Health Policy Advice for Conservatives and Moderates
And maybe for liberals, too.
Here's what's about to happen. All the special interests are ready to cave. Doctors, drug companies, big business — you name it. They're all negotiating the terms of their surrender. Republicans are in total disarray. But hope is not yet lost. This was exactly the situation 15 years ago when Hillary care was defeated by grass roots resistance. The same thing could happen to Obama.
Here's what Obama health reform will mean. The federal government will increase its spending on health care by as much as $1.5 trillion over the next ten years. Employers will face a play-or-pay mandate (to provide insurance or pay a tax). Even so, employer-provided health insurance will unravel. Today's individual market will vanish and perhaps the small group market as well. Medicaid will expand and there may be a Medicare-like plan for the middle class. In time, most people will get government subsidized health insurance through a government regulated "exchange."
httpv://www.youtube.com/watch?v=iXRq4L4BcbQ
You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
What difference will Obama health reform make? Amazingly, but as previously explained at this site, the plan will not even put a dent in the three big problems of cost, quality and access. There are no realistic cost control measures being seriously considered and the additional $150 billion of annual spending will almost certainly exacerbate medical inflation. Despite all the hoopla, there is really nothing in the plan that will significantly increase quality. In fact, in the exchange there will be intense competitive pressure to underprovide to the sick and overprovide to the healthy. Although the plan will probably cut the number of uninsured in half, this will be offset by greater enrollment in Medicaid, which is only marginally better than being uninsured. Even though more people will have insurance, overall access to care may actually decrease.
Insurance will be no more portable than it is today. (Insurance obtained in the exchange will be for only one year at a time.) The medical marketplace will be no more competitive than it is today. There will be more, not less, bureaucratic interference in the practice of medicine.
Why are they doing it? Why would Washington politicians be willing to spend so much money and cause so much upheaval without any realistic prospect of solving the triple problems of cost, quality and access? The answer to that question is purely psychological. I may write about it someday.
So what should conservatives and moderates and even rational liberals do? They can't do much about the main features of this plan — the votes are already there to pass it. They may be able to affect some aspects of the plan, however. In that regard, THE SINGLE MOST IMPORTANT GOAL should be to STOP THE CREATION OF A MIDDLE-CLASS HEALTH CARE ENTITLEMENT.
This issue is different from, but related to, the issue of the public (Medicare-like) plan. The reason you have heard so much about the latter from think tanks, editorial writers, etc., is that it threatens very powerful interests. The reason you haven't heard much about the former is that it does not threaten anyone's short run interests. It does, however, threaten the long term financial health of the country in a big, big way.
Premium support versus out-of-pocket limits. To see how an entitlement can be created, consider two different ways of subsidizing health insurance. One method is premium support. As advocated during the election by Sen. John McCain, for example, each family would receive, say, $5,000 to apply to their health insurance costs. If the premium exceeds that amount (which it almost certainly would) the extra premium would be paid by the family from its own resources.
By contrast, setting out-of-pocket limits on how much the family must pay in premiums and having government pay any extra is a very different type of subsidy. For example, in the Commonwealth Fund version of the Obama plan, people in the exchange would have their premiums limited to 6% or 7% (but certainly no more than 10%) of their income. Take a family earning $50,000 a year. With a 10% cap, the family would pay no more than $5,000 in health insurance premiums. So if a family plan costs, say, $12,000 (about the average in the group market), the extra $7,000 would be paid by the government.
Five bad things immediately emerge from this design:
- First, the family has no interest whatever in cost control. To the contrary, the richer and more generous the plan, the more attractive it will be.
- Second, as with the current system, the real cost of insurance will be hidden. Only the out-of-pocket premium ($5,000) will be transparent. The family's tax cost (to pay for the subsidy it and other families will receive) will be completely invisible.
