Laurence Kotlikoff: We Are All Uninsured Now

A plan to reform health care:

We are all uninsured now, by Laurence J. Kotlikoff, Commentary, Boston Globe: Big numbers, like 45 million uninsured Americans, are hard to grasp. But ... the rest of us with health coverage are also uninsured. We too face terrible, albeit more remote, healthcare risks -- the risk that our employer will drop our plan, that Medicare will go bust, that our plan won't cover our needs, that premiums will eat us alive, that our doctor will stop taking our insurance, that long-term care will wipe us out, and that our uninsured friends and family members will need major financial help.

These risks are entirely avoidable. We can have an efficient, transparent system that includes everyone; treats everyone fairly; covers all the basics, including prescription drugs, home healthcare, and nursing home care; and costs little more than what we now spend. But we can't get there via the piecemeal reforms that President Bush, most of his would-be successors, and our state governors are advocating.

Bush first pushed health savings accounts -- a knuckle-brained scheme to get the uninsured to save for all their healthcare costs short of catastrophic care. When that didn't stop 5 million more Americans from becoming uninsured, the president proposed letting the uninsured deduct the cost of their health plans if they buy private coverage ..., but it won't help much. Most of the uninsured are in too low a tax bracket or pay too little in taxes for it to make any difference. ...

Most of the Democratic and several of the Republican presidential candidates ... end game would be a balkanized healthcare system with the old in Medicare, the poor in Medicaid, most workers in employer plans, and the losers -- the otherwise uninsured -- in highly subsidized, limited-coverage plans. Loser plans.

This won't work. First, Medicare and Medicaid are already on a course to bankrupt the nation. Keeping these programs intact is fiscal suicide. Second, many employers are fed up with healthcare spending and are heading for the exit. ... And the more attractive loser insurance becomes, the quicker employers will drop their plans.

Third, loser insurance requires a major federal bureaucracy (think Hillarycare) and unaffordable subsidies. Fourth, this "solution" does nothing to reduce the administrative costs that consume a fifth of our healthcare dollars. Fifth and most damning, making loser policies available doesn't guarantee their purchase. Millions will remain uninsured.

My solution is called the Medical Security System. It would eliminate Medicare, Medicaid, and (by dropping the tax breaks) employer-based healthcare. The government would give everyone a voucher each year for a basic health plan. The size of the voucher would be based on one's health status. Those in worse health would get bigger vouchers, leaving insurers no incentive to cherry-pick. Furthermore, insurers would not be permitted to refuse a voucher or otherwise deny coverage.

The government would set the total voucher budget as a fixed share of gross domestic product and determine what a basic plan must cover. We would choose our own health plans. If we cost the insurer more than the voucher, he would lose money. If we cost him less, he would make money. Insurers would compete for our business and could tailor provisions, like co-pays and incentives to stop smoking, to limit excessive use of the healthcare system and encourage healthy behavior.

Nothing would be nationalized. Virtually all of the cost would be covered by redirecting existing government healthcare expenditures as well as tax breaks. Doctors, hospitals, and insurers would continue to market their services on a competitive basis.

This is not a French, British, or Canadian solution. It's an American, market-based solution that Republicans should love. It's also a progressive solution that Democrats should love. (Democratic presidential candidate Mike Gravel has endorsed it.) The poor, who are, on average, in worse health, will receive, on average, larger vouchers. The rich will lose their tax breaks.

Why can't a country as rich as ours come up with a system that works?...

Not the way I'd put the system together, but just wanted to point out that this says "[Mr. Kotlikoff] is serving as an economic adviser to Mike Gravel." It seems to me that should be made clear, especially given the implicit and explicit potshots taken at the "loser" plans of the other candidates.

Comments

[reason]

This is not a bad solution. Bad I see adverse selection and the bureaucracy involved in deciding the value of the vouchers as being very problematic. I don't know why people going this way wouldn't go towards the German System (payroll tax based).

[dale]

Medicare and Medicaid are NOT on a course to bankrupt the nation. It the overall costs of healthcare that are rising-private and public. There's nothing unique to the government health care programs in terms of cost crisis. And when I hear people talk about these entitlement program crises I wonder about their motivation.

