Yet More on Health Insurance

Simon and I have a kind of synthesis of our recent thoughts on health care reform, along with some more data and thoughts about the employer-based system, up at The Hearing. It seems to have 167 comments – people really like to talk about health care, don’t they?

On a related note, we will be modifying the format of our Washington Post gig. We’re moving in the direction of a weekly, substantive opinion and analysis piece, rather than trying to keep up with Congressional hearings from day to day. We’ll get you a new link when that is fully up and running.

By James Kwak

63 thoughts on “Yet More on Health Insurance

  1. “The same goes for health coverage; until you have a serious illness, the kind where your plan’s limits and exclusions may kick in, how do you know if your health coverage is any good? ”

    Well, when you read the Russian-novel length version of your insurance policy’s exclusions, and can’t think of a single instance where you would be covered for a.) more than $10,000 b.) longer than a week, or c.) anything you might actually become ill with, you might want to rethink your satisfaction level.

  2. You mentioned one of my favorite tactics in your article: excluding people at the time they get sick based on mistakes in their applications for insurance, possibly made years before.

  3. Sometimes, things sound too bad to be true. For instance, the US healthcare system spends much more than anyone else for life expectancies that are much worse than anyone else.
    I read that this is only true because, in the US, life expectancies are lowered by higher numbers of non-healthcare related deaths e.g. motor vehicle deaths and murders. And if these types of pre-mature deaths are excluded from life expectancy calculations, then the US life expectancy rates are much higher.
    … Is that true?

  4. A very simple question, that I’d like you to answer, but expect you will not: in a marketplace, who ought to determine satisfaction with a service or product if not the consumer?

  5. Johnson/Kwak say “It is politically relevant that two-thirds of Americans seem to like their health coverage, but whether they should like it is another question.” And the core of this debate is whether it’s your and other elitists’ opinion that is determinative in answering that question, as well as most other questions regarding one’s healthcare, for individual citizens or whether every individual retains the right to answer the question for him/her self.

  6. The question put before us with the public option plan is not whether the healthcare insurance system we have now should be reformed and improved upon, but rather should we junk it entirely and rely totally upon a government run system.

    The healthcare insurance system we have now has become a convoluted bureaucratic mess largely because the government substantially underpays for that care that it requires the private sector to subsidize. Those with insurance are subsidizing those without.

    What you are substantially saying is only more government intervention can cure a problem caused by government intervention in the first place.

    Those advocating the single payer system, apparently have little experience with the heavy hand of the bureaucracy. Bureaucrats are generally not, with a few exceptions, out for the public good; they are often corrupt, lazy, capricious, arbitrary, cruel, and mean. The treatment the public receives at at a big city DMV is the likely treatment a government run healthcare system will dish out.

    The idea that the government can select from afar, based upon it’s comparative cost studies, the best treatment for a particular patient is a good example of insane government think. Determining what treatment is best for a given patient is the most difficult assessment a doctor must make. Often, what is good for one patient is definitely not good for someone else. Injecting bureaucratic decision making into healthcare decisions of this kind will lead to disastrous care and millions of needless deaths.

  7. The question put before us with the public option plan is not whether the healthcare insurance system we have now should be reformed and improved upon, but rather should we junk it entirely and rely totally upon a government run system.

    Thanks for framing the question in such a helpful way!

  8. I take umbrage at the word “elitists.”

    Comments like “It seems to have 167 comments – people really like to talk about health care, don’t they?”
    show real concern for the peasants.

  9. Logically, there is no way out of the spiraling healthcare costs other than through some form of rationing. Even if we find the way to pay doctors and nurses 50% less, and reduce drug prices to say European levels, constantly expanding capabilities of the medical technology and science will make the share of GDP going to healthcare re-approach and then surpass the current levels in a few years. With the current system, this basically will result in Medicare and Medicaid crowding out all other budget outlays (assuming the budget deficit is not indefinitely expanding), and private insurance becoming unaffordable for most employers and/or employees. Then, the rationing will be simply via limited availability of the charity care; however, the public showing up at the town halls with the congressmen seems not to mind this outcome, as long as it is not immediate. Alternatives to this are either restriction of the medical innovation, especially in the technology field (e.g., if the insurance is not allowed to cover proton beam radiation therapy, the accelerator will not get built), or QALY approach. Neither of the two will be acceptable to the public. As a result, the country will have to spend probably another decade or two without the meaningful health reform – until the medical care beast finally eats us out of the house and home.

