Michael Cannon comments on my post about his paper yesterday, noting in passing that I have an HSA. C’mon Michael you can understand that people will take advantage of incentives, even though the policy behind those incentives is bone-headed, can’t you? After all like most of your colleagues at Cato I think that getting tax relief on my mortgage is bad policy, I think that paying taxes to support the war on drugs is terrible policy. But no one exactly gave me the choice…
But onto the real discussion. In his blog Cannon says I didn’t read his piece carefully enough. Actually frankly I’m not very interested in the attempt to figure out how HSAs fit into our current broken system which occupies most of the piece, and I despair of any of their supporters taking them very seriously. They all say that they’re “partial solutions”, or “incremental”. Frankly our care system is so screwed up that whether we force more problems on the sick in their decisions about accessing care (which Cannon agrees that HSAs/HDHPs might do) is pretty irrelevant when we have 15% of the population who’d love to have that problem.
What I like about Cannon (and Tanner and Kling) is that they’re among the very, very few on their end of the spectrum who’ll have a theoretical argument about the insurance “market”. So let’s get to our core “mis”understanding
Also, Holt accuses me of ignoring the fact that risk segmentation results in reduced subsidies to the sickest insureds. Yet that is a central theme of the “students & professors” hypothetical (pp. 6-8).
I don’t accuse him of ignoring the reduction in subsidies! I accuse him of both understanding that it happens and believing that it’s a good thing! And the conclusion to that hypothetical piece is
Though the professors would lose the cross-subsidies they received under Plan A,those losses would essentially be temporary transition costs. The higher health insurance premiums for today’s professors would convey to today’s students the importance of saving for their future medical needs. Thus tomorrow’s professors would face greater incentives to save for their future medical needs. Because their current premiums would be lower, they would be better equipped to do so.
In other words, the market would send a signal to the “students” that the if they didn’t avoid having any health care costs in the future, and hadn’t saved all their lives to finance them, they’d be lying bankrupt in the gutter with “professors” who also haven’t saved enough to afford the costs they’re paying for the care they need now. This is a “transition” cost, and Cannon and several of his colleagues believe that a) we really can get to a place where individuals accounts saved for over the years can cover all health expenses, and therefore insurance (with its implied social cross subsidy) is unnecessary, and b) the transition costs are small. Given the current savings habits of Americans the first assumption is laughable, but it’s the next point that’s the real problem.
If you go to the logical extreme and do away with insurance, a) those transition costs are huge and b) the “students” who get sick will not be able to save enough over their lifetimes to deal with their future costs. The problem remains the 80/20 rule. If you allow the 80% to put all their money in an individual account and not in the social pool there will not be enough money to pay for the care of the few who need it—even the ones who’ve scrimped and saved all their lives.
But don’t fear Cannon has a solution for that. After we’ve eliminated the cross-subsidy of social insurance, we somehow or other bring it back
And on page eight I write:
Though HSAs may reduce hidden subsidies to sicker workers, they do not preclude subsidizing those workers in other ways.
Strangely he didn’t include the very next sentence
Other options include government subsidies or private charity, including assistance from family and friends, churches, civic associations, and uncompensated care from hospitals and doctors.
Which if I’m not very much mistaken is what we’ve got already and what the providers and employers are bleating about at the moment. Cannon just thinks that we should be pushing policies that will make the current zoo worse, and return more money to the healthy people who don’t need it.
His justification for all of this (which he continually says is “socially desirable”) is that putting people into HDHPs will reduce their spending overall and drive out that darned unnecessary care they’re all demanding. But as apparently although he will admit it he doesn’t want to consider that most health care spending is not under the control of a patient spending their own money, even if they have an HSA/HDHP. The stuff that costs the most money is the flat-of-the-curve medicine being visited on the nearly dead. And Cannon apparently has no interest in figuring out how to reduce that because it requires a supply-constraint. To be fair to him, not many other people want to do that either, as it means beating up on a bunch of doctors and hospitals. But other countries manage it!
So for the nth time, if you want to have a rational, fair and cost-efficient health care market you need compulsory social insurance, hopefully progressively based, so that those people who end up with large healthcare costs don’t end up being bankrupted. Then you need incentives for providers that induce them to provide cost-efficient care over a population, rather than to do as much as possible to those who can pay, and ignore the rest—which is the recipe for driving up costs. Cannon’s analysis suggest that he knows this, but his solutions drive us towards the opposite state, which is why I’m wondering about the color of his planet’s sky.
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Ignoring all of the details, I will just say that it undermines what you say to take part in something with which you disagree. HSA’s are bad and I turned down a nice company donation into one because I stand behind my beliefs and didn’t accept an HSA nor a CDHP. Taking the cheapest route in life is not something that can be defended by you. Plenty of us are faced with spending more to do the right thing rather than take the cheap route and give a vote of confidence to those making the bad decisions.
