THCB’s favorite surgeon is back with an interesting question on Medicaid “lookbacks”, and who should pay for long term care. Eric Novack writes:

In today’s Boston Globe, there is an article titled Medicaid proposal could hurt seniors. In it the Globe reporter makes the claim, along with help from representatives from the AARP, that “people who gave money to their church or helped a family member — are going to find themselves in trouble”.

This is ostensibly because of new rules that will be more stringent about examining a person’s assets when determining Medicaid eligibility. A 94 year old man in the article is quoted as saying, “[y]ou go into a nursing home and they take all the money”. In his case, he wanted to be able to pass on enough money to help care for his daughter.  This asks the question of who, then, is responsible for taking care of him?  Many on this site clamor for ‘universal coverage’ with ‘global budgets’.

I am interested in hearing who they think should be responsible? Is planning for the final years of life no longer the responsibility of the individual? Should retirement planning not have to include any provisions for illness or infirmity? Is it the responsibility of other citizens children and grandchildren to be taxed to provide care when people have assets in their homes and retirement accounts? The baby boom generation is booming, with hundreds of people reaching 60 years of age each day. This group has trillions in net worth. Even if housing prices do not continue to increase- or even decline slightly- many have hundreds of thousands of dollars of equity in their homes.  Most, hopefully, will live healthy, productive lives for 30 or 40 more years. Most will incur significant healthcare costs over that time.  Recent estimates are that people retiring today need to anticipate about $190,000 in healthcare expenses.  The article makes the claim that a recent KFF study reported that, on average, only $8200 was transferred. $8200 times the millions on medicaid is quite a lot of money (over $8 BILLION per million). Should we not expect that those who will utilize the services be expected to use their assets to pay for their care?

Volvo-driving, latte-quaffing New Republic editor Jon Cohn has passed over David Gratzer’s latest gaffe. Gratzer is the Manhattan Institute’s resident Canada-basher physician. Believe it or not, the article in the Weekly Standard is called Putting Patients First. Either Gratzer doesn’t realize who used that title before or he’s being heavily ironic with his title, as it was the tagline used by Tony Blair’s left-wing Labour party in the UK as the rubric for his health reforms in 1998 — and that was when Blair was just another socialist before he became a messianic crusader and the darling of the American right.

But taking shots at Gratzer is too darn easy. He again claims that HSAs will bring consumer forces to bear on incomprehensible health care pricing schemas. Maybe, but the example he uses is that of his uninsured wife’s hospital bill. Leaving aside the logic of why a supposedly bright guy who is an MD would allow his wife to be uninsured in the first place, he claims that HSAs would be the solution to the incomprehensible pricing that is anyway “negotiable”.

Well the answer is that hospital bills and prices are “negotiated” but they’re negotiated by the people who pay them, who are almost always third party payers — either insurers or the government. (I grant that he might not think of Medicare’s fee schedule as being “negotiated”, but it is after a fashion). And there is lots of negotiations between the two sides, and no one uses the hospital chargemaster much as a basis for that. High deductible health plans, which go along with the HSAs he’s talking about, have a deductible that is basically wiped out immediately by a hospital admission, leaving the patient no incentive to negotiate. Any negotiation happens between the insurer and the hospital — that’s one of the things you “pay” an insurer for. It’s possible that wealthy and uninsured people might start to negotiate more than they already do,but I can assure Gratzer that this isn’t big enough of a population for hospital administrators to care much about. Of course they will happily tell anyone who listens that the poor uninsured don’t pay their bills.

And of course Gratzer doesn’t even get close to talking about the basic math problem that he, Hubbard, and all his ilk continue to ignore…

Some how or other even though Reggie Herzlinger is apparently having some doubts about how effective HSAs are going to be, the movement is throwing up new intellectual champions. The latest is R. Glenn Hubbard of the AEI who has somehow managed to become Dean of the Columbia Business school in his spare time. He wrote this as part of his latest article in the National Review Online

Critics from the left sometimes say that HSAs put more of the onus of health costs on individuals. Tell that to the 46 million Americans who currently don’t carry any insurance. By making such insurance for major medical events — such as emergency hospitalization and chronic illness-more affordable, HSAs and other consumer-driven health-care policy ideas broaden access to essential health care. That will help millions of Americans get the health care they currently can’t afford.

Is he really saying this? Is he really saying that cheaper insurance products will reduce uninsurance? Let me repeat something in a way that’s simple enough even someone from Columbia business school can understand it.

We have had “cheap” high deductible insurance products for years and years. I personally have had one off and on since 1998 and they were around for long before that. And as the old high deductible “major medical” policies were around when health care was cheaper, and therefore were less expensive than they are now, according to Hubbard’s logic we should never have had any uninsured in the first place. And yet in California we have more than 6 million uninsured who somehow have failed to buy one. Is it possible that price isn’t the only issue here?

The only difference with HSAs for insurance is that they allow people to put money away to spend tax-free on medical care. But guess what? The people who don’t have insurance in general have low incomes, and are unlikely to have spare money to put away in their HSA. And for that matter many of them don’t have spare money to buy insurance policies. And even if they do, they may not buy one if it’s not compulsory.

