Saturday, November 21, 2009

Five health insurance issues: Back to the grocery store

After I finished my Grand Finale post on five health insurance issues I began to worry I had not distinguished clearly enough between health care and health insurance and the role of the free market in each of these. Grim’s comments to that post confirmed my concerns on that score. So let’s return once more to the grocery store and see if I can make myself clearer.

I do most of my grocery shopping at Kings Supermarket, the one on Route 23. It’s bigger than the one in Upper Montclair so there’s a larger variety and it’s less claustrophobic. At the same time it’s smaller than the ShopRite and PathMark stores near me and usually less crowded so it’s a more pleasant place to shop. I think Kings’ prices are in line with those of the larger stores perhaps a few cents cheaper but it’s been worth it to me to have a nicer shopping experience. Now Kings is revamping its product line, however, and attempting to bring prices down. I still do most of my shopping there but I’m beginning to feel like they have too many products on the shelves with too-short expiration dates and I’m not always totally happy with their meats. I just found a butcher shop in Upper Montclair so I may try buying meat there next time. I think they’re a little more expensive but I’ll have to do some comparison shopping to be sure - and then decide if the extra money is buying me better quality.

I don’t do all my shopping at Kings. I like the 365 Day brand olive oil from Whole Foods so I’ll run in there every so often and stock up on that. When I’m in there I also like to pick up a bag of their 365 Day Salt and Pepper Potato Chips - yum! I used to buy more groceries from Whole Foods but once Kings realized how popular some of their stuff was they started carrying it. So now I can buy my soy sour cream from Kings. And, of course, almost every store now carries soy milk. That’s still cheaper at Whole Foods than anywhere else but it’s not enough cheaper to make a separate trip worth the gas and time. I made a wonderful Five Cheese Penne for my husband’s birthday last year and Whole Foods had the best selection of the cheeses I needed for that.

If I need a lot of canned goods - tomatoes, beans - or a lot of non-food items - aluminum foil, laundry detergent - I’ll run to ShopRite. I really don’t like their meat at all but I think they have slightly better prices on non-perishables so it’s worth it to me to make a trip there if I’m going to stock up. They also have a much better selection of Duncan Hines cake mixes than Kings so I’ll pick up a bunch of those while I’m there. ShopRite’s produce is usually quite good so if I’m in there anyhow I’ll buy what I need in the way of lettuce, apples, and so on. And if I want a wide selection of frozen foods - pizza, yum - ShopRite is much better than Kings. It used to not be worth it to run in there just to pick up a California Kitchens Margherita but now that they’ve installed self-checkout - and gotten the bugs out - it’s a breeze especially if I’m already in the area.

I used to hit the FoodTown further up Route 23 because I love Spice Islands spices and it was the only place around here that carried them. They don’t anymore so I never go there. I’ve pretty much adjusted to life with other spice brands - most of the Morton & Bassett brand spice are really good, their bay leaves are great, and the name of the spice is on top of the lid which is very handy is you’re looking down at rows of spices trying to find the one you want. Still I’ve never found a garlic powder that comes anywhere near Spice Islands; luckily I can order that over the Internet.

There is a PathMark near us but I really don’t like shopping there. Their shelves always seem to be understocked and they’re often out of the one thing on my list that I just have to have. However there’s a very nice little Italian deli close by that has wonderful bread and is often a stop to pick up rolls and turkey for lunch.

I love Trader Joe’s but there isn’t really one all that close - and the closest one is near a super-busy mall. I have vegan friends who shop there a lot and also hit a lot of Indian and Asian markets for more exotic ingredients. We do have a farmers’ market in town where I can find wonderful corn and those fabulous Jersey tomatoes during the summer. They also have a brief but incredibly delicious few weeks of peaches.

I buy flour tortillas at Kings but for corn tortillas I like the little corner store up the street. They sell them in packs of 25 or more and they’re always super fresh. There’s also a small liquor store very close to us but their selection is limited so for wine I go to the Wine Merchant. It’s handily in the same shopping center with the ShopRite so sometimes I run in there, too.

I’m sure that by this time you’re fascinated by my grocery shopping adventures - or at least ravenous. But you may be asking what this all has to do with health care and health insurance.

Health care is - or should be - like groceries: a great variety that can satisfy all needs at the best possible price. Health insurance companies are like grocery stores: they don’t produce health care but they are to all intents and purposes where we purchase it. Unfortunately health insurance companies function nothing like grocery stores. We can’t flit from company to company looking for the best deal on a treatment we want or need; we can’t comparison shop; we can’t decide we’ll pay a little more for this treatment because we want this particular doctor.