- Third, since the limit on out-of-pocket insurance premiums applies only in the exchange — and not to employer-provided insurance — there will be irresistible pressure to shift from nonsubsidized employer plans to heavily subsidized plans offered in the exchange. This means, incidentally, a shift from the only part of the market where there is any serious effort at cost control and quality improvement to the part of the market where there is virtually none.
- Fourth, wherever the out-of-pocket limit is set, health care costs will be rising faster than income. That means that with each passing year, more and more people will qualify for the subsidy.
- Fifth, since health care costs are rising faster than income, the cost to the federal government (i.e. taxpayers) will invariably rise through time for every family covered by the subsidy.
How is a new health care entitlement about to be created? A sixth bad thing — in fact the worst of all — would be for the government's share of the premium to become an entitlement for middle-income families. For example, if the promise to limit health insurance premiums to 10% of income becomes codified as a federal commitment, we will have created a middle-class entitlement every bit as worrisome as Medicare. And since health care costs are growing at twice the rate of growth of income, this would establish an unfunded liability that would grow through time. Medicare for the elderly and the disabled already has an unfunded liability of $90 trillion. A middle-class entitlement could double the size of that debt.
The goal, then, should be to make sure there is no such commitment. Federal subsidies for health insurance should not be open-ended entitlements; they should be subject to budgetary rules that are independent of health care costs; and they should be reviewed periodically by Congress.
So why am I raising the alarm now? Because the creation of a middle-class entitlement is happening at this very moment, below the radar screen, while fiscally sensible people seem blissfully unaware.
You said, “As advocated during the election by Sen. John McCain, for example, each family would receive, say, $5,000 to apply to their health insurance costs. If the premium exceeds that amount (which it almost certainly would) the extra premium would be paid by the family from its own resources.”
A 30-year-old couple with 2 children can get HSA health insurance for $207 a month in Lansing, Michigan. Why do you insist on saying health insurance costs over $5000 a year?
We need reform bad. Today employers are “SELLING” insurance to employees with non-licensed fruitcakes without full and proper disclosure. This is a serious ethics violation. We have warnings on a hot cup of coffee but no warnings on dangerous employer-based health insurance. I suggest: “If you enroll on this employer-based health insurance and then get cancer, lose your hair and can not work, you will lose this insurance.”
Parents should choose the insurance on their children instead of some uninformed employer. All employers choose insurance that children lose when they are no longer “Full Time” students. So if your daughter is diagnosed with MS, like my daughter, she can look forward to her health insurance termination letter from your employer.
The above $207 HSA premium allows children to keep their health insurance when they leave home, no questions asked.
I called the RNC today and asked why not one Republican politician in America could get Republican reform and the HSA put to print in an American newspaper this last Sunday. They said they didn’t know.
Propaganda is worst in America today than it was in NAZI Germany in 1939.
I regret that physicians responded to the call to Washington, just like General Lee responded to the call to Appomattox. I guess this is considered to being part of the “solution.”
Ron, I think the $5000 was intended as a sort of HSA contribution, except that premiums were to be paid from this amount as well as other costs. Presumably your low-risk Lansing family could bank the remaining $2516 toward future medical expenses.
I had my own problems with the McCain tax credit, but this wasn’t one of them. I wondered how, for example, one would justify giving the same credit to a childless couple as to a family of six. And a 100%, dollar-for-dollar credit seems to distort medical vs non-medical spending even more than the employer exclusion. Maybe I was missing something about how it would have worked.
Sorry, what individual or small group market are you talking about that would collapse? As far as I can see, there is no true individual market, and the small group market is not much better. One of the major problems with our current health system is that we are supposed to be operating in a free market that does not exist for physicians or patients in most cases.