[baileyman]

Kotlikoff is a guy who thinks we're toast in 40 years, even thought at 1.5% productivity growth there should then be twice as much resources per capita available to fund education, medical care, and retirements.

Isn't he rather presenting a kindler gentler privatization Trojan horse?

[hggpayne]

Who's going to make the needs determination to adjust the value of the voucher to one's health needs? How is "health" defined? How often will this change? Annually? Instantly upon getting in a bad car crash, or might that be an instance of a healthy person with bad luck? What kind of bureaucracy would be required to implement and monitor the health determination?

[Maynard]

Well, the government would need to keep voluminous records on everyone's health status in order to determine voucher amounts. This might raise some hackles among people concerned with privacy. Pegging the total amount of spending as a fraction of GDP would be a disaster: with the aging of the population, innovations in medical care, and our nation's increasing wealth, health care spending ought to rise as a fraction of GDP over the long haul. The continual need to trim spending to meet the spending target would put everyone's health care in jeopardy - we'd still not all be insured.

[DenverKen]

Don't know what the best solution is, but we'd better be finding something!

I just received my renewal package for my health plan for my small consulting firm. My premium is going from $888/month to $1030/month (age 58, single, no dependents). 9 years ago it was $147/month. This now is my single biggest expense, surpassing my housing costs, and up 16% this year.

This is UNSUSTAINABLE...and the politicians are talking about band-aids to our current broken system. I'm tearing my hair out in frustration.

[bakho]

This seems unduly complicated.

Health care has a 2 glaring problems that are different. Problem one is lack of comprehensive primary care. The US has no system in place that systematically provides health screening, health coaching and preventative medicine to all Americans. Finding a way to implement and fund a comprehensive system is a glaring deficiency.

Problem number 2 has to do with end of life care where a large percentage of health care dollars are spent. This involves a host of issues including nursing home care, quality of life maintenance, heroic interventions, etc. Problem #2 is made worse by Problem #1. Elderly people who deteriorate physically require more resources at the end of life.

Does the above proposal really address either of these issues? Is the issue really how to expand and fund the current system? Or is it how to better deliver primary care services in a manner that provides cost savings to the entire system?

[robertdfeinman]

Here's an anecdote (true).
A woman doctor came down with cancer and was forced to leave her job during treatment. She could continue her coverage for awhile under COBRA which also covered her husband who was on her plan.

Eventually the COBRA stopped and she needed to replace it with private coverage. Her husband was in a job that didn't pay enough for him to afford insurance. Her dilemma, a) she's uninsurable (perhaps there are regulations which allow you to switch to self-paid coverage from the same insurer, I'm not sure), b) she has no income since she is ill, so even assuming she can get coverage she can't afford it.

What are her options? She can attempt to pay for treatment herself. Eventually she will use up her savings and will have to declare bankruptcy. At that point she will become eligible for Medicaid.

This can happen to anyone, even a highly paid professional. Those who think that the uninsured are only the poor may be in for a rude surprise.

As to this ridiculous plan, the less said about it, the better. Medical care is not going to bankrupt the country. Like all markets when costs get too high there will be countervailing forces. These can range from incentives to develop cheaper treatments, to revisions in drug patent laws, to forcing health providers into accepting lower payments, to having the sickest die off because of inadequate care.

Libertarians always like to point to the free market as solving all the problems except when they have an ax to grind - then it doesn't work.

[ken melvin]

If medical care is going to bankrupt the nation then so will any/all other service industries, no?

[Bruce Webb]

The Kotlikoff plan seems like a strained attempt to establish universal Medicare without drawing the wrath of the market magic people. "Look! It is not socialized medicine! Its a voucher!" When examined functionally this makes no sense. One the one side we have the equation "Voucher plus vast new intrusive government bureaucracy = market solution" On the other we have "Doctor using guidelines of normal and necessary care plus billing medicare = socialized medicine". There is simply no way that the former would not be more expensive than the latter, but that is not the point, it is not the left hand side of the equations that are dueling, it is the right hand side that is creating the heat.

