Tuesday, October 5, 2010

Regional Healthcare vs. National Healthcare

One of the issues that has not received a lot of attention is the impact of national healthcare on the total cost of healthcare. As an example, an individual on Medicare on average costs 3 times more to cover in parts of California, southern Florida, and New York compared to southern Indiana. But individuals in the high cost regions do not pay 3 times more into the Medicare system than individuals in southern Indiana.

Therefore, we effectively reward high cost markets for being high cost by effectively reimbursing them more for costing more. The more we "federalize" entitlements the more we create systems that shift income from states with lower costs of living to states with higher costs of living. As a result, we raise the overall cost of health care in the nation by a significant amount.

What if we calculated annual Medicare premiums in a manner that would cap Medicare's cost at that of the national average for each region? Any region with higher than average medicare costs per person would have higher Medicare premiums for the individuals.

Over time, I suspect you would see retirement communities springing up in lower cost markets and senior populations migrating to those areas bringing their consumer dollars with them and helping the local economies. Meanwhile, higher cost markets would see a drop in demand for healthcare services and would need to figure out how to lower health care costs to retain their senior population.

As a nation trying to cope with health care costs, this system is likely to lower health care costs paid by the government by 25% and eventually reduce the overall health care costs of the nation by an equal amount or more.

I don't believe we should tell people where to live. But I don't think we should subsidize where people live either. Especially a subsidy going from the lower cost markets to the higher cost markets.

States might opt to subsidize their seniors by making up the lost federal premiums, but that would be their option and in this budget tight enviroment I doubt it would happen. Because this suggestion involves the relocation of people, I would suggest it be announced 5 years prior to implementation and then implented on a phased in basis over 5 subsequent years.