From the comments

by on May 23, 2013 at 12:48 pm in Medicine | Permalink

Hazel Meade wrote:

The banning of catastrophic-only plans infuriates me the most. Those are the only plans that are actually financially sensible for a healthy individual to purchase. Everything else on the market is a perverse by-product of the employer-based insurance system.

Worst case scenario with a catastrophic-only plan is you end up with $10,000 in debt. That’s a debt load many times smaller than what the Federal government thinks students should take out to get a college degree. We’ll let you borrow $100,000 to get a sociology degree but, we think that $10,000 is an unconscionable amount to pay for medical expenses? So unconscionable that we have to FORCE YOU to buy a plan with more extensive coverage?

Of course, we all know the real reason for this. it’s meant to force healthy young people to subsidize healthcare for older sicker people. Just force them to pay more for insurance than they ought to, and force them to buy more extensive coverage than is rational.

Andrew' May 23, 2013 at 12:53 pm

There are little indicators in life that make it so you don’t need to know anything else, and this is one of them.

T. Shaw May 23, 2013 at 1:11 pm

Obamacare and Dodd-Frank . . .

President Reagan, ever the optimist, loved to tell this story about a boy who howls with joy at a pile of dung. Digging into it eagerly with both hands, the boy exclaims, “With all this manure, there must be a pony in here somewhere!”

mulp May 23, 2013 at 2:46 pm

You mean like the young healthy worker who buys the $10,000 deductible policy so he can afford to spend his weekends off work skiing the black dot trails because he’s invincible. Only after he is disabled should government provide him with free health care along with living expenses, and forgive his student debt.

Because after all, buried in the “don’t tread on me” horse shit is the big government welfare state because every individual human life must be valued and protected by government.

I have not seen a single conservative condemn EMTALA and proclaim that anyone without cash or comprehensive insurance should be offered euthanasia before being kicked out of the ER or hospital because individuals should be held to account for their decisions to need medical care without being able to pay the bills.

Bernard Guerrero May 23, 2013 at 2:56 pm

Or, possibly, you could force everybody to get a much cheaper and less intrusive catastrophic-only plan, which would cover precisely the situation you outline. Problem solved, and you don’t need to subsidize the geezers….

lambert strether May 24, 2013 at 10:04 pm

Couldn’t agree more. “Live unworthy of life,” and all that.

Andrew' May 23, 2013 at 2:59 pm

Mulp,

You mean to say that someone with a less generous insurance plan is going to take more risks? That would be counter-intuitive.

Michael B Sullivan May 23, 2013 at 4:16 pm

Andrew, I think that strictly speaking, what mulp was advocating was taking so much of that person’s money that he can’t afford to go skiing and get hurt.

I vote that we just lock everyone up and keep them in padded rooms — for their protection — instead. Or at least ban skiing!

Treehorn May 24, 2013 at 4:08 pm

Ban skiing? Surely you jest.

Regulate skiing!

y81 May 23, 2013 at 3:55 pm

A healthy young worker would be well-advised to buy disability insurance, if his employer didn’t provide it. It makes no sense whatsoever to suggest that everyone should buy gold-plated first-dollar health insurance to provide for the exceedingly unlikely scenario of catastrophic total disability.

Bender Bending Rodriguez May 23, 2013 at 10:09 pm

Gold-plated first-dollar health insurance has limits with respect to catastrophic total disability. Even Canada has so-called “medical bankruptcies”.

The usual chain of events is:
1) Person makes lots of money on a steady basis
2) Person reasonably assumes they will be making said money for the foreseeable future
3) Person buys houses, cars, etc. on credit
4) Person becomes disabled
5) Person still needs a house, is upside down on their car, and has credit card bills

Even if someone covered all the medical bills, the income shocks from switching to private DI are going to hurt. It will be even worse with SSDI.

bluto May 23, 2013 at 5:04 pm

I’d be fine with the societal requirements for health care consisting of basic first aid (bandange/stitching up/setting bones/plaster cast) and anti-biotics (injected rather than pill, so as not to boost resistances) and after that letting kicking them to the curb.

Alexei Sadeski May 24, 2013 at 10:17 am

This is ridiculous.

The debt load on a $10k loan is $230/mo on four years, $100/mo on ten years. That is quite affordable for a young working person.

ezra abrrams May 24, 2013 at 11:32 am

nice post, but they won’t listen, after all, these are the same voters who repeatedly send people to congress who (a) demand that the gov’t not provide money after natural disasters, and (b) promise unlimited funds when a disaster strikes their district.
So, no surprise that they can’t or won’t understand the concept of pooled risk.
(this is relevant to another recent post by tyler, how many years of economics could we loose without bad effect.
apparently, n>500 is correct)

Patrick May 23, 2013 at 12:59 pm

This is valid to a large degree but don’t forget that there are some public health implications to lowering the cost per office visit to the consumer via an increase in opportunity for preventable care.

Dan Weber May 23, 2013 at 2:19 pm

With a few very specific exceptions, “preventative care” doesn’t save money, and usually doesn’t save lives or even improve quality of life.

BRD May 23, 2013 at 2:37 pm

Vaccines; birth control; anti-smoking and substance abuse; encouragement of exercise and nutrition; encouragement of proper obstetric, gynecologic, prenatal, and natal care; etc. etc. etc. all don’t save money or improve quality of life. Learned something new today.

Dan Weber May 23, 2013 at 2:51 pm

In the United States, the part before the comma is part of the sentence.

And I bet you really would learn something new about many of the things in your list that you think “obviously” lower costs, that in reality have no effect whatsoever. Go look up effectiveness research on pubmed.

Andrew' May 23, 2013 at 3:01 pm

Vaccines also cost virtually zero (post-invention) so they aren’t what we are talking about anyway. Not smoking is free. Your doctor saying “quit smoking” is not only not free, but also doesn’t cause you to quit smoking.

BillG May 23, 2013 at 3:27 pm

Wait, which of those is ineffective?

Go Kings, Go! May 23, 2013 at 5:31 pm

In the United States, the part before the comma is part of the sentence.

Not in the Second Amendment to the U.S. Constitution.

Miraj Patel May 23, 2013 at 6:27 pm

Actually there is a lot of research that supports the cost effectiveness of preventative measures. Of course as with anything, it depends on the specific issue and preventative measure, but generally things like vaccines, birth control, smoking cessation, etc. have positive outcomes according to most research.

Cliff May 23, 2013 at 8:20 pm

Miraj,

Actually, there is a great deal of evidence that preventative measures are not cost effective. Vaccines and birth control are the tiniest, most unimaginably trivial portion of preventive care (in terms of cost). Smoking cessation is not preventive care at all.

Miraj Patel May 23, 2013 at 9:10 pm

Cliff, I think the issue here is that we (and seemingly a lot of people here) disagree on what “prevention” actually means. I believe the prevailing public health literature often does consider things like lifestyle changes and even smoking cessation (if we are talking in the context of lung cancer, for example) as preventative measures.

Out of curiosity, what are some of the popular, non-trivial and not cost effective preventative measures that you are referring to?

Alexei Sadeski May 24, 2013 at 10:19 am

Miraj,

Non cost effective screening likely includes things such as breast cancer and prostate cancer preventative visits, for example.

Doug May 23, 2013 at 3:57 pm

Even if those things do save money having having 100% first dollar insurance on them covers promotes profligate spending.

For example generic birth control costs $5/month at Wal-Mart. The non-generic version costs $50/month at Walgreens. This year the provision of mandatory birth control coverage kicked in on catastrophic plans. It raised the cost of the catastrophic plan that me and my wife have by about from $80 to $105 a month. But now my wife goes to Walgreens and gets name-brand birth control, because hey why not, there’s no additional cost. Everyone else does too now, the sales of generic version have plummeted.

It’s highly Pareto-suboptimal. We’re costing the insurance company an extra $45/month, our insurance has gone up $25/month, and at most we’re deriving $3/month in utility from the convenience of Walgreens and the fancier non-generic box. The only person who benefits is the pharmaceutical company which just got a big fat subsidy.

Of course if we could buy an insurance plan that didn’t cover birth control we would, *even though we use it*! Of course King Obama and the ultra-leftist liberals have decided that people shouldn’t be allowed to make those choices for themselves. They’re simply much smarter than us, yada, yada, something about bending the cost curve, yada.

Miraj Patel May 23, 2013 at 6:24 pm

Requiring birth control coverage does not mean requiring brand name coverage and certainly does not mean abolishment of tiered pricing of co-pays. If you don’t mind me asking, which birth control are you referring to here? I haven’t seen any huge influx in brand name birth control dispensed in my area nor have I seen any insurance company which charges the same copay for the brand and generic (and rarely any that cover both anyway unless specifically requested by the doc [and even then sometimes not])

Hazel Meade May 23, 2013 at 10:42 pm

Miraj ,

Preventative care is supposed to be provided with a zero co-pay. Thus, when birth control is covered by preventative care, it by definition means that there are no tiered co-pays. it’s all $0. From the consumer’s perspective there is absolutely no reason to select the generic brand.

lambert strether May 24, 2013 at 10:06 pm

Couldn’t agree more. If you want to bend the cost curve, go with single payer. US and Canadian costs track, until the Canadians adopt single payer, at which point they diverge, with ours radically higher. Of course, single payer is off the table because freedom.

Random Res May 26, 2013 at 5:00 pm

For most American women who use BCPs in a monogamous relationship, the alternative to BCPs is inconsistent or no use of birth control, not a different brand of BCPs. There are a number of reasons for this, but the ones I encounter most frequently are American providers and patients are: everyone’s still skeptical of IUDs from Dalkon Shield litigation, the side effects from Depo are too severe, female sterilization isn’t an option due to both patient and provider discomfort with age and family status, and their male partners refuse to use condoms or get a vasectomy. They’ll try other methods, but given how antiquated those methods are, noncompliance is the norm.

In that situation, 85 out of 100 women under 35 become pregnant within one year absent birth control. The average cost of a pregnancy for an un/underinsured woman — without compilcations — is usually between $7,000-13,000. I think the math on that is pretty easy to figure out.

So even if you give every woman the super-pricey $1260 brand-name BCP, you’re still saving $5740 per year. And I’m not even including the downstream savings. Most state programs are tied to the number of kids a person has: able-bodied adults aren’t fully eligible in their own right (e.g., pre-ACA Medicaid, SNAP, most state implementations of DHHS regulations, etc.). I don’t know what the numbers are on that off the top of my head, but I’m willing to bet they’re substantial. I do know, however, that by limiting the number of kids the woman has, you limit the amount of state aid she can receive. So one tiny intervention alone saves tons of money — even at brand-name prices.

JosieB May 23, 2013 at 4:15 pm

I still wish I could buy an HSA or at least a policy with a high deductible.
We paid for our children’s vaccinations before such coverage was required in our state (and the state had a program for people who could not afford the expense.) The benefits of healthy eating, exercise, and not smoking are not a secret that requires insurance coverage to discover. My obstetrician quoted a set price for prenatal care, which we could have paid ourselves. I would be willing to seek out the best rates for allergy tests and treatments, prescription medicines, mammograms, annual physicals, flu shots, and cuts that require a few stitches. I think taking responsibility is good for people.
What I want from insurance is coverage for a heart attack, cancer or a serious accident. It would be a plus if I could accumulate savings to use when I get older and need more medical care.
But no HSA for me. The government knows better.

mulp May 23, 2013 at 3:39 pm

If preventative care does not save money, then that argues no one can live a lifestyle to prevent needing medical care, so the need for medical care is purely random chance. That means a high deductible is a bad policy because it simply randomly hits individuals with large medical bills that are statistically predictable, but that no individual can possible decide he will not be required to pay.

delurking May 23, 2013 at 4:04 pm

The reason preventative care does not save money in the long run is that people live longer, so their total health care expenses are more. So, preventative care costs money, just like all health care. It is always cheaper to let people die. The relevant metric is something like quality-adjusted years of life per dollar spent, but of course since different individuals have different opinions on what specifically would add quality to their life, even that metric should not be abused.

Pshrnk May 23, 2013 at 4:27 pm

Thats right. And we can save Social Security and Medicare a bundle by letting everyone die by 70.

dead serious May 23, 2013 at 5:22 pm

I keep agitating for The Carousel but no takers.

Alistair May 23, 2013 at 6:08 pm

I’m fine with QUALY. Preventive buys you a lot of QUALY.

Cliff May 23, 2013 at 8:23 pm

Alistair,

Says what studies?

Bernard Guerrero May 23, 2013 at 4:09 pm

“If preventative care does not save money, then that argues no one can live a lifestyle to prevent needing medical care”

Non sequitur. Preventative care is different from self-driven lifestyle changes. I know I should eat less and exercise more without the slightest need for a doctor to take a half hour of his expensive time to tell me so. For that matter, all preventative care is not equivalent. Nor is “prevent” equivalent to “lessen the need for”.

Pshrnk May 23, 2013 at 4:28 pm

Most preventative care is Self Care….promoted more by culture and family than by professionals.

Michael May 23, 2013 at 3:40 pm

Attempts to lower the cost per office visit is one of the worst public health policies currently in place. All office visits are not the same across all specialties, yet that is how we reimburse them, because of overly generic statements like yours. The result is that some specialties (such as Rheumatology) are disincentive-ized. Most specialties lose money on a simple office visit, and doctors are fleeing general practice for better higher reimbursing specialties. The result is that doctors look to unnecessary add-ons, expensive scans and tests, or highly reimbursed procedures like joint injections, etc, in order to up their RVUs. Meanwhile, many physicians limit patients to one complaint per visit, even though further context or medical history may significantly improve diagnosis and treatment.

Don’t try and force the market– if you don’t reimburse costs for these oh so valuable office visits, then doctors will look to short shrift the wonderful preventative care that you seek. You’re shooting yourself in the foot.

derek May 23, 2013 at 10:37 pm

And you get what we have in Canada, where almost no GP has any facility to do anything except referrals and prescriptions, from 9am to 5pm. The rest of the time or with anything needing some treatment we go to emergency.

KenF May 23, 2013 at 1:04 pm

“it’s meant to force healthy young people to subsidize healthcare for older sicker people.”

Oh the horror of this. This is especially horrible since healthy young people never become ill and never become old.

Widmerpool May 23, 2013 at 1:09 pm

And old people, the wealthiest group in our society, certainly can’t be expected to pay their own way.

john personna May 23, 2013 at 1:13 pm

Of course that’s not true. The wealthiest people are old, but that is a different claim.

john personna May 23, 2013 at 1:23 pm

Data: Median household net worth by age group, 1989-2010

Are any of the medians wealthy? The elderly have had higher household net worth in recent years, but at ~$200,000 much of that is in real estate, and is not free money for health care.

