Advice for Trump on Health Policy
Of all the Republican presidential candidates, Donald Trump has said the least about health policy. Far more is known about Rubio, Cruz, Clinton and Sander’s health care agenda. Remember, Trump is the guy who once said it would be easy; just “Lock the best health care policy minds in a room — and don’t let them out until they’ve crafted a plan for providing terrific coverage for everyone.” Some of the more detailed comments on health policy Trump made during his early campaign were disjointed. Fortunately, much of the bad health policy Trump flirted with on the campaign trail is absent from his official website.
When Trump finally released his health proposal on his campaign website, it included a hodgepodge of Republican ideas. But it was apparent that none of the smart guys in health policy who I know were locked in the room when his proposal was formulated (including Avik Roy-AEI, Michael Cannon-Cato, Merrill Matthews-IPI and Peter Suderman-Reason). As the Washington Post (those above) and I have all pointed out, it hardly constitutes “a plan”. Granted, it includes some decent ideas but it needs some work. Much more needs to be done to make it into a sound health policy proposal. The following bold headings are Trump’s broad policy proposals. In what follows I explain how to fix them.
Completely Repeal Obamacare. It’s not enough to merely repeal Obamacare. It has to be replaced with something tangible. Of course, a good start is to repeal the mandates, the mandated benefits and the costly regulations that prevent working class Americans from buying health plans they can actually afford. Not everyone needs — or can afford — an Obamacare plan that costs as much as the monthly payment on a new luxury car. That is especially true when costly Obamacare plans have such high deductibles that most families’ health care bills are paid entirely out of pocket. Most working class Americans would be more satisfied with an affordable health plan, with defined benefits, that allows them to actually see a doctor when they need one. That’s not the case with many Obamacare plans.
Although not on his website currently, in the past Trump had suggested he would keep the costly provisions prohibiting insurers from charging premiums that reflect enrollees’ health risk. Those provisions necessarily jack up the cost of coverage for most enrollees. Obamacare is a bad deal for most people by design; that’s why Obamacare has to force people to buy coverage they otherwise would not purchase. Those Obamacare regulations didn’t work when states tried (and mostly rejected) them in the 1990s and they didn’t work under Obamacare. There are better ways to help those with health concerns – including guaranteed renewability for those who maintain continuous coverage, risk-adjusted tax credits and high-risk pools that use care coordination to incentivize patient compliance.
Make Health Coverage Tax Deductible. Allowing individuals to deduct the cost of individual health coverage from their taxes has been suggested for years. The self-employed already can do this. Rather than tax deductibility (or Obamacare’s sliding scale subsidies), a tax credit is a better way is to create tax fairness between individual coverage and employer coverage. Credits could be uniform, age-adjusted or risk-adjusted. Families with employee health coverage could keep their existing coverage rather than trade it for a tax credit.
Allow Health Savings Accounts. That’s a good idea, although it doesn’t appear Trump is proposing anything that’s not already allowed; nearly 20 million people already use HSAs. Why not make it a bold idea by depositing a uniform tax credit into an HSA so everybody without employer coverage has one? Individuals could top it up with some of their own funds; use it to buy individual coverage; use it to pay cost-sharing; or use it to pay for direct care. Why not increase the contribution limits, allow everyone access to an HSA, allow HSAs to purchase over-the-counter drugs and allow HSAs to replace income lost to sick days?
Require Price Transparency. That’s a good idea in theory, but it is difficult to mandate. There is not one price; but dozens of prices for a given procedure — depending on the health plan. The key is to make providers and health plans want to disclose prices — as firms do when competing on the basis of price. Start by making patients more price sensitive by encouraging HSAs and high-deductible plans that use reference pricing. Ban contractual nondisclosure agreements designed to limit competition — especially ones that forbid revealing prices to consumers who are attempting to comparison shop for medical care. Ban balance billing by providers who have not disclosed the price and signed an agreement with patients prior to performing the service. Make medical bills and out-of-network fees more difficult to collect when providers have not quoted a price or attempted to work out an agreement with their patients ahead of time. Require binding arbitration or mediation to resolve billing disputes.
Sell Health Insurance Across State Lines. Trump would allow insurers to sell policies in states they are not domiciled, as long as the insurers meet all the regulations in the state where the policy is being sold. That caveat is a mistake. When this idea was all the rage among Republicans a dozen years ago, it was intended to spur competition not only among insurers, but also among state legislatures to force some of the overly-regulated states to reform state regulations. At the time, many states mandated costly benefits and expensive regulations that other states chose not to require. Allowing interstate competition would discourage state lawmakers from pandering to special interests who lobby to have their respective services mandated.
Medicaid Block Grants. This is a standard Republican proposal. It’s also a good one. At the very least, the federal government’s contributions for state Medicaid programs should not be open-ended. The respective federal and state contributions should be negotiated — and the starting point for the federal share should be a function of poverty rates within the state. State should have to pay for all extra benefits or expansion populations, and also be on the hook for all cost overruns at the margin. States should be free to experiment and tailor programs to states’ needs.
Allow Importation of Prescription Drugs. Banning price discrimination, when drug makers sell an expensive drug cheaper in India than in Indiana, is popular among many voters. Yet, most economist believe allowing consumers to import (price-controlled) drugs other countries would have very little effect on American drug prices. It would have a huge effect on drug prices in third world countries, however. American drug makers would be forced to raise prices abroad. Indeed, if drug makers charged the same price worldwide, many poor countries would violate drug patents and make unlicensed versions. A better way to lower drug costs is to streamline the approval process at the FDA to allow faster drug approval, which would spur more competition.
Trump should consider the changes mentioned above if he wants an actual plan. Insurers need the flexibility to design insurance products Americans can afford and are willing to buy. The health care system also needs to become more competitive and bring down the cost of medical care through consumerism and appropriate market incentives. That’s something at which the Unaffordable Care Act fails miserably.
There are numerous other ideas worth considering. Encourage Medicare to use cost containment tools, such as coordinated care for the sickest, high-cost seniors; use selective contracting to obtain lower prices; use reference pricing to encourage seniors to seek cheaper alternatives. Adopt site-neutral payments regardless of where care is provided; use competitive bidding allowing specialty clinics to undercut Medicare’s fees at hospitals (or one hospital to outcompete another hospital). In addition, Trump should propose eliminating the most lavish Medigap plans that result in excessive spending. He should also support aggressively routing out fraud; kicking fraudulent providers out of the program and using algorithms to deny payments before the cash has changed hands.
Finally what most Americans really want is the ability to see a doctor when they feel ill. This is increasingly difficult as the supply of primary care providers falls short of the demand for their services. There are numerous ways to increase the number of primary care providers. Boost residency slots, streamline the path to primary care practice for foreign medical graduates, nurse practitioners and physicians assistants. And deregulate telemedicine to allow providers to care for patients across state lines.
Here’s my reaction.
“Most working class Americans would be more satisfied with an affordable health plan, with defined benefits”
Translation: Allow customers to decline maternity benefits, mental health benefits, alcohol and drug benefits and chiropractic care. I’m not sure how much that would save but probably quite a lot.
“There are better ways to help those with health concerns – including guaranteed renewability for those who maintain continuous coverage”
The key here is defining continuous CREDITABLE coverage and who would establish that definition – federal government, state government, National Association of Insurance Commissioners (NAIC) or some other body. A mini-med plan wouldn’t cut it. Benefits that were declined previously such as maternity and mental health couldn’t be accessed later unless you can pass underwriting.
“Families with employee health coverage could keep their existing coverage rather than trade it for a tax credit.”
It wouldn’t be acceptable to employers. Private exchanges require the delivery of all or almost all employees in order to offer coverage on a community rated basis and employers don’t want to get stuck paying almost as much as they did before if the healthiest employees all leave and take their contributions with them and opt for the tax credit instead.
