Patient's Rights Legislation: Will It Cure What Ails the American Health Care System?

Address To the Chicago Claims Association, September 15, 1999
By Craig J. Cantoni, Capstone Consulting Group of Scottsdale, Arizona
(480) 661-8175 E-mail: Ccan2@aol.com Web: www.CraigCantoni.com

This is like homecoming week for me. I started my career too many years ago at 111 W. Jackson in the Loop, working for Zurich Insurance before it moved to the suburbs. I believe that Zurich is now of the ten largest insurance companies in the world. I wish I could say it was because of me.

I have fond memories of walking to Greek town after work on Friday evenings and drinking Retsina and Metaxa with claims people before getting on the commuter train to Arlington Heights. The claims professionals would play "Can you top this?" They would tell stories of bizarre accidents and injuries that crossed their desks during the week. What a bunch of sickos. I loved it.

Movies Yesterday and Today

One of my favorite movies is "Double Indemnity," a 1944 movie with Fred MacMurray and Barbara Stanwyck playing the villains and Edward G. Robinson playing the claim manager hero. Think of that: a claim manager as a hero and insurance as a respected business and profession. How times have changed!

Fast forward to today. My family and I recently rented "Patch Adams," the maudlin story of an anti-establishment doctor. Near the end of the movie, one of the characters makes a derogatory statement about insurance companies and says that American medicine should be nationalized. Had that been said at the beginning of the movie, I would have hit the eject button. I eject a lot of movies nowadays.

About one-half of today's movies have anti-business themes. No surprise there, not with half the U.S. economy being controlled by the government and about 42% of the population getting more back in government services than they pay in taxes. In that sense, we are half socialist. The surprise is that business underwrites movies that are anti-business. That is akin to an army giving free ammunition to the enemy. Oh well.

Political Beliefs

Why am I talking about politics? Because I'm here to talk about Patients' Rights legislation and medical insurance reform. Both are political issues.

In the spirit of honesty, let me put my political biases on the table. I refuse to pretend that I have none. I refuse to pretend that I'm totally objective, as the liberal media like to pretend. I don't want to be dishonest about my political beliefs, as dyed-in-the-wool Democrats Cokie Roberts and Tim Russert do every Sunday morning.

I'm a believer in the 18th Century definition of liberal democracy and in the Constitution. That means that I'm neither a Democrat, Republican, liberal nor conservative — at least not the way those groups are currently misinterpreting and violating the founding principles of this great nation. I believe in individual rights over state power.

What Is a Right?

There is that word: "rights". If we are going to be talking about patients' rights, it is important to know what the word means. What is a right? Let's turn to the Founding Fathers and the Declaration of Independence for help.

Rights are inalienable. They are natural. They are handed down by God. My apologies to any atheists in the room, but that was what the Founders believed.

This is key: RIGHTS ARE NOT BESTOWED BY GOVERNMENT. The Founding Fathers believed -- and the history of mankind proves -- that the greatest danger to individual freedom is government taking away rights under the guise of fairness and social justice. It is estimated that under Stalin, the Soviet government killed 30 million of its own people in the name of justice. In 1952, presidential candidate Adlai Stevenson said that communism is a corruption of the idea of justice. So is patients' rights legislation.

The role of a government in a liberal democracy is to protect the natural rights of its citizens from being taken away by government. By definition, rights cannot be granted by government. They can either be protected or taken away, but they cannot be bestowed by government. Entitlements can be bestowed, but not natural rights.

Take slavery as an example. It was the government of the southern states that stripped slaves of their right to be free. It took a civil war for the government of the North to stop the government of the South from taking away the rights of African-Americans, but the North did not give the black man the right to be free. He was born with that right.

Similarly, we are born with the right to get medical treatment from whomever we want, at whatever price we want to pay, with whatever level of managed care we are willing to tolerate. The notion that the government is going to give us those rights is absurd, particularly when, as we will see, it was government policy that took those rights away from us in the first place.

The Founders felt so strongly about individual rights that after they wrote the Constitution, they added a Bill of Rights. My copy of that masterpiece does not say anything about Patients' rights.

The Founders' idea of individual rights are rooted in Western civilization. The idea came out of the Renaissance of northern Italy and was expressed governmentally in England with the Magna Carta. In this age of revisionist history and multiculturalism, it is fashionable to say that all cultures are wonderful, so that no one's self-esteem is hurt. Well, sorry, but all cultures are not wonderful, at least not in terms of a tradition of individual freedom over government tyranny.