Richard May 23, 2013 at 1:25 pm

That chart is more depressing when coupled with the labor force participation rates for the younger cohorts, and the implications when they reach traditional retirement age…

Building wealth for retirement, with low-paying (or no) jobs got harder. The cynicist in me sees a cyclical problem that may emerge.

Widmerpool May 23, 2013 at 1:30 pm

I see we cited the same chart. We have decided to transfer wealth from the poorest segment – the young – to the richest segment – the elderly. How can you dispute this?

Richard May 23, 2013 at 1:39 pm

Would be interesting to see those income gaps if you took out the richest 1% (or some of the top number), and if you took out the poorest 1% (or, again, some lower number).

john personna May 23, 2013 at 2:08 pm

If you argue that ~$200,000 net worth is “wealthy” then “wealthy” pretty much loses its meaning. Any number of “simple” medical problems would wipe that out. And of course an oldster has a much reduced income stream, making paying from cash flow difficult as well.

Ryan May 23, 2013 at 3:06 pm

John, can you not see that you switched from “wealthiest” to “wealthy”?

john personna May 23, 2013 at 3:24 pm

“Wealthiest Americans” has a real meaning. It is an intensifier, not a diminutive.

Slocum May 23, 2013 at 4:04 pm

Ending in 2010 leaves out both the roughly 50% stock market increase (since the beginning of 2010) which, of course, has had a major effect on 401Ks balances. There has been a (much smaller) real-estate recovery since the market bottom as well.

zbicyclist May 23, 2013 at 4:33 pm

Richard, these are medians so taking out the top 1% would have little or no effect.

Also, to point out the blindly obvious to several posters, older people are living off their assets. Younger people are living off their income (and accumulating assets via savings, they hope). A younger person with $40,000 in assets and a steady job is likely better off than an elderly person with $200,000 in assets.

dead serious May 23, 2013 at 5:25 pm

Plus a (possible) pension, guaranteed SS, and medicare/medicaid?

You’re sure about that?

Richard May 23, 2013 at 9:50 pm

zbicyclist.

D’oh! I’m an idiot.

Of course the median will likely be immune to that (why did I think we were looking at averages?).

Thank you.

Widmerpool May 23, 2013 at 1:26 pm
Jan May 23, 2013 at 1:50 pm

So older people should sell their homes to buy health insurance?

Andrew' May 23, 2013 at 1:53 pm

“So older people should sell their homes to buy health insurance?”

Of course.

Urso May 23, 2013 at 1:57 pm

Is this a trick question? You’re basically saying we should increase taxes on the rich to subsidize home ownership for the elderly. That’s pretty wack.

john personna May 23, 2013 at 2:09 pm

Selling your home (a) only works the first time, (b) may increase forward costs (rent), and (c) did I mention it only works the first time?

Widmerpool May 23, 2013 at 2:24 pm

You really have come full circle on this. I started out saying this was a transfer to the wealthiest group in our society. You, incorrectly, said that was not the case. It’s been bobbing and weaving ever since.

Andrew' May 23, 2013 at 2:26 pm

You are (1) forgetting the alternative, which is to say “Yelp, you are saying that we should make young people pay for old peoples’ bills just so they can keep too much house and then gift it to their kids!?!?!” and (2) the reverse mortgage.

john personna May 23, 2013 at 2:35 pm

I honestly thought you meant “wealthy” people, Widmerpool.

If you only mean people with ~$200,000 net worth and low cash flow, and think they can pay their own way … that is a pretty weird claim, IMO.

john presonna May 23, 2013 at 2:37 pm

What you could do Andrew’, is flip it from an age-based view to a wealth-based one. You could suggest that the wealthy help the poor, regardless of age. Of course … that might be a “transfer” you oppose, right?

Andrew' May 23, 2013 at 3:02 pm

We could talk about that. Then the economists would say “you are nuts for doing that via in-kind medical transfers.”

Paul Zrimsek May 23, 2013 at 3:19 pm

No, older people should use the money they’re not spending on rent to buy health insurance.

Jan May 23, 2013 at 4:03 pm

So how old is the average person when they pay off their mortgage? And how old are people when they qualify for Medicare? There may be a small portion of the populace who have some substantial wealth — thanks for home ownership and retirement accounts — and who are not yet old enough for Medicare. Maybe they should buy their own health insurance for however much it actually costs to insure them. Or, maybe it is pretty much irrelevant because the large majority of those people have good jobs with group health insurance anyway.

lambert strether May 24, 2013 at 10:09 pm

Of course, the young folks will get the old folks houses when the old folks finally pass on — unless the insurance companies do, of course. Surely that’s the kind of intergenerational compact even a conservative could support?

Widmerpool May 23, 2013 at 2:55 pm

“If you only mean people with ~$200,000 net worth and low cash flow, and think they can pay their own way … that is a pretty weird claim, IMO.”

But look who you are taking from – people with even less net worth and, yes, a bit higher cash flow – but who need to accumulate their own savings, try to buy their own home, raise a family, etc. It really is the old screwing the young, I think.

john personna May 23, 2013 at 3:28 pm

As I say above, I did not see “wealth” in any of those age groups. That’s not surprising because genuine wealth is rare.

Because genuine wealth is rare, the idea that you don’t need to worry about the old, because they are “wealthy” is pretty wrong-footed.

We can, on the other hand, directly measure who has wealth, and even easier who has cash flow and income.

Widmerpool May 23, 2013 at 3:56 pm

Well, I think we’ll just have to agree to disagree on this. I think relative wealth is very meaningful to the discussion, and can’t be waived away by saying, well, no one is really “wealthy” so it doesn’t matter. You are taking from someone who has less and giving to someone who has more. I think it is telling that this is not a point that Obama and the media are at all interested in mentioning. Also, as I say above, you can’t look at cash flow meaningfully without trying to take account of the demands on that cash flow.

Jan May 23, 2013 at 1:24 pm

If you really mean “old” then they’re on Medicare already anyway.i

Jan May 23, 2013 at 1:33 pm

Are you talking about Medicare, which everyone pays into?

Seems there are good deal of very poor old people out there: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/20/senior-poverty-is-much-worse-than-you-think/

ezra abrams May 24, 2013 at 11:34 am

please post citation to support your claim, Ken (dance to the music of time)
and even if true, you have to provide data on distribution of wealth in the elder population.
When you have botherd to do your basic homework, we can talk

j r May 23, 2013 at 1:11 pm

Fine. If there are people actually dying on the Emergency Room doorstep, then tax me a little more and help those people. Don’t force me to make stupid decisions that I don’t want to make.

Andrew' May 23, 2013 at 1:15 pm

Worse. Trick the young into thinking that is why you are taxing them, but what you are really doing is taking money FROM that to waste elsewhere.

The Reliability Theory of Aging dictates that spending should be done smartly early. Since it’s not being done smartly on the horizon it probably shouldn’t be done.

Andrew' May 23, 2013 at 1:12 pm

“This is especially horrible since healthy young people never become ill and never become old”

1. Some don’t, but that’s not the point.
2. Elder care is useless for most of the bushwa.
3. As a wealth transfer, well, sure.
4. The point is that this reinforces the whole reason that the money will not be around when the young get old.

MD May 23, 2013 at 2:27 pm

“1. Some don’t, but that’s not the point.”

DIE YOUNG AND LEAVE A BEAUTIFUL CORPSE YOLO!

Hazel Meade May 23, 2013 at 2:18 pm

Of course healthy young people DO become ill. But they do so at lower rate than older sicker people (by definition). That’s WHY they pay less for insurance in a normal market. You buy insurance because you *might* get sick, but you pay an amount that is priced according to the *probability* that you will get sick. That is fundamentally how all insurance works, in every area except our highly regulated health insurance market.

The ACA however, makes it illegal for insurers to charge young people less than 1/3 what they charge older people. Even if younger people are more than 1/3 less likely to get sick. That means that younger people, will, in the aggregate be paying too much for insurance. They will be paying substantially more than their aggregate payouts will justify. Unless you are an exceptionally risk-averse person, it doesn’t make financial sense to pay much more for insurance than your expected cost (probability time cost).

Dan Weber May 23, 2013 at 2:27 pm

Assuming for the nonce that this is perfectly accounted for and in the long-run the average person puts in exactly how much they get out,

then this is a massive one-time transfer from today’s younger workers to today’s older workers.

Alan H May 23, 2013 at 7:42 pm

“Oh the horror of this.”

Yes, there is horror to it, and here is why: We know very well we cannot continue to make all possible and efficacious treatments available at the taxpayer’s expense through another two decades. We don’t have the money, and never will. Even Sweden finds it has to perform triage, providing expensive surgeries only to those with a good probability of long-term benefit. So the switch, forcing ever more costs on the young worker to provide universal access to coronary artery bypass, internal defibrillators and pacemakers, organ transplants, and on, is merely a supplement to a Ponzi. What is monstrous is to adopt a ‘soak the young’ strategy to postpone recognizing reality another few years. I understand why Big Medicine and the poor want these things. They are on the receiving end of a munificent benefit. I simply suggest that we can’t afford them and those two constituencies do not pay for them, and never will.

Richard May 23, 2013 at 1:05 pm

Yes, there are perverse incentives on the part of the government. Certainly helps the risk pool to include the healthiest segment of the population with those who are much more sickly, to reduce the costs on the upper end of the worse health spectrum.

But the comparison with student loan debt burdens is way off the mark, IMO. Firstly, the student loan debt burden, for many students, is a one time debt accumulation. After you accumulate it, the principal will only increase if you don’t pay. With catastrophic plans, you can actually incur this debt multiple times (based on the timeline of your plan). Secondly, the debt burden incurred with student loans has a definitive benefit; dependent on what you think the college wage premium is, most students anticipate a positive return, over their lifetime, of going to college. I can’t think of a large benefit (if there is one), of incurring the catastrophic injury payment (perhaps the psychic return, a la Grossman, of alleviating the illness that caused you to incur the debt?). Thirdly, you must look at the ability to discharge these debts via bankruptcy, and how that affects the future individual.

As Arnold Harberger has pointed out many times, it’s not necessarily the initial outlays of costs that determine the project. It’s the stream of lifetime benefits that accrue from the initial costs. Using his framework, so long as the discount rate isn’t markedly high, the high initial outlay of college debt may actually be worth it, so long as the stream of benefits (higher wages, compared to not going to college) is long enough and high enough (compared to the relevant counterfactual).

Doesn’t mean that there aren’t perverse incentives, but the analogy is flawed. The benefits of allowing for more catastrophic plans should be viewed on their own merits, not some illusory connection to student loan debt burdens.

Thomas Sewell May 23, 2013 at 2:17 pm

“The benefits of allowing for more catastrophic plans should be viewed on their own merits,”

Who are you to decide that for another person? Why do you get to decide how much financial risk someone is allowed to take? That’s where the disgust in the original comment comes from, the lack of freedom for people to make their own rational decisions for themselves in the name of trying to subsidize other folks. It’s a very dishonest, freedom-limiting and irresponsibility encouraging system.

Richard May 23, 2013 at 2:32 pm

That’s simply not what I stated. The analogy used is incredibly flawed, for the reasons I’ve listed.

And how am I deciding anything for anyone? I simply stated that the benefits of allowing for more catastrophic plans should be viewed on their merits. Which includes all of the criticisms that you stated, and benefits of allowing for this (yes, there are some). It should not take into account why we allow large student loan debt burdens or other illusory connections.

You seem to be inferring a point I was nowhere close to making. When making a decision on what to do, I shouldn’t factor in unrelated alternatives. It complicates the discussion and moves the point away from what we are trying to learn.

Adrian Ratnapala May 23, 2013 at 3:33 pm

Well you see “allowing” is when you you letting people decide for themselves.

Hazel Meade May 23, 2013 at 2:30 pm

The comparison is not about whether $10,000 in medical expenses is “worth it” to the individual in some sort of sense of producing financial returns. The comparison is about what society finds morally and legally permissible. The ACA’s treatment of catestrophic-only plans is premised on the notion that there is something morally impermissible about an individual having to take our $10,000 in debt to finance his medical bills. The idea is that supposedly, this is such a terrible outcome that society must intervene to force people to get more extensive coverage. Presumably because the costs would be so ruinous to the individual. And yet, $10,000 is not an amoung we would consider “ruinous” for any other expense.

People regularly take out car loans for more than than and don’t expect to earn a return on the car. Indeed cars are a depreciating asset.

Now, it’s possible, albeit unlikely, that you could incurr the $10K in multiple years in a row, and build up a lot of debt that way, but that would be an extremely serious illness. I.e. multi-year recurring cancer treatments. I don’t think even $50K or $100K is an unconscionable amount to expect an individual to pay for surviving a multi-year serious life-threatening illness.

But the comparison to student loan debt is apt because we all know there are lot of people who upon graduation will not get jobs and will not be able to pay off their student loan debts. It’s possible some of them might gets jobs, but being healthy also makes you able to work, so you could say the healthcare is also an investment in that way. But we also don’t BAN people from borrowing $100K to finance a degree in humanities (although if the banks hard their way they probably wouldn’t lend that much).

Richard May 23, 2013 at 2:42 pm

Disagree. Of course society finds certain debt burdens more permissible than others, in a moral and legal sense. It has to do, in part, with the “externalities” (I loathe this term, but I’ll use it in a limited fashion here) associated with them (say, homeownership and education). Hell, even Jefferson wanted universal higher education (typically what we would associate with, I believe, a 9th grade education). We’ve moved from there, but college educations are seen as growth enhancing.

I don’t disagree that it inhibits choice, and choice is often good. But that the comparison limits the strength of your argument.

And even though there are some people who don’t make the return on their investment in college, this is not true on average (even when looking at the median). And, again, the comparison to the cars is not apt. Cars, don’t provide a pecuniary return (unless you’re lucky), but they do provide psychic returns and time returns (you typically will spend less time commuting if you own a car than if you have to ride public transportation and, if not, by not having a car, you will likely have to pay a premium to live closer to your job). Again, the connection between catastrophic coverage and a stream of benefits during that “lifetime” (say, the year in which you have the plan) is tenuous.

Catastrophic medical plans are also not an investment in health, UNLESS it forces individuals to spend more time on preventive care (diet and exercise) that they would normally do anyway. However, given the fact that time budgets are limited, the impact of this (theoretically and empirically) is minimal. Investments in health are typically seen as consumption of medical services (including time spent on preventive medicine), but not the health insurance plans that perhaps limit one type of consumption (going to the doctor).

Hazel Meade May 23, 2013 at 2:53 pm

Are you saying that surviving a major illness does not provide psychic returns or “a stream of benefits” over a lifetime?

