Chapter 4 – The Four Ways To Control Healthcare Spending

This is Chapter 4 of my book-in-progress, “Open Wide And Say Moo! – The Good Citizen’s Guide to Right Thoughts And Right Actions Under Obamacare.” Comments are fervently sought; you can leave them here.

You can read my rationale for undertaking this project, and thus opening myself up to the possibility of public failure, humiliation, derision, disapprobation, and unwanted scrutiny, here.

And here is the up-to-date archive for all the chapters that have been posted so far.
Update – September 1, 2012

Open Wide and Say Moo! is now revised and published!


You can find it on Kindle here.


Now available in the audiobook version!





Chapter 4 – The Four Ways To Control Healthcare Spending

In the first three chapters of this book, I have attempted to show how and why our nation’s healthcare expenditures have become entirely untenable, and why the heroic measures we have taken so far to contain those expenditures have been not only an abject failure, but also quite counterproductive. Indeed, the cost-containment measures at which we have been flailing away for twenty years (primarily employing the multifarious techniques of covert rationing) have left more than merely our treasury in a “spent” state.

Our health insurance industry has worn itself down to a still-blustering but empty shell. And our physicians have allowed themselves to be reduced to an abject community of supplicants. In neither the insurers nor organized medicine are we likely to find the ideas, the energy, or in any manner the wherewithal that will be necessary to lead us toward a real solution to the mess we have made of our healthcare system. At best, they will be followers.

It is true that our political leaders are certainly not spent. Our Progressive leaders, using their typical end-justifies-the-means approach to the Constitution, have made Obamacare the law of the land. And our Conservative leaders are invigorated with the idea of nullifying that law in the courts, or repealing it after the next election.

But amidst all the accusations and counter-accusations, vituperations, abuse, and scurrility that passes for debate between these two factions, neither faction has clearly articulated its plan for controlling our healthcare expenditures.

Any Progressive healthcare system – including Obamacare – will of course have an inherent, built-in methodology for reducing expenditures. Namely, government-approved experts will determine that some healthcare services will not be provided to anyone, and that other services will not be provided to some. But our Progressive leaders do not like to talk explicitly about that methodology in public. So instead, they talk about fairness, reducing the number of uninsured, and stifling the greedy doctors and biomedical companies.

With a few notable exceptions, Conservatives seem to be in an even sorrier state, since they seem to be relying on the health insurance industry and a vague notion of “free markets” to take care of everything once they get rid of Obamacare. They seem not to realize that we have already tried this strategy, and it has failed abysmally. This kind of talk most likely frightens health insurance executives more than anyone else.

Worse, the less-than-useful debate that has taken place between the two parties – with neither party forthrightly addressing the kinds of actions that will really be necessary to rescue our healthcare finances (and thus our society) – has created a general sense among the public that the problem is so confused and chaotic, so rifled by conflicts of interest, and so very complex, as to be fundamentally unsolvable. If that were the case, it would mean that our society is doomed, and in the relatively near future.

I myself have suggested, just a chapter or two ago, that this outcome does not seem particularly unlikely at this moment.

However, there are, in fact, solutions to our healthcare spending crisis, and so descending into chaos is not the only possible outcome. In fact, I will assert in this chapter that there are actually four (but only four) entirely different ways to meaningfully reduce our healthcare expenditures.

By understanding these four methods of solving the problem, it is entirely possible – as we listen to all the debating, fighting, and reciprocal castigations, aspersions, distortions and lies being exchanged by and amongst the various interest groups – to understand which method is actually being espoused by which parties.

We have, obviously, already settled upon one of these methods, at least for now. Obamacare is a nice example of Method Two – the Progressive plan. We have settled on it above the others, I believe, because it is easiest (if you do not dig too deeply) for its proponents to make Method Two sound a lot less difficult, a lot less painful, and a lot more fair than the other methods. Indeed, while the people “selling” Method One or Method Three (nobody is trying to sell Method Four) usually make it sound like they’re asking us to pick the least bad of all the bad choices, proponents of Method Two are true proselytizers. They honestly believe that their option will represent a pinnacle of human achievement (and thus, that people who disagree with them are tools of the devil).