  10. Exactly. We can’t reduce the administrative costs of health care because then what would the administrators do for a living? Nor can we improve the health and wellness of society through lifestyle change because then what would the junk food, alcohol, and tobacco industries do? Logically speaking, we have no choice.

  11. Medicare has low administrative costs and its cost is growing like mushrooms nevertheless. Regarding healthy lifestyles – you can’t institute them by an administrative fiat, it only works in North Korea. Besides, while the healthy-living person on average will live longer than an obese and chain-smoking drunkard, I am not sure that the total birth-to-death medical expense will be much different. You save on social security payments, too…

  12. I see it the same way. The quicker we shovel them into graveyard plots the better it is for controlling runaway costs.

    By the way, don’t knock North Korea. They have some of the healthiest lifestyles in the world.

  13. The idea that the government can select from afar, based upon it’s comparative cost studies, the best treatment for a particular patient is a good example of insane government think

    And an insurance company bureaucrat does not inject themselves into this decision process ever right? You know a bureaucrat is a bureaucrat whether they’re in government or big business. I am so tired of the market wonderland these people speak of as if its never has inefficiencies, disincentives or failures.

    The very medium here, enabling us to debate was gov’t funded and incubated. Do you ever wonder what it would be like today if it had been market driven from the get go? Probably like the cell phone market. You’d have to buy a PC that only worked a particular carriers network and content such as this would be exclusive to a single carrier. I wonder if it would be the multi billion dollar industry it is today (not to mention the unmeasurable wealth of info) had it evolved market based?

    Clearly the market can cause inefficiencies, it can encourage disincentives, and it can have failures. If you cannot see that you are but an ideologue.

  14. I am 63 years old. I live on Social Security because I lost my job, and could qualify instead of going on unending unemployment. And, my benefit is better than unemployment payment, and doesn’t preclude me from working, either part of full time. But, I don’t have health insurance, and before I lost my job, my employer didn’t have it for me to buy. I have priced the market, and, well, it looks as though I will remain uninsured until Medicare kicks in at age 65, about a year and a half.

    I am part of the statistics. What many Americans fail to realize is that your article is not just accurate, but quite foreboding. I am speaking of the 6.7% annual increase. Wow, many workers won’t even be able to afford to cover their families in another two or three years, and not at all in five, the way the economy is going. I am a strong advocate of a single payer (Canadian style) plan. We would immediately recoup all of the Government subsidies and absurd insurance company profits, and simplify the payment system so dramatically that we would authomatically save a great deal of the $2.5 trillion this country spends to insure about 80% of our citizenry. I have read the extensive Wikepedia article comparing Canadian and American Health care, and conclude that it is just pure logic without question.

    The present system is absolutely unsustainable, and should be completely trashed so we can get on with life. Do we want to end up like some small third world poverty stricken nation that ranks in the lower half of the world’s nations. By 2015, without reform, we’ll be there.

  15. You know a bureaucrat is a bureaucrat whether they’re in government or big business.

    I couldn’t disagree more. Government bureaucrats subsist on a small salary whereas insurance company bureaucrats can be given large bonuses for creatively denying health care to people who need it.

  16. Medicare has historically stayed inline with private health care costs if not bested it, even as the US grayed in greater proportion.

    It is correct though that in general health care costs have mushroomed.
    What we need to tackle health care costs and make it affordable for all is proper incentives, something the market has not been able to come to grips with yet for health care (and based on the financial market of the last few years mal-incentives seems to be a large problem in general for the market).

    I read a doctor once state that providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coördination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later?

  17. In Australia we have a good modern and accessible public health care system for all people, throughout Europe there are many examples as well. Why, especially in these economic times, do you want a healthcare system that requires you to have private insurance that is so expensive that it needs to be tied to your job. No job, no insurance. This is just wrong.

    I can’t see why some people would even begin to question why you should have a new system when all you need to do is look around the world at many of the excellent public health care systems. Healthcare should not be something for the rich or the employed, it should be for everyone. Your system is expensive, it does not cover everyone and it causes a huge amount of stress for many people who are unable to be covered or simply dumped by their insurer. Why should a modern country face this problem when so many other less fortunate countries are able to offer first class healthcare to all their citizens. Why should the USA be any different.

