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What is Massachusetts doing?
1. All but the very rich must buy health insurance.
2. Business that don't offer health insurance to their employees will have to pay a tax.
3. Individuals can buy insurance with pre-tax dollars, eliminating the favoritism currently shown to employment-linked insurance.
4. Insurance companies will be subsidized to offer barebones policies to the current uninsured.
There is more, here is a Boston Globe summary. Here is the LA Times. The Washington Post surveys various reactions.
Arnold Kling is skeptical:
...the politicians' plan will force insurance companies to offer no-deductible health insurance to people on modest incomes, at premiums ranging from $1000 to $2000 per year. My guess is that the insurance companies will not be willing to pay for more than about $2000 per person per year in claims, and they will demand that the state provide reinsurance for the rest. Given average health care spending in Massachusetts of $6000, "the rest" could be a big number.
Andrew Sullivan approves, mostly for general reasons -- "let the states try."
My take: This kind of approach will prove increasingly popular. You claim to cover everybody. It doesn't sound very socialistic and most of the costs are hidden. It appeals to voters' sense of justice; there is a general belief that many individuals and businesses are free-riding upon the ready availability of hospital emergency rooms. It keeps private insurance rather than trying to eliminate it (single-payer plans) or eliminate its tax advantages (HSAs). This latter feature I find appealing, since I think the private insurance mode, for all its flaws, is or at least should be, the future of the sector. "Not enough private insurance" is the relevant externality relative to the social welfare function, not "too much private insurance." Of course various lobbies -- most of all the insurance companies -- also will like this feature of the program.
In a political debate, this will, for better or worse, probably crush the more ambitious Democratic plans for national health insurance.
The crunch comes, as Kling points out, when you pretend that covering the uninsured will be cheap or can happen under current levels of program budgeting. Can you imagine California or Texas, both of which have higher levels of uninsured than Massachusetts, trying such a plan? The long-run future of the idea replaces the insurance company subsidies with health insurance vouchers for the poor. They would be means-tested, of course, and the expense would require federal involvement.
To me the Massachusetts plan sounds messy and fragmented. It is a series of concessions rather than a set of solutions. It relies too heavily on unfunded mandates rather than improving incentives. I am not sure it will make anyone healthier. It does nothing to solve the number one problem of the sector, namely bringing competitive forces to bear on improving product quality, accessibility, and affordability. I just bought a new Toyota Corolla for a lower nominal (much less real) price than I paid nine years ago for the same but inferior make without side air bags. Why can't we have more stories like that in health care? It is the person who figures out how to point health care competition in the right direction who will deserve the brass ring.
That all being said, the Massachusetts plan is better than I would have expected. I am not convinced that the plan will work out badly, at least relative to feasible alternatives.
Posted by Tyler Cowen on April 9, 2006 at 07:58 AM in Medicine | Permalink
Comments
"I just bought a new Toyota Corolla for a lower nominal (much less real) price than I paid nine years ago for the same but inferior make without side air bags. Why can't we have more stories like that in health care? It is the person who figures out how to point health care competition in the right direction who will deserve the brass ring. "
The problem is not that a defined solitary treatment is getting more expensive. I would bet that most medical treatments ARE getting cheaper. For example, I get sinus infections every year or two. Years ago, this would involve a 20-30 minute visit to a doctor to get some antibiotics. Gradually, under the pressure of the insurance companies, the visits have gotten shorter and shorter. The doctors I go to are increasingly quick to go rushing off to see another patient.
I can clearly see their reimbursements going down on the statements from my insurance company. The last time it happened, I went to a "minute clinic" in a CVS. The nice nurse or physicians assistant, spent quite a long time with me and only got a lousy 20 bucks or so.
The real problem in healthcare expenses is (to keep your automotive analogy going) is when you compare getting your next car with a GPS/computer/dvd/active suspension etc system. It will cost more because you are buying something new. An even better example is that growing up, we had one car. Nowadays people consider it a necessity to have several.