As I have already stated, I believe the Progressive viewpoint is dangerously incorrect. Before giving a detailed picture of why I think this is the case, it is only fair for me to briefly review all the alternatives that will remain to us if we should decide to turn away from the Progressive style of healthcare reform.

And so, without further ado -

Method One: Make All Healthcare Spending The Responsibility Of The Individual.

That Method One, when baldly stated as I have just done, seems so outlandishly inappropriate and hard-hearted today is a tribute to just how far down the Progressive path all of us have already traveled. But it is, in fact, a legitmate method for getting control of our national healthcare expenditures.

Further, the necessity of paying ouselves for products and services we consume ourselves, as we have seen, is a fundamental law of economics. And, as our society is about to learn, while we can get away with violating this law for a couple of generations, we cannot get away with it forever.

Also consider the fact that, just a few decades ago, this is exactly how we all paid for healthcare. Indeed, this is the method by which all of mankind has paid for its healthcare for all but a few brief decades out of the millions of years we have graced (or plagued, if you must) the planet. It has always been thus: If you want or need healthcare (and if it exists), simply pay for it yourself.

Those few brave souls who remain proponents of this method – who often count themselves as Libertarians – offer two general arguments to support their position; an ethical one and a practical one.

It is fundamentally unethical to insist that your own individual healthcare services must be provided by others – claiming, as you do so, that healthcare is somehow intrinsically different from any other product or service which you may wish to acquire (such as food, clothing, housing, and iPads). Proponents of Method One quaintly cling to tne now-outmoded idea that there is no such thing as a right that creates an obligation upon another person. So to them, insisting that healthcare is a right that must be provided by others is, a priori, unethical. Furthermore, they point out, much of a person’s health (and therefore, a person’s healthcare needs) is determined by lifestyle choices, so it is only right and proper for the individual to bear responsibility for those choices. But more importantly, demanding any “right” that creates a burden on one’s fellow citizens will inevitably lead to tyranny by some Central Authority. Therefore, this demand is unethical.

Method One also holds that, by returning to the individual the responsibility of paying for healthcare, we would be achieving a great good – namely, we would be returning healthcare back into the realm of actual market forces. When that happens, the laws of supply and demand will kick in once more, and will determine which services are actually needed, and what the rightful price for those services ought to be.

So from a practical standpoint, Method One will truly recruit the efficiencies of the marketplace into the workings of the healthcare system. (In contrast, placing dictatorial powers into the hands of insurance executives, which is what the HMO movement of the 1990s actually did, accomplished no such thing.) And the cost of healthcare services will at last come back down to a level which individuals can actually afford. As an added bonus, since everyone will know that paying for future illnesses will be their problem, people will suddenly become more likely to begin making lifestyle choices that will lower their odds of having to do so.

But whether or not individuals can afford medical services, at least the spending on those services will no longer be the burden of society – and the fiscal doom we now face will be cured.

Opponents of Method One point out that, inevitably, there will be individuals – and likely many, many individuals – who simply will not be able to afford to pay for healthcare services which are needed, and which are readily available for the right price, and will therefore suffer preventable pain, disability, and death. Without some kind of public support for healthcare, heart-rending tragedies will abound, our civilization will become coarsened, anger will build, and insurrection will become a constant threat. Such a result, of course, would be suboptimal.

Method Two: Make All Healthcare Spending The Responsibility Of A Central Authority.

Proponents of Method Two hold (because of ethical reasoning that is as obvious to them as the opposite ethical reasoning is to proponents of Method One), that healthcare is a fundamental right; that whether one receives a healthcare service – a service that can relieve pain or prevent disability or death – ought not to depend on one’s ability to pay, but instead, that such services, so fundamental to human life, ought to be equally available to everyone. And the only way to achieve this goal is to collectivize and centralize healthcare decisions and healthcare spending.

This is what I have called the Progressive plan.