I think there is a considerable difference between an oncologist telling a patient that care won’t be provided because it’s futile vs care won’t be provided both because it’s futile and Medicare (or other insurance) won’t pay for it because it doesn’t pass a legislated QALY standard. If the patient still wants the care and is prepared to self-pay, it could be provided then.
If we are ever to provide health insurance to everyone at a cost that the society can afford and sustain, difficult choices are required and some people may either wind up with less comprenhensive insurance than they have now or have to pay a lot more for it. If health insurance does nothing else, it must cover the cost of catastrophic events beyond a manageable deductible.
If we were to mandate that everyone buy insurance and provided a taxpayer funded voucher to cover the cost of an “affordable” plan with more comprehensive options also available to those who are prepared to pay the additional cost out pocket, the affordable plan should include a high but manageable deductible for the middle class and higher socioeconomic groups while providing significant help in covering the deductible to low income people who can pass a means test. At first, dental and vision care could be excluded, as they are today from many employer provided policies, in order to keep the tax burden manageable.
If we can reduce utilization via QALY metrics, more widespread use of living wills, malpractice reform, and much better pricing and quality transparency, perhaps dental and vision coverage could be added later.
I find it difficult to understand why most people don’t seem to have a problem maintaining their homes and cars with after tax dollars and without the benefit of insurance but claim they are unlikely to seek needed medical care if they have to pay out of pocket until a high but manageable deductible is met.
If we were designing a system from scratch, it would not be a tax advantaged employer based system. A good start would be to scrap the tax preference for employer provided health insurance and lower other taxes on the middle class by a comparable amount. We could then have a separate debate on the best way to raise the revenue needed to cover the uninsured and replace employer provided care with taxpayer funded vouchers. Medicare and Medicaid should probably remain in place for the short term to improve the odds of getting something useful through the political process.
Jack–You certainly have a point. Americans def do want to do more, even if in reality “more” is futile. But they’ve never been given a choice between “more” and paying less either in the form of a third party a la UK NICE saying “that extra new tech intervention is not worth it” or having to pay more out of pocket for the really futile stuff. My guess is that the former will kind of work, but that the latter (which is where I think the Cato guys want to go) is unworkable. But if you reframe the “choice” then I suspect that they’ll change behavior.
“The stuff that costs the most money is the flat-of-the-curve medicine being visited on the nearly dead. And Cannon apparently has no interest in figuring out how to reduce that because it requires a supply-constraint. To be fair to him, not many other people want to do that either, as it means beating up on a bunch of doctors and hospitals”
Its got more to do with Americans worshipping at the altar of choice more than anything else. Case in point: HMOs with capitated care. It wasnt doctors or hospital pressure that closed down HMOs, it was the fact that patients refuse to be told NO.
I know many oncologists who would be perfectly happy to have caps on end of life futile care. They have plenty of patients to take care of who could actually benefit from therapy. But the patients wont stand for it. You can imagine the spectacle of the hearings on Capitol Hill, with octagenarians with tears in their eyes testifying to a Senate committee that they were denied “life saving” terminal cancer care.
IN Europe and other nations, citizens dont worship at the altar of personal choice like Americans do. Americans really are obsessed about the subject. Case in point: refusal to enact gun control laws.
> if you want to have a rational, fair and
> cost-efficient health care market you need
> compulsory social insurance
Even sensible Cato-style Libertarians reject anything compulsory (although I note he gave two words of lip-service to something compulsory). The disconnect between him and Matthew and Theora is his notion of the human being and of human society, and therefore of fairness/justice/duty/etc.
Libertarians are steeped in the individualistic and positivistic ideas of the 18th century liberal revolutionaries. For them, that people are dying of something other than force or fraud isn’t a problem to be solved in a compulsory way. They’re usually honest enough to say what problems they’re trying to solve. Uninsurance isn’t one of them.
We have a hint at what Cannon wants here:
“Ideally, Congress should discard all health-related deductions and reduce marginal income tax rates. HSAs are merely a second-best option.”
At the end of the day, Cannon wants medical services and the financial services that will necessarily be associated with them treated like any other services in the economy. For him, healthcare isn’t “special”. In order to push this along, he’s defending HSAs from all critics, and doing it at least partly on the critics’ terms. But he isn’t really interested in the problems the critics are interested in.
> The stuff that costs the most money is the
> flat-of-the-curve medicine being visited on
> the nearly dead.
So, what do the economists mean when they say that 70% of the spend on medical services is for chronic disease? I’m confused…
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I agree that this is an odd form of stupidity, and I find it evidenced most promiently by those who have always been privileged by whatever social system they happened to be born into.
It’s the “well, we must let them eat cake” theoritists. I believe their fear is that if we solve other people’s problem of getting sick and dying, the privileged people’s lives will become marginally more difficult. I think the point of this theory is to keep us all arguing about cake instead of actually dealing with the problem that people are dying.
It’s incomprehensible stupidity otherwise.