Medicare: A Study in Chaos

Today’s post is a guest post submitted by Dr. Kenneth Fisher, a nephrologist, blogger @ People for Progress in Healthcare, and author of several books, including the one you see to the left. Dr. Fisher is also the co-founder of the Michigan chapter of the FMMA.

Additional, he is the lead author of In Defiance of Death: Exposing the Real Costs of End-of-Life Care and offers a free e-book, The Ten Questions Walter Cronkite Would Have Asked About Health Care Reform.

We have no financial relationship to disclose.

Government Assumes a Role in Healthcare


The concept of sickness insurance began in Germany in 1883. Chancellor Otto Von Bismarck initiated insurance for the poor. A decision about how these services were to be delivered is critical to understanding healthcare contentious debates. Could Bismarck have given vouchers for care as needed? Alternatively, should the government control the needed healthcare facilities?

Perhaps thinking the poor did not have the capability to manage their own health, he chose government rather than patient-directed care. Lloyd George in Great Britain created a similar program in 1911. Again, a federal bureaucracy and facilities were provided to deliver this care.

Although individuals were the care recipients, they were uninvolved in cost or the menu of coverages available. Perhaps if Chancellor Bismarck could have foreseen our information age, he would have realized that patients could, with a trusted physician, make appropriate decisions for themselves. In 1912, Theodore Roosevelt — running for president under the Bull Moose Party — proposed a similar federalized form of national health insurance.

In 1913, the American Medical Association (AMA) Council on Health & Public Instruction suggested sending a representative to Europe to study a care for the poor. The Board of directors squashed the idea, and with the advent of the World War, interest waned.

Subsequently, several state medical societies tried unsuccessfully to deal with expanding coverage. Still, in 1920, a resolution passed by the AMA House of Delegates put an abrupt end to all discussion of the issue.

The AMA, which was at the peak of its influence, could not resolve the issue of having the government support healthcare for the needy while maintaining the patient-physician relationship’s independence. In essence, they were stuck thinking only about a federal Bismarck model, not proposing a solution (i.e., direct payment) to this quandary that has plagued our country ever since.

World War II and Beyond


During World War II and its accompanying wage controls, companies needed to lure more domestic workers into increasing weapons production and thus introduced health insurance as a pre-tax benefit. Over time, this benefit became more expansive, morphing into all-inclusive pre-paid healthcare and not true insurance. Thus, covered individuals were precluded from concern about cost, even for minor issues. Unlike other countries, employee coverage insured most American families.

What about coverage for retirees or the unemployed? This became an increasingly political issue after World War II. President Truman defeated Dewey in 1948 because of healthcare, but another war (Korea) delayed any serious action. President Eisenhower signed the Kerr-Mills Act that provided federal state support for means-tested healthcare to the elderly poor. Unfortunately, only four states provided full services.

Upon his election, John F. Kennedy wanted federal care for all those over age 65.  He tried mightily but was defeated by two main adversaries. One was the AMA that fought intensively against any federal funding for healthcare while not proposing any creative alternative. This was rather odd as physicians were now benefitting from federally funded medical research that was increasing medical options and had the opportunity to increase incomes.

The second obstacle was Wilbur Mills (D-Ark), chair of House Ways & Means. His concerns were rather profound. Unlike Social Security, the proposed plans for the elderly and poor were open-ended. Costs per person had no limits. Another concern was that suddenly increasing demand with no increase in supply would cause prices to explode.

He was also aware that after World War II, there was a baby boom, which meant in the future, there would be a decrease in the worker-to-retiree ratio, causing a greater burden on the younger generation. He could not have anticipated the increase in life expectancy and the ever-increasing availability of more expensive medical therapies.  Today, the typical Medicare recipient receives approximately three-fold the cost of care relative to their contributions. Unfortunately for us, these still-valid concerns are not being addressed, hence the chaos.

The election of 1964, a landslide for Lyndon Johnson and a super Democratic majority in Congress, meant that a federal program for the elderly and the poor would pass.  Knowing Johnson had the votes, Mills crafted what is now Medicare/Medicaid addressing none of his previous concerns.  Another problem Mills did not anticipate was cost-shifting by hospitals negotiating higher prices for private insurances to cover losses because of Medicare / Medicaid’s inadequate reimbursements.  This increases private insurance premiums, in large part causing stagnant employee wages.


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Failed Solutions


Perpetuating the chaos, Congress, rather than addressing fundamental cost issues, is stuck in the late 19th century, attempting a slew of government-directed top-down, price controlled, heavily bureaucratic fixes.

These futile attempts include:

1) Diagnosis Related Groups (DRGs) in 1983: a price fixed system, eliminating hospital market forces such as real prices, outcomes, efficiency, and lack of price transparency.

2) Evermore complicated physician Current Procedural Terminology (CPT) codes in 1992: a price fixed system that disregards extensive training, skill levels, and outcomes, adopted by all 3rd party payers.

3) The “Sustainable” Growth Rate (SGR) in 1997: a law to decrease doctor payments if Medicare costs were greater than increases in GDP,  a complete failure as Congress put off enforcement yearly.

4) The HITECH Act of 2009, based on a retracted Rand study that computerized medical records would save Medicare billions per year, but paradoxically has increased costs by adding facility fees, takes significant face time from patients, cronyism at its worst by favoring a few computer companies that still cannot share test data.

5) Obamacare in 2010, that instead of promised savings for families has caused huge deductibles with increased family spending on coverage.  Most insurance expansion is via Medicaid, which has proven not to improve outcomes and paradoxically causes increased emergency room visits.

6) The Medicare and Chip Reauthorization Act (MACRA) in 2015 to end the failed “SGR” debacle, trying to assure quality, not volume, by computer algorithms on 40 trillion transactions/year using imprecise data, an obvious absurdity.

These actions have led to runaway costs along with deep patient and physician malcontent, yearning for more personal relationships.

A Solution Proposed


The solution: fix the fundamentals!