Of course society finds certain debt burdens more permissible than others, in a moral and legal sense.

Again, are you really arguing that $10K is too great of a debt burden that society should allow anyone to carrry for medical expenses?

Catastrophic medical plans are also not an investment in health, UNLESS it forces individuals to spend more time on preventive care (diet and exercise) that they would normally do anyway.

No, they aren’t an “investment” in health, no more than a car is an “investment” in psychic benefits. The point of a catestrophic plan isn’t to make people spend money on preventive care it is to protect people from $1,000,000+ medical bills they can’t pay in the even of a serious illness.

Do you really want to make it ILLEGAL for people to buy forms of insurance that don’t force people to get preventive care? Seriously?

Richard May 23, 2013 at 3:06 pm

I never stated that it should be made illegal. That’s an incredibly inference from what I’ve written, that’s not supported by anything I’ve stated. Saying that your analogies don’t hold water doesn’t mean I uphold what you’re arguing against…

And, fine, I’ll concede that cars don’t provide a stream of psychic benefits. And yet they do provide a stream of immediate benefits (again, time savings, or “rent” savings).

And yes, the preventive point is incredibly important. The main forms that you invest in health are preventive and reactive (curative). By reducing the chances you will seek curative care, you may suffer worse health outcomes without a corresponding increase in preventive care. That’s not to say that these plans are bad (far from it). But, again, the point is that these aren’t an investment in health and, given no health shock where you use the health insurance plan, standard depreciation stories tell us that our health will likely be worse with it. But it’s a tangential point, and certainly wasn’t conclusive to what I have been arguing.

And surviving a catastrophic illness does provide a stream of benefits, but it’s not related to the catastrophic plan. In fact, in nets out with the counterfactual (say, having health insurance that’s not catastrophic), meaning that the flow of net benefits likely won’t include it.

You seem to be twisting my words to where you think I’m stating that it’s permissible for this legislation. Perhaps, perhaps not. I haven’t looked at the available evidence on this topic closely enough, yet. And, no, we typically don’t view $10,000 as an intrusive (or burdensome) debt limit. But simply because $10,000 isn’t a lot of money doesn’t mean that it’s an optimal plan. Incurring $10,000 worth of debt with limited benefits is certainly worse than incurring $100,000 worth of debt, while increasing your wage by $15,000 each year (yes, the numbers are fictional).

Adrian Ratnapala May 23, 2013 at 3:37 pm

10K worth of car is something you might take a loan for. An unpredictable 10K loss is the kind of thing you insure against. So I understand why people are uncomfortable with such medical bills.

Still I agree: if the facts are clear up front, then you should be allowed to take that risk.

Hazel Meade May 23, 2013 at 10:48 pm

Besides, there is the fact that some of us have $10K stashed away just for such an event. That’s why people generally pair a catestrophic plan with an HSA.

Rich berger May 23, 2013 at 3:01 pm

“Society” does no such thing. There is no such actor. This is just a technique for masking your desires and opinions by pretending that they are unanimously shared. In fact, the elimination of catastrophic plans was engineered by a small group of Democratic staffers and activists, acting in secrecy and against the will of the majority.

Richard May 23, 2013 at 3:08 pm

False. You can talk in terms of society when not talking about my desires or opinions.

Your point is demonstrably false. Society has found certain debt burdens more acceptable, in a moral sense. You can, however, debate whether you think what we have decided as acceptable is worth it (i.e., should we all own houses?).

Cliff May 23, 2013 at 8:27 pm

Richard,

False. Groups cannot have coherent preferences. Check the literature. What you are saying is simply unintelligible.

Richard May 23, 2013 at 9:10 pm

Arrow’s Impossibility Theorem does not state that groups cannot have preferences. They state that certain qualities of the preferences can’t be satisfied.

So yes, groups can have preferences.

And, depending on how you qualify the answers (is one debt burden more morally acceptable than another), pairwise comparisons don’t suffer the limitations of Arrow’s Impossibility Theorem.

Richard May 23, 2013 at 9:47 pm

Oh yes, there are papers quoted on this website (quite favorably too) that talk about social outcomes and societal preferences.

It’s been talked about in terms of behavioral economics, the tradeoff in the Mundell-Fleming model (and macroeconomics), in historical economics (by Fishbach and others).

There are caveats with applying such measures, but there is still a flourishing literature on the subject (say, using weights when determining optimal tax policies). It doesn’t mean that you have to buy the implications, however.

So, you can talk about society, and not be talking about my desires or opinions (if I’m not the dictator). And society has placed certain situations ahead of others, in terms of a moral sense (note how this is distinct from economic; we view housing debts and education debts as better than medical-related debts).

ohwilleke May 23, 2013 at 3:00 pm

“The ACA’s treatment of catestrophic-only plans is premised on the notion that there is something morally impermissible about an individual having to take our $10,000 in debt to finance his medical bills.”

The ACA’s motive is on the economics on the provider side, not the moral imperative on the individual side. It is premised on the notion that lots of people don’t have the ability to promptly pay $10,000 to a provider via cash on hand or access to credit (realistically probably 20%-40% of Americans would be in that situation based on Federal Reserve net worth data, and it would be a larger percentage of people who opt for minimum coverage plan), so providers will have bad debt and inflate their prices to cover it.

People who get catastrophic coverage when they don’t have the ability to promptly pay the full deductible or obtain credit to pay it are free riding and forcing providers who don’t want to lend money to lend them money despite their poor credit.

Indeed, there really isn’t a well developed market for financing medical debt period except in cases where a personal injury claim provides collateral. Your neighborhood bank won’t give you an “I broke my wrist” or “I was diagnosed with skin cancer” loan. No questions asked loans (e.g. payday loans) aren’t usually made for large dollar amounts. There is no collateral for a deductible loan as there is for most purchases of goods and substantial medical debt is usually accompanied by reduced earning capacity. There is no government guarantee as there is for a student loan or SBA loan.

Hazel Meade May 23, 2013 at 3:55 pm

That’s definitely not the argument against catestrophic plans.
First of all, if people only defaulted on the deductible portion, cost-shifting would be massively less. The current (supposed) problem is people racking up million dollar bills. Catestrophic plans would ensure that insurance companies would pay almost all of the costs, leaving a tiny fraction (10K) to be paid by individuals.
There are few individuals who cannot afford to pay off $10,000 over a few years, and those who can’t are probably already covered by Medicaid. The costs entailed by a tiny number of people who don’t qualify for medicaid and don’t pay their $10K deductible is simply a non-issue.

MD May 23, 2013 at 4:22 pm

I’m definitely looking forward to the rise of catastrophic plans with SIRs instead of deductibles.

Pshrnk May 23, 2013 at 4:48 pm

Yes…..and some of us can pay $10,000 per year ad infinitum in the worst case. My disability insurance, for which I’ve paid for nearly three decades, would allow me to do that, as does my working income.

derek May 23, 2013 at 10:57 pm

There is the assumption that somehow having these provisions removes the necessity of self funding your health care. What I face is the reality that if I say trash my knee, by the time that the free universal health care gets around to treating it I potentially could be out a couple of years of income. It would be cheaper for me to pay for it, get it done, do the rehab and get back to work than wait for what I’ve already paid for in my taxes and fees.

Richard May 23, 2013 at 1:08 pm

Also, the welfare implications of subsidizing for the less healthy population, who are (on average), I would expect, less well off than the healthier population, implies that (unfortunately), we still believe that the marginal dollar to a poorer person is higher than that of a richer person (again, in opposition to Harberger).

There are certain benefits to this form of social safety net, but we’ve seen the problems associated with it (instead of using health insurance or catastrophic plans, healthy individuals foregoe any insurance).

We’d certainly like to reduce the terrible burdens of health care costs on the unhealthy populations, but this doesn’t seem to be a first-best or second-best way to go about it. Inducing healthy individuals to consume both catastrophic plans and non-catastrophic plans has to be better than forcing them to consume non-catastrophic plans or, in many cases, have no insurance.

Widmerpool May 23, 2013 at 1:11 pm

Richard – you are subsidizing the wealthiest group – the elderly.

Richard May 23, 2013 at 1:15 pm

Perhaps I should have specified better.

I was not talk about the young subsidizing the old, as was claimed earlier. I was looking at this more broadly. Healthy populations don’t necessarily have to be young. At each age sub-group (or, with each cohort), the more healthy subsidize the less healthy. And the less healthy should, on average, at each age, be less wealthy.

You are correct, that there are cross-subsidies. But it’s not solely the “wealthy” that are being subsidized.

Hazel Meade May 23, 2013 at 2:36 pm

But that’s not how the ACA and the mandate were sold.

The mandate was sold based on the idea that uninsured individuals were imposing costs on others by going without insurance. But the reality is that most uninsured people tend to be younger and healthier people, and the mandate is there to force them to make fthe financially irrational decision to purchase insurance at inflated rates, which is necessary to keep them in the insurance pool to sustain the community-rating/guarenteed-issue provisions.

Richard May 23, 2013 at 2:52 pm

Partially. There are certainly people for which this purchase is fiscally irresponsible.

There are large groups of people (a sizeable minority, at the least) who don’t accurately identify the risks of this system, and lose out.

It’s almost certain that this isn’t worth it, but a tremendous number of people, including government officials, view this as a significant informational problem, and deem it worth fixing.

Hazel Meade May 23, 2013 at 2:58 pm

There are large groups of people (a sizeable minority, at the least) who don’t accurately identify the risks of this system, and lose out.

Purchasing insurance is a tradeoff between price and risk. If the ACA cause the price of insurance to be inflated relative to the individual’s risk (which it does), then the individual and individual may rationally and accurately assess that buying insurance isn’t worth it.

I don’t see where people aren’t accurately identifying the risks if you’ve rigged the system to make insurance not worth the money you pay for it.

Richard May 23, 2013 at 3:11 pm

Where people aren’t accurately identifying the risks? Plenty of behavioral economics on this area. People do an incredibly poor job at projecting into the future and, when having to deal with state-dependent outcomes, they do even worse.

And the risks of the system are incurring the debt immediately, and how able you are to pay it off, given financial circumstances (empirical and anecdotal evidence here, as well). And even this choice is distorted, given the bankruptcy provisions for medical debt (again, which distorts the true choice people should make).

The insurance system has rarely (if ever) had a well-functioning price system.

Cliff May 23, 2013 at 8:30 pm

Let’s see all this empirical evidence then. Insurance does not have a well-functioning price system?? I find that extremely hard to believe.

Richard May 23, 2013 at 9:35 pm

I guess the part where I stated that the insurance market leads to a health care system with a barely functioning price system, which is correct.

And the empirical evidence on the mis-perception of risk?

Hogarth, and how mood affects risk perception.

Tversky and Kahnemann, where people weight equivalent scenarios differently.

Johnson & Schkade, about anchoring and risk perception (correlated with a random draw from a number wheel not related to the gamble).

Loss aversion.

From Colin Camerer:

The best known example contrasts how people
choose between two bets versus what they separately state as their selling prices for the bets. If
bet A offers a high probability of a small payoff and bet B offers a sm
all probability of a high
payoff, the standard finding is that people choose the more conservative A bet over bet B when
asked to choose, but are willing to pay more for the riskier bet B when asked to price them
separately.

Andrew' May 23, 2013 at 1:14 pm

Apparently, “some things just can’t be understood” Neil Peart.

JasonL May 23, 2013 at 1:15 pm

I wouldn’t mind the catastrophic plan thing quite so much if ACA explicity handled High Deductible + HSA in the way it should be handled. That is, the payout ratio for an HDHP can’t be treated as though it were a standalone kind of low rent plan, yet, to date, that is what ACA does. It may get hammered out in committee or final regs, but the administration is making noises like maybe they don’t feel HSAs are all that great so suck it up and live with the payout ratio like every other plan. It would really be infuriating to kill not only catastrophic but also HSA.

Andrew' May 23, 2013 at 1:20 pm

Do you think their agenda is to let you buy a plan that pays for what you think insurance should cover?

Claudia May 23, 2013 at 1:53 pm

Of course not, when was that on the table, ever? Their agenda is “access to quality, affordable health insurance” for Americans. http://www.healthcare.gov/news/factsheets/2011/12/essential-health-benefits12162011a.html

Do you honestly believe all the people without health insurance right now don’t want it? Of course, at what price, but with more risk sharing / participation the price can come down for the uncovered and up some for the covered. ACA seems like a form of forced saving (and thus spending) on health care, a bit like Social Security. It’s no surprise that people get old and sick, but for many it comes as a surprise…at least when you look at their private savings.

All that said, I grew up on a catastrophic health plan fine and I would prefer to use cash transfers to the low income for whom even the every day health expenses are a burden. That’s a huge jump from the policy and you can’t just tinker with one cog without throwing the whole machine off balance. Not anyone’s intention, right?

Alexei Sadeski May 24, 2013 at 10:30 am

> ACA seems like a form of forced saving (and thus spending) on health care, a bit like Social Security.

ACA is a handout to insurance companies.

The consumer loses more in a few years of premium costs than she loses in one year of $10k deductible.

As always, expensive insurance is simply a tax on people who are bad at math.

Thomas Sewell May 23, 2013 at 2:25 pm

One of the [very large, 15K employees+] companies I work for will be offering their HSA plan for the last time this year. They’ve announced next year it’ll no longer be offered because of the ACA regulations. Including the cost of contributions to the HRA/HSA to make your exposure even for a single year (gets better for future years because of the don’t lose it provision), the HSA plan is currently 60% of the cost of the HRA plan they offer for identical coverage.

Losing HSA plans is another of the devastating affects of the ACA.

F. Lynx Pardinus May 23, 2013 at 1:27 pm

“Worst case scenario with a catastrophic-only plan is you end up with $10,000 in debt…We’ll let you borrow $100,000 to get a sociology degree but, we think that $10,000 is an unconscionable amount to pay for medical expenses? ”

Two questions because I’m not too familiar with catastrophic-only plans: Does the catastrophic-only plan cover the cost of drugs? And, is it $10k/year, (in which case you’re comparing a $/yr to a $)?

AndrewL May 23, 2013 at 2:12 pm

The idea is that you pay out of your own pocket, the first x$ of medical costs (say $10,000) per year, and then the insurance policy kicks in and picks up any additional costs after that first $10,000.

To go along with that, a special tax advantaged account is opened up where you can save x$/yr in pre-tax dollars and it can grow tax free, and you can spend it on medical costs only – tax free to help you cover that initial $10,000 out of pocket costs before the insurance company comes in.

