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POLICY: Cannon has a point! No, just kidding

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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unoBarry CarolMatthew Holtjack danielsTom Leith Recent comment authors
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uno
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uno

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.

Barry Carol
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Barry Carol

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… Read more »

Matthew Holt
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Matthew Holt

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… Read more »

jack daniels
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jack daniels

“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… Read more »

Tom Leith
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Tom Leith

> 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… Read more »

theorajones
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theorajones

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.