for reform of this very complex one- seventh of the American economy, let’s consider an arena that’s just as familiar but easier to grasp.
The Hotel Business
People need to travel.
Now, that doesn’t mean that all travel is mandatory – certainly there’s a mix between mandatory travel and optional travel – but the need exists, across the board, so there is so much travel available to meet this need, it has enough in common with the healthcare business to provide at least some relevant examples. Let’s consider the essentially unregulated hotel industry, and see where there might be some lessons for the matter at hand.
Why do we travel?
We may travel for business, for sales calls or audits or engineering meetings or any other kind of temporary work away from home. One might visit the same town again and again, because that’s where a client or subsidiary is located, or one might visit different places on every trip, because clients or vendors are scattered around the country or around the world.
But we may also travel by choice, on vacations, both short and long. We may like a certain region, and stay there every time, or we may want to see the world, and therefore go to different locales every time – big cities or small towns, scenic park areas or rustic harbors, theater districts or ski lodges.
What accommodations are offered?
Over the centuries, the free market gradually developed to meet this need. Originally, inns were just rooms rented out by restaurateurs; over the years, the concept expanded in every possible direction.
Today we have luxury hotels with personalized room service and suites the size of a millionaire’s penthouse; we have budget hotels with a single bed and a small bathroom… and everything in between.
All of them have a “rack rate” – a high price that nobody really pays… because it is to the advantage of the hotels to incentivize membership in auto clubs like AAA, senior groups like AMAC, associations like the NRA, or corporate travel agencies like Carlson-Wagonlit. Depending on the volume such groups boast, they can offer anywhere from small to huge discounts off that rack rate. So instead of paying $100/night, regular folks pay $80, or $70, or $50. And instead of paying $1000/night, the wealthy pay $700, or $600, or $500.
These associations advertise for the hotels, building their own websites, their own reservation systems and payment engines. This reduces the workload and credit risk for the hotels, so they can lower both their costs and their prices. We don’t mind this process; we like it, and we use it.
For someone who doesn’t belong to any of these associations, hotels might seem prohibitively expensive… and yes, some certainly are. But if you belong to the right association for you, you should be able to find a good match – in service, location and price – for your personal needs, if you keep your expectations reasonable.
For me personally, for example, a program that gets me 40% off a deluxe suite at the Four Seasons would be pointless, as $1200/night is hardly more affordable for me than $2000. But a program that gets me 40% off a room at a Courtyard might be perfect, taking my price down from an unaffordable $150 to an affordable $90.
There are programs for people who travel a little, and programs for people who travel a lot. Hotels for people who want the most luxuries or the hippest locations, and hotels for people traveling on a budget, who don’t mind staying in a cheaper neighborhood, then driving a bit.
Everyone is in a different boat, and the incredible variety of hotels, discount plans and related programs ensure that there is something out there for almost everyone. Whether the company pays or I do, whether one travels alone or in a group, whether one needs the hotel to have a restaurant, a bar, a ballroom or meeting rooms, the free market has provided it for us.
In the end, the only people who can’t afford to travel at all are people who don’t have enough money, people who are broke, or unemployed, or underpaid. They are there; in fact, it’s certainly over half the country. We have 95 million outside the workforce right now, and many millions of those who are employed are in fact somewhat, or even severely, underemployed.
That is true, and it does affect the hotel business, but it’s not the hotel industry’s fault, is it? If there are a lot of people who can’t afford a hotel room – and there are – then that’s a very different problem. The government certainly SHOULD have a goal of spurring such economic growth that working Americans should be able to work hard, get promoted, or start their own businesses, so that they can travel and enjoy this wonderful country.
Every American SHOULD be able to afford a hotel room, without subsidies or micromanagement of the hotel industry. For those who can’t afford it, the problem is not with the hotel business.
So the hotel business isn’t the place to look for the solution to that challenge. That solution is found in the tax code, and in the crippling regulations in millions of pages of the federal register, and the education system and the criminal justice system – everything else that contributes to Americans facing obstacles to improving their standards of living.
Health Care in America
Now, we’re not going to claim that hotels and healthcare are identical businesses. One can operate with primarily relatively low-skilled staff; the other requires highly-educated personnel. In one, the cost of materials – linens, cleaning supplies, fixtures and furniture – can be kept low and still be functional; in the other, the quality and expense of the materials and equipment – from syringes and stethoscopes to EKGs and MRIs – must surpass a much higher minimum quality level.
But there are huge similarities as well.