This is all the more an argument for creating a single payer health care system that eliminates the insurance companies entirely. Under HR 676, currently pending in Congress, which creates an expanded and improved Medicare-for-All financing system, employees would only have to pay 4.75% of their income for comprehensive health care, matched by employers, much less than both pay now for employer provided private health insurance. The $350 billion we save by eliminating insurance company administrative overhead and waste would be more than enough to cover the uninsured. Healthcare should not be a for-profit industry. Obama’s public plan will fail to reduce costs because it would save only about 9% of the insurance company overhead and still leave millions uninsured. The only system efficient enough to reduce costs, insure access and universal coverage is single payer. See http://www.republicansforsinglepayer.com.
John: Thanks for providing a heads-up on the behind the scenes shenanigans.
This capping of the premium outlay according to percent of income does nothing to reduce the costs of the total premiums.
As you pointed out, it merely increases the subsidies from the federal government.
A similar program has already been set up for parts B and D of SMI.
As pointed out in a paper entitled Social Security and Medicare Trust Funds and the Federal Budget, issued by the Treasury Department this month “For Parts B and D of SMI, transfers from the general fund of the Treasury accounted for about 73 and 75 percent of total income in fiscal year 2008, respectively. Beneficiaries pay monthly premiums that currently account for about 25 percent of Part B income.”
“For the SMI account, revenues from the public(primarily premiums)in 2008 fell short of total expenditures to the public by $163.6 billion, resulting in a net draw on the overall budget balance in that year.”
So, by providing a 75% discount on the premiums, taxpayers had to subsidize this discount to the tune of $163.6 billion in 2008.
This 75-25 split will only widen as premiums increase.
Don Levit
Walsh is wrong — there is a highly competitive market in individual and small group health coverage. Ford repeats the same old tired admin cost argument that has been disproven again and again.
This is political theatre designed to gain control over more people’s lives and make them dependent on DC to continue the programs regardless of how much money is spent. Does anyone out there care about their freedoms anymore:: freedom to choose; freedom from political interference; freedom from the government taking more ande more of their financial means??
Bottom line is that the DC program will result in massive cost overruns ($1.5T in 10 years is far too optimistic) and rationing will result. Incredible rationing like most people are assuming will not happen — it will.
Medicare, afterall, has an open checkbook on Treasury funds. It is not as budget limited as we see in Canada or UK. When the pols wake up to this problem (Medicare payroll as it currently stands will run out of money between 2014-2017). When this happens general funds will have to be used. Then this goes beyond payroll tax and into the income tax framework. Then we will see painful rationing.
Bottom line is that the key reason healthcare costs are so high is that government has refused to pay a full share of costs on their programs for years, while at the same time they pile additional burdens on private coverage due to their underpayments, but they have also added layers upon layers of regulation and mandates that have added extraordinary costs (ie. state mandates, EMTALA etc)
Also, if this weren’t purely political, why doesn’t the Congress and the administration consider any of the other reform proposals that would not have this impact on costs, choice, and coverage (quality and access).
The GOP should be ashamed that despite the dozen or more practical and reasonable proposals available, they are still not ready to release their outline. Good grief!
Thanks, John, for your clarity,
May you inspire the courage, creativity and wisdom required to navigate these waters. Want to help in any way I can.
It would be nice to see a side-by-side comparison of these. It’s been frustrating trying to find one or more with which I am completely comfortable.
Fundamental question. With the constitution as framework what is the role of fed gov in health care (ie paying for it or regulating it or judging standard of care)?
John,
Your tireless work on health care reform makes you a national treasure.
Beth:
Your question of constitutionality was a big part of the House and Senate debates before Social Security was passed.
The framers of Social Security wanted to provide contractual annuities which were paid for by the citizens and not out of general tax revenues.
In order to skirt the constitutional question of whether the government could enter into the insurance business, the levying of the taxes and the appropriating of the benefits were split into 2 separate Titles (originally, they were in the same Title). Thus, the constitutional dilemma was answered, for Congress has the power to tax and the power to appropriate. Since the FICA taxes could be used for any governmental expenses, not just for the “annuities,” the question of constitutionality was evaded.
Of course, the goal of contractual annuities paid for other than from general revenues was also evaded.