Or think about it this way. Let us say that there is no limit on how fast you want to drive (equivilent to there being no limit on how healthy or long you want to live). You can buy a car for 20 k to safely drive 80mph. Now, automotive science progresses and you can buy a car that can go 200 mph (but it costs 60K).
I read a story once that talked about the "health care singularity" which is the time when a decade comes that in ten years of medical research the life expectancy is increased by more than ten years....the rub being that the cost of the medical treatment is more than any but the richest could afford.
The reality of medical costs in the advanced world is that as the cost of food and other necessities falls, medical costs are going to become a huge part of what we spend our income on. It is easy to imagine a world where you spend your entire working life saving for the anti aging treatments that will let you keep working to pay for even more expensive healthcare!
Posted by: RobbL at Apr 9, 2006 9:13:05 AM
Improving productivity in health care is hard. It's very labor-intensive, everybody wants the best and latest treatments, and the barriers to entry are high. (Want inexpensive care? Get ten-year-old generic drugs prescribed by a nurse's aide who only saw you for three minutes...)
The worst reason, in my opinion, is that good healthcare means *more sick people living longer*. The better you get at saving and extending lives, the higher the demand for your services.
There is no easy way out of this one.
Posted by: Mike at Apr 9, 2006 9:28:52 AM
As with so many things, the devil is in the details, and the media coverage has tended to leave out the details.
For instance, Kling alludes to no-deductible plans. This being Massachusetts, the bill has a host of requirements for what health care must offer -- after all, it wouldn't be fair if some people had sort of crappy health plans -- even if they were cheap. Not only are high-deductible plans forbidden under this scheme, but all plans must also cover a laundry list of services (infertility treatment, for example). I am not at all clear on how plans will compete on price when they have to exist within this framework.
There's also the assessment on companies that don't provide health insurance. In principle it makes sense, I guess -- you have to have some way of subsidizing lower-income people who are now forced to buy health insurance. But the assessment is absurdly low: $295 per employee per year. The first thing that sprang to mind was the anecdote in Freakonomics about the day care that started charging late fees, but the late fees were so low the parents treated them as permission to leave their kids. It's hard to see why an employer would offer health care (at roughtly $3300 per year per individual or $8700 per year per family for my employer) when they could pay $295 instead. Additionally, and much to the ire of my employer's business guy, there's a fee levied on companies which *do* provide health care -- just for the hell of it, I guess.
(That $295, by the way, was calculated from the costs of the state free care pool. I guess it never struck legislators that the type and cost of that care might be not at all comparable to the type and cost of care through a proper private-sector health plan. I am not at all surprised.)
I think that Massachusetts is doing something right by experimenting; the system we have now is broken and the only way out is going to involve trying something wacky. But the details will make it a catastrophe.
Posted by: Andromeda at Apr 9, 2006 10:48:50 AM
One big problem with the Massachusetts plan, which I think will undo many of its good points, is precisely the question of competition.
The state will regulate premiums, deductibles, and already regulates what procedures and drugs are covered. What, precisely, are plans supposed to compete on? With few dimensions of competition, we're all but certain to end up with a dozen identical, identically priced plans. That, in turn, will probably lead to an official price-fixing board as we have in auto insurance.
If Massachusetts were planning to require insurance but allow competition on features between insurance plans, there might be something real here. But as it is, it is not at all clear what choice or competition is supposed to be able to exist. That means that this in all likely is just socialized medicine, but with a "private" insurance company intermediary to skim off some profits.
Posted by: Grant Gould at Apr 9, 2006 10:54:29 AM
Health care reform in the United States will be nothing more than rearranging the deck chairs on the Titanic until *something* is done about runaway spending on end-of-life care. We have to come to some realistic expectations about life and its limits, namely that life inevitably comes to an end and spending unlimited amounts on extending it a few weeks or even days - when the chances of recovery and quality of life are both zero - is both a waste of resources and cruel to the people involved.