Quantity / Amount of Use:
Both have a wide range of quantity needs, from person to person. Just as some people only need a hotel room one or two nights a year, some only need to see a doctor one or two times a year. And just as some people travel a hundred days each year for work or for pleasure, some must spend weeks or months in hospitals at a time.
The free market has been allowed to adjust to fit all these groups’ needs, where hotels are concerned, but the market has been ordered to provide everyone in the country with a complex, comprehensive program for the healthcare super-users.
If infrequent travelers don’t have to subsidize the frequent travelers for the hotel business to succeed, why are infrequent healthcare users told that we must subsidize the frequent healthcare users in order for the healthcare industry to succeed? It’s just been assumed, for years, but is it rational?
Necessity vs. Discretionary:
The hotel business has a huge range of clientele, from those who must travel, to those who do so entirely by choice. While the healthcare industry doesn’t have nearly so wide a range of volunteerism in its clientele, the difference does exist, to an extent.
We all need to go to the doctor for a sinus infection, or ear infection; we all must go to the hospital for cancer or broken limbs. But we can usually treat a virus at home; we can reduce the odds of many chronic conditions by diet. We can reduce the odds of some bone and joint ailments by avoiding dangerous sports; we can reduce the odds of sexually transmitted diseases by being chaste. We can reduce the odds of lung cancer and COPD by simply choosing not to smoke. We can reduce the odds of gunshot and knife wounds by staying out of gangs, and living in safe neighborhoods.
Nothing eliminates all risks, but many choices can greatly reduce or exacerbate them.
The Obama administration, through passage of Obamacare, decided that all healthcare was everyone’s responsibility, whether the patients lived a risky lifestyle or a cautious one. The Obama administration decided that taxpayers should fund a prisoner’s sex change operation, an illegal alien’s knife wound, or an employee’s abortion, whether the taxpayer or employer even approved of such choices or not.
We now have the opportunity before us: to reconsider such choices, and to ask if the free market can perhaps accommodate these challenges better than government micromanagement could. Seven years in, it’s clear that the market could hardly do worse.
Level of Care:
In the hotel business, if you want a small, cheap room, you can get one. It’s available; just drive in.
And if you want a luxury suite five or ten times that size, with satin bed linens, a down comforter, a private bar and a view of the city, you can get that too. It’s available; they’ll even pick you up at the airport.
By the same token, there was a time when hospitals and doctors’ offices had a much wider range of square footage allocations for different patients. There would be floors with dorm-style care, floors with private rooms, and in-between options like two or three to a room with curtains for privacy, all at different rates.
Over the years, as direct payment by patients has diminished and standardization by government and the big insurance companies has taken over, we see hospitals switch over more and more to the private room approach. No one will deny that it’s preferable, but it’s an expense; walls are more costly than curtains, and take up more space… and it takes more and better nurses and communication systems to take care of a floor full of private rooms.
For some illnesses, of course, private rooms are critical… but not for all. If left alone, the market would not have driven so much expensive construction, but the market has not had the chance to utter a peep, for decades now.
You choose your insurance plan when you’re well, but you enter the hospital when you’re sick. So the insurance plan offers hospitals that are appealing to the healthy purchasers of insurance at Open Enrollment time, and the hospitals remodel themselves to appeal to the insurance plans.
Rack Rates and Discounts
In the hotel business, everyone knows what the list price of the room is; it’s posted on the back of the hotel room door. Nobody pays that price, but it’s there just in case, for those without a discount plan, and it’s also there so that the rest of us can tell just how helpful our discount plan was.
What many Americans don’t realize about healthcare is that it’s exactly the same way in the healthcare world.
An office visit necessitated by a sinus infection might have a rack rate of $150, for example, but if you walk in with an insurance card, your insurance company has probably negotiated a $75 or $100 price for it. Your copay may be $10, or $20, or even $30 or $40, but the most important aspect of this issue is that the bottom line price has dropped. Your insurance plan helped you out before it even chipped in its portion.
We all demand that the insurance company pay the lion’s share of it, but we forget that just having this insurance in place at all has already cut our price in half. We could pay much lower insurance premiums if we would agree to waive the copay entirely, and pay the full discounted rate ourselves, recognizing that our insurance plan already got rid of half of it for us.
But in Obamacare, the government restricted our choices here. Unsatisfied with the fact that a discount is already provided, the insurance plan is ordered to cover a visit for free each year, even more than one visit, in some cases. Well, whatever we make the insurance company pay for, the insurance company obviously has to build into its premiums!
Most of us would do better – much better – if we forced the insurance company to pay for less, and we dealt with these regular visits on a fully out-of-pocket manner. Premiums would be far lower, and we’d keep the difference. But Obamacare forces insurance companies to make so many things appear free, it’s all built into our premiums.
