Posts tagged ‘ESI’

A Government Healthcare Alternative

A few years ago I began to find the hard-core libertarian anarcho-capitalist advocacy to be getting sterile.  I would sit in some local discussion groups and the things we would argue about were so far outside of reality or what was realistically politically possible that they seemed pointless to talk about.  Taking a simplified example, baseball purists can argue all day the designated hitter rule should go away but it is never going to happen (players support it because it creates another starting roster spot and owners like it because it juices offensive numbers which drive ratings).  So I embarked on suggesting some left-right compromise positions on certain issues.

One result was my proposed climate compromise, which fit the classic definition of a good compromise (both sides don't like it) as many skeptics disowned me for writing it and the environmental Left campaigned hard against a similar proposal in Washington State.

I tried something similar with a proposal for restructuring the government role in health care.  First, I defined what I think are the two most important problems a government health care proposal has to address.  Most current and proposed plans fail to address at least one of these:

The first is a problem largely of the government's own creation, that incentives (non-tax-ability of health care benefits) and programs (e.g. Medicare) have been created for first dollar third-party payment of medical expenses.  This growth of third-party payment has eliminated the incentives for consumers to shop and make tradeoffs for health care purchases, the very activities that impose price and quality discipline on most other markets.

The second problem that likely dominates everyone's fears is getting a bankrupting medical expense whose costs are multiples of one's income, and having that care be either uninsured or leading to cancellation of one's insurance or future years.

I think the second point is key.  Everyone keeps talking about a goal of having coverage -- coverage even if you don't have money or don't have pre-existing conditions.  But that is not, I think, the real human need here.  The real need is to be protected from catastrophe, a personal health-care crisis so expensive it might bankrupt you, or even worse, might deny you the ability to get the full range of life-saving care.  Everything else in the health care debate and rolled up in Obamacare is secondary to this need.  Sure there are many other "asks" out there for things people would like to have or wish they had or might kind of like to have, but satisfy this need and the majority of Americans will be satisfied.

And so I proposed this:

So my suggestion ... was to scrap whatever we are doing now and have the government pay all medical expenses over 10% of one's income.  Anything under that was the individual's responsibility, though some sort of tax-advantaged health savings account would be a logical adjunct program.

I found out later that Megan McArdle, who knows way more about health care policy than I, has been suggestion something similar.

How would a similar program work for health care? The government would pick up 100 percent of the tab for health care over a certain percentage of adjusted gross income—the number would have to be negotiated through the political process, but I have suggested between 15 and 20 percent. There could be special treatment for people living at or near the poverty line, and for people who have medical bills that exceed the set percentage of their income for five years in a row, so that the poor and people with chronic illness are not disadvantaged by the system.

In exchange, we would get rid of the tax deduction for employer-sponsored health insurance, and all the other government health insurance programs, with the exception of the military’s system, which for obvious reasons does need to be run by the government. People would be free to insure the gap if they wanted, and such insurance would be relatively cheap, because the insurers would see their losses strictly limited. Or people could choose to save money in a tax-deductible health savings account to cover the eventual likelihood of a serious medical problem.

A few weeks ago I started reading the blog from the Niskanen Center after my friend Brink Lindsey moved there from Cato.  If I understand him, Niskanen has quickly become a home to many libertarian-ish folks who focus on real workable, executable policy proposals more than maintaining libertarian purity.  In that blog, Ed Dolan has proposed something he calls UCC (Universal Catastrophic Coverage) which would work very similarly to what I proposed earlier:

Universal catastrophic coverage is not meant to cover every healthcare need of every citizen. Instead, UCC would offer protection from those relatively rare but ruinous healthcare expenses that are truly unaffordable. (Note: As we use the term UCC here, it is not to be confused with the more narrowly defined catastrophic insurance that is available, in limited circumstances, under the ACA.)

Here is how UCC might work, as outlined in National Affairs by Kip Hagopian and Dana Goldman. Their version of the policy would scale each family’s deductible according to household income. The exact parameters would be subject to negotiation, but to use some simplified numbers, the deductible might be set equal to 10 percent of the amount by which a household’s income exceeds the Medicaid eligibility level, now about $40,000 for a family of four. Under that formula, a middle-class family earning $85,000 a year would face a deductible of $4,500 per family member, perhaps capped at twice that amount for households of more than two people. Following the same formula, the deductible for a household with $1 million of income would be $96,000.

The cost of the catastrophic policy would be covered by the government, either directly or through a refundable tax credit. The policies themselves could, as in the Swiss model, be offered by private insurers, subject to clear standards for pricing and coverage. Alternatively, they could take the form of a public option, for example, the right to buy into a high-deductible version of Medicare.

With UCC in place, people could choose among several ways to meet their out-of-pocket costs, which, for middle-class families, would be comparable to those of policies now offered on the ACA exchanges.

One alternative would be to buy supplemental insurance to cover all or part of expenses up to the UCC deductible. The premiums for such supplemental coverage would be far lower than policies now sold on the ACA exchanges, since the UCC policy would set a ceiling on claims for which the insurer would be responsible. If the supplemental policies included modest deductibles or co-pays of their own, they would be more affordable still. Although UCC itself would be a federal program, the supplemental insurance market would continue to be regulated by the states to meet their particular needs.