“Why not make it a bold idea by depositing a uniform tax credit into an HSA so everybody without employer coverage has one.”
It further erodes the tax base and puts upward pressure on marginal income tax rates which cause the most economic harm as they increase.
I agree with your comments on the last four subjects in your post.
Thanks for your input Barry, it’s always perceptive. When I mentioned defined benefits I mainly meant allow individuals to buy coverage that has benefits that are capped at some level (say, $1 million or less). But you make a good point about mandated benefits. About a dozen years ago, various estimates found mandated benefits and mandated providers raised the cost about 25%. Of course, that was before guaranteed issue/community rating.
Making sure continuous coverage is creditable is an issue. I agree people should not be allowed to game the system and add benefits later they had declined prior. But, then again, maternity coverage for people with individual insurance costs about what a pregnancy cost — suggesting insurers quickly adapted to the fact that most people who want an optional benefit expect to use it.
I suppose you could preclude people with employer coverage from being eligible for a tax credit. But I’d hate to take that option away from people. At the same time you could give employers the tax credit, but that would necessitate revoking the employee health insurance tax exclusion. Most employees would rather keep their tax exclusion (for good or bad).
I agree that tax exclusions erode the tax base. Currently, we provide an open-ended exclusion for third party insurance. It would be less damaging to the health care system to provide a tax exclusion for self-insurance.
Devon – From 1993 to 2008, my employer’s health insurance plan, which was self-funded, had a $1 million lifetime limit on medical benefits. Early in my tenure, I had a colleague who struggled with HIV/AIDS for a number of years and ultimately died from it. His medical bills surpassed the $1 million ceiling but the employer paid them anyway. Our benefits cap was finally raised to $5 million in 2009 or thereabouts.
It’s not hard to envision situations that can easily generate bills that would surpass a $1 million lifetime limit. These include low birth weight premature infants, especially multiple births, the situation I referred to above, some cancers, rare diseases like cystic fibrosis and Gaucher’s among others. If there is a defined lifetime benefit limit such as $1 million, I suppose the insurer could agree to pay some claims in excess of the limit out of goodwill. To refuse to pay such claims would be essentially telling the patient that it’s time for him or her to die.
At the same time, I think dollar limits and treatment day limits within reason are appropriate in the areas of mental health and alcohol and drug abuse. In the former, it’s extremely difficult if not impossible, to measure progress. In the latter, relapses are all too common. Medicare sets limits on hospital days over a lifetime for good reason. Legislators were not prepared to require taxpayers to pay for patients who could potentially languish in a hospital for years at a time.
In the end, we need to set limits on healthcare but we need to do it fairly, morally and ethically. I don’t think a rigid dollar limit on claims over a lifetime meets that standard.
That’s true — especially because many of those bills actually get paid by insurers. I’ve heard from a benefits consultant that prior to Obamacare his self-insured employer plans only rarely experienced claims of more than $1 in any given year. Since Obamacare the number of claims that surpass that threshold have increased by several times. As an economist, I suspect the ban on annual or lifetime caps on benefits is partly to blame.
I agree that arbitrary limits are a sensitive issue. But dollars tend to be the easiest metric to measure; dollars are also a metric that enrollees value the most — since it’s what we all use to pay our mortgage.
Devon — It would be interesting to learn just what diseases and conditions those very high cost claims related to. To what extent did they relate to low birth weight premature babies and to what extent were extremely expensive specialty drugs a factor?
Technology continues to improve to treat the former and quite a few more very expensive drugs entered the market since the ACA became law in 2010. So, maybe the high costs are more innovation driven than ACA driven.
Separately, it’s far more common to hit the $1 million claims threshold over a lifetime than to hit it in a single year. Maybe Ron can tell us how many of his clients had $1 million or more spent on them during the time they were insured by a policy he sold to them.
I would say it’s a combination of both. The fact that there are no limits on benefits reinforces the notion that there should be no limits on the amount of resources spent on care. Thus, there is less constraint on drug prices and other medical interventions.
Some new specialty drugs are miracle drugs, while others are merely expensive. I don’t know the exact percentage of drug spending in 2010 that was spent on specialty drugs. But I bet it was less than half what it is today. Today one-third of drug spending is on specialty drugs which only account for 1% of drugs prescribed. By contrast, 88% of drugs filled are generic drugs, which only accounts for 28% of drug spending. We are spending more on the 1% (i.e. specialty drugs) than 88% (generic drugs). We spend nearly as much on 1% as we do on the 11% of name-brand drugs.The sky seems to be the limit on prices for some of these therapies.
Everyone is in favor of medical advances. But at some point even the best medical advances become unaffordable. I obviously don’t have the exact answer where the boundary lies. But it is likely South of spending half our GDP on health care.
This is a very interesting discussion.
I don’t think there has to be a rigid top $ amount limit, but I would think lacking such a limit would force the actuary into creating a premium higher than necessary.
I question whether insurers need offer only one limit or more and who should make the decision of where the limits lie? Government? Another entity?
Another question on low birth weight infants plagues me. At least in the recent past some countries didn’t consider a low birthweight infant a newborn and instead let the infant die and then called the delivery a miscarriage. That saves a lot of money, but many call our system barbaric because of costs. Those extraordinarily high costs are in part caused by saving so many of these low birthweight infants.
That leads us to question if one is determining limits should we do what these other countries do or not? (I am not advocating anything) Following which we have to consider that if we won’t give an alcoholic a new liver because of cost and the belief that he caused it should society pay for multiple birth weight infants due to fertility treatments where that problem is known well in advance?
Should the free market prevail in healthcare? Should we remove the failures of the free market and help the failures in a different fashion?
There is a fascinating essay in the most recent issue of Health Affairs. The thrust of it relates to how CMS’ financial penalties for too many readmissions adversely and unfairly affect safety net hospitals.
The patient was a 41 year old African American recently released from prison. He had congestive heart failure, abused drugs, was non-compliant with his medication regimen and was homeless. He showed up at several different emergency rooms in Chicago and was admitted to the hospital six or seven times in an eight week period. Despite the best efforts of the entire care team at the safety net hospital that knew him best, he died at age 42 after racking up enormous costs.
The author notes that complex CHF patients with other co-morbidities including hypertension can be expensive to treat appear frequently at hospital emergency rooms and often fail to take their medications and don’t adhere to a proper diet. If such patients also have a substance abuse problem or a mental illness, their healthcare costs double on average. If they have both problems, their costs triple. If they have both problems and are also homeless, their costs increase by ten times. I’m not sure what the answer is in these cases but the essay’s author did make the point that an interoperable electronic records system would be helpful for the hospitals treating such patients so duplicate testing can be avoided. It was also noted that in the case of the homeless patients, solving their housing problem could save a lot of healthcare costs on the back end.
If we’re going to try to set reasonable and fair limits, I think the focus should be more on the elderly approaching the end of life and less on preemies and neonates who are at the beginning of life. Just drawing the elderly patients out about what their hopes, goals and fears are and what care they want and don’t want at the end of life would be enormously helpful. Of course, that documentation needs to be available to doctors and hospitals when needed and family members and health care proxies need to be fully aware of it. End of life discussions with doctors are much more acceptable to the public now than when the ACA was first being debated and the whole controversy around death panels erupted. The challenges are paying doctors adequately for their time and giving many of them the training that they say they need to handle the discussions in the most appropriate way.
Three points:
While interoperable electronic records may have reduced this drug addicted patient’s costs it could have increased costs to everyone else which results in higher overall costs. I doubt very much of great cost was duplicated unnecessarily. If it was they should have listed all the costs and highlighted those that were not necessary.