Put individuals, not the government, in charge of their care by depositing yearly an actuarially adjusted amount into their health account that could fund routine needs, an insurance plan, and direct care. Monies leftover could be carried over the following year with the yearly deposit somewhat less, so the government could share some savings.

At a young age, Americans could choose to have their Medicare payroll deductions paid directly into a special account paying for care when elderly. These monies could be invested in a conservative allocation of ½ stocks, ½ bonds.



There is a way out of this chaos. Give Medicare patients the option of directing their own care.

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95 thoughts on “Medicare: A Study in Chaos”

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  2. FIRE – you have been helpful on Bogleheads. But why you would feature an author spouting such partisan political drivel is beyond me.

    I stopped thinking this article had any credibility when I saw the suggestion of investing healthcare dollars in stocks.

    Why Americans are so stubborn about biting the bullet and moving toward a single payer system for basic care for all and then allowing people to buy additional coverage is in part due to propaganda like the author espouses.

    As a capitalist country we may never be able to move away completely from for-profit healthcare but this country may be headed toward a death spiral from the weight of the influence of big business on basic human needs. Formerly employed by pharma – having seen the outrageous practices when profits and being number one became the driving factor of the CEOs and board.

    • Thank you for your comments, Caligirl. The profit motives that permeate all aspects of health care are troubling. Docs are feeling the squeeze and burning out, too.

      Regarding the article, the history piece was new to me. Dr. Fisher’s proposed solution is incomplete and doesn’t address many issues in those paragraphs. It does serve as a conversation starter, though.

      I can say that I have a portion my future healthcare dollars invested in the stock market — 100% of my HSA is the S&P 500. That won’t work for everyone, but I don’t think it’s ludicrous to suggest the ability to do what many of us are already doing. I can also see what you’re suggesting in our future. I think people will be upset when basic care turns out to have fewer choices, longer wait periods, rationing, etc… but we can’t afford to keep doing what we’re doing, either.


      • I appreciate Caligal’s comment here. I think her comment starts a conversation a bit better than Fisher’s paragraphs at the end of the article did.

        Also, maybe because of the title, I didn’t expect this article to be historic. If it was, “A Brief History of Medicare”, I would have regarded it differently

  3. Lazy Man & Money,
    There are two schools of thought in healthcare. One, believes the only solution is government dominated care with its ever-overbearing bureaucracy. The other is patient-directed care using health accounts and real insurance NOT pre-paid healthcare. The former has been in play since the 19th century, the latter for about the last 20 years. I believe each individual American should be able to choose the method that meets their unique needs.

    • Dr. Fisher,

      Which school of thought would you say Cuba’s healthcare is? I specifically ask about Cuba because it is widely regarded as one of the best systems and it works at 1/10th the cost of the United States’ system.

      I would say that Cuba is government-dominated, but without bureaucracy. It certainly isn’t patient-directed, right? From what I’ve read, the doctors on a local level meet the individual needs of the people… even going to their homes to make visits.

      I don’t believe that individual Americans will make wise choices with regard to their healthcare. It’s like expecting them to eat kale and stop drinking soda. We’ve seen how opt-out automatic 401k works vs. opt-in. We’re busy people and healthcare is something that we typically think about only when it’s a problem, right?

      Letting people choose their fate is all well and good, but it becomes very complicated when we’re talking about insurance pools of many people.

      • Lazy Man,
        Widely regarded by whom? Yes great vaccination program, but incapable to care for those with severe chronic disease. Home visits are for basic issues not for care of complex medical problems.
        I never suggested individuals alone make medical decisions. Decisions should be made in conjunction with a trusted physician, for what is best for that particular person in that particular time of their life. The present problem is that the demands of 3rd party payers is causing physicians to spend much less time with their patients and much more doing busy work on computers.

  4. Surprised by the generally negative tone here – I appreciate the article for what it is, one man’s opinion on the history of an attempt at organized healthcare and a couple of bullet points on ideas for change. I don’t think the goal of the article was to repeal and replace PPACA with the final few sentences! I’m a freshly minted Emergency Medicine doc and see the problems with the system everyday. Just like the commenters above me, I’ve tried to think of a solution, but this is a problem that isn’t going to be solved in the reply threads, just let the ideas flow. I have thought that either a 2 payer system similar to England or disaster insurance for everyone and free care in the ED after passing a screening exam in triage (which would be terrible for my income, and would need serious legal protections not currently available) tend to be scenarios I return to over and over. Definitely correct to assume there is an imbalance of knowledge of provider vs consumer in healthcare that isn’t matched in other industries – although I’m sure I’ve been taken to the house by a mechanic or two. I wish my state allowed freestanding emergency departments and I could set prices and choose how much of each bill went to each patient – I know many other providers that feel the same way. It amazes me how much money is spent on those that have neglected their bodies compared to those that care for it, and wish there was a way to penalize them for doing so while still being compassionate. The list goes on and on. Anyways – thanks for the article and discussion it led to.

    • I was completely onboard with this being a great article, until it went beyond giving a history and suggesting an solution. Almost everyone is looking for healthcare solution and there are very few looking for the history. It’s natural for everyone jumping towards what helps in the present and present vs. the past.

      I’m not sure I even saw some bullet points on ideas for change. I didn’t see any bullet points in the solution.

      I don’t mean to be negative. There’s a lot of great history here. If I ever want to learn about the past of Medicare, I know who I want to talk to. I was just looking to move forward.

  5. Literally can not believe pof gave this article a platform .

    I work as a physician who spends a lot of my time working on health policy. The ideas and “history ” lesson presented here are not serious ideas on how to improve upon on our healthcare system.

      • Good idea Dr. Fisher.

        As promised here is my article designed to facilitate that discussion:

        History can be useful, but only if we can learn from it. If we are simply studying bad politics and such, I don’t think it moves us forward in the discussion. I think it’s worth bringing those lessons into a discussion of today’s healthcare.

        PoF: I hope I’m not being overly promotional in linking to my own article, but I’m a little passionate on the topic. That is why I’ve expressed myself is so many comments.