Just imagine, making the most out of the “discount plan” aspect of insurance for our basic healthcare needs, and only buying insurance for what insurance was really MEANT to be for: the big catastrophic things like broken limbs and cancer. We’d still benefit by the plan’s lowering our regular healthcare costs, but the premiums wouldn’t kill us, if they only had to write checks on the catastrophic events.
A Healthcare System, Redesigned
Any analogy must end eventually; there are still many differences between hotels and hospitals.
But the similarities described above should teach us that – while the insurance business is necessary for catastrophic healthcare in a way that doesn’t exist for hotels – there is yet much that the healthcare industry could learn from hotels, in the non-catastrophic arena.
If we freed the healthcare industry to function in a free market, the vast majority of us could pay lower premiums – much lower premiums – while still seeing to such basic needs as much more affordable routine doctor visits.
We could have the variety we expect in catastrophic plans, between high and low deductibles ($500/year vs $3000/year), between more generous and less generous payment percentages (90-10, or 80-20, or even 50-50). The average consumer can judge what he needs for himself and his family far better than the politician or bureaucrat in Washington.
Hospitals can and do offer pro bono care to the indigent, but we owe it to them to reduce the gross number of indigents, don’t we?
We can expel the illegal aliens who burden our system illegitimately, and we can reduce the number of indigent citizens who remain by improving the economy and getting them jobs. And that’s exactly what we should be doing, anyway, isn’t it?
In the end, the main problem with our healthcare debate has always been that we tried to treat the symptom rather than the cause: We said “it costs too much” without considering the fact that for many of us, everything costs too much, not just healthcare! For the unemployed, the underemployed, the unskilled, nothing can make healthcare affordable. Instead of blaming healthcare, we should blame the state-directed, un-American economic system that has made so many occasionally broke or utterly poor.
Why have we lost millions of manufacturing jobs in recent decades? Why has entrepreneurship plummeted since the passage of Obamacare? Why are so many talented, experienced engineers, salesmen, buyers, managers and other professionals broke?
Because our government’s policies have driven companies out of business and across the seas.
Remove the artificial 50-person threshold for obamacare, and part-timers will be rehired to full time, and companies itching to expand will be able to do so again. Allow the insurance market the freedom to offer a wide variety like it used to, and millions of individuals will start up the businesses they’ve been itching to launch for seven years, but haven’t dared to as long as Obamacare’s burden was so crippling for the entrepreneur. Cut our corporate income tax rate in half, and plants that have fled to foreign shores will return, creating new jobs for everyone from the newbie on the assembly line to the plant manager again.
If we fix these policies, then far more people will have a better living, and better private-sector insurance plans, so they can better afford it when they do get sick… and they won’t be the burden of unsustainable government programs like Medicaid and Obamacare anymore; they’ll be in a position to take care of themselves and their families again, as every American should.
Healthcare is a huge and complicated sector of our economy, and there will always be challenges, but we can solve so many of them by simply applying the free market… and by learning just a bit from the world of hotels, so that an overnight stay – whether the bed is equipped with a comfy pillowtop or a nurse’s call button – can indeed be accomplished without breaking the bank.
Copyright 2017 John F. Di Leo
John F. Di Leo is a Chicago-based international trade compliance trainer, writer and actor. His columns are regularly found in Illinois Review.
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Big Pharmacy & Big Insurance have been walkin’ the dog for
The billing fiascos known as Medicare & Medicaid have been billed one amount & pay a lesser amount. Most people are aware of this.
DOCTOR Ron Paul said YEARS ago that when CONgress first got involved in Healthcare with HMOs and PPOs it was bad news.
So now cancer is being cured in Mexico, Columbia, etc. and the U.S. rating compared to other countries is around 25th.
We’re the world’s #1 military machine though!
I “read through” the 122 page bill, but didn’t really understand it. Most of it deals with financial aspects (which are confusing unless you have the original act to refer to), but there are good parts, especially the repeal of various taxes and elimination of penalties for not having insurance. However, the bill still talks about exchanges, so will those still stand? One of the things that annoys me is the so-called enrollment period, which seems to have been left in as well. Why should people only be allowed to get insurance for a few weeks every year? That wasn’t always the case. There are other good things in the bill, such as increasing the allowable amount in HSA and not requiring insurance to fund abortions (although plans can do so if they wish — they’re just not forced to). There still seems to be a lot of governmental control in this bill.
Do you think they considered frequent flyer miles?