Government-granted "Rights"

The major problem with the Patients' Bill of Rights is not what it says, but the idea behind it. The Bill is a based on the notion that the government should be in the rights-granting business. What a slippery slope. Once government gets into the rights-granting business, the number of rights that can be granted are limited only by the human imagination — or by the self-interest of special interests and populist politicians.

In Arizona, for example, we had his Excellency Senator John McCain push for an airline passenger bill of rights because his Highness was served peanuts instead of breakfast on a flight from Phoenix to L.A. And he calls himself a conservative Republican. Sounds more like Tim Russert and Cokie Roberts to me. Now in the name of campaign finance reform, King McCain wants to limit political speech.

When government gets in the rights-granting business, it invariably results in some people being given a right at the expense of other people. The sacred cow of Social Security is a good example.

It is estimated that when my eight-year-old son grows up and enters the work place, half his lifetime income will go to the government. If the Social Security and Medicare Ponzi schemes are not stopped, as much as 60% to 70% of his earnings will be plundered by the government, much of it to pay other people's entitlements. That is immoral. It is immoral for Boomers like me to stick my son's generation with the bill for our medical expenses and retirement. I grew up believing that parents are not supposed to take their kids' money so they can drive expensive SUVs and buy granite counter-tops instead of saving for their retirement.

Yet virtually no politician, pundit or journalist questions the morality of Social Security and Medicare. Those programs have become a new right. What they are is an entitlement, not a right, but let's not quibble over definitions.

Speaking of entitlements, President Clinton believes that seniors have a right to free prescriptions. So does NBC. It did a segment a couple of months ago, showing a prosperous-looking woman paying for a prescription. In a concerned, compassionate voice, the commentator said that the woman had to dip into her savings to buy needed medicine.

Gee, I thought that by definition a retiree had to dip into savings to buy everything. Doesn't retirement mean that someone is not working? NBC apparently believes that it is not okay for the woman to pay for her own prescriptions, but it is okay for her to have strangers pay for them. Socialism is alive and well at Rockefeller Center.

On a similar note, the New York Times had an article on a elderly woman who spent her younger years traveling the world. The article lamented that she has had to give up traveling in order to pay for her prescriptions. Horror of horrors. Can you imagine anything so unfair, so unjust? The Times apparently believes that those who saved for retirement all their lives and did not squander money in their youth on overseas travel should subsidize a woman who chose to do the opposite. Socialism is alive and well on West 43rd street.

Someone should remind the Times that being compassionate by taking other people's money against their will is stealing, not compassion. The great cowboy humorist Will Rogers defined a liberal as someone who is generous with his own money. Today's liberal is generous with other people's money.

The Irony of Patients' Rights

Patients' Rights legislation is no different. In the name of rights, it will help some at the expense of others. It will hurt those who are willing to live under the restrictions of managed care in exchange for a lower premium. They will have to pay more to subsidize those who want their cake and eat it too — that is, those who want want the lower premiums of managed care without the restrictions of managed care.

Patients' Rights legislation also is rich with irony. The government wants to solve a problem that was created by the government, and in the process the government will create a new problem that will require a new governmental solution, which will create a new problem, which...well, you get the picture.

It is interesting that my immigrant grandparents did not need a Patients' Bill of Rights to get a high level of service, for a reasonable fee, from their doctor. Although poor and poorly educated, they could get medical treatment without the help of nannies in the federal government and corporate benefits departments, and without the interference of an insurance company bureaucracy. The question is, what has happened in the intervening years to change that? Let me answer that question.

Brief History of Medical Insurance

It was the government, of course, that mandated HMOs a quarter of a century ago when Richard Nixon, a Republican, signed the HMO bill. Now politicians on both the left and the right are railing against HMOs and managed care.

But the root cause of today's medical insurance mess goes back even further than that legislation. It goes back to World War II.

Because of wage controls during the war, employers began providing free medical insurance to employees in lieu of wage increases. The government, in its shortsighted wisdom, allowed companies to deduct the cost of the insurance as a business expense and allowed employees to exclude the benefit from taxable income. (Shhh, don't tell our socialist friends, but the exclusion benefits the higher paid more than the lower paid, since the higher paid are in a higher tax bracket.) Then, to make matters worse, the Labor Department dictated that for purposes of collective bargaining, medical benefits were a form of wages.

Bingo! The nation was on its way to having medical treatment paid by a third-party, by employers. A quarter of a century later another third-party, the government, came between patients and doctors when Medicare was enacted. Consumers of health care ended up having no skin in the game, figuratively speaking. Someone else was picking up the tab, so costs were not a concern. The inevitable result was ever-increasing costs. Surprise, surprise.