  6. Sure there are lots of inefficiencies but there have also been lots of incentives. Yes, you end up w/ $400K of student debt, but you land a job paying $300K – $500K a year. If medical care is socialized, surely Drs. can’t expect to be paid as much anymore?!? Tuition has to fall so medical schools won’t make as much either. Health Insurance companies would no longer be needed. Do you think those CEOs and stockholders will go down without a fight?!?

    Someone else pointed to infrastructure as an area where we do use Gov’t intervention. These days Gov’t does in fact negotiate with private companies to do the much of the large project work. Probably more often than not, it works out well, but look at the Bay Bridge debacle where many of the support rods were found to be flawed. Suddenly an umpteen Billion dollar project is a 3x umpteen billion. Infrastructure does need proper oversight to make sure it is safe.

    Auto, life, property insurance all work privately within regulatory guidelines. In general, people aren’t screaming about the cost for those. Companies are able to make a profit, peoples items are covered. People seem pretty satisfied. I use USAA. They are in TX, I am in CA. They compete with State Farm (IL, I believe), Nationwide, Geico for my business. Why can’t Medical work in a similar fashion?

    Whether it is totally private, semi-private, or completely Gov’t run it can’t cost more to run the program than what rev and/or taxes are coming in. As others have pointed out, I’m not keen on subsidizing others bad choices. If you want to drive an expensive sports care, you pay more in insurance. If you want to live in a McMansion, you pay more in property insurance. If I want to live near a fault line, I pay for earth quake insurance or face the consequences of being homeless if my house is swallowed up.

    If you want to be a meth head, first visit is free. 2nd visit costs you. 3rd visit costs you more. If you won’t get off meth and you can no longer afford the care, should we just keep paying so you can keep doing meth?!? If I want to be a base jumper and I crash and break every bone in my body, should I expect you to help pay those expenses?!? My risk profile should already be such that I am paying more premiums. If I lied for a lower risk profile, then I will get a hefty penalty along with higher future premiums. Create a system that provides a reasonable pool to draw from and forces the users to take ownership of their care. That is basically how other insurance products work.

  7. Good article, but the solution is absolutely terrible and opposite of human nature and all behavioral knowledge and research known to man. Put people in charge of their healthcare? Like we did with their savings and they largely are with health anyways, always results in poorer outcomes than an opt out or mandatory system. It is nearly impossible for people to properly appoint risk and act on it for their long term good, as anyone involved in the personal finance/health world knows all too well. This solution says, “more of what we know doesnt work”! Ugh. I would take the opposite side of this bet so large it would be laughable.

    We do not have to reinvent the wheel, there are several very functional and affordable solutions out there and we can pick and choose the best elements to work in our specific scenario. There are also so many obvious friction points of non value added fluff to our system that would be the obvious first cuts. Admins, insurance, PBMs, emr overcharges, bs facility fee gaming, device gouging, opaque pricing, etc…

    Even economics and the industry (which has been merging and consolidating last couple years) knows what the answer is to lower prices, a big enough entity to bargain well. Whats the biggest, the government. It makes perfect sense why that is the model world wide, the market, behavioral pysch, and common sense both agree. Cant believe doctors are out there still pushing the insurance and financial industries game plan as viable.

    Also, health care is something that developed economies can choose as a priority and that is fine. Right now we choose to have more guns, we could easily shift a percent of that in favor of more advanced or efficient functioning health care system. Also, one of the least blamed but mostly at fault reasons for high health care costs are Americans behavior and lifestyles vs these other countries, we’re fatter, sicker, and dont use health care wisely.

  8. I live in Germany. We pay about 700 euros a month for coverage for a family of five. The beauty of the system is that there is no co-pay, no deductibles, no bill ever sent to the consumer, ŵhich frees up so much brain space I see Americans devoting to their insurance companies. Medicine for children under 18 is free. Germany is ridiculed as having a lot of bureaucracy, but I love the system here. I could go on and on…

      • Seems like a working system is something that should be looked into more than noting what “Wilbur Mills (D-Ark), chair of House Ways & Means” did back in the 1940s, 1950s, or 1960s.

        I’m also confused why there’s a political affiliation referenced with something that happened so long ago. I don’t think I’ve ever seen that before. Why not just state what he believed?

        It feels very partisan, especially in the context of an “obstacle.”

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  10. Nice quick and abbreviated summary that touches the tip of the iceberg.

    For some reason the HITECH Act never outlined any guidelines that required universal communication between these electronic systems, although we do see these SNOMED nomenclature throughout the modern EHRs.

    • Smart Money MD, Why not open the market so that physicians could purchase a program that facilitates their care of patients. Data today reveals physicians spend twice the time on the computer per patient than with the patient. Residents are spending 12 minutes with a new patient and 40 on the computer.. This to me is a real problem.

      • Thanks for replying to all the comments!

        Many practices started incorporating scribes, which also add to the overall cost of running a clinic. I find that it’s not easy training a scribe to add the level of detail that I’d prefer to include in my notes. Often the physician still has to open the note back to finalize, which adds to the charting time that was saved with the scribe. No easy solution.

        • Smart MoneyMD,

          Precisely why the use of EMRs should be via an open market with physicians choosing what works for them and their patients.. With open innovation the field would soon fill up with superior products.

  11. Oh, if only it were that simple, but it is exciting to consider outside the box options.
    I’d love to hear what you propose for folks who won’t take responsibility or run out of their allotment. Do we leave them to die on the ED doormat? What about EMTALA? We’re the safety net for a lot of people with severe psychosocial challenges.
    And what about people who have legitimate disabilities? What happens if they don’t have a paycheck from which to withhold? Or the people unlucky enough to get a disease that is very expensive to treat?