    I think there is a campaign by the insurance companies and the private hospitals to put a negative spin on this through the media, but I urge you to do your own thinking and look aboard for examples. I think you will find the most vocal people against this initiative are going to lose out if the status quo is changed, private hospitals, private labs, insurers. The big winners— All Americans.

  18. You free market fundamentalists live in a fantasy world. You think you are too smart to ever get sick, or ever find yourselves in a precarious financial position. The big winners— All Americans.

    What about the Americans who want to move to Berlin, Germany for their superior health care while earning a living by writing phony blog comments for insurance companies?

  19. I think you will find the most vocal people against this initiative are going to lose out if the status quo is changed, private hospitals, private labs, insurers. The big winners— All Americans.

    (I meant to use this quotation)

    What about the Americans who want to move to Berlin, Germany for their superior health care while earning a living by writing phony blog comments for insurance companies?

  20. Yakkis – even these Americans will be winners as they will have more demand for writing their phoney pieces. If they ever want to come back to the USA they will find a better healthcare system.

  21. It is more expensive because your healthcare system is largly based on for-profit healthcare rather than an all encompassing social healthcare system.

    There are much better models for healthcare than the one you currently have. When your car is broken you fix it or you start looking around at new models for a replacement. Why has it taken so long to realise that the US healthcare system is broken and in urgent need of repair.

  22. I agree with the basic idea you expressed, but, things in America are not quite the same as they are in Australia, Western Europe, Canada, Japan, Singapore etc.

    In America low cost, subsidized, and/or free resources always run the risk of being over used in a bad way. Look at big city freeways, farmer corn subsidies, federally guaranteed home mortgages, the recent bank bailouts, cheap junk food, etc.

    This is not a statement about government as much as it is about the people in America. We are a mad consuming machine and we won’t stop until we take a good thing and turn it into a bad thing. We took abundant cheap food and turned it into an obesity epidemic.

    So, even though all these things start out with good intentionds, they end up very poorly regulated at the both the supply and demand ends, what we end up with is overuse, fraud, and a very disappointing long term outcome. There just isn’t much sens civique here. It’s me me me me.

    But hey, I say, let’s try it anyway. We’re the greatest country on earth. We created the highest standard of living in history. We are the richest country ever. We’re number one!

    woo hoo

  23. Could we ration Lawyers??–Maybe if we reduced malpractice premiums, and reduced a doctors’ fear of loosing everything if they miss anything–then we could reduce some of the expensive tests that the doctor is pretty sure is going to be normal anyway. That might reduce the speed that health costs are rising.
    When Lawyers advertise for anyone or their relative who ever took a medication to contact them and it will cost nothing unless they reach a settlement or win a case for the client–It costs the Drug Companies Thousands or Tens of Thousands of dollars for each case filed. Those costs are passed on to us the consumer. Those Liability costs are one of the two reasons that medications cost more in the US than in Canada. When Phen-Phen and Redux were recalled there was a 4.5 Billion dollar settlement. Those costs had to be passed to the consumer. That is $15 dollars for every man, woman, and child in the country. If the Manufacturer needs an extra $15 the retailer must charge an extra $30 to get it to them.
    Most of us have seen the lawyer adds on TV– The cost of all of those is being passed to the Drug Companies and then on to the Consumer. It is a Law of Economics that The Consumer Always Pays.
    The other contributing factor to the higher medication costs in the US is direct to consumer advertising of prescription medications.

    In contrast to our complaints about expensive medication prices Praise to Walmart for the $4 generic Rx program. I just hope they weren’t imported from China.

    Government negotiating of medication purchase is often mentioned as reason for lower medication costs in Canada– but Canada has about 40 million people divided into 6 or 7 government buying groups of 6-7 million people each– Kaiser has more than 6 million people insured and so should be just as strong a negotiator as the Canadian government– But Kaiser cannot eliminate the liability cost so drugs are still more expensive here.

  24. Good article in the link– but he forgot to mention the medical liability problem here that they don’t have in Canada. Americans can learn from the success and failure of other countries plans. We have a problem with too much red tape in the insurance system and too much red tape from our government– but right now most doctors feel that our government red tape is worse– and the government (Medicare and Medicaid) plans don’t pay enough to keep the lights on. Doctors and hospitals depend on profit from the Commercial insurance patients to cover the expenses so they can essentially volunteer their time for the
    Medicare and Medicaid patients.

