Health Care Reform

How about you pay for your own insurance and I’ll pay for my own. The government never gets involved, other than REQUIRING that we all buy insurance, and possibly providing your voucher for those too poor to afford insurance.

In another words, bring health insurance in line with auto insurance.

Oh, and that insurance should be catastrophic only. You go to the doctor for routine care, you pay for it out of your own pocket. Only after a very substantial deductible is paid ($3000+) would you get your care paid for by insurance.

No employer paid insurance, and no tax deductability for health care. No subsidies for the non-poor.

Ironic that Eric and I seem to have changed sides with respect to vouchers. I would argue the following:

1. Unlike auto insurance, we as a society do not want to let people go without healthcare. We are willing to let people go without owning a car or being able to drive. If we have are not going to allow anyone to be denied healthcare then we must all make some provision for it which means a tax of some sort.

2. Employer paid healthcare addresses the issue of coverage for those with pre-existing conditions and those whose demographics (age, genetic history etc.) would make insurance coverage so expensive that no company would offer it to them at a reasonable price. Employers are able to provide coverage by pooling their workers together. As individuals why would healthy people choose to pool themselves with the sick? The healthy would want to lock in low premiums while the sick would only drag them down in the competition.

Pre-existing conditions would continue to remain a problem because people would end up ‘locked into’ their insurance policy. If they wanted to leave they would be a customer with a pre-existing condition. The insurance company would have little incentive for them to stay since they would be a loss making client. Also we have the whole issue of genetic profiling & other techniques that would let insurance companies zero in on sick (or potentially sick) customers.

Insurance only works when there is an element of mystery. If you know 1 house in 1000 will burn down you can have everyone covered by fire insurance. If you know which house in a thousand will burn then insurance becomes impossible.

>>Pre-existing conditions would continue to remain a problem because people would end up ‘locked into’ their insurance policy. If they wanted to leave they would be a customer with a pre-existing condition.

I was not aware that pre-existing conditions were ok as long as you maintained consistent coverage. I see the advantage in keeping people from seeking coverage just when they get sick but I also see the advantage in an insurance company trying not to cover people who are more likely to get sick.

Insurance companies want people who don’t need health insurance and people who need health insurance are not wanted by insurance companies. In a world of rapidly expanding information why would insurance companies not take advantage of genetic profiling, pre-existing conditions etc. to either screen out those that really need insurance or charge unreasonable rates for it?

In Kreig’s system insurance companies have no incentive to grant exemptions for continuous coverage for those with pre-existing conditions. Since everyone has to be covered there are no lapses. Why would HMO B want to overlook a pre-existing condition that is afflicting someone who is trying to leave HMO A? Of course you also have the entire enforcement issue. Believe it or not but it takes a lot of work to enforce mandatory auto insurance and even in a state that is pretty strict about it like NJ there’s lots of people breaking the law. I find it hard to imagine the gov’t sending lots of middle class people to jail because they decided to use their insurance money for car payments.

I suppose it could be done but not without a very uncomfortable expansion of gov’t. And by expansion I don’t mean a few more % points of spending versus GDP…I mean tracking down people who don’t pay their health insurance and putting them in jail…having insurance companies be able to report you to the FBI for failing to buy their product and so on.

It appears that society is starting to think of healthcare the way we think of police protection. A good that should be provided ‘free’ to everyone but individuals should be allowed to purchase additional coverage with their own money (i.e. bodyguards, alarms, night watchmen etc.).

A universal voucher has an advantage here because it respects this belief while it is also less intrusive in its enforcement. For those who never bother to use their voucher the gov’t could have private companies compete for ‘default catastrophic coverage’ in case those people are suddenly wheeled into the hospital and have no means to pay.

>>It appears that society is starting to think of healthcare the way we think of police protection. A good that should be provided ‘free’ to everyone but individuals should be allowed to purchase additional coverage with their own money (i.e. bodyguards, alarms, night watchmen etc.).

