Four Commentaries on Healthcare


In 2007, Mr. Elliot Spitzer initiated a reform of health care in New York state. Stating that one in seven New Yorkers has no health insurance; he promised to provide coverage for all. The first step was to increase the family income threshold for state-paid medical insurance for children from 250% to 400% of the federal poverty level.

Several public hearings were called to help sell the program. One of them was to be held in Nassau County, so I called to be put on the agenda as a speaker.

Among the members of the panel representing the state at the hearing were Richard Daines, MD, Commissioner of Health, Eric Dinallo, Superintendent of Insurance, Joseph Baker, Assistant Deputy Secretary for Health and Human Services, Stan Luncine, former Lieutenant Governor, etc. From the opening statements, it appeared clearly that the ultimate goal was the nationalization of health care and the proposals considered were steps toward that goal.

Most people testifying before the panel represented left-wing groups. Some were physicians and a few represented business interests. With one exception (Laurel Pickering of NY Business Group on Health), the latter were just trying to advertise their companies as potential outside contractors in any state-run program. All the other speakers stated their strong support for the nationalization of health care. One of the physicians admitted that this opinion is unpopular within the profession. There was a consensus of what they expected from that move:

– There will be less bureaucracy and paperwork. (A lady dermatologist offered as argument the observation that her husband works at a VA hospital and there the cost is of no consequence.)

– The current disparity between the payments to generalists and to specialists among MD-s will be eliminated by increasing the sums paid to the former. The actual earnings (fees) of physicians could be determined by collective bargaining. At the same time, it was stressed that the system should be publicly funded and privately run and even that the hospitals and doctors will not be paid by the government. (Panelist James Tallon, of the United Hospital Fund, asked a speaker, Mary Decker, of the LI Coalition for a National Health Plan, how privately run hospitals will fit with global budgeting. She replied that she is not a specialist.)

– The authorization process for new, experimental drugs will be streamlined, so a doctor could prescribe whatever he feels is best, without constraints.

– The consumers (patients) will have unrestricted choice of doctors, hospitals, and clinics, as well as comprehensive benefits (including eye care, dental, psychological, etc.).

– Nobody will be allowed to opt out of the government health care. It was argued that otherwise only sicker people would migrate to the state program. (It was not said why anyone should want to stay out of the state program if that is so much better.)

– There will be an increased number of medical facilities, especially in the currently under-served areas.

– The “undocumented” will be fully covered. (In fact, it was stated that the “Child Plus” program covers them now, and Mr. Eric Dinallo indicated that insurance of all illegal aliens is something the state wants to do.)

– The medical care thus organized will be cheaper (!!).

On both sides of the room, everybody agreed that there are too many people that cannot afford decent health care. The claim was that immediate expansion of the state-paid insurance coverage for children and, later, nationalizations of health care are necessary because all these people must at present choose between food and medical care. Elizabeth Benjamin of Community Service Society stated that medical insurance is not affordable even to people at 600% of the poverty limit, whence the expansion of the state-paid insurance for children should reach that level.

Finally, Rev. Thomas Goodhue of the Long Island Council of Churches deplored the dilemma of paying the rent or buying lifesaving medicine and stated: “A nation will be judged by God by its charity toward the poor.” (The theological imbecility of this sentence deserves a full analysis, but that is outside the purpose of this report.)

When my turn came, I made the following presentation (which is in the NY State records).


These hearings are based on the premise that medical care in this country and state is deficient. It is alleged that the problem is a large number of uninsured people. Furthermore, the solution offered is a general insurance system, guaranteed, i. e. financed, by the government. The premise is faulty, the reasoning is uninformed and the conclusion, unsurprisingly, is wrong. Before any discussion, a few basic truths, or axioms, have to be considered.

1. Medical care cannot be equated with medical insurance. Insurance is just one way to pay for medical care. There are systems in which general, government-provided insurance is in effect, yet medical care is deficient. Conversely, there are people uninsured by choice, preferring to pay for medical services in a different manner.

2. If a country uses X billion dollars’ worth of medical care, it has to pay X billion dollars for it.

3. The cheapest way of covering the cost is through direct payment by the user to the provider of services. Any indirect scheme, such as insurance, adds, sometimes significantly, to the cost, by adding overhead.