  25. In Claire McCaskills town hall today she brought up tort reform. She got a lot of cheers when she mentioned Missouri’s tort reform of 2005. Then she asked how many people have seen their health care costs go down since tort reform was enacted… *crickets*. Oops!
    She cited states that have passed aggressive tort reform, such as Florida, yet they are seeing the fastest growth in health care costs.
    Even in Texas which caps medical malpractice at 250k (similar to Canada’s caps), it still has some counties with the highest (and faster growing) medicare costs per capita (

    There is probably something to this but I believe its overstated relative to our 2.4 trillion health care expenditures.

  26. Good article but good luck trying to get the average American to appreciate the points raised in it. With everyday that passes, I’m seriously beginning to think we are at the beginning of our end as the new, super kid-on-the-block. Our luck seems to have run out. I suspect it is downhill from here on. How else does one explain people who think the U.S. government will actually establish “death panels” in this country? We are now inhabited mostly by people who will believe anything someone they think is “on their side” tells them to believe…and this is in the age of the internet where information about anything you can think of is available at ones figure tips…literally. Yes, it can be both good and bad. But any person with average intelligence should not find it difficult to get to the bottom of most things. Yet, here we are, with people making the most outlandish statements. Our decline has begun. Enjoy what we have left while it lasts.

  27. Also, think about it, since all Canadians have their health care covered, people who were injured would not need a lump sum settlement to know that their injuries would be treated for the rest of their lives

  28. I admit in a country with 360 Million people it will be difficult to change things, but you need to start somewhere.

    I have private medical cover as I’m an expatriate living away from Australia who travels regularly. My company provides me with worldwide medical coverage, but as the additional premiums for the USA are too expensive to have, they cover me only for the weeks we go there or for US staff. The additional USA premium is massive, but the restof the world is covered.

    It is a good sign that you are paying too much in the USA when my policy will cover me for every country in the world, medi-vac me out if needed and cover me even if it is my fault and I have an accident scuba diving, snowboarding, motorbike riding, etc, but it is an expensive added extra to be insured in the USA.

    You guys are paying too much.

  29. Overlooked in this discussion is that Massachusetts experience. 97% of the Mass residents have health insurance. Health insurance is available that is not tied to employment. Insurers cannot penalize people for pre-existing conditions. However, the cost problem still remains.
    Most interesting is how long it takes to make a change like this…. the Mass system is 3 years old and bringing costs under control is expected to take 5 more years.

  30. The Massachusetts system uses private, for-profit insurance companies. The Massachusetts system places the mandate on the individual. Employers can opt out by providing the state with a flat fee per employee, something in the neighborhood of $300. Although there are minimum coverage mandates, these are not full-coverage policies in many cases. And the out-of-pocket and co-pay costs add up quickly, making actual use of one’s insurance too expensive in cases where people are earning a bit too much to qualify for subsidies for premiums.

    Rather than mandate individual purchasing of for-profit health care insurance, I think it would be much more efficient to provide national, universal health care through a government-funded single-payer system.

  31. Medicare costs rising fast in Florida and Texas?? Not much of a surprise if you consider the number of Baby Boomers retiring and turning into Snowbirds and Winter Texans— Think about it more than one factor can be in play at one time.

  32. In Canada it is assumed that the Looser in a civil lawsuit will pay both sides lawyers–so people are not told by lawyers to try and sue because it will cost them nothing.

  33. That kind of rule would be great here. First, the doctor negligently kills a family’s bread-winner. Then the hospital bill bankrupts them and forces them to move into a housing project. Then the jury gets confused and returns a strange verdict in favor of the doctor, paving the way for the doctor’s insurer to sieze all remaining assets in the estate. I like to call this broad-spectrum asset appropriation.

  34. We have little experience with the heavy hand of bureaucracy? Who do you think makes the decisions in the private sector health insurance industry now? Bureaucrats! Private sector bureaucrats! And they are very well paid to make these decisions, regardless of the human cost involved. Blaming the government for messing up everything they do is bigoted and flies in the face of logic and reasons. Do you want private armies, navies, and airforces? Private police forces? Now that the economy has collapsed, what would have happened to social security if it had been privatized? What’s so special about private, for-profit organizations that makes them so trust-worthy? Blaming the government, as a reflexive, knee-jerk reaction is ignorant, and does not serve the interests of the people of this county well, but it does serve the interests of the private sector very well indeed. Government bureaucrats are not, generally corrupt, lazy, capricious, arbitrary, cruel, or mean. Wish I could say the same for the private, profit-driven sector.

