Health Financing: An Alternative in Expanding Access

We need to reform the health care system because it is too expensive. In the meantime, there are several interim options we can undertake to expand health care access. A public financing initiative can provide access today while preserving the political pressure for reform. In addition, this public financing initiative will, paradoxically, spur cost-saving innovations.

One common concern for the uninsured, and some insured, is the high cost of surgical operations and certain treatments (dialysis, psychiatric, etc.) Often these treatments are critical to keep people alive. One way we can quickly meet this need, is to provide government financing assistance. An inflation-indexed, zero-interest loan will help many people, and reduce government obligation. This financing will also help hospitals to pay for their emergency rooms and the many previously-pro-bono treatments they undertake.

Some hospitals are already providing installment payment financing for families to pay for treatment. I am proposing to expand the scope of the loan and the scope of the practice to meet the current medical needs.

For example, say you need surgery for a stent to unblock your arteries. To pay for it, the government can give you a 50-year loan, say, requiring co-signature from your family members (like your son) who will live long enough to pay off the loan. We can index the loan to inflation to make it revenue neutral for the government. We can make this loan at low interest (0.5 percent) to cover the possibility for default, or zero interest. We can set the monthly payment at an affordable level (10% of income, say), and make the loan last however long necessary to pay it off (10 to 100 years). With more co-signers making payments (your wife, son, cousins, et al), you will pay off the loan faster.

This proposal preserves the role of personal responsibility in making health care decisions, yet provides critical treatments to everyone who needs it. Co-signers are necessary in this case because the patient will most likely die before paying off his medical bills, given today's prices.

With the prospect of your grandchildren paying for your own heart surgeries, we preserve the political pressure for healthcare reform. At the same time, we make sure that people today have access to required care. So this is a short-term patch that gives us the space to figure out how to fix health care. In addition, by creating a larger market, we will, interestingly, lower the treatment cost.

This paradoxical cost-saving effect can come about this way: By having financing, we create more customers for these specialized procedures. The increased demand will initially bid up the prices. The increased profit margin will draw in more providers, and hence more competition. With a larger provider pool, there will be greater market incentives for cost-saving innovations. An innovating first-mover can make a killing [pun not intended] before his peers catch up to him. Thus, we get lower cost down the road.

And this does not have to be a government initiative. Hospitals and charitable organizations can step up to provide this financing directly. Although the CDO market has recently taken a severe beating, this particular financing arrangement is ideal for a non-profit Secondary Bond Market. We can leverage market incentives to both provide financing on the demand side and to generate innovations on the supply side. Hopefully some non-profit or municipality will take this idea for an experiment.

Edited: for format and tagging