Monday, November 16, 2009

Five health insurance issues: Grand finale (updated)

[Updated, November 21, 2009: Grand, perhaps, but not the finale. I have up one more in the sequence here.]

In response to my post on catastrophic health insurance, Grim commented:

I like the idea of market-based reforms. However, I'm not sure why a government plan would be better at simulating the market than, you know, the market.

For example, the DeLong plan that I surrender 20% of my income for health care expenses? The market as it currently exists offers much better deals than that.

In general my preference is for a free market with only as much government regulation as is necessary to keep the more predatory impulses of capitalism in check. However, I have a lot of reservations about whether a totally free-market approach is appropriate for health insurance. I prefer regulation that says, “Thou shalt not” rather than regulation that says “Thou shalt”. Once you wander into government telling private companies what they should do, you’re in trouble and that’s increasingly the case with government regulation of insurance companies. They’re being told what they must do - who to cover, what conditions to cover, how much treatment to provide. That’s a bad situation; bad for the companies, bad for the government, bad for the company’s customers.

Yet I understand why we’ve gone down that road. We want certain things from health insurance and we are trying to get them via government intervention while still maintaining - or appearing to maintain - the companies as private entities. I’m not at all sure that’s working well. We may simply be unable to get what we want from health insurance within the framework of our current system.

This is a big part of why I was so intrigued by the catastrophic insurance plans I discuss in my earlier post. These plans may be the best way to address five issues I think any health care or health insurance plan must handle, the issues we’re trying to handle through our increasingly intrusive regulation of the insurance industry. In sorting out why I think these plans are promising, I’ve written at considerable length about those five issues. As usual, I’ve created a new category - “Five Health Insurance Issues” - to link the posts.

To review my five issues before I sum up:

Issue 1 : While most of us could pay for normal health care expenses ourselves, most of us need health insurance to cover serious situations.

Issue 2: Health insurance is not universally available or universally affordable through the market as it currently exists. Lack of health insurance does in fact often mean less effective medical care when someone is seriously ill. This is not right.

Issue 3: A health care system run entirely by the government is a bad idea.

Issue 4: As currently structured, all insurance - private or government, cheap or expensive, HMO or traditional, catastrophic or first-dollar - masks the true costs of treatment from those who purchase that treatment. This is bad for patients and bad for health care providers and bad for any hope of reining in health care spending through individual decision making.

Issue 5: Either we have to toughen up and let people - including children - die when they - or their parents - are too dumb to buy health insurance they could get and could afford or we have to find a way to force them to chip in for the health care we’re willing to give them if they get sick.

My conclusion - and I assure you it’s a reluctant one - is that a totally free market in health care and health insurance cannot address these issues. A free market will not make insurance affordable or obtainable for everyone; it will continue to mask the true costs of treatment; and it will do nothing to address the problem of free riders - which in a totally free-market system means we’d have to let them and their children die. If someone can describe to me a free-market plan that doesn’t have those effects, I’m all ears. Bonus points is you can describe a system that will guarantee that someone like me, who has cost her insurance company vast sums of money and more pre-existing conditions than you can shake a stick at, will be able to retain my health insurance in a free-market system at a cost I can reasonably expect to afford. Extra bonus points if you can figure out how I could change health insurance companies if I wanted to.

As my third point above makes clear, a single-payer system is not the way to go either. Yes, it will make health insurance/care universally available and it will take care of the free-rider problem. It may make it universally affordable but only if you ignore the taxes necessary to pay for it. However, it most definitely does not unmask the true cost of treatment. This means there is no hope of getting health care spending to come down via individual decision-making; we will be left with no options except to squeeze providers, refuse to cover treatments, and decide what is and isn’t covered based on some political hell’s brew of money and lobbying. If someone can describe to me a single-payer plan that doesn’t have those effects, I’m all ears. Bonus points if you can make me love the fact that birth control is not part of the Basic package on the exchange. Extra bonus points if you are pro-choice and can embrace the Stupak amendment.