  35. Good point. People who face costs if they lose are only likely to litigate if they really do have a serious malpractice suit rather than a quick findfall opportunity. This loser pays system happens in most European & commonwealth law based countries & it works well & frees up the courts.

  36. Thanks for that really interesting note!

    And I agree: we do have to start somewhere: Let’s medevac the American patient to one of these other countries.

    American healthcare is a bubble just like the dot com industry and the housing industry, with one important difference: doctors and insurance companies control the legislature and effectively dictate to the public which services they can have, who can deliver those services, and how much they can charge.

    Within the system, patients truly lack freedom of choice, and the ability to seek out and use alternatives (because alternatives are not reimbursed).

    If Obama’s public plan is really going to succeed, it needs regulate doctors and insurance companies more so that the system offers consumers more choices than they have under the current system. That way, consumers will be able to actually seek out quality and cost effectiveness.

    Somehow, I don’t think it’s going to work that way.

    We’re going to end up in the same headlock we’re currently in, except that the government will be in there with us.

    We will continue to overpay the medical insurance complex for therapies that are overkill or ineffective. It’s just that the definition of “we” will change.

    Oh well….

  37. Doctors, if anything, need to be regulated less, at least in the realm of their practice of medicine. More trust + less paperwork + no second-guessing by non-doctors = happier and more responsible doctors.

  38. As long as no one’s paying attention, I’d like to make the following comparison:

    The current doctor/insurance/pharma strangulation grip on us and our economy is like an alternate universe in which Bill Gates has been granted full control over the software industry by the US Congress.

    Bill has licensed programmers, testers, and graphic artists by way of a national software licensing board. Naturally, only those who buy, recommend, and use Microsoft products have been certified by this board. Those with proficiencies in, or a desire to use, other software products are ridiculed, discouraged, even forced into out of business.

    Of course, in such a world, Bill has long since sued out of existence the Apache Foundation, the makers of MySQL, the makers of Firefox, etc for delivering unsound and dangerous software (albeit for free) to the marketplace.

    And Linus Torvalds was executed in a most fitting way: they chained him to a Windows PC which had been connected to an electric chair rigged to fry poor Linus the first time the OS crashed. (finally, some real meaning for “blue screen of death”)

    Naturally, Google was bought out and dismantled long before it got big enough to compete against Microsoft. Oracle was relentlessly sued by the US DOJ until Larry Ellison got discouraged and lost himself to a crack addiction.

    Software consumers who wanted real choice were forced to travel to foreign countries where the people and their government (and not an industry) were still in charge. There, consumers were able to access software that didn’t routinely lose their data and incur huge annual subscription fees.

    But those consumers couldn’t bring that software back with them, because the US Customs agents were instructed by Microsoft to keep any suspcious looking 3.5″ floppies from entering the country (yeah, they still use those).

    And because Microsoft failed to see that the internet was a useful technology, US consumers could not access it. (Conveniently, this also prevented foreign competitors from selling, or even giving away, their software in the US market).

    Of course, in such an alternate economy, Bill is free to charge whatever he wants for Windows 1.0 (the nation’s most popular OS for nearly twenty years).

    And the more Microsoft makes, the more firmly entrenched their representatives in Congress are.

    Naturally, he does all this for the purpose of protecting the public.

  39. Most physicians (except radiologists and anesthesiologists) don’t support the current system, and want single payer.

  40. Very entertaining! I think the analogy is off in just one sense.

    To be truly analogous to the way health care works, Bill would not block out competing software. Rather, software that was compatible with Windows 1.0 would be available, but only if sold by licensed Microsoft agents. And there would be no quality control on it at all: anyone could write software for Windows 1.0 as long as they turned it over to Bill to sell. The number of apps would proliferate wildly, and the array of choices bewildering. All accompanied by a huge disinformation campaign (oh, sorry, I meant marketing) to assure that you could not possibly understand what any software does, whether it actually does what it claims to do, whether it does anything at all, or whether it just permanently disables your computer.

    Software not compatible with Windows 1.0 would eke out an existence by alternate practitioners–but under the price-controls Bill negotiated with the government it could only sell at subsistence prices.

