Thursday, December 3, 2009

The Whole Foods Solution (part II)

John Mackey, CEO of Whole Foods,
Animal Rights Activist &
Health Care Reformer?

Hold on to your seats, I agree with the Obama Administration: the current health care system is unsustainable and it's vital that the government enact reforms that address issues of expanding access to health insurance for the uninsured, controlling spiralling costs, while maintaining the quality of care.

The fundamental problem with the proposed reforms is that they are based on claims that they can simultaneously accomplish all three, which defines basic laws of economics.

I will give the Obama Administration credit; I anticipate that the plan will accomplish the noble goal of expanding access to health insurance, but there is no way that it will keep costs down. To bring millions of new people into a public or even private plan will increase demand for health care which will undoubtedly raise costs. And if the government addresses this with price controls, as their counterparts in England and Canada have done, wait times will increase.

If the Obama Administration hopes to create a sustainable and compassionate system, the first step is to separately enact reforms that address the issue of spiralling health care costs. Once we have accomplished this, we can pursue the noble goal of expanding access to quality health care to uninsured Americans.

In regards to cost inflation, the Obama Administration has failed to address the basic economic truth that most public and private third party payer systems destroy incentives for consumers and providers to engage in economically sound behavior. Most people who are enrolled in government or employer sponsored health care with low deductibles rarely engage in rational economic behavior fundamental in the purchase of any other good or service.

For example, few if any of the said individuals have ever inquired about the cost of a medicine or the availability of a more affordable generic option. And few if any shop around for the most affordable doctor or even have the slightest idea what their doctor charges them for a visit or a procedure. Why should they, when there are few if any financial incentives to do so? And if they don't have to directly pay for the treatment of their type II diabetes, what financial incentives do they have to watch their weight through exercise and a better diet? The aggregate effect of the aforementioned behaviors is rising costs and irrational consumption for all consumers.

Most third party insurance plans also kill incentives for hospitals and doctors to keep costs down. Why should they? Since few consumers enrolled in the said plans shop around, there is very little competition among hospitals and doctors to provide good service for a low cost. And since they do not have to face the prospect that rising costs will lead to a decline in demand for their services, a major incentive for cost control is missing. Landlords in Chicago have dropped rents by upwards of 15% or more, not because of charitable impulses or government mandates, but because if they were to charge more than the public was willing or able to pay, their apartments would remain vacant. The only instance of a comparable drop in medical costs that I know is seen in areas in which insurance does not cover Lasik Eye Surgery. Why? Because without the involvement of a third party payer, providers are forced to compete for consumers and to keep their prices in line with the financial capacity of their consumers...or...go out of business. Obviously this principle does not equally apply to all medical procedures, because (for example) consumers cannot opt out of cancer treatment, but never the less important lessons are found in this example.

One organization that has devised and enacted a health care plan that has used these principles to help control costs and expand individual choice is Whole Foods. This plan is based on the following policies:

1. Catastrophic Coverage for serious illness or injury.

2. A High Deductible which almost immediately changed the behavior of employees, who started to ask what things costs and if there were more affordable alternatives. Employees immediately started to shop around for the best deals in health care. And some believe that it even encouraged them to engage in healthier behaviors, a logical outcome of having to face the economic consequences of your behavior.

3. A Health Savings Account in which Whole Foods offers a yearly contribution. Whatever the individual doesn't spend it in the course of the year is rolled over into the next year and added to the yearly employer contribution. Money accrued in this account can be applied to any medical procedure that the employee desires. This encouraged them to view the expenditures as coming out of their own pockets and not the "corporate pockets," which led to wiser individual expenditures and lower aggregate costs.

Here are some additional principles and policies that Mackey recommends for any viable national health care reform:

1. "Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair."

2. "Repeal all state laws which prevent insurance companies from competing across state lines. We should all have the legal right to purchase health insurance from any insurance company in any state and we should be able use that insurance wherever we live. Health insurance should be portable."

3. "Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year. These costs are passed back to us through much higher prices for health care."

4. "Rather than increase government spending and control, we need to address the root causes of poor health. This begins with the realization that every American adult is responsible for his or her own health. Unfortunately many of our health-care problems are self-inflicted: two-thirds of Americans are now overweight and one-third are obese. Most of the diseases that kill us and account for about 70% of all health-care spending—heart disease, cancer, stroke, diabetes and obesity—are mostly preventable through proper diet, exercise, not smoking, minimal alcohol consumption and other healthy lifestyle choices."

Keep in mind that this is but the 1st step in achieving a sustainable, humane health care system for all Americans. Once we address the issue of rising health care costs then we can begin the necessary and noble task of expanding access to quality, affordable health care for millions of uninsured Americans. To simultaneously attempt both is a recipe for failure that will compromise the physical and economic health of our great nation.

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