For proponents of Method Two, healthcare services are indeed fundamentally different from all other human needs – food, clothing, etc. – since the kind and the amount of healthcare services one needs are most often not a matter of individual choice, but are very often foisted upon one by fate. Burdening individuals with the need to pay for such arbitrary and uncontrollable costs is not only unethical, but destabilizing to our society.

Requiring individuals to pay for their own healthcare is destabilizing because, if a person’s lifetime of work and saving can be wiped out in an instant by an unexpected illness, people will be much less willing to work hard, take risks, and otherwise engage in the economic activities that drive our society. “Healthcare security,” which can only be provided by collective efforts, is thus necessary to a robust and sustainable civilization.

The methods by which healthcare costs can be controlled under a centralized system are straightforward. Obamacare, for instance, does so by explicitly empowering a (nearly) all-powerful Independent Payment Advisory Board with all macro-level healthcare spending decisions. Furthermore, “guidelines” promulgated by various other government-approved expert panels will control spending at a more granular level, by determining which specific services doctors will be permitted to offer to which patients, and under what circumstances. Doctors will be strictly held, under the threat of criminal prosecution, to these guidelines. Finally, recognizing implicitly that many healthcare needs are indeed determined by individual lifestyle choices rather than purely by chance, public health experts will advance enforceable policies that will determine what individual Americans will be permitted to do and not do, purchase or not purchase, eat or not eat. (The public health experts are off to a very good start in this effort!) If everyone within the healthcare system (and in our society) will simply follow the multitudinous directives laid out by the legions of sanctified experts, everybody will have their healthcare, costs will at last be contained, and all will be well.

Proponents of Method Two obviously do not sell their plan to the public by saying such things. Rather, the emphasize that the benevolent, caring, non-conflicted, government-approved experts will make sure that all the inefficiency and greed are squeezed out of the system, and that by doing so, everyone will get what they need, and costs will be controlled.

I will spend Part II of this book showing why Method Two is a bad choice. Here I will only state the bottom line: Implementing Method Two requires an all-powerful Central Authority, which will inevitably lead to tyranny (or anarchy), and will necessarily destroy the Great American Experiment.

Method Three: Provide Strictly Limited Public Support For Some Healthcare Services, With Individuals Responsible For The Remainder.

Method Three attempts to combine the benefits of Methods One and Two, while avoiding the major disadvantages of each.

Method Three recognizes that paying for all of one’s own healthcare is beyond the means of many individuals, and that therefore a modern, civil society ought to provide at least some healthcare to at least some of its citizens. At the same time, Method Three recognizes that the public funding of all healthcare is beyond the means of society, leads to tyranny, and that (both for these practical reasons and for ethical reasons) individuals ought to be responsible for paying for as much of their own healthcare as they can, within reasonable limits.

The key to controlling costs is that the dollars which society will spend on healthcare for individuals must be strictly defined and strictly limited, and cannot be open-ended. Economic principles dictate that public healthcare spending must be limited to pay-as-you-go, and cannot accumulate inter-generational debt. Any other healthcare expenditures beyond those which society is able to provide in an economically responsible way must be paid for by individuals. Therefore, most individuals should not and cannot rely entirely on public funding for their healthcare.

At the same time, Method Three seeks to assure that individuals will have ready access to, and the means to pay for, basic healthcare services, and that the chances of being financially ruined by a catastrophic illness are very low.

Numerous configurations are possible under Method Three, and indeed, the creativity it allows (in distinction to Methods One and Two) is one of its attractions. Possible configurations might include something like the plan Congressman Ryan proposed in 2011, which would place a strict limit on Medicare expenditures by providing seniors with a fixed amount of money – on a means-tested sliding scale – with which to purchase their health insurance of choice.

But a more radical (and I humbly submit) a more complete Method Three configuration would be that which I proposed in my 2007 book, Fixing American Healthcare. That book describes my plan at great length, but in outline here it is:

a 3-tiered healthcare system

an imaginary Method Three healthcare system


My model calls for a 3-tiered healthcare plan. (See the figure.)