Many of the homeless that live on the streets at least in NYC refuse shelters provided for free.
This end of life discussion you have frequently talked about is done and should be done as seen fit by the doctor and the patient. This type of discussion is specific to the patient and his disease and most often occurs at a crisis point. The usual signing of a form can be done by anyone at anytime and anyone can have that discussion. If the patient has questions they can then speak to their physician at will especially if the topic hasn’t already been discussed.
Oddly enough when my brother tried to hand-deliver the hospital a signed DNR form for my father, the hospital refused to accept it from him. But for reasons that defy logic, they said they could accept a fax from him. It was the same form.
Search me Devon, when my mom was asked in front of me about the end of life situation she told the nurse a time interval after which she would permit a DNR. There was no way to manage that very good decision, but the computer wouldn’t let the nurse continue until after the yes or no question was asked. It was virtually forcing the less knowledgeable into a DNR situation. My mom finally answered no to the DNR and we went on from there. However, it appeared to me that the computer questions did not permit the appropriate answers so the information was not totally correct nor did it reflect the mindset of the patient. I would hate to make an important decision based upon some of the answers the computer forced.
“End of life discussions with doctors… The challenges are … giving many of them the training that they say they need to handle the discussions in the most appropriate way.”
I am amazed at the number of times we hear additions to the curriculums of the medical schools that train physicians. Presently it takes 4 years of medical school though some are considering reducing it to 3. Some even suggest that other medical professionals take over many of the tasks of the general Internist who had 4 years of medical school and 3 years of residency.
What I wish to ask when someone suggests that physicians be trained in still another subject if when studying the heart they should only study 3 of the 4 valves to make room for the new codified subject matter. Then I want to know if there is a best way of discussing end of life situations and how do we determine who the experts are?
Barry, again you are talking about insurance companies paying expenses that they are not legally required to pay. You are the only person in my lifetime that makes this claim.
Nobody had a very low $1 million lifetime maximum, except some employer-based plans, before Obamacare. It was not a problem.
You are correct that mental health parity in Obamacare is a problem. It’s nice to have you admit this. Those liver transplants for alcoholics cost $700,000. Maybe we should raise the tax on beer if we keep Obamacare.
Barry, the patient situation you describe was not all that rare in the days prior to ACA. At that time many plans still had fixed-dollar limits on lifetime benefits. ACA now mandates unlimited lifetime benefits. Before ACA I was directly involved in several of these situations during my tenure as head of benefits for a very large company while living in New York. Many were preemies or neonates. Our plan, like yours, was – is – self-funded.
Back then if a plan sponsor asked its insurer/administrator to make extra-contractual payments on behalf of a particularly distressed patient, most insurers/administrators would agree under certain well-defined conditions. As I recall, one of the conditions was that the payments could not be made from “plan assets” because of ERISA. Also if the plan sponsor simply reimbursed the insured person directly, that would be taxable income to the insured – which is an important reason why everyone jumped thru hoops to find a way to funnel such payments thru the benefits plan.
It’s simpler now under ACA and more fair. But as you suggest, the real issue is finding ethical ways to set limits on the medical care itself. Our country and its leadership have ducked this issue for decades.
Individual Medical (IM) had more than $1 million lifetime maximum before Obamacare. TIME Insurance had $8 million but the smallest plans had at least $2 million. There are a lot of problems with employer-based plans and lifetime maximums is not the worst of their problems because a very sick employee’s insurance was simply terminated because of the 30-hour-week Eligibility Requirement.
Corporate America simply terminates older employees because their health insurance costs are more. Employer-based health insurance discriminates against older employees. I’m sure Barry will point out how much Corporations love their workers and that Employers wouldn’t legally kill employees or fire them just to save money.
Also, it’s illegal but insurance company reps tell the employers which employees are having the most claims and these employees are terminated for other reasons.
An HMO gate-keeper not approving claims is a much bigger problem to really sick people than lifetime maximums.
John – Thanks for the explanation of how these costs in excess of plan limits are handled for self-funded health insurance plans governed by ERISA rules.
I suspect that one potential strategy to set limits related to high cost specialty drugs is for PBM’s and insurers to just refuse to cover those that are only marginally better than much less expensive alternatives already in the marketplace. The few patients who can afford to self-pay can, of course, do so if they want to.
I find it interesting that since 2010, per capita Medicare cost growth has slowed dramatically to about 1% per year on average. Medicare patients are presumably among the higher users of expensive specialty drugs. However, more seniors now execute living wills or advance directives than in the past. Most hospitals now have palliative care programs and more seniors are choosing hospice care sooner as the end of life approaches. Insurers are also moving toward more value based payment models and away from fee for service and they are also making more intensive use of nurse case managers to better coordinate care for their highest cost, most complex patients.
I think there is at least some reason for optimism on the subject of moderating the growth in healthcare costs but the increase in the number of high cost specialty drugs coming into the market needs more scrutiny and focus as to which of them we should cover and pay for and which ones we should just say no and exclude from the PBM or insurer formulary.
“Require binding arbitration or mediation to resolve billing disputes.”
Why is the “libertarian view” expressed here as binding arbitration rather than arbitration where one could agree to binding arbitration or refuse accepting non binding arbitration, where access to the courts is preserved.
I’m not in favor of telling doctors what they can charge. I am in favor of giving both doctors and patients an incentive to come to an agreement ahead of time. The primary purpose of arbitration would be to determine whether both parties made a good faith effort to come to an agreement.
Patients who tried to avoid signing an agreement would be disadvantaged in fee disputes. Doctors who attempt to avoid disclosing fees would be disadvantaged in fee disputes. Doctors who do not want to submit to binding arbitration could possibly disclose that head of time and officially decline. But there would need to be provisions for when a doctor declines. A doctor declining arbitration might be subject to greater transparency requirements. As we’ve discussed in the past on this blog, contract law requires a meeting of the minds. If a party wants the right to litigate in court, they need to meet that standard — which is usually evidenced by a signed agreement.
Devon, I was actually concerned with the patient being forced into binding arbitration not the doctor though my libertarian instincts tell me that both should have access to the courts. The physician or group usually has more power than the individual patient. Experience has demonstrated some interesting questions about the arbitration process at Kaiser. The questions raised appear potentially legitimate that Kaiser might have too much influence on the arbitration process that they use.
I suppose a patient could decline binding arbitration — of course the doctor may not want to treat the patient under those conditions. My desire for something besides the court system is to have an impartial judge and to remove the transaction costs of resolving disputes. The arbitrator should be independent of both patients and providers. My experience with arbitration is that it is still expensive. In the past we’ve also discussed mediation as an alternative (but also the tendency of mediators to split the difference).
Take away the right to sue! Golden Rule, which Devon loves, took away the right to sue. I sold tons of policies because of this clause.
I say lets stop the billions of wasted tax dollars with incompetent non-taxed organizations supporting Hillary and instead vote for taxing all non-profits and make a claim for freedom. Tax the non-profits!
Lifetime maximums is not a problem but HMOs that will not pay anything for out of network charges is a yuge problem and should be examined. Lifetime maximum charges is only considered by the left. TIME insurance maximum benefit was $3 million and it cost $4 to take it to $8 million. The additional premium was nothing.
When will Devon examine HMOs? (Hillary)
Devon, the medical establishment already has tremendous power over the patient and the patient has little power over the medical establishment. Taking away the patient’s one stick (other than word of mouth) seems unfair to me. I hate the idea of being able to push a person to give up a fundamental right. (That right with regard to mandatory arbitration has already been ruled upon by the SC and mandatory arbitration was found Constitutional by the SC at least within the scope of the cases presented. I wonder if the SC would have a different outcome when it involves an individual’s life and body.)
