Securitizing Health Care

As the health care debate rages, we are offered a series of poor choices due to our political system's inability for consensus. On one side is the growing chorus for a government plan. Seriously, have these proponents not been to a DMV? All the government plan will achieve is to exert Wal-Mart style cost pressures that will run private capital out of business. And what makes supporters think the government can manage such a program efficiently? The track record of Medicare is hardly inspiring - the program is likely to be insolvent in the near future!

On the other hand, it is hard to argue with the fact that we have a seriously broken system. One in six Americans is uninsured, in a system where the costs of being uninsured are more dramatic because of inflated prices. Many more are excluded from the system because of pre-existing conditions. And the system does not encourage healthy lifestyle choices or preventative medicine, because of the lack of long-term commitments from the patients in question.

Democrats are living in la-la land, ignoring the cost side of the balance and seeking to run capital out of the industry. Republicans, even worse, seem to think that sticking their fingers in their ears and yelling 'socialism' means that we don't have a problem that needs fixing. What's missing is smart ideas that, like all the good ones, straddle the middle.

So here's an idea to consider - and it's not even that original. For all the criticism of our housing boom, Fannie Mae and Freddie Mac have dramatically changed home ownership in this country by providing coordination. The US government managed to achieve much greater home ownership rates without running the program by supporting these agencies whose role was to buy mortgages, repackage them and sell them to private industry. Before the distortions in recent years, this meant low risk to the government, aggressive competition in private markets and, well, a free-market system that largely worked.

In concept, I can't see why this isn't a valid idea for insurance. You have a pool of, let's say 100 people, 50 of whom might be relatively young workers, 10 of them are over 80, maybe 2 of them have cancer, 15 have diabetes, ... you get the idea. By pooling them, and doing so on a large scale and only government can, you offer the insurance companies the ability to greatly increase market share, but only if they are willing to pick up the unhealthy insurees as well as the healthy ones.

There would have to be some controls to ensure pools stay largely the same (i.e. if you're in Pool A, you are highly likely to stay in Pool A) - this gives insurance companies the incentive to improve your healthcare metrics as a risk mitigation tool.

Just thinking aloud ...