There is a pattern here. Almost all of the 'Entitlements' 'Crisis' is being driven by a particular narrative and not by the actual economics at hand. I summed this up in July 2005 in my usual context;

Because oddly enough this debate is not about numbers and in most respects it never has been.

A certain portion of the Republican Party has always hated Social Security on principle. You see it most starkly in some of the novels of Ayn Rand, but from Alf Landon to Grover Norquist large portions of the Right simply despise the very idea of collective social responsibility.

And I still think this is right. A substantial part of the Economic Right don't oppose Single Payer because they know it will fail, they oppose it because they fear it will work, and in doing so launch us right down the The Road to Serfdom (in cartoons). This may not seem rational, probably because from a value-free analytical perspective it is irrational, but there are people who have bought in at some deep emotional level to the trope 'Government is evil' at least when it comes to any question relating to distributions of gains from productivity.

Which is why I am so irritatingly insistant on bringing everything back around to Social Security. A fully solvent Social Security system represents a near death blow to the 'Government is evil' contingent while Social Security 'crisis' vindicates their world view and completes their narrative. "Look see! Government solutions never work!" That confidence will shatter on the day everyone is forced to admit that this particular government based system does in fact operate within its means and delivers the promised service.

Now the day of recognition may be delayed somewhat. Right up to Q3 2005 I would have bet anyone money that it would be 2008. Then we were hit with the double storm of a productivity series gone nuts and the beginnings of the deflation of the housing bubble. How much fallout we get from the latter will determine how long it will take the former to recover, but I see absolutely no reason to posit sub 2.0% growth forever while growth at trend funds Social Security.

The road to universal health coverage runs through Social Security solvency, and there are a lot of other potential progressive victories along the way. Validation of the New Deal can lead to rehabilitation of the Great Society and pave the way for further progress in areas like public education.

[Nate]

"health savings accounts -- a knuckle-brained scheme to get the uninsured to save for all their healthcare costs short of catastrophic care."

Yeah, those "knuckle-brained" people in Singapore don't know how to run a health care system. In fact in Singapore people don't buy as much insurance for the predictable frequent and less costly medical expenses.

[save_the_rustbelt]

This is much too simple to ever appeal to politicians and/or bureaucrats. There is a sort of elegance to the design though, if anyone believes simplisity would be an improvement.

One area of concern, I constantly read that "reform" will take the heavy burden off of business.

So who will pay? Business at a lesser rate? Individuals? ???

Lots of problems with this idea.

[Lafayette]

rdf: As to this ridiculous plan, the less said about it, the better. Medical care is not going to bankrupt the country. Like all markets when costs get too high there will be countervailing forces.

Surely you jest? What countervailing forces?

Health services are NOT a market in the traditional sense. They are a Public Service. Were they are market, there would be competitive factors that "countervail". There is no such thing, since Doctors do not compete.

When is the last time you shopped around for a Doctor for a good price? If you have company program insurance, you just send the bill.

Higher prices do NOT attract more doctors, as they should. Technology does not enhance labor efficiency, but simply extends the array of remedies that are applicable. Is Doctor throughput really assisted by new technology, by enhancing their ability to cure more people?

Furthermore, the sick do not have the alternative of going elsewhere to seek lower prices -- except for cosmetic surgery, which is hardly a pressing Health Care problem.

Seen all that many slipping off to Latin America for Health Care or to Canada? No, because the insurance will not cover treatment costs. So, no global competition there, right?

How do you expand the supply of Health Care practitioners, since such is highly inelastic given the time and cost to educate/train them?

Let's stop thinking that Health Care is just another market that responds to supply and demand factors.

Because it ain't.

[Bruce Webb]

Ah yes Singapore http://www.ncpa.org/studies/s203/s203.html

As usual the devil is in the details. First the system is mandatory. Two it is subsidized. And three 75% of actual medical care delivery is through state facilities.

Currently, required deposits equal 40 percent of wages up to S$6,000 per month (the average annual wage, including the employer's contribution, is S$30,038),7 with 20 percent each coming from employer and employee. All savings, at both the time of deposit and the time of withdrawal, are tax exempt.

