Arnold Kling  

Health Care

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Ron Bailey writes,


we have a system skewed toward overuse by the haves and underuse by the have-nots, in which the healthiest people (highly paid employees) get the most generous health insurance. The Kaiser Commission reported that per capita spending on health care is $2,484 for fully insured Americans, compared to $1,253 for Americans who are uninsured for a full year...

Since it’s unlikely that Americans will allow their improvident neighbors to expire without medical care in the streets, is there a politically palatable alternative that can preserve and expand private medicine in the United States? Yes: mandatory private health insurance.

UPDATE: Joseph Doyle writes


Consider the example of patients with skull fractures. Uninsured patients were less likely to receive an operation on the nervous system, such as a craniotomy: 34 percent of the insured patients received such surgeries, compared with 25 percent of the uninsured. The uninsured with this diagnosis also had higher mortality (22 percent, compared with 13 percent for the insured). The lack of health insurance appeared to have a significant effect on treatment decisions across a wide range of health problems. These decisions may be the domain of the health care providers, who need only refer to patients' charts to determine their insurance coverage. They may also reflect decisions by crash victims themselves, concerned about large medical bills. Either way, lack of coverage is associated with a lower likelihood of potentially life-saving procedures. To give an idea of the magnitudes, if these estimates are applied to the nation as a whole, they indicate that about 2,000 lives a year are lost because of lack of treatment for uninsured people involved in auto accidents.

Health care reform proposals that focus on catastrophic care could go a long way toward closing this health outcome gap, while also relieving emergency rooms and other health care providers of an enormous financial burden. And catastrophic insurance premiums, with a high deductible, are relatively inexpensive when compared with more comprehensive plans. Coupled with health savings accounts to cover the costs of preventive care, a program to subsidize catastrophic insurance could give real substance to the political goal of restraining spiraling health care expenses as patients begin to consider the costs of care. Such insurance could also offer peace of mind that large bills will be covered and that life-saving treatments will be provided.

For Discussion. What challenges do Bailey's proposals for mandatory health insurance and health savings accounts not address?


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COMMENTS (8 to date)
Arnold Kriegbaum writes:

How about the main problem with mandatory private health insurance being the "mandatory" part. What mechanism would catch everyone? Many people have no driver's license, many people have no job, many people don't even live in this country and on and on. I see no single stopping place in which the government (state or Fed.) could step in and require health care, "or else!"

Of course the concept would be go and would reduce the price of insurance for everyone. The question is enforcement.

Daniel K. Robin writes:

I am sorry for the length of this but I think I have come to the conclusion that the problem with the availability of health care and most of the problems are cause by government, not solved by the government. Let me know what you think.

HEALTH INSURANCE AND PUBLIC POLICY

The common thread through good health insurance policy is the individual and his decisions. The goal is to get more results for less money.

Current Government Subsidy. Under present public policy only employers and the self employed are allowed to deduct the entire cost of health insurance. The loss in revenue to the federal government is 75.1 billion per year. This incentive works. Two-thirds of all non-institutionalized people under age 65 receive their health insurance through work. Only 6% buy an individual policy. But the government subsidy of employer health insurance costs too much. Most people would purchase the health insurance anyway. Group employer insurance is also unfair. They charge a premium based upon “community risks.” That means that the insurance company averages the risk premium for all members of the group. Young healthy people end up paying far more than what it should cost them to purchase health insurance. A Kentucky study determined that the appropriate premium for high risk men age 60-64 was 11 times higher than for young men 20-29 in good health. Giving decisions to the individual is fairer and costs less.

The Cost of Group Health Insurance. There is no logical reason for employers to purchase and deduct the cost of health insurance. It is not necessary to operate a business. It has nothing to do with the manufacture of goods or the supply of services. Employers naturally decide the how much to pay their employees, but if they provide health insurance, they no longer control their own costs. It is well known that the government subsidy of health insurance causes the high rate of inflation for health care. This inflation reduces the employer’s ability to stay in business or to add additional employees. For example, it costs General Motors $1,400.00 in health care expenses per car. The Japanese employer’s are not paying those same costs. How is GM expected to compete? We have fewer companies, fewer employees and higher health care costs because the government encourages business to purchase group health insurance policies. Giving decisions to the individual is fairer and costs less.

Ending the government subsidy. By eliminating the employer deduction we achieve neutrality. There will no longer be a public policy to favor the employer group policy. (Use of the employer to collect premiums is efficient and wise. Health insurance companies should pay the employer a finder’s fee to collect premiums.) So what would happen if employers no longer provided group health insurance? Each individual would then be faced with many decisions. Whether to buy health insurance, what kind and how much.