    Now, that’s more like the health care system!

  41. Oh, and in your description of the alternate universe you forgot to mention the hospitals and device makers.

  42. Yes, thanks, good points all, especially the one about the disinformation campaigns, I mean, marketing campaigns.

    “You can choose any monitor you like for your PC, as long as MS has certified that it only works with the default Windows 640×480 video driver. While higher resolution drivers have, anecdotally, shown some small promise, there’s no credible scientific evidence that they would provide additional benefits to the user. And the level of risk is just too great to recommend or support their use at this time.”

    Also I forgot to mention that Linus was dead by lunch time.

  43. They may want a single payer system, but do they want that single payer to pay them less than the current system does?

    Do they want to stop accepting the free lunches and speaking fees provided to them routinely by pharmaceutical companies?

    Do they want to stop accepting commissions (aka “discounts”) on chemotherapeutic agents they urge their cancer patients to take (again, provided to doctors by pharmaceutical companies)?

    Do they want to loosen their grip on the standards boards which decide what is valid medical therapy for cancer, heart disease, diabetes, arthritis, and autoimmune diseases? Do they want to, in an open minded way, exchange knowledge and team up with complementary and alternative practictioners, nutritionists, acupuncturists, osteopaths, and naturopathic doctors for the benefit of their patients?

    Do they want to liberalize the regulations which prevent foreign doctors from entering, qualifying, and practicing medicine in the US so that American patients have more choices?

    Do they want to embrace new ideas and tolerate truly independent competition from the outside world?

    Do they want to seek out inexpensive, non patented, well tolerated and effective treatments for chronic disease?

    Do they want to communicate openly and honestly with their patients about mistakes they have made?

    Do they want to update their practices and embrace the benefits of information technology for their patient population and the population as a whole?

    Do they want to make house calls?

  44. The average physician either doesn’t care about those things (perqs from the drug companies), or already does them (except for relaxing standards for foreign doctors and most house calls). Many of them would be more open about admitting mistakes if the legal environment was different.

    As for taking a pay cut, I’ve heard of the willingness to do this if their working conditions were improved. i.e. they could focus their time and energy on treating patients.

  45. Disinformation oops marketing campaign you say.

    Yep, saw some of it on the Boob Tube today aka CNN and Lou Dobbs. What a scoop! A senior carrying a sign reading: No to Obama Health Reform. No to Genocide of Seniors (or some such slogan).

    What kind of parallel universe are these befuddled old folks living on?

  46. Maybe it’s this one:

    The year is 2011, and though no one outside the White House itself truly understands the exact mechanics of the program, the Obama administration has simultaneously solved the problem of unsustainable Medicare and Social Security expenses on the one hand, and the nationwide shortage of high quality garden mulch on the other…

  47. If anyone hasn’t read the lead article in the lead issue of the Atlantic, I’d highly recommend it. It’s forcing me to reevaluate many of my own ideas about how HC should be structured.

    Essentially, the article makes two important points:

    1) Instead of reforming health insurance, we should reconsider whether insurance is an appropriate financing vehicle, and, whether, as an alternative, more individual control over financing would lead to better quality at lower costs.

    2) Medicare, and, to a lesser extent, Medicaid are the main drivers of price inflation and wasteful allocation of health resources.

    On point 2, the argument makes a lot of sense if you have a basic understanding of economics. Medicare pays out using a set care time frame (e.g. first 100 days of long-term care) and a fee-for-service schedule. It also sets certain limits on the type and extent of treatment (e.g. you can’t milk the system by running 3 MRIs a day on the same patient). However, given its size and complexity (and, some would say, its lack of profit motive), Medicare doesn’t have the administrative resources to make procedural determinations on every single patient care plan. Thus, providers have both the incentive and flexibility to maximize billing to the government. Moreover, when providers contract out lab and other services, their demand is likely to be highly inelastic, since the FG ultimately owns the final cost. This allows outside service providers to bid up their prices significantly. And, since individual private insurers are small bidders relative to the FG, they have little influence over pricing. As a result, they over-invest in plan administration to ensure that they minimize charges and don’t unwittingly pay for unnecessary procedures. Of course, this typically happens after the fact, which is why consumers are often denied coverage or left with a bill that they didn’t anticipate.