4. Governments generally have the highest overhead, whether as medical insurers or in any other activity. As the degree of separation between the parties involved in the transaction (here, patient and provider) on one hand and government (local, state, federal) on the other increases, so does the overhead.

5. The fact that no government activity is ever free of political considerations distorts the transaction between patient and provider, thus lowering the quality and adding to the cost.

6. With respect to employers, an analogous argument demonstrates that the societal cost of health care is lower if employers do not pay for medical insurance, but distribute the money as higher salaries to employees.

7. There are, however, exceptional cases for an individual, that are beyond his immediate ability to pay. Medical insurance is needed for such cases, i.e., cases of catastrophic need. On the other hand, covering small expenses makes little sense, again due to the high ratio of waste to benefit deriving from inefficiency and overhead.

8. Statistically, the medical expenses of an individual increase with his age. For routine or predictable needs the medical savings account type of insurance is the cheapest approach. A small additional premium should suffice to insure against catastrophic occurrences. Insurance contracts should be individually tailored, as is the case for automobile insurance.

9. If, to preserve tradition, some insurance contracts were purchased through the employers, they should be transferable upon changing or leaving employment, with no vesting provisions.

10. A medical expenditure should be for an illness, that is, infection, malfunction, or malformation of the normal (natural) organism. Expenditures determined by choice, sometimes modifying the natural functioning of the organism (esthetic surgery, contraception, etc.), should be borne by the beneficiary, not spread to others. Lumping such expenditures into societal medical expenditures gives a false (too high) total for the latter.

11. To reduce waste, all beneficiaries should cover at least some part of the cost of the service received. For those unable to pay, a non-monetary contribution would be in order.

12. The existence of a service free of charge dissuades people from paying for the service. (I predict that if the 2.6 million uninsured New Yorkers obtain taxpayer-assisted insurance, a large number of those now insured would drop their coverage, altering their financial status, if necessary, to qualify for the subsidized service.)

13. Besides bureaucratization and excessive regulation, excessive malpractice suits and the resulting malpractice insurance premiums increase significantly the medical expenditures of all. A cap on awards and an even more drastic cap on attorney fees is absolutely necessary.

14. Special cases of people needing help with their medical bills must always be considered. No matter how and by whom that help is provided, however, eligibility should be determined by an examination of the individual’s or family’s cash flow (especially expenditures not necessary for subsistence), rather than of income tax returns.

Conclusion: The State of New York should reduce, rather than increase its participation as a provider of medical insurance.

NOTES (not in the prepared testimony)

(a) Some companies, like Morgan-Stanley, cover sex change operations and treatments in their medical plans. It seems that the federal government does the same. A judge has ordered the State of New York to cover the sex change of an inmate at a cost of $500,000. Moreover, some states mandate inclusion of certain benefits in individual health insurance plans, such as hair prostheses, “port-wine stain removal” to remove vascular birthmarks, etc. (Point 10, above) An individual choosing a medical insurance plan and paying for it (Point 8, above) is not likely to request coverage for fanciful treatments or operations.

(b) There are significant numbers of people who perform services on a cash-only basis and do not report at least a part of their income. Faced with having to clean the hospital grounds for 20 hours in lieu of payment for emergency room treatment, some will most likely find out that they can pay. (Point 11, above)

(c) A panel member (Mark Scherzer, Legal Advocate) noted that the idea to limit monetary awards and attorney fees is not in line with the free market approach of my testimony. Allowing, however, the winning party in a suit to recover legal costs from the losing party might go a long way in limiting frivolous suits that often are settled to avoid the litigation costs. (Point 13, above)

(d) If it happens that the child wears expensive sneakers, designer jeans, and has an I-pod, the claim that the parents have too low an income should not be taken seriously. (Point 14, above)

(e) The thresholds that trigger public assistance are determined as multiples of the federal poverty limit. It is noteworthy that determination of the poverty limit excludes capital gains. It pays for the poor to be stock market savvy. In 2007, New Jersey covered children up to 350 percent of the poverty level and New York up to 250 percent. The intended new ceiling for New York, 400 percent, was also proposed at federal level, in a bill introduced by Rep. John Dingell and Sen Hillary Clinton.