Very likely, many middle-class families would forego supplemental insurance and cover all of their routine health care costs from their regular household budgets, the way they now pay for repairs to their homes or cars. Doing so would be easier still if they took advantage of tax-deductible health savings accounts—a mechanism that is already on the books, and could be expanded as part of reform legislation.

The main thing that has always flummoxed me is that I have no idea how expensive this plan might be.  Dolan is claiming it could be done at reasonable cost.

As it turns out, the numbers don’t look all that bad. Because UCC leaves responsibility for routine care with individual families, in line with their ability to pay, it would be far less expensive than a system that offered first-dollar coverage to everyone. Hagopian and Goldman estimate that their version of UCC would cost less than half as much as the projected costs of the ACA.

The impact on the federal budget would be further moderated if the tax deduction for employer-sponsored insurance (ESI) were phased out as UCC came online. Tax expenditures for ESI currently cost the budget an estimated $235 billion per year, an

Tracking Changes in Those With Health Insurance

RAND has a study out on changes in people's sources for health insurance.  Once you get the hang of reading it, this is a great table:

 

This is how to read it -- of the 40.7 million uninsured in September of 2013, 26.2 million remained uninsured, 7.2 million got new employer health insurance (ESI) , 3.6 million joined medicaid, etc.  But then some new uninsured were added back so the new total uninsured is 31.4 million.

One of the first things to notice is the marketplace number of 3.9 million is well below the Administration's claim of 7.1 million.  The Administration's number is not even within the error bar here, so one needs to be skeptical, if he was not already, of Administration sign-up figures.

We also can notice that the individual marketplace seemed to have shrunk from 9.4 million to 7.8 million.  No huge surprise, with all the cancellations that made the news last year.

The really interesting question, of course, is what happened to the uninsured.  We can use this table to look at net changes (millions of people).

2013 Uninsured40.7
     To Employer-5.1
     To Medicaid-2.6
     To Individual+0.2
     To Exchange-1.4
     To Other-0.3
2014 Uninsured31.4

To make sure everyone understands the math, 7.2 million left the ranks of the uninsured to get an employer policy, but 2.1 million previously insured by employers became uninsured.  The net is -5.1 million as shown.  All the other numbers are calculated the same way.

I have always had serious questions about the value of the Medicaid signups during this period.   Medicaid is not a limited enrollment product.  You can sign up bleeding on a gurney being rolled into the operating room, and in fact many do -- Hospitals are very good at enrolling people into Medicare as they walk in.  So it was really a misnomer in the first place that someone eligible for Medicaid is "uninsured" -- they are in fact insured, they just have not done the paperwork.  The Medicaid expansion in the PPACA probably helped, but many states that did not expand Medicaid had a lot of signups as well.

The exchange seems to have done little to affect the uninsured.  Net of the reductions in individual insurance presumably driven also by the PPACA, the exchanges reduced the uninsured by 1.2 million.

The really interesting number everyone is  looking at is the huge number of the insured that gained employer coverage.  Three quarters of the non-Medicare related reduction in uninsured (since I don't consider a lot of the Medicare signups a real reduction) were from people going onto employer plans.

Kevin Drum quotes Andrea Mcintyre as saying

If it’s correct, it was probably motivated multiple factors—I hate the word “synergy” on principle, but it comes to mind. The economy has been improving, so some of the previously unemployed have secured jobs with benefits. But CBO built in expectations about economic recovery, so I don’t think it’s quite right to try pinning all (or even most?) of the 8.2 million on that. The individual mandate, while weak in its first year, might be a stronger stick than we expected, nudging people to take their health benefits where they’d previously been opting out. Employers could be helping this move this trend along; the University of Michigan, for example, eliminated “opt out dollars” in 2014 (cash compensation for employees who declined coverage).

Drum add triumphantly

If this finding is confirmed, it's a genuine shocker. Although CBO projected that ESI would stay steady, there's been a lot of chatter about the likelihood of employers dropping coverage thanks to Obamacare. But that sure doesn't seem to have happened. So in addition to the usual sources of coverage—Medicaid, exchanges, sub-26ers—it looks like Obamacare has yet another big success story to tell, one that was almost completely unexpected.

Uh, maybe.  The employer insurance changes could also be an artifact of normal churn and of the odd study period.   The study period is only about half a year.  If there were annual patterns, ie with people losing employer health care early in the year and then gaining it at the end of the year, then only the gains would show up in the study and not the losses.  In fact, there is some reason to believe this is the case, as most corporations have open enrollment periods at the end of the calendar year.

But there is a more interesting issue here.  Folks arguing for Obamacare in the first place sold it by implying that most all the uninsured were uninsured because they could not afford coverage or did not have access.  Now it turns out a large block of the uninsured actually did have access and could afford it, they just chose not to buy it, for whatever reason.  Was this really what it was all about from the very beginning, forcing people to buy a product that they could afford but did not want?