Looking a lot more like Medicare here than a libertarian paradise.

In 1992 Singapore spent S$2 billion, or 3.1 percent of its GDP, on health care. The delivery system is a mix of private and public services. Eighty percent of hospital care is delivered in public facilities, and 75 percent of ambulatory service is provided by private practitioners. Twenty-six government-run clinics provide outpatient treatment, health screening, immunizations, diagnostic testing and pharmacy services for those who use the less-expensive public sector. Even though these clinics are subsidized, they charge for most services, reflecting the philosophy that health care should not be free.

Well I could carve a few percentage of GDP off US health care if 80% of hospital care was going through a non-profit system.

The Medifund Program. Because mandatory Medisave deposits are a percent of wages, deposits are smaller for lower-wage workers, and the least affluent may not be able to pay much out of pocket. Thus the combination of out-of-pocket, Medisave and Medishield payments may not cover all of their medical expenses. Medifund is a government-funded program established in April 1993 to provide financial assistance to the poor whose Medisave accounts are low and who have few resources to pay the difference out of pocket. Initiated with a government grant of S$200 million, Medifund receives an additional S$100 million each year there is a government surplus.

And the poor need a subsidy anyway. The totality of the federal subsidy?

In 1992 the total amount of subsidized care in Singapore was approximately S$360 million, equivalent to 19 percent of the total health care expenditure, or 0.7 percent of GDP.

And last but not least
Singapore has a well-defined health care policy. The state actively manages all aspects of the medical system, from physician supply and education to price setting and service criteria. Such aggressive government intervention in the marketplace, which would probably be unacceptable to most Americans, is at least as important to the success of the Singapore system as is the individual savings mechanism.

Sometimes I get the idea that the people who cite the Singapore Health Insurance plan or the Chilean Retirement Plan or God help us Galvestan Texas haven't actually read up on the details. Replace the government hospital system in Singapore with the largely for-profit hospital system we have here and I suspect the outcome would be much different. Lots of things get cheaper if you structure then in ways don't don't require the generation of profits.

[robertdfeinman]

Laf:
Firstly I do shop for doctors by how much they charge. Only it's indirect. My insurance company will only pay 100% for those in "network". They pay less and have a big deductible for those not in network. So I chose those on their list.

Second, medical services are a commodity like any other. If the market isn't working right then people don't get the services they need. We already have this. We have the 40+ million without insurance. They get inadequate service, regardless of what Bush says.

We have the insurance companies determining what they will pay for. If they won't pay then most people will forgo the treatment. There are stories in the press all them time about people not getting the care they need because of monetary concerns.

The US health system is not functioning properly. People are dying or living damaged lives because if it. When it hits the more upscale citizens then the public will realize its a real problem. You ignored my little story about the doctor having to go on Medicaid. In case you don't know to be eligible for Medicaid you can't have more than $4000 in assets (I think your house is exempt).

The simple fact is that health care works better elsewhere and the reasons are well-known. Those feeding at the trough of privatization keep throwing sand into people's eyes in the hope that they won't see what's going on. This latest nonsense about health care bankrupting the country is just the latest in a long series of phoney claims.

[Lafayette]

rdf: medical services are a commodity like any other.

Right, medical services are like wheat or sorghum. This is an asinine comment and you know it.

[Icarus]

We could solve the US medical problem with a government financed primary health system for all, with limits. We should cover cost effective treatments through this public insurance, and, dictate that individuals could not sue for punitive damages if mal-treatment occurs (only the cost of possible recovery).

Then, on top of that primary health care system (which, would cover the vast majority of health care needs), one can opt for private insurance for other, more expensive matter.
This private insurance would/could be open to punitive legal damages if there is mal-treatment.

The trick here is that we have to curb expenses, in order for the total population to be covered. So, the Terry Shiavo situations would end in assisted suicide. The state of Florida would not be authorized to spend millions of dollars to keep such a patient alive. The trick is to have our society come to terms with acceptable forms of death.
We spend an unnecessary amount of money on all sort of high-priced cases. Drop that, and allow the private markets to handle it...through that tranformation, the total population can have socialized primary care. So, things like pre-natal care, broken bones, pneumonia, etc...all covered. But, crack babies which cost hospitals hundreds of thousands of dollars...no.