What we have now is a hybrid. The free market for health insurance copes well with people who are healthy and employed. The free market copes well with people who are unemployed, healthy, and reasonably well off financially. The free market copes poorly with people who are unemployed and either not healthy or not financially well-off; to some extent the government picks up the slack. If you’re poor enough, there’s Medicaid; if you’re old enough, there’s Medicare; if you’re sick enough, emergency rooms have to treat you. Some people fall through the cracks. The more people who lose their jobs the more people there are who may fall through the cracks. (Surely the idea that health insurance should be tied to jobs is the handiwork of some imp of Satan.)

We can continue with this system, using regulation, government subsidies, and government programs to patch those cracks. If this is what we want to do, then I still think the best solution is to let anyone who wants to buy into the Federal Employees Health Benefits Plan (under a separate risk pool) with government subsidies for those who need them. We’d get rid of Medicaid but keep Medicare. We’d forget the health reform bills currently floating around Congress. We’d keep people from falling through the cracks but we wouldn’t even be attempting to rein in health care via individual decision-making; we’d just be postponing the day when the costs would eventually have to be faced up to.

Alternatively we can follow the route of the Democratic health reform bills. Frankly, I think they’re worse than single-payer. Under those bills we keep Medicare; we expand Medicaid; we set up the Exchange; we get a public option; we force so many conditions on private insurance companies that they’re basically public utilities. We get twice the bureaucracy and twice the overhead. We get less individual choice rather than more. We don’t get any incentive for people to make decisions about how much health care is worth to them. Instead of incentives for providers to innovate we get government pilot projects, government bundling initiatives, government this, that and the other. They won’t work; just look at Medicare. We get a monster.

If we truly want to do something major to overhaul the system then I prefer the Goldhill and DeLong models. They help those who need help but do not put the government totally in charge and do not mask the cost of treatment. Their plans are mandatory which means everyone is forced to buy catastrophic insurance and to set aside money in a Health Savings Account - no free riders here and everyone can (must) participate. Yes, the government runs the catastrophic insurance part of the plan. But the HSA part of the plan is for individuals to do with as they please which means they are fully exposed to health care costs up to the point of their deductible or trigger. Because any unspent money goes back to the individual each of us can decide what health care is important enough for us to spend money on - and each of us has to be willing to spend his or her own money before we can start spending other people’s.

I’m fully aware of the coercive nature of the requirements to buy government-run catastrophic care and to put money in Health Savings Accounts. I know these are an absolute bar to this plan for Libertarians and most Conservatives. I am sympathetic to that point of view. However, I have neither the courage nor the hard-heartedness to live in a world where health care and health insurance are strictly free market. I don’t want to fall through the cracks and I’d rather my fellow citizens didn’t either - especially the young ones. It seems to me that the best combination of free-market and government involvement comes from the Goldhill/DeLong approach. Yes, it takes my money but if structured correctly it gives me back control over my health care decisions while providing a safety net if disaster strikes.


Figment and Reality said...

At this junction in time, there doesn't seem to be a willingness by any large group that has significant input to accept that there has to be some compromise by everyone to begin to address the problems of health care. At a minimum, I would like to see a very, very basic plan that does not mandate coverage for every single possible medical problem, and lets us decide individually those optional items we feel are needed. If you want regular checkups covered, fertility or viagra coverage, then it will cost you more. Somehow, we do have to set limits but that is where few in government are willing to compromise.

Anything that gets more people to pay something into the system is better than the system now, which leaves those supporting the hospital with governemnt care and insurance paying the bills anyway.

Now this might seem a bit naive, but if you can't pay for the care, why can't the system set up an "exchange" where instead of cash, you owe some form of community service, without pay. It sounds complicated at 1st glance, but at least the community gets something for giving you health care. Someone without money or a job can surely assist in answering phones, mowing the grass, painting over grafitti, basic tutoring or doing some other task that is not being done now.

For the cronically unemployed, it is akin to the welfare to work program. At least the community is getting some benefit for providing a needed service. There will be exceptions to who can do which kind of work, but any form of payment is better than no payment at all. Some will not owe anything due to death, incapacity or other factor, but most people can offer some help in some capacity.

The bureaucracy to cover the "exchange" (I hate that word but it is applicable) would necessarily be local.

