It appears that Congress will do nothing about healthcare and it may be time to take a look at the system and apply some practical risk management (RM) principles.
In RM, the first step is identifying exposures. For health, that is everybody. What else is exposed? Our health dollars. We spend more than any other nation on healthcare, but are only 13th in healthiness. We have a high infant mortality rate, and the primary causes of death are drugs, auto accidents, diabetes-related problems, Alzheimer's and cancer.
The next RM step is to identify the hazards leading to loss. There are many: poverty, drunk driving, homelessness, easy access to narcotics, lack of exercise, guns and plain stupidity.
The next RM step is to address the hazards. New research shows that the better educated and well-exercised people are, the healthier they are. Fewer college graduates smoke, use drugs or eat themselves to death. Education is also about the only way out of poverty, regardless of race. The way to reduce or eliminate the hazard is to improve the nation's higher education opportunities.
Drug abuse is severe and the so-called “war on drugs” has failed. Many are manufactured or grown here in the U.S. How can this hazard be eliminated or reduced? Individuals with a job and family may be less likely to turn to drugs, but there is a four to five percent where employment is evasive.
One side effect of the drug epidemic involves shootings. Even if drug dealers are shooting at each other, too often it is an innocent bystander who gets shot. That, too, raises medical costs.
Related: Building better prescription drug practices
|Risk financing
Risk is managed in two ways: control of risk to reduce the chances of loss or eliminate it entirely, and risk financing by arranging a way to pay for loss that does occur. That is what private and group health insurance and for those without such coverage, Medicaid (and Medicare for the elderly) and Obamacare were supposed to do.
There are lots of ways to control risks, once the exposures and the hazards that lead to a peril are identified and addressed. These affect how much financing is needed. In medical care, addressing fraud and abuse of the care system, as discussed last month, will help greatly. When nobody is looking at the bills and just paying them, costs soar.
Another is the cost of prescription medicines. TV ads are expensive, as are the medications doctors prescribe. Plus, physicians are prescribing too many antibiotics and narcotics. If Congress wants to address this, either nationalize the drug industry or impose controls.
There are other ways to finance risk: pay out of pocket; budget and reserve for it; borrow to pay the bills; declare bankruptcy, or transfer the risk to someone else under a contract. That is all insurance is: contractual transfer of costs in the event of a covered loss.
But insurance is based on the principle of spreading the risk among a large number of homogeneous exposure units; take away the mandate, and the system fails. Take away all the other original plans for the ACA (Obamacare) like expansion of Medicaid and the creation of pools of insurers and there's nobody to whom to transfer risk. The system has failed.
Ken Brownlee, CPCU, is a former adjuster and risk manager based in Atlanta, Ga. He now authors and edits claims-adjusting textbooks. Opinions expressed are the author's own.
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