Most young and healthy people will not spend more than $10,000 a year in medical costs, so the insurance company is making bank on the insurance premiums you are paying. The young person, who is not spending $10,000 a yr on medical costs is saving the difference yr over yr so in time, they’ll have a nice little nest egg of money for future medical costs when they get old.

for the average healthy young person, it’s win win win – the young person has real financial incentive to stay healthy and be more informed(save more money), they consume less medical resources (good for medical infrastructure), the insurance company can maintain a profit, and the cost-conscious, informed person can drive prices down via competition.

There has to be some critical ratio of these “low cost” insurees, to the “high cost” insurees to make this type of plan attractive to everyone. I don’t know what that ratio is.

Boonton May 23, 2013 at 1:29 pm

healthy young people to subsidize healthcare for older sicker people

I’m still waiting to hear the plan to make sick old people pay for their health care?

For what its worth, catastrophic plans are permitted under the ACA. See http://reform.healthfoundation.org/glossary/catastrophic-plans

Perhaps you may want more catastrophic plans, say with a $10K individual deductible rather than a $5950 one but it’s not a huge difference. If the idea is so great then no doubt it will be quite popular in the exchanges and more and more people will grab onto it, possibly sparking a rise of direct consumerism in health care. If it’s not, well then it won’t do as well.

What’s the problem?

Andrew' May 23, 2013 at 1:32 pm

“I’m still waiting to hear the plan to make sick old people pay for their health care?”

We are here to help. It’s called Catastrophic plus HSA.

As for whether this is legal under ACA this week, as I often point out, one must keep in mind that the government sometimes does the right thing because we drag them kicking and screaming to it. Still, $5950 is not a catastrophic plan in my book.

Boonton May 23, 2013 at 1:48 pm

Who cares about your book. A $6K individual plan or $10K family plan is essentially saying almost all your routine medical care is coming out of your own pocket. If you need a $100,000 heart transplant I’m not seeing how having a $6K copay on that is all that different from a $10K copay. Few people are going to demand an unneeded heart transplant because it’s $4k less out of their pocket!

That model is radically different from the HMO type model where you have a modest copay on just about everything but beyond that insurance covers all the costs. If your model is so good why wouldn’t it become very popular and with that calls to expand it into more ‘catastrophic catastrophic’ options.

I suspect the real beef many ACA critics have is that they find it too flexible. They would rather have seen the system torn down and their pet ideas (no employer based coverage, single payer, everyone on catastrophic +HSA, etc.) implemented. They don’t like the ACA because it’s conservative (small ‘c’) in that it leaves the options open for different paths to be taken rather than liberal (meaning reworking everything from the ground up, not necessarily following a progressive blueprint like single payer, though some critics are in that boat).

Cliff May 23, 2013 at 3:11 pm

Huh? HSA/high deductible plans are very popular and more so every year…

JWatts May 23, 2013 at 2:08 pm

For what its worth, catastrophic plans are permitted under the ACA.

I don’t think you looked very carefully at your own link.

Starting in 2014 everyone must have qualified insurance. It will cover essential health benefits. The cheapest plans will pay at least 60% of health care costs. *Cover three primary care visits. *Cover preventive care

That’s not a catastrophic plan despite it being labeled as such.

Boonton May 23, 2013 at 2:45 pm

You neglected to quote

Cover essential health benefits only after the insured has met their cost-sharing requirement. ($5,950/individual, $11,900/family).

Granted if they cover just 3 primary care visits per year whether or not you made your deductible it’s not strictly speaking a pure catastrophic plan. So what? Even auto and home insurance quite often cover a few minor ‘free goods’ like fixing small windshield cracks for free. How much could 3 GP visits possibly cost in terms of increase premiums next to your ideal perfect catastrophic plan? An extra $100 maybe?

If the catastrophic plan is so great it’s merits will shine thru such minor imperfections.

Hazel Meade May 23, 2013 at 3:01 pm

I wasn’t aware of that provision, but it specifies that only people under 30 can get it, unless they have a hardship exemption from the mandate. Considering that people can stay on their parents plans until 26, that essentially leaves a pretty small number of people who are going to be in that market.

Boonton May 23, 2013 at 3:24 pm

You may stay on your parents plan (if they have one) provided you do not have the option to buy insurance thru your own employer. As we’ve been told elsewhere here, expected medical bills go up 6 times with age so catastrophic plans only make sense for the young or those who are exceptionally trusting of their health.

Nonetheless, if the plans are so great the masses of 20-somethings in them will no doubt become masses of 30 somethings clammoring for their extension. Or you are free to buy them outside the health exchanges. Assuming you’re right that they save you thousands of dollars the $600 or so mandate tax that you kick into helping covering the uninsured (someone’s gotta do it!) would be but a modest blip in your otherwise brilliant financial tactics.

Hazel Meade May 23, 2013 at 3:58 pm

That’s probably true and it may turn out to be cheaper to pay the tax and buy a high-deductible plan. Which will be bad news for the ACA and the stability of the insurance market, since a lot of people are going to opt not to subsidize insurance rate for sicker people on comprehensive plans.

Politics Debunked May 23, 2013 at 6:53 pm

re: “That’s probably true and it may turn out to be cheaper to pay the tax and buy a high-deductible plan”

I am a little surprised by that comment, since I thought your point that started all this indicated that you realize they are capping the maximum allowed deductible, higher deductibles are outlawed starting next year. It isn’t simply that they can pay a fine and still get one. Since they are capping the ratio insurers can charge older people compared to younger people so the rates for the young will rise. The young and healthy, as they have done in Ma., will often risk going without insurance and paying the tax, knowing they can buy insurance when they need it that will cover a pre-existing condition. I suspect there will be smart phone app you can have preloaded with all the info to click a button on to sign up for insurance the moment you get sick. Of course they are likely to choose the best policies they can find to grab while they are sick (and drop afterwards), which penalizes the best insurers to help the rest. Links to sources about capping the deductible on this page going over all the ways we have nothing like a free market in healthcare:

http://www.politicsdebunked.com/article-list/healthcare

Cliff May 23, 2013 at 8:32 pm

Lots of people are clamoring for such policies on this very post, and not all 20-year-olds

Bill May 23, 2013 at 1:35 pm

What I like about the comments is that no one identified the age categories that people are put in for community rating. It sounds as if 20 year olds are lumped in with 40 year olds. Nah. But, guess what is the ratio between the 20 year old rate and the 60 year old rate. Show off your knowledge by posting below.

Andrew' May 23, 2013 at 1:45 pm

I don’t even know what community rating is. Don’t have to.

Widmerpool May 23, 2013 at 1:46 pm

“Obamacare forces insurers to charge their eldest beneficiaries no more than 3 times what they charge their youngest ones: a policy known as “community rating.” This, despite the fact that these older beneficiaries typically have six times the health expenditures that younger people face. The net effect of this “community rating” provision is the redistribution of insurance costs from the old to the young.”

Boonton May 23, 2013 at 1:54 pm

Most employer provided insurance makes no distinction based on age. Right now that’s about 61% of the non-elderly. It would seem among workers the ‘redistribution’ is very popular even though it’s more extreme than the ACA’s exchanges, which as you note allow a variance by a factor of 3 for coverage.

Widmerpool May 23, 2013 at 2:03 pm

I do not understand your point. How would an employer go about providing insurance that made a distinction based on age? Higher deductibles for older employees? But that’s simply a pay cut. So the employer’s policy is to pay its older employees less purely based on age? Good luck with that. Employers have to provide insurance in this way.

dead serious May 23, 2013 at 2:31 pm

You claimed that you didn’t understand the point and then answered the question. So yes, that’s one way it could be done.

Or, since what is taken out of the employee’s paycheck is a pass-through to the insurance carrier, the carrier would do that dirty work. It doesn’t matter who is the messenger, the effect would be the same, which seems to be what you want anyway (older folks paying more than the younger set.)

Boonton May 23, 2013 at 2:31 pm

Many large employers simply take their labor force, add up its medical costs and divide by the people covered to get a per person cost. They then decide how much they cover versus how much the employee covers (like 85% and 15%). The insurance company is doing administrative things like handling the billing, issuing cards, negotiating rates with docs and hospitals etc. If the older workers incur on average 6 times the cost of younger workers th exercise can be accomplished by simply dividing the amounts above into age groups.

As for it being a ‘pay cut’, that’s nonesense. If each employee was charge closer to their true cost, it would be a pay increase for those with lower medical expenses and a decrease for those with higher. Presumably the company pays workers an amount equal at least to what they are perceived to be worth to the company so if you have a worker whose sicker than average but worth a great deal, he will be worth paying.

Widmerpool May 23, 2013 at 3:04 pm

Your last paragraph makes no sense. You say calling it a “pay cut” is nonsense, and then proceed to describe exactly how it is a pay cut for older workers.

Jacob Lyles May 23, 2013 at 9:11 pm

The last time I had employees, the insurance company charged me based on employee age. If we covered less than 100% of the bill (as we had an option to do) then our older employees would have had less take-home pay.

Dan Weber May 23, 2013 at 2:33 pm

Did this change? Last time I looked at the text of the PPACA (which was a while ago, I admit) the maximum age differential was 2x.

I could really get behind a community rating that made age the only consideration and let that price swing as far as it actuarially needs to. But then we wouldn’t have a one-time transfer to the baby boomers.

Bill May 23, 2013 at 6:59 pm

From reading elsewhere, state regulated permitted insurance differential 6:1, and ACCA changes the parameters to 5:1 for its products. I have not seen 2x.

Here’s an article from Ezra Klein entititled: “Don’t worry kids, Obamacare is a good deal” http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/11/dont-worry-kids-obamacare-is-a-good-deal/

Brian Donohue May 24, 2013 at 9:40 am

The fact that there are subsidies from rich to poor is used to obscure another massive one-time grab by Boomers.

The fact that they will mostly go to their graves thinking they paid their way or, on balance, being human, feeling mildly aggrieved, believing that they gave more than they got, bugs me.

The fact that 29 year-old Ezra Klein doesn’t understand any of this makes me sad for him.

Richard May 23, 2013 at 1:37 pm

And another reason that we typically view “catastrophic” as being useful for individuals who are younger is somewhat based on the findings about how income is generated. It’s much easier to accumulate debt when younger (with a catastrophic injury) and pay it off in the future.

That’s much less of a good idea for the older populations. At that point, they are typically drawing down on their savings. Large annual debt burdens aren’t a smart idea, even if the individuals are healthy (the ability to get back to a certain health level is much harder).

Wiping out either potential retirement money, or actual retirement money, forces them back into the labor market (is this optimal?) or forces increased transfers to these populations from working populations (i.e., social safety nets).

Widmerpool May 23, 2013 at 1:40 pm

The other obvious point is that you would work very hard to get good value for your $10,000.

Pshrnk May 23, 2013 at 4:56 pm

+1

Boonton May 23, 2013 at 1:41 pm

So let’s consider the twin goals of having some type of universal or near universal coverage BUT not having ‘healthy’ people subsidize sick. Think about how you get from here to there.

If insurance charges very low rates to the healthy, they will, of course, charge very high rates to the sick. OK so hows that going to work? Well some sick people may be rich or have huge assets to tap into but most will not. So you’ll have the gov’t subsidizing the difference between what they can afford and what it costs. Or maybe you’ll have the gov’t just paying directly for their care (i.e. Medicare or Medicaid.

But who pays for that? The gov’t may tax some rich sick people but for the most part it’s going to have to tax those who are working, which also generally means the healthy.

Or you may say by law hospitals have to treat people whether or not they pay for their services. But then hospitals will pass that onto those that are able to pay. Again we’re back to the young and healthy. Your $3000 hosptial bill for a broken leg is now $9000 because the hospital is using you to cover the 50 yr old unemployed single mom who discovered a lump in her breast but doesn’t have decent insurance. You’re back to subsidizing the sick again.

Or pehaps the gov’t will make the young and healthy contribute money into a 401K type fund so when they get old and sick they can afford high premiums. But this seems like a distinction without a difference. Hey young person, you can buy a $2,000 policy in the exchange instead of the $7000 one. But you gotta kick in $5,000 into your special ‘health account’ which you can’t tap for another 35 years!

To me the ACA system doesn’t seem all that bad. You choose your insurance and insurance companies compete on price and coverage options. Since they cannot achieve low costs by pricing out the sick people, the insurance company that lowers costs thru good negotiations with doctors and hospitals or by rigerously evaluating treatments to discourage unproductive ones has a competitive advantage against those plans that don’t.

Thomas Sewell May 23, 2013 at 2:30 pm

The inaccuracy in your statement is “You choose your insurance”, because the ACA is all about limiting the choices we are legally allowed to have for insurance options.

Say instead, “The government bureaucrats choose the limited insurance options they decide you will be allowed to pick from.”

dead serious May 23, 2013 at 2:38 pm

Do I get to pick from a set of tax scheme options?

Cause quite honestly, I don’t use national defense or welfare all that much. Let me know how to get that onto catastrophic plan.

Dan Weber May 23, 2013 at 2:40 pm

National defense, like clean air, is a public good. It doesn’t make sense to talk about how much of it you use.

Almost all health care (with a very few specific exceptions for communicable disease) is a private good.

dead serious May 23, 2013 at 5:41 pm

“National defense, like clean air, is a public good.”

Um, no. The public at large needs air. The public at large doesn’t need national defense – and the set of people who’d like to cut it entirely from the national budget extends beyond me. Just because you think it’s a public good doesn’t make it so.

http://www.academia.edu/787495/Is_the_Provision_of_National_Defense_a_Public_Good

lambert strether May 24, 2013 at 10:14 pm

Why is health not a public good?

Boonton May 23, 2013 at 2:41 pm

Then don’t choose and pay the $600 mandate fee which all things considered is pretty modest as a tax when you think about what you pay for, say, Medicare.. One of the goals of the bill was to increase coverage, if not quite achieve universal coverage. That implies some definition of what is really coverage versus ‘partial coverage’. All said the range of possible offerings is pretty large and includes even catastrophic plans which seem to be so important to many here.

And you seem to be under the impression that pre-ACA insurance companies were free to offer any style of plan they wanted under the sun.

Hazel Meade May 23, 2013 at 4:01 pm

Right, and the ACA supporters are hoping and praying that enough healthy people will be suckers and choose to buy an overly-expensive comprehensive plan, so that rates in the exchange markets won’t skyrocket.

Thomas Sewell May 23, 2013 at 7:52 pm

No, I’m already very familiar with pre-ACA insurance regulations and how limited insurance options were already when regulated by the state insurance commissions. About 22 years ago, I worked for a health/life/property insurance company, and I’ve kept up with the industry in general since then.

