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Ezra Klein recants on the Bush health plan
Here is much more detail on what the plan does, namely try to get people into high-deductible policies. The pointer is from Megan from Sacramento: "I once dreamed I inherited a stamp collection and spent the last fifteen minutes of the dream alphabetizing them. Boooo!"
Addendum: Here is more on the proposal.
Posted by Tyler Cowen on January 23, 2007 at 06:46 PM in Medicine | Permalink
Comments
If Ezra is right, and the plan is that everyone would get the full credit, regardless of how much his insurance costs, that is very dumb and needs to be fixed.
I suspect that Ezra may be confused by the use of the words "credit" and "deduction". "Credit" may just mean that you get it regardless of whether you itemize, and even if it's less than your total taxes. These are aspects that Democrats generally like. "Credit" doesn't necessarily mean that you automatically get the full ammount.
But again, if Ezra is right, that is very dumb and needs to be fixed.
Posted by: David Wright at Jan 23, 2007 7:46:18 PM
Ugh. I just looked at the white house's summary and it looks like Ezra is right.
This is beginning to look like a just an attempt to dress up another tax cut in clothes that might appeal to some Democrats. ("No more income tax cuts? Well how about a medical insurance tax cut, then?")
Properly implemented, such a plan would be a tax increase, because previously untaxed in-kind benefits would be taxed as income. This is really too bad, because such a plan, properly implemented, would eliminate a serious distortion that now effectively subsidizes gold-plated medical care for the well-off.
Posted by: David Wright at Jan 23, 2007 7:55:59 PM
This seems like a relatively simple and effective way to start changing the system of health care in the US.
I tend to put more stock in the "third party payment system as the root of all problems" than Tyler, though. Most Americans are twice removed from their own health care costs. Their employer covers their health care premiums, their health care plans cover all of their costs.
There's another aspect to this, though. Health insurance is different than most insurance in that you expect (and plan) to use it regularly. I don't make claims on my car insurance policy that often, I've never made a renters' insurance claim, and to the best of my knowledge I haven't made any life insurance claims. Given the right amount of cash, people are going to be better off financially if they pay for predictable health care, and use the insurance for unpredictable, life altering events.
The thing is, you can solve both of these by "encouraging" people (or companies, or whoever) to use an HSA to pay for their own health care. Any money they don't spend is going to stick around for their retirement, and when they're writing the actual checks, they're going to be more discerning about what providers are charging. Using tax breaks to drive people to high deductible health plans is simple, and my guess is that it will be moderately effective.
Brought to you by a self insured family. ;) I can tell you exactly how much all our health services cost us over the last 2 years, I have no idea what they cost us before that. I suspect the last 2 years were quite a bit "cheaper" overall.
Posted by: Kurt at Jan 23, 2007 10:27:56 PM
And to address the gold plated health plan for the rich comment:
Really nice health plans aren't a good deal for people with enough income to cover mosts costs. If spending $10k on health care in any given year isn't going to ruin your life, you're financially much better off with a cheap high deductible health plan.
Posted by: Kurt at Jan 23, 2007 10:30:28 PM
Having spent several years as a government healthcare auditor and as the employee of a large insurer, I have to say I suspect Kling is right. There's no attempt to make efficiency a priority by recipients or providers- everybody thinks "the insurance company" pays the bill- I think there's a latin expression "a war of all against all" that applies here.The ugly reality is that there is a "moral hazard" in the business models of healthcare providers and the medical industry in general-producing equipment, services, etc is done without any consideration for cost, because a third prart is given the bill-at least until next year when the actuaries change the rate schedule.
There's a chart showing the relationship of the proportion of expenses pad by the recipent and real per capita costs-it is striking how costs have risen as costs have been born by others. See Senate Joint Economic Committee website.
Posted by: Superheater at Jan 23, 2007 11:20:35 PM
I called up a medical center to find out the cost of a visit and told there was a deposit of $250 and the exact amount would depend on the treatment. I tried to get the price of just a consultation since I thought it likely I wouldn't want anything done, but apparently they don't give out that sort of information.
