Martin Feldstein’s Health Plan
Marty Feldstein has a health care reform idea that is so simple, so elegant, and so easy to understand, one wonders what Max Baucus and his Senate Finance Committee colleagues could possibly have been thinking about for the past nine months. Clearly, they haven’t been talking to Professor Feldstein. The plan would:
- provide universal coverage — almost overnight,
- allow everyone access to insurance that is personal and portable,
- require no net increase in taxes,
- entail no reduction in benefits for the elderly,
- involve more progressive redistribution than anything being proposed in any of the five health reform bills before Congress, and
- create powerful incentives for 300 million Americans to control health care costs.
Give me the simple life
The Core Idea. The government would provide each family with a voucher, covering the cost of a private catastrophic insurance plan with a deductible equal to 15% of family income. The family would be responsible for paying the amounts below the deductible. People could top up and buy additional insurance (they could enroll in an HMO, for example). But all premiums and direct medical expenses would be paid with after-tax dollars. The plan would be paid for by eliminating all current tax subsidies for health insurance. Feldstein says this trade is revenue neutral.
The government would also issue a health credit card, allowing people to borrow if necessary to pay amounts below the deductible. Repayment could be enforced by seizing IRS refunds, reducing Earned Income Tax Credit (EITC) payments, etc., if necessary.
Making the Idea Better. First, the cost of the high deductible plan needs to be a benchmark amount — that can be applied to a wide variety of insurance arrangements. For example, the market should be free to create plans with first-dollar coverage for some services and no third-party coverage for other services and take advantage of the casualty model of insurance, as explained in my paper, “Designing Ideal Health Insurance.”
We need to do more than allow people to borrow to pay out-of-pocket costs. We should actively encourage health care savings with Roth Health Savings Accounts. As originally proposed by Mark Pauly and me, these accounts would have after-tax deposits, tax-free accumulations and tax-free withdrawals. Insurers receiving the voucher should be free to make deposits to these accounts and combine them with different types of third-party payment arrangements. Since both extra premiums and HSA deposits would be made with after-tax dollars, people could make unbiased choices between third-party and self-insurance and the market should be free to find the best combinations.
The Danger. As with the Obama Care plans before Congress, there is a danger of creating another entitlement. If a family’s total expense is limited to 15% of income, the remaining cost becomes a de facto entitlement obligation of government. The size of this entitlement will grow through time, if health costs continue to grow at twice the rate of growth of income. At a minimum, the out-of-pocket maximum should increase if national health care spending continues to increase faster than income.
Very interesting. And I assume it’s very orginial.
What about the real economic/cost problem- resulting from inconsistent quality including over treatment and under treatment (with a significant geographic relationship)? Without fixing the quality problem this approach only assures that everyone will get healthcare, but over pay.
Interesting idea. However 1) Many people already don’t pay medical bills, what makes one think they will now? and 2) Why should some pay more for the same disease because they earn more money? As with the other plans, I am not convinced we’ve yet identified the best incentive to drive individual commitment to managing our own health.
The fixed-amount voucher idea would only work if coupled with a mandate for pure community rating and guaranteed issue. But I suppose the voucher itself makes more sense than an unenforceable individual mandate. Not my preferred approach, but I could see it as a way to rescue Obamacare after the initial approach fails.
Community rating and guaranteed issue are far less important considerations when you have deductibles this high.
This makes sense to me.
Thanks John, I like it! Especially your amendments.
John, Why would inflation be controlled. Insurance companies merely get more business?
John;
This is so reasonable it amazes me that others are making it so complex, cow-towing to special interests, etc. I have been saying all along that we must have a plan that is a win-win for everyone, and that everyone needs to have some skin in the game. And remember that free care is worth exactly what you pay for it.
This sounds like the best idea yet. Unfortunately the government is so bent on controlling everything, and everyone. Something this easy would never see the light of day.
agree with Kevin’s comment
this is not about healthcare reform. It is about increased govt control over the public.
Hospitals and health insurance companies used to be nonprofit. Pretty much anytime someone ends up in a hospital they’re sick or they’ve been injured. If it’s really serious they’re not going to be earning an income for a while, which means they probably can’t pay their bills or their insurance premiums. When did financial hardship, pain, suffering and tragedy become profitable? I keep hearing that we don’t have a right to healthcare, that it is a privilege, and I guess that makes sense because fewer and fewer people can afford it. Something like only 60% of American employers offer health insurance to their employees, and its usually pretty expensive with high premiums and deductibles. So my questions is this: What’s going to happen when nearly everyone is too poor to afford the luxery and privilege of healthcare in this country?
