Real long-term Healthcare Reform: make people pay for their healthcare upfront!

Healthcare is the hottest issue these days. President Obama is making it the focus of his political agenda and is even forcing the legislative branch to act fast, something they've never been famous for. But what's the rush?

Cost of healthcare has ballooned in recent times and the share of healthcare costs in businesses operating expenses is preventing them from distributing more profits to their workers, therefore keeping the economy in check since it's main engine is Consumer spending.

But why are these costs skyrocketing all of a sudden? Various reasons, among them: over reliance on individual motorized transport vehicles, bad diet, serious lack of exercise, healthcare system that is run with a focus on profits not on the population's well-being, lack of IT systems integration between healthcare providers leading to inefficient processes and more.

The economist published an article this week about this issue with an interesting twist. The hypothesis is that people's behavior only adjusts to the cost of their lifestyle. To force people to eat healthier, you gotta make the bad stuff (i.e. junk food) more expensive than the good stuff (i.e. greens and low calories meals). The conclusions of the article are that the effect of such an approach would be gradual at best (think 10-15 years) and that the most "addicted" people are either not price sensitive or can't afford anything else and would therefore see their real income fall.

The parallel that is drawn here is with alcohol and tobacco consumption. The die-hard smokers don't care if a pack of cigarettes costs 20$, they'll keep smoking no matter what, despite the risk to their health. That being said, this doesn't mean that we can't implement such an approach that puts the burden on every person to make the right choices for themselves knowing what they're paying for.

I believe that people are free to disregard the warning about the impact of their diet or smoking/drinking habits on their health. The issue is that the healthcare system should not make me pay for their poor choices. How can the system reconcile one's personal choices (say to smoke for years) with an efficient system to provide well being for society as a whole? Is it a good allocation of healthcare $$ to pay for a heavy smoker's heart bypass surgery instead of treating somebody for a cancer they had a genetic predisposition for?

In some way, this is the same debate with respect to a flat sales tax vs a geographically uniform tax bracket where everybody pays based on their base income, not their "real" income. What you buy is a better measure of your wealth. Someone who makes 100K$/year in indiana is MUCH richer than somebody who earns the same amount in california but they do pay the same federal income tax at the end of the day (and medicare and social security for that matter). So make people pay for what they consume healthcare-wise, the system gains in the long run, despite the persistent outliers who will never change their ways.

Maybe somebody from the Obama administration read this very same article and is considering such reform. One can only hope ...

Update 8/4/09 : It occurred to me that another theoretical idea that could be considered at is a "cap and trade" system for healthcare credits! There is a fixed allocation of credits you get at the beginning of every year, you can increase your credits with exercise, walk to work, etc and you lose credits for eating junk food for example. Credits are transferrable to other people on an online market place so people who exercise a lot or don't get sick, can pass credits to others. The point of all of this is that lazy people or people who just can't pass on junk food end up paying a much higher price to access healthcare services. The healthcare costs for the whole society can stay constant or just grow at the same rate as the population grows, not 5 times faster! Now good luck explaining this approach and implementing it :)