Posted by: Peter at Apr 9, 2006 11:27:45 AM
The problem with the thought that, "yes, we're paying more, but our lifespans are getting longer!" thought is that lifespans are increasing in the same way that Achilles gets closer to the hare in Xeno's paradox -- those increases can be represented by a convergent series, but costs definitely can't.
Posted by: ryan at Apr 9, 2006 12:28:49 PM
The healthcare system in the US is backwards.
I think Gladwell put it best:
The closest I can come is to imagine if we had employer-based subways in New York. You could ride the subway if you had a job. But if you lost your job, you would either have to walk or pay a prohibitively expensive subway surcharge. Of course, if you lost your job you would need the subway more than ever, because you couldn't afford taxis and you would need to travel around looking for work.
That is how health insurance is currently set up.
It needs to be completely redone. And the only logical answer is universal insurance.
Posted by: chartreuse at Apr 9, 2006 1:26:18 PM
Does anyone know if the $295/year tax is prorated for employees who don't stay the entire year? Imagine how much that would cost a business with an average 30-day employee tenure, like most fast-food places.
Posted by: Anthony at Apr 9, 2006 5:24:46 PM
Strange, it seems to me that cars of a given model are getting more expensive in real dollars (much more nominally), not less.
Posted by: michael vassar at Apr 9, 2006 6:24:43 PM
The comparison to requiring auto insurance is ludicrous. Auto insurance minimums are essentially liability. You are required to protect other drivers in case you do something stupid. You don't have to protect your own investment. Thus, auto insurance requirements are meant to protect the investments of others. Requiring health insurance is, thus, nothing like requiring auto insurance.
Although this plan is not as dangerous as a single-player plan (i.e. Canada, or California's proposed SB840), I don't see it as being successful.
Posted by: The Gentle Cricket at Apr 9, 2006 6:59:16 PM
There might be some ways of improving medical productivity--one would be paying for longer initial appointments. From all I've heard, patients frequently don't get around to their most important complaints, and I expect that there's a lot of misdiagnosis, leading both to problems not getting treated and new problems from side effects from the wrong treatments.
Another possibility is doing a big push to get better sanitation in hospitals.
Posted by: Nancy Lebovitz at Apr 9, 2006 7:29:58 PM
Gentle Cricket: You say "Requiring health insurance is, thus, nothing like requiring auto insurance." If you're talking about Grant's analogy, he wasn't saying that auto insurance and health insurance are analogous types of objects; he was saying that the way in which Massachusetts regulates the auto insurance market is likely to be similar to the way in which it regulates the health insurance market, and therefore the markets are likely to have similar pathologies. It's a statement about local politics, not an analogy about insurance types.
Posted by: Andromeda at Apr 9, 2006 9:27:11 PM
Last fall I bought a Toyota Corolla wagon for $2800. It was a salvage car; sat for over ten years after a fender bender. Perfectly repaired, 34,000 miles, only car I've ever had which was nicer to drive was a BMW 2002. What's the health care analogy to this sort of deal?
As for the Massachusetts plan, does it make any provision for those people who have religious objection to health insurance? At one time we took part in a risk sharing pool which mostly served such people, because the health care package offered by my employer could not include maternity benefits when I was the only employee hoping to father a child.
Posted by: triticale at Apr 9, 2006 10:02:16 PM
I don't get the "They would be means-tested, of course, and the expense would require federal involvement" comment.
What source of revenue does the federal govenment have that the individual states do not? (other than borrowing money from china)
Posted by: David Y. at Apr 9, 2006 10:31:48 PM
The Massachusetts plan is a disaster. Only a plan that follows unyielding economic law is likely to work. This will require a flexible, private policy choice for people paying for their own insurance and making their own health care decisions. There will need to be a gate-keeper for those who are not paying for their care. The quantity demanded for a scarce resource with no cost is infinite. Formulating a plan that would work really isn’t that difficult.
