Fixing Healthcare

Jonas Max Ferris
Healthcare in our country is a debacle. If trends continue, we could have a flat-out catastrophe in the not-too-distant future.

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Healthcare costs have been growing at two to three times the rate of inflation — far faster then salaries, government tax revenues, and often even corporate profits. This trend can't continue for long before causing a financial crisis.

More than $6,000 per person ($1.8 trillion) is spent annually on health insurance, or about 18% of GDP.

Over 46 million Americans (almost 16% of the country) have no insurance at all — not even government insurance.

The U.S. government already spends about the same percentage of the GDP as most other major countries spend as a percent of GDP — yet other countries have national healthcare. We have to spend hundreds of billions MORE in private money — and still millions go without insurance!

In recent years, employer-paid health insurance coverage is declining while government coverage is increasing.

Part of the problem is that successful innovation in healthcare leads to increased costs. A miracle drug that extends life five years costs money AND leads to even more healthcare needs for unrelated issues in the newly extended life (to say nothing of a greater drawdown on Social Security and pensions).

Any fix requires dealing with the top reasons healthcare costs have skyrocketed. The core problem lies with the third-party payee system of insurance, followed closely by government's misguided efforts.

The symptoms of a sick system:

Few financial incentives to be healthy. Put on a few pounds? Stopped exercising? Started smoking again? Don't worry, your health insurance premiums probably won't change. The costs will be passed on to others.

No comparison shopping. There are dozens of websites consumers go to just to compare prices on airline tickets, hotels, computers, TVs, etc. Know any for comparing the cost of a physical? MRI? I can read 50 consumer reviews of hand soap on, but have no idea who is a good podiatrist in my area.

Uninsured individuals drive-up costs. The only upside of millions dropping out as health insurance becomes more expensive is that lowered demand should keep a lid on the rising cost of insurance. Trouble is, the uninsured take trips to (expensive) emergency rooms (where you don't need insurance). Besides causing lines where you don't want them, this behavior leads to unpaid bills being passed on to the dwindling numbers who have insurance or government coverage.

Marketing. Drug companies spend more than $20 billion a year reminding us to ask our doctor about something (and consuming more healthcare services). One report says there are almost as many pharmaceutical sales reps as doctors. Of course, every product you buy has marketing costs. Unlike say, a new Mustang, when you ask your doctor about a $120 per month pill, insurance or the government is footing most of the bill.

Lawsuits. Though the cost of legal liability in healthcare is overblown, legal costs add up big time. Besides actual settlements, the resulting sky-high premiums are passed on to others, as well as the costs of excessive testing to protect against liability.

The Rx:

To fix these problems, we need MORE people insured, but with LESS comprehensive coverage.

First, we need companies to cover more employees. The recent trend has been fewer employees covered. Today around 60% of people are covered by employment-based coverage.

When your employer picks out a policy for you, it's more efficient than doing it on your own. Buying in bulk leads to lower prices. I got a better price choosing plans for my former employees than they could get on their own.

While the government could force companies to insure their employees — even part-time employees (as has been proposed by some states against Wal-Mart), a better solution would be to make it financially feasible. Perhaps a 125% employer tax deduction for health insurance premiums. The government will lose tax revenue, but probably not as much as they will spend being the insurer of last resort.

Push high deductible coverage. President Bush's Health Savings Account aims to encourage price conscious shoppers with higher deductive plans. The government can entice companies to offer cheaper, high deductible plans in order to be eligible for the big tax deduction. Deductibles should be $2,500 or higher. Employers would likely pass on some of the savings from lower cost plans (don't laugh) in higher wages.

Insurance companies should be able to offer discounts to the healthy, and charge more to the unhealthy (within some limits). Is it any wonder America is getting fatter than other countries. Wouldn't we speed more if auto insurance companies didn't punish you for getting tickets?

For the naysayer who claims raising deductibles would lead to putting off routine exams and higher costs later: I don't put off changing the oil in my car because insurance doesn't pay for it, because it will cost me more later when I need a premature engine overhaul. On the flipside, I don't pay for someone to detail my car for $100 because I'm on the hook for it.

What about the people who still can't get insurance (no job, retired, poor)? The government needs to foot the bill for these people. The government should set specifications for the kind of insurance they will pay for (not available to the private sector). This policy could even replace current government healthcare.

To keep costs down, this insurance needs to be a crummier than ordinary private insurance. Two big areas of this low-grade insurance to scrimp is 1) No non-generic drugs 2) No malpractice suits, or strict caps for liability.

In other words, you could see a doctor, but only get free drugs if they are generic. You're on the hook for all the drugs you see on TV. And even if the doctor screws up, you can't sue. This would lower the cost a doctor would charge to perform procedures.

Unfair? It's free insurance — it is better than no insurance, which is the direction we are going. What's really unfair is when millions of young, healthy poor (and increasingly middle class) people can't get insurance because costs are skyrocketing. Keep in mind most drugs are available in generic (non-brand name, off patent protection) form, this is a relatively minor compromise. The government could even lower the length of patents on drugs they foot the bill for — call 'em government generics. Drug companies may not like it, but will they like a future where the government can't afford any drugs for the elderly or poor?

Jonas Max Ferris is a regular contributor on "Cashin' In" (Saturdays at 11:30am ET and Mondays at 5:30am ET) and is co-founder of .