  12. Hail Dr. Fisher! Price transparency and competition would solve most of our healthcare problems. If Americans would cut back on meth, crack, gang——, alcohol, cigarettes, and sugar, virtually all of our healthcare problems would go away. For those who are poor or uninsurable (either because of age, chronic ailments, or pre-existing conditions) there’s Medicaid and Medicare. But even these programs should be altered so patients have an incentive to seek out the lowest-cost hospitals and doctors. For instance, why should Medicaid pay $15K for a knee replacement in San Diego when a competent doctor in Tijuana will do the same exact surgery for $5K? Medicaid could offer the patient a $1,000 bonus for having the knee replacement in Mexico. There’s no shortage of ways to reduce current healthcare costs. Create the right incentives and Americans will have great healthcare at reasonable costs. Allow the current degree of statism to remain or grow larger and Americans will have poor healthcare at exorbitant costs. It’s our choice. Unfortunately, too many Americans have more faith in bureaucracy than in freedom.

      • I hear ya, Dr. Fisher. No worries. My whole life I’ve had “weird” views, so I’m used to the blow back and/or mockery. Imagination is not a quality that comes easy to the human brain, especially as we age. Good luck, Dr. Fisher. I respect and admire doctors. I also worry for them. It seems like more and more Americans think the cure to our healthcare woes is to make our doctors our slaves. Meh. I hope it doesn’t come to that.

    • M r. Groovy, Many thanks, hard to understand why many in our country are willing to give up their autonomy at great cost in healthcare. The reason I start with dear old Otto is that this idea that people cannot care for themselves has been deeply ingrained. Yet, at the same time so many scream about cost. Most amazing.

  13. Interesting article about Medicare.

    I’m curious to how other countries were able to incorporate country-wide free healthcare, whereas the United States is unable to. I’m also curious as to what Trump will do with repealing the ACA and whether or not he’ll put an improved or probably worst version of healthcare on the market.

      • I feel that “everyone has problems” is a little like a platitude such as explaining to an alien, “every human has problems.” The problems that humans have a greatly different (“I have no food to eat.” vs. “My iPhone 7 is slow!”).

        I’d like to see a breakdown of the problems that you found when examining other countries’ systems. A link to your blog on the topic would be great as it would obviously be too large for this discussion.

        I’m not sure that long wait times need to be a problem with healthcare. In my experience, a little common sense with triage goes a long way.

        For example, I sat in pain for hours with a burn on my hand from touching the handle of a metal grill press. My treatment, as my wife (a pharmacist) predicted, was a little burn cream and a bandage. The treatment took 5 minutes and it could have been done by almost any layperson if the products were made available.

        I think we can work on wait times. We shouldn’t let that a barrier to the discussion on great health care.

  14. As a practicing physician, its difficult to disagree the current U.S. healthcare model is not working. It’s not working for physicians, the government, competitiveness of U.S. companies, and most importantly patients. However, this article does not offer a realistic solution and is blatantly politically motivated and biased. I think it would behoove the author to take a more unbiased view of healthcare in looking for solutions.

      • If you believe your solution or your essay is apolitical, then you are truly unbelievably naive.

        I agree that there are problems with the government portions of healthcare system, but that doesn’t obviate the need for them.

        Market-based healthcare is never going to be transparent: transparency does not serve anyone but the patient, and the patient is the least powerful interest here. Maybe in some imaginary world, but not in reality.

        The asymmetry of information, power, and risk means that patients cannot – and will never be able to – price-shop in a reasonable way.

        Further, it’s not as if a truly fair technical solution will make it through any actual political system in this country. The ACA and Medicare are imperfect, but they are what was able to make it through the political process. Just try to imagine what would come after eliminating them. [Actually, just hold out and see – starting in 2018 after the midterm elections, you’ll probably start finding out.]

        For example, can anyone imagine the political fight that would be involved in establishing what the annual voucher amount would be? Can you imagine any possible fair attempt to cover the never-going-to-be-anything-but poor, the developmentally disabled, the incarcerated, the despised?

        What happens when you exceed that voucher amount in the year that you say, break your spine? OK, maybe you have some sort of catastrophic insurance.

        What about all the years after you are diagnosed with dementia? Or Huntington’s or MS or ALS, etc. Are we going to imagine that the catastrophic insurance will now cover all the additional support you need? You still need regular preventive healthcare, even when you also have Huntington’s (or whatever).

        In short, a voucher might possibly be adequate for a reasonably healthy person who generally only needs preventive care, but they will be inadequate by design for a diverse population.

        Sorry for the huge, long rant, but this is something I actually know a bit about and this proposed solution is a truly terrible idea for the vast majority of people.

        • Rae, This is not the Soviet Union, the goal is to put the patient at the center of healthcare. From that all else flows. Sorry to read that you have had problems with expensive care. Indeed that in the present system is a problem. But, if you had true insurance and NOT pre-paid healthcare you would not have experienced this unpleasant event.

        • Your response is inaccurate; nowhere above did I say I’d experienced problems with expensive care.

          Putting the patient at the center of healthcare is a great idea, but it is not synonymous with paying for that care in any specific way. You are spuriously conflating those two concepts.

          The payment method you suggest is inherently flawed.

          And, really, harkening back to the Soviet Union is a bit peculiar, given their system.

        • Yes, I’m completely confused why Dr. Fisher jumped to talk about the Soviet Union without further explanation of their healthcare for perspective of readers.

          Rae put forth some points that could lead to good discussion, but I didn’t him address them.

  15. Car insurance has worked fairly well and has remained private. Some claims are small and some are large. You pay a higher premium the lower deductible you want. Of course in general, you have a ton of business competing to make the repairs, thus costs are kept low. Then entry costs aren’t nearly as high for the business owner unlike a Medical practice and schooling costs are much less, too. You can pay a little more in car insurance to be covered when an uninsured motorist hits you.

    Life insurance works and has also remained private. Disability insurance is partially private. Some States (like CA) have a Gov’t arm and then you can get purchase additional coverage through a private insurer.

    If Medical insurance is to remain private there needs to be true competition. Maybe have a Gov’t arm and then you can purchase additional coverage/better care through a private company. But if there is a Gov’t component, then all parties need to recognize that profits, salaries, bonuses, entry costs, school costs need to be managed. You can’t just throw $ at it. If someone knows there is a guarantee component, they will probably raise prices unless controls are in place.

