Archive for October 22, 2010
Last time I described how health care has a mix of components, some perfectly suited to insurance, some perfectly suited to universal coverage, some perfectly suited to fee-for-service, and some that doesn’t fit well in any of those. So it would stand to reason that we could break the methods of paying for health care into separate categories, and apply the best payment model to each. That is, for catastrophic external and internal events, we would expect people to buy traditional insurance. For chronic conditions and elective services, we would expect people to pay for everything on a fee-for-service model. For communicable diseases, we would have government-funded universal coverage. We’d still have to figure something out for general maintenance, but it’s not unreasonable to have that be part of the catastrophic internal events coverage, since it should be expected to offset the costs of catastrophic internal events.
But let’s explore this further. The case isn’t as clear as it might seem from last week’s discussion.
Chronic conditions come in two types, congenital and acquired. Acquired chronic conditions do, in fact, have a corresponding form of insurance out there, albeit one few people intentionally carry. Disability insurance is an often overlooked part of Social Security, but some people carry supplementary disability insurance as well. For people of working age, odds are substantially greater of injury causing inability to work than of death. Yet far more people of working age buy life insurance than buy disability insurance.
In any case, we had some spirited discussion about what tradeoffs we’re willing to make in order to produce an ideal system. Not a single person suggested that we should give up universal coverage of communicable diseases, or emergency care access to all, regardless of ability to pay. This could be an artifact of the more liberal lean of the site, but we do have conservatives who participate as well. For the purposes of today’s article, though, I’ll assume that we are in universal agreement of the need for both universal coverage of communicable diseases, and universal emergency care, regardless of finances.
Emergency care access to all is in conflict with the notion of voluntary catastrophic health insurance. That is, the notion of emergency care access to all is more in line with universal coverage, like fire protection services, while catastrophic health coverage aligns with traditional insurance. Just as mixing fire protection coverage with universal firefighting services causes overcoverage, so, too, does mixing emergency care access to all with catastrophic health insurance. Those of us who have health insurance are covered not only via the insurance policy, but also via our taxes; we’re overinsured.
In addition, since emergency treatment is often avoidable through lower-cost general maintenance, it is in the best financial interest of those who cover emergency treatment to also cover general maintenance. So we’re not only overinsured, but we’re overpaying in taxes for the otherwise uninsured.
What about chronic conditions? At the very least, we should have health insurance policies available to us that are similar to disability insurance, in that they cover onset of chronic conditions. I’ve looked for such medical insurance, but it doesn’t exist. In fact, health insurance providers instead drop individual coverage for the very people who develop these chronic conditions. Worse yet, once these people are dropped, they can never be covered for it in the future. So what we have today is similar to the case where an insurer collects premiums on disability insurance, but refuses to make the monthly payments when the insured became disabled. Yet, interestingly enough, the bulk of medical costs come from chronic conditions, which is perhaps why the leading cause of bankruptcy in the United States is medical costs.
Furthermore, untreated chronic conditions (e.g., diabetes or asthma) result in substantial, frequent internal catastrophic medical care. So it is financially in the best interest of insurers of internal catastrophic medical care to also cover chronic conditions. Yet again, those of us with health insurance are overinsured, and overpaying in taxes for the otherwise uninsured.
In other words, if we assume that we want emergency care access to all, it is economically the most sensible to have universal coverage for internal and external catastrophic care, communicable disease coverage, general maintenance, and chronic conditions. To do otherwise is to cost us all more; universal coverage of catastrophic medical care leads to a choice between universal coverage of all non-elective services or paying more money to not cover the other categories of medical care.
We’re left with a decision not of what to cover, but rather how to cover it. Competition among insurers can be beneficial as a means of increasing efficiency, provided a minimum bar of coverage is established to ensure that the financial burden doesn’t fall on taxpayers to handle emergency care access to all. In short, as long as we have taxpayers footing the bill for universal emergency care, taxpayers have a vested interest in either fully funding all non-elective medical services (eliminating health insurance altogether) or mandating a minimum level of private insurance coverage. The simplest approach would be to provide a choice between buying coverage that meets or exceeds the minimum bar, or paying the government an amount of money commensurate with the gap in coverage that would otherwise be paid by other taxpayers.
