Tag Archives: out of pocket

Hidden Costs?

A short paper, "Hidden Costs of Health Care," released by Kathleen Sebelius and the Department of HHS last week, cherry picks the data to make a case that "Americans are spending more than ever on their monthly premiums while simultaneously being forced to pay higher out-of-pocket costs as a result of rising deductibles, copayments, and other cost sharing mechanisms." It goes on to complain that out-of-pocket costs, including premiums, rose by 30% from 2001 to 2006. Yet, elsewhere Mr. Obama frequently claims that the cost of employer-sponsored coverage rose 100% in the same time frame, so employees would seem to be getting a good deal.

Sebelius' report also says, "Seventeen percent of people with employer-based coverage have high out-of-pocket burdens (defined as out-of-pocket costs that consume 10 percent or more of a family's total income)." Of course, she forgets to mention that people on Medicare pay on average of 14% of their incomes on out-of-pocket costs, so a "public option" might not solve this particular problem. Continue reading Hidden Costs?

RAND Again

The RAND Corporation has issued a paper on out-of-pocket (OOP) spending that, again, relies solely on studies that suggest OOP spending is a growing burden for Americans and is not distributed fairly between economic classes. It applies such a shallow analysis that it provides absolutely no understanding of the issue.

The paper cites various studies from people fretting that some folks are paying 5% to 10% of income for HC services. Yet the nation as a whole spends 16% of its income on HC. Anyone spending 10% is getting a bargain.

Except, this paper conveniently neglects to factor in what people are paying in taxes and lost wages. That is of no concern to them, even though there is a direct trade-off between direct OOP spending and higher taxes or lower wages. Let me illustrate – Continue reading RAND Again

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.

Continue reading Health Policy Advice for Conservatives and Moderates

Medicare for All Would Crowd Out Private Coverage

The Obama health plan envisions an alternative to employer-based health insurance, called a health insurance Exchange. Premiums would be community-rated, people could choose a new plan once a year and the out-of-pocket premium would be limited to be no more than, say, 10% of income.

Some Democrats in Congress insist that one of the options offered in the Exchange be a public plan (e.g., Medicare for nonseniors). A Lewin Group report estimates that 32 million people would lose their private coverage and enroll in the public plan if it paid Medicare-level reimbursements and eligibility were limited to the small firms, self-employed and individuals.  The number of people dropping private coverage and enrolling in the public plan would increase to 119 million people if eligibility were open to everyone.

Designing Health Insurance: Evidence from Massachusetts

The Massachusetts Connector Authority has decreed that unless one has a federally qualified high-deductible plan, health insurance policies that satisfy the Massachusetts individual mandate for health insurance coverage must have deductibles no higher than $2,000 for an individual and a limit on-out-of pocket in-network spending of $5,000. For policies with a separate prescription drug deductible, it must not exceed $250. [link]

These limits are not what people choose when they buy their own health insurance. The results from the 2007 America’s Health Insurance Plans survey of individual health insurance suggest that roughly half of those who buy their own insurance prefer higher deductibles and lower out-of-pocket limits than those chosen by the Connector Authority: Continue reading Designing Health Insurance: Evidence from Massachusetts

Designing Health Insurance: Politicians vs. the Market

Every health insurance policy purchase represents a compromise between premiums and the amount of financial protection offered. Policies with higher out-of-pocket expenses via higher deductibles or co-pays generally have lower premiums. Pairing low premiums with coverage for even routine health expenses often requires limiting the total amount that the policy will pay to a relatively small amount, say $50,000, rather than the roughly $2 to $5 million that is the current commercial standard for individually purchased policies.

People’s insurance needs depend on their incomes, their assets, their health, and their tolerance for risk. These change throughout a person’s life. Some people need protection against small losses, others can afford larger ones. Some people have very small yearly health costs that they can pay out-of-pocket. They prefer low premiums for plans with large deductibles. Others want certainty. They prefer high premiums for plans that limit their out-of-pocket costs.

Existing evidence suggests that when politicians or their representatives design health insurance, they favor coverage of small expenses even though this increases claims processing overhead and overall costs. To keep premiums low, they often prefer to increase the amount people will have to pay in the event of a catastrophic loss. Continue reading Designing Health Insurance: Politicians vs. the Market

Who Is Underinsured?

