Tuesday, May 26, 2009

Works for me...

I have spoken about the need for health insurance/health care reform, but have struggled to offer any alternatives to a system I think is broken for too many.  

Please, I understand many of you already have wonderful coverage and your first concern is losing a good deal.  (A good deal in this case is where you are getting more health care than your premiums cost).  The problem with this parochial approach is the group of folks in this happy situation is steadily shrinking.  Remember the rule for good health insurance: don't lose your job.  Or don't be surprised when the board of directors of your company has an emergency board meeting.

But this system is not quite as wonderful as the lucky/healthy think.  And it appears to be staggering under the load of health care demand.  The big slam on the Canadian system is the long waiting times for services, for instance.  Maybe you just haven't been sick lately.

Okay, so much for the bad side of US health care: high costs and mediocre-to-poor average results. But what about the benefits that the "market-driven" US system provides? Sure, the argument goes, the US health care system has some shortcomings - but at least it doesn't involve long waiting lists for elective procedures, as is the case with countries that have primarily government-run health care.

It turns out that this is largely a myth.

Let me leave aside the point that waiting lists exist in abundance in the US for elective procedures - it's just that when people are waiting in the US, they are waiting for a miraculous windfall of money to be able to afford the procedure, rather than waiting a few months until their number is called. No, right now I want to focus on the myth that government-financed health care necessarily entails waiting lists for elective procedures.

The data shows that many countries with "nationalized" health care systems have little or no waits for elective medical procedures. A 2003 OECD working paper entitled "Explaining Waiting Times Variations for Elective Surgery across OECD Countries" by Luigi Siciliani and Jeremy Hurst provides some survey evidence of actual waiting times in various OECD countries. [More good info]

For farmers, it is the crumbling of the individual health insurance market that does the greatest damage, I think, either by forcing off-farm employment or by skyrocketing policy costs.
But what could a better system look like?  Here is an idea I like, because it retains a strong market connection and individual responsibilities, and still allows government authority to make sure coverage is not limited to sure bets for the insurance industry.

The ideal policy for promoting both flexibility and coverage in health care would involve two reforms. The first is a refundable tax credit that would be available only if the taxpayer provided the policy number for a qualified health insurance plan that included catastrophic coverage. The coverage would have to extend to all children for whom the couple is responsible. Since the credit would only be available if an individual purchased insurance, every adult would have a strong incentive to do so even absent a government mandate. Making the full amount of the tax credit refundable even if the actual policy costs much less would ensure that taxpayers treat the money as their own. This would cause them to use the same type of cost-benefit test that they apply to spending in other parts of their lives. This change would be strongly progressive since it would effectively pay uncovered people, many of whom are poor, to obtain coverage, while holding harmless most of the people who benefit from the current tax exclusion for employer-provided insurance.
An important part of this reform would be the elimination of the income exclusion for employer-paid benefits, including health care. Employers would have to list the cost of each employee’s health care on his W-2 form. This amount would be included as income in the employee’s tax return. Employers should also be required to allow each employee to opt out of care, taking the employer’s payment share in return. This would give employees the ability to shop for other plans and increase the size of the individual insurance market.
The second major reform would be to allow much greater freedom for individuals and groups to band into insurance pools. The resistance from some quarters to allowing small businesses and groups to get together to purchase insurance for their members makes no economic sense. Similarly, the efforts of groups like AARP and many labor unions to offer insurance plans to their membership and others should be encouraged. Finally, the government should open up the Federal Employee Health Benefits Plan to all individuals. Under the federal plan, the government uses its size to negotiate terms with a wide range of health care plans. Employees can then choose whichever plan is best for them. In each pool, insurers should be required to offer the same terms to all individuals, regardless of prior history, with one exception: Insurers should be allowed to vary their price by the age and sex of the individual. This reform would keep premiums low for young people, encouraging them to participate in the pool, rather than purchase individual coverage. It would also create a better match between health care premiums and income over one’s career. (If desired, the size of the refundable tax credit could also vary by age in order to create a better match with expenses.) [More of a very helpful summary and analysis of health care problems and reform - well worth reading]

I favor means-adjusted deductibles as well.  In other words, for high-earners, the first say $5000-10,000 of medical expenses are out of pocket.  For low income consumers, this number would be much smaller, but not zero, except for the very poorest or children.  It is imperative to make every health care decision a cost-benefit calculation. Trust me, you can put a price on good health, and we are doing it every day.

There will be no answer that does not require us to include a system to ration health care.  We now do it quietly, since the term is incendiary.  But the truth is we cannot continue to afford to spend enormous sums on end-of-life procedures simply because oldsters have universal coverage (Medicare).  Meanwhile, much greater benefits measured in person-years of quality life could be bought for substantially less if treatments were affordable at childhood or early adulthood.

Until we admit we cannot afford to give everyone all the care they want, we will not prevent our system from benefiting fewer each year.  And costing our economy more.


Ol James said...

Yore Right Mr. John. We need something. We can talk, cipher comment and quantify till we're blue. I'm not sure there is a right way or reason.
I have a sister and her husband, (law says we are kin, nothing bout claiming them), they are missionaries in Dundee Scotland. They been there awhile. They qualify for the UK's medical system. She says it's good and that many of the myths are just that. They live right there near Glasgow, fairly populated. All the visits and meds are free to little cost. But like the study claims there is a bit of a wait for "elected" procedures, life threating has priority.
Either half-full or half-empty, it's still a glass of water.

Anonymous said...

It has been pointed out to me that if the 50-65 year-old crowd could get affordable insurance outside of their job, a lot of them would retire early. Unemployment lines would shorten because their jobs couldn't all be consolidated. Maybe I'm just seeing it that way because I'm within a year of graduating from college.

Anonymous said...

I can't agree more John. Plus we somehow miss the fact that employer provided health care increases a business's costs and favors giving employees either overtime or part time status instead of just straight full time workers; just to minimize the number of employees covered thereby lowering company expenses. What we have now is a truly messed up system.
Jay, I think there is a little truth to what you say.

John Phipps said...


Call me hopelessly optimistic, but I think we're going to achieve some typically American compromise that will address many of these issues with varying degrees of effectiveness. And after a few years we'll all adapt and tweak the system to improve it.

Anonymous said...

John - Call me cynical, but it seems that everyone wants a solution until they or a family member needs to "use the system" for health benefits...i.e. my wife's joy when her father received a new hip last year. This is a very difficult shift for all people who near a point in their life where they begin thinking they "might need that someday". I hope a solution can be found that is equitable.

Anonymous said...

Some of us are putting a price on health care, others don't have to. The idea of making employer paid plans taxable income is interesting, but would probably go over like a lead balloon. Especially in the Democrat controlled administration and Congress we have now. I think that Health Savings Accounts were a step in the right direction. I am afraid that more government involvement in an attempt to create "universal health care" will simply create more wasteful spending.