Who would provide this ‘basic’ insurance program and how do you address the unemployed or those with minimal wages etc.? My argument about the mandate is not that it is costly but that it is burdensome. Your observation about withholding is accurate but there is at least a basic level of freedom in that no one can force you to work (no income, no income taxes)…likewise no one can force you to buy (hence you don’t have to pay sales taxes) etc. Your policy, ironically, is much more damaging to freedom since you are forcing people to buy a product and I assume insurance companies will be allowed to call the gov’t in on you if they suspect you are not buying….. If you thought the record companies had too much power wait till you see that!

“In the KHCS, there would be no punative damages, only economic ones. F the trial lawyers.”

In NJ there was recently a ‘doctors strike’ to protest in favor of a cap on non-economic damages. What’s interesting is that malpractice insurance has not done a very good job of tracking doctors who get sued very often. Even the auto insurance companies (not very popular in NJ) do a very good job figuring out who is higher risk and charging properly. I wonder if maybe part of the problem is that, for whatever reasons, malpractice companies have not been very efficient at charging the doctors who committ the most malpractice higher rates…..

Regarding thinking of Health Care as a Right: I agree that it is dangerous to create any entitlement. Perhaps a better way of phrasing it would be to say society is starting to think of health care as a good that should be provided to all like police protection. We generally feel everyone is entitled to police protection but we also recognize that this is limited to what the voters will tolerate in terms of taxes. If you want a 24/7 ‘posse’ of guards like Brittany Spears has then you have to buy it yourself.

What I like about my universal voucher plan is:

1. The good society is providing to all is defined in terms of money, not a set of services. If society feels the care provided by the voucher is too shabby then they can vote to increase the voucher but they must also accept the taxes to fund it.

2. Aside from the tax, the limitation on liberty is minimal. You don’t go to jail if you fail to make your payments to Prudential HMO. You can be covered even if you want to be a bum on the beech or live deep in the woods away from society.

3. Incentives for cost containment are preserved since it still pays for a HMO to minimize costs. Yet the individual has the option to buy the type of healthcare he wants. If someone wants to be covered for a sex change he can….the market determines what is covered and what is not….. Not a fiat ruling from Eric or anyone else for that matter.

>>1. The good society is providing to all is defined in terms of money, not a set of services. If society feels the care provided by the voucher is too shabby then they can vote to increase the voucher but they must also accept the taxes to fund it.>2. Aside from the tax, the limitation on liberty is minimal. You don’t go to jail if you fail to make your payments to Prudential HMO. You can be covered even if you want to be a bum on the beech or live deep in the woods away from society.>3. Incentives for cost containment are preserved since it still pays for a HMO to minimize costs. Yet the individual has the option to buy the type of healthcare he wants. If someone wants to be covered for a sex change he can….the market determines what is covered and what is not….. Not a fiat ruling from Eric or anyone else for that matter.

B, I’m not saying that doctors should not be able to charge $50 for a visit. By all means, doctors should charge what they can get away with charging.

But “health insurance” should not be paying that $50. It should be coming RIGHT out of the patients pocket.

No one needs “insurance” to pay a $50 fee. Again, that isn’t insurance, that’s a tax shelter.

>>HMO’s manage to contain costs by having a network of doctors who agree to cost controls when they order expensive treatments. >Similar plans exist for insurance type products that do not enjoy tax benefits. For example there are car warranties and other ‘breakdown insurance’ that pays for even minor repairs but requires you to go to only certain service stations.>In fact the tax benefits apply to all types of health insurance. There is no reason an employer couldn’t opt for a policy that doesn’t pay for doctors visits but has more generous coverage for catastrophic events. It’s not like the tax break is any different for $100 spent on HMO coverage or $100 spent on catastrophic coverage.>It seems to me that the market is the best place to decide the mix here.>If HMO ‘pay for everything’ type coverage causes more expensive care then the premiums for such plans will have to go up to cover that.>Catastrophic coverage plans would then have a market advantage and could offer lower premiums.>In either case the consumer should be free to spend either his pre-tax dollars or his voucher on the plan that makes the most sense.

>>Health care costs are not so high because everyone is running to the doctor because it only costs them $10 a visit.

“I will leave it to the economists to hit that one out of the ballpark!
It’s called supply and demand. It is one reason that HMOs make you get a reference from a primary care physician before they let you go to a specialist.”