Tier 1 consists of a modified Health Savings Account. Each individual has his or her own HSA, into which they can deposit some amount of money each year (say, $2000) tax-free. For people in lower income levels, HSAs will be funded by the government on a sliding scale. Funds in the HSA can also grow tax-free, are the property of the individual, and cannot be taken away. Unspent funds that have accumulated above $10,000 can be transferred to an IRA at age 70.

The HSA is there for a very specific purpose: All individuals are responsible for paying for all their own healthcare expenses, up to $2000 per year. The HSA is aimed at providing funds for these annual personal expenditures.

Tier 2 is a Universal Basic Health Plan (UBHP), which will cover every person who resides in the United States legally. The UBHP kicks in after the individual has maxed out his or her $2000 annual personal healthcare expenditures. The UBHP I described in my book would operate under a system of completely open, completely transparent healthcare rationing. That is, it would cover all healthcare services that achieve a target level of cost-effectiveness, and would not cover anything else. The methodologies used to determined what is covered and what is not must be objective, measurable, and fully transparent to the public. My book describes such a rationing methodology in great detail*. However, the kind of open rationing system I described in my book is admittedly very complex, would likely be difficult to operate, and would certainly be difficult to explain to the public. There are simpler ways to administer Tier 2, and these simpler ways should be entertained.


*My earlier book employed a novel method of calculating Quality Adjusted Life Year (QALY) values for various medical services, in order to rank the cost-effectiveness of those services. That section of my book was extremely boring and tedious and full of math, and I am led to understand that several individuals who actually tried reading that section died in situ. I am only mentioning it here because the term QALY shows up in the figure. For the purpose of the present discussion you can think of the QALY values in this figure as indicating “some defined amount of money that can be spent on your healthcare.”


The key point, however, is that the UBHP must indicate, very openly and plainly and for everyone to see, which medical services are covered, and which are not. It will not pretend to cover all beneficial healthcare services, or that uncovered services are necessarily worthless. It is a basic health plan, and not a comprehensive one. Its mission will be to cover all the proven healthcare services it can afford to cover without unreasonably jeopardizing the security of future generations of Americans.

Tier 3 is optional for individual Americans. It consists of insurance products which will be designed to cover healthcare services that a person wants or needs, but which are not covered (for whatever reason) under the UBHP. Accumulated funds in HSAs may be used to help pay premiums for Tier 3 coverage. Among other things, Tier 3 insurance products would resurrect our moribund health insurance industry. It would give them the opportunity to develop an array of products that do what insurance is actually supposed to do – to provide financial protection against the unlikely chance of something prohibitively expensive occurring.

If you don’t like my plan, that’s fine. I’m merely offering it as an example of the kinds of schemes that are possible under Method Three. The main points I want to emphasize are: a) This plan strictly limits the amount of public funding that will be spent on healthcare (and therefore solves our healthcare fiscal crisis). b) At the same time, it provides for both basic and advanced healthcare for every American (The advanced healthcare is provided with limits, to be sure, but those limits are completely transparent, and can be mitigated by electing to participate in Tier 3.) c) Since everyone will be paying out of pocket (from their HSAs) for basic healthcare services, those basic services will become subject to normal market forces for the first time in a half-century, and as a result their cost will inevitably drop.

How Will We Choose?

At this moment it appears that we have chosen Method Two. This is perfectly understandable. Progressives, in promoting their solution, have been able to make it seem far more desirable to the average American than have any proponents of Methods One or Three. Their message is: We will make sure that fair-minded, dedicated government agents (who care nothing for the evil of profits) will squeeze all the waste and inefficiency out of the system, and distribute just the right amount of healthcare at just the right time, and everyone will get exactly what they need. Even better, the rich people (i.e., the profit mongers) will bear most of the freight by paying high taxes.

