In the decades prior to the establishment of Medicare and Medicaid, health care spending was relatively moderate, and never rose above 6 percent of GDP. With the expansion of government insurance, however, health care has steadily claimed more and more resources – rising to more than 16 percent of GDP today.
Despite this temporal association, many economic studies suggest that technology is the cause of as much as 65 percent of the growth of medical spending. Now a new study by Amy Finkelstein of MIT sorts through new evidence and finds that the problem is with demand, not with supply. Third-party insurance is responsible for more than half of the growth of health care spending.
A clear implication (but not one made by Finkelstein) is that spending can potentially be slowed by shifting from third-party insurance to individual self-insurance through individually owned health accounts.
The idea that more than half of all bankruptcies are caused by medical debt comes from a study by Harvard associate professors David Himmelstein and Steffie Woolhandler, published on the Web in February 2005 by the journal Health Affairs. Both Himmelstein and Woolhandler have long advocated creating a single-payer system of national health insurance in the United States. The purpose of their study was to convince middle-class voters that they need socialized medicine to truly be secure from health-related financial catastrophe.
When the article came out it generated much controversy because the authors used a very broad definition of medical-related bankruptcy. In response, Health Affairs published more than 30 letters to the editor – as well as a follow-up study by researchers critical of the Himmelstein-Woolhandler study's methodology.
Fortunately, a new study by Aparna Mathur surveys the literature and puts matters straight. Dr. Mathur, a research fellow at the American Enterprise Institute, found that only about one-quarter of bankruptcy filers have debts that are primarily medical in nature. Far more common are bankruptcies related to credit card debts.
A Commonwealth Fund study in the current issue of Health Affairs finds that high-cost patients with Health Savings Accounts (HSAs) actually spend less out-of-pocket than they would under traditional health plans.A Bloomberg wire service story treated this as a newsworthy discovery of a “flaw” in design, since if less is spent out-of-pocket, incentives to conserve costs under HSA plans must be weaker.
The Answer:There is no news and there is no flaw.
HSA type-plans have been on the market for a decade in the United States and for more than a decade in South Africa.Everyone familiar with the plans knows that they typically lower out-of-pocket expenses for high-cost patients.This fact is not only well documented, it has been hashed over in the trade literature, at health care conferences and in numerous think tank pieces, including studies by the RAND Corporation, the Urban Institute, the National Bureau for Economic Research (NBER) and the National Center for Policy Analysis. Continue reading Health Affairs Study: No News; No HSA Flaw→
The NCPA's Medicaid Reform Service Center is designed to provide assistance to state think tanks, governors, legislatures, and other groups seriously interested in Medicaid reform. We will provide speakers, briefings, testimony, help with publications, help with the design of reforms and, in some cases, help with federal waivers. We will pay some (but not all) of the costs for these efforts. The degree of help the NCPA offers depends on prospects for reform in the states that request our help. NCPA economists participating in this effort helped design Medicaid reform plans in South Carolina and Florida, and are currently involved in reform efforts in Massachusetts, New York and Kansas. You can read a more detailed description of the program here.
The American Medical Association wants to require everyone who earns more than five times the poverty level to have health insurance. The thresholds are $49,000+ for individuals and $100,000+ for a family of four. Failure to comply would not earn jail time. It would result in higher taxes, however. The AMA's mistake (quite common in health policy circles) is a failure to recognize that the uninsured already pay higher taxes because they are uninsured. At $49,000 income, an individual who gets a $6,000 health insurance plan from an employer avoids a 25% federal income tax, a 15.3% FICA tax and, say, a 4% state and local income tax. If he were uninsured, enjoying taxable wages instead of health insurance, the individual would pay $2,640 of extra taxes each year precisely because he is uninsured. The problem is not the absence of financial penalties; we already have them. The problem is that the penalties primarily go to Washington, DC; whereas the free care (if needed) is delivered locally. The solution is to coordinate tax and spending programs (Gov. Romney is trying to do this in Massachusetts). There is no need for a mandate.
In all my years of interest in health economics, I cannot recall a study quite as stunning as the one that appeared last week in the New England Journal of Medicine.
The conventional wisdom among health experts across the ideological spectrum is that people need health insurance to get good health care. Indeed, to some politicians the terms "no health care" and "no health insurance" are interchangeable. Almost as widely accepted is the view that some health plans deliver better health care than others. But the new study shatters those assumptions. Continue reading New Study→
How can patients make good choices if they cannot compare prices and quality of service in the marketplace? This is the problem of transparency. Yet while pundits talk and politcians threaten to legislate, the private sector already has developed the tools to solve these problems.
A model developed by HealthMarket allows its insureds to compare the price they will pay for 20,000 procedures performed by virtually every doctor in the country.
A product developed by Simbro allows patients to compare quality and price data for most hospitals in the country.
A product developed by eMedicalfiles creates needed transparency for doctors — it allows medical records to travel electronically as patients go from doctor to doctor and hospital to hospital.
The NCPA is holding a briefing on these techonologies on Tuesday.
The latest issue of National Review has my analysis of the President's new health policy proposals. In addition to a stronger-than-ever push for Health Savings Accounts, the President is calling for tax fairness (giving individually purchased insurance the same tax break as insurance obtained at work), portable health insurance, special HSAs for the chronically ill and allowing consumers to shop for insurance in a national marketplace.
On Tuesday night, President Bush devoted only a few sentences to health policy. At the same time, the administration released a five-page document describing the President's health policy proposals. The reforms described therein are so sweeping and so bold that I would compare them to Hillary Clinton's proposals of a decade ago.
I don't know if the White House will devote the energy and political capital necessary to see this through. But if they do, these reforms will leave a lasting mark on social policy in this country.