When I buy health insurance as it is currently structured, it’s as if I can now shop at one and only one grocery store. I get only the products that store chooses to carry. If I need something it doesn’t have, I’m out of luck - no Five Cheese Penne for a birthday dinner. If the store decides to start cutting corners on products, I’m out of luck - dinner may have to be whatever is going to expire tomorrow. If Spice Islands decides to stop doing business with the store I’m committed to, I’m out of luck - I spend my life eating inferior garlic bread.

If I get my health insurance through my employer, the situation is even worse. Now it’s as if I’m forced to buy all my groceries from a store I didn’t even get to pick myself - if my employer picks PathMark, too bad for me.

A free market in health care - like a free market in groceries - is a Very Good Thing. Consumers (patients) must decide whether a treatment is worth them spending their own money on. If they decide it is then they will pay careful attention to exactly what they are getting and exactly how much they are paying for it. They will comparison shop; they will seek out innovative products that provide better quality or lower costs or both. On the other side, many producers (health care providers) will compete to make their product better and lower priced. Others will strive to make their product outstanding so they can charge more for it. Some will find innovative ways to deliver services. Both consumers and producers benefit.

A free market in health insurance may or may not be a good thing but to me that’s irrelevant. Health insurance as currently structured deforms the free market in health care. It doesn’t matter if we’re talking about private health insurance or public; traditional or HMO; catastrophic or first dollar. All our existing forms of health insurance are incompatible with a truly free market in health care.

In contrast, I believe the catastrophic health insurance plans of DeLong and Goldhill - if correctly structured - offer the possibility of providing the advantages of a free market in health care while avoiding the great danger of such a market: that in catastrophic situations, people will be unable to purchase the health care they need. That’s why I’ve already spent so much time analyzing their plans and why I’ll be spending even more time doing so.



Health 'Reform' Gets a Failing Grade: Read the whole thing but this is what jumped out at me:

Our health-care system suffers from problems of cost, access and quality, and needs major reform.


The system we have now promotes fragmented care and makes it more difficult than it should be to assess outcomes and patient satisfaction. The true costs of health care are disguised, competition based on price and quality are almost impossible, and patients lose their ability to be the ultimate judges of value.

The headline says it all (via TigerHawk): This post quotes Milton Friedman’s observations on the four ways to spend money. I contend that health insurance functions like a combination of the second and third ways. The insurance companies think like this:

Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I'm not so careful about the content of the present, but I'm very careful about the cost.

The policyholders think like this:

Then, I can spend somebody else's money on myself. And if I spend somebody else's money on myself, then I'm sure going to have a good lunch!


Grim said...

Again, market reforms are good. I'm OK with things that improve the transparency of the market, and allow for customer choice.

The problem was that I can already buy better insurance on the market than the proposed 'catastrophic' plans were offering. The reason is that these government-based plans ask me to ensure myself and my family, plus also other people. The market allows me to buy the coverage I need or want; the government approach requires me to buy things I don't need or want.

That's why the one plan wants me to pay 20% of my income for something that currently is costing me, say, 15% -- for better-quality care, at a lower out-of-pocket cost, than the 20% plan offers. I also have the option to jump down to a lower-quality plan with higher deductibles and out-of-pocket costs, and decrease my insurance expense to 10%.

Or I can choose not to ensure myself, which I gather society no longer feels I should be allowed to do. If I were a 20-something again, I might well resent being told I had to fork over 20% more of my income, in addition to the FICA taxes and income taxes already coming out of my paycheck! Just as the 20- and 30- somethings today know that the Social Security taxes they've paid will never be returned to them in services, so too the additional 20% will go to fund these Ponzi schemes, providing health care for others and then collapsing under their own weight.

Grim said...

Honestly, I'm not opposed to all government spending for social goods. But the government needs to recognize that it has limits, too.

Seizing an additional one-fifth of every family's income in order to tell them how to spend it is breathtakingly arrogant. Even if they were going to spend it anyway, on more or less the same thing -- just stepping in and telling them that you'll determine how they handle a fifth of their family's resources is astonishing.

I just can't imagine what it takes to wake up one morning and say, "You know, I've got a plan. First, everyone in America gives me a fifth of what they earn. Then..."

Elise said...

I think there are about umpteen different issues here.