That’s a far more pleasant message than the ones that have been tried by those who favor Method One or Three, both of which require different – but significant – degrees of personal responsibility on the part of every American. Therefore, these other two methods, on the surface at least, sound a lot riskier, more difficult, and a lot more complicated than the easy, Let-Uncle-Sam-Do-It Method Two. In fact, given the way these choices have been sold to the public, it’s hard to imagine we would choose anything except Method Two at this critical juncture.

Still, one can always hold out hope that we might reconsider. The main point of this book is to induce such a reconsideration by showing what Method Two will really be like for all of us.

And, if we do reconsider, I suppose it is obvious by now that I am partial to Method Three.

Method One is simply a non-starter. For all practical purposes, and for good or for bad, we moved irreversibly beyond a purely self-pay healthcare system over 60 years ago. So if there is to ba a real battle, it will be between Method Two and Method Three.

The key difference between these two methods, both practically and philosophically, is whether individuals are to be expected – indeed, whether they are to be permitted – to pay for at least some of their own healthcare with their own money. Progressives, for reasons I will describe later, are absolutely adamant about the answer to this question – by no means will individuals be expected (or permitted) to pay for any of their own healthcare. It is absolutely imperative, if we are to achieve the perfect healthcare system that Method Two promises, that all healthcare decisions and all healthcare spending be centralized. There can be no compromise on this.

Indeed, the moment a compromise is made, true Progressives understand, we will inevitably wind up under a Method Three healthcare system. So Progressives are in no mood to compromise.

I will be delving into this crucial question – whether some amount of personal responsibility should be expected, or even allowed – later on in some detail, as I believe it is the most pivotal as-yet-unaswered question we will have to face going forward. For, while we have ostensibly chosen Obamacare, we have not all agreed on what that ultimately means for each of us. And once we do understand what it means, I believe we may be in the mood to reconsider our decision.

For now, I will simply make a simple assertion which I would like you to begin thinking about.

Here it is: If I am correct that Progressives will fight very hard – possibly to the death – to prevent individuals from spending their own money on healthcare, that fact carries with it an unavoidable implication. The only logical reason Progressives would fight so extremely hard to prevent such a thing is that their actual prime objective must be something other than merely fixing the healthcare system and controling healthcare expenditures. Rather, their actual prime objective must be to employ our healthcare system’s fiscal crisis as the most immediate and expeditious, and indeed the most ideal, vehicle for achieving their overall Program.

If you will allow even the remote possibility that this is the case, then we had better take a look at what the Progressive Program actually is. In the next chapter, that is what we will do.

Wait! What about Method Four?

Oh, yeah. I forgot to talk about Method Four.

There’s really very little reason to talk about the fourth and final method for controlling our healthcare expenditures. This is because nobody likes it. There are no proponents for it, so nobody discusses it.

Still, Method Four, at this moment, seems to be the most likely outcome for us. Indeed, at this moment it appears to be our default method of choice.

Method Four is formulated as follows: Our skyrocketing healthcare expenditures are the chief driver of our national debt. Our national debt burden, unless we get control of it by controlling healthcare expenditures, will inevitably destroy our civil society. At the same time, our modern, sophisticated and very expensive healthcare system utterly requires a complex, modern, highly organized, high-tech society in order to function.

Therefore, our skyrocketing healthcare expenditures ultimately provides its own cure. Once society collapses, “healthcare services” will revert back to the roots-and-poultices methodologies that served mankind so well for millions of years. Healthcare will ecome very cheap again. And healthcare, as well as other modern geegaws like cable TV, Internet, iPhones and automobiles, will no longer be considered by so many to be fundamental human rights, but will become a mere afterthought (if thought of at all), in a more primitive kind of society where life is nasty, brutish and short.

If we neglect to settle on any one of Methods One, Two or Three, or if we pick one and execute it poorly, we will, Chutes-and-Ladders-like, be deposited right back to Method Four where we all started.

Method Four is therefore only important in the way of helping us to keep things in perspective. For, whatever the outcome turns out to be, our current fiscal crisis in healthcare will ultimately be viewed by posterity, should any record of it remain for posterity, as a temporary matter of not much immediate concern.