Don Levit
Let us hope these changes will come. For different reasons, your hoped for outcome may still happen — OB’s reform will be blocked. I cannot believe the insurance companies and drug companies will cave as you predict.
With 15% of GNP going to Health Care — potentially going to 20% — and administrative cost eating up 20 to 30% of the bill… a new solution is needed. Competition in this industry is of limited value. Most people cannot evaluate medical care quality effectively. This may be basic issue why a single payer system may be future. At least, we may move toward state experimentation more rapidly and thus we may get there one state at a time.
If you thought health care was expensive, wait until it is free!
Beyond the psychological aspects that will accrue due to this change, politicians will declare victory (inspite of the long term consequences) for getting more people covered. It seems to me that this is their big issue — not cost or quality. They don’t (want to) understand the cost issues. The quality issues are beyond their comprehension. And besides, isn’t it all about votes? Check out http://www.ilovebenefits.wordpress.com on this issue and similar stories that point out the quality and efficiency deficiencies in the the ‘system’.
Under Obama’s plan:
1) Where is the individual responsibility on the part of the patient’s?
2) Where is the freedom of choice of individuals and families to take risk in NOT paying for insurance if they choose to forgo it?
3) There will be no competition for quality by doctors, only volume. That is a scary scenario and one that will increase costs.
4) If the govt decides on a “healthcare budget”, two things will happen. Cost overuns followed rationing of care.
They are not being realistic in their plans. They are simply looking for a power grab, a takeover of healthcare to consolidate their power base. I truly fear for the healthcare of this country!!
Thank you for including me on the mailing list for your Health Alert newsletter. I have always enjoyed and benefited from your work, and regret that our paths do not cross more often at the monthly meetings of the Dallas Association for Business Economics.
Simple question:
Given all of your research, and your deep and detailed knowledge of the both the politics and the economics of the health care issue, what, in your opinion is the simplest, easiest change that could be made in the health care system of the United States that would move us in the direction of a free (or freer) market in health care?
We do not have anything close to a free market, which is why the small group and individual markets are dysfunctional. The administrations plans to offer a subsidized public option will create a slanted playing field. You’ll be able to purchase an over regulated private plan, or a tax payer subsidized wasteful plan.
Obama’s plan is simply a diabolical plot to destroy private insurance and to create many more social slaves through entitlement. Young and healthy people would opt out of their group plans to join the government plan which would eventually put the insurance companies out of business. That is the objective.
This would result in the destruction of the finest health care system in the world via rationing, declines in quality, decreases in access. This has occurred in every nation that adopted this social scheme.
The dems don’t care about the uninsured any more than they care about the growing numbers of social slaves they have already created and continue to nurture. Thank God I am 72 but I fear for my children and grandchildren. Perhaps they won’t know how good it used to be like the Canadians and Europeans attitudes toward socialized medicine. And they too think it’s free.
The most common misconception (and mischaracterization) of the McCain health plan was that the $5,000 tax credit proposed by Sen. McCain was to pay for the cost of insurance. Actually, the $5,000 was intended to pay the cost of the ADDITIONAL TAXES that would be mandated after the current tax exemption, which is only for those plans provided by employers, not plans purchased on the open market by individuals, was eliminated. The $5,000 tax credit for families ($2,500 for individuals) more than covered the additional tax burden for every tax bracket and price of plan. Its major benefit was that everyone, not only those who have employer-provided health care, would benefit from tax assistance for health insurance.
The big thing everyone seems to be missing in this debate is that there aren’t enough doctors to provide care now, and incentives for America’s best and brightest to become doctors are rapidly disappearing. It’s why primary care residencies aren’t filling year after year, and foreign medical graduates are rapidly taking over family and internal medicine. That’s not to say they’re not qualified – but how much quality can there be in health care when doctor and patient can’t communicate effectively?
