Pre-existing Conditions Redux
We previously offered ten solutions at the Health Affairs blog and at this blog. Jim Capretta and Tom Miller have now offered a different solution, based on federal funding of state risk pools. The cost would be from $15 to $20 billion a year — a small fraction of the cost of ObamaCare. My problem with their answer: All the marginal decisions are constrained by regulations, limits on subsidies and arbitrarily imposed parameters rather than by market forces.
The problem of pre-existing conditions is similar to retirement planning. Just as people know they will be unable to work during the final stage of their lives, they also should understand that they will need more health care as they age and health status declines.
The lifecycle theory of investing for retirement is a good model for saving for health status changes. Risk-rated premiums for a high-deductible plan would cost little for a young person. With an HSA, while young most of the medical contributions should be banked into a personal health account. As a person ages, a greater share of the contributions should go for risk-rated premiums and the HSA account would be spent down as a greater share of premium dollars are used for medical needs.
Coverage should be personal and portable. Contracts should be guaranteed renewable with terms of greater than one year. People should also have to bear more of the cost for unhealthy lifestyles.
The Patient Protection and Affordable Care Act violates many tenants of economics and risk theory. Mandating everyone must have comprehensive coverage that is guaranteed issue, community rated with tight age bands is an unsustainable income redistribution.
For me the main selling point about an HSA is that it mitigates some of the problems caused by current tax policy. If the purpose is now to encourage saving by young people in anticipation of higher medical costs later in life, I see no reason to distinguish between medical savings from from savings toward retirement or toward other goals. Why not come up with one consistent set of rules combining HSA, IRA and 401-K accounts? Or perhaps two sets of rules, allowing for both pre-tax and Roth-style after-tax accounts.
Combining these accounts would allow for more flexibility to use the savings where they are needed.
As a young person, it makes total sense to me that I need to save as much as possible right now so that my later years will be richer. But, ask any of my peers how much they are saving, and the answer is ZERO. (most of them…)
I’m torn. On the one hand, I’m perfectly ok if my buddies that are out playing the sun don’t have enough money for their diabetes medicine later on. That’s their choice (assuming they are educated enough to know that they will have huge future financial obligations, which is another argument). But, imagine even one person not saving enough. The media will run with the story, and before you know it, the county, state or federal government will pay the tab.
So in this case, is a little paternalism bad?
The problem with the libertarian philosophy is that it takes at least one generation falling into complete failure via bad decision-making for the rest of humanity to catch on. (Assuming they pass the blame on to others.)
I still think that we’re best left to plan our own futures (or lack thereof), but I wonder sometimes whether those that “ought to know better” won’t ruin it for the rest of us.
Good musical pairing.
I was talking about the Health Alert.
States that want to create state-based high risk pools should plead the 10th Amendment and do what suits them best. I am becoming more and more convinced that the federal government should focus on national problems (debt, immigration, defense), instead of meddling in areas where the states are fully vested by the Constitution.
John, no question that your solutions were better.
I agree with Tom. Goodman’s proposals were better. They also solve other problems that need to be solved in the process.