Monday, August 31, 2009

I could support this...

Opponents of health insurance reform are finally starting to offer some alternative suggestions, although not in the political arena.
First, we should replace our current web of employer- and government-based insurance with a single program of catastrophic insurance open to all Americans—indeed, all Americans should be required to buy it—with fixed premiums based solely on age. This program would be best run as a single national pool, without underwriting for specific risk factors, and would ultimately replace Medicare, Medicaid, and private insurance. All Americans would be insured against catastrophic illness, throughout their lives.
Proposals for true catastrophic insurance usually founder on the definition of catastrophe. So much of the amount we now spend is dedicated to problems that are considered catastrophic, the argument goes, that a separate catastrophic system is pointless. A typical catastrophic insurance policy today might cover any expenses above, say, $2,000. That threshold is far too low; ultimately, a threshold of $50,000 or more would be better. (Chronic conditions with expected annual costs above some lower threshold would also be covered.) We might consider other mechanisms to keep total costs down: the plan could be required to pay out no more in any year than its available premiums, for instance, with premium increases limited to the general rate of inflation. But the real key would be to restrict the coverage to true catastrophes—if this approach is to work, only a minority of us should ever be beneficiaries.
How would we pay for most of our health care? The same way we pay for everything else—out of our income and savings. Medicare itself is, in a sense, a form of forced savings, as is commercial insurance. In place of these programs and the premiums we now contribute to them, and along with catastrophic insurance, the government should create a new form of health savings account—a vehicle that has existed, though in imperfect form, since 2003. Every American should be required to maintain an HSA, and contribute a minimum percentage of post-tax income, subject to a floor and a cap in total dollar contributions. The income percentage required should rise over a working life, as wages and wealth typically do.
All noncatastrophic care should eventually be funded out of HSAs. But account-holders should be allowed to withdraw money for any purpose, without penalty, once the funds exceed a ceiling established for each age, and at death any remaining money should be disbursed through inheritance. Our current methods of health-care funding create a “use it or lose it” imperative. This new approach would ensure that families put aside funds for future expenses, but would not force them to spend the funds only on health care.
What about care that falls through the cracks—major expenses (an appendectomy, sports injury, or birth) that might exceed the current balance of someone’s HSA but are not catastrophic? These should be funded the same way we pay for most expensive purchases that confer long-term benefits: with credit. Americans should be able to borrow against their future contributions to their HSA to cover major health needs; the government could lend directly, or provide guidelines for private lending. Catastrophic coverage should apply with no deductible for young people, but as people age and save, they should pay a steadily increasing deductible from their HSA, unless the HSA has been exhausted. As a result, much end-of-life care would be paid through savings.
Anyone with whom I discuss this approach has the same question: How am I supposed to be able to afford health care in this system? Well, what if I gave you $1.77 million? Recall, that’s how much an insured 22-year-old at my company could expect to pay—and to have paid on his and his family’s behalf—over his lifetime, assuming health-care costs are tamed. Sure, most of that money doesn’t pass through your hands now. It’s hidden in company payments for premiums, or in Medicare taxes and premiums. But think about it: If you had access to those funds over your lifetime, wouldn’t you be able to afford your own care? And wouldn’t you consume health care differently if you and your family didn’t have to spend that money only on care?
For lower-income Americans who can’t fund all of their catastrophic premiums or minimum HSA contributions, the government should fill the gap—in some cases, providing all the funding. You don’t think we spend an absurd amount of money on health care? If we abolished Medicaid, we could spend the same money to make a roughly $3,000 HSA contribution and a $2,000 catastrophic-premium payment for 60 million Americans every year. That’s a $12,000 annual HSA plus catastrophic coverage for a low-income family of four. Do we really believe most of them wouldn’t be better off? [More]

The analysis is spot on, I believe, and meets many of the tests reform critics demand.  I think this is clearly one good way to proceed.  Please note it still expects government to care for those at the bottom, but at least involves even them in the decisions of spending on health care.

But here's my gripe.  Until the idea of actual change was remotely possible, proposals like this were considered way too radical to see the light of day, and few conservatives especially were interesting is seriously supporting any change. Say what you will about the nasty health care debate we are entangled in, but it has caused some on both sides to finally start addressing the problems.

And only when his father died unnecessarily did the author care enough to passionately seek change.  I am truly sorry for his loss. Eventually, that sector of the population will be much larger I believe, as the present system fails more each year.
I've come to accept that the fiscal and economic costs of the current system, however wonderful it has been for a few decades, simply cannot be sustained much longer. I say that not because I have become a socialist, but because the US is on the brink of the kind of bankruptcy it will be very hard to recover from if we do not tackle its source now. Taking measures to avoid fiscal collapse even greater than today's is a conservative impulse. Letting one sector of the economy destroy the rest of it - and public finances too - is sheer recklessness.
What do you want, GOP? A permanent populist culture-war? Or actual solutions to pressing problems? Let us know when you've matured enough to answer that question. [More]

If critics were to spend as much time and effort seeking to solve problems as shoot down other efforts to advance health care in the US, we could have more ideas like this to debate, and Republicans would have something to offer.

[via mankiw]


Anonymous said...

HEALTH care debate. John you should stay out of the debate! That having been said and the subject having been brought up. The proposal isn't totally bad but does require some debate and adjustment. Most of our health insurance today is catistrophic insurance; for example in almost every instance the insurance covers an injury related event--it is just the definition of injury is adjustable.
What really irriatates me is that the debate over health care COSTS has been hyjacked to a debate over insurance. In fact if we figure out how to control COSTS then we can talk about insurance.
Have you not noticed that every health facility sends out a bill that is huge and accept whatever the insurance carrier pays, anywhere from 50% to 75%.

John Phipps said...


I find your interesting reply and warning off sends mixed signals. I think it is a debate all should enter.

Point taken on the name, but if you did not notice my previous post on the right's populist stand to preserve Medicare and not introduce cost control measures (CER, end-of-life-care counseling, etc.), you missed my sense addressing costs will be politically impossible.

Americans love health insurance for the myth of something for nothing. At some point I believe we will begin by accomplishing the possible. Forsaking any reform because it is not comprehensive enough got us where we are now.

Anonymous said...


Great post. I think this theory is spot on and I have argued for similar things for a few years after being swayed by a friend. The only two points to consider/revise:

The threshhold for Catastrophe is a bit too high at $50,000- I would think something lower in order but the theory is good.

Second, when can inclusion begin. My fear would be a child born with immediate medical needs would not have a sufficient contribution to the system to be covered and therefore a family takes on a huge burden for the new child. I do not want to see an innocent child negatively affected. So long as that is covered I am on board.

Additionally to Anon's point I think the cost issue is important, however that is why we have seen the rise of HSA's and the high deductible plans. Push more cost concern into the hands of the consumer. At a buffet I eat whatever I want or don't want. When its ala carte I watch cost and pepper that with my true needs versus wants.

Anonymous said...

Great post John!! This is a constructive idea that people ought to be talking about.

Keith said...

Excellent Excellent Excellent. If hospital's customers were the PATIENTS, things would certainly be different. Thank you for bringing up this article.