The real upside is that it does not require any change to the current system, except authority to require service for the benefit. The main down side is that unless the basic system is changed, many of the current problems will still exist. At least the community gets something, where today they get nothing.

Grim said...

On the subject of masking costs:

What is the true cost of a gallon of milk, or gasoline? How do you know?

If I go to the grocery store, I see milk from premium name-brands at one-to-two dollars more per gallon than the local brand. Is that a fair price, or is the premium brand cheating me?

In gasoline, too, a major highway corridor may have higher prices than a station in the middle of nowhere. Is that masking the true cost of the gasoline? After all, one must truck the gas into the middle of nowhere...

...but there is less demand to compete with the supply there.

Don't fall in that trap. Health care has no "true cost" to be "masked" by the market. Nothing does. The market helps us find out what people are willing to pay for a given service or good; but there is no "true price" that proves you are being treated fairly, nor one that can prove you are being cheated by some evil profiteer.

I don't wish to punish children for their parent's decisions. I also don't wish to have the government interfere with those of us who do behave responsibly. There's got to be a way to preserve the market for us, without abandoning the truly weak.

Figment and Reality said...

The difference is that health care is not just a jug of milk or gallon of gas where you can easily comparison shop. In the case of health care, it is virtually impossible to shop. Both Doctors and insurance companies prevent the shopping. For instance, I can't get a referral to a doctor outside of the megapractice that my general doctor is employed by here in NC. The GP is prevented by his system. I personally know enough doctors, that I can find a different one, if the megapractice ones aren't right for me, and force the issue with a couple of key words ("please put in my chart that you refuse to refer me outside of the megapractice" works wonders for this and for a request for a unique test).

Most people don't have access to a list of good and bad doctors or the fortitude to push the system. With better information, we at least have a choice.

Choice alone is not the answer. As recently told in an article in Fortune or Smart Money (can't find the link), most people don't even change their medicare supplemental policy, even when they know it might be cheaper via another provider. This characteristic of purchasing shows that when people only pay a small portion of the costs, they don't act. If they had to pay a higher percentage and had information, they might chose the lesser expensive option. But with 70% paid by someone else, the small increase of $20 copay to $25 copay doesn't mean anything to them.

Grim said...

OK, it is true that markets work best where there are many providers and relatively clear transparency. It's also true that insurance and government intervention both muddle that quite a bit.

However, I'm not sure how you'd bill it "cleanly." If every doctor printed out an invoice that broke their charges down into line items, it'd look something like this:

1) Time used today that could have been spent with other patients.
2) Per-patient percentage of my monthly student loan payments.
3) Drugs used, if any.
4) Surcharge for knowing what I'm doing.
5) Insurance to cover me in case you decide to sue later.

#4 is the one that's really difficult to set a "fair" price on.

My grandfather was a mechanic, a welder, and a body-and-frame man. One time a fellow brought his car into the shop, and it wouldn't run right. He took a look at it, listened to it trying to run, and then struck it one time with a hammer. The repair fixed the engine, and it ran perfectly thereafter.

"How much?" the client asked, very pleased.

"Fifty dollars," he answered -- this being in the 1960s, when fifty dollars was a lot of money.

"How can you charge me fifty bucks?" the man exploded. "All you did was hit the car once time with a hammer!"

My grandfather replied, "The hammer blow is five dollars. The rest is for knowing where to hit it."

And if that holds true for your engine, you can bet it's true for your heart!

Elise said...

Some of this is semantics, Grim. When I refer to "true costs" I mean what health care would cost if there was a free market in health care undistorted by government regulation but also undistorted by health insurance. In other words, the price of health care in a truly free market.

I certainly don't think there is some "correct" price that can be set by a government regulator. However, I also don't think there is some "correct" price that can be set by an insurance company. Attempts by either entity to set prices result in the "true costs" being borne by someone: providers who make too little to sustain themselves or at least too little to encourage others to enter the field; other policyholders who pay premiums for services they will never use; or taxpayers who somehow make up the difference.

I don't think this is an unusual use of the term "true costs". Jeffrey Flier uses the same phrase is his WSG editorial.