“But it was apparent that none of the smart guys in health policy who I know were locked in the room when his proposal was formulated (including Avik Roy-AEI, Michael Cannon-Cato, Merrill Matthews-IPI and Peter Suderman-Reason).”
These guys are not that smart, like Trump says, “Incompetent!” As a matter of fact the average American doesn’t have a clue what Republican health care reform is because these “smart people” voice is so small — even though it was discussed, ?, in both of Obama’s Presidential elections, pitiful.
CATO’s Cannon is so confused he says that a refundable age-based tax credit for the purchase of Individual Medical (IM) is a government mandate. So never pay any attention to Cannon again.
I think it’s perfect that Trump doesn’t care enough about health care policy to give it much thought. President Trump will sign any Obamacare replacement bill that comes along. If Trump doesn’t care about health care policy that means he is not bought off by the large insurance companies – like evil Blue Cross.
I assume we all agree that the non-profit think tanks that are suppose to be educating Americans about free markets in health care reform have been bought off and become traitors to FREEDOM or they are simply incompetent like Trump calls all of the politicians and the current status quo.
Thanks to Devon for a stimulating article.
I have several comments but I will make them in separate posts.
Regarding price transparency, Devon, your suggestions (which I like a lot) would not be out of place in a speech by Ralph Nader or Elizabeth Warren, or for that matter the California Democratic caucus:
-banning non disclosure arrangements
– banning balance billing if no prior quoting
– making collection more difficult for surprise bills
– binding arbitration for billing disputes
– site neutral payments by insurers (which would wipe out
the vicious ‘facility fees’ now so common with
hospital-owned medical practices.)
My own writing is full of combinations from left and right wing sources, so I again I appreciate what you are doing here.
These are issues that Hillary, Warren, Nader and numerous other Democrats should worry about because these effect consumers (who are mostly treated by nonprofit organizations and state-regulated providers). Republicans should worry about them as well. I would think the Federal Trade Commission should also worry about these issues.
Where I probably differ from Hillary et al. is that I prefer incentives to heavy-handed regulations. I’m not opposed to firms wanting to keep proprietary information secret. But when firms’ goal is to reduce competition it begins to bother me. I also don’t want to regulate prices. A good compromise is to make it harder to collect if there is no meeting of the minds — the standard for contract law.
I don’t necessarily want to take away anyone’s the right to the court system. But I also don’t want to disadvantage consumers when they come up against a deep-pocket providers/hospitals who could make it their business model to balance bill high fees and threaten to sue using in-house council. I want to reduce the transaction costs of resolving disputes.
Site-neutral payments is a whole other matter. MedPAC has proposed this. Of course, I would not force hospitals to accept this deal. They would be welcome to look elsewhere for paying customers. Private insurers may have to negotiate facilities fees with area providers.
Devon, your suggestions to improve the individual insurance market are both hit and miss in my opinion, as follows:
– Not all ACA plans have high deductibles. You can buy a gold plan with a $500 deductible and $30 copays for office visits in any state exchange today.
Now because the subsidies in ACA plans are based on silver plans, the gold plans have only about 7 per cent of the market. Also older persons without subsidies find the gold plans to be unaffordable.
There are two proposals to improve this right now. Hillary Clinton would add three free sick visits to all policies. The Urban League would make the subsidies tier onto gold plans. Also, people with incomes under 250% of poverty can get cost-sharing reductions right now.
I would also add that in general, the individual market plans have always had higher deductibles than the group market plans. The ACA did not improve this, but did not make it worse.
Now there is a core problem with ACA plans, and you recognize it throughout your article. The problem is that the risk pool of these plans is getting older and sicker, and proposals like Hillary’s and the Urban League’s are only bandaids.
Your not-so-secret goal is to basically clear out some of the sickest persons from the risk pool. You suggest that we once again allow insurers to underwrite, but we cushion that with guaranteed renewability, risk-based tax credits, and high risk pools.
The tax credits and high risk pools will cost many billions of dollars if they are done honestly. You do not usually support tax increases, so I am curious as to how you would pay for these items. If your source of payment is to tax part of employer paid premiums, I am not opposed but I am skeptical as to passage. If your source of payment is lower subsidies in the ACA, I think you trade one problem for another.
Also, I can see a real bureaucratic morass for persons with health problems who come into the individual market with your reforms. First they would have to prove they had continuous coverage, then they would have to apply for risk based tax credits, and then maybe see if they make it into the high risk pool. I went through a process like that when I came off COBRA a few years ago, and an awful lot of persons would have given up before I did.
My own solution is to transit high risk persons into Medicare, not for free but with them paying a community rated premium. Let’s just face the fact that the individual insurers do not want them.
Bob – Thanks for your comments and I agree with much of what you said.
One aspect of guaranteed renewability assuming prior continuous coverage is that insurers would have an incentive to provide really lousy service if they know they can’t make money on you. They would hope you will take your business elsewhere when the policy year ends. They may even have a department consisting of very nice navigators to help you do that.
I prefer honestly funded high risk pools to transitioning high risk people into Medicare and I would pay for it explicitly with a combination of higher taxes and a surcharge on insurance premiums that would recapture perhaps half of the savings that healthy people would realize from getting all the high risk people out of the pools that the healthy folks are able to buy into.
My fear about high risk pools, even if reasonably well funded, is that once insurers know that such pools exist, they will find clever ways to boot people they can no longer make money on out of their pool so taxpayers can cover them.
I think guaranteed issue coupled with a mandate to purchase insurance could work if the penalty for remaining uninsured were reasonably close to the cost of the lowest priced plan in the market and minimum creditable coverage could be redefined from an actuarial value of 60% under the ACA to maybe 50% or even 40%.. Age rating should also be 6 to 1 instead of 3 to 1 so young people don’t pay more than the actuarial risk attributable to their age group. Subsidies should ensure that nobody pays more than 10% of gross income from all sources regardless of income. To hold down costs, the subsidy could be based on plans with an actuarial value in the 60%-65% range as compared to 70% (Silver level) under the ACA.
I’ve also never supported mental health and substance abuse parity for reasons that I mentioned in an earlier post – it’s hard or even impossible to accurately measure progress in the case of mental health and there are way too many relapses in alcohol and drug abuse treatment programs. People could be treated ineffectively forever at very high cost if there are no limits here. I also don’t support providing preventive services and several doctor visits a year at no costs because it smacks of the equivalent of paying for oil changes for your car. People should be able to handle that themselves. It only contributes to the cost of the insurance if its included.
From these blog discussions I’ve come to the conclusion it is very difficult to merely design one-size-fits-all insurance plans that deal with high-cost patients. Obamacare attempts to deal with the problem by forcing huge cross-subsidies. But if a small segment of the populations generates huge medical bills, we also need to better manage that small segment of the population.
So I’m not trying to empty all the sick people from the risk pools. I am trying to better manage those who are too sick to get into the risk pools.
I’ve had numerous meetings with people who are part of Accountable Care Organizations (ACOs). Their business model can be summed up as saving money on high-cost patients by keeping them out of the hospital. They believe that high risk pools must use care coordination and chronic disease management. To keep subsidies, it might require enrollee adhere to protocols for their conditions.
On this blog I’ve also tried to stimulate unpleasant conversations about how much is enough? I believe this is an important thought experiment because it’s something most people don’t want to think about. But if there are no limits to the treatments society believes health plans should cover, providers will necessarily find increasingly marginal treatments available at huge costs for patients unlikely to benefit for very long.
There is no way to adequately control costs unless utilization is controlled. There are numerous ways of controlling utilization, but they all have one thing in common. Necessary care gets included in the unnecessary care group. There is no way out of that. Additionally what is necessary for one person may not be as necessary for another. Thus we find even more necessary care in the unnecessary throw away box.