Choices. Many young people have large car payments and no health insurance. For them, health insurance is too expensive and they must have a reliable method of getting to work. Without work, they don’t eat. Life is full of trade offs. There is strong competition for the use for the use of each dollar. A dollar saved when you are young and invested for retirement is important. A dollar spent on education which yields a higher income is wise. The purchase of food and shelter is essential. The purchase of health insurance is also essential. But the choice between them and how much of each, should belong to each person alone.

Self-insurance is a Choice. People should buy health insurance because it spreads the risks that they feel they have of future medial expenses. Not buying health insurance is a form of self-insurance. The purchase of a large deductible is also a form of self-insurance. There are 15 million people in America without health insurance who’s incomes exceed $50,000.00 a year. Of those people, 7.6 million have income in excess of $75,000.00 per year. Large corporations often avoid the purchase of health insurance for their employees by self insuring.

Large deductible. As each person contemplates the purchase of health insurance, many will select a larger deductible to save money. Then the individual as a consumer will be more selective about how much health care to buy. Switching from group policies at work to individual policies with large deductibles is expected to save 65 billion dollars a year in health care expenses without any loss in the quality of care. Giving decisions to the individual is fairer and costs less.


End state regulation. If someone wanted to buy health insurance without mental health coverage, in 40 states they can’t. If someone wanted to buy health insurance coverage without acupuncture, 11 states will not allow it. Four states require coverage for Naturopaths. (Council for Affordable Health Insurance.) These are examples of state regulations are well intended to “improve” health insurance coverage, but they lump people into groups. These governmental actions do not allow the individual to make his or her own decisions. If you are willing to self-insure for psychiatric needs those 40 states will not let you do it. The Council for Affordable Health Insurance estimates that in some markets these mandates increase the cost of health insurance by 45%. Eliminating state regulation of health insurance policies is expected to lower the cost of health insurance by $600.00 to $1,500.00 per year. A study by the Health Insurance Association of American done in 1999 estimated that one in four people were uninsured because of these added premium costs. Giving decisions to the individual is fairer and costs less.

Subsidize chronic care. Care for the chronically ill obviously requires extreme resources. Experts, like John F. Cogan, R. Glen Hubbard and Daniel P. Kessler say that providing health insurance to those with persistently high medical expenses is vexing at best. They recommend direct subsidies to chronically ill low income individuals to help them purchase their own health insurance. These suggestions help the individual make his own decisions. Giving decisions to the individual is fairer and costs less.

Long term nursing care. The state and federal governments spend over 100 billion dollars per year on long term care. The Counsel for Affordable Health Insurance, by Steve Moses, recently issued an excellent article on the dilemma of long term nursing home care. The original medicaid program was designed to pay the nursing home expenses for the poor. However the middle class soon learned clever techniques to get free long term care. With care being essentially free, the bottom dropped out of long term care insurance. Who needs insurance if the government will pay for it?

To solve this problem, the Counsel suggests tighter controls. Those who should be able to pay their own way should be barred. They also suggest greater efforts to collect money back from those who should have paid for their care.

What if the focus of the solution was the individual rather than the group? For example, declare an end to medicaid for those under the age of 55. Rather than paying for the care, the government should subsidize the purchase of long term care insurance. The program could be run very much like the Health Savings Accounts (see below) to encourage private saving for the future. Currently the Federal Government and the States are going broke trying to “run” medicaid. Greater focus on the individual with incentives to save and provide for their own future should work much better. Giving decisions to the individual is fairer and costs less.

Health Savings Accounts (HSA). Current law allows you to save money tax free to a health savings account if you sign up for a high deductible ($2,000.00) health insurance policy. Having your own account to pay bills is the ultimate in portability. Those who stay healthy can create wealth. The health savings account is health care by and for the individual. The essence of the program is to encourage “saving for a rainy day.” Each individual will then be cost conscious to protect their own account.

HSA’s are completely consistent with preventive health care. Nothing will be more spirited than an individual looking to protect their own saving account. If a doctor can show you how to save money by using preventive care, who wouldn’t do it? In a world where the individual makes his own decisions and spends his own money from health savings accounts, doctors will advertise what great preventive care they provide. Their motto could be: “I will keep you healthy. It costs less than the alternative.”

HSA’s will not result in the skimming of “healthy” customers to separate policies. The only difference between an HSA policy and otherwise is the size of the deducible. It is not a different type of policy. Everyone ends up in the same risk pool.

