POLICY: I ♥ Uwe Rheindhardt on “Skin in the game”

As I’ve said for a while I seriously believe that the way to health reform is to make all a) members of Congress and the Administration b) all op-ed writers for major newspapers and c) all Academics (especially Mark Pauly) buy their insurance in the individual market. Then we’d have single payer in about 2 weeks.

But I’m not sure that I ever could come up with something quite as inspired and beautiful as this version from Uwe Rheinhart at the recent KFF session on HSAs in which he rips into a bunch of rubbish spewed from a couple of Bush flacks on the topic of “Skin in the game”….based on exactly who’s effing skin! Here’s Uwe on income adjusting deductibles:

If you look at this, yesterday we had on the Kaiser Commission of the Uninsured and Medicaid, this slide was presented. Among people with less than $30,0000, they’re in fairly low tax marginal brackets. The way I describe it is if I have a really rip-roaring toothache, and I need a root canal, and where I live it’s about a thousand bucks to get a root canal and another thousand for the crown. When I pay that out of the HSA, it will cost me, at most, $600, because if you add up all these taxes that I face at the margin, for every dollar I put into the HSA, it cost me only, at most, $0.60. The gas station attendant, the waitress, the WalMart worker, it cost them around $900 for the same root canal in after-tax dollars. I personally think that that’s an ethical proposition that we should debate. I’m not saying we shouldn’t do it, but I do argue that it should be openly debated. This is not neutral.

The second issue is, obviously this is meant to be a cost control and benefit cost-control device, but we are looking mainly to the lower part of the national income distribution to do the belt tightening and to do all this stuff. And, of course, as I mentioned and I never fail to remind you that those are the people to whom America looks to go abroad to fight. It is not our children, though our son did, but that’s almost weird, it isn’t the elite’s children who do the fighting, it is mainly people in the lower half, not the very poorest, but in the lower half of incomes who fight for us. So they bear already the blood and financial burden of the war, and we want to load that on top of them. I personally think we should debate that. How much can you load on these wonderful people?

And the third, this is the income distribution of the United States 2002, 33-percent have an annual income of $40,000 or less. Interestingly, most health policy wonks and policy makers are in the upper two. Think about it, if you are a young professional and you are married to another young professional, you are up there. That’s what I tell my students, "You’re going to be living up there. You’re not part of American society as it reveals itself in the hinterland at all." And so, we have these images of "skin in the game" and so on, but I would say someone with a $200,000 family income, is anyone here willing to tell me that their healthcare behavior would be even in the slightest impacted by a $4000 deductible? I know it because I’ve always had them; not at all. This is peanuts; it’s a skiing trip. To a waitress and a husband with $40,000 or less income, $4000 and then more on top of it is a huge hit. They will modify. So it’s fair to say we’re looking to the bottom half of the income distribution to carry the load of cost containment in American healthcare. I saw this in Business Week, 1 in 4 workers makes less than $18,000; if they’re married, that’s $40,000.

So I go to eHealthInsurance, where you can buy these individual policies, the farmers’ market of that, and I made myself a 35-year-old woman with three kids and no husband; that’s what I put in. I picked Dallas, Texas because that’s where the National Center for Policy now is. [Laughter] Let’s see what you can get there. What you see is if she is healthy; I think if she’s sick, in that market she’d have trouble getting it because they’re underwritten. But if she’s not sick, she can get a policy for $148 a month with a $10,000 deductible. Those are the deductibles that you find on that web site, and Diane already walked you through this. I say that surely we don’t believe a family with an annual income of $20,000 will respond to a $10,000 deductible the same way you and I would if we have $200,000. So, what I’m arguing is, I think, unassailable. Now, of course, you could avoid this by making the deductible and maximum risk exposure, linking it to income. So that would say if a household of $40,000 can bear a deductible of $4000 and a maximum risk of say, $6000, it would mean that for congressmen and policy wonks, that deductible should be $20,000 with a maximum exposure of $30,000. Then you would have the same sensation of empowerment, or whatever you may call that, that the waitress and her husband will have. That means all of the Congress, the entire Congress, should have a minimum deductible of $20,000. It would mean executives of corporations shouldn’t have any health insurance at all. Because when you make $20 million, why do you need insurance? Ask yourself this. Yet, I saw this in The New York Times, here is Mr. Wile [misspelled?] (Note: I assume he means Sandy Weill of Citicorp) who probably was paid $30 million that year, he had $61,000 out-of-pocket dental and health insurance, the company paid it, and because it’s imputable income, they paid his taxes too. There was a piece in The Wall Street Journal a couple of years ago on how many, many corporate executives have first-dollar coverage; corporation pays everything plus the taxes. I personally wonder if these people, who are so risk adverse and of such an entitlement mentality, as you have in the corporate suites, ever think what they’re saying when they say that people "skin in the game," right? That is sort of, to me, that is a form of Marie Antoinetteism.