    The best solution, as the author points out, is to migrate off of private insurance entirely and switch instead to individual health savings accounts. The author has a lot of interesting ideas on how to structure this in order to minimize risk exposure and ensure that low income households are covered.

    If anyone else has read it, I’d be interested to hear your thoughts.

  48. That article addresses something really important, but different from the government’s national health insurance discussion: why does America’s health care system so often do a mediocre, or even poor, job of saving human life and how can it be fixed?

    Few at the top seem interested in discussing this question. What they’re really interested appears to be finding a new way to pay for the existing health care system when they expand it to cover more people.

    Real medical reform does not appear to be on the table.

  49. Here is Uwe Reinhardt’s opinion on health savings accounts:

    “We’ve heard some people have proposed that a solution for America is something called consumer-driven health care. How does it work? What is it?

    … Well, the name “consumer-driven health care” at this time is a deceptive marketing label. What we’re really talking about is an insurance policy with a very high annual deductible — up to $10,500 per family, and less for an individual — and then coupled with a savings account into which you can put money out of pretax income; you don’t have to pay taxes on such income.

    Now, this has the advantage … that people faced with this deductible will think twice before going to the doctor for trivial issues or drugs they don’t need, etc. But of course the problem also is that they may not go when they should or may skimp on the drugs they should be using, like a blood pressure drug, so that one would have to be solved by saying preventive services will have first-dollar coverage. So you could solve that problem.

    But then what I argue is, yes, it may have the economic effect of cost control, because you then would have to know the prices different doctors charge, and hospitals and pharmacies, and something about the quality. And that information at this time exists only in a few areas. The insurance companies are beginning to work on Web sites that will give you that, but it’s still very primitive and fairly unreliable information. So that is why I compare it really more like thrusting someone into Macy’s department store blindfolded and say, “Go around; shop smartly.” …

    The other problem that I see with it, though, is it has ethical dimensions to it that people don’t appreciate. If I make anything tax-deductible, then a high-income person in a high tax bracket saves more than a poor [person]. So supposing a gas station attendant and I each put $2,000 into a health savings account, and we get a root canal — about $1,000, just the drilling. It costs me about $550 because I’m in the 45 percent bracket. The gas station attendant may, in fact, not pay federal income tax because the income is so low but may only pay Social Security, so he saves 8 cents on the dollar. So a root canal will cost me $550; will cost him $920. …

    Secondly, think of a family of two professionals, each making $140,000, close to $300,000 income, and they have, say, a $5,000 deductible. Would they deny their child anything that they think the child needs over a lousy $5,000? … But think of a waitress who makes $25,000 with a $5,000 deductible, and her kid is sick. It will certainly make her think twice. She’s likely to say, “Maybe not.” So therefore we’re asking the lower half of the income distribution to do all the self-rationing through prices. …

    And the third issue is this deductible. If you’re chronically healthy, you don’t actually ever spend as much as that; you have a tax-free savings account. If you are chronically ill, on five drugs, you’re going to spend that deductible year after year. So the proposal is to shift more of the financial burden of health care from the shoulders of the chronically healthy to the shoulders of the chronically sick.

    And I would say, imagine a politician coming to the people with a platform that I just described in ethical terms. … You think that would sell? So they say, “We’ve got to find a better name. Why don’t we call it consumer-driven health care?,” and have all these deceptive labels that even George Orwell wouldn’t have thought of. That is what I find troublesome. Yes, it’s an approach to health care, but could you please describe it to the American people honestly, in all of its dimensions — not just economics but information and ethics? And that’s not done. …”

  50. I don’t think health care should be provided in a marketplace for the precise reason that consumers are not sufficiently informed to make decisions that lead to optimal allocations. I’m not the first person to make this point – I believe Kenneth Arrow had something to say about it.

  51. Are you saying that if most people are wrong about an issue, we should adopt the wrong policy as a result? Say most people think that you should raise taxes and balance budgets in a recession, is that what the government should do?

    Or are you saying that if a majority of people think something, it is right by definition?

  52. David Goldhill’s Atlantic article describes a health savings account which would, for the poor, be subsidized by the government.

    The spirit of Mr. Goldhill’s article, is, I think, to change the system so that the patient, not a large government or private insurance program, is the one paying for services. If we have to give some patients enough cash, then so be it.

    But, it may just simply be that Prof. Reinhardt’s objection cannot be addressed in an HSA program, no matter how much it is gov’t subsidized.

