Enthoven’s ABCDs and why that socialist Gingrich is wrong on standardized benefits

Here's Alain Enthoven's four part plan for fixing healthcare. As THCB regulars might guess, it's familiar and very sensible stuff. (Here’s the PDF)

A. Create an exchange with standardized plans, make individuals buy through the exchange and limit outside subsidies to the value of the lowest cost plan.

B. Tax health benefits (starting with those over the value of the cheapest plan)

C. Phase in the same system for Medicare

D. Phase out employer based insurance, giving everyone a voucher for the lowest cost plan based on a dedicated tax like a VAT.

Meanwhile in the LA Times, Newt Gingrich, who continues to smell blood in the Palin-infested waters, spouts BS that would destroy any sensible Enthoven-style reform. Apparently in Newt-world a regulated insurance package of standardized benefits is government bureaucracy run amok.

What Enthoven and sensible people, whose numbers apparently don’t include Gingrich these days, know is that in order to be able to choose between benefit plans consumers need to be able to make accurate apples to apples comparisons. And when health care needs vary for different people, then everyone needs to be on a standardized plan that can accommodate all those needs. In Newt-land:

Currently, individuals and employers usually make these coverage decisions. This legislation creates a new federal Health Benefits Advisory Committee that would decide instead. For example, if you are a single male with no children, the legislation still requires you to have maternity benefits and well-baby and well-child care coverage. You don't want or don't need that coverage? Sorry, you have to pay for it anyway.

So lets ask Gingrich to explain how in a world where everyone is covered and in which poor people have subsidized access to the same insurance as everyone else, his desire for insurers to be able to write the exact rules they want will not lead to massive discrimination by some plans? What he claims is the ability for a young single male to not buy “maternity benefits” will actually become the insurers’ ability to create a plan that is not attractive to those with chronic illness.

We’ve seen this movie many times. Medicare HMOs in the 1990s and early 2000s clearly risk selected healthier enrollees. Private sector insurers paid off brokers like Marsh and AON to get them better risk groups. If you don't have a standardized set of benefits, insurers will change their plans to attract the consumers they want and reject the ones they don’t—and the end result will be a lot of sick people dumped on the dumb insurer, which will then go out of business and the taxpayer will take over. (BTW even if you have standardized benefit, you’ll still need risk adjustment between insurers at the back end).

And of course and this is something Gingrich must believe in when he’s not in one of his socialist moments, accurate apples-to-apples comparisons of products is a necessary precondition for an efficient market.

I cannot fathom why the right claims not to understand this. So let me give them a little lesson.

When motorists buy gas, the unit of what they are buying (the gallon) is agreed to within the market and mandated by the government. And it’s the same for everyone. In Newt-world the gas station could vary how much gasoline was in a gallon and not tell the motorist. What is not mandated in a market is the price.

The “gallon” is the equivalent of the standardized benefit that Enthoven wants, and the price (or value of the subsidy) is determined by the most efficient insurer in the market.

So when anyone on the right spouts off about buying insurance across state lines, or decries standardized regulations, tell them that they don’t believe in markets or capitalism so they must be a socialist! And as I said, Gingrich has already proved he is one.

4 replies »

  1. Matt, your reaching here, supplying information to compare products is no way the same as the government dictating what those products are. They are mutually exclusive. Your gallon metaphor falls apart when it is corrected, benefits are like additives, you can shop from gas station to gas station free to buy the gas with the additive you prefer and you think will perform best. Laws dictate that a gallon must be a gallon but they don’t try to micromanage what is in that gallon beyond a broad scope.
    For all the complaining you on the left do about the cost of insurance I would have though it would dawn on you making people pay for benefits they don’t want increases cost, subsidizing benefits for people leads to increased cost.
    Lets skip the metaphors and deal with some facts. When the government mandated mental health be covered as any other illness the number of mental health diagnosis more then doubled. All of a sudden every kid was on Ritalin. When some states mandated massage therapy be covered the number of people with a “back problem” skyrocketed and everyone started to get massages. I loved my weekly chiro visits back when I lived in OC, I could have done without the DC cracking my neck but the massage after made it all worth it.
    Now if I had to pay extra for a policy that covered massages I most likely wouldn’t buy it, they where nice but not if they cost me. Also I could probably pay for the massage cheaper then buying insurance to cover it.
    Being a small employer in CA why is it you NEVER talk about CalChoice? Is it safe to assume your just so jolly about your healthcare cost there in CA and your benefits are so great if you started you wouldn’t be able to stop gushing over how successful CalChoice has been in controlling cost? Medicare has standard benefits, took them until 2006 to cover Rx, that is about all the argument I need on why I don’t want the government setting my benefits.

  2. If Obama and progressives had devoted one-tenth of their energy to promoting a sensible approach to a standard benefit package like Enthoven describes as they did to the idiotic public plan option, health care reform would not be on the verge of failure (again).

  3. I believe too strongly in the 10th Amendment and state rights to buy into the national health insurance market idea.
    Gingrich is not only a socialist (according to your arguments Matt), he’s anti state’s rights.

  4. Here’s a link for you, Matthew.
    “Interviewer Hawkins:…Health Care in this country is certainly expensive and a lot of people are uncovered. Briefly, what do you think we need to do to fix it?
    “Newt Gingrich: Well, I’m giving a speech today at the National Press Club on transforming the Medicaid system and I’m going to say that my goal should be for every American to have health insurance coverage. We should start by vouchering Medicaid money so that people who are the healthy poor can go out and buy insurance and be part of the insurance pool. We should then provide tax credits for the working poor and small businesses and then the current tax deductibility for everybody above that.
    “We should apply the same tax deductibility whether you personally want to buy your own insurance or whether you buy it through a company. Right now as you know the bias is against those who want to buy their own insurance and in favor of those who go to work for somebody else and I think everybody should have the same tax advantage in buying health insurance.
    “I also think that if you focus on health savings accounts where people have an incentive to save, an incentive to manage their own health, that you can dramatically bring down the cost of health care by giving people engaged in better health behaviors and better health activities. I think in that process that you have the right to know price and quality before you make a decision. Also you get to be an informed purchaser of health just as you are any other part of American life.
    “John Hawkins: What do you think about the idea that the Wall Street Journal recently brought up about having health care companies from all around the country able to compete for the business of anybody in a single state?
    “Newt Gingrich: I think we should create a national health care market. You know, all the big companies exist under what’s called a (inaudible) in a national market and I think that you ought to have the same right to buy into that kind of market if you want to. I mean, if you want to stay in your state’s mandated requirements, that’s fine, but that ought to be a choice for you, (instead of being a) captive of your state legislature.”
    I picked this up in August, 2005.
    I’ve been watching him for years. He’s been saying stuff like that the whole time and it goes right over the heads of the pinheads he’s talking with. Go figure.