Medicare vouchers

by on February 4, 2010 at 7:29 am in Economics, Medicine | Permalink

Ross Douthat surveys and evaluates the debate over Paul Ryan's "Medicare vouchers" plan.  Here Ezra interviews Ryan.

I am very interested in voucher plans but here is one source of my unease.  Let's say you are given a voucher for a health insurance plan and there is no legal requirement that the plan cover Parkinson's.  Many people buy plans which do not cover Parkinson's.  Some of those people get Parkinson's.  Are we pre-committing to ignore the woes of those people?  If so, how exactly do we do this?

I'm not ruling this alternative out (there are plenty of cases where we let people die), I just want to know what are the surrounding institutional structures, what happens if these people show up at emergency rooms, and also whether this wouldn't, eventually, give rise to a new "second tier" of lower-quality public sector institutions to handle cases not covered by insurance.

That is indeed one possible reform: a UK-like system for those who gamble and lose, with higher quality care for those who buy the more comprehensive or the more balanced policies.  (Maybe lots of people will buy gold-plated care for heart disease and nursing homes but go uncovered for neurological disorders, just to state one possibility.)  You'll notice, however, a tension.  The better the second-tier public-owned institutions, the more people will gamble with low or unbalanced levels of coverage.  The UK-like system might take over large parts of health care, with a private insurance-based system for some subset of maladies only. 

That's not the end of the world but perhaps it should be evaluated as such.  You might already be thinking that parts of the nursing home and mental health sectors operate this way under the status quo.

There's also a longer-run question, namely whether the seniors would prefer to capture those resources in the form of social security benefits — cash — and take their chances with the publicly owned institutions to a greater degree.  Maybe yes, maybe no, but those are the issues I think about when it comes to this kind of voucher plan.

At the other end of the spectrum, the law can mandate that the voucher-funded insurance plans cover lots and lots of conditions.  Mandates don't stay modest, etc.  In that case, is there really competition between the private insurance plans?  What's the advantage of having private participation here if the insurance companies are regulated like public utilities and forced into a common price/quality mode?

It seems to me that the first set of alternatives are the relevant comparison.

One proposal for health care reform is to stipulate a total (fixed) budget for social security and Medicare together and then create a commission — controlled by Congressmen from Florida — to allocate the funds as is seen fit.  I wonder what the resulting equilibrium would look like.  Is that a politically acceptable way to institute a de facto voucher program?

1 Slocum February 4, 2010 at 8:27 am

Use existing medicaid as a ‘catastrophic insurance’ backstop for people who fall through such holes. Once somebody spends more than x% of income out of pocket on medical expenses, they qualify for medicaid for that year.

2 john personna February 4, 2010 at 8:34 am

First I accept the idea that check-ups reduce overall costs. So a voucher plan should include check-ups.

On what else to cover … I see “basic” insurance as “keep you alive” insurance. My example is that if you chop your fingers off in the lawn mower, voucher insurance should tie off the stubs and give you antibiotics. You would be fingerless but alive. (I am willing to make an exception to this concept for special appendages.)

I’m not an expert on Parkinson’s but I believe in a broad sense it is about disability and would therefore require a kind of disability insurance.

3 David February 4, 2010 at 9:05 am

Here in Switzerland, there is a (mandated, no underwriting) basic health insurance package. Reasonably comprehensive, but not gold plated. The coverage terms are identical for all policies.

I’d estimate there are more than 30 providers of this coverage (in a country with only 8 million people). There is vigorous competition. Different delivery models (various gate keeper strategies) result in a considerable variety of prices. There is also significant competition based on differences in service quality of the insurers (billing clarity and timeliness, for example), and a whole supportive industry of independent companies who provide comparative data collected in various ways.

4 libert February 4, 2010 at 10:16 am

Andrew said, “I was impressed with Ryan when I first saw him on C-SPAN years ago. I suspect he will be president some day.”

Anyone who proposes we cut Social Security, Medicare, and Medicaid benefits by 75% and shifting those costs to taxpayers, while still charging them the taxes for those programs (and in fact increasing taxes by eliminating the health care deduction), will not become President.

He’s got guts to come out with this plan, but no one is going to take it seriously. It’s easy to balance the budget with completely radical and unreasonable proposals. Here’s one: eliminate all military spending, and we’ll save roughly $9 trillion over ten years, bringing the national debt down to roughly 33% of GDP in just ten years*, compared to Ryan’s plan which only reaches that level of debt by the year 2072-ish (eyeballing it from CBO’s estimate, Figure 1). Of course, this is a stupid proposal because it only makes the government’s finances look better by shifting the burden of defense off the government’s books and onto the citizens. But Ryan’s plan does the exact same thing.

*Back of the envelope estimate: defense spending under Obama’s proposed budget is $9.2 trillion over 2011-2020. Projected debt by 2020 is $16 trillion, projected GDP around $21 trillion. ($16t-$9t) = $7t –> $7t/$21t=33%.

5 liberty February 4, 2010 at 10:49 am

“Anyone who proposes we cut Social Security, Medicare, and Medicaid benefits by 75% and shifting those costs to taxpayers, while still charging them the taxes for those programs (and in fact increasing taxes by eliminating the health care deduction), will not become President.” – libert

Did you actually read the tax plan of his proposal? He may be “increasing taxes by eliminating the health care deduction” — and all other itemized deductions — but he also proposes to hike the standard deduction massively, eliminate all but two tax brackets, and eliminate cap gains and dividends taxes (note that most senior citizens have to pay cap gains and dividend taxes on their retirement income).

Also, he does not propose to eliminate Medicare and Social Security, he proposes to privatize them — something quite a few developed nations have successfully done. You should probably research the proposal a bit more before commenting on it again.