    Still, however it’s done, it seems critical to find ways to transform health care billing and pricing transparent and understandable.

  53. It seems to me that there are ways to structure a national HSA program such that it isn’t regressive. For example, even now, you are only able to deduct non-reimbursed health expenses if they represent a certain % of your income. Moreover, if HSA’s are fully funded by the FG under a certain income threshold, and if we provide vouchers for free check-ups (which, as Goldhill suggests, would only cost the FG about $30b annually), it’s highly likely that a gas station attendent would not have to pay one dime of basic medical service. The other key to Goldhill’s plan is nat’l catastrophic health coverage, which would be compulsory (and, again, the FG would subsidize below a certain income threshold). Where his argument enters muddy water, though, is in determining what we actually deem “catastrophic”. If this includes too many procedures that are avoidable with preventative measures and changes in lifestyle, we still have a moral hazard problem. On the other hand, if we narrow the definition, how do we deal with the lifelong smoker who needs expensive treatment for lung cancer? We can disagree with his lifestyle choice, but it seems beyond the pale to deny him treatment outright because he can’t afford it.

  54. Why do you think a bureaucratic insurance company is better than the Government? Most government servants in America are not capricious or mean or corrupt. They work hard for relatively low wages and are generally quite ethical. IN definnig treatment norms they will use medical practitioners and add in an element of cost based rationing.

    Insurers on the other hand have a definite incentive to do everything they can to stop people getting treatment. Also, they set treatment norms (ie how long a doctor should speak to a patient for any particular condition; what and how much drugs, tests etc they should do and so on.

    An insurer has no incentive to help you, the government has some.

  55. the problem with all threshholds built into a system is that for a growing business or an employee getting promoted they can provide a barrier.

    Germans had at one time so mis-calibrated/mis-aligned several threshholds in payroll deductions*) that it actually happened not unfrequently that an employee getting a pay rise that lifted him in non-mandatory public healthcare saw less cash in his bank account because at the same time he made a jump up the next step in taxes. So in order to avoid that the employer had to make that special raise fairly big which would lead to the employer delaying it – doing it by evenly upward or downward percentage amounts will be better unless there are severe reasons against it

    (health insurance, old age pension, unemployment insurance, old age care taking insurance and income tax are deducted from the salary before the remainder is sent to the employee’s bank account

  56. 1). Ban Pharmaceutical ads on TV, so that people are less likely to demand expensive brand name drugs when generics do the job perfectly well for much less; 2). restrict the way drugs are marketed to health care professionals to reduce the degree to which their decisions are influenced by greedy lobbyists 3). Tort law reform, to reduce malpractice costs.

  57. France has a system universally recognised as achieving the best healthcare outcomes overall in the developed world. It costs 9-10% of GDP, so its comprehensive and pretty efficient. It combines government pay, health insurance and privately run hospitals to get what appears to be the best of all worlds.

    You folks in America will never get anything like this though because the lunatics of the right will use every from of intimidation and misinformation to convince enough Americans that Obama’s policies will kill them all. Additionally the vested interests like the Pharmaceuticals and Insurance companies will lobby to help destroy the plan or anything similar.

    You have my sympathy.

  58. The biggest problem is not the system, but the people. As long as Americans believe they can eat & drink (and not exercise) whatever they want, and some doctor will prescribe them a magical pill to get rid of their ailment, costs will always be out of control. Not to mention the pharmaceutical companies creating illnesses and over-marketing medications for non-existent conditions. There is no restraint or compromise in America, and this is a cultural problem: we all believe we should be able to do whatever we want, whenever we want, and there will be no consequences.

  59. I would like to know of any time any place any whatever where people have ever been acting differently once they had the means so what you are suggesting is introducing austerity and I mean real needy stomach cramping austerity

    If you want help in imagining it in a still comparatively comfortable version (no one dying of hunger) I recommend The Road to Wigan Pier and the Notes to that book – and even under those dire circumstances folly was dearer to their heart than food, Orwell guesses they needed the folly to uphold their dignity

    maybe today foolish behaviour is rebellion against being constantly schooled, reprimanded, adviced, you name it –
    advice equals Ratschlag in German, the literal translation of the second part of the word is hit like in beating somebody (ich schlag Dich nieder = I beat you down/knock you out) – the etymology may be different but in this case I don’t care

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