Finally, there is no question that we are talking about shifting the financial burden of ill health more out of the households of the chronically healthy to the chronically sick. I saw this, it must be the Jerry Andersen’s study, but more than half of healthcare spending is on behalf of multiple chronic conditions. As Katherine pointed out, this is in fact the 2001 per capita health spending of insured, the privately insured people below 65. Ken Thorpe gave me these numbers; you could see that if you had a $4000 deductible, in fact, the bulk of Americans would be saving money. But those people, the ones who are chronically ill year after year after year, would have to pay this deductible. It doesn’t take much to do that.

My concluding timing is perfect. My concluding remarks are I can style the HSA high deductible as a liberation from the shackles of government regulation or private health plans, managed care, and it is often marketed that way. I saw this thing "Reclaiming Personal Power and Freedom in Decision Making." That sounds mellow and it sounds good; it’s a way to market this idea. But I could also say I could present it to the nation the way it is now being proposed by the President. One can describe it, fairly, as one more policy to redistribute economic privilege, big tax cuts, and healthcare resources upward in the nation’s income distribution. That’s another way to describe it. I’m not saying we shouldn’t do it. Maybe we up there are very meritorious and should have these privileges, but I plead only for an open and honest discussion of these ethical facets, and not just reduce it to a technical discussion. I particularly take some umbrage of the issue of "skin in the game," particularly how it’s often pronounced by people who don’t really know what that would mean because they’re in an income class where there is no "skin in the game."

If you have time give yourself a treat and go here, and click on "video" and wind forward–Uwe’s on at 12:30 into the vid.

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12 replies »

  1. Kaiser is liberal but that is where I was getting my stats from too (the Holohan paper).
    I don’t disagree with what you are syaing in the last part, but I think ti affirms that insurance under current structure is indeed a subsidy. I mgith be insuring against risk, but I know for damn sure that I’ll be paying for someone whose “house” is already on fire.
    The 80/20 rule gets a lot of discussion here but based on the risk pools I’ve seen, albeit those are limited, it seems that there is a 80/15/5 rule. Instead of pretending to spread risk when it is already known, seems to make more sense to have a national high risk pool that just straight up subsidizes those 5%. But I’m just pulling stuff out of my ass now.

  2. I don’t know if Kaiser is considered a liberal think tank or not, but they are where I get most of my numbers from. Medicaid payments per adult(non disabled) enrollee in 2002 was 1782. The average emploey based single coverage insurance policy was 3317. Even if you factor in an 11 percent growth rate, that still only 1987 dollars or a little under 60% of the cost of the average policy.
    I’m not adovocating for moving everyone to Medicaid(in its current form), though giving everybody under 200% of FPL the option to buy in to medicaid isn’t a bad idea. Additionally, providers would prefer the Medicaid rate to no payment at all. Also, you have to remember that the complexity of Medicaid is just as big a part of the headache for doctors as the low reimbursement is.
    I would also contend that the main reason many people get health insurance is not for the everyday inevitable costs, but for catastrophic cases.
    You were paying to ensure that if you became part of that 20 or 5 percent then you would be taken care of. Implicit in your insurance payment is the subsidy of those who have high costs, but that’s the case for all insurance.
    I agree that we need to do something about chronic, high costs cases, but that’s exactly my point, HSA’s do nothing about these people except for shift more costs to them, the sick and diseased. None of these high decductible plans do anything to curb costs at the price range that we are talking about. That is my main issue with these plans, they don’t address the real problems of health insurance.

