At last! I resume my exposition on the American health care system. In my last essay, you heard about some ideas for reforming the health insurance system. This included ideas such as tailoring a person’s insurance benefits to his/her lifestyle and change insurance companies to not-for-profit status. But as we all know, insurance companies are far from the only problem in the American health care system. People also spend a lot of time complaining about employer health benefits.

Of course, now there’s some variation. If you work for a major corporation with great benefits, then you probably aren’t complaining too much. You could be on an extremely flexible PPO with no deductible that costs you as little as $50 per month.  If that’s the case, and you’re complaining, then shut up: you’ve got it good. But for everyone else, the plans that an employer does or does not cover can be an area of great frustration. Maybe the plan options aren’t varied enough; maybe the plan you’re on doesn’t cover costs you find very important; maybe the plan you’re on doesn’t allow you flexibility in seeing the doctors or specialists you need for adequate health coverage; maybe your high deductible pisses you off.

For these and many more reasons, employers are often blamed as part of the problem. But unfortunately, it isn’t as simple as most people think. Whatever health coverage an employer does or does not happen to offer can result from a lot more than just a seemingly arbitrary policy decision.

Whatever your reason for being disgruntled in regard to your employer health coverage, it probably boils down to one relatively simple driving factor: cost. Those of us who have great insurance coverage with our employer have such coverage because the employer (for whatever reason) is willing or able to pay more money for our health insurance. But make no mistake: someone has to pay for your health insurance costs. If you feel like you aren’t paying much, then that means that your employer probably is.

Thus, for those employers who are not paying much, their employees are stuck with the bill. But again, this isn’t just about wanting to screw over your employees, it is about cost. Let me explain through an example.

Let’s say that an employer can afford to spend $100,000 on an employee with your particular job. This $100,000 would include far more than just your salary. It would include the desk you sit at, the computer you use, the power that computer uses, the phone line hooked up to your phone, your portion of the rent for the building you work in, etc. Another such cost includes employee benefits. So let’s say that your salary, after all costs have been figured in, out of that $100,000 would turn out to be $75,000. But let’s say that does not include health insurance. Let’s say that for a good health insurance plan, it would cost another $5,000 per year, per employee. That means that your salary would drop to $70,000 if they provide good health coverage – but wait a minute. If you were to just purchase that health coverage on your own, chance are pretty good that the cost would end up being approximately the same amount.

The purpose of this example is to illuminate the fact that someone always has to pay. If your employer is paying a lot for your health insurance, that means they’re paying less to your salary. If they’re not, then you’re getting more in your salary and you can afford to purchase better health coverage yourself. Unfortunately, it is usually not this clearly spelled out in your salary and benefits package when you get a new job, as it’s probably unknown to 99% of workers what their company really spends on health insurance. But you don’t need to know, because simple economics tells us health benefits are necessarily a cost incurred by a company which is figured into your compensation package.

So look: Don’t get too mad at your employer, because if they’re taking a lot of your paycheck out for health coverage, then you probably have great coverage and will incur very few out-of-pocket expenses. If they have no health coverage at all, then that means your salary is higher, so health coverage should be your responsibility. Any way you cut it, you aren’t really worse off either way, because someone must incur this cost in the end.

But what about those employers who do not offer any health care coverage. Sure, that means your salary might be more, but isn’t it kind of a bum move to not even give people the option to have health coverage through employer benefits? If you work for a large corporation, then yes, I’d say this is a little bit sketchy. Large corporations can generally get very good deals on pricing packages for health insurance, which would help to minimize your health care costs. This is one of the benefits of working for a large corporation.

But for the small businesses, it’s another story. Some may offer health coverage, but if they do, it’s likely expensive. And this makes sense. The cost to insure less people is going to be greater, as economics dictates that without the ability to purchase in bulk paired with less bargaining power results in a higher cost. But again, this is neither the fault of the small business owner, nor the fault of the federal government, nor anyone else. This is just the way economics works, and it makes sense. If I have a workforce of 10,000 people to insure, an insurance company should give me a better deal then if I have a workforce of 10. That is, as long as it’s a for-profit organization (see my last essay for the not-for-profit possibility, which would probably eliminate pricing discrimination).