Doctors can only provide a gross estimate of necessary care.
Utilization review committees have less of an ability to figure this problem out, but are worse than the treating doctors and frequently their intent is to cut down on expensive procedures.
Guidelines can be helpful if utilized as guidelines, but not so if they are looked at in a fashion that says best medical care. They frequently are not up to date, controversial, and frequently not patient specific.
Who is in the best position to determine medical necessity? The patient who has skin in the game along with his advisors. What economic system produces low prices, innovation and goods that satisfy consumers? The free market system. That is what we need more of and if people fall out of that system handle them in a different fashion without compromising the free market sector. Since free market competition reduces prices to such a great extent using the free market would lead to lower premiums which would mean less people falling outside of the healthcare system.
I agree. If everyone had MediSave accounts like in Singapore and catastrophic coverage to protect people only against complete financial ruin, our health care system would be much more competitive.
The problem is that some of these individuals have costs so high they cannot get health insurance. If they cannot get coverage, they may not be able to afford their own care either.
Basically we are talking about how to align the incentives of the 20% who generate 80% of all medical bills. Even worse is how to incent the 5% who are responsible for 50% of medical spending. The 15% of patients (i.e. 20% – 5%)who generate 30% of bills are probably ones who can be motivated to better manage their own care. The 5% (and especially the 1% who generate 20% of all bills) are probably beyond self-management since they would have long exhausted all their own resources.
The sickest 5% cost a lot partly because our health care system is so inefficient. But also because they are very sick.
“The problem is that some of these individuals have costs so high they cannot get health insurance. ”
That is why we have to provide a mechanism so that once a person has insurance he has a reasonable way of not losing it or being forced out.
We also have to consider that many of the problems faced are problems that were unknown at the time those people were insurable so they are not the problem.
Many of those that are exceptionally high costs have money that can offset some of the costs of the group and this can be done in many fashions. One can utilize deductibles (or variable deductibles) and copays so they even remain in the free market system. The free market system will gradually lower prices so that more people will be able to afford the premiums and deductibles/ copay.
Lastly we have to remember if a large number of people are uninsurable within a group of insured then the group itself is uninsurable. This marketplace tells us that we are over insuring and need to set our sights lower.
Al says, “That is why we have to provide a mechanism so that once a person has insurance he has a reasonable way of not losing it or being forced out.”
That is not the business model of employer-based health insurance. Once the worker gets sick the employer-based insurance companies want to dump them on the backs of the taxpayer. But what really happens is the sick are dumped onto the Individual Medical (IM) and this small group of people are responsible to pay the bills.
People are so confused that they want “insurance” to pay $400,000 for a person who already has cancer. What they really want is a way to pay these large expenses but it should not be called insurance.
Some people see no problem in employer-based health insurance terminating their sick clients. That is just the way that it is, incredible.
Ron, for the most part you are correct and that is just one reason third party payer needs to disappear.
“My own solution is to transit high risk persons into Medicare,”
Why not transit them to Medicaid? That has to be a question as well. I’m not advocating either position, but why select one. Remember Medicare can end up being converted into Medicaid if not carefully handled. If I am correct the initial ACA budgeting showed increases in Medicaid funding and decreases in Medicare funding so eventually Medicaid would have more of the dollars. If you like Medicare be careful about using it as a dumping ground.
1. Quick note to Al:
Why do I propose adding the sickest persons to Medicare, and not Medicaid?
Because Medicare is uniform across the states, and Medicare is not cut back when states need to trim their budgets. Medicare does not subject its recipients to means testing and the disgusting practice of estate recovery.
The addition of dialysis patients to Medicare has not been cheap, but it has been smooth for all the participants. I have yet to read a financial horror story about a dialysis patient, not that none have happened but if so I have missed them.
2. Additional note to Devon:
One of your comments returns to an old theme of yours….that we need to “incent” the 5 per cent of patients who are most expensive.
I would place ‘incenting’ rather low on my own list of strategies, and here is why:
– as Barry noted earlier, a large number of the most expensive patients are expensive because they take specialty drugs.
If someone has cancer there are damn few drugs that work at all. If we want to cut costs, we should set price ceilings for these drugs like almost all other nations. We should control prices before we subject the cancer patient to agonizing and possibly dangerous choices.
– another characteristic of the top 5% spenders is that they are hospitalized often, and they stay in the hospital longer than others.
Why not put as many of them as possible into veteran’s hospitals, which the public is already paying for? The scandals at the VA mostly involve doctor appointments, not hospitals. I spent many months visiting my father at a VA hospital in recent years, and there were always empty beds.
The whole discussion of expensive hospital patients is partly due to the way we finance American hospitals, i.e. by user fees. Let me put it this way:
Every year a large city spends millions on its fire department. There is no blaming of the homes and businesses which had the largest fires. All we really know is the total budget of the fire department. (of course we want to stop arson and carelessness.)
But we pay for hospitals one patient at a time. The poor drunk with congestive heart failure goes to the ER ten times a year, so we focus on his behavior and want to incent him. But if the hospital had a global budget or was tax financed like the VA hospital, we would not focus on one patient and try to incent them.
I apologize if my last argument is rather sketchy, but I think there is substance there. I have always been troubled when I read that a very sick patient or premature baby “cost our health system a million dollars.” We did not build a special room for them in the hospital. We did not hire a private nurse for them. It is more accurate to say
the hospital recovered one million dollars of its annual budget on that patient.
Bob, with regard to the “sickest persons” and with regard to Joe the low income fellow who works hard and pays taxes to support his wife and growing family of 4 while hoping to save enough money to send all his kids to college:
estate recovery: Mr. Big Shot earns a lot of money spending tons of it on prostitutes and living high on the hog while being behind on alimony and child support but can’t buy insurance because he is one of the “sickest persons”. He goes on your Medicare plan at taxpayer expense which is paid by Joe the low income fellow. Mr. Big Shot dies and the estate at the bequest of Mr. Big Shot goes to his partner Mrs. rich who true to her name is rich as well.
What is the logic behind not wanting to recover the money for the taxpayer and Joe the low income fellow? Don’t you think that whatever money is left in the estate should go to paying Mr. Big Shot’s ‘debt’?
means testing: Since Joe and others are paying Mr. Big Shot’s bill and Mr. Big Shot has so much more money why do you wish the flow of money in this case be permitted to flow uphill to the rich rather than downhill to the one’s paying the bill?
Medicaid vs Medicare: You want Mr. Big Shot to go on Medicare because his premiums would be too high to normally insure. I understand that along with a few other things you might mention. However, when Joe the low income fellow loses his job he is means tested and since without the job the premiums would be too high Joe is placed on Medicaid.
Why do you favor the lying, cheating, child abandoning father that spends his money on high living and prostitutes rather than Joe the low income fellow who only wants to support his wife and children while he is trying to prepare his children for college?
Regarding “we should set price ceilings for these drugs like almost all other nations. ”
The discovery of medications for market in the US is high risk. It requires capital. The capital investors that support such risk don’t care what sector of the economy they invest in. As the benefits for the risk fall so does the investment in R&D for pharmaceuticals. Having said that we have to recognize that our policies have permitted pharmaceutical companies to raise prices to ridiculous levels and those especially high profit areas will stimulate R&D in those same areas.
Note on VA hospitals: Rather than building new VA hospitals they should be scaling down and renting space from hospitals that are not fully filled. Veterans should be permitted to use the hospital systems outside the VA.
Re: “recovered one million dollars of its annual budget on that patient” That is assuming the hospital was reimbursed by one million dollars or reimbursed at all. If the hospital is reimbursed the Million dollars by insurance then our premiums go up.