So what? If an HMO wants to provide coverage for both catastrophic care and routine care that is their business. If they are behaving irrationally, driving up not only the cost for both types of care, it is they who will be hit the hardest.

Suppose there was some very rich person who one day said he will pay every person in the nation $40 every time they see a primary care doctor for a routine appointment. By your reasoning this person would be an economic terrorist causing the price of healthcare to rise so dramatically it would swamp the benefit of having $40 of every visit covered! It would seem if some foreign nation volunteered to pick up the tab for Americans seeing their primary care doctors then Bush should consider it an act of war worse than 9/11!

If it is irrational to cover both catastrophic and routine expenses in a medical insurance policy, then the market will figure it out. If the true answer is more subtle, that it is a sensible policy if done in the correct manner, then the market would be the best method to determine that.

>>If it is irrational to cover both catastrophic and routine expenses in a medical insurance policy, then the market will figure it out.

“No it won’t, because it is not the market that is pushing this policy. It is Congress, through tax policy. Thus, perhaps the market will devise the most efficient system under the current tax policy, but it is not going to come up with the most efficient system overall.”

Your missing my point, there is no special tax deduction for purchasing HMO style coverage. If you spent the same money on a catastrophic plan it would result in exactly the same deduction. If HMO’s are irrational in the face of catastrophic coverage then they cannot be saved by an accross the board tax benefit that covers both types of plans.

>>Your missing my point, there is no special tax deduction for purchasing HMO style coverage.

>>Yes the HMO has benefits that the catastrophic policy does not, such as the $10 co-pay. Yet the catastrophic policy also has benefits that the HMO doesn’t. For example, after you meet your deductable you are reimbursed for just about any reasonable medical treatment regardless of which doctor you go to.

>>If an HMO’s average cost is $500 per month, then the HMO can, at best, be paying out $500 per month for healthcare services.

>>First, there are Car Maintenance Organizations. Some are explicit and others are implicit (extended warranties or ‘service plans’ where oil changes are free but have to be done at the dealer or auto shop that’s in ‘the network’ etc.).>Second, very few people are demanding $500 a month in unnecessary medical care. Regular health care like check-ups simply does not make up the most of what HMO’s are paying for. In other words, HMO’s are paying for almost the same thing that catastrophic plans pay for.>You are also gliding over the fact that HMO’s have been credited with reducing or at least controlling health expenditures.>They do this because they do pay for regular visits which allows them to induce both patients and doctors to accept limits on more expensive services. For example, the requirement to see your general physician before being allowed to see a specialist in an ideal situation will eliminate specialist visits that could have been solved by the general physician. This would mean the specialist would optimize his time by not seeing patients whose problems could be solved by the general physician.>To date it looks like HMO’s are better at cost containment than catastrophic plans.>This is why you see Republicans advocating moving Medicare/Medicaid patients into HMO style plans.>The tax break here does not favor the HMO since the employer would receive the same benefit for purchasing a non-HMO style plan.

Oddly!?!

Now once again my opinion is not backed up by any “study” (of which you people with master’s degrees are just a LITTLE too quick to accept at face value), but I just think that low deductable insurance is one major driver of health care demand.

Maybe it’s just because I am male, and I don’t go to the doctor very often (I don’t even know his name without looking at my HMO card), but I think that, because of HMOs and the 10 dollar copay, people visit the doctor too often. Now, Boonton argues that this drives up HMO costs, which are passed on to businesses and eventually employees, but this is hardly a robust feedback mechanism. The cost of overuse of health services is being borne by everyone.

I see no reason that anyone in the lower middle class or above should have anything more than catastrophic insurance. Anything else just distorts the market for health services and causes substitution between other goods and services and health care.

Some people might think that there is no higher good than health care spending. I disagree. I think we are missing huge opportunities to improve the lives of everyone because we are overspending on the health care of a few. Too much capital is being spent in the health arena, for things like hospitals, that could be going to better use elsewhere in the economy (not that I know exactly where that might be).

>>While the transmission from HMO premium to employer to employee is slow I can assure you that premium to employer is not.