You'd think they would be more encouraging of cash payments, because when I had insurance the insurance company sometimes denied I was insured.
Posted by: sort_of_knowledgeable at Jan 24, 2007 1:37:26 AM
If Ezra is right, the Bush health care plan does look kinda dumb. I'm personally against every deduction out there and this one doesn't fare much better.
No doubt about it, the health care problem is the most complex and hardest economic policy problem in America today. We have an utterly byzantine and inefficient system today, with providers, insurance companies, government, businesses and consumers that has been reached through sixty years of incremental changes of law. While this system arguably provides better health care than other countries with "universal" health coverage, there certainly must be better alternatives out there.
The main problem with free market health insurance is the disconnect between behavior and risk. In other words, the risk of a consumer to incur high health costs does not typically depend on that consumer's actions. The diagnosis of a kidney disease or any other significant ailment can happen randomly. Contrast that to an efficient free market in auto insurance, where a consumer can control how many speeding tickets they receive and how many accidents they cause. Even a 16 year old boy living in a big city can keep insurance costs relatively reasonable by practicing safe driving.
So, the outcome of free market auto insurance is more or less socially acceptable. Nobody feels sorry for the guy with astronomical insurance rates after going 105 in a 55. But with health insurance, a system where somebody who can't buy insurance after being diagnosed with a kidney disease is definitely socially unacceptable.
"Perfect Economics" (perfect information, no transaction costs, etc.) would solve this disconnect with a law requiring insurance companies to determine premiums only from the risk the consumer brought upon themselves. The government would then perfectly execute this law by magically knowing when a health insurance company wrongly increased their premium and prosecute accordingly.
In the real world, this law would be a disaster. The only solution addressing this goes as follows:
- Remove the tax loophole for business contributions to health insurance. Businesses are a middle man who are only in the business of selecting plans because of this tax loophole.
- Prohibit insurance companies from charging different prices according to the patient, for any reason. The libertarian in me worries about how people might live riskier without the worry about insurance rates, but I don't think any such cost-reducing risk-adversity takes place in the real world.
- Require everybody to purchase a plan with a certain bare minimum plan. Without this requirement, adverse selection will raise premiums for everybody who buys health insurance.
- Have a Medicaid type system where the poor can be helped with these bare minimum plans.
- Health care should otherwise be radically deregulated. Insurance companies should freely choose how to meet the requirements of the plan. Other things that increase health care costs, such as malpractice lawsuits, should be taken care of.
Under this system, insurance companies would compete with each other based on both price and quality of their services. In order to undercut the other insurance companies, each company would bargain with providers and try to get a larger customer pool for risk pooling until the optimal economies of scale is reached.
Unfortunately, this system also relies on a government regulation of the "bare minimum" insurance. The government must define the "bare minimum" similarly to the restriction the VA places on patients' care. For the system to not become a Medicare-like burden on the average person, the government must only require essential and worthwhile coverage.
I freely admit this is very difficult with today's political climate. Eventually, people will demand more while expecting to pay the same or less. Politicians, with no care about the ramifications of their policies, will happily promise the moon and sky for nothing to their constituents and screw us over in the process.
In the end, the solution is like the solution to just about any economic problem: people need to know basic economics and apply them to the politicians they select. Just everybody knowing and understanding "there's no such thing as a free lunch" will do more than just about any policy change out there today.
Posted by: Matthew at Jan 24, 2007 3:45:50 AM
Both Ezra and his commentors view the proposal as a backdoor attempt to push more people into HSA's, which they view as diluting the risk pool. Yet anyone with an HSA is squarely in the risk pool for anything that is a "risk." All an HSA does is give them more discretion with de minimis costs, which are, well, de minimis.
Posted by: Brian at Jan 24, 2007 7:53:21 AM
it is very educational and interesting. Thanks for sharing it.
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