I like simple life.
the more simple and it will get better.
AGree with the prinicples outlined – glad you shared them…
I concur with Dr. Goodman that the 15% threshold leads to an automatic ratcheting up of the entitlement, especially as medical spending is likely to increase as a share of incomes. Furthermore, it adds administrative complexity to claims processing. It’s easy for an economist to say “15% of household income” but actually figuring that out through the IRS has a significant time-lag. Only on April 15, 2010 will I report 2009 income to IRS, and IRS will take a few weeks to accept return. So, is my deductible based on income from 2 years ago?
Plus, welfare-optimizing pricing is determined by the marginal consumer and the marginal supplier. I think it more likely to approximate this result with a flat, hard-dollar, refundable tax credit than 15% of income as deductible. First, it allows the market to determine how much should be out of pocket and how much insurance. Imagine two people undergoing the same treatment under the 15% rule: The high-income person pays for 10 courses of treatment before hitting his deductible, but the low-income person hits it after two courses of treatment. One consumer is clearly facing a bad incentive!
Jennie brings up some excellent points.
If people are unable to afford the monthly premium, it’s good-bye to the insurance, regardless of how long one has paid premiums.
And, if premiums are higher than 15% of income, it will be difficult for most families to afford the insurance.
Right now, with median household income at $50,000-$60,000, and family premiums at $13,000, it seems like the 15% threshold has already been surpassed for the median family.
Offering subsidies for insurance which is too costly does nothing to resolve the problem. In fact, insurance under this scenario exacerbates the problem.
We must offer 2 benefits in health insurance, which are currently not available for the public.
1. A defined contribution plan, in which coverage varies by contributions paid, less claims made.
2. The ability to lower premiums, or even skip premiums, without the entire plan being wiped out.
Don Levit
Response to John Graham: A lot of the plans base subsidies on income, so they all have the problems you mention. My solution: I would base the subsidy on last year’s tax return, but allow adjustments for people who become unemployed and make provisions for a hardship adjustment for people who experience a radical decrease in income for some other reason.
Interstingly, these are the same problems I hinted at in my previous post on short term uninsurance.
Response to Don Levit,
I think you are completely confused. The government pays the premiums. The income of the person only determines the deductable. So a poor person only has a lower deductable. He doesn’t care what the premium is, since the government pays that.
The government can afford this because deductables would be so high. A person with an annual income of 100,000 would have a deductable of $15,000. How much does health insurance cost with an annual deductable of that amount? I bet not much.
Of course, when the person gets sick, their income would fall and the deductable would fall and the cost to the government would go up. But I assume the economist proposing this has put some thought into that.
So are you confused or am I?
James
James:
Well, I can’t say that I am not confused, but there is wisdom in confusion.
My point is that we should not subsidize the products in their present form.
I was recommending a different product which would require fewer subsidies.
In my opinion, we don’t want products that continue to pay most of the costs, for that simply perpetuates needless health care usage and inflation.
The way to drive down costs is to reduce demand, by providing fewer covered dollars, not more.
It might be interesting to see how costs plummet, once people demonstrate their inability to pay without a lot of subsidies, whether on the front end with lower premiums or deductibles, or on the back end, with less insurance.
Don Levit
Dear Sir:
I have been proposing the below-described health plan to our country ( USA ) for several years but it doesn’t seem to be getting much traction. Maybe you will see more merit in it and can use some of the ideas.
Health delivery plans have deductibles which discourage many patients from seeking medical advice. After the deductible is met, many patients “want the works,” demanding many additional tests, medications, treatments and surgeries, even though they might be (and frequently are) inappropriate, costly, and dangerous.
A solution is to make a certain amount of money available to everyone depending on one’s wealth . This is similar to Safeway’s plan touted by their CEO Steve Burd. He calls it “skin in the game.” He gets it.
Then patients will not hesitate to seek the initial medical advice or care. After that, the patient will need to pay a graduated percentage (from 0 to 100%, again depending on their wealth) of the cost for tests, medications, treatments, surgeries or return visits. The result: patients will not hesitate to get the initial medical opinion (low or no cost to the patient), but they will aggressively question the need for any tests, medications, treatments, etc. (significant cost to the patient). Only then will the patient have an incentive to limit costs.