6 Ralph February 4, 2010 at 11:19 am

Your worry is correct. We do need to decide if we are going to let people die. Ryan’s proposed plan is likely to leave people unable to pay for care. People will either need to buy insurance with deductibles so large they cannot afford them after a few years or get policies with very limited coverage. What do we do then when people cannot afford care? (This assumes that private insurance costs continue to rise as they have been doing.) Any attempt to care for those unable to pay is likely to lead to a system similar to what we have now.

Steve

7 mark February 4, 2010 at 1:28 pm

For reasons unclear to me, I have lain awake the past two nights thinking about this issue which is probably some kind of disorder that I will label wonking insomnia disorder.

Your final paragraph is getting to what I believe is the only solution: a hard cap on government spending on health care.
I think that all of the discussion of voucher vs other mechanics is very interesting intellectually but insignificant in the big picture and we need a big simple approach and that is it.

I would take the amount the federal government spent on healthcare last year – according to what I am reading on the web today – it was roughly $1.25T – and setting aside veterans and the federal government’s own employees for the moment – and say, that is the cap, and we will divide it among all citizens in the form of (1) very high deductible (eg $10,000) coverage that would cap everyone’s risk of a catastrophe and (2) a modest amount of diagnostic and routine and preventive care. I would have an even higher deductible for lifestyle related illness. This is essentially a form of Medicare for all but with a much higher deductible I would label it HDMFA (high deductible medicare for all). The left won’t tolerate the deductibe but this idea does 3 things: (1) controls cost growth,(2) provides universal coverage and 3) solves the gambling problem you identify. There would have to be very strict cost controls on how that money would be spent since it would now be covering a lot more people and be unlimited as to any person. A lot would have to be excluded – in vitro, substance abuse, everything that is elective, and so on. Mild illnesses would be excluded.

As for the excluded items, the deductible and treatments that cost more than what this HDMFA would cover, that would be the realm of private insurance and individual choice. Individuals could a) go uninsured as to that amount, b) buy coverage individually or c) get their employer to do so. I would eliminate the employer provided benefits tax exclusion. I would also eliminate Medicaid, and look at what we can do to eliminate workers’ comp systems and the tort system, bodily injury coverage in auto and liability policies and nonfatal malpractice awards since in each case the medical costs would be largely covered through the HDMFA. I would reframe state mandates on coverage to require that insurers provide a package of policies to meet needs not covered by HDMFA but would require them to also offer many smaller packages that cover less than the full spectrum of such needs so that consumers could choose.
To the extent the existing Medicare tax does not cover the cost of this, I would use a combination of Pigovian taxes on substances and activities that drive up health cost and if more were needed, divide the deficiency up among all 310 million of us and charge that to each person. Obviously parents cover their kids and so forth.

This approach would obviously transfer coverage from elderly to uninsured, which I happen to think is a good idea in the macro sense but probably unpalatable politically.

8 Floccina February 4, 2010 at 2:54 pm

I would use a combination of Pigovian taxes on substances and activities that drive up health cost

Counter intuitively tobacco use drives down life time healthcare spending and so would not qualify for a Pigovian taxes on substances and activities that drive up health cost.

9 Martin February 4, 2010 at 4:11 pm

Has anyone done any useful analysis of how the US health care sector (including patients) would respond if there were a serious, broad, cut in governement funds going to finance health care, whether through Ryan’s proposal or some other? How much of the effect would be a shrinkage of the sector and how much a reduction of input costs (doctor salaries, drug compnay profits, etc.) What form would shrinkage take? Etc.

Maybe it’s impossible to make predictions here that are reliable enough to be useful, even as thought experiments, but has anyone made a skilfull and insightful try?

10 tom February 4, 2010 at 5:31 pm

Tyler says: “(there are plenty of cases where we let people die)”

What are these cases today, where if a patient comes into a hospital and has no money, the hospital says no? For which conditions that are either curable or maintainable do hospitals normally refuse to treat those without funds:
1. Parkinsons?
2. Diabetes?
3. cancer?

11 Michael Cain February 4, 2010 at 6:02 pm

“2. Diabetes?”

As I understand the law, they are required to treat you if you show up with a critical complication, eg, insulin shock or diabetic coma or a gangrenous foot. They are not required to provide you with the preventive monitoring and care that might have kept those from developing. Emphasis here on “required”. The hospital, or associated clinics, might well provide the preventive care at no or low cost, but the federal law doesn’t require them to do so.

12 mattmc February 5, 2010 at 12:57 pm

The other thing we have to enable is plans that let people save money on health insurance. The reason I like the Medicare vouchers approach is that we could innovate to create a plan that uses health savings accounts and co-pays to actually let people benefit from choosing better value options.

Some of the key elements of the Ryan plan echo Singapore and Christensen’s “Innovator’s Prescription” in that publishing the prices of procedures will allow a viable market to emerge in many services.

If there is a way for me to keep $100 by going to a better value provider, I am going to do it. We need competition to push down prices. Ultimately, this lets each taxpayer health dollar go further.

13 best pro duo February 6, 2010 at 6:53 am

Hey, I just had this great idea: Universal Vouchers! They work for everything. Not only that, they come in different denominations. They’re mostly green, hard to counterfeit, and they fit pretty easily into most wallets. You can use them just about anywhere!I get the sense, however, that you wouldn’t be significantly less bitter if you lived in a libertarian utopia in which you continued to have the apparently frustrating level of influence you currently have. Maybe like 10% less. You should find a way to be happy with your successes. They’re extremely non-trivial.

14 jloomp December 13, 2010 at 1:52 pm

Smart people have started to stop paying insurance companies and asking for their money back. After that, they open a savings account for medical problems only… which can help you a lot just in case… but if you can afford it… you can have both: insurance + savings account… drug rehab Utah

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