Arnold Kling  

Brad DeLong's Health Care Prescription

Does Learning Economics Radica... Summers to the Dark Side?...

He proposes,

20% Deductible/Out of Pocket Cap: The IRS snarfs 20% of your family economic income. 5% of it is an increase in taxes (but that replaces your and your employer's current health insurance premiums). 15% of it goes straight into your Health Savings Account. That HSA is then used to pay all your family health bills. If your expenses in a year are less than what's in your HSA, the balance is rolled into your IRA (or, if you prefer, returned to you with your tax refund check).

Single-Payer for the Rest: If your HSA is emptied and you still have more health bills that year, the federal government pays them. The main point, after all, is insurance: if you fall seriously sick, you want right then and there to be treated whether or not your wallet biopsy is positive.

Sin Taxes: on Tobacco, Gorgonzola, Three-Liter Bottles of Liquid High-Fructose Corn Syrup, Tanning Clinics (Melanoma), et cetera: Sin taxes (and, perhaps, someday general revenues) pay for an army of barefoot doctors and nurses and mobile treatment vans roaming the country, knocking on doors, and providing preventive and other long-run lifestyle services for free...

A Lot of Serious Research on Best Public-Health, Chronic-Disease, and Hospital Practices

The last point is something that I advocate in my book, so I can't argue with it.

The idea of replacing all health insurance with a government-administered plan with income-based cost sharing is not so bad, either. It is reminiscent of Jason Furman's approach. Except Jason has persuaded me that thinking of cost sharing solely in terms of a deductible is problematic--it creates perverse incentives in the vicinity of the deductible. Jason thinks of cost sharing primarily in terms of co-payment. (With a deductible, I pay for 100 percent of the cost of my health expenses up to, say, $10,000, and 0 percent thereafter. With a co-payment, I pay, say, 50 percent of the cost of my health expenses up to $15,000, 20 percent of my expenses between $15,000 and $25,000, 10 percent between $25,000 and $40,000, and so on.)

I don't like the "sin taxes" and the army of doctors and nurses coming to examine lifestyles. The paternalistic aspect is troubling from a libertarian perspective, of course. But more importantly, my guess is that if you ran a pilot program with a control group getting no paternalistic interventions and a treatment group getting the paternalistic interventions Brad advocates, you would not see favorable benefit-cost results (maybe you would among the poorest 10 percent of the population). I would think you would want to determine cost-effectiveness before rolling out such a program on a national level, rather than the other way round.

Comments and Sharing

COMMENTS (13 to date)
JimSaco writes:

I would rather see the HSA balance accumulate at interest, over life. This would be a forced savings for when people usually start running up high medical bills, i.e., after 65.

My back of the envelope calcs show this would be a pretty healthy tax hike for anybody over median income, even if you subtract the current cost of health insurance. Would there be an opt out?

How would this be any different than giving people the right to buy into Medicare by paying a 20% payroll tax?

Brad DeLong writes:

The studies I have seen say that giving people financial skin in the game discourages both inappropriate *and* appropriate care. "Paternalism" is supposed to make the preventive parts really cheap...

And it's not paternalism: paternalism is making you do things, not making it cheap for you to do things...

Boonton writes:

Part of the problem with 'paternalism' today is that the benefits go elsewhere. If an insurance company today encourages its patients to adopt a healthy lifestyle the benefit may not be enjoyed by the insurance company that made the investment but by another insurance company tomorrow or by Medicare.

Perhaps a 50-50 split should be done and instead of making you wait until 65 just wait something like 5 years. In other words, say at 20 years old I make $20K. $4K is put into this HSA and I don't use it because I'm healthy. When I'm 25 I can tap 50% of that $4k (plus interest) and the other 50% will go to cover my unlucky twin brother who got some rare disease at 20 years old that cost much more than $4k.

It seems to me to be a bit like a forced saving scheme which would raise the savings rate while also providing an incentive for taking cost into account when getting healthcare. Both the gov't & the individual have good incentives to use prevention optimally.

James writes:

Professor DeLong,

What you suggest involves, among other things, making people fund what they may not wish to fund. You might believe that this is a good idea for any number of reasons, but by your own definition, this is certainly paternalism.

Don writes:

So if my kid contracts a chronic disease I can say goodbye to 20% of my income, forever. And DeLong calls this "insurance"? That word -- I do not think it means what he thinks it means.

Boonton writes:

Two possible solutions I see:

1. Purchasing groups can be created to buy insurance for flat premiums. Provided you don't game the system you would be able to join with others to buy insurance at a set premium like you do if you have insurance from your employer.

2. If the 20% lets you buy insurance then you can buy insurance that would have special provisions if your son got a rare but chronic illness.

3. Part of the piece the gov't keeps can be allocated to covering the expenses of those unlucky people who have such chronic illnesses that they could never even hope to spend less than 20% of their income.

It's not perfect but today if your son has a chronic illness you're limited to:

A. Paying it all yourself which means you could very well be out of more than 20% of your income.

B. Getting the boss to pay for it which means don't ever leave your job or get fired unless you can keep the insurance benefits.

C. Buying your own insurance which means laying out quite a bit of your income. Again for a family policy you very well may pay more than 20%

Buzzcut writes:

What the heck is a barefoot doctor? Is that some Castroista thing? I wouldn't put that past DeLong.

Regarding the sin tax on high frutcose corn syrup, keep in mind that the only reason Coke and Pepsi use that crap is because of the sugar tarrif. Let's get to root cause. If you don't like HFCS, go after the sugar lobby, don't just tax HFCS.

And if you tax tanning parlors, people will just tan out in the sun. You ruin the tanning industry, and don't do a thing to lower melanoma rates.

Boonton writes:

If people would just go out in the sun then why don't they do that now? Why pay anything for a tan when you can get it for free? I doubt the effect would be dramatic but some people would respond to a tanning tax with less tanning.

Boonton writes:

And another reason for so much high frutcose corn syrup is not just the sugar tariff but corn subsidies that make it very cheap to load up on the stuff.

Would a tax on high frutcose corn syrup end up being a backhanded way to cut subsidies to corn if it was politically impossible to 'go to the root'?

TGGP writes:

James, if you want to tell Brad Delong something, do it as his blog. There's a link right in Arnold's post.

James writes:

TGGP: I appreciate your suggestion!

Richard writes:

"Except Jason has persuaded me that thinking of cost sharing solely in terms of a deductible is problematic--it creates perverse incentives in the vicinity of the deductible."

What does the vicinity of the deductible part mean? I am not an economist (innumerate to boot). Also, what is unspoken with Mr. DeLong's proposal is how this plays in relation to income taxation (is the "snarfed" portion deducted from your income taxes), if so this would seem to have a regressive distributional effect.

Matt writes:

I always though we should just let the socialists run the emergency room system. I like that defined part of medicine because the inputs and output are so well defined that even the socialists wouldn't screw it up too badly.

If we did that, then states would be free to help fund clinics for the poor.

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