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POLICY/POLITICS: Ezra Klein skewers the HSA, Joe Paduda skewers the CDHP, with UPDATE

(This entry bumped up to top because of fun UPDATE)

Apologies for my later start this morning, those of you who follow my knee problems will perhaps be as pleased as I am to know that I spent the weekend snowboarding with apparently no ill effects on it! But it mean that there’s only limited fodder for THCB written over the weekend.

The good news is that while I’ve been slacking, over at Tapped, Ezra Klein skewers the HSA, reminding us that it’s a destruction of the risk pool. I suspect that educating Bush about health care is like the story of David Stockman trying to explain the budget to Reagan, and realizing that he never had a clue about the difference between real and nominal dollars. One of Ezra’s commenters also points out the obvious–that the HSA will do nothing to reform the underlying problems of the system’s cost explosion, and so is by definition a temporary fix.

Last year, when I bought health insurance for my law firm (me, my family, my paralegal and my secretary) I could get coverage with a five hundred dollar annual deductible for $1,900 a month. I looked through all the options and saw that a plan with a $5,000 annual deductible was $1,200 a month. If there was one with a $10,000 deductible it would maybe cost maybe $900 a month (guessing). With health-care inflation running at 8-10% a year that policy with a $10,000 deductible would soon be prohibitively expensive.

Meanwhile over on his Managed Care Matters blog, Joe Paduda skewers the CDHP, with a big assist from Alain Enthoven. Remember kids, the CDHP is the bastard child of a one night stand between a benefits consultant with nothing to sell and a right-wing think tank that can’t do basic math.

CODA: In the transcript of the debate between Enthoven and Reggie Herzlinger on the KaiserNetwork site, Reggie’s comments have all been excised. I wonder whether there’s censorship of some kind here, or whether she was so embarrassed at what she said that she asked for them to be pulled…anyone who knows the truth please get in touch!

UPDATE: Reggie apparently did ask the Kaiser people not to publish her remarks. So was she chicken embarrassed, or was it a bad hair day, or was she selling her schtick to someone else for an exclusive?

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23 replies »

  1. Re: “You take that money out of the system and put it in people’s bank accounts and suddenly there’s no money left over to pay for the high-risk segment of the population. It is basic math, which is why it is so alarming that Bush’s ideas may gain traction.”
    How about you go after all of the Medicare and Medicaid fraud out there and use the recovered money to fund an insurance pool for the high risk? And everyone else gets to keep their money in HSA’s?
    Better yet, TAX the non-profit hospitals and use the revenue to provide for an insurance pool for the high risk and let everyone else have HSA’s?
    Even better, tax the non-profit hospitals while also going after fraud and waste at the same time. Now, you can insure the worst health cases and fund the war in Iraq on top of it.
    I’m being a bit sarcastic. But only a little bit.

  2. Consumers ought to have choices.
    We can all have a debate about the risk pool and the effect that HSA’s might have on things, but you cannot argue that choices shouldn’t be there for consumers who want HSA’s.
    These are especially good for the self-employed or those who have really crummy benefits through a job with a smaller employer who can’t get the best deal from an insurance carrier due to not having a ton of employees. Their employees are at the mercy of that particular employer’s plan.
    Have a discussion about what to do about the highest risk people in the pool, but don’t argue against HSA’s as a CHOICE for those consumers who want them.

  3. If you don’t like funding high deductible HSA plans yourself look to the HRA and choose the plan options you want. Buy the high deductible plan and use the premium savings to establish an HRA to pay the deductible. This allows the company to pick up all or most of the new high deductible expense and write it off as a business expense. Or better yet, formerly drop the group plan and establish an HRA to reimburse individual health insurance at approximately 50% less than the cost of group plans.
    HSAs are only more popular because this administration has pushed the new “take ownership” approach to healthcare and retriemnt accounts. When compared most employers opt for the HRA because of flexibility and savings.