I don’t like the idea of Medicare becoming the insurer of last resort. The program is already estimated to consume 9% of GPD within 75 years. I also do not have a problem with asset recovery in Medicaid. Granted, it doesn’t recover that much. But I’ve seen numerous situations where assets were purposely diverted and the only asset left was a house.
Thanks Al for your comments.
I disagree strongly with one of your paragraphs, the one regarding the prices of prescription drugs.
There are other ways to stimulate research, besides price gouging of sick people and their insurers. Dean Baker has been writing about this for years (see the attached, still relevant)
http://prospect.org/article/patent-medicine
Bernie Sanders even proposed a bill that would reward drug inventors with multimillion dollar federal prizes, but then their drug would go generic immediately.
I was hoping to get a rise from someone on the issue of Medicaid estate recovery.
Most persons on Medicaid are actually poor and have been so for many years. If such a person leaves a little $50,000 house to their children, the children should get that house free and clear.
Three persons in MN (one of whom is my neighbor) are making a big stink over the fact that their Medicaid insurance premiums could be recovered after death. These are truck drivers and carpenters who make $18,000 a year so they get Medicaid in a generous state like MN.
There are cases of rich people shuffling assets around to get Medicaid. My belief is that these cases have greatly diminished in the last 5 years.
Many other countries make welfare payments taxable at the time the payments are received. That is a hell of lot more straightforward than the slimy business of estate recovery.
Bob, I am not sure what you disagree with that I said about pharmaceuticals. I know there are other avenues of funding, but there is a limit to the amount of money available and the talent to bring these products to market.
Dealing with patents is another story, but in the end all private companies have to deal with capital investors so once again the risk benefit evaluation has to take place. Changing patent law changes the risk benefit relationship which will impact the flow of money into this sector of the economy.
The author of your article, Dean Baker, perceives funding alternatives and those alternatives can exist simultaneously with the present day pharmaceutical houses so if the idea is good then we should expect some production from them and probably should have seen it already.
Bernie Sanders idea has to be evaluated on a risk to benefit analysis. If the benefit is less than we see today then investment will slow. That is not necessarily a bad thing.
Bob, I discussed the peculiar situations of Mr, Big Shot and Joe the low income fellow involving pooled money especially of the involuntary type. You didn’t respond. You did respond in relative terms with regard to just poor people, but they are not the only ones in that group. Then you made the loss of the $50,000 house more important to the children of the deceased than to the program which would have been better funded if that $50,000 had been returned. In essence your generosity transferred $50,000 of Medicaid funds to children that may have had less needs than those that would have benefited if the $50,000 were put back into the Medicaid pool. Being generous on one side of the equation with other people’s money means that someone else is being hurt.
Bob – There are lawyers who specialize in issues related to eldercare. While I’m certainly no expert on Medicaid, my perception is that there are still plenty of middle class and upper class people who consult eldercare attorneys to help them set up trusts and implement other strategies to transfer assets out of the names of older family members so they can qualify for Medicaid coverage of long term custodial care in a skilled nursing or assisted living facility which, of course, Medicare doesn’t cover except under certain very limited circumstances and even then only for a maximum of 100 days.
I know most states have implemented lookback rules in recent years that look for asset transfers as far back as three years before an individual seeks Medicaid coverage for long term care. My experience is that no matter what the program, if there is government money available to help pay the bill, there will be plenty of people who will figure out clever ways to game the system to claim benefits that the law didn’t intend them to be eligible for and a lot of these folks will actually be proud of themselves for getting taxpayers to pay bills that they should have paid for themselves. Under these circumstances, I don’t think estate recovery rules are such a bad idea.
I would also add that if Medicare had an estate recovery rule that applied once cumulative medical claims passed a certain reasonable maximum threshold, adult children who can’t let go when their loved one is terminally ill and doctors are telling them nothing more can be done, they might be more willing to let go instead of insisting on maintain their family member on the vent and the PEG tube. Decision making can suddenly become more focused and rational when their own money is on the line rather than just taxpayers’ money.
Barry that’s an interesting idea. I don’t believe it would recoup much. But the threat might create some societal benefits — such as you describe.
With respect to Medicaid LTC, I think the threat of asset recovery probably prompts family members to assist mom and dad more than they otherwise would.
Barry, in a “partnership” LTC policy, LTC pays first, up to its policy limits, which directly reduces state Medicaid costs. I assume your plan is a partnership plan, because NY is a partnership state – as are most states.
The incentive for individuals to purchase such insurance is that the state allows the LTC policyholder to shelter assets up to the amount of the LTC benefits paid. That is, the state will exclude such assets from any recovery in the event the individual is approved for Medicaid. It’s a form of COB. Regardless of this incentive, an LTC policy makes little sense if the individual has no significant assets in the first place.
The partnership technique strikes me as a much more orderly and humane way of dealing with estate assets, vs. any sort of estate recovery clawbacks that could possibly be devised,
John — My wife and I bought our LTC insurance plans in NJ and we bought the insurance because we have assets to protect. I agree that LTC insurance makes little sense for people with no or minimal assets.
I read an article recently that said only about 4.8 million people currently have LTC insurance which is a pretty low percentage of the older population. The article also quoted the Genworth CEO stating that Genworth has cumulatively lost $2 billion on LTC insurance and continues to lose $100-$150 million per year while 85% of policyholders are choosing to pay the sharp increase in premiums. Another 9% chose a lower benefit alternative while 6% let their policy lapse. The insurance is just too expensive for most people to afford.
Let me explain why I am opposed to estate recovery provisions.
In general, I want government programs to operate like real insurance policies, in this sense:
– all taxpayers pay into the program, generally in proportion to their incomes;
– and any taxpayer can receive benefits.
(Social Security and Medicare come the closest to this ideal.)
A private life insurance company collects premiums from many thousands of customers…and then every year, a few families collect benefits with no questions asked after a death.
If I receive $30,000 when my father dies, the insurance company cannot later go after my estate when I did to ‘recover’ what it paid me.
Estate recovery in effect treats the benefits like a loan, which someday has to paid back by the beneficiary.
I dislike that intensely.
Let’s look at Medicare and Medicaid, which are funded mainly from federal and state income taxes. (plus the Medicare payroll tax.) A middle class person has been paying something like 5-6 of their income for all their earning years for these programs.
If this person needs assistance for medical and/or nursing home costs, they have paid their share. The benefits they receive should be treated as a ‘loan’ to be recovered.
With me, this attitude is not just for medical programs.
I am disgusted with the federal student loan program, and the ability of collectors to go after the parents of a student who dies owing college debts.
If we want to help students, we should raise taxes and then give them money in grants or free tuition. Social programs should be funded with taxes, not loans.
If we cannot get a majority to raise taxes, then don’t do the program. The sun will still come up tomorrow.
In terms of nursing home costs, I have long advocated a payroll tax increase such as Germany enacted about 15 years ago. The Germans added long term care to their standard Medicare benefit package.
Instead, we in America have tiptoed around encouraging private insurance (a massive failure in terms of weak penetration and broke insurers), and then trying to hold down Medicaid spending with asset tests and estate recovery programs, and then the unfunded and timid CLASS program in the original ACA law.
Social insurance works, if we have the honesty to recognize the costs and assess the taxes.
Bob – I don’t think the life insurance analogy is appropriate. For large populations, life expectancy can be predicted with a high degree of accuracy. The insurer knows its costs for underwriting, marketing, advertising and annual billing. Investment returns can vary from projections, however. The policy calls for a certain sum to be paid upon death in exchange for a specified premium. If the policy lapses, no benefits are payable beyond cash surrender value, if any.
In healthcare, people with similar medical issues could be treated very differently with huge variations in cost depending on what the doctor thinks is most appropriate, patient and family preferences, and medical input costs that can vary regionally plus the care setting – hospital, outpatient facility, doctor’s office, etc. I don’t think lifetime benefit limits are unreasonable with estate recovery beyond that threshold.