  3. Cost per is closer to 80% and that is after you remove everyone with a disability from the control group and then compare it to the individual market. Also, do you think low reimbursement rates might have something to do with lower spending? Move everyone to Medicaid and then nobody can see a doctor because they won’t see Medicaid patients at those rates. It is happening all over the country and every medical sosciety complains about it incessantly.
    HSAs reflect insurance better because of the deductible and that you are insuring against major financial risks rather than insuring against something you know is going to happen (going to the doctor). I don’t see how you get around Kinsley’s point, though I certainly see how you can disagree with the conclusion he draws from it. I was in a pool with state employee for umpteen years and the same 20% (really 5%) were driving the costs. I’m not paying to insure against my risk at that point, I’m paying to subsidize the cost of care for people we know are sick and going to continue being sick for a long time. It is a subsidy. I may get hurt and have insurance cover me, but that risk is nto what is driving costs up.

  4. Your point about Medicaid is HIGHLY debatable. The average amount spent per adult on Medicaid was 60% that spent for the average single coverage plan. I heard that Medicaid pays as little as 74% of what it should pay for many services, but even correcting for that leaves a significant savings. Medicaid doesn’t invest profits and its administraive costs of much cheaper.
    How is it a subsidy? Kinsley failed at explaining this, but maybe you can offer up a better explanation. As you know, insurance comes in a variety of forms, high decuctible and otherwise so why do HSA’s reflect insurance better then other plans?

  5. Medicaid is not cheaper than commercial insurance. It merely offloads the costs on to private insurnace and institutions because the feds and state legislatures adopt reimbursement rates that make it charity care for all intents and purposes. As the proportion of patients on Medicaid grows, providers have a few options: a) stop seeing Medicaid patients b) cost shift to commercial c) bitch about the rates and hope they get raised.
    Dividing the country into halves and defining the top 50% as “elite” is idiotic as his point about the war, but most of his points are solid, especially that the debate on this needs to happen. The HSA model really is insurance as insurance and not as health coverage or health financing or however else you want to characterize what we currently do. What we call health insurance is really more accurately described as a susbsidy that we decide to call insurance.

  6. I like Uwe because one never quite expects how he illustrates his thinking.
    “When I pay that out of the HSA, it will cost me, at most, $600, because if you add up all these taxes that I face at the margin, for every dollar I put into the HSA, it cost me only, at most, $0.60. The gas station attendant, the waitress, the WalMart worker, it cost them around $900 for the same root canal in after-tax dollars.”
    Seems to me there is an ethical problem hiding in here as well with graduated income taxes – I know, off topic – I’ll get back on.
    When should a given “deductible” expense be more valuable for one taxpayer than the other? Answer – when the imcome, and therefore the tax rate, is higher for one taxpayer than for the other. Is that the result anyone who thinks about tax equity would design into a tax code? I didn’t forget who oversees our tax code. The same people to whom we will entrust the oversight of our bright, shiny-new single-payer health insurance system.
    I’m so comforted.