Most chronic illness occurs later in life. Remember that premiums for the young should be far less than for those in their 60's. Building up a sizable HSA when you are young is the perfect solution to the problem of chronic illness, the ultimate rainy day.


Credible health information. With individual health insurance, larger deductibles and health savings accounts, more people will need credible medical information. The health insurance companies would benefit greatly from a more educated population. People would certainly be healthier if they have better information available.

All of the insurance companies should help create a comprehensive “health information web cite.” One of the best things the government can do for its people is education. Therefore the government should subsidize it too. To improve the credibility of such a cite, the various medical schools might sponsor specific topics: “Understanding the common cold” by Northwestern University Medical School, or “The basics of cancer” by the University of Chicago Medical School. The drug companies and schools of pharmacology could co-write common sense description for drugs and medications. There is no reason why some publisher like the New England Journal of Medicine or the Journal of the American Medicine Association shouldn’t be paid to organize and create links to the great body of knowledge in each area of medicine. We would end up with the most educated medical consumers the world has ever known.

The wed cite would have clearly marked advertising for Doctors, Clinics, Nurse Practitioners, Drug Companies, etc. If you have spent two hours reading up on root canals or clear plastic braces, why shouldn’t you be able to see a few web cites of dentists, orthodontists or oral surgeons listing credentials and prices.

Even a gigantic web cite on medical care would not and should not replace the training and education of a professional. But let’s face it, there are people out there who are cheap. They don’t want to spend the money on seeing a doctor, insurance or no insurance. A reliable and well written web cite with pictures and video may not be perfect but it could help many people at a very small cost. Physicians are talking about e-visits to the doctor. Be ready; its coming.

CONCLUSIONS AND POLICY SUGGESTIONS.

The fundamental orientation of health care/insurance policy must be the individual. Each time we try to solve a problem by treating people as a group, the result is excess cost and substantial inequities.

By ending the federal bias and subsidy for group health insurance, the government saves 75.1 billion dollars. The economy and employment will expand without the burden of businesses providing health care. The cost of premiums for the young will be greatly reduced by the elimination of community rating by group health insurance. When individuals purchase their own high deductible policies, we save 65 billion dollars and lower the rate of inflation on health care. By ending state mandates and allowing individual choice, we will very substantially lower the cost of health insurance.

Young people must save. If the above policies change, there will be more jobs, higher salaries and lower premiums, especially for young people. But then, with the lower cost, everyone must be saving into their Health Saving Accounts. The message must be clear; you are going to need the money later in life. The government will no longer promise to pay for chronic or long term care. There may be subsidies for long term care insurance premiums but, it will not be free.

The future is a system of large individual accounts to pay for future medical and insurance expenses. Building the accounts must start when you are born. The incentive must be clear to all relatives of a newborn. If you are willing to put money in a child’s HSA in the first five years of life, the government is going to give you a substantial break: a deduction, a credit, something! But that will not be enough. The saving process must be automated. Whether it is an employee for himself or for a child or both, the money must be taken directly from the paycheck and deposited into the HSA. Monies saved and invested for 40-50 years can create great wealth; just what the doctor ordered for life’s greatest asset: health.

quan nguyen writes:

Daniel K Robin's long article is interesting and may even be accurate but obviously lacks consideration of historical perspective on the rise of employer's provided health insurance. Without such consideration, the possibility of political support for abolishing employer's based health coverage is too small to measure.

The article also paints a naive picture about affordability and accessibility of health insurance under individual control once free of government subsidy or regulations. The escalating costs of healthcare have many causes, both on the supply side, demand side and regulatory side, and ethical side, etc. Drug companies want to push the latest (and most expensive drugs) and patients wants the latest drugs (without paying the expensive price). The medical equipment suppliers want to push the latest models of MRI or CT machines and the patients want immediate access to those machine without wait or increased co-pay. The doctors or hospitals want to provide everything and collect more money when they can. Who among the cost conscious consumers/patients want old proven drugs (with lots of knownn side effects) and clinical judgements alone without expensive tests even when the price is real cheap? Not many and not any regulator will allow that practice nowaday anyway!

Arnold Kriegbaum brought up an important point about enforcement of "mandatory" insurance. Are we prepared to let young people die for their "personal choice" of spending their money on fast cars, driving without seat belt, then having an spine breaking accident without insurance? How about treating them with pain medications first, transfuse if needed second, then image the bones third, then surgery fourth, etc, with later steps to be skipped when the ability to pay is exceeded.