  4. > why does Matt owe Theora a new keyboard?
    Well, this is pure speculation, but I imagine Theora sitting in front of her computer. She has a nice glass of CocaCola in her hand, ans just taken a good, full draught into her mouth, just as she’s reading Matthew’s quip about CDHP being the bastard child of a one night stand between a benefits consultant with nothing to sell and a right-wing think tank that can’t do basic math.
    She laughs so hard, she spewes her CocaCola out of her mouth, and most likely her nose too, all over her keyboard, making it sticky and ruining it forever. This she blames on Matthew’s failure to warn her of extreme humor just around the corner, and has filed her claim for a replacement keyboard. And I, of course, living right across the river from Madison County, Illinois, find her claim to be just and reasonable.
    Matthew has gotten off easy in my book: she probably has dry-cleaning bills, pain, suffering and embarassment, a huge sticky cleanup project, probably a ruined HIPAA-screen on her computer monitor, and the rest of a lost day’s work. So he should just pay-up with a smile.
    t

  5. > why does Matt owe Theora a new keyboard?
    Well, this is pure speculation, but I imagine Theora sitting in fron of her computer. She has a nice glass of CocaCola in her hand, ans just taken a good, full draught into her mouth just as she’s reading Matthew’s quip about CDHP being the bastard child of a one night stand between a benefits consultant with nothing to sell and a right-wing think tank that can’t do basic math.
    She laughs so hard, she spwes her CocaCola out of her mouth, and most likely her nose too, all over her keyboard, making it stick and ruining it forever. This she blames on Matthew’s failure to warn her of extreme humor just around the corner, and has filed her claim for a replacement keyboard.
    Matthew has gotten off easy in my book: she probably has dry-cleaning bills, pain and suffering, a huge sticky cleanup project, and maybe a ruined HIPAA-screen on her computer monitor. So he should just pay-up with a smile.
    t

  6. Well, it divides largely bewteen young and old. But I was diagnosed with cancer last year at the ripe old age of 27, so you never know. I was glad to have health insurance, believe me.
    It seems like you’re trying to force health insurance into the Auto Insurance, Homeowner’s insurance, etc. box. But the key difference is that when people get speeding tickets or into car accidents it is their fault, so it is morally OK to punish them with a higher premium. Last time I checked, the medical community knows of no cause for testicular cancer (barring testicular trauma of which I’d had none), so pricing me out of the system for that is immoral. Especially since there are alternative to driving, but there aren’t alternatives to living (which goes back to the elasticity argument).

  7. Sorry Tom, you said that MO only has one year “TERM” health insurance by state law. We sell individual health insurance in MO and it is not one year “TERM” so you are spewing cosmic Debri (Nice name for LIES).
    Where do you dig up these people that are clueless on insurance law Matthew, they’re pathetic.

  8. Ron: Missouri. And I am saying that even those with employer-based health insurance don’t have dental insurance, properly speaking.
    Spike: Not “unspent money” but “premiums collected in excess of actuarial risk + average SG&A expense for the industry”.
    Think, think, think….
    OK, I think I see what you’re getting at. You are saying the risk pools are malformed, having individuals facing very different levels of risk during the period. Your assumption is that the risk divides along the young/old axis, and that “premium cost to the young is vastly in excess of the insurance protection they receive against accidental injury or dread disease”.
    If everyone had perfect (or even pretty good) information, no voluntary insurance pool would form this way, and as you have noted, when they are formed they are unstable. When this kind of pool is found, I bet it is a consequence of the way we form risk pools around workplaces, and I think would be far more characteristic of small businesses than large ones. So the question is “Who’s fleecing the young people?” In this case, it is the company management (i.e. “the old”) fleecing the young, in cooperation with the insurance company.
    In a voluntary individual market, if an insurance company could collect premiums “vastly in excess of the insurance protection” promised, the excess would flow to the insurance company’s bottom line. In an involuntary group market, maybe not.

  9. Tom L, if the unspent money went into profits, then how would an insurance company pay for a person who got cancer? Or a person who developed diabetes?
    As you (may not) know, healthcare operates with the Pareto Principle, meaning 20% of the people generate 80% of the costs. I seriously doubt healthplans are operating on 60% profit margins, which would be the case if healthplans were putting unused premiums strictly towards profits.
    Don’t get me wrong. Drawing the distinction between predictable health expenses and unpredictable ones is important to do. But it seems like the conclusions you’re drawing from that idea are flawed.
    As for healthcare being a free market, any market in which demand is almost completely inelastic (I believe the core problem with the “HSA debate” is a debate over how elastic the demand for healthcare services is) and in which the provider of services has vastly more knowledge than the purchaser can not be a free market. Because of those two features, there must be regulation. Laissez-Faire healthcare would be a disaster.

  10. Tom Leith, it would be too easy to tell us which state you live in if you are going to be making claims like that.
    In the real world the only people who have “Dental Insurance” is those with employer-based health insurance. Self employed people don’t buy that stuff.
    NewsFlash: Aflac is having Georgia “Government Regulators” try and stop us from being competition to them. Goofy Duck thinks we are the Wolf.

