Resolved: That the United States federal government should significantly increase protection of privacy in the United States in one or more of the following areas:


Case #4: Protecting Medical Privacy with Medical IRAs

Case #1: 
Repeal laws that centralize and universalize government data collection

Case #2: Privatize Social Security

Case #3: Deregulate strong encryption

Protecting Medical Privacy with Medical IRAs

Two trends have converged in recent years to significantly compromise the confidentiality of medical records, a long-term trend of increasing involvement by insurance companies and government in private health care decisions, and a recent move to centralize the medical records of every American into a single national database. Since medical records are among the most sensitive of personal information, an excellent case can be made for policies that reverse these dangerous trends.

About one in every seven dollars Americans spend is spent on health care.14 A surprisingly large component of high health care costs has nothing to do with the treatment of illness or injury, but with maintaining detailed records of the care given to each patient. If these records were merely to assist with future care or diagnosis there would be little cause for concern, but the explosion of data gathering and reporting in recent decades has little to do with providing better care. Rather these databases are designed to enable third parties to monitor and control health care decisions which once were made by patient and doctor in strict confidence.

There is a simple reason for this: about 95 percent of all hospital bills and 83 percent of physicians' fees are paid by private and public third-party payers, not by patients.15 This puts upward pressure on medical costs that is unrelated to the quality of treatment. Because patients are spending other peoples' money in the health care marketplace, they have little incentive to economize or shop around. For their part, doctors and hospitals tend to earn more when they increase medical costs, since third party payers reimburse on a cost-plus basis. Of course, the insurers who directly pay for this care have the opposite incentive: they strive to control costs as much as possible. One way they do this is through detailed regulation of what medical procedures are "covered" under which circumstances. This is a form of rationing.

Proving compliance with these rules requires doctors and hospitals to share information with third parties which once was confidential between doctor and patient. This information is increasingly accessible through computer networks to the public, prospective employers, insurance companies, and anyone else who knows how to gain access to the files.

To exacerbate this breach of privacy, the Health Insurance Portability and Accountability Act of 1996 mandates the assignment of a "unique health identifier" to every citizen that enters the health care system. The New York Times described this as a "computer code that could be used to create a national database that would track every citizen's medical history from cradle to grave."16 Once this database is assembled, the uses to which the information will be put and the number of people who will be able to access it will multiply.

An exciting plan to restore the privacy of medical records and provide a host of other important advantages is to expand the availability of Medical Savings Accounts, also known as Medical IRAs because of their similarity to Individual Retirement Accounts. This plan addresses the privacy breach at its root cause: the interference of third-party payers in health care decisions. In the process, it offers solutions to health care rationing, rising costs, and the problems of millions of uninsured citizens today.

Most people are insured through their employers because earnings paid in the form of health benefits are non-taxable under current law. This tax-break drives people into plans with low deductibles17 that cover as much of their health care expenses as possible, while punishing them when they pay out-of-pocket. This explains why health care expenses are overwhelmingly covered by third-party payers, and accounts for the efforts of these third parties to monitor and control the decisions of patients and their doctors.

Medical IRAs allow people to take the pay they previously received in the form of an expensive low-deductible insurance plan and deposit it in a personal interest-bearing account. This money may be used to pay ordinary medical expenses and to purchase low-cost, high deductible insurance policies to cover infrequent or catastrophic medical events. The money in your Medical IRA would have the same tax advantages as your costly employer-provided health plan, but the money in your account would be your money. Whatever you hadn't spent from your Medical IRA each year would roll over into a regular IRA as a retirement investment or to finance the first-time purchase of a home. Most individuals would find that their Medical IRA allows them to self-insure for all their health care needs. Thus, information about their health and the care they receive would never need to be passed on to third parties and would remain confidential.

Perhaps more important to most people, widespread use of Medial IRAs would dramatically reduce the cost of health care and of health insurance. Goodman and Musgrave estimate that by encouraging consumers to shop prudently in the health care market, increased competition and reduced waste would cut as much as a fourth off of health care expenditures without any change in health outcomes. By separating health insurance from employment, insurance would become portable and affordable to millions who are currently uninsured because of job changes, self-employment, or unemployment.

Congress passed legislation in 1996 permitting 750,000 Americans to obtain Medical IRAs, but the restricted nature of the law prevents even the limited test group from enjoying the full benefits. The affirmative plan should eliminate the cap on the number of Medical IRAs and remove other restrictions to consumer choice.

While people have good reason to be concerned about the privacy of their medical records, the ability to make private decisions about the care they receive is of even greater concern. By restoring freedom of choice and restraining third parties from interfering in the doctor-patient relationship, Medical IRAs have been shown to significantly improve the quality of care that people receive. Extending the tax-exemption currently given preferentially to employer-provided health benefits to include self-insurance through Medical IRAs would make these advantages available to a much wider group of people.

Author: David Beers

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