Medical Savings and Loan

Welcome to MedicalSavingsAndLoan.com. The goal of this site is to start a debate about a free market reform called a Medical Savings and Loan. I bought this domain on July 24, 2009 with the hope of encouraging a broader discussion of free market mechanisms in health care reform. If you blog your reactions (positive or negative) about Medical Savings and Loans and contact me, I will link to your post.

I also opened a disqus thread on this issue.

The Concept

A Medical Savings and Loan adds a guaranteed interest free loan to a standard Medical Savings Account. Adding a loan component to a Medical Savings Account gives people great flexibility in matching their medical expenses to their income.

The key innovation in the program is that people pay the premium for loan upfront.

The term "premium" refers to the cost of the loans. In most lending situations, the premium is charged as interest on the loan.

Interest does not work well for health related loans. The reason for this is that a health condition might reduce the capacity of the borrower to repay the loan. Charging interest on a health loan is a double hit as the borrower faces both an unexpected medical expenses and a big fat chunk of interest to pay for the loan.

The second great challenge of medical loans is that loans for health have a high default rate. The interest rate to cover medical loan would necessarily hit usurious levels to handle the high default rate.

Creating a structure where people pay the premium for the loan upfront allows a higher default rate and reduces the burden of loans on the sick or injured.

The participants in a medical savings loan would be willing to pay this upfront premium for the same reason that they are willing to pay insurance premiums. The investor in a Medical Savings and Loan is specifically looking for a program that provides resource in times of need.

Just as the healthy policy holders in an insurance program are not jealous of the sick in the program, the healthy participants paying the premium for a guaranteed loan are unlikely to be jealous of those suffering unexpected injury or illness.

As most of the money lent by the Medical Savings Account will be paid back, the premiums for the loan would be substantially lower than the premium for an equivalent amount of insurance. For example, if there is a 75% payback of loans, the premium for a guaranteed loan would be 75% of a corresponding insurance policy.

The first great benefit of the Medical Savings and Loan is that it creates a structure where workers build equity in their health care policy. Money saved in the account is real money that the employee keeps after leaving an employer.

The second great benefit of a Medical Savings and Loan is that it creates a paradigm where patients (not the insurance company) directly negotiate medical expenses with their doctor. As the patient is paying for services with their money, they will have a stronger incentive to keep costs under control.

Were the system of Medical Savings and Loans to gain critical mass; it could actually restore the pricing mechanism in health care that was messed up with employer based insurance and government funded healthcare.

I have been blogging on this concept for a long time. I will index my thoughts on the site y-intercept.com.