  7. Additionaly, I have been thinking of few healthcare ideas, and I would love to get a bit of constructive criticism on them. This seems like just as good a place as any to get some comments from healthcare professionals.
    1) Optional Medicaid buy-in for anyone under 200% of the poverty line. Medicaid is obviously much cheaper then private care. According to Kaiser it costs only 60% as much to provide single coverage as it does to cover a single adult. Let any businesses who want to buy into Medicaid. Yes it would increase the size of government but it would do so optionally. Yes many Doctors and hospitals hate Medicaid, but they hate footing the bill for the uninsuranced even more.Won’t this crowd out private insurers? Perhaps, 29% of folks under 200%FPL have coverage. But you could offer the stipulation that you must have been uninsured for one year, similar to some of the stipulations with Medicaid waivers.
    2)Reverse HSA’s. Basically, you would get a partial rebate of your standard health plan premium that could go towards future coverage. The rebate would only be partial so that you’d still be paying into the system for high costs cases. This would put a bit more “skin into the game” without uneccessarily encouraging people to forego needed care.
    3) The third idea and possibly the biggest would be similar(but not completely to a plan that brian spelman offered up in the contest. Basically, if a patient chooses a more cost effective treatment, then he and perhaps the doctor would get part of the savings from the cheaper treatment. For instance if you choose the 25 dollar treatment over the 125 treatment, you and the doctor split 25 bucks. The money would be transferred to an HSA and would have a 10 thousand dollar a year limit. Medicaid patients would have a smaller maximum amount, but part of their money could be saved specifically for additonal pay for services. The money could be transferrable to relatives after someone passes away. Initially such a program would have to be very specific as to which cases it offers these savings. For instance, a sure bet would be generic versus name brand drugs.

  8. Aren’t you making quite an assumption that HSA’s will drive down costs? The biggest problem with HSA’s is that they do absolutely nothing to combat the high cost cases that account for the vast majority of health costs. Let’s assume that HSA’s become wildly successful and cut costs in half for simple check ups and procedures. That still would only save the health care system something like 10% of costs, because the majority of health care costs would occur past the deductible limit, and thus there is no incentive to curb costs where they really matter. Any savings due to HSA’s also assumes that larger costs won’t occur due to the lack of preventative care that people will forego due to high deductibles as per the RAND study.

  9. Reinhardt makes the mistake of thinking that HSAs happen in a vacuum — that companies are going to switch over to using them and somehow pocket the difference, or to pay for another $4k skiing trip.
    In the case of the waitress it is probably a HSA or nothing as mom and pop restaurants can’t afford to offer “real” insurance. Perhaps now they can pool some resources to help employees buy this new tool.
    Also Reinhardt completely ignores the financial impact of HSAs on healthcare that should drive costs down. To use a worn out analogy: if there was “oil changing insurance” Jiffy Lubes would be charging $150 for 6 quarts.
    Now I’m sure the standard response to this will be “but healthcare is different!” Yeah well every member of a industry with skin in the game thinks that their industry is different and should be protected. I welcome HSAs as for too long there’s been a disconnect between what people get in care and how much it costs.

  10. Matt:
    Thanks for transcribing this speech. It’s it’s fantastic. It really makes a person take off their “wonky,” “ivory tower” hat and think about what these policies mean for real people. I hope Rheindhardt has helped to sharpen this issue for a lot of people. He’s not saying that HSAs shouldn’t be adopted, but we should have a real debate about the real consequences of this policy.
    I’ll take humans over economists any day. I thank Rheindhardt for being human.
    Fard Johnmar

  11. It completely baffles me how few health economists there are in the world-if any.
    Prof. Reinhardt is touted at the nations premiere economist in healthcare, but analyses like this are purely policy ones. He has set down his economist’s thinking cap and donned the public policy hardhat. Krugman does this too though he’s much worse at both health economics and health policy.
    I appreciate what Reinhardt is trying to do, because I actually have three hats I can wear at anytime: an economist’s thinking cap, a policy wonk’s hardhat, and a businessperson’s sweatband.
    But, let’s be clear, Reinhardt is being a policy analyst here. He’s playing the policy game and John Goodman of NCPA represents the opponents. The goal is to win the legislation of your choice.
    The game is not economics and the goal is not to forward our cache of economic ideas. If it were, he might note that he comes very close to making Mark Pauly’s case for moral hazard among lower income populations since this is were HSAs are most likely to contain costs. This would lead him to retract his Moral-Hazard-bashing comments he made for Malcolm Gladwell in the New Yorker which, again, was not an economic contribution but a foray into policy.
    Trapier K. Michael