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.