We used to have a choice between states to live in, so you could get family insurance in a conservative rural mountain state like UT or AZ for $350/month where insurance for the same family would be $1300/month in NJ or NY. That situation was bad enough, but at least you could pick your state. Now the higher cost requirements from NJ and NY are getting embedded in nationally via the ACA, leaving nowhere to escape in the U.S. unless you want to self-insure. (Note, these numbers are from a few years ago when I was shopping for family health insurance when moving, I’m sure it’s much more now, but now I only have a one state comparison, my own.)

Back in 2009, this was my unrealistic in the current political environment proposal:
Increase supply of medical care by removing legal obstacles. That means removing licensing restrictions (especially for Health care professionals trained in other countries) and removing AMA (Doctor’s union) restrictions on the number of new health care workers trained every year. It also means severely limiting the FDA’s ability to stop drugs from being produced. At most, they should evaluate and report on, rather then control the legality of drugs. That way Doctors and their patients could choose what risks to take based on their best information available.
Add more competition to the system by overriding state insurance regulators with a federal mandate that allows interstate commerce in insurance policies. Either end tax breaks for employer-provided plans or make sure that they are matched exactly by breaks for non-employer-provided plans. Prevent any regulators anywhere from regulating what is offered at what price in health insurance plans. Innovation in insurance service doesn’t start in state health insurance regulation committees!
Allow prices to reflect demand as much as possible by providing methods for price transparency in service as well as allowing insurance as insurance instead of pay-for-service plans. Most of that would be taken care of by removing regulatory obstacles as above.

Boonton May 23, 2013 at 8:39 pm

We used to have a choice between states to live in, so you could get family insurance in a conservative rural mountain state like UT or AZ for $350/month where insurance for the same family would be $1300/month in NJ or NY. That situation was bad enough, but at least you could pick your state. Now the higher cost requirements from NJ and NY are getting embedded in nationally via the ACA, leaving nowhere to escape in the U.S. unless you want to self-insure. (Note, these numbers are from a few years ago when I was shopping for family health insurance when moving, I’m sure it’s much more now, but now I only have a one state comparison, my own.)

Embedded nationally? Let’s think about that, under the ACA UT or AZ would have an exchange where insurance companies could offer their insurance products. There’s no requirement that the insurance policies would be the same as offered in NJ. In fact you could very likely have companies in UT or AZ that don’t even do business in NJ. It would seem that the insurance company that based its premiums only on insuring the less expensive UT or AZ resident would have an advantage over the insurance company that was trying to get UT or AZ customers to pay for more expensive NJ patients.

In fact I recall it was a big Republican proposal to try to mandate that states open up their insurance markets to cross border customers. In that case NJ residents would want to buy the cheap $350 policies from UT or AZ, which would really serve to force UT and AZ residents to start subsidizing the more expensive market in NJ.

Thomas Sewell May 24, 2013 at 4:17 pm

For Boonton, since the reply nesting has run out:

If you have individual state exchanges, but they’re all required to offer policies from a single set of limited criteria, then the fact that they are technically different entities doesn’t mean there are substantial differences in the products being offered.

The state-level requirements for health insurance in AZ and NJ have differed considerably in what is required to be covered and how it was to be covered. Things like community rating and expensive to cover items that were mandatory in NJ were optional in AZ. This was largely the result of the differing political control of the state legislatures.

The ACA took all that away and essentially changed the requirements for all plans to match much closer to a NJ-style insurance coverage. Now it won’t matter, all the plans have to have the expensive “features” that the same group of politicians that controlled NJ want you to pay for. The old AZ plans won’t qualify to be offered on the exchanges, you’ll only be allowed to purchase the NJ-style plans.

Dan Weber May 23, 2013 at 2:38 pm

by rigerously evaluating treatments to discourage unproductive ones

Oh, if only. Americans freak out when the treatment their doctor suggests isn’t covered.

NB this is regardless of whether it’s decided by the government or an insurance company. “It’s between you and your doctor,” right?

Boonton May 23, 2013 at 3:13 pm

It depends how hard the insurance company pushes. No one likes it if their company denies a suggested procedure but sometimes they should deny. Other times they should just be more gentle and ‘suggest’.

One of the problems with medical procedures is that consumers are at a disadvantage. Unlike buying a car, you aren’t getting what you want. You’re getting what you think you need and the person you’re trusting to decide what you need has a financial interest in you doing procedures he suggests. How would you feel if you had to trust the car dealer to decide what type of car you should buy? At least in theory a good insurance company should be able to counter this bad incentive by using their position to mine data and knowledge to discourage wasteful things.

Hazel Meade May 23, 2013 at 3:11 pm

There is more to this issue than just the cost shifting.
High-deductible plans incentivize people to price-shop for non-emergency care. Which introduces just the kind of price signals that have been sadly lacking in the current market. Indeed the Kaiser family foundation recently issued a report in which they credited high-deductible plans with helping to “bend the cost curve” on health care, because people on high-deductible plans paid more attention to how much they were spending.

The major benefit of high-deductible plans is that they rationalize prices in the health-care market and thus bring down overall medical costs which makes cost-shifting less necessary.

asdf May 23, 2013 at 1:45 pm

The people who wanted ACA really wanted Single Payer, which would drop the concept of health insurance and make healthcare the responsibility of the state (even if it subcontracts the work to private providers). Because they could not get single payer (or at least claim they couldn’t) the second best thing in their mind is an “insurance” scheme that isn’t insurance but a disguised way of turning everything into a single risk pool where its “each according to his ability, each according to his needs” and all that.

Richard May 23, 2013 at 1:48 pm

That’s demonstrably false. I’d like to think people can leave politics at the door, or at least realize that simple truisms spouted by both sides are often wrong.

Some people surely want single payer aspects. Some people who want this type of health insurance scheme are also worried about future health care costs (depending on how you view them, they could be enormously high in the future, a la Baumol) and the viability of having large swaths of individuals uninsured, where they swamp, at points, emergency services for minor ailments.

ACA is, IMO, a failed institution that doesn’t address structural or behavioral problems inherent in health care. But the current structure of the system that we just left is just as bad, perhaps worse.

Boonton May 23, 2013 at 2:02 pm

But the current structure of the system that we just left is just as bad, perhaps worse.

In other words the ACA is probably an improvement according to you but it’s ‘failed’ because it doesn’t tear down the entire system and rebuild it with whatever your pet ideas are. For most people that’s a plus.

Richard May 23, 2013 at 2:08 pm

Pet ideas? Not at all. Simple logic.

Just like problems inherent with the economy today, we don’t address the structure or behavior of the actors. Policymakers wave their hands and state that they have fixed the problem when, in fact, we’ve put a band-aid on a bullet wound.

And no, leaving the other system is not a plus. Transactions costs, transition costs, political costs (i.e., the need to call in favors that could have been used on, perhaps, more worthwhile policies with true long-lasting benefits). The move to the ACA isn’t seamless. It’s not without significant costs. Structures are not the flows of costs and benefits. It influences them, but it’s not deterministic.

Leaving a policy where we kill 500 people to a system where we kill 499 people may be a “plus”. But if that comes at a cost of $5 trillion, the “plus” aspect of the move is no longer true.

Again, the benefits of changing the structure say nothing about the costs. Failure to take into account both sides leads to market distortions.

Boonton May 23, 2013 at 2:22 pm

A radical restructing has very high transaction costs. Saying we’re going to abolish employer insurance and push as many as possible into huge catastrophic plans may be a good way to go. But you’re disrupting 60%+ of working people and if your idea turns out to be bad you’re stuck.

True the ACA isn’t seemless but it’s almost so when compared to those with ‘pet ideas’ on either the left or right. What’s valuable about the ACA IMO is that it leaves most people alone concentrating on the uncovered AND at the same time NOT committing to any one particular type of system. Single payer is expanded a bit for the poor. Those with employer provided coverage are mostly left the same. Those not in those buckets can (but don’t have too) buy in the exchanges where there’s actually quite a bit of flexibility on what types of plans can be offered (for example if you really want the catastrophic idea, it’s there). If something proves itself to be hands down better than everything else, there’s nothing stopping it from being expanded quickly and dramatically.

For example, consider accountable care organizations which pay medical groups a single fee for patient care instead of ‘fee for service’. It’s quite possible this may be much more effective in controlling costs and eliminating waste than the more consumer driven HSA/catastrophic plan (which has the danger of people pinching pennies by avoiding moderately expensive procedures like a blood test that cost a few hundred thereby increasing the odds of incurring much more expensive costs down the line). Then again it may not. Neither is set in stone and more importantly neither should be set in stone.

Hazel Meade May 23, 2013 at 4:04 pm

You don’t need to really to a “radical restructuring” to normalize the insurance market. Things were moving toward high-deductible plans anyway.

All you really need to do is eliminate the tax incentives that favor employer-based insurance.

Andrew' May 23, 2013 at 4:22 pm

Or, let me be radical here, allow high-deductible with HSA.

Yancey Ward May 23, 2013 at 1:45 pm

This is what you do if you want to pay for something without levying the taxes to do it. Healthy young people should disobey and not participate in the individual market.

jacobus May 23, 2013 at 4:10 pm

That’s the plan.

Me: healthy, non-smoking, 30 yr old male, 24 bmi, underemployed making $35k/yr. No way on earth am I going to pay a bunch of inflated premia for insurance that I’m not going to use.

x May 23, 2013 at 1:47 pm

What’s wrong with having the government provide full health insurance to everyone?

I don’t see how private health insurance can work unless you force everyone to take a lifelong uncancellable insurance plan even before birth, since if either of the parties can cancel or switch, then the price of policies will tend to match the current individual expected medical cost, rather than the average one across the population, which means that it’s impossible to prevent one’s death due to the inability to pay to treat a rare and very expensive condition arising in the future.

Unless you force companies to offer coverage at a fixed price for everyone of a given age, but then if a company manages to offer illegal “under the table” benefits to healthy people, everyone healthy will switch to them, and all other companies will go bankrupt.

Richard May 23, 2013 at 1:53 pm

1. Large problems with moral hazard.

2. Large problems with adverse behaviors on the part of consumers, coupled with advances in medical technology.

3. Cost containment structures; governments have almost always, since the creation of a modern warfare state (in Europe) in the 14th-15th centuries, been unable (or unwilling) to control costs. Health care costs are problematic anyways (depending on if you believe Baumol and the cost disease, or other factors).

4. With such a large, heterogeneous population, how can the government create a working “one size fits all” plan, or even diversify enough?

Government intervention is likely necessary, but not universal intervention. And I’m not a Libertarian…

Yancey Ward May 23, 2013 at 1:53 pm

In principle, there is nothing wrong with it except that you then have to explicitly identify who is going to pay for it all.

Josh May 23, 2013 at 1:58 pm

You don’t understand what insurance is. In a perfect insurance market, you pay EXACTLY your expected medical cost. It is simply a transfer of risk from one party to another. If something bad happens you don’t have to pay extra, and if something good happens you don’t pay less. You have no risk. An insurance company is able to do this by diversifying (by buying risk from many individuals with independent risk distributions) to the point that it is effectively risk-neutral (whereas individuals are presumably risk-averse). In a real marketplace, you should have to pay MORE than your expected medical cost because the insurance company won’t be 100% risk-neutral and there obviously some costs involved in running the insurance company. If you pay any less than that, then someone else is paying more. Subsidization of healthcare is not the same thing as insurance.

x May 23, 2013 at 2:33 pm

The problem is that what is desirable is to pay the expected medical cost BEFORE BIRTH, not the expected medical cost every time you have to renew the plan.

Otherwise, if a rare chronic condition arises at age 30 that requires, say, $1 million per year in medical cost, and you can’t pay that, you die, which is undesirable, since that $1 million should come from the people that weren’t so unlucky.

Likewise, if you are a parent that discovers your baby has a chronic condition just after birth, you have the same issues.

This requires a lifelong uncancellable plan stipulated before birth, as far as I can tell.

This means that you need to trust a private company for 80 years with no further checks whatsoever beyond the initial contract. With government insurance, on the other hand, there are elections every 4 years that put some dynamic checks on it.

Cliff May 23, 2013 at 3:17 pm

I guess I should pay my expected fire extinguishing costs before birth as well, just in case I end up in a very flammable building or area prone to wildfires?

Andrew' May 23, 2013 at 4:25 pm

Why do you have to pay before birth?

I’ve asked before, I’ll ask again, why is this one of the one or two things WE MUST pay by a subscription?

Why wouldn’t you just pay when you incur the expense like damn near everything else?

Okay, so you want people to prove they have some coverage or a healthy account balance in the case of health-savings accounts because you are too candyass to ask them to pay at the time. So, do that. Or don’t do it, but don’t claim it’s impossible.

mike May 23, 2013 at 9:42 pm

“Otherwise, if a rare chronic condition arises at age 30 that requires, say, $1 million per year in medical cost, and you can’t pay that, you die, which is undesirable, since that $1 million should come from the people that weren’t so unlucky.”

Maybe undesirable from the victim’s perspective, but in the aggregate I’m pretty sure we should let that person die. It’s insane ideas like this that are making health expenses bankrupt us. Death and health deterioration generally are inevitable, and you can spend limitless amounts of money trying to stave them off. The nice thing about leaving it up to the market is that you don’t get involved in stealing from other people the money they might need to save themselves one day, and you don’t end up with political actors making decisions about who lives and who dies. But no matter what system you choose, some people will live and others will die.

No wait, actually, everyone will die. Insane people post hypotheticals that do not incorporate this indisputable fact. That is the problem with this issue.

Mike Hess May 23, 2013 at 11:00 pm

Saying “It would be more efficient to let him die” just turns the issue on its head. If the guy had insurance before the presentation of the disease, his insurance company is forced to pay highly inefficient amounts to keep him alive.

Yes, some plans have a maximum benefit, but most do not.

Healthcare insurance is a market that doesn’t work well without some government. Even Hayek realized this.

Josh May 24, 2013 at 11:11 am

The whole point of insurance is that you buy it before bad things happen. If you wait until you discover you have a rare chronic condition to buy insurance, then you’re screwed. But that was your decision. I can’t wait until my house burns down to buy homeowner’s insurance. And yes, it is somewhat inherent in a life insurance contract that you will have to trust a company for a long time. I’m not saying I disagree that health insurance is special and perhaps should be supplied by the government. But this is not because people can cancel policies.

When you buy an insurance contract, you get locked in to a rate, which may adjust with age or if you change your behavior. Any unforeseeable changes in your life should not effect this rate or any costs that you face. The entire purpose of buying insurance is to eliminate the effects of those risks. This is not affected by other people canceling policies. And finally, it does not mean that a person with a serious risk for heart disease — before he/she buys the insurance contract — should pay the same rate as a person without such a serious risk. That would be subsidization of future expected medical costs, not insurance.

