Business is Personal (Finance)

If you can fog a mirror, you know the big topic in the U.S. is health care reform. President Obama just made a big speech and people on both sides have been staking out their positions for months now with big words. A big point of comparison everybody is using is Canada and other European nations with government funded health care. However, it's interesting that nobody points to the other extreme where the free market reigns complete ... China. Strange isn't it that a country run by Communists can be so ultra capitalistic in many sectors of the economy. In the short time I've been here, I've used medical care a few times already. Hopefully, this extra perspective will get people thinking beyond the talking points on TV.

One of the first things we did when we got to China was to start looking for places to live. We first considered rentals but then decided to buy a condo unit for the long-term. During a visit to a condo unit, I was checking out the deck. Unfortunately, somebody else had closed the glass door and my eyes did not notice this fact. I walked right into the door and my forehead shattered it into a hundred pieces. There was no pain but I clearly had a cut as blood was flowing. My brother-in-law drove me to the hospital where a doctor examined the treated the cut. Cost of medical treatment? $6.50. The agent showing the unit was embarrassed enough for me that they gave me a red envelope (lucky money) containing 100rmb ($14.65). I ended up making money on this ordeal although I would not recommend it as a full-time job. (We ended up buying this unit.)

When we signed up our son for kindergarten, one of the requirements was that he had to get a physical and a blood test. So we went that afternoon to the hospital and was able to handle that without any wait. Cost? $5.

My wife just had a full physical exam performed. They actually did even more testing than what we have encountered back in the U.S. Cost? $50.

Right about the time my forehead destroyed the glass door, I also came down with a slight fever. A few days later, I had these head-pounding migraines. If I stood up, my head hurt. If I sat down, my head hurt. If I laid down, my head hurt. I was unsure whether it was the fever or the bump so to make sure, I went to the hospital for another examination. Because I had bumped my head, they decided a CT Scan was in order to check for a concussion. Cost of the CT Scan? $40.

Now for a U.S. expat living in China, these prices seem cheap. However, a resident of China earning $300/mo would find the CT Scan more wallet draining. So if we scale the prices based on median U.S. vs China income, the following prices would be more representative:

• Emergency Room Exam + Treating Cut: $33
• Simple Physical & Blood Test: $25
• Full Physical Exam: $250
• Emergency Room Exam + CT Scan: $200

These costs would still be very cheap in the U.S. A full exam is easily $1000 after all the lab tests come in. Walking into an emergency room costs $500, seeing a doctor then costs another $500 and then the CT Scan would be $800. Without insurance, nobody could afford to get sick or injured.

Or maybe not? For the first 175 years, the United States had no health insurance and yet people still saw doctors. It is very likely that health insurance itself is causing the cost of medical to go up.

• Health insurance companies have to employ people to process and review bills. Then the executives and shareholders take a profit from this enterprise. This probably raises the cost of medical by 35%.
• Health insurance often takes 60 to 90 days to pay doctors after treatment is done. This means medical providers constantly have to borrow money or use reserves that could be invested to manage cash flow. This probably raises costs by another 10%.
• And most importantly, with the cost of medicine hidden out of sight (bills paid by insurance, insurance premiums paid by employers), there is no free market pressure to keep costs down. People neither shop for lower prices nor turn down procedures/tests that clearly lack benefits.

So am I advocating switching to China's model? Just ban health insurance altogether to drive prices down? Well there's a flip side here. Payment must be made before services are provided -- you bring a receipt from the cashier to the doctor/nurses/technicians. With an average savings rate of 40% in China, that gives people the reserves needed to self-insure against most problems. Unfortunately, only the rich can truly self-insurance against life's more serious challenges. A friend's son was diagnosed with leukemia. During admittance to the hospital, the staff asked how much money they had. If they did not have the assets to pay for treatment, the hospital would have turned their son away to die. Luckily, their family owns a factory ... and after 2 years of treatment and $50K spent, their son is out of the hospital. Perhaps not out of the woods yet but at least with a fighting chance to survive.

It's inconceivable that any developed country would or could go back to removing the social net just so those who have assets can sock some more money away and I would not support such a plan. However, there may be lessons to learn from both ends.

• We need to make everybody a stakeholder. Give more tax incentives for both employers and individuals to choose high deductible plans.
• Repayment from people who received extra tax benefits for taking a high deductible plan but still requiring tax-payers to pay the tab for the deductible.
  
• Stop discriminating against cash payers. Cash payers should always get the lowest network fee schedule.
  
• Single computer system for billing and records to reduce administration costs.
• Clearly delineate what portions of the premiums/taxes are for your medical care and what portion is the underlying safety net for everybody. People might not have a choice in choosing this split but it would stop the rhetoric about "free $$$ for ABC population segment".

(Filed in china, cost of living, health insurance)