(f) At 250% of the poverty limit, a family of four living in New York State and taking the standard deduction paid in that year more than $5,000 in federal and state income taxes. At the 400% threshold, the combined taxes were $11,800. For the 600% limit floated at the hearing, the tax bite was $24,700. A witness at the hearing, Paul Silva, stated that his company (Chickering Group) fully covers students for a premium of $1,000 for the entire school year. Adding the two and a half months of vacation might bring the figure to $1,300. If the family could take a tax credit for the medical insurance premium, it should be able to insure two children without feeling it.

Most important, however, a government that takes so much in taxes from families that have to choose between paying for food and paying for medicine is downright criminal.



“It is a fertile source of error, when treating a question relative to society, to consider it by itself, with no relationship to other questions.” (Louis de Bonald).[1] Such an error is committed in most current discussions of health care.

Medical care expenditures are a part of what a person or family spends for subsistence and gratification. To the first group belong, in addition to health care, food and shelter (clothing is, in colder climates, subsumed to shelter). Some expenditures for gratification are mixed into those for subsistence (e. g., dining at fancy restaurants, a Jacuzzi at home, face lifting). In a free society, an individual disposes of as much money as his services are worth to the society and can allocate it among his various needs without outside interference. In the first approximation, one expects funds to be spent for gratification only after the subsistence is fully covered. In reality, individual preferences play a role, for example some people reduce the number of calories ingested or the size of their home to buy books, go to the opera, etc. That is a positive aspect of life, as long as people express preferences while spending their own money.

Even within the domain of subsistence, there is flexibility in the allocation of resources. In a general sense, all human efforts are directed toward preservation of life, fighting the factors that would destroy it: hunger, cold, disease, etc. The rule followed, even unconsciously, is that the factor that would bring the quicker death is addressed first. This is true for both primitive and advanced societies. Thus, after the Chernobyl accident, as the Western European countries rejected the produce imported from the countries close to the disaster area, the Communist governments of the producing countries sold those rejects locally. The locals queued to buy and promptly consumed them, fully aware of their radioactive quality: cancer was a remote danger, lack of food was an immediate threat to their existence.

In any society, or country, there are some typical patterns of resource allocation. Historically, people used to spend most of their resources (money, time, labor) on procuring food. More recently, the free market economy has made food plentiful and cheap. This fact has allowed people to spend more on other subsistence categories (shelter, health), as well as on gratification. In the U.S., it is considered normal to spend 25% to a third of one’s income on housing (rent or mortgage payments), not counting heating and lighting. On the other hand, material advances brought about by the free market system resulted in people living longer and in fewer health conditions being considered incurable and untreatable. Naturally, the cost of health care has increased in absolute terms and, mainly because food became cheaper, health care has come to represent a larger share of the total expenses. It was calculated that about 17% of the national resources are spent on health care [2].

For anybody, a (new) expense incurred requires an adjustment of his existing allocation. One would expect that reallocation be made from resources devoted to gratification, especially when the need is in the subsistence category, but personal preferences may dictate a different decision. There is no justification, however, for forcing others to provide assistance to someone who has any resources allocated to gratification.

There are two models of resource allocation: by the individual (the free-market approach) and by the government (the socialist approach). In the most developed application of socialism (first perfected in USSR), the government allocated food, shelter, and medical care. Thus, the individual had no choice of the location and size of residence. (Acute housing shortage was a characteristic of this approach.) When rationing was not in effect, the government determined what people ate through what was allocated to the stores, so there was a very limited choice, with individuals’ allocation determined largely by how long they were willing or able to queue up at the food store. (That went for clothing, too.) As the cumulative allotment was always shorter than the queue, fights broke out occasionally in the latter part of the exercise. I was never a participant, but I witnessed quite a few. Fuel for home heating and cooking was controlled by rationing coal and firewood, and by turning the gas on and off. As for medical care, there was no choice of physician, treatment, or medication. There, rationing was used as well. For instance, on occasion the answering service of the ambulance would ask for the age of the sick person; if the latter were old, no ambulance was sent. There was, however, no shortage at the commissaries, clothing stores, and hospitals reserved for party and government officials above a certain level. Foreign correspondents were taken to visit those establishments.