Andrew' May 23, 2013 at 1:50 pm

Back up. You are already messed up with your twin goals. It’s a very simple question, where is the negative externality of someone who opts to pay for their own incidental care?

You can’t say “because people will bleed out in the streets.” That’s handled. You COULD say that “well, because your old age care will exhaust your coverage, but that is why the liberal side has death panels.

Boonton May 23, 2013 at 2:06 pm

You can’t say “because people will bleed out in the streets.” That’s handled.

it is? How?

AndrewL May 23, 2013 at 2:19 pm

well as it stands already, people don’t bleed out on the streets. All ER’s will accept and treat patients regardless of insurance coverage. It’s the law.

How to pay for the ER treatment after the fact? Well people with insurance, gets the ER charged to their insurance, or they get a bill. if they can’t pay the bill, they can’t pay it, but no one goes to prison over it. Any additional shortfalls can be covered by taxes in the form of medicare or whatever. I doubt there would be much resistance over that type of tax. I’m sure everyone here would be willing to pay the “don’t let people bleed out on the streets” tax.

The tricks is “waste fraud and abuse” of course.

Boonton May 23, 2013 at 2:24 pm

So ‘bleed out in the street’ is covered either by the hospital not getting paid, in which case it charges those with coverage or those willing to pay. Or it’s paid by gov’t, which typically means taxing those healthy people you tell us must not be forced to subsidize the sick. thanks for playing.

Now consider 50 year old single mom whose unemployed without coverage who finds a lump in her breast one day. How is that paid for?

AndrewL May 23, 2013 at 2:29 pm

Catastrophic+HSA, Single mom would have money in her HSA to cover the deductible, then insurance kicks in and covers the rest.

Boonton May 23, 2013 at 2:33 pm

I’m sorry I said unemployed single mom. Assume she has let even her relatively inexpensive catastrophic plan lasp. And where has this HSA money come from? Was she required by gov’t to put into her HSA when she was younger and working more?

Dan Weber May 23, 2013 at 2:44 pm

Emergency department costs are about 1% of our national health care bill. You are acting like it’s something like 40%.

Boonton May 23, 2013 at 2:54 pm

Emergency department costs are about 1% of our national health care bill. You are acting like it’s something like 40%.

Homeless man clutches his heart and collapses in the street. He is taken to ER and given emergancy care. He is then transferred to the ICU for several weeks. True the ER only portion of his total bill may be modest but we are talking about how he is ‘taken care of’. We were told that people like this are somehow cared for yet magically the cost is not being subsidized directly or indirectly by the healthy.

Dan Weber May 23, 2013 at 2:59 pm

It is being paid by others, but it’s insignificant. Health care costs could easily rise or fall 5% this year. 1% of the market is just noise.

If you really think that 1% of health care costs is worth chasing (how much do you think you could reduce that 1% by? 20%? 40%? 80%?,) go on with your bad self.

Boonton May 23, 2013 at 3:15 pm

OK so now address my 50 yr old mother. Where is this money coming from that she happens to have a HSA flush with cash and a catastrophic plan ready to go for her?

Andrew' May 23, 2013 at 4:26 pm

“Assume unemployed single mom”

Can we make her black? Or half black and latino?

AndrewL May 23, 2013 at 4:28 pm

for the 50yr old mom, — the idea is that you were saving it all along. while you were young, healthy and working, you were saving a portion of your income in your HSA to cover times when you may become ill. the incentive to save money in the HSA would encourage the mom to become more pro-active in her own health care, and in doing so would probably go for screenings and what not to determine risk factors and what not and take appropriate actions like Angelina Jolie maybe.

or maybe not.

On the average, Catastrophic+HSA is beneficial if only for the major financial incentive for people to become more proactive about their own healthcare. There’s no point in arguing outliers.

Boonton May 23, 2013 at 8:32 pm

So you have yet to address the question. How does the 50 yr old mom have an HSA flush with funds? Did the gov’t require her to fund her account when she was young and healthy? Did the gov’t put money into her account because she’s unemployed? Or are you just hoping she will have lots of money in her account because there will be lots of ads encouraging people to put money in their HSA and it’s such a good idea how could anyone not opt to do it?

The first two options lead you back to the healthy subsidizing the sick. If the gov’t tops off her account it has to come from healthy taxpayers. If the gov’t orders everyone to put into their account then be honest about what you’re selling here. The young person still gets whacked. Sure you may by the cheap catastrophic policy for just $2000 but you gotta put in $3000 into the HSA anyway never to be used unless you have a health problem. The last option is to say sick people are on their own and hope that they will be smart, but if they aren’t then the woman has no choice but to prey the lump isn’t anything to worry about.

AndrewL May 23, 2013 at 10:16 pm

I did address it. She has it because she saved it. She didn’t need the government to force her to do it, she did it because she knew she might need it.

Boonton May 24, 2013 at 8:19 am

She has it because she saved it! Wow, what a piece of work you are, why do you even bother reading an economics blog?

Let me guess, she also has a nice 401K because, of course, it’s absurd for someone not to take advantage of a 401K when they are working, esp. if her employer offers her a match. Therefore everyone who makes it to around 50 and worked most of the time has a good amount of money in their 401K.

What’s your next insight? Perhaps you’d like to tell us that all the state lotteries and casinos are on the verge of bankruptcy because no one would ever do something so irrational as buy a lottery ticket or play the slots so nows the time to start shorting Vegas and Atlantic City!

JosieB May 24, 2013 at 2:06 pm

You have a point, Boonton. Behavioral economists keep discovering new ways in which people do not act rationally. They don’t save for retirement, they eat too much, they smoke, they buy lottery tickets, they have children before they have jobs or spouses to help with raising them. It is all depressing.

Still, I like the idea of putting the incentives in the right places. If the single mom had been required to maintain her HSA insurance (which would have cost less than an ACA first-dollar policy), then she would have accumulated savings that could not be diverted to buy Powerball tickets or rent an apartment she could not afford.

My impression is that the ACA drafters at least half-expected ACA to fail and then, when it did, they planned to throw up their hands and say that the only solution is a government-administered single-payer plan that assumes we all are too stupid to make wise decisions for ourselves. We’ll see.

Andrew' May 23, 2013 at 2:21 pm

Because if you have catastrophic coverage and any HSA balance whatsoever it’s a non-issue.

Andrew' May 23, 2013 at 2:22 pm

Not to mention it’s a hysterical (both histrionic and funny) canard because we have people bleeding out in the streets BECAUSE of what ACA makes worse…but I’ll stay on point.

Josh May 23, 2013 at 1:51 pm

What does everyone think happens when the government spends on public goods? People who don’t use public transportation subsidize it for others. People who would rather spend on healthcare than unnecessary military equipment subsidize security for others. It only seems weird in this case because each individual is forced to buy insurance rather than simply pay a tax for universal healthcare. Of course the ACA is messy, but that’s because it was shaped to be passed by the senate with 60 votes. I agree that it’s absurd to call it ‘insurance’ because subsidized healthcare is not insurance at all. Nonetheless, the idea of everyone sharing the costs for something that some use more than others is nothing new.

Andrew' May 23, 2013 at 2:23 pm

No, not that. You have it exactly wrong. The point of a public good is that people who ARE using it don’t pay for it unless it is somehow internalized.

Josh May 24, 2013 at 11:18 am

I’m not saying that healthcare is a public good. I’m just pointing out that forcing people to buy things is nothing new. That is most of what the government does. If you are going to argue against the ACA, then it has to be on grounds other than that it is crazy to make people buy more of something than they rationally want to consume. Moreover, the government has been forcing young healthy people to subsidize healthcare for old sick people for a long time. That’s what medicare is, not the ACA.

Dan Weber May 23, 2013 at 2:45 pm

Health care (again, with some very specific exceptions) is a private good, not a public good.

Mike Hess May 23, 2013 at 11:03 pm

It’s both.

anon May 23, 2013 at 1:59 pm

Why does Hazel Meade hate America?

Andrew' May 23, 2013 at 2:17 pm

Because hating children and puppies doesn’t take all day.

Yancey Ward May 23, 2013 at 2:02 pm

Let’s make this really, really simple. The goal was to provide people with health coverage who previously didn’t have it, and to give more benefits to some who did previously have coverage. This has to be paid for, and the bright lights in the Democratic leadership decided that a good way to do this was to force people who would under-consume the value of their premiums to buy said insurance. However, they didn’t make the penalty for not doing so large enough, and the chickens will come home to roost when the financing fails to produce the needed revenue. You need only look at the hand-wringing of various supporters of Obamacare about the enrollment numbers.

Widmerpool May 23, 2013 at 2:21 pm

Yes, although I think the next step would be price controls and rationing. You’ll have to wait a year or so for that hip replacement, I’m afraid.

Dan Weber May 23, 2013 at 2:46 pm

Price controls and rationing might be better than the current system, which is “no price pressure whatsoever.”

I’d really like to land somewhere in the middle, though.

Jan May 23, 2013 at 4:14 pm

There are plenty of ways that payors, especially Medicare, could save lots and lots of money. One way entails only paying for what is proven to actually work. One year wait for hip replacements? Nope, don’t need to do it. This doesn’t have to be scary rationing that involves death panels and sullen grandmas milling around the hallways of hospitals working overcapacity. On your example of hips, maybe Medicare could have demanded evidence that the fancy, super expensive metal-on-metal hip implants that came on the market ten years ago were as safe and effective as the old models. Nope, they paid top dollar for just about everyone who needed hip replacement to get a metal version. Now we have over 100,000 people who have been implanted with what turned out to be a pretty dangerous product. Comparative effectiveness is the obvious next step. Who’s up for that?

DKF May 23, 2013 at 2:02 pm

Yes, agree with that. I have such a policy, only I don’t call it “catastrophic-only”. I call it…insurance (as opposed to a payment plan). They are preventing me from choosing a deductible/co-pay that is appropriate for me, and then larding on mandates (which have to be paid for) as well. The only (slight) comfort is that the young people who supported ACA’s proponents will now have an opportunity to pay for a chunk of my premiums as well because of the community rating standards.

Hazel Meade May 23, 2013 at 2:12 pm

Well, I’m just tickled pink. :)

Andrew' May 23, 2013 at 2:28 pm

What does that mean, exactly? ;)

To May 23, 2013 at 2:29 pm

I don’t see how this is a subsidy from healthy young people to old ones. This would only be the case if the insurance premiums for both categories were the same, which AFAIK Obamacare doesn’t mandate. On the other hand, it’s a transfer from people who could afford to go $10000 (worst case, per year !) in debt, or pay that much out of pocket, to those who don’t. That makes perfect sense to me.

Andrew' May 23, 2013 at 2:36 pm

“This would only be the case if the insurance premiums for both categories were the same, which AFAIK Obamacare doesn’t mandate. ”

No, see Hazel Meade’s comment above. What she says Obamacare mandates is that the young pay no less than 1/3rd the old. Aside from that being a price control, is it correct? (Of course not).

Hazel Meade May 23, 2013 at 3:16 pm

Google “age rating” and “ACA”.
http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2013/rwjf404637/subassets/rwjf404637_1

Under the Affordable Care Act (ACA), age rating bands of 3:1 will prevent insurers from charging an adult age 64 or older more than three times the premium they charge a 21 year-old for the same coverage purchased in the nongroup insurance market.

Widmerpool May 23, 2013 at 4:04 pm

3:1 was apparently judged the political limit of the screwing of the young by the old.

mulp May 23, 2013 at 2:30 pm

If $10,000 deductible defines a catastrophic plan, what is the strategy for ensuring that the $10,000 PER YEAR of medical bills are actually paid in a timely fashion?

When the savings of the median family are well under $50,000 when it comes to retirement savings, a couple of years of medical problems quickly wipes out all the retirement savings of a family. The $10,000 in medical bills are piled on top of the lost wages from being out of work. If you own your house, even with heavy debt, you generally fail the welfare means tests, and if ill and unable to work, you are not entitled to unemployment.

One of the provisions of Obamacare is the requirement that HHS determine if the Bronze plans with large deductible result in substantial uncompensated care and in substantial financial hardship based on total health care costs exceeding a certain percentage of income. This tests whether the higher deductible is simply a cost shifting gimmick which lets some pay lower premiums and then get health care that is free to them but a cost transferred to others paying for comprehensive coverage. Obamacare is intended to eliminate all subsidies for uncompensated care and cost shifting, without bankrupting providers.

Again, what is the method for ensuring that the $10,000 in medical bills per year for someone suffering a serious medical incident or a chronic illness get paid when in many cases their medical problem reduce their ability to work at the same time?

While any children be taken and sold to pay the medical bills? The spouse sold into bondage? Perhaps organs removed and sold to the rich for transplant?

Hazel Meade May 23, 2013 at 2:40 pm

Yes, it might be difficult for some people to pay off their medical expenses if they have a particularly bad couple of years.

However, please put this in the context of how much they otherwise will have to pay for comprehensive insurance under the ACA. What is the going monthly price for a comprehensive family plan right now in the market? How much does that add up to per year? How often would you have to have an illness serious enough to consume the whole deductible to make it worth the added expense of paying for the comprehensive plan?

Dan Weber May 23, 2013 at 2:47 pm

It’s not a great answer, but medical debt is some of the easiest to discharge.

mulp May 23, 2013 at 4:07 pm

Well, it was once the easiest to discharge until the high cost of government subsidies for uncompensated care plus the private insurers demanding they not be required to pay for uncompensated care, and the claim that the Federal government wasn’t paying the full cost of care because they are underpaying for all the extra resources required to deal with the patients getting care they don’t pay for….

The hospitals have in recent years become increasingly desperate to collect unpaid medical bills because if they can’t demonstrate they have bankrupted the patient and family, they can’t get payment from the government fund for uncompensated care.

If medical bills are easy to discharge without paying, everyone should drop all insurance completely and just pay the fine and simply never pay any medical bills at all so hospitals will lobby to get government funding. Single payer without the Congress passing it.

Cliff May 23, 2013 at 8:36 pm

“Discharge in bankruptcy” is what he meant

john personna May 23, 2013 at 2:31 pm

On the main topic, I think Obamacare is in many ways a course tool, while still being better than the status quo. I mean, is this horror story worse than the one where the insurance company denies care on a cancer victim until after they are dead, and then says ok? Of course, any kind of “national health” would be better than either of these. And it would be cheaper, as seen in overseas. Perhaps that is because so much less energy would be spent on our perverse combination of insurance marketing and then patient denial.

Andrew' May 23, 2013 at 2:37 pm

Why do we need a new horror story just to get the government to enforce contract?