But finally, I would like to argue that the market forces will act on their own to punish those employers who do not offer good health coverage. The logic here is quite simple: healthy workers are more productive. If you have poor health coverage, you are less likely to be healthy. Thus, if a company provides poor health coverage to its employees, they will be less productive and its profits will be worsened.

For example, let’s say that you have a bad health care plan with a very high deductible. And let’s say you have a sinus infection. Obviously, your productivity at work, so long as you have a sinus infection, is going to be significantly worse than when you’re healthy. Yet, if you have to pay a high deductible, you might be more likely to try to let the sinus infection run it’s course, instead of going to a doctor (paying his/her fee) and getting some prescription antibiotics (and paying for them). But if you had great health coverage, then nothing is really preventing you from getting healthier as quickly as possible, optimizing your productivity.

A further benefit to companies that offer good health coverage is less nuanced: people like good benefits packages. If you are a great candidate for a job and you are trying to choose between two companies which are comparable in every way, but one has great health care benefits and the other does not, then your choice becomes obvious: You are going to work for the company that has the better health care benefits. Thus, companies can attract better employees, and again, have greater productivity and profits, if they choose to provide their employees with good health care benefits.

So I think we have discovered a few important things here. First, a worker should generally be indifferent to whether or not his employer covers his health care. Either way, the employee will end up paying, as employer coverage merely means a lower salary which could have been used to pay for health care on his/her own. Yet, an employer should see a few very key advantages to providing great health care coverage to its employees: healthier employees are more productive, and great benefits packages attract great employees. Thus, the onus here is basically on the businesses to do the right thing, which happens to coincide with their best interest. If a business chooses to have poor health insurance coverage, then it has to face the consequences of this choice. But either way, an individual really isn’t any worse off, as s/he will ultimately end up paying for his/her health care no matter what their employer chooses.

Recently we’ve been graced with another piece of pseudo-intellectual tripe from not-so-esteemed pseudo-documentary maker Michael Moore. Much like his last movie assailed the Bush administration, his new movie assails the healthcare industry in the U.S. Needless to say, he has the same target audience for this film as his last.

I have not seen this film, as I have better things to do with my time. As a result, I will not comment directly on its content, as this would not be fair. Besides, what it contains is rather obvious: a bunch of strung together sound-bites and short scenes taken out of context, woven into a film that makes the U.S. Healthcare industry look extremely bad. Moore even goes so far to claim that the Cubans have it better than we do. This is all I know for certain in the movie, and having grown up in South Florida, knowing hundreds of Cubans, I can say rather definitively that they all far prefer the U.S. health system to what Fidel has to offer.

My writing about Moore’s movie, however, will stop here. Addressing his bogus film is not the point of this essay. Instead, I intend to explain why the U.S. healthcare system is not as bad as some people think, and do something that Moore fails to do: actually make some positive suggestions of how things can improve.

The easiest way to do a quick and dirty analysis of our healthcare system is to break it down into parts: Insurance Companies, Employer Health Benefits, Medical Facilities, and Pharmaceutical Companies. I will address each of these topics separately, then draw some general conclusions. I originally intended to do this in one essay, but it became clear that each of these topics is quite involved, and probably warrants its own essay. So I will create my exposition in four parts, the first of which will focus on insurance companies.

Many people think that insurance companies do a fabulous job of ripping us off. I know that I sure do whine when I have to pay until I hit my deductible. But in reality, most of us who work for companies that provide a decent insurance package have it pretty good: after reaching a reasonable deductible, we are home free. And let’s face it: that has the potential to do us a lot of good if we ever need serious medical care that we could not otherwise afford.