The Problems with Employer-provided Health Insurance

Employer-provided medical insurance had other unintended consequences:

1. Employer-provided insurance put a wedge between doctors and patients and between insurance companies and individual insureds. The paying customer became corporations, not individuals. Don't believe it? Then I suggest that if you get your medical insurance through your employer, go home to where you keep your auto and homeowner's policies and find the medical insurance contract between you and your medical insurance carrier. Please make a copy of it and mail it to me, as I've never seen a true medical insurance contract for employees.
   
   
2. Employer-provided insurance gave tax benefits and group purchasing power to employees at the expense of the self-employed and unemployed. It discriminates against those who need insurance the most.
   
   
3. In this age of frequent job changes and single parents, employer-provided insurance is the most family-unfriendly policy of all. It forces individuals to be dependent on the whims of their employer for their health and well-being.
   
   
4. Employer-provided insurance created a huge special interest group of human resources and benefits specialists and consultants, who do not want to change the status quo, for much of their pay, power and prestige is dependent on employers being in the health insurance business. Similarly, corporate executives do not want to reform the system, as they get a huge individual tax break, as mentioned earlier.
   
   
5. Employer-provided insurance not only distorted the free market in medical insurance, it destroyed it. Prices for many medical services no longer have a direct relationship to costs. People now think that a $15 co-pay on an office visit is too high. At the same time, they think nothing of putting $25 of gas in their SUV or paying an unskilled worker $30 for an oil change. Health care is the only industry where costs increase with technological innovations.
   
   
6. Employer-provided insurance has made employees — or I should say consumers — feel helpless. Helpless people turn to the government. Employers, not employees, decide how many medical plans will be offered, what insurance company will insure or administer the plans, what treatments will be covered, and what the deductibles, limits, co-pays and premiums will be. And then employers arbitrarily and frequently change insurance plans, thus forcing employees to change doctors and ending an important professional relationship. Why do we accept this as normal? Would we accept our employer telling us what kind of car to buy, what auto mechanic to use, what to spend on food, and where to live?

Moral Hazard

And, last, from the perspective of the insurance industry, employer-provided insurance (a k a third-party payments), has created a moral hazard. When a third-party picks up the cost of discretionary services, the use of the discretionary services will increase. If people get free Viagra, the use of Viagra will increase. If people get free chiropractic alignments, the number of chiropractic alignments will increase. If people get free birth control pills, the use of birth control pills will increase at the expense of condoms.

On a related note, I read recently that the British nationalized health plan now picks up the $13,000 cost of sex change operations. Evidently the British have a right to charge other people for their sex changes. And the Brits wonder why they lost an empire.

Think of what would happen if auto insurance worked like health insurance. What would happen if auto insurance picked up the cost of oil changes, new tires, and car washing and waxing? What would happen would be this: The cost of oil changes, tires, car washing and waxing would skyrocket. Then employers and the government would step in and mandate CMOs (car maintenance organizations), managed car policies and a car owners' bill of rights.

Of course, insurance companies would never write auto policies that would cover discretionary services, for they are smart enough to avoid moral hazards. Or are they? They are not smart enough to avoid moral hazards in medical insurance. They write medical insurance policies that cover more than unforeseen accidents, injuries and catastrophic illnesses. They cover discretionary expenses, thus creating a moral hazard. In the industry's defense, though, medical insurance is not really insurance. It is more of a pre-payment plan than true insurance.

I believe that a fellow reform warrior is in the audience. Gerry Smedinghoff, if you're here, please raise your hand. Gerry is an ex-actuary who is now in the software business. He understands the concept of moral hazard much better than I ever will. One of his articles on the subject is included in the handouts that will be available on your way out at the end of my presentation. Thanks for coming, Gerry.

The Rules of Free Markets

I am not an insurance industry basher. The industry is trying to perform its role in a capitalistic society as well as it can — or I should say in a half socialistic society. The marvel of free enterprise is that society is better off with individuals and corporations competing against each other and pursuing their own self interests — as long as they play by the rules of binding contracts, fair competition, open pricing and accurate information. Unfortunately, the government has changed those time-honored rules with respect to health insurance, to the detriment of the industry and the consumer. And now it wants to change them again in the name of Patients' Rights.

What the government really wants to do is substitute central planning for the indecipherable but elegant workings of the free market. It wants to substitute thousands of bureaucrats for the decisions of millions of individuals. It wants to turn health care into a huge motor vehicle department. Get used to waiting in line.