Andrew' May 23, 2013 at 2:37 pm

(not that the new horror story will actually do that anyway)

Andrew' May 23, 2013 at 2:39 pm

“Perhaps that is because so much less energy would be spent on our perverse combination of insurance marketing and then patient denial.”

Show me the study!

john personna May 23, 2013 at 2:51 pm

Do you need a study to show that universal systems do not require marketing? Do you need a study to claim denial creates more than one cost? No.

Andrew' May 23, 2013 at 3:08 pm

No, you need one to show that your asserted reasons for them being more expensive are true. I think it’s false. The big hitter is cost of medical services. It be nice to know why, but you the Dems aren’t interested. 1. “Universal” coverage 2. ???? 3. Cost savings. Again, there are no studies showing this is the case. Many of the comparison OECD countries are less socialized than us (we are over half socialized) and many are all-payer, not single payer. The point being, they have no idea other than wishful thinking and an a priori agenda about what’s going on.

john personna May 23, 2013 at 3:29 pm

I thought cross-national comparisons all showed our status quo as the most expensive, and that all the hand-waving was about how that was unavoidable.

Andrew' May 23, 2013 at 4:16 pm

Looking at how other countries ACTUALLY are cheaper would be a necessary investigation for anyone who really wanted to understand.

Andrew' May 23, 2013 at 4:21 pm

There certainly are things that are unavoidable or relatively unavoidable. We would not, for example, want to cut our GDP in half in order to not be able to afford our healthcare costs. We probably would not want to cut our MRIs by 80% to achieve UK levels of MRIs. Our obesity and stress levels are baked in the cake, or at least a separate issue from doctors and hospitals. The opportunity costs our medical students face. On and on. But noone knows what these contribute individuall to the cost picture. It’s just faith that somehow single payer magically controls costs, but it doesn’t entirely when you look at the rates of growth of medical costs of other countries.

ohwilleke May 23, 2013 at 2:32 pm

One of the key reasons to require universal coverage is to control health care costs by making it unnecessary for the insured to subsidize the bad debt of the uninsured or underinsured.

Health care debts are dischargeable in bankruptcy and the lenders don’t have government guarantees (unlike student loan debts), so relatively prompt collection of the debts and financially able debtors are necessary to prevent health care debts from becoming bad debts.

A signficant proportion of people who have $10,000 deductible catastrophic plans are going to lead to bad debt (less expensive plans are disproportionately purchased by less affluent people who are less able to pay large deductibles). And, the health care providers who take those bad debt hits are going to pass them on to people with better insurance who do pay defeating the purpose of universal coverage.

There is a potential hybrid alternative that would make sense. Allow catastrophic plans, but only if the excess deductibles are financed by the health insurer rather than by the health care provider. Indeed, it would make a lot of sense to require any deductible (at least beyond some nominal copay) to be financed by the health care provider. This way, 100% of health care bills would go to your insurance carrier and would be automatically put on your “health insurance credit card” to the extent that they were attributable to your deductible. This would get health care providers who aren’t in the consumer finance business out of that business entirely, and put health insurers who are basically financial companies into it. The health insurer could outsource the “health insurance credit card” part if it wished, or could keep that function in house if it preferred.

Andrew' May 23, 2013 at 3:11 pm

“One of the key reasons to require universal coverage is to control health care costs by making it unnecessary for the insured to subsidize the bad debt of the uninsured or underinsured.”

No, that’s the mandate, the kind of ‘uninsurance insurance.’ That should cover emergency bills, the mythological “dying in the street,” although there are different ways to do that. Doing that through comprehensive coverage schemes is foolish.

Floccina May 23, 2013 at 3:20 pm

The problem that no one in these comments seems to talking about is that low deductibles on net seem to create bad incentives for our Doctors (especially our GP’s). (Subtract the good incentive to get early treatment from the bad incentives to ignore price and get over treatment to get net incentive.)
Friends on mine and I have told our doctors that we will be paying out of pocket and they have produced a much cheaper course of treatment.

Andrew' May 23, 2013 at 4:42 pm

That’s the two trillion dollar question. How do other countries with “Universal coverage” not cover every heart’s desire? One way they do it is they simply don’t have the same options available as the US. Other speculated ways are that our insurance companies waste a ton of money, but that has been exaggerated. It would be nice to know exactly what we are after so we’ll know exactly how we didn’t get it.

Floccina May 23, 2013 at 10:57 pm

I think the other countries use price controls to overcome the effects of excessive licensing. We have an awful lot of regulator capture in US medical care. Now if our politicians tried to provide medical care for all US citizens while spending less than they do now to match what Europeans do I might support that, but I see no reason to support their “reforms” until they make moves that ease the excessive licensing for one thing.

Jan May 23, 2013 at 4:29 pm

I found this interesting. Despite all the fear sweeping the country that young people will inevitably face rate hikes due the community rating requirements, Businessweek reports on a study of current insurance premiums. The vast majority or plans are already within the maximum 3:1 ratio. http://www.businessweek.com/articles/2013-04-12/are-young-adults-about-to-get-screwed-by-obamacare That means they won’t need to jack up rates on the younger people.

A more forward-looking finding from today: CA released the range of insurance premiums for plans to be offered in its exchange. The premiums are significantly lower than had been anticipated. “Health insurers will charge 25-year-olds between $142 and $190 per month for a bare-bones health plan in Los Angeles.” http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/23/california-obamacare-premiums-no-rate-shock-here/

Hazel Meade May 23, 2013 at 10:53 pm

I was paying $60 /month for a catestrophic only plan a couple of years ago, so that would be a 150%-200% rate increase for me.

Jan May 23, 2013 at 11:17 pm

Could you show me any of the old ads for a catastrophic plan that was only $60/month? What company was it? I’d be interested to know what the restrictions were, like lifetime caps, limited hospital days, etc.

JasonL May 23, 2013 at 4:35 pm

Regarding HDHP+HSA arrangements, the odd thing is that by way of the Cadillac Tax and through supporting commentary, the ACA is not philosophically designed to hate on High Deductible plans per se. There was an intent to prohibit catastrophic plans on the grounds that they don’t meet the reg’s concept of being “covered by insurance”, there was no obvious intent to go after HDHP+HSAs. The attack at the HSA combined plans comes only by way of the Medical Loss Ratio calculation. It’s either a sneak attack or a benficial oversight for those who dislike HSAs. To date, the administration has been unwilling to adjust the loss ratio calculation after receiving many white papers on the subject.

http://www.healthcarechoicecoalition.org/images/stories/pdf/milliman-mlr-analysis-for-aba-hsa-council-jan-2012.pdf

Andrew' May 24, 2013 at 5:44 am

The question is, or the infuriating part as Hazel puts it, why would anyone dislike HD+HSA. It has been shown to work by the Rand study, I believe. Even if it didn’t work, what is there to hate? That let’s you know everything you need to know.

Brian Donohue May 24, 2013 at 5:03 pm

260 comments, and has there been even one along the lines of “I generally support ACA, but yeah, not allowing a HD+HSA option is really dumb.”?

Why not? What am I missing? The apologists seem very defensive and knee-jerky.

Jay Hutchins May 23, 2013 at 5:02 pm

Is it possible that our health-care system is not designed to be very good at preventative care?

Luis Pedro Coelho May 23, 2013 at 5:15 pm

The quote is wrong. It is not about subsidizing health care for older people (which does not even make sense: catastrophic plans could have cross-subsidies just as well).

Many liberals really do believe that a catastrophic plan exploits people.

Jim Tyler May 23, 2013 at 5:15 pm

I will never understand America. Affordable, high-quality universal health care is a solved problem in every other major industrialized country. France, Canada, Australia, Britain, Japan … just pick whichever of these you Americans find most appealing and clone it. It beats reinventing the wheel, or worse yet, pretending that this solved problem is actually unsolveable.

Larry May 23, 2013 at 5:35 pm

Prices are growing significantly faster than inflation in most developed countries. And of course there is a much longer wait time. The problem is not just in the US.

Andrew' May 24, 2013 at 5:46 am

Why don’t these other countries just adopt everything we are doing and nearly double their GDPs?

Larry May 24, 2013 at 5:49 am

That would be as goofy as us adopting everything they’re doing.

BC May 23, 2013 at 5:57 pm

The “problem” is “solved” in every other major industrialized country by having the government of those countries fuck some people over, through e.g. rationing, price controls, taxes, etc. You’re achieving some loosely-defined good by way of what a non-trivial number of us Americans regard as immitigable evils.

If you’re happy to bend over and spread ‘em for your own government so that you can have high-quality universal health care, far be it from me to get between you and your preferred tube of lubricant. But try not to act so shocked when less enervated people decline to follow your example.

MD May 23, 2013 at 6:00 pm

We prefer, nay, DEMAND, that we only get fucked over by private interests.

Cliff May 23, 2013 at 8:39 pm

It’s tough to get screwed over by private interests without government’s help

J D May 23, 2013 at 8:50 pm

Because what is “Exit”?

Andrew' May 24, 2013 at 5:47 am

I have a radical idea: Allow high deductible + HSA.

Andrew May 24, 2013 at 5:49 am

Jim,

No other country has cut medical costs. Somehow they shifted their rates of growth 30 years ago, which has now resumed the same rate of growth as the US.

There is simply no evidence other than speculation and wishful thinking for what you suggest. It’s just an agenda. It might acually work, but not because the agenda proponents have any idea why.

Andrew' May 24, 2013 at 6:30 am

Also, the other countries have not increased their life expectancies. The real life expectancies, I believe, show the US as superior and with superior medical outcomes when you look at the disaggregated data.

So, the price controls seem to “work” when the problem is simply you want to limit peoples’ access to medical services because most of it is useless.

Andrew' May 24, 2013 at 6:54 am

Also, the notion that all these comparison countries approached the problem differently does not necessarily imply that it is easy and the US can just pick any random approach. It could mean there is a fundamental difference between the US and the other countries.

How exactly did all these different countries stumble on the right, but different between them, strategies 30 years ago? That would be interesting to know if one were interested in knowing.

Larry May 23, 2013 at 5:49 pm

Catastrophic (with risk-adjusted premiums) indeed makes sense if the goal is for it to work like other kinds of insurance – as a means of pooling risk. If the goal is to have the healthy subsidize the sick, it doesn’t. Many other things are necessary to make things work. One important one is to allow people who change/leave their jobs to keep their old insurance (and its risk pool.) That ends most of the uninsured problem.

One interesting possible parallel with student loans is that we could have government-subsidized loans for health care expenses that insurance doesn’t cover.

As always, if you haven’t read “Innovator’s Prescription” and “Priceless” you’re really missing out on where health care and insurance should be going.

Andrew' May 24, 2013 at 6:01 am

This is the infuriating part for people like Hazel and myself. Just separate the insurance from the welfare and two things happen (1) we are instantly less infuriated and (2) you don’t destroy both the insurance and welfare schemes by being muddle-headed and fighting natural laws.

JonF May 23, 2013 at 7:38 pm

First off, the meme that (poor) young people will be subsidizing (rich) old people under the ACA is simply false– because low income young people will be paying little or nothing for their health insurance. Anyone who knows anything at all about the ACA should understand that without need of further explanation. But I suspect an explanation will be necessary, so here it is in a nutshell. Low to moderate income people (of any age group) will either A) be covered by Medicaid, B) exempted from the mandate, C) heavily subsidized to purchase insurance, or D) covered by workplace policies where everyone already pays the same premium and has for many years. End result, low to moderate income people will be paying nothing or small amounts. The ACA is not a means to make the young subsidize the old, but rather it creates a subsidy from the rich (of any age) to the not-so-rich (again, of any age). The cost of the Medicaid expansion and of the subsidies to purchase insurance will ultimately come from higher taxes on the well-heeled. I suspect the posters here really do know this, but they also know they will get no where whining about that, so they have paraded out the red herring of young subsidizing the old instead.

Secondly, there is no absolute division between “public” and “private” goods. There is a huge middle ground of mixed goods between the two poles. Healthcare resides in the middle of this range. Obviously it has important benefits that are only captured by the individual, but there are also benefits that accrue to the whole community (see also: education for another example of this dynamic). And this is not just a matter of communicable disease: there are also worthwhile economic efficiencies to be gained from a rational and equitable funding system for healthcare– or at least there are huge inefficiencies and corruptive forces that can be avoided by sane, equitable funding, Come now folks, does it make any sense at all that collection agencies and bankruptcy courts figure non-trivially in our current funding set-up? IMO, healthcare should be privately provided but publicly funded– which should also be the model for education, though due to legacy issues involving the Establishment Clause plus a bunch of latter-day culture war issues, getting rid of public schools and going to a true voucher system (as some European nations have) will not happen here.
Ideally, we should have single payor, but I too have doubts that we could do that in a nation this huge (population wise that is– Canada is physically bigger than the US after all). The next best thing would be to convert all current health insurers into non-profit health funds, on the German model and have them funded with some diversity of coverage*, by a straightforward flat-rate payroll (plus other income) deduction– no need for a messy tax and subsidy mechanism at all, everyone covered (Medicare and Medicaid could be junked), and relatively little need for the government to become involved except as regulator and referee.

* I would not allow any plan that exposed a person to more than 10% of his income in healthcare expenses, unless the person could post a healthcare bond for the amount (not an HSA or anything else that would be touchable for any purpose but healthcare– not by the IRS, not by tort judgments, not even by ex-spouses seeking child support), as some states allow people to post bonds to escape auto coverage mandates.

mw May 23, 2013 at 11:54 pm

I like when the only sensible comments are the ones that get ignored.

Andrew' May 24, 2013 at 6:03 am

Especially when they are wrong. As little as the young will supposedly be paying for their insurance it is more than they should be paying. That is why they have things like the mandate and the 3:1 rules and other nonsense.

Andrew' May 24, 2013 at 6:03 am

You guys are making me fell good though when you keep hammering home that solidly middle class is now “rich.”

JOnF May 24, 2013 at 6:18 pm

“Little to nothing” is too much? Should we instead the pay the young to take out healthcare policies?
Who cares what the premium is when you only pay a minor fraction of it? As I also mentioned (and some other posters have too) younger people in workplace group policies already pay the same premiums as older people in those groups– and this has been true since the first group policy was written. No one, to my knowledge, has ever objected to this, although it’s considerably more “socialist” than the ACA’s regs. Again, I suspect the issue is that some high income people are whining about paying higher taxes, but since that won’t fly much better than a lead balloon, they disguise this as a plaint about young people being overcharged instead.