    I admit I am torn. I don’t like Gov’t intervention, but I don’t like unaffordable health care either. Our plan costs about $1,400/mo and then we have a $4000 deductible. In the past, our deductible had been as high as $9000. I did have pre-existing conditions and before that was mandated to be covered, I had to rely on employer group coverage to obtain medical. Of course mandating that and mandating other things be paid for, raises the cost to the insurer, an insurer that wants to make a profit, and thus premiums rose.

    • I agree with the idea of “true competition.” I don’t see companies willing to fight for the profits in the marketplace. That’s not inherently the fault of ACA, but simply something that hasn’t been developed.

      Why are companies not finding it worthwhile to fight for those dollars?

      I don’t like government intervention either, but it can be an odd argument to make considering that tax-payer dollars to go roads (what if I don’t drive?!?!) and schools (what if I don’t have kids!), etc.

  16. While I agree much of the health care legislation has been rather ineffective at containing costs among many other problems it has created, the solution proposed here is absurd. There is no way this would benefit anyone who isn’t rich and healthy. Insurance premiums for people of medicare age would be completely unaffordable on the open market for the vast majority of people. Putting a few dollars in a savings account would not offset the true costs of insurance and health care for many.

    The ACA tried to fix this by creating a larger insurance pool and smoothing costs and by most objective measures failed, and this was insuring young and healthy people. The thought that the free market will magically solve things for older, sicker more expensive people is not rational.

    Imagine if car insurance worked this way, just save up money in an account and pray that you are not one of the unlucky ones who gets in a serious accident or who is in a risk pool that makes it impossible for your savings to cover your premiums at some point in the future.

    Give me an example where something like this has worked anywhere in the wold.

    • I love the car insurance analogy. Self-funding insurance is a difficult solution. That’s the whole point of insurance, right? Spread the risk to a risk pool?

      I don’t think we can objectively say that the ACA “failed.” My understanding is that objectively many more people have insurance where they didn’t before. That’s a great success in my opinion. It’s possible that it will be more important as more people shift to the growing gig economy. We shouldn’t expect that “employers” (gig economy blurs the lines) will cover health insurance for all workers, just like we couldn’t depend on them offering pensions. I think we need a bridge… and for personal finance that was 401ks and Roth IRAs, right?

      The skyrocketing premiums are obviously a huge problem for the ACA. If you read my previous comments, I’ve tried to create a common-sense path for reducing these skyrocketing premiums.

      A free market solution might work, but I don’t think we have a true free market. It feels like asking cable companies to compete with DSL pricing to deliver broadband internet service. Are they really going to fight for a small percentage of their business, when they make much, much more money elsewhere?

      I don’t know if people expected ACA to be a magical solution, but maybe it was marketed as such due to the political environment. I view the ACA as a large piece of the puzzle. If it is taken away, we’re back to the drawing board on how to create a safety net for those who have existing conditions or don’t have insurance.

      To borrow your car insurance analogy, allowing people to drive without car insurance is probably not a good idea.

      (I’m not trying to be political with this comment, it is bipartisan to give people an option for affordable health care.)

      • It hasnt failed at all, its just its much different in reality than to say, how it was sold. The point was to increase coverage (success) and decrease overall costs/rate of increases (also a success). Where people get confused is they thought costs go down for them, when the point was to bring to the attention of consumers more of the true costs of healthcare so they make better utilization decisions. This obviously in any economic model means more skin in the game, aka more bearing of up front costs. This leads to decreased ER visits for toothaches, etc…(in theory of course). The point of the ACA was to decrease costs to the US on aggregate, not to the individual. That has been achieved relative to recent history.

        Cynical take is it shows that only a single payer will both be the better cost solution and far more palatable to consumers as well.

        • Good points both of you. The ACA did not fail at expanding insurance coverage which was a big component. It did not really contain costs though, and it seemed disruptive to the insurance market, especially if you had to go onto the exchanges outside of an employer. That was my point.

          As an aside, a lot of people compare health insurance to auto, disability and life insurance and say ‘hey look, it works here so why not health insurance?!?’

          1. The $$$ amounts are minuscule compared to health care costs.
          2. Most people never end up using it and it acts as true insurance. Everyone uses health insurance and for some it is an enormous number.
          3. It is a commodity that makes comparison shopping easy.
          4. Making medical decisions are an order of magnitude more complex than buying term life or getting your can repaired after a crash.
          5. No one needs life insurance or car insurance (could choose not to drive) like they do health insurance.

        • Great points about poor comparative analogies to other true insurances. A true catastrophic insurance for all by government/single payer and then a private market for other things might serve the market much better and higher margins in the private market (by avoiding catastrophic non payers) would allow for real competition to enter the space.

          Supposedly, overall system costs have decreased their rates of increase relative to the past. Who knows if this is something that would sustain or even would have happened without the ACA. Its impossible to know for sure of course. It did wake people up to the true costs and kept them from abuse, which I feel like was more the unspoken point.

          I think now that so many states opted out and ruined the overall risk pool it is basically doomed to failure under its own weight without some sort of intervention. It was never going to make it without a full opting in, which didnt happen.

    • The Happy Philosopher, Lazy Man & Money, Zaphod,
      To me your questions are very broad and would take considerable time to address. May I suggest you read my e-book, “Understanding Healthcare: Historical Perspective”, available on many sites. Then I think we can have a focussed discussion on one of any point of interest.

      • You suggestion is duly noted.

        May I suggest that you include a link to a free download of your e-book? I’m not sure if others want to read 500+ of history to discuss the broad topics. As you mentioned the information age may have changed everything anyway.

    • At this time the average Medicare expense per person is over $10,000/year. Certainly an age adjusted amount deposited annually would cover routine care AND an insurance plan for big ticket items. Also this would be voluntary, some wishing this plan others staying as is. Remember that 2/3 of medicare expenses are presently paid by the succeeding generation and increasing. Thus the need for each generation to generate their own funds to pay for care when elderly. This is the crutch of the issue. The demographics have changed as have the medical armamentarium. These issues need to be addressed the sooner the better.

      • Do other countries pay $10,000 a year for their Medicare-equivalent programs?