Health insurance, along with college tuition, can be priced. When you say income based taxation should pay for health insurance, it means that the corporate executive who makes $10 million per year should pay $1 million in taxes, based on 10% of income, for a family health insurance plan that is worth no more than $30K even for gold plated coverage. I don’t like it. All the taxes you want to cover health insurance, college tuition and long term care add up in a hurry.
You’re basically saying you want us to be like Europe with the high tax burden that goes with it. The Europeans may be willing to trade high taxes for greater economic security and less income inequality but that trade also comes at the cost of less economic growth and less opportunity. That’s not a tradeoff most Americans are willing to accept as far as I can tell.
I get what you’re saying, but I do not want long term care to become another entitlement (as opposed to a small but measurable risk in late old age). There is a reason that Medicare will only cover nursing homes for short periods. Nursing home care is expensive. If LTC became an entitlement of Medicare, I can imagine $100,000 being added to the average beneficiary’s lifetime benefits. The threat of asset recovery costs the individual nothing more than not being able to bequest a legacy. It also prompts trade-offs like home care and family members helping out more than they otherwise would.
Something else I should add: about two-thirds of the cost of Medicaid is state spending on long term care. With a public policy to make it more accessible, we can double or triple that cost. Long before I would advocate for more nursing home care I’d look at policies to encourage aging-in-place and home care.
The New York Times had an article several years ago discussing how costly nursing home care is in New York State. It explained how it would be much less expensive for, say, three people to move in together, hire around-the-clock home care and split the cost. I forget the exact calculations, but at that time nursing home care was $10,000 per month (per person). An apartment with rent, utilities, food and around the clock care was far less expensive per person when three people lived together and split the bill. It kind of makes you wonder why an institution where two people share a 20×20 room costs $10,000 per person?
sorry for a major typo….
“the benefits they receive should NOT be treated as a loan to be repaid.”
Not enough coffee this morning.
With respect to drug pricing, especially for specialty drugs, I can think of two useful strategies that could mitigate cost growth. First, PBM’s and insurers could just refuse to include the drug on their formulary if there are viable but slightly less effective alternatives. To win FDA approval, a new drug just has to show that it’s more effective than a placebo but not necessarily significantly better than drugs already in the marketplace.
Regarding cancer drugs in particular, I’ve read that within the last year or so, oncologists are starting to focus more and more on cost-effectiveness when they consider which treatment options to recommend for their patients. Many of these cancer drugs cost $100K per year or per course of treatment or more and oncologists now view it as part of their job to know about those costs.
Several years ago, Memorial Sloan Kettering (MSK) decided to stop using a drug called Zaltrap for metastatic colorectal cancer because it cost twice as much as Avastin and was no more effective. Within four weeks of that decision, Sanofi, the drug’s manufacturer, cut the price in half. We need a lot more of that.
Separately, selling life-saving drugs for a relatively low price to patients in less developed countries is one thing but letting developed countries like those in Western Europe, Canada, Japan and Australia determine what they will pay without absorbing a share of the R&D that went into drug development and sticking the U.S. market with all of that R&D bill is wrong in my opinion.
Barry, I am glad you brought forth strategies that can mitigate cost growth. As I said above “our policies have permitted pharmaceutical companies to raise prices to ridiculous levels” so we shouldn’t blame the vast majority of pharmaceutical companies and investors. It is competition that pushes them to make new products we want and competition that pushes prices in a downward direction. It is our policies that can impede innovation and cause prices to skyrocket to ridiculous levels.
Bob, what you seem to be asking for is free care, free college and whatever, but what about free housing, clothing and food which are the three basics for survival?
Let me move away from healthcare to college loans. Some people go to college while a lot of others don’t. They go to college at least in part because they believe that a college degree will pay them back financially. You object to this debt being a loan. If the student dies you don’t want mom and dad to have to repay the loan.
The parents are under no obligation to repay the loan unless they guaranteed it. If they did then they assumed they would reap a benefit by that loan being given. If you don’t want the cosigners of the loan to pay how about the other students taking out the same type of loan? They benefit with presumed higher incomes so why shouldn’t they pay? You don’t want any of them to pay because you think it offensive.
Who do you make pay? The one that reaps no benefit? The one that has a lower income?
Note to Al:
My beef with student loans is that they are wildly overused, thanks to bipartisan encouragement from the federal government.
We are developing an economy where many young people have to take on debts just to get ready for a career.
We used to have a farm system where most farmers had to borrow money just to put in a crop and hope to make a living. That was called sharecropping, and it had many, many victims over the years.
I want to see more grants and scholarships, not loans.
The wealthiest colleges are already moving in that direction, but state schools have no endowments that they can use for grants.
I am reminded of what Michael Lind said in a recent critique:
“Neoliberals never want government to carry out a program directly, simply and cheaply, when it could be contracted out at greater expense to fee-collecting corporations or banks, who might, just might, recycle some of their rents as campaign contributions to serving politicians.”
It used to be that in order to get a job one had to have a high school degree. Today one needs a college degree and the better jobs require more. Some of the sciences require extensive education that requires a college environment, but a lot of other jobs do not. A lot of the students are graduating with degrees that are useless in the job market today except if one becomes a college professor. The opportunities of those getting certain degrees is severely limited mostly to a professorship, but the professor that taught them and the next class etc. already has the job. The students are supplying him with a job yet will have no job when they graduate.
I want to see grants and federally backed loans only applied to where the individual will benefit society much more than the average person. I was asked by a colleague to donate money to help with tuition at my medical school. I said I would donate a much larger amount if each class were responsible for the next class. If a person goes to medical school knowing that it will give him a higher income than most he should recognize that without that schooling he will earn less. I figured that some of the extra earnings should be returned to charity to help those that might have died or otherwise not fulfilled their dreams. I would pool the money of all those entering on this scholarship and make all of them pay back the debt plus a bit more to expand the charity. For some reason he didn’t like the idea even though he was one of those that had gone to the medical school through the charity of others. In this case those that borrowed would be substantially better off than if they couldn’t get the money and a self funding charitable organization would have been created.
Note to Devon and Barry:
I am still skeptical as the value of estate recovery.
I do not think that it raises enough money to seriously lower the costs of the Medicaid program.
So what is its purpose? As you say, the unspoken purpose is to deter some families with assets from using the program.
This reminds me of the arguments that Charles Murray has been making against food stamps and aid to dependent children….namely, that the programs are legislated and we cannot repeal them, but we should make people ashamed to use them.
This is a very hard problem when it comes to nursing home care. The expenses are huge, even if Medicaid does pay the lowest rates possible. I once read in a social science textbook that “any program which uses paid labor to do things which were once done by families, will be a very expensive program.”
In other words, America is not first society in human history to have dependent old people. (With our medical miracles, we may have more such people than before.)
Other societies expected female children to take care of the oldest, or in some cases used slaves and servants.
I do not see any alternative other than to raise some taxes to help care for the oldest. I see nothing wrong with maybe paying family members to help, and this is actually being done. I just prefer a positive step like that, vs. a draconian step like estate recovery.
Bob — If Medicare covered long term custodial care as a non-means tested entitlement or if it paid family members to provide care in their homes, people would come out of the woodwork probably by the millions to claim benefits. The costs would be astronomical and unaffordable for the society.
Bob and Barry,
I agree that asset recovery doesn’t actually recover very much. But I’ve seen examples from my own area of the country where people had a house or property that could easily have been recovered but wasn’t. In other cases, Miller Trusts and other protective measures were set up and assets disposed of earlier. My late mother used to get irritated that her mother was in a nursing home paying her own way and paying even more to offset the low Medicaid rates other residents. Some of the fellow residents of the nursing home were people we knew. Many had lived much richer lives than my grandmother. But my grandparents (despite being lower middle class) had saved and saved. My mother invested their savings and Medicaid didn’t have to cover her care.
