Friday, December 18, 2009

Health Care From First Principles

David Brooks seems to have the fairest summary of the pros and cons of the current bill.

I hate to subject you all (all three of you!) to yet another formulation of the Radically Moderate Health Care Plan but, since I mostly write this for myself, here goes:

There are three main things that need to be done:
  1. Implement guaranteed issue, community rating (segregated by age), and mandatory subscription.

  2. Unbundle insurance offerings so that insurance, payment clearinghouse, collective bargaining, and ombudsman/patient advocate functions are separately acquirable. Eliminate Medicare as anything more than a subsidy. Eliminate employer-sponsored group insurance.

  3. Make Health Savings Accounts the mechanism through which all government subsidy and tax advantages flow. Allow employers to send pre-tax dollars to HSAs.
I've kinda drunk the Kool-Aid on the guaranteed issue / mandatory enrollment / community rating cluster of features. Since we're going to provide some form of medical care to all comers, all comers need to participate, but you've got to spread the load relatively fairly via community rating.

I'm not a big fan, however, of the idea that the young get to subsidize the old. We all feel sorry for grandpa because he's frail and not all there. We feel especially sorry for grandpa if he happens to be living on cat food in a third-floor walk-up tenement. But the fact is that the vast majority of wealth in the US is held by people over the age of 50. That seems like a nice dividing line: I support community rating into two age categories: under and over 50. There is simply no moral justification for the young to subsidize the old, especially when the young are trying to raise families and be a productive part of the economy.

Now, all of the above seem to be essential for our public morality and basic fairness, but none of this does diddly squat to bend the cost curve, as they say. But this is actually a very simple problem. You ready? Here's the magic ingredient:

You have to be responsible for your own health care, and that of your dependent family.

That's it. That's the whole secret. But there are many consequences of this statement:
  • You pay the bills. You buy the insurance. You pay the out-of-pocket. You decide on the mix 0f insurance and out-of-pocket expenses that seems right for you.

  • You pay all the bills. No more of this business of your insurer acting as your payments transfer system. If you'd like to subscribe to a medical payer service, feel free to spend the money, but it's not part of your insurance any more.

  • Nobody takes care of you by default. Your employer stops being your de facto health care provider. So does the government. You pick your own risk pool and you live with it. If you want somebody acting as your health ombudsman or patient advocate, hire somebody.

  • You decide how you want health care delivered. Do you like your personal doctor? Terrific, but understand that you'll pay a premium when he has to hand you off to a specialist. Like an HMO model? Cool, but understand that your access to advanced care probably isn't part of the package. But that's OK--you can pay for the advanced care whenever you want it, or, alternatively, your insurance will kick in.

  • You get to pick whatever form of collective bargaining seems right for you. Health care networks need to reduce costs by attracting you as a customer, not because you happen to have been slimed into some network by your insurance carrier.
For most Americans, health care needs to be much more of an aggravation. You need to worry about it. You should be able to find private services that make your life easier, but you need to worry about whether they're delivering value for their cost, and you need to worry about whether they're actually taking care of your health.

To restate the above: Federal law needs to dismantle the vertically integrated insurance system. It must be illegal to bundle the following functions together:
  • Insurance
  • Payments transfer systems
  • Collective bargaining
  • Ombudsman/patient advocacy functions
In addition, we have to get rid of employer self-insurance and, for that matter, any form of employer-provided group insurance. If we allow this to persist, we so distort the guaranteed issue and community rating systems that they'll collapse.

Next, we need a mechanism through which you interact with the government about health care. Yes, there's still a role for government: it has to provide incentives for spending on health care, and it has to subsidize people who simply can't afford a basic standard of care. The strategy for this involves segregating dollars earmarked for health care from the rest of a person's income in a health savings account. Here are the rules:
  1. Money in an HSA can only be spent on health care. You can build whatever kind of a bureaucracy you want to enforce this. My favorite form is that everybody gets an HSA debit card, and only accredited insurers, health care providers, and health service providers (ombudsmen, health networks, HSA financial managers, etc.) can enroll in the clearinghouse for the debit cards.

  2. Money that goes into an HSA is tax-free, up to some fairly large amount. Employers can contribute pre-tax dollars into an employee's HSA. The individual can contribute post-tax dollars as well. Investment income earned by an HSA is also tax-free.

  3. If your are in need of a subsidy to meet basic health care needs, the government deposits that subsidy into your HSA, for you to use as you see fit on your health care.

  4. Money in the HSA rolls over indefinitely, but it goes back to the government on your death. The idea is to encourage lifelong savings for health, but to avoid the HSA turning into a tax shelter.
Finally, we all have to remember that every doctor's office visit, hospital stay, health care procedure, drug, medical device--every cotton ball--has to be paid for. There is no free lunch. The trick is to make all of those costs completely transparent. All the hidden costs of caring for uninsured patients need to come out of the inflated prices that doctors and hospitals use to hide them today. All the public sector costs need to be accounted for as taxes, not hidden deep in the system and transferred to the consumer as costs.

This current bill is a massive con job. It is designed to obfuscate, not reform. I agree that something radical needs to be done. But it can't be done if the overall objective is paternalism, rather than forcing individuals to take responsbility for themselves.

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