        Isn’t it reasonable to address the issue by reducing drug costs so that that United States doesn’t have to subsidize other countries?

        We can drastically reduce Medicare costs with common sense.

        Let’s focus there before we try to introduce more unnecessary complexity.

        • Lazy Man,
          Sure, but let’s look into the reasons for our overblown drug costs. A fossilized /FDA, absurd pricing because of brokers, etc. , depressed competition for generics by FDA action and many more issues.

        • Thanks, I covered this in more detail on my website with the article that I mentioned many times.

          I’m not trying to steal traffic from PoF, but 90% of this article is aimed at history. I go into more discussion about solutions.

          See you there. Thanks.

  17. LOL, 3000 word history of healthcare coverage and 2 sentences that provide a “solution”.

    How much money do we deposit into each individual family account? How can consumers be participants in their healthcare when it is easier to find an actual price for a service for any service other than medical care?

    There can be no healthcare reform without some type of transparency in pricing for services.

    • I was thinking the same thing about transparency Jason.

      If you are going to give power to consumers to pay for services, they can’t be subject to spending $629 for a Band-Aid:

      I’m going to beat a dead-horse here, but let’s use common-sense to create a cost-effective solution. Maybe we could triaging people with “boo-boos” with a qualified nurse before making them subsidize gunshot victims. In the case mentioned above, a nurse could easily have administered care in about 2 minutes (roughly at a cost of less than $10) in an efficient system.

      That article points out the problems of facility fees at emergency rooms. Certainly that should be addressed as part of the solution? Letting people pay for their own health care is going to fall flat on its face with a few $629 bandages that fall off on the car ride home.

    • I’ll allow Dr. Fisher to address your questions; I imagine he’s got much more to say.

      To me, the proposed solution looks a lot like what I’m doing for my healthcare. We have a High Deductible Health Plan, HSA with funds invested the way I direct. Of course, I’m a high-income professional — they’re has to be a safety net for those who can’t afford to put money in.

      • I image that Dr. Fisher has more to say as you suggest. I don’t mean to be overly critical as I’ve been there myself… you write a million words and you get tired and just end the article.

        I simply think the focus should be on what we can learn from the history and how we can specifically use it to reform healthcare going forward. Maybe he could have linked to an article on his website laying out some of the problems and how his solution.

        Otherwise, I’d have simply left it as a history lesson of Medicare (which is of GREAT value). Given the political environment and the ACA, people are looking for solutions. I felt a little teased in that I’d get that with “A Solution Proposed” paragraph.

        • Lazy Man And Money,
          Medicare has several fundamental problems. 1) Everyone is spending everybody else’s money. 2) Deposits into the fund are spent the day they are received and do NOT grow over time. But, life expectancy is going up and medicine is continuing to develop new expensive treatments. 3) As there is no price transparency, nobody is aware of the costs before obtaining therapy, it is a price fixed command economy. 4) Hospitals lose money on Medicare more on Medicaid. Thus we have this elaborate cost shifting mechanism whereby hospitals put forward these absurd charges, negotiating with private insurance to cover their Federal program loses. This raises pvt. insurance premiums causing workers to have stagnant wages. 5) All this adds up to the succeeding generation paying significantly more for the previous generations care. At this time the deposits into the Medicare fund pays for about 1/3 of the care that person receives when a Medicare patient.
          Thus, how to address these issues, I have laid out one possibility, look forward to seeing others.

        • 1) Yes
          2) How do you NOT spend the money now? Just hospitals to take 30 years off of getting paid, while the next generation saves up money in their FICA accounts. Life expectancy took a step back this year. We can refuse to allow people access to new expensive treatments. Sounds harsh, but if you set the expectation that new medicines get a blank check from the government, it’s a problem.
          3)Yes, let’s change this
          4) Congress can make it illegal for hospitals to put these absurd charges crippling our economy.
          5) If people need to pay more, that’s something worth investigating, but it seems like we need to limit the costs. It could be a combination of the two, but I think there’s an easy win in cutting the costs of medication in half. Just today I read that CVS is going to sell a generic EpiPen for sale at around 1/6th the price ($110).

          I didn’t see much detail in the possibility you laid out in the article. Would like to see a lot more.

    • The problem I see is that the cost of medical care is so high here. No matter how much money you have in your Health account, it will get wipe out with one big procedure.
      Also, putting people in charge of their own health saving will only end in tears. Look what happens with the 401k. Only a few people are saving enough for retirement.
      I’m pretty sure this solution isn’t going to work.

      • Joe,
        The deposits into the special health account would be mandatory as is your F.I.C.A. withholding at this time. Using price transparency and open markets costs usually decrease by 30-40%. Has happened here in Indiana and in other countries. Of course one must also have insurance as part of the plan to cover the big ticket items. You may want to lookup the healthy Indiana Plan

        • Ahh, so the health account would be for routine procedures… like an HSA? The price transparency and open markets can (and should) happen with or without these special accounts.

          That could be part of a solution, but then you still have to have insurance and deal with the big stuff.

    • Jason,
      Agree, Price transparency and market forces are critical neither of which is present today.
      Keep in mind we are dealing with the possibility of TWO accounts, account 1) would be your HSA while working account 2) would be your retirement account for care when older. When older you could combine the two. Also these accounts in my mind would be voluntary, one could stay in the present system.

  18. The history of healthcare made for an interesting read. I have some questions about the proposed solution. Has this solution been shown to work anywhere (I’m genuinely curious)? Is there another country that implements it? Conversely, is there no other country in the world that has a working system that we can copy? Are we trying to reinvent the wheel here? Also, being an immigrant myself, how would this solution work for immigrants who miss ten years or more of prime contribution and compounding time? I migrated here when I was 30 years old.

    • Mrs. BITA,

      There have been some articles in The Atlantic (recently) and Huffington Post (a couple of years ago) that show that Cuba’s healthcare is as good or better on 1/10th the budget:

      Here’s the one from The Atlantic:

      The article makes a lot of good points, but my takeaway is that in the United States healthcare is a business, which is designed to make a profit. In Cuba the focus is on providing people the best care with the limited money available. Necessity is the mother of invention.