Larry May 24, 2013 at 5:52 am

The ACA model is that everyone, sick or healthy, pays the same. That’s “community rating”. Yes, the poor get subsidized by the rich (thanks for paying for me!) As I’m getting up there age-wise and my (individual) premiums were nothing to sneeze at, I’m optimistic that somebody else will step in and pick up part of my tab. Again, thanks!

gina May 23, 2013 at 7:45 pm

“it’s meant to force healthy young people to subsidize healthcare for older sicker people. Just force them to pay more for insurance than they ought to, and force them to buy more extensive coverage than is rational.”

But of course. So why did all of you vote for him? This is not new information. It’s been clear from the start. But you wanted a romantic sexy president. Boys and girls together. So you have him.
He’s yours. You elected him. Now what are you going to do?

henge May 24, 2013 at 11:26 am

What am I going to do? Get health insurance at a reasonable rate that would otherwise be denied me because I have asthma and a bad hip. I literally couldn’t care less about romance and sexiness; I want to be able to buy affordable health insurance; it is the most important issue for me. The Republicans have nothing to offer, and it would have made no difference to the Reps–none–if catastrophic plans had been allowed for those over 30, or if the maximum age-based permitted disparity was 3 or 4 or 5. They were going to stamp their feet and scream about socialism and death panels.

Lee A. Arnold May 23, 2013 at 9:33 pm

Does not make sense. If a young person takes out a catastrophic-only plan and then incurs a problem which is not catastrophic but still very costly, but then cannot afford the treatment, then we are back to where we started. Because we want to make sure that everybody is treated anyhow. It is better to get away from the partly phony idea that healthcare “insurance” is insurance, or is even a market, and see it as partly an ongoing generational transfer, because almost everyone is going to end up needing attention anyhow, particularly in their later years.

jorod May 23, 2013 at 10:04 pm

We should subsidize health insurance the way we subsidize real estate. But that’s too obvious.

JONF May 24, 2013 at 6:20 pm

Um, we already do that. workplace health insurance (including for the self-employed) is tax deductible just as mortgage interest is.

Vivian Darkbloom May 24, 2013 at 10:22 am

Good comment, Hazel.

But, this is a complicated mix of subsidies. The proposed health care insurance system does exacerbate a current situation to some extent and precisely for the reason you state. This sort of subsidization of the healthy to the (potentially) unhealthy is, of course, inherent in the very concept of insurance; however, the problem, as you noted, is that the subsidization is greater when the healthy are forced to purchase products that don’t serve their immediate needs. It should also be recognized that to some extent the uninsured are greatly subsidized by the insured (with the notable exceptions of those who can afford to pay and do at higher prices than the insured collectively bargain for). When the latter effect is taken into account, I suspect that the financial attraction of “catastrophic insurance’ to the consumer is sometimes overstated. If my policy requires I pay out-of-pocket for certain procedures without the benefit of negotiated rates, the attractiveness of such a package is substantially diminished.

This sort of forced subsidy that occurs outside the ordinary government taxing and spending system reminds me also of how our higher education system is financed. Students from “wealthy” backgrounds tend to pay the full rate of tuition, a rate that is artificially high due to the need for the university to provide financial assistance to the less fortunate. There is, perhaps, nothing inherently wrong with this sort of subsidization; however, what I find most troubling about it is that the level of subsidization (income redistribution, really) is largely unregulated, non-transparent and subject to the relative caprice of un-elected officials even at state institutions. The amount of “taxing and spending” that goes on in these types of situations is very significant and is completely off the government books as such.

Brian Donohue May 24, 2013 at 6:07 pm

“This sort of subsidization of the healthy to the (potentially) unhealthy is, of course, inherent in the very concept of insurance.”

I think this is wrong and unhelpful terminology. If, for example, you force men and women (or smoker and non-smokers) to pay the same price for life insurance, women (or non-smokers) would be properly said to be subsidizing males (or smokers.) This is not what happens. Insurance works by pooling homogeneous risks.

If the true cost of insurance at the time of purchase is identical for policyholders A and B, and A later collects on a claim while B doesn’t, it is incorrect to think of this as B subsidizing A.

Six May 24, 2013 at 5:04 pm

I can afford to pay for routine office visits, physicals, vaccinations, etc. out of pocket and buy a catastrophic policy for a very reasonable cost. The fact is that my out of pocket medical expenses are far less that the additional cost of a comprehensive insurance policy. Now, I realize not everyone is in my position but why then am I required to buy something I do not want and do not need? The simple answer is I’m being taxed to provide or subsidize insurance policies for others. You can say anything you want about the efficacy of preventative care but it all boils down to one thing. I am not free to provide for my own health care in the manner that benefits me and my family best. Call it what you will but it’s wealth transfer. I’m opting out. I will cancel my policy on the day I’m required to buy something at thrice the price and pay the IRS penalty. It’s cheaper and I will not take part in the most massive boondoggle in the history of this country. Call me anything you like but remember, I once paid my own way and it wasn’t until this abomination that I quit. No more. I will not submit.

Morgan Warstler May 24, 2013 at 6:23 pm

I think there’s a HACK!

And awesome one for Healthy Successful SMB owners and Self-Employed

Boonton May 24, 2013 at 6:25 pm

With so many comment threads, I’m going to leave them behind and put down what I think are the main problems with this argument.

1. The failure of advocates to address my hypothetical about the unemployed 50 yr old woman who finds a lump in her breast one morning above illustrates why the argument over the healthy ‘subsidizing’ the sick fails.

a. If the gov’t funds the sick by helping them out, then you have taxpayers doing the subsidy.
b. If you mandate that people fund large savings accounts for their medical bills, you’re back in the same boat. The young and healthy can’t enjoy their cheap insurance since you are making them put into a fund they cannot tap for years or decades.
c. Not mandating funding HSA’s leads to free rider problems. Will society really let ‘mom’ die needlessly of breast cancer? If not then many people are likely to underfund their HSA on the assumption that gov’t will somehow bail them out.

2. Ignoring the flexibility of the ACA and the merit of not deciding upon a single model of health insurance.

a. Catastrophic plans are permitted in the ACA for those under 30 and the model itself is not prohibited. While a higher deductible plan may not be a ‘pure catastrophic policy’ if catastrophic plans work as good as their advocates claim, the same benefits would accrue to ‘light catastrophic plans’. The higher deductible plans would have lower costs and would bend the cost curve as their savy patients use consumerism to demand lower priced health services. Competiting against more traditional “we pay for everything” type plans, we can test the claims of advocates here by seeing if most people group together into the higher deductible and/or catastrophic plans. If they do and if such plans are so great caps can be increased and you can get what you want.

b. In the exchange, premiums can vary by age but in employer provided coverage premiums are almost all single price ‘community rated’ type. If the system evolves away from employer provided insurance, people would actually be migrating away from a hard community rating system to a lighter one. If you think community rating is evil, then the exchanges should prove better than employer provided coverage and since about 60% of working age people get coverage from employers, this should be something you’d want to see.

3. Bashing the ACA for being a conservative type of reform. Small ‘c’ conservative.

So just consider the possibility that Hazel’s pet cause is not the solution it promises. I can think of lots of reasons why this may end up being the case:

a. Health care is moving away from isolated procedures towards health management. The model presented by catastrophic advocates is becomming old school. In that model woman finds lump in breast, she uses her health savings account to (wisely) get advice from health professionals. A surgeon removes the lump, which may drain her account but that’s ok because then the insurance kicks in the difference. We all live happily ever after. The new reality appears to be health care as a year round management challenge. We have many people with chronic conditions such as diabetes or heart disease. The more typical story is the 50 year old woman who has a bout with breast cancer, is brought into remission with surgery and various drugs. For several years she requires periodic monitoring to see if the cancer returns. At 60 it does which requires yet more treatments and so on. This model is better suited by management rather than one off events to be treated in isolation.

b. It’s quite possible that people will respond by being penny wise and pound foolish. Perhaps after beating cancer at 50 and exhausting her HSA, the woman will do follow ups every year instead of every six months. The $200 blood test may be dropped to make ends meet at the end of the month. Yet this very well could end up resulting in $50,000 in costs when things can’t be ignored anymore.

c. Something else to consider, where do most medical costs really come from? Is it spend under $10,000 that’s driving it or spend over? If its spend over then catastrophic plans may help less than you think since once the $10,000 cost is achieved doctors and hospitals get to bill the insurance company rather than the patient’s bank account.

It very well may be that if healthcare moves towards a continuous management model catastrophic policies may not be very efficient. We may find the old fashioned HMO can gain a new lease on life finally using their power to mine data and negotiate in bulk to achieve quality care and savings. Or Accountable Care Organizations, which flip the whole fee for service model on its head and make it fee for patient outcomes are a game changer.

The advantage to a small ‘c’ reform is that it doesn’t pick the winner. The winner here may be catastrophic plans but as convincing a case as its advocates make, we should not bet the farm on them. If they are as good as they say, we’ll see it as people gravitate to high deductible plans. If they aren’t, we haven’t burned down the whole system on their behalf.

Boonton May 26, 2013 at 9:43 am

http://www.forbes.com/sites/rickungar/2013/05/24/unexpected-health-insurance-rate-shock-california-obamacare-insurance-exchange-announces-premium-rates/

Thanks to dead serious for bringing up the above link. The ‘rate shock’ mentioned in the article is that the premiums on plans submitted by private insurance companies for those under 40 are much lower than many expected! There also doesn’t seem to be any evidence that the mechanisms that Hazel and Andrew have been hawking are working in the real world. Namely that the most successful plans are those who try to get as close as possible to a ideologically pure catastrophic plan by increasing deductibles to the max. the law will allow to achieve lower costs and thereby get more customers from the healthy young groups.

Here is a serious problem for major critics of the ACA and a major strength for defenders of it like me. The critics arguments are highly fragile while mine are highly ‘anti-fragile’ (credit to Nassim Nicholas Taleb).

To end up being right, Hazel has to not only be right about some things, she has to be right about everything. In fact, she may even be right about everything and still end up being wrong!

I can be wrong about quite a few things and still end up being right in the long run.

A lot of unexpected things can happen under the ACA. High deductible plans can become highly popular, or unpopular. Employer provided insurance can reverse it’s decline and start increasing again….or the opposite can happen with more and more employers opting to just kick in $2K per worker and letting people buy insurance from exchanges rather than trying to task their HR departments with being experts in health care benefits. The HMO might make a blazing comeback armed with Big Data as the magic bullet to really eliminate wasteful and unproductive procedures instead of the 1990′s model of crude and cruelly declaring patients ‘aren’t covered’ for various things they really needed. Maybe single payer advocates will finally have their day as expanded Medicare/Medicaid systems end up working better than all types of private insurance.

The cool thing is, though, that any of these unexpected things could happen in one way or the opposite way without breaking the ACA’s structure. It’s quite easy to have more people buying from exchanges and fewer getting from employers. Or the reverse. It’s possible to downsize single payer systems by shifting away from Medicaid or even Medicare and towards a system of giving bigger subsidizes to individuals buying from exchanges….or the reverse and expand Medicaid even more to cover more and more from the bottom of the income spectrum up. Or ACO’s may end up changing health care from a fee for service system to a fee for managing system, which is a totally different type of paradigm.

Hazel, though, must be right about everything. Not only must covering 30 yr olds end up simply being a ‘scheme’ to really force the young to subsidize the old. The young must hate it instead of simply viewing it as part of the process (since they will be old someday too). The catastrophic system must work to bend the cost curve and not simply cut costs by penny pinching consumers randomly skipping necessary preventative and required care. People must opt to take advantage of contributing to Health Savings Accounts when they are young, healthy and working and not falsely assume they will never get sick or bet the gov’t will bail them out if they end up very sick without enough funds in their HSA to get the care they need. Sorry, she has to be right about everything or else she’s wrong about everything.

So now what are you willing to bet on? That I can be wrong sometimes? I’m sure you can bet on that, I would. But would you bet that anyone other than me is infallible and will always be right? Who would you be willing to make such a bet on? Warren Buffet? Even he got burned here and there I think. What is so good about the catastrophic advocates here that would make them worthy of such a bet?

Boonton May 26, 2013 at 9:43 am

ouch sorry about that bold, I forgot to close my bold tag.

Boonton May 28, 2013 at 12:12 pm

http://www.slate.com/blogs/moneybox/2013/05/28/obamacare_cadillac_tax_is_working.html

Even more evidence ACA critics are missing the boat. While employer provided health insurance isn’t directly challenged by the ACA, the highest end plans are, the so-called Cadilac plans that are given either to the highest level employees in a company or to unionized companies who demand plans that cover everything as part of their contract. Well Cadilac plans are accused of causing health care inflation by removing consumers entirely from the actual cost of their health care. Now that companies are pruning back on Cadilac plans we can put the theory to the test and see if that is indeed the case.

lambert strether May 24, 2013 at 10:02 pm

Health insurance should be a right, as it is in other civilized countries. Insurance is the wrong way to approach the problem, and private health insurance is the worst way.

Noelemite May 27, 2013 at 12:26 pm

No, it shouldn’t. It’s not a right. I never has been and never will be. A right is not something that is given to you. A right is a right. It just is. And something that is the product of someone else’s labor is absolutely not a right.

Say one day all the doctors and nurses quit. With no one to provide it, what does that do to your ‘right’ to health care?

If Obamacare were at all serious about fixing our health care system the first thing the admin would have done was allow interstate insurance.

And one reason for skyrocketing prices that I’ve not heard mentioned in this discussion is that there are so many more options available for doctors to try…. The advances in medicine over the past thirty + years have been exponential.

I’m not too far away from the fifty year old waitress that’s been brought up in the discussion. If I were to come down with some long term problem, I’m screwed…but rightly so. I rolled the dice years ago, made some choices based on a belief that by now I’d be in a place where I would have more of a safety net than I do. But I was wrong. And that’s no one’s responsibility but my own. It was my choices and actions that got me where I am and I have to live with that. Or not live with it.

Two things… first, If I’m dying of cancer I don’t have a right to whatever new treatment may out there that might save my life. I’ll do what I can to get it, but I’m not entitled to it. And second, there’s no way a bunch of politicians can suddenly ride in and fix what’s wrong with health insurance and health care… period. They don’t have the background, the expertise, the wisdom… They aren’t doctors or CEOs… they are politicians. Hell, most of what’s wrong with the system has their fingerprints on it already. The road they are taking us down is the wrong one and our choice between a little pain now or far more later. Don’t believe me? You’ve got two industries health care/ins who are bloated and mismanaged from the start… explain how having govt take them over, instilling a huge bureaucracy in it’s place will save money?

SomeGuy June 4, 2013 at 2:28 pm

I agree with the sentiment, but I have no idea if it’s an accurate representation of the law.

There’s been so much misinformation and righteous anger at straw men that aren’t actually in the bill over the last several years, that at this point I not only have no idea what actually became law, but I mistrust anyone who has an strong opinion on it.

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