That’s all well and good, you are missing several econ points:

1. HMO’s use the paying for regular visits as a method to control both patients and doctors. Patients limit themselves to a smaller population of doctors ‘in network’. Doctor’s agree to get steady business but have to submit to cost controls on more expensive procedures.

2. What is the total cost of an HMO? At least $100 per month, probably $300-$500 per month. Assuming a visit costs $100 a shot (which the average is certainly less) how much additional visit demand is being transmitted by the HMO’s benefit structure? I don’t know any healthy person who visits a doctor once a month, even twice a year is quite a bit. This means for a $100 per month HMO, $200 out of $1200 in yearly premiums is being spent in doctors visits. Not even 20%!

Of course, good luck finding an HMO to cover you for $100 per month. More important for the HMO is the ability to control the doctors behavior. In the article you quoted the HMO would use their leverage to permit endless ‘consultation’ visits that cost little but would limit the doctors ability to order those expensive tests unless the doctor was willing to diagnose the patient with a disease or if the patient fit the demographic criteria to make the test ‘economically worthwhile’.

Long and short you’re just looking at one side of HMO’s.

Command and control? That is what a business is supposed to do, control its expenditures. The problem with catastrophic insurance is that once you hit the deductable the patient and doctor have almost a blank check to do anything they want. Under an HMO regime procedures have to be justified with cost-benefit analysis. Yes the $500 test may prevent a major operation but is it justified if it will do so in only 1 in 5,000 cases?

Both systems have drawbacks, the beauty of the market is that it will reward or punish each type of plan according to its success. If an HMO accomplishes its cost savings by keeping people from getting decent care it will eventually lose customers. If an HMO or catastrophic plan provides ‘unlimited’ healthcare then it will suffer from higher costs (and premiums) as well.

Where do you think HMO’s came from? Because businesses wanted to give their employers unlimited healthcare no mater what the cost to themselves? Even though they get a tax break it would be the same break if they got a catastrophic plan and by your reckoning premium increases would be contained.

Just because you can deduct something doesn’t mean that it is not an expense to you. If you could buy equal coverage for $100 less per month it makes sense to do so.

My point is not that the tax deduction doesn’t increase demand for health insurance. That is basically what both of us want to do. That is what you are doing when you say you would advocate vouchers for those who couldn’t afford a catastrophic policy. This too would increase the demand for one form of health insurance and indirectly increase demand for healthcare.

My point is that just because you get a deduction doesn’t mean the cost doesn’t exist. A $400 per month policy with the same benefits as a $500 per month one still makes it a better deal even though you lower your deduction by $100. If catastrophic policies have some natural ability to contain costs better than HMO’s we would expect to see this expressed in the competition between the two. If it was as dramatic as you imply, catastrophic policies would be able to price HMO’s out of the business.

So considering that this HMO is costing you probably a few hundred a month why not switch to a catastrophic plan? Let’s say that it costs $500 per month which isn’t impossibly by any means.

Even considering that tax deduction, it sounds like you would be better off with a $250 per month catastrophic plan and $100 more from your employer as pay. Your employer would certainly make out better since you’ve cut their health costs by $250. Yes both of you lost some tax advantage but if you put that $100 per month into doctors visits and viagra you could regain a chunck of the deduction.

I agree that HMO’s may increase demand for some health services such as general visits and certain drugs like viagra or claritan (usually, though, prescription drugs are a different plan with their own co-pay) but ask yourself why they have such a bad rap? One of the chief criticisms of Hillary’s plan back in the 90’s was that it was going to force us all into HMO’s!

Certainly the popular impression of HMO’s is not that of a consumer’s nivana with an all-you-can-treat buffet for just a $10 co-pay! The reason is that HMO’s give you cheap prices at the low end but control costs at the high end. When they go to far you hear about the horror stories of the person who can’t get a drug or operation because its deemed ineffective or experimental by an Excel spreadsheet.

But you should be fair and consider HMO’s a market innovation. A way to get people to save money by taking care of health problems before they become expensive. Dental plans have long recognized the value of this idea by offering one or two free cleanings per year. In the long run that prevents a lot of major work that a catastrophic only dental plan would have to pay for. Like all market innovations it could be a success or a failure or something in between but the only way to really know is to let people choose it freely and see what happens.