The noted economist F.A. Hayek predicted all of this in his 1943 book, "The Road to Serfdom" and in his 1988 book, "The Fatal Conceit." Both books discuss the arrogance of central planners and the horrors of socialism. If you have not read them, I would encourage you to do so.

Better yet, I would encourage you to send copies to your CEO. Insurance executives need a lesson on the benefits of free enterprise and the problems of socialism. The health insurance industry association recently came out with its solution to the problem of the uninsured. In the interest of keeping the government from sticking its nose between insurance companies and their corporate customers, the industry association suggested that the states pick up the tab for the uninsured. In other words, it recommended a socialistic solution for the uninsured in order to protect its core business. Once again, the individual has someone else speaking on behalf of his interests — a true sign that there is not a free market in medical insurance.

In that sense, the only difference between your CEOs and Ted Kennedy is one of degree, not one of philosophy. Both believe in socialism, just different degrees of it. We have met the enemy, and he is us.

Hmm, I guess I just bashed the insurance industry.

The Medical Profession

While I'm on a roll, I'll bash doctors. Not all doctors, just those who support the American Medical Association's decision to unionize and to join at the hip with the feds on a number of anti-doctor and anti-consumer legislative fronts.

In their righteous indignation over managed care and their disdain for insurance companies, many doctors are willing to give up their rights and the rights of their patients to the central planners. They are unwittingly setting the stage for government controlled managed care. If you want to see what that will be like, go to your local drivers' license bureau and watch the people behind the counter. Imagine them making medical insurance decisions.

Just think of what will happen to your right to privacy under more government control. Even now, if you are a Medicare patient or on some other state subsidized program, what goes on between your doctor and you does not stay between your doctor and you. It is reported by law to the government and subject to surprise audits by government Gestapos. Doctors have had their offices shut down by stormtroopers and been subject to prosecution for coding mistakes on claims forms. And if it were not for a recent court decision, doctors would not be allowed to treat Medicare patients outside of the Medicare plan, even if requested to do so by the patient. So much for your right to do business with whomever you want, your right to privacy, and your right to enter into contracts with whomever you want.

Remember what I said at the beginning of this presentation about rights. The government can take them away from you, but it can't give them to you.

Patients' Bill of Rights Is not a Fix

Will the Patients' Bill of Rights fix what ails the American health care system? Absolutely not. Will it restore your right to buy medical insurance free of expensive government mandates? Absolutely not. Will it guarantee your right to privacy? Absolutely not. Will it lower costs? Absolutely not. Will it solve the problem of the uninsured? Absolutely not.

What will fix the system? A complete overhaul will fix the system, starting with getting employers and the government out of the health insurance business. Since that is politically dead on arrival, I suggest something more politically feasible.

The Fix

What I suggest is developing an insurance market that is an alternative to employer-provided insurance, one that gives the self-employed and the uninsured parity with corporate employees, and one that over time will convince employees that it is not in their best interest to get insurance from their employer. Specifically, I recommend the following:

1. A individual tax credit for medical insurance premiums.
   
   
2. The expansion, liberalization and simplification of Medical Savings Acounts.
   
   
3. Legislation to allow fraternal, religious, social and charitable associations to offer group policies, with ERISA protection, free of state mandates. The policies could run the gambit from high deductible catastrophic coverage to first-dollar coverage, to HMOs. Like corporations, the associations could buy group policies or self insure and use third-party administrators.

Imagine for a moment what it would be like to get your insurance through your church — or a secular organization. It would be lifetime coverage and portable from state to state. It would exclude coverage for things that the members do not want covered and that run counter to their beliefs and values. It would restore the right of free association.

Now also imagine that a member of the church needs experimental surgery that is not covered by the insurance plan. The local minister, priest or Rabbi could ask the members of the church to donate money outside of the plan for the cost of the surgery. Being a community of like-minded people versus total strangers, it is a good bet that the members would respond and respond happily.

The 80,000-member Christian Brotherhood Network does something similar. But to get around state insurance laws, it does not offer insurance to its members. Instead, it has members send payments directly to other members who have incurred medical expenses over a high threshold amount. It is a system based entirely on trust and shared values.

It is also a system that is a threat to the insurance industry. There is a high degree of interest across the country in starting similar networks. As such, it would be in the best interest of the insurance industry to get behind the idea of association-based insurance. It is time for the industry to be proactive instead of reactive. It is time for the industry to get on the offensive instead of the defensive.

And it is time to end this presentation and answer your questions. Thank you for the privilege of speaking with you. And, for old times sake, if anyone wants to buy me a drink and regale me with horrific claims stories, let me know.

Bring the country's most provocative human resources thinker to your next event! Contact Craig Cantoni now.

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