Those that can afford health insurance should individually buy a tax deductible, actuarially sound plan of their choice. Rational people will choose a high deductible plan. Paying for expected health care expenses in advance is a sucker bet. You wind up paying $1.00 for $.50 worth of care. If your employer buys health insurance he will choose the Wal-Mart option, the lowest price guaranteed. That leaves no incentive to develop and provide quality plans. If you can afford a plan and don’t buy one you get the government plan discussed below.
Those that cannot afford health insurance or choose not to buy it need to be given a private HMO paid for by the government or deducted from your paycheck. The HMO plan would have gate keepers, chronic disease management, nurse practitioners, and drug cost containment. Different HMO plans would bid for the government contracts on a regional basis. This would allow competition to keep costs down. There is no reason for the government to be running health plans.
There could also be a blended plan or subsidized plan for people like diabetics who could normally afford health insurance but have an expensive illness
This approach would allow a free market in health care to develop, there isn’t one now, and take care of the universal coverage problem. People who are responsible would get great care and people getting it for free would have reasonable, cost effective care.
Posted by: WS Grizzard, MD at Apr 9, 2006 11:08:36 PM
I hope this isn't the beginning of a new trend. I count more than a few layers of government paternalism.
Reminds me of the great talk Dr. Tabarrok gave on the FDA at GMU - liked his points about switching from the paternalistic model of the FDA towards a more "Consumer Reports" model.
But this, indeed, is scary, and the exact opposite of cutting back on paternalism. What next will be mandated?
Posted by: Thomas J. Van Wyk at Apr 10, 2006 12:57:57 AM
I do not believe Tyler's Toyota Corolla point that price improvements are not observed in health care. There is a wrinkle, though: most price improvement in health care comes from replacing an expensive procedure/hospitalization with a completely different and higher-quality but cheaper result. It's more like trading your Toyota Corolla in for a cheaper flying car, while the Corolla itself keeps going up in price. Some examples:
-- had ulcer surgery? Probably not. The number of ulcer surgeries is dropping dramatically due to the discovery of H. Pylori and the use of antibiotics and proton-pump inhibitor drugs to stop it.
-- better antibiotics have also made tonsil surgery less common.
-- I've had endoscopic sinus surgery. This is a relatively new procedure which is much cheaper, done on an outpatient instead of inpatient basis, and has a much shorter recovery time than the old method of doing sinus surgery. (Endoscopic = they just insert instruments up your nose instead of cutting open your face).
-- many other surgeries have switched to laproscopic methods (tiny instruments thru 1 small incision instead of cutting you all the way open). These have the same benefits as my sinus surgery. In most cases the instruments are more expensive and the surgeons require re-training, but, the complications, the lost work time, and the nights in the hospital are much much lower.
-- statin drugs are expected to cut the need for major heart surgery, but I'm not sure the savings can be demonstrated yet.
As Peter and other say above, the real problems with health care costs are end-of-life care, the labor inputs needed in hospitals and nursing homes, and higher expense for higher quality, not a lack of innovation.
Posted by: DK at Apr 10, 2006 9:35:45 AM
There is a lot ot comment on here, but for now...
"In a political debate, this will, for better or worse, probably crush the more ambitious Democratic plans for national health insurance."
Two things. There is an implicit assumption that there are some ambitious plans being considered by leaders of the Democratic party -- not realy true.
Secondly, this will almost surely (eventually) lead to an eventual takeover by the government of the entire sector, as it has in practically every other country that tried this approach.
The assumption that competition improves things in this sector is nice in theory, but empirically the burden of proof is on that claim, and keep in mind that the argument that this would work if we could only get a more pure version of X, has been tried before.
Posted by: theCoach at Apr 10, 2006 10:36:46 AM
I think the problem is that people complain about health care being "expensive & bad". Then it is nationalized. It continues to be "expensive & bad", only it is less obvious to the people how expensive it is because of how the costs are collected, and less obvious how "bad" it is because there is nothing else to compare it to.
Posted by: Mr. Econotarian at Apr 10, 2006 10:49:12 AM
I see that the plan allows people to pay with pre-tax dollars. I am curious how this would work.
