Philadelphia Reflections

Post-Payment for The First Year of Life

Having observed the medical student adventure of assisting uninsured home deliveries, where the main tool employed was a pile of old newspapers, I am acutely sensitive to the wide variation in obstetrical costs. Wide-spread obstetrical insurance is almost certain to increase the cost of being born, and the intrusion of their disproportionate malpractice defense costs also seems uncomfortably open-ended. Just glancing at the inordinately high malpractice premiums for obstetricians will tell you who is doing the suing, and for what justification.

By including the post-natal checkups and immunizations (with their own malpractice component), it becomes difficult to extrapolate what first-year-of-life insurance costs might become, under pressure of the illusion of being cost-free. However, we seem to be in a demographic decline, where it becomes increasingly desirable to increase the birth rate by diminishing its cost obstacles. If abuses can be minimized, obstetrics is one area where public subsidy seems to encounter public approval, and self-insurance is not at all practical. In fact, almost the same could be said about all health expenses up until the age of eighteen, but it seems a pity to lose the opportunity for two doublings of investment income because of unsettled disputes about marriage, divorce, feminism and the responsibility for child support.

Although expediency in the direction of taxpayer support may prove to overwhelm this admittedly contentious area, the expenditures are comparatively small, so it still seems useful to explore what could be done with first-year pre-payment. Health costs which someone must pay do exist for children growing up, and the emotional appeal of insurance for this group is strong. Getting their health care finances organized before they reach the workplace would be a useful thing since the tendency of healthy young adults to duck the costs is part of what caused a present uproar about uninsured obstetrics. All of which is to say: social gains might justify public subsidy for the first year of life, at least in part.

The individual's Health Savings Account becomes the long-term banker for the first year of life, with the first conventional health insurer acting as short-term banker.

Someone is paying for the first year of life health costs, and that someone would appreciate getting reimbursed for it, fairly soon. Therefore, the addition of less than a hundred dollars to the costs of the first health insurance company to enroll an individual would not deter the enrollment very much or even stimulate much switching between insurers later to evade it. The intent is to open a Health Savings Account, borrow from the first insurer, and pay it back when enough money has accumulated in the HSA.

If no insurer steps forward in a reasonable time, a small and temporary government loan might be in order. In return, the insurance company could anticipate a profitable and "sticky" customer for many years, meanwhile exerting more downward pressure on obstetrical costs than the young parents ever could. That is, by retaining the right to reject a customer for bringing along excessive obstetrical prices, those prices would re-open to negotiation. And realistically, a disproportionate share of obstetrical deliveries are paid for by Medicaid, which would lead to some taxpayer subsidy. In the case of uninsured obstetrics, it would appear the individual Health Savings Account itself would have to be the banker. But since the purpose of the Affordable Care Act was to leave no one uninsured, this might conceivably pose little problem. To say much more about this approach would be foolhardy until the Affordable Care Act begins operations and stabilizes its rules. The essence of it all is to make the Health Savings Account the payer of last resort for obstetrics, in the far distant future when compound investment income should be ample. The first childhood health insurer would become a voluntary short-term banker until the HSA grows enough in size to buy it back. Because it is so vital to keep opening costs low, the pressure to maintain obstetrical provider costs within reason is essential.

The advantage of looking at the retrospective payment for the first year of life lies in its quality of affecting 100% of the population. Its disadvantages mainly grow out of the ambiguity of who is responsible for the costs, the child or the parents. For obvious reasons, Society has chosen to select the parents. However, this leads to hidden incentives for the employer and the insurer to discourage procreation. In turn, this brings culture and religion into the discussion to an unknowable extent. It is probably not a safe subject for a book on medical economics, and we will conclude by merely mentioning the matter.

Originally published: Wednesday, August 28, 2013; most-recently modified: Friday, May 31, 2019