Buying catastrophic insurance from the government is no more you insuring other people than buying insurance from an insurance company is.

Neither the DeLong plan or the Goldhill wants you to spend 20% on insurance. DeLong wants you to spend 5% on insurance; the other 15% is forced savings that you will - after one year - be able to spend as you please. Goldhill wants you to spend $2000 for catastrophic insurance; the other however much is forced savings that you will- at some point - be able to spend as you please.

That's why the one plan wants me to pay 20% of my income for something that currently is costing me, say, 15% -- for better-quality care, at a lower out-of-pocket cost, than the 20% plan offers.

I think this is wrong. I think that if the DeLong/Goldhill plans are implemented correctly, you will get better quality care at a lower out of pocket cost than you can currently get. Why? Because you will be purchasing health care without an insurance company or the government telling you what you can and cannot have, what doctors you can and cannot see, and how much you can, should, or must pay for it.

If I were a 20-something again, I might well resent being told I had to fork over 20% more of my income,

That’s fine except that the 20-somethings who elect not to get health insurance aren’t gambling with their lives and they certainly aren't gambling with their own money. They’re gambling with my money. If a 25-year-old without health insurance gets hit by a bus he’s going to be taken to a hospital and given great care and I’m going to pick up the tab. If you want people to be able to go without insurance then you have to be willing to let them not receive health care unless they can pay for it themselves. Don’t send me the bill.

Seizing an additional one-fifth of every family's income in order to tell them how to spend it is breathtakingly arrogant

But these plans don’t. In both cases they seize far less than 1/5th - 5% for DeLong, $2000 for Goldhill - to pay for catastrophic insurance. The rest is enforced savings. The money not earmarked for catastrophic insurance does not go to the government; it sits in a savings account somewhere just like HSA money does now.

I understand that the coercive aspect of this is bad. But we’re already being coerced when it comes to health insurance and health care. We pay for Medicaid; we pay for Medicare; we pay higher premiums because Federal and State governments tell the insurance companies what to do. We pay taxes to cover health care for the uninsured like your 20-somethings. We’re about to be coerced like nobody’s business when the incredibly stupid health “reform” bill gets glued together and passed.

If we want to get rid of coercion entirely, fine. But we have to be willing to live with the consequences: people who can’t afford health care or can’t afford health insurance or were too stupid to buy health insurance don’t get health care.

I’m not willing to do that. So my question is, is there a form of coercion that looks better to me than what we’ve got now? Yes - these catastrophic plans.

Grim said...

Maybe I'm not understanding the non-coercive aspects of the proposals. Why would I set aside 15% of my money every year for catastrophic savings if I already have health insurance that covers catastrophic care? Isn't the proposal that this is a mandatory program that replaces my existing insurance?

A non-coercive approach that might be worth considering: the government runs a catastrophic plan that manages voluntary, tax-deductible donations, only to care for those too foolish to buy their own care. However, when the donations run out, the plan is done for the year.

That would leave us in a situation much like the blood supply: there would need to be regular drives for support, but nobody is pinned to the table and forced to donate blood. The blood supply seems to work, and it treats the same kind of 'unexpected emergency' problems that you're considering here.

If you allowed 'in kind' donations from doctors and nurses, on a tax-deductible basis, I'd say you could probably arrange a substantially effective model without having to force anyone to do anything. Right now, doctors are essentially forced to absorb much of the costs of treating the people without insurance; if they were allowed to deduct those costs from their taxes, many of them would probably gladly donate a set amount of time for providing such care.

Elise said...

I never argued this plan was non-coercive. In fact, I argued that it was coercive:

I understand that the coercive aspect of this is bad.

The issue of how this kind of catastrophic plan could and would interact with traditional health insurance is something I'll explore as I write more episodes in "Catastrophic comparison."

I don't see anything wrong with your plan to create a health insurance plan funded by charitable donations. You don't need the government to do that. You could create a foundation today that solicits donations to buy health insurance policies for poor people and, if you want, people who could afford their own but refuse to buy them. The donations would be tax-exempt and so - I think - would be the donations in kind.

I'd advise against the first-come, first served approach though. That would undercut medical advice to wait and see, let's try therapy before surgery, that sort of thing. Probably better to follow the Oregon model, figure out how much money you have on an annual or quarterly basis, rank treatments based on effectiveness, estimate how many of each you'll need, keep a running total, and draw a line when the running total approaches the money in the kitty.