“Because my company doesn’t offer one. And if they did offer one, they wouldn’t compensate me for the extra taxes.”

But if the catastrophic plan is really better, it would be in both of your interests for them to do so. Here we run into economists assumption of rational actors. It’s quite possible your company is just dumb, it’s rather unlikely that nearly all companies are dumb.

“Don’t get me wrong. I’m not bashing HMOs. They are clearly the best alternative as the market is currently structured by the Feds. I just think that the Feds should get rid of the deductibility of health insurance altogether. Tax health benefits as ordinary income. Then I could live with letting the market decide what the best type of insurance is.”

I feel like we have gone in circles with this. The tax deductability applies to both types of health insurance! If catastrophic plans are better then they would defeat HMO’s in the market and the tax deduction wouldn’t save them!

Tax benefits do increase demand for employer based healthcare but the demand would be there without such benefits. The reason is information, information is what insurance companies want but its the mortal enemy of insurance! If it is known that 1 in 1000 houses will burn down, then it’s possible to have affordable homeowners insurance for 1000 homeowners. If supercomputers could narrow that one house down to the actual block where the fire will happen then insurance becomes impossible. The other 990 homes, knowing they won’t have a fire, will have no desire to buy insurance. The 10 homes on the block will face unmanagable premiums.

The ability to screen those seeking health insurance for pre-existing conditions, demographic & age based estimates of health and genetic profiling IMO creates a dangerous world where insurance will become more difficult to manage. Employer (or other large group) based health insurance retains an advantage because those who would be nearly uninsurable can be forced into an insurance company’s pool.

In my plan there are limits to how much pre-qualification insurance companies can perform when setting rates. They will accept this restriction because doing so will give them access to the entire market of vouchers (the whole country!). Another great benefit, IMO, would be that the pros of employer based insurance can be preserved but employers can ease themselves out of the insurance business. This would greatly increase the economy’s flexibility since people will feel more comfortable leaving jobs and employers can be more flexible in adding jobs. It has been noted that in some ways foreign companies can sometimes be more competitive than American companies because they are freed from the burdens of insuring their workers.

Individuals can deduct health insurance if they pay for it themselves. The same principle applies. Using some real numbers from http://www.DiscountHealthInsurance.com (30 yr old single male, non-smoker) I found HMO’s in the $500 per month range and catastrophic style plans as low as $250.

Clearly I pay dearly for the HMO’s unlimited $10-co-pay. At an extra $250 per month I’m paying an extra $3,000 per year. If a doctor’s visit cost $100 I would have to go an extra 30 times a year (2 1/2 times a month) to justify the additional cost of the HMO.

Whether my employer is footing the bill or I am myself, the HMO is going to have to cause a huge increase in my demand for doctors visits before it can create unnatural health care inflation. In other words the $10 co-pay alone does not justify the HMO for either consumers or business. Assuming they are equal, either would be much better off getting twice the catastrophic coverage for the same tax deduction.

I didn’t say that the $10-copay wouldn’t increase demand for simple doctor visits. In fact, one would hope it would. After all, patients are spending an extra $250 per month or $3000 per year for this benefit. It would seem like they are more than compensating for their supposedly higher use of normal doctors visits.

If there is an increase in demand for something, then it *should* be reflected in prices. HMO’s are operating on the theory that they are really decreasing demand by giving away the cheap good (visits, simple blood tests) in the hopes that the demand for expensive stuff (operations, emergancy room visits) can be cut.

I don’t see why the government should be providing vouchers for people who can afford to pay for health care themselves.

And I also don’t see how any rational person can explain health insurance as it is now provided. Low deductible insurance makes no sense, economically anyway. That’s why you are a fool if you buy extended warranties on consumer electronics, for example.

EXCEPT, of course, if health insurance is just a way to avoid taxes. Now that makes sense.

Now, I agree that HMOs do a better job than the old 80/ 20 system. But they are STILL little more than a tax dodge. We could do better with a system described in Arnold’s original link.