  11. Forgot something. I said:
    > Dentistry is mostly not insurable because it is
    > almost completely high frequency/low severity events.
    > And dental plans reflect this.
    I should have included the fact that different people face very different degrees of risk with respect to teeth. I have one cavity in my mouth, but my wife probably has more filling than tooth in hers. Private information about family history causes a HUGE adverse selection problem, coupled with a general unwillingness to pay a premium that reflects the whole community because of the generally low severity of dental problems. So you don’t see genuine insurance contracts written for dentistry.
    t

  12. Tom H —
    Social Security is a lot like a Ponzi scheme in so far as it relies on constant stream of new “investors” to pay off the early “investors”. The article has the SSA’s point of view as well. I think SS amounts to a Ponzi scheme because it has promised the great majority of participants a return greater than is possible given demographic trends without a frank, coerced transfer of wealth from the young to the old. This is not insurance, and it is not even charity.
    Yes, for health insurance, the relevant timeframe ought to be a lifetime, but as things are today, it isn’t. We all have term health insurance, and it is in fact ILLEGAL in the state where I live to sell a multi-year contract for health insurance. You get renewable annual term, and that’s it. This is the case in most states, and our brilliant legislators call it “consumer protection”.
    Health insurance ought to work like a Whole Life life insurance plan: insurance coupled with savings, with the “cash value” savings used to pay for the expected end of life care. What we cannot have, and must not have is another system without actuarially sound reserves and an open-ended commitment.
    Your comments about dental plans tell me I have not made myself clear. It may be that some few people get more value than they pay in premiums, but not very many, and not very much more. Look at how the plans are structured: anything more serious than a cavity is basically not covered, and there are very tight limits on total payouts per individual. Dentistry is mostly not insurable because it is almost completely high frequency/low severity events. And dental plans reflect this.
    While some people believe in the free market, it is most evident that the market for medical services and related activities are among the most high regulated, and are not free. And for a market to behave efficiently even in a laissez faire regulatory regime, lots of things must be true that just aren’t in the medical services. So be careful what you wish for.
    t

  13. Social Security is a ponzi scheme? Aha! As I suspected, Franklin Roosevelt is not dead, but actually living on a Caribbean island and paying for margaritas with my payroll tax dollars.
    In any case, the “relevant timeframe” should be a lifetime, as it is with Medicare and Social Security: young people pay in knowing that they will benefit upon reaching old age.
    I appreciate Tom L’s explanation of the prepaid component. While the dental care example seems a little odd – there’s actually quite a nice mix of non-utilizers and frequent-fliers, making dentistry just as insurable as other specialties like optometry and podiatry – the basic concept is useful. Thanks.
    I’ll match my cynicism about the insurance industry against anybody’s, but the notion that insurers are taking premiums from young people to pad their salaries is a little surprising. I thought there was a free market for health insurance, and that insurers were competing on price. We do believe in the free market around here, don’t we?
    And yes I’m sure I don’t know enough. That’s why I read Matt’s blog.

  14. 1. HSAs kill employer-based coverage.
    2. Individual deduction for health insurance will kill employer-based coverage.
    3. Individual tax credit for individual insurance will kill employer-based insurance.
    [[Anything would kill employer-based health insurance]]
    So long Blue Cross. Soon BC will be just a bad memory. HSAs enhancement with LARGE HSAs would make for a Tax Dodge – Texas Style. Pray for President Bush.

  15. Spike, I think you will find the money they don’t use goes towards insurance company profits. The insurance company might engage in a little cross-subsidisation in order to have a lower overall premium price and attract more low risk suckers to the pool. But this is in order to milk them, not to do something beneficient for the sick.
    t