It's a harsh reality, but, one we can work with.

[robertdfeinman]

Laf:
Do you have a point to make or must you resort to ad hominem attacks when your arguments are shown to be fallacious?

Icarus: The popular perception that lawyers add to the expense of health care because of the huge settlements (unjustified, of course) that they win for "malpractice" is not borne out by the facts. Studies have shown that this adds about 2-3% to the overall cost of health care.

It may be that medicine is more cautious (that is they run more tests) because of the fear of being sued for malpractice, but would you prefer the Mattel model where they skip the tests and let the lead painted toys into the country?

I'm pretty sure that Medicare specifies which tests it will cover under which circumstances and private insurers do as well.

Everyone looks for a convenient scapegoat, or easy answer, for why medical costs are so high. There are, of course, many reasons. High costs for medical professionals, high overhead and profits in the insurance and for-profit health centers, high drug and medical equipment prices, inefficient record keeping and over treatment.

There is also lots more elective treatment than elsewhere.

Our houses also cost more and are bigger than those in Europe. Everything in the US is like that. Do we wish to make health services more efficient? It's not clear.

[Patricia Shannon]

Icarus says...

But, crack babies which cost hospitals hundreds of thousands of dollars...no.
====================
http://www.sciencedaily.com/releases/2006/05/060502224048.htm
GAINESVILLE, Fla. - Toddlers exposed to cocaine before birth exhibit no more behavioral problems than other children their age, despite early predictions that "crack babies" would grow up to be delinquents, University of Florida researchers say.

Studying 3-year-olds exposed to crack and powder cocaine in the womb and a similar group of children who were not, UF researchers found that disruptive behaviors in children actually seem to be linked more closely to maternal depression than prenatal cocaine exposure.

Poverty could explain why many of these mothers showed signs of depression, and in turn, depression could explain why mothers of cocaine-exposed and non-exposed children tended to report more behavioral problems, such as hyperactivity and impulsive behaviors, Warner said.

"If you're poor and you need mental health services, you're in bad shape," Warner said. "Both sets of moms were reporting a large number of depressive symptoms and have been from the beginning. And that is probably more likely to result in emotional behavior problems for the children than prenatal cocaine exposure."

http://www.sciencedaily.com/releases/2003/06/030602023446.htm
A new study suggests that even casual smoking during pregnancy harms a fetus, producing behavioral changes similar to those in babies born to mothers who use illegal drugs.

==============
Besides, even if "crack babies" had more problems because of prenatal exposure to cocaine, they are going to grow up and be part of our society, and it doesn't make sense not to help them at birth and infancy, when the payoff is likely to be larger.

[real person from the real world]

Thanks to marketing and spin, we have a situation in this country where the Republicans have brainwashed too many people into going for the rape your customer business model, pioneered by Microsoft.

[Lafayette]

rdf: Do you have a point to make or must you resort to ad hominem attacks when your arguments are shown to be fallacious?

Commodity: a raw material or primary agricultural product that can be bought and sold.

Buy a dictionary. Your righteous indignation might be better placed.

Health Care is not a commodity and not even a "product market" in the traditional sense of the term. It is a Public Service because its primary importance is accessibility (physical and financial) -- not profit.

Or, it should be in a modern nation with any real concern for its citizen's well-being.

Now, let's see how you deconstruct the above fallacious argumentation.

[anne]

Mark Thoma edits superbly, but more was necessary....

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/08/28/we_are_all_uninsured_now?mode=PF

August 28, 2007

We Are All Uninsured Now
By Laurence J. Kotlikoff - Boston Globe

BIG NUMBERS, like 45 million uninsured Americans, are hard to grasp. But that number came home to me at a recent conference. The keynote speaker was former Supreme Court justice Sandra Day O'Connor. Her topic was our healthcare system, and her message was personal and anguished.

The gist was that even she lives in constant fear of major uninsured health bills. Not her own -- those of her son. He can't afford insurance because his son -- her grandchild -- has a preexisting condition.

