The healthcare debate is one that every American should understand. Transforming it represents transforming 1/6th of the [U.S.] economy.  The first thing to clarify is the confusion regarding the terms healthcare and health insurance. America provides Universal Healthcare now. If by Universal Healthcare, you mean every citizen can access healthcare. In 1986 congress passed the Emergency Medical Treatment and Active Labor Act which requires ambulance services and hospital emergency rooms to service and treat any patient regardless of their ability to pay. What every American doesn’t have is Health Insurance. Commonly the figure of 47 million is used to indicate how many people in America do not have health insurance. It is easy to jump to the conclusion that 47 million people need our help. This is not true. This figure is misleading because it includes the following (statistics supplied by Keith Hennessey, former economic advisor to the White House):

• Almost 10 million non-citizens
• About 4.3 million who are on Medicaid/SCHIP programs but do not report that to the Census
• About 10.1 million who have household incomes at 300% over poverty levels
• About 6.4 million who are actually covered by Medicaid
• About 5 million adults without children
  

This leaves approximately 11.2 million people that need assistance getting health insurance (remember these people already have health care). This is out of a total population of 304 million in the [US], or about 3%. We may need a short term solution for the non-citizens, but a significant part of the long term solution must be one regarding stopping illegal immigration through a good border solution (a topic for another article). The point here is that the problem regarding the un-insured is a small part of the problem. The real problem that is crippling our nation is COST. It is costly to the individual, the employer, and the government. Cost is being generated in large part by these sources:

• Government programs (Medicare and Medicaid). Basically the formula for these programs is that they consume $15 dollars worth of goods from healthcare professionals, reimburses them $10, and collects enough tax revenue to cover $5. So the $5 they didn’t pay the doctor means the doctor has to charge a privately covered person $20 for that service, and the $5 that the government didn't collect in taxes gets added to the national dept. According to the Governmental Accounting Office (GAO) the liability of Medicare and Social Security alone equals $455,000 for every household in America.
• Lawsuits and Tort: Lawsuits for damages have gotten so out of control in our nation that the $15 of healthcare good previously mentioned should in fact cost $10 but the doctors malpractice insurance is so high because of lawsuits he has to charge $15. In addition, the doctor is doing extra tests and paperwork to protect himself so in fact that $10 should be $8 without those burdens and behaviors. (figures not actual, they are just for illustration)

Often the following arguments regarding cause are made for the cost of healthcare:

• We do not focus enough attention on wellness and preventative medicine.
• The current system is massively inefficient. We need to leveraged technology more.

Wellness and preventative medicine are wonderful initiatives and should of course be pursued, and in fact already are in impressive ways. They will not however reduce the cost of healthcare by any significant amount. Approximately 90% of the cost of an individual’s healthcare is occurred during the final 1 or 2 years of life. Health and wellness programs could prevent some issues and perhaps prolong an individual’s life but the final 1-2 years will eventually come and they will always be difficult (i.e. costly) to maintain. Ideas about mandating doctors to record, monitor, and prescribe lifestyle and health education into the individuals medical records will only increase the paperwork burden and lawsuit expose doctors already carry.

Technology can improve business process efficiencies but Emergency Medical Record (EMR) systems are not the cure for an illness of this size. Technological improvements and efficiency gains are often bottlenecked by the inability of an organization to change business processes to maximize new ways of doing business. The previously mentioned paperwork burden and tort risk doctors faces will not be erased by improved computer software.

What solutions stand a chance at fixing the real problems of cost? There have been many offered and here are some to take seriously.

• Tort Reform - limit the amount of damage awards patients can receive. This would reduce risk to insurance companies who could then reduce rates. In addition this would take away the incentive for doctors to over-treat patients (also called defensive or legalistic medicine) for the sake of protecting themselves from lawsuits.
• Remove artificial supply limits - some specialties limit the number of doctors that are allowed to graduate from medical school artificially keeping the supply for the services low and therefore the cost (salaries) high.
• Remove the employer from the health insurance equation - there is no logical reason why your employer should control what insurance policy you can have. This hides the true costs from the individual which incents them not to perform cost comparison shopping.
• Remove the inter-state restriction on insurance plan competition - there are many insurance plan providers but their competition is limited because an individual cannot buy from a provider outside their state. It is an artificial market limit which drives up cost, reduces competition and consumer choice. There are over 1,000 health insurance providers in the US, but you can't get to them because of this and the employer middleman.
• Change the expectation of the individual to expect coverage for major health issues and all minor costs and services pays out of pocket. Similar to car insurance; if I get in an accident I turn to insurance, if I need an oil change, I pay for it out of pocket. We should use a similar model in healthcare.
• Get people off government programs. Government programs do not reduce cost or stay within budget over time. That is a sad truth. Private business is kept honest by competition and proper government oversight. The government will likely always have to subsidize low-income individuals to ensure they can purchase plans which is fine, but the cost of that would be significantly less than the Juggernaut we call Medicare.

The problem with the public option concept

A government run health plan would be problematic. Government plans would have an unfair advantage over public plans for the following reasons:

1. Government plans do not have to pay taxes which would reduce their cost, a benefit unavailable to private providers.
2. Government plans do not have to pay legal fees which would reduce their cost, a benefit unavailable to private providers (assuming you could sue them which right now you cannot even if they make a horrible mistake).
3. Government plans have access to tax subsidies, a benefit largely unavailable to private providers.
4. Government programs have horrible track records at controlling costs (initial cost estimate for Medicare was 10 billion dollars, it actually cost 107 billion).
5. Government programs have horrible track records at controlling fraud (estimations of fraud for Medicare and Medicaid are near $70 billion annually).
6. Government programs have horrible track records of not becoming political battlegrounds.

The first three items have a high probability of putting private insurance providers out of business over time, leaving only the government plan.

Lastly, much has been said about rationing, that it will happen with government programs. No one intends this to happen, of course, but the reason it is likely is because if the government covers everyone but the supply is limited there is only one way to address that, not everyone gets it, at least not right away. This is the reason that if you have breast cancer you are 52% more likely to die from it in Germany and 88% more likely in the UK, than you are in the US. If you have prostate cancer you are 604% more likely in the UK and 457% more likely in Norway to die from it than the US (statistics from FoxNews report). The reason is not because they don’t know the same medicine as us, it's because the government can't pay for it all and manage their budgets at the same time; so they have to ration and people die when they have to wait. General wait times in Massachusetts have doubled since that state introduced more government control and universal health insurance.

This is a real problem that needs real solutions but be careful about believing the rhetoric there are ample opportunities to make things worse.