Ali Hasanain writes:

My concern would be that this policy may be particularly harsh on the very low income cohort, who cannot afford health care in the first place. It is not only the improvident who lack insurance, but also the poor.

Lawrance George Lux writes:

What challenges do Bailey's proposals for mandatory health insurance and health savings accounts not address?

It basically ignores the basic regressive taxation which mandatory health insurance would impose, the lower the Income, the more regressive the tax; it does not matter what type of voucher system is devised. Almost all Commentators on health insurance accept charging ten percent of the Income of those making $30,000 per year, but would not like to pay ten percent of their $1.5m per year Income. Not even if they only made $150,000 per year. The fact remains those making $30,000 per year need the $3000 far more than those making $150,000 need the $15,000.

A Basic Needs health insurance must be devised in order to empty out the Emergency rooms. It should be constructed for a minimum premium cost--hopefully, less than $700 per year--which Everyone must pay. Purchase of Catastrophic health insurance would insist on double payment to Basic Needs program, or $1400 off the top, then regular acturial rates will apply. What would such a Plan do?

1) All would be Insured, so Paperwork could be cut to a minimum, with standardized charges for standardized services.
2) Medical procedures would be cut to a minimum, due to the volume of traffic, making automatic full review, full-charge universal testing per Patient unrealistic, with vast Cost-saving.
3) Medical personnel would be better utilized, with a higher Patient/health care professional.
4) Exotic medical procedures would reflect their true cost, and not consume vast medical resources.
5) Cost-effective medical procedures, drugs, and medical supplies would be adopted, so medical facilities would make the highest Return.

This is how the medical crisis can be worked. lgl

rvman writes:

Most states currently have mandatory liability insurance for cars, but a few have mandatory self-insurance instead, which would be similar. It is politically more acceptible to let the criminals who fail to self-insure and crash be without a car than it is to let criminals who fail to self-insure and are sick be without medical care. There is a serious time consistency of preferences for the government here - let us give Prescott his due, and design a policy that an emotional populace in a democracy won't punish future governments for their "failure" to violate them.

Government provided plans with a "deductable" of, say, 20% of household income and draconian restrictions on who provides care for what cost (no private/semi-private rooms in hospitals, optional care up to and including antibiotics for sinus infections and the like not counting toward the deductable or covered by the plan, that sort of thing) ($2500 minimum deductable, plus maybe a $1000 deductable per illness) would be catastrophic care for the expensive cases, but still leave most insurance in the private sector - make it a level of care no one actually wants, and a hassle to get, but is "enough". A few incentive kinks might need to be worked out - MSAs with a higher deductable, or something - but it leaves most day-to-day health care outside the goverment.

(Let's give people free beans and rice for their food stamps, and eliminate all tasty foods from the list - make it beans, rice, flour, fresh and canned veggies, cheap meats - no prepackaged foods, no snacks, no bread costing more than 25% more than the cheapest available, etc.)

Ken writes:

"Arnold Kriegbaum brought up an important point about enforcement of "mandatory" insurance. Are we prepared to let young people die for their "personal choice" of spending their money on fast cars, driving without seat belt, then having an spine breaking accident without insurance?"

Hell, yes. Damnit, we need to stop treating people like children, or we're going to keep running into these kinds of problems.

"How about treating them with pain medications first, transfuse if needed second, then image the bones third, then surgery fourth, etc, with later steps to be skipped when the ability to pay is exceeded."

OK by me.

"The escalating costs of healthcare have many causes, both on the supply side, demand side and regulatory side, and ethical side, etc."

Actually, the causes are all on the regulatory side.

"Drug companies want to push the latest (and most expensive drugs) and patients wants the latest drugs (without paying the expensive price)."

Vendors want to get the most return on their investment, and consumers want high quality and low prices? So what else is new? Let them work it out through free trade, and they'll do fine.

"The medical equipment suppliers want to push the latest models of MRI or CT machines and the patients want immediate access to those machine without wait or increased co-pay. The doctors or hospitals want to provide everything and collect more money when they can. Who among the cost conscious consumers/patients want old proven drugs (with lots of knownn side effects) and clinical judgements alone without expensive tests even when the price is real cheap?"

Quite a few depending on the situation.

"Not many and not any regulator will allow that practice nowaday anyway!"

Again, it's the damned regulators causing the problems.

Rick Gaber writes:

You might find this chart useful. There might even be a lesson in it somewhere. Mark Skousen said it was "great!" when I showed it to him: http://freedomkeys.com/medicare.htm

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