In the U.S. at this time, a distorted, or hindered, free market operates. For food and housing the socialist approach, charity compelled by the government, is used in helping the poor (food stamps, public housing, etc.). In the health care area, payment is socialized both for the poor (Medicaid) and for the elderly. The latter are in principle covered through a fund they built up by contributions during active years (Medicare), but their particular contributions have long ago been embezzled by the federal government, which now controls the allocation of funds. Health care providers are independent, but the government decides what providers are acceptable, and dictates their fees. The operation of the private insurers is also very much distorted by dictates of state and federal government. Examples of fanciful or grotesque mandates imposed to insurers were mentioned in the previous study (The first in this group of articles).

As discussed in that study, the interposition of third parties between providers and beneficiaries raises the cost, in a proportion increasing with the remoteness of the intervening authority (insurer, state, federal government). An increase or total transfer of control to the government would be justifiable only if the allocation of services and payments by the latter were so superior as to overcompensate for the inherent increase in cost. The government, however, can plan only for the average citizen, or for a few classes of people, each defined by its average, that is, for essentially fictional characters. Most real people are less than optimally served by this setup. Considering also that the decisions are bound to be politically determined, administration of health care by the government has to be cumbersome, dictatorial, and expensive.

Of many illustrations available for this thesis, two recent examples will be mentioned here. In Great Britain, the health authority has set a value for a year of life gained (reduced by a quality-of- life factor for the sick man) and approves only those new products that cost less than the calculated value of the life added to the patient. This approach was favored by the former Senator Tom Daschle (once considered for Health Secretary), and funds were provided in the stimulus package voted by the House, which also gave the Health Secretary powers to implement it [3].

The same British authority, is now paying to make slippers available to drunk ladies leaving bars on high heels. No one thought that a woman who can afford to buy drinks in a bar should afford to pay for slippers. Moreover, no sane person would pay out of her own pocket for insurance to cover such frivolous a service (slippers paid directly cost less). A government bureaucrat, with other people’s money, will do that every day.

To ensure high-quality medical care at the lowest cost:

– Individual insurance policies should be available and fully tax-exempt. Medical savings accounts should be encouraged.

– Employers should be encouraged to replace medical benefits by salary increases equal to the premiums.

– No items of coverage should be forced into policies by the government. I am convinced that coverage for unusual and even frivolous purposes will be made available by insurers to those willing to pay for them; there is no reason to raise costs for people who do not want them.

– Transfer of policies from one state to another at any time should be guaranteed.

– Medicare should be gradually replaced by a medical savings account deposited with an independent agency. The Congress should not be able to touch that money.

– Eligibility for charity health care (Medicaid) should be determined by a full check of cash flow of the applicant, particularly for the existence of expenditures for gratification.

– Medical care should never be free: those unable to pay should provide hours of service in hospitals, etc. This is not involuntary servitude, but payment for requested services.


[1] Louis de Bonald, On Divorce (transl. by N. Davidson), Transaction Publishers, New Brunswick, NJ, 1993, p.3.

[2] 17.1% estimated for 2010: The Wall Street Journal, Th. Nov. 20, 2008

[ 3 ] S c o t t G o t t l i eb, The Wal l St r e e t Jo u r n a l , J a n . 2 0 , 2 0 0 9



One of the general concerns, especially of the would-be architects of an all-encompassing scheme of national medical care, is the high cost of treating the elderly. Indeed, it was stated that most medical costs for an individual are incurred in the last 15 years of life. From there, a number of ideas have been offered, from empowering some “cost effectiveness” bureaucratic entity to dictate how much is to be paid for a “quality-adjusted year” (decreasing markedly with a patient’s age) to just giving grandma a painkiller instead of a hip prosthesis.

The first observation is that the spike in expenditures also occurs for patients with lifethreatening conditions, who in many cases cannot be ultimately saved. If the above principle applies, one shouldn’t spend much to treat such conditions either, irrespective of patients’ age.