John,
In your blog yesterday you made the seemingly uncontroversial remark, “And since health care costs are growing at twice the rate of growth of income, …” One hears similar remarks all the time. However, my impression is that those remarks are gross misrepresentations of reality and that a proper consideration of “costs” would lead to a very different statement.
What we see in the national data are ever-increasing total *expenditures* on health care. Expenditures have no necessary relation to costs. Health care is a luxury good, so increases in average income necessarily will lead to disproportional increases in health care expenditure. Those relative increases tell us nothing at all about “costs.” To know about costs, we need to know whether the same service requires more or fewer resources than in the past. Does an X-ray cost more or less today than it did 10 years ago? What about filling a dental cavity? How about a surgical procedure, such as hernia repair? I had hernia surgery a few years ago. It was laparoscopic surgery. It was an outpatient procedure, requiring only a few hours in the hospital one morning and only a couple weeks for full recovery. I was back at work the day after the operation. People I know who had had the same surgery a couple decades ago had had standard open-abdomen surgery requiring days in the hospital and months for full recovery. I don’t know how many dollars (inflation-adjusted, of course) they paid, but I bet it was a lot more than I paid. They definitely paid more in terms of time and inconvenience. Apparently, *costs* of health care are much lower now than they ever have been. If so, then what is the justification for any government intervention at all in the health care market?
The situation is exactly analogous to computers. A new computer may have a higher price than an old one, but it nonetheless may embody lower cost. If we think in terms of MIPS (millions of instructions per second), which is an objective measure of processor speed, new computers virtually always have more computing power than older computers. Thus paying more dollars buys more computing power, so it is not clear that “costs” are higher, only that expenditures are. To know if costs are higher, one has to find out how many dollars are being spent *per MIPS*, not how many dollars are being spent *per computer*. People spend more on personal computers now than they did 20 years ago. Do we need a crash federal program to rescue the nation from this unconscionable increase in computer “costs”? Similarly, there was a huge increase in national “costs” of buying automobiles in the 1920s, after Henry Ford’s mass production made cars cheap, compared to 1900, when autos were rare curiosities. Should we have had a huge federal program to contain those “costs?”
I am a macroeconomist and do not know the literature in health economics. If there is no proper study of true health costs, I suggest that you encourage someone with the proper background to do one. If your organization gives research grants, you might want to give some researcher a grant to do a study of health costs. A study showing that true costs of many common procedures and health services are lower now than they ever have been might help clarify and re-focus the public debate about health care policy.
John, I have followed your work for >10 years and am a practicing physician. What can I do to stop this madness?
Andy Barada (F.A. Barada, Jr. M.D., President of AB Medsaver)
John,
Interesting perspective – and what happens if it doesn’t take this route – 26% of GDP by 2020. $6+ trillion in Healthcare spending. That really should position the US to be competitive on the global market.(NOT)
So what’s your grand plan that you’d propose in opposition – or are you just going to fight it because it doesn’t start on a particular side of the political scale?
Here is a health care plan that will not only fulfill President Obama’s goals of provide affordable health-care insurance to the 46 million uninsured Americans, preserve the right of consumers to choose their doctors and lower costs in the health-care system, but also reduce the cost for individuals as well as the government in the long run, improve the overall quality of the service providers, induce personal responsibility, encourage healthy lifestyle, stimulate the economy and make United State a more competitive place to do business.
Can we really have a plan that will do all that? Yes we can!
The plan is built on two of the most basic economic principles- competition and incentives.
Under this plan, the government will be responsible for creating competitive mechanisms for the business of health care. Every American will receive a stake, as incentives (in the form of “Medical Allocation Credit” or MAC), in the system.
Health care providers, under the government established competitive frame work, will automatically find ways to improve quality and become more efficient so they can thrive in their business.
We, the people, as not just the consumers of health care, but also contributors and part owners of this new system, will become more involved and responsible for our own health.
Finally, businesses in general, will become passive participants of this plan. Released from the burden of health care, they will become more competitive globally, which will be good for the U.S. economy as a whole.