And let’s not start on his (and other HSA advocates) inability to do basic math….something else I assumed was tested on the way into business school, but apparently not in the Dean’s office.

This is a straight re-print from the Economist magazine. Lots of people have sent me this article, but I found it in an accessible format here. Remember that the Economist supported Bush and even backed the Iraq war, so I don’t expect to agree with everything in this article! But is does give a decent overview of the problems with American health care and notes that extending tax-free spending on health care  will exacerbate the basic problem of health care cost increases.

Soaring medical bills are squeezing wages and pushing huge firms — and maybe the government — towards bankruptcy. Now the country may be headed towards socialized medicine by default.

The Economist Magazine(Jan 28, 2006)Everyone, it seems, has a health problem. Canada’s new Conservative prime minister, Stephen Harper, made a big fuss during the election about reducing the country’s lengthy medical queues. After pouring billions into the National Health Service, Britons moan about dirty hospitals, long waits and wasted money. The new German chancellor, Angela Merkel, is under fire for suggesting changing the financing of its health system. Across the rich world, affluence, aging and advancing technology are driving up health spending faster than income.But nowhere has a bigger health problem than the United States. Soaring medical bills are squeezing wages, swelling the ranks of the uninsured and pushing huge firms and perhaps even the government towards bankruptcy. Ford’s announcement this week that it would cut up to 30,000 jobs by 2012 was as much a sign of its "legacy" health care costs as car industry ills. Pushed by polls that show health care is one of his main domestic problems and by forecasts showing retiring baby boomers will crush the government’s finances, George Bush is expected to unveil a reform plan in next week’s State of the Union address.America’s health system is unlike any other. The United States spends 16 per cent of GDP on health, around twice the rich country average, equivalent to $6,280 for every American each year. Yet it is the only rich country that does not guarantee universal health coverage. Thanks to an accident of history, most Americans receive health insurance through their employer, with the government picking up the bill for the poor (through Medicaid) and the elderly (Medicare). This curious hybrid certainly has its strengths. Americans have more choice than anybody else and their health-care system is much more innovative. Europeans’ bills could be much higher if American medicine were not doing much of their R&D for them.But there are also huge weaknesses. The one most often cited — especially by foreigners — is the army of uninsured. Some 46 million Americans do not have coverage. In many cases that is out of choice and, if they fall seriously ill, hospitals have to treat them. But it is still deeply unequal. And there are also appalling inefficiencies: by some measures, 30 per cent of American health spending is wasted. Then there is the question of state support. Many Americans decry the "socialized medicine" of Canada and Europe. In fact, even if much of the administration is done privately, around 60 per cent of America’s health-care bill ends up being met by the government, thanks in part to huge tax subsidies that prop up the employer-based system.Proportionately, the American state already spends as much on health as the OECD average and that share is set to grow as baby boomers run up their Medicare bills and ever more employers duck out of providing health coverage. America is, in effect, heading towards a version of socialized medicine by default. Is there a better way?Even a glance around the world shows there is no such thing as a perfect health-care system. Every country treads an uneasy compromise between trying to harness market forces and using government cash to ensure some degree of equity. Health care is also the part of the public sector where market forces have had the most limited success. It is plagued by distorted incentives and information failures. To begin with, most health-care decisions are made by patients and doctors, but paid for by someone else. There is also the problem of selection. Private-sector insurers may be tempted to weed out the chronically ill and the old, who account for most of the cost of health care. In the longer term, America may have no choice other than to accept a more overtly European-style system.In such a scheme, the government would pay for a mandated insurance system, but leave the provision of care to a mix of public and private providers. Rather than copying Europe’s distorting payroll taxes, the basic insurance package would be paid for directly by government, though that cash might be raised by a "hypothecated" tax which would make the cost of health care more evident. The amount of cash given to insurers would take account of individual health risks, thus reducing insurers’ incentives to compete by taking only the healthiest patients. Such a system would not be perfect but it could mitigate the worst inequities in America’s health-care system, while retaining its strengths.In practice, however, it will not happen soon. American politicians are still scarred by the failure of Hillary Clinton’s huge health-care plan which tried in 1993 to force companies to insure workers. Incremental change, of the sort Bush is talking about, looks the only way forward. In fact, there are plenty of incremental changes that could help, especially when it comes to curbing costs. America’s health industry is already experimenting with new ways to improve efficiency. As the biggest buyer, the federal government has plenty of power to push for "pay for performance."And many of Bush’s mooted reforms make sense, such as limiting absurd medical litigation claims, deregulating the stifling state-based insurance market and making insurance policies more portable. But there is a flaw at the heart of his proposal. Bush goes straight to one of the biggest distortions in American health care — the generous tax subsidies doled out to firms providing insurance. These help to promote a culture where costs do not matter.But his prescription is the wrong one. Rather than reducing this distortion, which would force firms and employees to be more cost conscious and free up money to be spent on bringing more people into the system, the president wants to even things out by doling out yet more tax subsidies to others — for instance, letting individuals set more of their out-of-pocket medical expenses against taxes. Such handouts may have political appeal but will worsen the budget deficit and, most probably, drive up the pace of medical spending. America’s health-care system could be improved in small steps. But those steps need to be in the right direction.