One easily sees, however, that the whole line of reasoning is flawed. Any period of life is not to be looked at in isolation, but life should be considered in its entirety, as it swells and ebbs from conception to death. During this time, each individual will consume (spend for) medical care unevenly. This pattern is not unique to health care: most education expenditures, for example, occur between six and 22 years of age, spiking during the period from age18 to age 22. Many people mitigate the spike by taking out loans (repaying afterwards over a longer period of time) or setting up educational savings accounts (paying in advance). General, pre-college public education is foolishly believed by many to be “free.” (The existence of this belief proves that education expenditures are a waste.) In fact, users pay for it, mostly (but not only) through property taxes. Even someone who doesn’t own property (a renter), still pays the landlord’s property taxes and, in part, the grocer’s.

Likewise, the elderly have paid medical insurance premiums for many years, during which, being younger and healthier, they used few medical services. As a personal note, my wife and I each had a part of our compensation reduced by the amounts that our employers spent to buy a familytype health insurance policy for each of us. Being now older and retired, we naturally can expect the insurer to pay more for our care; we still pay monthly premiums. The most vexing part, however, is that we paid many years into the Medicare scheme mandated by the government, for medical expenses after retirement. By now, the money we paid in should have grown sufficiently to meet our increased needs. Regrettably, successive Congresses and presidents have embezzled the money.

The politicians’ game, played purposefully by some of them and foolishly by others, has been to change the character of Medicare from insurance paid by advance contributions of beneficiaries, to a welfare program, paid by general taxes. In addition to the transfer of Medicare money into the general fund, Medicaid benefits have been paid through Medicare, at least in some states. This is, of course, a step toward nationalization of medical care.

As mentioned already, Medicare should be gradually replaced by a medical savings account deposited with an independent agency. The Congress should not be able to touch that money. That should take care of the future. For retirees or those closer to retirement that cannot be included into the new old-age insurance system, some accounting agency should determine the amount and length of time that Medicare deposits have been used for other government expenditures. Interest calculated at the rate of government bonds should be deposited into the untouchable Medicare fund, together with the existing principal. In this context, the Republican congressmen blundered in accepting to suspend the payroll taxes that are supposed to be deposits toward Social Security and Medicare. If at this time the programs can do without that money, it should have been deposited into a newly created account, entrusted to some custodian outside the government (a consortium of insurers might do), as the first step toward moving those programs out of government control.



“While other cities are slashing employee benefits, Berkeley is slated to add one more: paying for sex-change operations . . . The council is having a special meeting today on its unfunded pension liability, which is $252 million . . . Berkeley is not the first city to offer sex-change surgery to its workers. San Francisco started offering the benefit in 2002.” [1]. Likewise, some companies, like Morgan Stanley, cover sex change operations and treatments in their medical plans and a judge has ordered the State of New York to cover the sex change of an inmate at a cost of $500,000: “Mark Brooks, 34, who calls himself Jessica Lewis, and claims to be ‘a girl inside,’ sued New York almost three years ago for treatment for his Gender Identity Disorder” (GID).[2]

Scientifically, the assignment of the cause and the treatment of the GID syndrome in these cases is incorrect. Sex is determined genetically and set at conception. The genetic makeup determines the anatomic development and the physiology of the individual. The mental perception of one’s own sexuality normally is in accord with the genetic makeup, but in GID cases it is not.

The distorted perception of oneself is manifested in various aspects. It is encountered in children, who often put themselves in fairy tales. A little boy I knew years ago had proclaimed himself the king of foxes and paraded through the house with a fox tail hooked to the bottoms of his pajamas. Sometimes parents stimulate such fantasies. Thus, an aunt of mine strongly wished for a little daughter after two sons, but ended up with a third boy. For more than a year she called him by a girl’s name, rather than the name he had been given in baptism, and dressed him like a girl. In the end, both the fox king and my aunt grew out of their odd ideas. (She was consoled, much later, by two granddaughters from her third son and his wife.)

When the misperception appears in adults and is strong, it becomes a mental condition. Normally it is treated as such. No surgeon would remove a healthy kidney of a patient whose suffering he has definitely assigned to the gall bladder, only because the patient has formed in his head the conviction that the kidney is what ails him. No judge would order the state to provide an army for someone who claims to be a Napoleon inside. The only aberrations that are condoned, even supported, are those of sexual nature. Thus, GID is being handled by the alteration of the healthy part (the body), for the satisfaction of the mental misperception.