Such a minimum bar would need to have coverage for pre-existing conditions, and prohibitions against the insurer dropping coverage, which otherwise would result in health care costs falling on taxpayers.
The above mandates present a significant fiscal danger to lower-income families. Health insurance is expensive if we are to maintain the life-at-all-costs level of service to which we have grown accustomed. To handle it in the same way we handle traditional forms of insurance, we need to charge everyone premiums that are irrespective of income. For lower-income families, this would likely result in over half of all income being used for health coverage. While this prevents the uncertainty of bankruptcy resulting from unforeseen circumstances, it rather causes certain bankruptcy from health, housing, and food costs permanently exceeding income. A subsidy for low-income families can overcome this, but at that point we’re playing a lot of financial sleight of hand to disguise the shift to a progressive-tax model, where people pay based on income.
It should be clear by now that I’m describing something very close to the high-level design of the Patient Protection and Affordable Care Act (PPACA). I have described, in broad brush strokes, how we ended up with this model in the legislation.
There is no economic reason for us to maintain the employer-supplied medical insurance. So why aren’t we getting rid of it? Because, when surveyed, most people with employer-supplied medical insurance say that they want to keep it. There are several reasons for this, which I won’t go into here; the point is that it would have been politically unpopular to force people to give up their employer-supplied medical insurance. This was the intent of the “if you like your insurance, you can keep it” message. But as much as it starts to sound nanny-state-like, I still want to get rid of employer-supplied medical insurance. The economist in me recognizes that this is a significant source of inefficiencies in our medical system, due to all of the disconnects among the payers, suppliers, and consumers.
So this is not the most efficient model, but it does amount to a compromise that is on one hand designed to limit the load on taxpayers (at the point of care), while increasing the load on taxpayers (at the point of insurance), and maintaining the strangely popular employer-supplied insurance.
What would I like to see? True open-market insurance, where employers take the existing insurance money and turn it into larger paychecks, would be one reasonable option. I don’t like increasing complexity in the income tax code, but I can see how many would want this to come with a corresponding tax deduction for medical payments. I’ll save my income tax notions for another article. But open-market insurance would need to maintain minimum standards designed to minimize the taxpayer burden that comes along with universal coverage.
I am a fan of a public insurance option, provided there is no thumb on the scale in terms of government subsidy. That is, any public insurance would have to be fiscally self-sufficient. I recognize that there are startup costs, and so there would need to be an initial investment, but the key word is investment. Lend the money to the program, at market interest rates, with an ordinary market payoff schedule, to be paid for by what amounts to an increase in premiums. Beyond that, the public insurance service would have free reign to offer whatever services it wishes, provided all policies meet or exceed the minimum bar, and would be forbidden from receiving supplemental government funding.
Other than elimination of employer-funded insurance, and the public option, PPACA covers pretty much everything I would ask for. The features most often decried by the right are, ironically, the features designed to protect taxpayers. The only way to get rid of those features and simultaneously protect taxpayers is to eliminate universal emergency service.
So I leave you with a few questions, as usual.
If you oppose the PPACA insurance mandate, does this mean that you also oppose protecting taxpayers, or do you oppose universal emergency service?
If you don’t want health insurance to be held to a minimum bar, does this mean that you also oppose protecting taxpayers, or do you oppose universal emergency service?
If you agree with me that employer-supplied insurance is economically inefficient, how do we get to a country that no longer has employer-supplied insurance, given its general popularity?
If you are one of the people who loves employer-supplied insurance, please explain why the system is worth the inefficiencies that arise from it.
Finally, if you believe I’m setting up false choices, explain how they are false choices and what the real options are.