Sounds good? Here is how the plan will be set up.
The Government will take the lead and do the following…
・ Set basic standards, rules and regulation for health care providers. Define what constitutes minimum coverage based on proven and established medical procedures.
・ Set up a Medical Allocation Credit (MAC) account, which as the name implies, will only be used for health care related purposes, for every American. Initially, MAC will be assigned to individuals based on their age. (15x Age, for example)
・ Require every person living in the U.S. to purchase health insurance at the government defined minimum coverage, using their MAC as deductible.
・ Set up a web site for the consumers to “rate” the services they have received from their health care providers (insurance companies, doctors, hospitals, etc…).
・ Update and publish the result of the ratings along with additional information about the service provider such as type of service, pricing, location and hours of operation in a simple standard format on the same site.
・ Purchase insurance (for people who cannot afford it) from the best consumer rated insurance provider(s) at bulk discount. The contract for insurances will be reviewed and renewed periodically (annually, for example)
・ Give preventive care (such as mammogram) credit for qualified individuals.
・ Give contagious disease exceptions. (Treatments for diseases such as SARS or any diseases that can potentially threaten public health will be paid for by the government.)
Health insurance providers will-
・ Be required to offer minimum coverage (as defined by the government) to everyone who wants it. Extra coverage can be offered at additional premium.
・ Be required to have premiums that are based on age, sex, deductible and coverage only. No one can be denied from the minimum coverage for any reason.
・ Have the option to offer discounts based on only positive results of a physical examinations. (For example, provider could offer free physical to interested customer above certain age. If he/she meets a set healthy standard, the customer could use the result to apply for a discount.)
・ Be required (like all other health care providers such as doctors, clinics and hospitals) to include a standard “rating” questionnaire along with every bill or invoice.
And we, as the consumers will –
・ Be required to purchase health insurance with the government defined minimum coverage from the insurance company of our choice (as an individual or a family). Additional premium coverage can be purchased at individuals own discretion.
・ Be able to shop for the preferred insurance companies, doctors, clinics and hospitals using the information provided on the new government health web site.
・ Use the MAC as the base deductibles to lower health insurance premium.
・ Have the option to further reduce our premium by purchasing insurance with deductibles greater than our MAC (but we must pay out of our own pocket before the MAC kicks in.)
・ Have the option to contribute into our own MAC account via pre-tax payroll deduction thereby reduce our premium even more.
・ Updated and renew our policy annually on our birth month. Premiums will be based on our MAC at the time of policy renewal.
・ Have the option to barrow against our MAC to preserve the lower insurance rate.
・ Have the option of withdrawing the money we (and /or our employer) put into our MAC, minus the income tax, before we renew our insurance policy on our birth month.
・ Have the option to have our premium deducted directly from our pre- tax income or pay directly and have the premium be tax deductible from our income tax.
・ Get assistance from the government for insurance payments for those who cannot afford it.
・ Be encouraged to “rate” the service we have received from their provider via phone, internet or mail whenever we receive a bill from our service provider. The result of which will be updated and published on the government site.
Businesses will-
・ Be release from the obligation of providing health insurance. But employers must first redirect, dollar for dollar, what they pay to the insurance companies to their employees.
・ For those employees who select the option, deduct (pre-tax) and pay the premiums for the employee’s health care insurance from their pay check.
・ Pay a fixed sum ($10 or so, pre-tax) into the general MAC fund per employee, per month.
・ Have the option to deposit money, tax free, into their employee’s individual MAC account as an employee benefit. (The employee will have the option to withdraw that money on the yearly bases on their birth month, before they renew their insurance. Income taxes will have to be paid, of course.)
Obviously, from the political perspective, this plan will not be popular with health care providers. But then again, the business community should support this plan. I have worked on this plan for months. I ask for your support should you agree that this plan is workable.
An H. Lin
linanha@gmail.com
San Mateo, CA
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