There are cases of unclear sexuality, in which hormonal deficiencies, or congenital malformations lead to nonconformity of anatomy or physiology with genetics. In such cases, surgical, or hormonal treatment, or both, are indicated. The surgical mutilations for creating a physical appearance at variance with the genetic makeup represent a gruesome abuse of medicine. As long as the genetic makeup is not changed, there is no sex change. The physicians claiming otherwise are just swindling the patients of their money. The correct treatment of the GID syndrome should address the inside of the head.

The mistreatment of conditions such as GID might be a matter between the patient and his medical hack, except when dispensing of and payment for medical care is socialized, either by government control of private insurance, or by nationalization. Then, special interest groups can lobby lawmakers to require all private policies to cover or include in the nationalized health plan, “treatments” that should have no place in there.

At this time, a large number (1,901 in 2007) of conditions and treatments are required by law in various states to be included in health insurance policies. Among these are nature treatments, breast reduction, hair prosthesis, massage therapy, pastoral counseling, port-stain elimination, marriage therapy, etc.[3]

As the politicians are always pressed by interest groups for money from third parties (taxpayers), the only way to eliminate such waste is through the personalization of medical insurance. Even if the legislators order the insurance companies to cover esoteric medical (or not quite medical) procedures, the individuals are free to include such coverage in their policies, or not. The medical insurance policies should be constructed in the same manner as automobile insurance policies, offering all kinds of options. In this way the beneficiaries will also be informed of the cost of various options and make a more informed choice than they do today. That should be of tremendous value in eliminating waste. A true medical care reform should, therefore, begin with making tax-exempt the personal medical insurance policies, in all variants (individual, family, etc.) Other measures, such as access to insurance across state lines, can easily be implemented for personal policies.

The legislation can mandate that options such as covering children to the age of 26 be offered, so those families interested in such an arrangement can add it to their policies. In the personalized insurance system, such a mandate is not necessary, because insurers will sell the coverage to interested policy holders. Offering it at a group or societal level only encourages people to take it, even if they could do without: nobody passes up a freebie.

The matter of preexisting conditions is a vexing one. On the one hand, it is possible that an insurer would deny general coverage upon discovery of a condition of which the prospective insured was not aware. On the other hand, a blanket guarantee of coverage irrespective of preexisting conditions will definitely encourage people to forgo insurance until they are sick (like insuring the house after it burns). In personal insurance the problem is easily solved, by offering insurance for a child before birth. The parents can sign on a policy for the child as soon as the mother becomes pregnant, to become effective at birth, with mandatory restitution of any deposit if the child is not born.

Insuring procedures that are certain and general, like vaccinations and dental checkups, goes against the principle of insurance and increases the cost of medical care; nobody includes oil changes in a car insurance policy. In personal policies such services can be included. Paying by themselves, the policy owners will compare the costs and see that it is cheaper to pay directly for such services. The educational purpose for which they are included in globalized insurance schemes can be achieved differently. For instance, a certificate of vaccination can be required for registration to school. As long as (a) the parents are free to home-school their children and (b) conscience waivers are available, there are no infringements of liberty by such a requirement.

The legislation should forbid government agencies from interfering with pricing of policy options. Otherwise, we might see some regulatory agency mandating a reduction of premiums for nose straightening operations through the increase in premiums for coverage of appendectomies.

Several angles of the medical care delivery and paying for it have been examined in this series. In each case, personalization of payment, directly from patient to physician and through personal insurance, was found to be the best, cheapest, and most equitable.

It goes without saying, however, that the availability of free treatment in emergency rooms will undermine any effort to optimize medical care and control its costs. Charging the patients, whether insured or not, for these services in a manner commensurate to their resources should be attempted.

Before finishing, a note about the approach represented by the medical care bill passed in 2009 is in order: That contradictory and cumbersome document makes sense when its real purpose is considered, namely to be a step toward full nationalization. Having grown with government-run health care, I can vouch to it being the worst possible system to provide medical care. It is, however, a good tool for total control of population by the government. That law should be entirely replaced.


[1] Carolyn Jones, San Francisco Chronicle, Jan. 18, 2011,

[2] Reuters, 17 July 2003

[3] Sally Pipes, “Top Ten Myths of American Health Care. quoted in: alth_care_reform

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