      I’m not saying that Cuba has it perfect, but that there’s a lot to be gathered from the system they have in place.

      If we reduced our healthcare costs by 90% would we be having this discussion?

        • Mrs. Bita, You raise some good questions. You may want to look at Singapore and Switzerland. An important point for me is that the U.S. is the 3rd most populous nation in the world while being the most diverse. Another point to keep in mind is that other systems were created before the information age. For these reasons I believe we have to develop a U.S. solution to this problem.
          You raise an interesting question at what age would an immigrant no longer be able to participate in this plan.. I would say around 40. Since this plan a strictly voluntary, that person would join the present plan.

        • Does having more people make it more difficult to create a solution. There’s a lot of tax money from those people too, right? I’m not sure how diversity enters the picture.

          The information age should be a tool that can only help. I don’t think we have to use 100% of another country’s plan, but if Cuba has a system that works (as noted by the articles about) at 1/10th the cost, we can start with that base and tweak it.

          The biggest thing is that we need the system and politicians to focus on the people. If politicians are going after a political agenda (ACA) and caring more about Big Pharma R&D, it’s hard to get anywhere.

        • Mrs. Bita,
          Why not give Americans choice, some may wish government directed care, others may wish to direct their own care with a trusted physician. They would fund their care via refundable tax credits into a health savings account that would also be able to fund an insurance policy for big ticket items and if they wish direct care contract/s with physician/s of their choice. This would be somewhat unique to the U.S., individual choice. This plan is being proposed now by Rep. Sessions and Senator Cassidy, more here:

  19. This is a topic that I’ve taken an interest in of late.

    I’m clearly not as well-versed in the history of Medicare in the United States. I’m not a doctor like PoF or the guest author. I’m not even in the healthcare field (but a couple of decades ago, I was a pharmacy technician).

    It seems to me that at least a large part of the financial issues that Medicare can’t negotiate drug prices. There are many comparisons that put the US near the very top sometimes paying twice as much as other developed countries. It seems to me that with the simple stroke of a pen by lawmakers allowing that negotiation, we’d cut costs 25%.

    I love giving people the choice to control their own care, but I’m leary of it too. When people are given the choice to put money in 401ks for retirement many of them don’t. When they are opted-in automatically they do. I think we’d have to presume that the same would be true for saving accounts for health care when people are elderly. It’s likely that very few people would take the bait to put their their health care future in the market.

    And a conservative allocation of 50% stocks and 50% bonds would have to be protected against a drop in the US economy (too many eggs in one basket) so we’d have to do something like putting at least 75% of that money in foreign funds. (By definition if you aren’t investing in the US, you are investing in foreign countries, right?)

    I do like the idea of the money being given to people for routine care. Sounds like Universal Basic Income but for health care. What if the amount given isn’t enough for some people?

    When I became a father, I had to get a TDAP booster (pretty common thing). It was 10-minutes and administered by an assistant of some type (not an MD). My PCP charged the insurance company $365 for it. The insurance company paid $169. It would have cost me $30 at CVS, but that wasn’t covered by insurance. I was incentivized (by saving $30) to put a $169 expense on my health insurance company.

    I think that’s the real problem. Everyone in the system can push the costs to insurance which makes the insurance premiums rise. No one is trying to make the most cost-effective decision for the entire system. They have no financial incentive to do a cost-benefit analysis.

    It’s like colleges raising prices astronomically because they can push the cost on student loans amortized over many years. Letting students take control of their own educational financial resources hasn’t been a solution.

    • This is a real problem. The up charge that hospitals, offices, etc make to the insurance company because they will not pay the entire bill costs the health care system. If the charges were transparent and similar for cash payers vs insurance payers (not to mention that different insurances have negotiated different payment prices), then it would simplify matters. Then we could focus on service provided by those insurance companies and hospitals/doctors instead of cost for a shot at CVS vs the PCP.


    • Lazy Man And Money, You raise many issues. Re: Drug costs, a complicated problem, 1) the FDA created in the 1960’s is grossly out of date costing companies an astounding 2 plus billion dollars to bring a drug to market. 2) You are correct that other western countries use price fixing the problem is that those prices do NOT support R & D. Thus the U. S. is finding ALL pharma R & D.
      Just as your FICA withdrawal is automatic going to the Feds, in this system the same monies would be deposited in your special account to grow over time.
      U.S. bonds ARE the most secure investment in the world. Thus if the market were down when you need to access the money you would be covered.
      In regards to your TDAP shot, the problem is you have pre-paid health care with no price transparency and the discipline of the market. Thus you would be better of paying cash from your health account.
      EJ, Hospital charge master prices are grossly overblown and do not represent cost. Also, there is cost shifting to cover the losses hospitals have in caring for Medicare and Medicaid patients that are born by private insurance. This then inflates their premiums which result in a hidden tax on those still working

      • There are a lot of complicated problems regarding healthcare, but at least it’s worth discussing them rather than presuming they can be solved in a couple of short paragraphs in the article.

        1) That 2+ billion number to develop a new drug has been shown to be questionable at best by The Washington Post and the NY Times:

        2) There’s no need for the US to fund Big Pharma’s R&D to the detriment of its citizens access to affordable health care. Easy, quick win… just stop it.

        While U.S. bonds might be the most secure in the world, they do involve risk. They can go down as well. Stocks as you also suggested involve more risk. Such a huge investment might create a huge bubble in US equities. You have everyone’s health care tied with the US economy and US jobs. It’s a recipe for disaster in a depression. I’d like to hear a proposal that covers diversification.

        Thanks for telling me what I already know about my TDAP shot ;-). I didn’t see how the proposed solution in the article ensures price transparency.

        • Lazy Man & Money,

          What happens to Medicare if the Federal Gov’t goes bankrupt? I presented the background of the problem and a discussion of a possible solution. Certainly not meant to be the only solution. My question, what is your proposal?