  16. Tom H writes:
    > But so far as I know, Klein’s discussion
    > of risk-pooling is pretty much Insurance 101.
    Then you do not know enough. Klein’s discussion wouldn’t get a “C”, and yours is worse. Klein missed entirely the first requirement for an insurance contract: that every member of the pool faces similar risk in the relevant timeframe. You missed it too. Plus, you have introduced great friction into the system by including high frequency/low severity events under your insurance schema. Finally, if it is true that the premium cost to the young is vastly in excess of the insurance protection they receive against accidental injury or dread disease, and that the young ought to participate because they’ll be old someday, then you have created a Ponzi scheme just like Social Security. This is not insurance at all.
    If you want to know what I mean by “pre-paid services” examine ANY dental plan. There is essentially no such thing as “dental insurance” — the amount that will be paid for each individual is almost exactly the amount of the premium paid by each individual. Dental plans amount to forced savings plans with great restrictions on where the money can be spent (i.e. “at the dentist’s”), and maybe with some price negotiation done for the plan members. The plan administrator profits because people hate going to the dentist, and don’t go, so the plan gets to keep the so-called premium, which is actually pre-payment for services (which might not be rendered).
    Something similar goes on in other medical insurance: any plan that pays for “well baby checkups” or “bi-annual physical exams” has a pre-paid services component. In these cases it is entirely obvious. But there are many, many other examples, including “baby has earache” or “adult has flu”. If the event is unsurprising, it isn’t properly speaking insurable. It comes from a “pre-paid services” component of the financing plan, not insurance.
    t

  17. Right. The problem with Tom L’s analysis is that lots of people who “pre-pay” for medical services wind up not using those prepaid services. The money they don’t use goes towards funding the high-risk people (sick or older). You take that money out of the system and put it in people’s bank accounts and suddenly there’s no money left over to pay for the high-risk segment of the population. It is basic math, which is why it is so alarming that Bush’s ideas may gain traction.

  18. Do HSAs damage risk-pooling? Of course they do. A viable pool has a mix of enrollees whose claims are well below the premium (low-risk) and well above the premium (high-risk). If the low-risk enrollees are lured out of the pool, then only the high-risk enrollees remain. The premium must be raised substantially, which causes the healthiest fraction of the remaining high-risk enrollees to drop out, which causes the premium to go up again, etc. Insurers call this the death spiral. The issue with the young and healthy is not losing their minor claim costs, but losing their premium dollars, which are anything but minor.
    I would also argue against the notion that the purpose of health insurance is simply to protect against large and unexpected events. That is an important purpose, certainly. But the premium cost to the young is vastly in excess of the insurance protection they receive against accidental injury or dread disease.
    The secondary purpose of health insurance is to protect against health care costs that are all too predictable. as we get older, the risk of needing health services becomes increasingly certain. Hence the generational split that President Bush seeks to exploit with HSAs. Young people may reasonably ask, why are my premium dollars paying for older people to get healthcare services? The answer is that young people will eventually grow old and require health services of their own. But that argument only flies if we are all in the same risk pool.
    I don’t know exactly what is intended with the reference to the pre-paid services component, and perhaps this is just what happens when we shorthand a complex argument. But so far as I know, Klein’s discussion of risk-pooling is pretty much Insurance 101.

  19. Mr. Klein says:
    > Because what HSA’s really do is separate
    > the young from the old, the well from the sick.
    And argues that the HSA damages the idea of risk pooling. I don’t think this is quite right.
    Some medical service utilization is predictable, or at least no big surprise. This isn’t really “risk”. Risk, and by extension insurance, is about large and surprising events.
    When we remove the smallish expenditures from the current financing scheme we call the insurance system, we’re not doing anything about “risk”, we just removing what I have called the “pre-paid services” component from the financing scheme we have in place now. We have not changed anything with respect to risk or insurance. And so I think all the conclusions he has drawn based on this premise are faulty.
    As for the rest of his critique, I think he’s mostly right. HSA-driven system might hurt some of the alternative medicine practices, but I bet that’s about it. They might cause some underutilization. But this is all around the margins. And if he thinks anyone but “businesses” pay the cost of healthcare, he’s loony. I think the business agenda is to make clear to employees the actual value of their compensation. They may think in the short term employees might be happy with a 10% increase in compensation, even if only 2% goes in their pockets. But in a few years, people’s expectations will shift, and we’ll be right back where we are now.

  20. Ezra is so goofy. He said HSA Qualifying insurance won’t pay until you hit $10,000, the bozo. That is against Federal law, you know that Matthew, you have an HSA. Most singles get the $2,700 deductible that pays 100% including Rx to $8 million.
    Then his goofy commentors said we need to fight the HSA like we did the PSA in Social Security, ha ha. HSAs are already the law of the land and can’t be stopped. Bail on your liberal uninformed fruitcakes Matthew and join the HSA bandwagon. Pray for the Conservative in Canada today.

  21. Remember kids, the CDHP is the bastard child of a one night stand between a benefits consultant with nothing to sell and a right-wing think tank that can’t do basic math.
    You owe me a new keyboard.

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