The Mass legislature can permit this in the Mass tax code. The real kicker is federal income taxes and SS taxes. How will Mass convince the US gov't to let people pay with pre-federal tax dollars?
If this happens, can I begin paying my insurance with pre-fed tax dollars even though I don't live in Massachusetts?
I've long thought that it health insurance should either be reported as individual income and taxed accordingly if provided by the employer. Or, my preference, fully payable out of pre-tax earnings for those who don't have an employer paid plan.
John Henry
John Henry
Posted by: John Henry at Apr 10, 2006 11:06:06 AM
The analogy to liability insurance for cars isn't all that far off. Once we decided to have emergency rooms also double as free clinics of last resort, we effectively decided that your decision to not get health insurance would not only cost you money.
I wonder how Massachussets will handle people moving just across the border to either get into or out of the program.
Posted by: albatross at Apr 10, 2006 2:16:32 PM
The perfect is the enemy of the good. Let us see what the insurers can up with up. Maybe with tightly managed care, more para-professionals and perhaps a bit more cost sharing, particularly for the folks over 200% of poverty, a plan for less $350 a month or so can be brought in IF enough folks in the 27-45 year old age group can be brought in. Without age rated premiums this may not happen. Compared to younger olders, persons in the 55-64 age group without employer or public insurance are currently more likely to buy individual insurance. Age rating the policies would most likely induce more young folks to enroll (reducing the overall per capita cost) and discourage very few older folks.
Posted by: Sonia at Apr 10, 2006 2:30:19 PM
WS Grizzard, MD,
"Only a plan that follows unyielding economic law is likely to work."
Presumably we should then start by eliminating the temporary monopolies granted to the most expensive of the technologies. Next, we can work on the credentialism monopolies of MDs.
"Unyielding economic law" is one of those funny phrases that sounds a lot more nailed down in theory than in practice. Can you give some examples of unyielding economic law? Say's law perhaps. ;)
Posted by: theCoach at Apr 10, 2006 3:08:17 PM
"Unyielding economic law" is one of those funny phrases that sounds a lot more nailed down in theory than in practice. Can you give some examples of unyielding economic law? Say's law perhaps. ;)
Easy.
The Law of Demand - If price increases then quantity demanded decreases, and vice versa (all else held constant).
The Law of Supply - If price increases then quantity supplied increases, and vice versa (all else held constant).
These are the economic laws that any policy (health care or otherwise) must take into account, for they are ironclad and unyielding.
Posted by: Noah Yetter at Apr 10, 2006 4:16:21 PM
I think there are a lot more fundamental issues at play with healthcare and healthcare costs. Few deny that health is a human right but does everyone agree that extraordinary healthcare is a human right? There is a rough benchmark of acceptable cost/quality (QALY) threshold in the US of $50,000 - $100,000. For the uninitiated, this is the acceptable cost to society for which a treatment adds a quality-adjusted life-year. And yet studies have pegged patient's WTP (willingness-to-pay) at about $200,000 - $250,000 per QALY. There's an apparent disconnect in how people complain about the cost of healthcare but at the same time want the very best treatment at any cost. When it comes to health, no one asks for the Toyota Corolla - they want the top-of-the-line Ferrari. For the same reason, even countries with socialized medicine are experiencing their share of problems, namely growing medical expenditures, poor access to specialists, and long waits. Peter and ryan got it right - without limits or realistic expectations of end-of-life treatment costs, it's unreasonable to think that medical expenditures can be controlled. It's not sexy and everyone would rather debate the merits of their particular brand of healthcare system.
The irony of it all is that the best medicine is often free. A proper diet and an hour of exercise daily is infinitely more helpful than a statin regimen. For the most part, our spiralling medical costs are just the manifestation of a lifetime of poor, unhealthy behavior and a disregard for the true costs of extraordinary medical care. It's no surprise that the greatest burden of medical costs to the state and the individual is in diseases that could be prevented - cardiovascular, pulmonary, and certain cancers.
Posted by: Patrick at Apr 10, 2006 6:46:59 PM