The next time you hear someone talk about how Medicare is a wonderful program and a model for what all of America should be doing, you may want to refer them to a new study from the Kaiser Family Foundation. It found that the average household on Medicare spends 14.1% of its income on health care. This contrasts sharply with the 4.3% spent by non-Medicare households. Of this amount, 62.9% goes to premiums for Part B, Part D, and Medigap, 18.1% goes to prescription drugs, 15.3% to medical services, and 3.8% to medical supplies.

A second Kaiser study showed the median out-of-pocket (OOP) spending for Medicare beneficiaries has grown from 11.9% of income in 1997 to 16.1% in 2005, in spite of the advent of Medicare Part D. Whereas the first study included only the non-institutionalized population, the second breaks out the population in facilities and finds that almost all of their income is spent on health care. The median income of this population is $11,000 and the median OOP spending is $9,776.

Meanwhile, the issue of out-of-pocket spending is considered important enough that the Senate HELP committee held a hearing on it a couple of weeks ago. The argument is that anyone who spends 10% of his income on health care is "underinsured." If that is the case, then Medicare is the source of massive "underinsurance."

Paradoxically, the population least likely to spend more than 10 percent of their income on health care is the uninsured, according to a JAMA study [gated, but with abstract]. Only 10.5% of the uninsured reach the 10 percent threshold, while 18.2% of the privately insured and 19.4% of the publicly insured do. So, if 10 percent of income is used as the standard, the people least likely to be "underinsured," are the uninsured! Go figure.

Health Care and Taxes

The worst idea candidate Barack Obama had during the presidential campaign was his pledge to finance health reform with taxes on capital.  To be fair, he didn't word it that way.  Instead, he promised to pay for universal health care in part by rescinding George Bush's "tax cuts for the rich." 

Bush didn't cut taxes for the rich, however.  He lowered the tax rate on capital gains income and substantially lowered the tax rate on dividend income for all taxpayers, many of whom have high incomes.  Bush also lowered the top rate on wage income; but for high-income earners this is also frequently income from capital (pass-through profits to owners of small businesses, for example).

Obama is now proving that he keeps his word and then some.   Overall, his new budget includes a slew of new taxes on businesses and investors totaling almost $1 trillion over the next 10 years (and that doesn't even count the $646 billion "cap and trade" tax).  He proposes to "bank" a portion of this for health care to be matched by difficult-to-make health care spending cuts and by health care "savings" that virtually all independent analysts agree are unlikely to materialize.  The only thing certain so far is the taxes.

What's wrong with paying for health reform by taxing investment income?  It is always bad to tax capital to pay for consumption.  Capital is the seed corn that grows businesses, creates jobs and generates the income that makes consumption possible. Taxing capital to pay for health care consumption is especially bad, considering that health care spending at the margin is already very wasteful.

httpv://www.youtube.com/watch?v=QCG3kJtQBKo

Stormy Weather Continue reading Health Care and Taxes

Psychoanalyzing My Colleagues

Health policy wonks are a very strange breed. They don't look at the world the way rational economists do. Consider the following:

Case I:
People pay for care with their own money, out of pocket, and health care is rationed by price.
Case II:
The government taxes away health dollars, provides care free of charge and health care is rationed by waiting.

To keep things tidy, let's assume that everyone gets the same care in both cases.  What do we think of these two alternatives?

To an economist, this is a no-brainer. Case I is far superior. Why? Let's say the value of care to the representative patient is $1,000 and that is also its cost. In Case I, the social cost and social benefit of the health care at the margin are the same. But in Case II, the patient must buy care with time as well as with taxes. Since the care is valued at $1,000, the patient will spend up to $1,000 in time to get it. This means paying twice: once with (taxed away) money and again with time.

So, is this the way most health policy analysts think about the problem? Not on your life. 

httpv://www.youtube.com/watch?v=PPwSei7FVoI

Enya: "Only Time"

Continue reading Psychoanalyzing My Colleagues

The Cost of Waiting

Princeton economics professor, Alan Krueger, calculates that Americans spend about 66 minutes per week, on average, obtaining health care. Using a wage of $17.43 per hour, the time costs of obtaining medical care totals nearly $1,000 per year per American (aged 15-years and above). That's equal to roughly 11% of total health care spending. [link] This implies that patients spend almost as much in time costs to get care as they spend in out-of-pocket cash.