Saturday, June 9, 2007

And now a significantly less snarky post about Prof DeLong's Plan

The plan is here if you haven't seen it. Aside from disagreements over how much health paternalism the government sound engage in to keep down costs (Brad favors A LOT), the funding scheme also raises some issues.

First off, 20% of your income can be a lot of money depending on your situation. This doesn't matter that much for people who do have insurance who will recoup most of the cost of their previous insurance plans. However, this will be a major drain on the liquidity of those who don't currently have insurance who will have to fork over 20% of their current income up front. Three quarters of this (15% of total) goes into a HSA, but for someone who is unlikely to need much non-emergency care (young males) or will be mostly covered by the free preventative care (young females), this money is effectively tied up until the next tax rebate.

For most people who have insurance, it will be a step down in coverage. This may actually drive savings by making costs more transparent to the consumers, but on the other hand, it means that there will still be an unsatisfied demand for insurance due to risk adversity (15% of most people's income is a lot for them), so unless it is outlawed, the demand for some private insurance will still be out there. I'd also like to point out that insurance companies are probably more efficient drivers of cost suppression than individuals, since assessing medical necessity requires specialized knowledge and they both have a financial incentive.

Finally, health care spending, the distribution of which is neatly displayed in Figure 1 here is dominated by the top quintile, which accounts for 80% of spending. Accounting for a mere 3.4% of costs, the bottom 50% would mostly be using just the preventative care and will have a bunch of money pointlessly locked up in an HSA. On the other hand, the top 5%, where 49.2% of the costs lie, will tend to be well past the maximum out of pocket. The area where the least cost-effective interventions lie is also where government rationing is going to be the dominant factor, which you may take in whatever direction your presumably strong preexisting opinion of the efficiency of government health care rationing guides you. This is also unlikely to be covered by the 5% of income allocated for both it and the free preventative care (aside: Free preventative care isn't that expensive and probably isn't a horrible idea if you're going single payer. Of course, insurance companies tend to cover it well too, so there's nothing special about single payer here either.), so we'd be on the hook for some general budget tax increases on top of the 5-20% extra on income.


DavidD said...

I like the way Robert Samuelson analyzes health care spending. He sees three competing desires:

1) Freedom of access
2) Lower costs
3) Universal coverage

A lot of people care much more about the first two than the third, which is why we have 47 million Americans without health insurance. I myself only care about the third one, because I am content with my HMO coverage with Kaiser, despite the difficulty of getting an appointment, despite the waits for various things. I like being democratic on health care, even though I can be elitist in other ways.

I care about the uninsured because that's who I volunteer for now that my medical career is behind me. It's crazy how many people are shortchanging their diabetes and hypertension care. For what? Just to pay the rent! I try to help them find ways to take care of all their needs, but it's not easy.

Now some econ professor thinks that a big deductible is a good idea? Not for these people. You should have seen the damage just when Medicaid started deductibles on medication.

Another unrealistic point is when people resist rationing. I am thoroughly convinced from my years in practice that demand for health care easily could reach 100% of GDP if that were possible. There has to be rationing in some form. Letting almost 20% of the population go without health insurance is one form of rationing. Libertarians can argue that's the best form of rationing. I think it causes too many more problems to not have universal coverage, even before you get to the morality of it. But what matters is what the electorate says.

Even I'm not going to go for a tax on high fructose corn syrup. Arnold Schwarzenegger is governor of California because Gray Davis raised car registrations, less than $200 for my average car. So I don't know what is politically possible, but if it's just so the public can have their cake and eat it too, by not giving the poor a fork, I don't see the big difference from the current hodgepodge.

One other thing about those charts showing health care expenditures for a single year. It may be better to look at lifetime expenditures. Unless they die suddenly most people are going to run up their share of expenses in the last years of their life.

MattXIV said...

I like Samuelson's framing of the trade offs too; I'd actually add a desire for reduced financial risk to the list. One of the reasons I think a single-payer system is unlikely to work well is that the best form of coverage is different for everybody based on how they assess the trade offs. A $10-$20 copay may be a reasonable way to to discourage overusage of prescription benefits without deterring necessary for middle class customers with employer-provided insurance, but it may be a bad idea if it prevents those who are on Medicaid from getting meds that will reduce complications (and costs) down the line. Most people with a reasonable income have the wherewithal and resources to get a decent plan with no government assistance and fixing the tax code so employer-provided and self-funded insurance are treated the same will help. I'm skeptical that a government program be able to cut costs for these people without some pretty steep trade offs.

The main room for improvement seems to be in providing basic care for the uninsured. The least efficient usage of resources often seems to be the product of the bad sets of incentives provided by an oddly-structured safety net; I'd be willing to trade a little bit of bigger for a lot of better.

I'd like to see the lifetime numbers too, although imagining the type of study you'd need to get them, I'd be surprised in an entirely pleasant manner if someone had figured them out. Another interesting set to see would be health care spending as a % of income (w/and w/out including employer or gov't provided benefits) by income - I was looking that for this post but couldn't find anything.