A second, necessary, major part of a workable plan is to require doctors to limit the tests, medications, treatments and surgeries to a list of the most likely diagnoses arranged in a decreasing order of probability as offered by my computer-assisted diagnosis program http://www.computeassistdiagnosis.blogspot.com (or a better program if you can ever find a better one). Without such a list, doctors tend to order costly, some dangerous, and some unnecessary tests and treatments. For example, too many doctors order a CAT scan of the head for headaches, even though it is rarely needed to make the correct diagnosis. Head CATs cost around $2000.00. Multiply that by the millions of patients having headaches. If the doctor or patient wants to pursue diagnoses not on the list, the doctor can be required to seek authorization; or the patient can pay more for the extras.
Some advantages of this plan are:
* Proceeding quickly to the CORRECT DIAGNOSIS.
* The doctor is easily, objectively, and accurately held accountable for his recommendations.
* Decreasing the morbidity/mortality by millions of patients and cutting the cost of medical care by billions of dollars.
* Fewer tests lead to fewer false positive tests. False positive tests contribute to: missing the correct diagnosis, more testing, additional incorrect diagnoses, incorrect treatment, more illness, and more expense.
* Because medications frequently cause side effects (illness), they are usually high on the list. Consequently fewer medications will be prescribed which results in less illness and billions of dollars saved.
* Many private, federal and state plans already in effect can easily incorporate these features. And they have the actuarial expertise to produce an array of new, similar plans.
Those doctors who supplement their income with unnecessary tests, medications, treatments and surgeries will undoubtedly complain; but they have no legitimate argument. The other doctors will probably become more efficient, have increased incomes, and have more time to relax and enjoy their practice.
THIS COUNTRY CAN PROVIDE MEDICAL COVERAGE FOR EVERYONE, for the all-important first medical visit. Payment for tests, medications, treatments and surgeries after the initial money allotment is depleted, can be obtained by buying a plan proportional to their wants, their needs and their ability to pay. (There should be a whole array of plans, from the basic, minimum, inexpensive coverage to the maximum and consequently expensive coverage.) For example, elderly patients might not want to pay for a plan that covers organ transplants, open heart surgery, extensive chemotherapy or irradiation.
Therefore, utilizing tailored health insurance, HEALTH INSURANCE IS AVAILABLE AND AFFORDABLE TO EVERYONE.
KEY WORDS:
1. No deductibles
2. Graduated percentage of cost
3. Lists
David E. Wade, MD
466 S. Goodlet
Memphis, Tennessee 38117
I like the idea of catastrophic coverage voucher. I like the idea of people paying (the deductible) for their health care.
BUT I also like the (my) idea of getting rid of health insurance period (I believe health insurance contributes GREATLY to the COST of HEALTH CARE as well as lack of responsibility for one’s health – one’s lifestyle choices): Let the payment-for-service return to the laps of the PROVIDER and the PATIENT. Patients will shop for VALUE; competition amongst all care givers will increase (including non-Western care). This will drive costs down to where they belong. Catastrophic health care delivery costs will follow.
More to think about, but it’s worth considering.
Good discussion with many valid points and, in a civil manner, how refreshing!
In reading these comments I keep thinking that much of what is proposed is already here, in principle, and that is in the form of HSA compatible plans.
Each insured has access to an annual preventive care exam / Dr. visit ( here in California) with little or no cost to the insured. When health care is needed the insured has up-front costs in the form of a annual deductible (chosen from the many levels offered in the marketplace)with annual out-of-pocket costs limited to a fixed amount. There are plans that provide 100% coverage once the deductible has been met, including Rx costs.
This type of insurance brings the end consumer back into the equation and they decide how frequently they access care. In the case of a catastrophic medical need they are provided the level of care needed without the fear of “breaking the bank” financially.
If we are concerned about lower income folks being able to access this type of coverage then let’s offer a voucher or, a “health stamps” to aid these folks and provide them with access to affordable care too.
If it is simplicity we are looking for while addressing universal access to care at affordable rates, this to me fits the bill.
Coupled with this concept would be a health education campaign to provide all citizens with valuable information to make informed well reasoned decisions about their lifestyles, and the ability to take responsibility for their lifestyle decisions.