I agree with Barry that the demand would surge. What is now something like one-in-five of people over 85 would probably turn into a much larger proportion. Families who currently take it for granted that Mom will live with them (or they with Mom) in her final years would opt for custodial care. Then, there would be political pressure to enhance the amenities of custodial care, since healthier people would likely begin using it. Arbitrarily handing out a $75,000 to $150,000 benefit to, say, one-fifth of the senior population would definitely boost taxpayers cost.
The current system is expensive — about two-thirds of Medicaid spending in on long term care. Public policy needs to encourage people to take out LTC insurance or pledge their house if they have to turn to taxpayers. It’s not a great system I admit. But your alternative is far more expensive.
Devon – Thanks for your response. I would just like to point out that long term care insurance is unaffordable for most of the population unless you buy it when you’re comparatively young and still healthy. Even then, however, the premium can increase later as the industry has a history of underpricing this product.
My wife and I bought long term care insurance in 2002 and the combined premium started out at around $3,700 per year. Three years ago, we were notified that the premium for our policy class would be increased by 60% over three years (20% per year). This year, when the final 20% increase is implemented, our combined premium will be just shy of $6,000 per year. My insurance broker told me that if we were to apply to buy a comparable policy today at our current age, assuming we could still pass underwriting, the combined premium would be $45,000 per year for five years of coverage at $300 per day with inflation protection!! Also, the industry won’t sell a policy at any price to anyone over the age of 74.
With rising life expectancy, more people than expected have gone on claim and stayed on claim longer than expected as well. At the same time, investment returns that insurers can earn on their bond portfolios are far lower than they were 15 or 20 years ago. In short, long term care insurance is just plain unaffordable for most people though there are some hybrid policies that combine life insurance with long term care benefits that can work for some people.
If it’s not affordable for insurers to underwrite, it’s probably not affordable for taxpayers to underwrite either.
I believe home care needs to be emphasized more than it is. Plus state and federal regulations are doing their best to make costs much higher. When my late mother was in a nursing home, there was an older wing and a newer wing. The older wing was about to be condemned. The state had decided its hallways were not wide enough for supersized gurneys and evacuation in case of fire.
I agree that taxpayers should steer clear of long term custodial care beyond what Medicaid is already paying for.
It used to be the obligation of families to take care of their elderly. In fact years ago at least in NY when a parent was on welfare the children were asked for a portion of their income whether or not their parents were good parents.
As the state takes on more obligations costs rise more than they should. That is the nature of such state intervention. We see it all over and because of benefits we have developed an underground economy. I see one spouse working at a high benefit, low effort and low salary job that places the worker on all sorts of government benefits. That worker takes on an additional underground job. The spouse works and doesn’t pay taxes as well. Thus we see a two income family making excellent money not paying taxes while getting all sorts of benefits. Upon retirement the working spouse gets his retirement benefit and the other spouse half of that while they continue with all sorts of benefits. Then if one needs to enter a nursing home they can at the taxpayer’s expense.
Though we all agree assistance is necessary for some we have to apply some type of brake because the abuses mount up getting worse all the time. Eventually the house of cards fall and we are in real trouble.
“My beef with student loans is that they are wildly overused, thanks to bipartisan encouragement from the federal government.”
Yes and it also makes it much easier for the colleges and universities to raise tuition than it would have been if the loan money weren’t so widely and readily available.
“I want to see more grants and scholarships, not loans.”
I want to see the colleges and universities to a far better job of controlling their costs. Many of them have huge administrative bloat and lots of well-paid tenured faculty who have tiny teaching loads so they can have lots of time to do research and publish esoteric articles in obscure academic journals that maybe four or five people will read.
I think there should be a parallel track that rewards excellent teacher who carry a heavier teaching load but don’t publish as much and maybe not at all depending on the subject they’re teaching.
It also might be useful for students to accumulate at least some of their credits necessary to earn their degree through online learning.
My four years at a well known private university from 1963-1967 cost $14,000 for tuition, room, board, books and incidental expenses combined. That’s about $80-$85K in today’s dollars. Now it’s about $250K. Not many people can afford that even if they tried to diligently save ahead of time.
Devon, I know that my “pitches” for social insurance are often opposed by your readers…however, this blog has a very intelligent readership, so I learn something even when I seem to be “smacked down.”
However, let me go back to your mother’s complaint that wealthier neighbors were getting a better deal on nursing home costs than she was.
If these wealthier neighbors had declared their incomes honestly, and let us assume they did, then these wealthier neighbors paid a lot of money into Medicaid over the years.
I am not disturbed if they collected.
So few Americans have any idea how much they pay for Medicaid (or Medicare, for that matter). That is part of our problem.
Robert Evans of Canada expressed this brilliantly in about 1002. I will try to find his essay and post it.
Bob — I think you could compare people of similar incomes and similar tax burdens and find that some chose to spend most of their money on bigger houses, newer cars nice vacations and other discretionary items while the more frugal among the group saved much more and lived far more modestly.
When nursing home care was needed in old age, those who lived the good life had fewer assets and qualified for the program more easily while the savers were effectively penalized for their frugality by having to spend down the assets they diligently saved as a result of living more modestly.
It’s not hard to perceive a sense of unfairness here but that’s the way the system works.
sorry, Dr Evans wrote in 1992.
Just to be stubborn, Barry, let me make the following proposition.
If a larger part of long term care was paid for with tax dollars, then the family that lived frugally and saved for old age would face roughly the same costs for LTC as the family which lived wastefully.
The frugal family could keep more of their savings and do what they wanted with the money.
This is how Medicare works. Both wealthy and poor families get Part A for free, and pay a monthly premium for Part B that is about $110 a month until you get into truly higher incomes. Seniors who have saved a good deal of money can give that money to their kids or whatever they want, because they do not have to pay much in cash for regular medical bills.
This has been going on among my own aunts and uncles for years.
Now it could be that we are just too darned generous for seniors, and this whole scheme is going to implode. (that would be the Paul Ryan-Devon Herrick position.)
I am not going argue that pro or con right here. All I want to establish that public programs can be good for savers.
“If a larger part of long term care was paid for with tax dollars”
Then the frugal family with greater wealth would be paying even more in taxes and would have to get the same lousy service as the one’s that didn’t work hard and spent other people’s money.
“Both wealthy and poor families get Part A for free”
No, in retirement the wealthier folk pay an additional premium for Medicare and for Part D Medicare even though in life they paid a lot more into the program. The only equal thing is the care given to both equally, but the amount of work and money spent by the frugal hard workerl is much greater.
“public programs can be good for savers.”
Public programs, even if they are good, cost savers and hard workers a lot more than those that spend their money and don’t work very hard if at all. I am not saying we shouldn’t have such programs. I am merely stating that your premise is wrong.
If LTC were paid for with tax dollars, the frugal family would have paid more in taxes and therefore wouldn’t have had as much after tax income left over to save or invest while the higher spending family that saved little or nothing would have lived somewhat less lavishly because they had to pay more in taxes.
Long term care might also be considerably more expensive both per person and in aggregate if tax money were available to pay for it across the population. That’s exactly what happened with higher education, isn’t it?
Well put, Barry. I cannot argue the fact that federal aid seems to raise prices.
As per the following articles:
https://www.aei.org/publication/does-federal-student-aid-cause-tuition-increases-it-certainly-enables-them/
https://mises.org/blog/how-government-regulations-made-healthcare-so-expensive
When I can think of a comeback, I will try one!