        • Well, we are a military family and we have about 1/4th of our FIRE plans on a pension. I don’t think the idea of the Federal Gov’t going bankrupt was in the discussion here. Stocks in US companies and bonds in US companies were in the discussion if I read it correctly.

          US companies’ stocks and bonds have fallen, and even though the entire system hasn’t got bankrupt, there’s a potential for a loss of 40% such as in 2008 or say 2000. I think any plan needs to recognize that and deal with the public going bananas about not being able to get medication because of a stock market crash.

          If you meant US gov’t bonds in referring to the federal government going bankrupt… that feels like suggesting the US government lends money to itself on behalf of the people (in these health accounts) at an interest rate that it will pay off in the future, right? I might have oversimplified there, but it’s unclear to me how the US gov’t will make money lending to itself.

          My feeling, and I’m far from alone on this, is that the “discussion of a possible solution” was a throwaway couple of short paragraphs. I think I had respectfully asked a few days ago that a link to a wider solution be presented.

          As I originally noted, I’m interested in this area and I have been gathering some research and putting together ideas. If you’ve read my comments, you have a few of them:

          – The US pays far too much for medicine. Negotiate strongly and stop funding Big Pharma R&D.
          – Cuba’s system works at 1/10th the price… there are things the US can implement from them.
          – There’s a weird system that incentivizes the pushing of costs to insurances who just raise premiums and stick it employers or people paying privately. We need a system that incentivizes cost/benefit analysis.
          – What do we do about facility fees at hospital ERs? I suggest that they become utilities like police/fire. It’s the same concept.
          – The ACA is actually a very, very good thing. Any complaints about costs can be addressed through the above.

          That’s far from complete… just kind of a brainstorm… I hope to have my article ready to published in the next few days. What I hope and what happens doesn’t typically match-up. However, I won’t ask you to pay money to read it ;-).

        • Lazy Man & Money,

          The reality at present is that the older generation is forcing their children and grandchildren to sacrifice their standard of living to support the older generations healthcare. This is happening for a number of reasons, decreasing worker to retiree ratio, expanding health capabilities, cost shifting by hospitals to underwrite losses caused by underpayment by Medicare/Medicaid. These losses are then shifted to increase prices from private insurance, increasing premiums thus freezing workers’ income. There is no Medicare Trust fund, monies are spent the moment they are received, (see President Lyndon Johnson). To me this is highly unethical. The key to get out of this situation is to have the funds accumulated by the individual while working to grow as they age.
          The average Medicare patient costs the program about 10,000/year. Lookup direct primary care for about $1500/year, an insurance policy for big ticket items across state lines would cost about 3-5K/year. Leaving significant amounts for routine care.
          The point here is to solve the present unethical situation of putting an excessive borden on our children and grandchildren. The specifics could be different, but the goal remains.

        • It sounds like you’d be against Social Security as well as it works similar. If that’s true, we aren’t having a conversation about healthcare, but a political discussion on the ethics of the current generation paying for a previous generation.

          I’d like to avoid that as it is a whole new can of worms that broadens things almost impossibly. Instead, let’s reel in the conversation to discuss cost-efficient healthcare. Fair?

          After we solve that problem, we can discuss the idea of who pays what and when they pay it. I’m fine with either plan as long as everyone get healthcare and there are no headaches in a transition from one to the other.

          I’ve expanded on the points I’ve written about above and would appreciate your comments:

        • Lazy Man,
          I am for both concepts, Social Security and universal access to healthcare. Both systems as now operational are not sustanable because of changing demographics. There are many possibilities to solve these issues. Let’s put our heads together to present the best possible solutions.

        • Thanks, I look forward to your comments on my article above presenting and addressing many of these issues. I haven’t seen your comments come though yet, so I await with bated breath.

          Contrary to popular belief, Social Security is sustainable. It might not pay out what people in the past have paid in, but it isn’t going to collapse.

          And I’m not sure that universal access to healthcare is unsustainable.

        • Lazy Man,
          Why should Americans be O.K. with decreased Soc. Sec. benefits? Shouldn’t there be a way to increase benefits instead of decreasing them?
          Never said universal access is unsustainable , if we do it correctly. Presently we do NOT have universal access and the present system IS unsustainable. Approximately the present almost 20% of GDP for healthcare IS unsustainable.

        • I think you wrote, “I am for both concepts, Social Security and universal access to healthcare. Both systems as now operational are not sustanable…”

          I wasn’t talking about it could be stable in the future but just questioning it in the present.

          I’m not sure that Americans should be okay with decreased Soc. Sec., but that’s a whole different conversation that can spawn ten thousand more threads. I simply wanted to make it clear that it is sustainable and not going to collapse.

          I don’t believe Cuba’s healthcare is 20% of their GDP. There are probably other countries with much lower percentages as well. Let’s look at those, fair?

  20. Interesting read. I like your proposed solution a lot. Can I throw in insurance plans allowed to cross state lines. After all the key here is competition, transparency, and skin in the game transferring to the patient.

    • Full Time Finance, Absolutely the high deductible insurance purchased with the yearly deposit would need to be available across state lines. Notice how this would change the incentives for the insurance company. They would want you to stay as healthy as possible..

  21. Very interesting read. The current system is in a sad state and it’s really interesting to see how we got there. Thanks for sharing this! The solution seems so simple, yet, as we know, government never makes anything simple.

    • Go Finance Yourself, Could it be that our Congress enjoys being at the center of healthcare? Think of all the lobbying money and their campaign slogans telling us Americans how magnificent they are in providing us seniors with healthcare. Neglecting of course their mismanagement of the entire entity.

      • I don’t remember government being at the center of healthcare in 2004 or 1998. Can we at least agree it wasn’t front-page news?

        And let’s distance ourselves from politics with the discussion of healthcare.

      • Wow you jumped quick to a political agenda here.

        “Our Congress just cannot conceive of individuals being in charge of their care.”

        For great reason… not all individuals can be relied on to be in charge of their care. Perhaps the top 5% can be, but try putting an impoverished 19 year old in charge of funding his healthcare. I doubt the results will be good.


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