Of course, the argument goes: But if I don’t need medical care, then I have to continue paying my insurance. I mean, clearly. That’s how insurance works! It would be interesting to do a calculation of the average amount of money a person spends during his/her lifetime on insurance and the average actual cost of healthcare provided during his/her lifetime. I’d be willing to bet that it comes pretty close to evening out, less a fee from the insurance company for the service that they provide, of course.

But the argument most people make deals with this very fee: they believe that insurance companies are charging us too much. You know what: you could be right. They probably are charging us too much. But you know why that is? They have no choice, at least to some extent.

There are a lot of moving parts in the healthcare sector that insurance companies have to worry about. First, there are negligent idiots who drive drunk and end up crashing their car and need to be hospitalized – something an insurance company will end up paying for. The idiot who decides it’s a good idea to clean his own roof, slips and breaks his hip – something an insurance company will end up paying for. And the list goes on. The frustration, of course, is that insurance companies cover a wide range of people with an incredible amount of diversity. Thus, they end up paying out a lot of money, and fail to differentiate between those people sometimes, so charge them all the same.

And herein lies my first suggestion: the insurance companies should begin to differentiate between people based on the risk they exhibit. For example: let’s say that you don’t ski, don’t play contact or extreme sports, don’t travel to exotic countries with bizarre diseases, don’t smoke or do drugs, and don’t engage in many, if any, other risky activities. Then you should have to pay less than others who do engage in those activities. I know what you’re thinking: this sounds good, but how in the world would the insurance companies enforce it? Easy – they rely on your honesty when filling out the forms. Let me explain.

Let’s say you’ve got a form in front of you. It lists 200 activities from skiing to base jumping to smoking with little check boxes next to them. If you check these boxes, it means you engage in these activities and that, if something were to happen to you while performing these activities, then the insurance company would cover you. If you don’t check a box, and you do engage in that activity and get hurt, then it’s up to you to pay for your own medical expenses. Seems fair, right? And seems like it would force people to be honest if they wanted medical coverage, right? So then you take that checklist, put it into a computer and it gives each person a risk score which their insurance premiums are based on.

This has a few wonderful results. First, it tailors your insurance costs to what you should actually be paying based on who you are. Second, it encourages people to take less stupid risks, as they will have to pay more if they do. Finally, it gives people a feeling of actually getting what they pay for. After all, if you do truly love skiing, then that’s no problem – you just have to incorporate potential insurance costs of your hobby into what you pay for healthcare.

You could take this idea further. You could give people a discount on their insurance if they buy a gym membership. You could have people take drug tests to prove they do not do drugs or smoke. The list goes on. But the insurance companies can, and should, work harder to differentiate between risky and less risky people.

But I know what you’re thinking: Well that’s great if you can afford health insurance, but how about the millions of Americans who aren’t lucky enough to have an employer who supplies it? Well that’s just my point. If these people are living low-risk lives, then they should be able to afford it, despite what their employer may provide. I will cover this topic at length in the next part of my analysis, however.

I have one other suggestion, which I don’t particularly love, but some may find attractive. There is still the complaint that insurance companies make too much money. Well what if insurance companies were all forced to change their corporate status to become not-for-profit companies? It sounds like a crazy idea at first, but it isn’t entirely clear to me that insurance companies should be working for high profits. It is a service industry, and clearly actuarial experts still need to be attracted to the field, but you could still pay people while having the company become not-for-profit. All this means is that profit is not their main goal. Again, I am not necessarily in love with this idea, and it is not clear to me what consequences it may have. But I do think it’s an interesting suggestion worth researching further.

In any case, I can sum up my thoughts on insurance companies with a few points. First, they probably aren’t as bad as you think. I know, for myself, because I have an employer with a pretty good health plan, I pay relatively little money and have a great deal of potential healthcare that will be provided for me. Though not terrible, insurance companies could definitely improve. The best way to do so would be to look more closely at differences amongst individuals and analyze risk per person, rather than charging everyone the same amount. Finally, one might even consider something as extreme as making insurance companies not-for-profit organizations.

Stay tuned for Part II: Employer Health Benefits