As I listened, a light dawned: O'Connor and the rest of us with health coverage are also uninsured. We too face terrible, albeit more remote, healthcare risks -- the risk that our employer will drop our plan, that Medicare will go bust, that our plan won't cover our needs, that premiums will eat us alive, that our doctor will stop taking our insurance, that long-term care will wipe us out, and that our uninsured friends and family members will need major financial help.

These risks are entirely avoidable. We can have an efficient, transparent system that includes everyone; treats everyone fairly; covers all the basics, including prescription drugs, home healthcare, and nursing home care; and costs little more than what we now spend. But we can't get there via the piecemeal reforms that President Bush, most of his would-be successors, and our state governors are advocating....

[anne]

Not even that Sandra Day O'Connor son and grandson should fair so poorly and unjustly, but that Justice O'Connor understands and is speaking out. I find this anecdote truly frightening, not because I may have met the speaker but because I really do not want to understand that we live in such a time when a child could be so lost. I know and do not know.

[anne]

Insanely surging Iraq for $200 billion a year and we would throw away the care of a child. Of course, Iraqi children are in shape sad beyond any wish I have to imagine.

[Lafayette]

anne: But we can't get there via the piecemeal reforms that President Bush, most of his would-be successors, and our state governors are advocating....

True enough.

The present system of Health Care, based upon corporate/institutional program-insurance, by which those working are covered is broke; for two reasons.

First, it obviously does not cover those who either work for companies/institutions that do not have program-insurance or for those who don't work at all (either unemployed or illegally).

Present conventional wisdom is that extending program-insurance, based upon private insurance coverage, will somehow "solve the problem". No way. The problem is exorbitant fees to specialists and GPs. Do the arithmetic. If those fees are not paid by program-insurance, who pays them? No one. Which is why lead-head thinks that just showing up at an ER means effectively "national Health Care coverage". (What a dunce, that one.)

The cost structure must be alleviated, reworked, and lowered. This means, forcibly, the lowering of incomes for a select, privileged group in our economy. Which is unfortunate, but this group (and their representation, the AMA) think that Health Care is a "market" in which practitioners charge whatever "going rate" could be obtained from program-insurance. (All that program-insurance does is to agglomerate consumers to obtain a lower price ... but when the market price is exorbitantly high to begin with ...?)

A market is a place where price and quantity find a natural equilibrium. Is Health Care that kind of a market, where the intrinsic value of Health Care to you and me is a matter of price as to whether I (or you) can access it or not?

Apparently, yes.

Of course, Health Care should be accessible to one and all, regardless of whether you are young or old, whether you work or not.

Of course, Health Care should not be just remedial (i.e. costly) but preventive (far less costly). But, to do this, one needs a public system that takes into account this very challenge - how to prevent health problems in a nation that is epidemically obese. Or, how to assure that Health Care is available uniformly demographically. (In the defense of the nation, are there states that are more or less worthy of defense against an invading enemy?)

As in the sub-prime scandal, who is there (in a market system) to save people from themselves and their inability to buy wisely a family residence? Or, for the problem of crime, why have we police and a judicial system? Why do we have public service firemen? Because these ARE NOT markets in the traditional sense, they need to be public services for a variety of bona fide reasons.

And, that public service needs to be paid for out of the public purse, just like the other "services" noted above.

So, why not the equivalent for national Health Care? Because the practitioners (read AMA) doesn't want it and spineless politicians listen to the siren song of AMA lobbyists. Cut the financial umbilical cord between lobbyists and politicians and maybe we'll get a decent Health Care system.

PS: And perhaps even more when a political class no longer need dance to the music of Big Money in order to get elected.
PPS: And I will belabor this blog AGAIN with the fundamental logic of program-insurance Health Care. That program-insurance costs must be recuperated by the company in its product/service pricing. Meaning the 45 million people who are not covered pay anyway for the insurance of those who are covered. Is this "fair play"?

[anne]

Thank you, Lafayette.

[anne]

Also, I wish there were more information about the experience of Sandra Day O'Connor's son. Anecdotes help, but there is not enough detail here to understand other than that we are terribly vulnerable in this country but do not properly understand as a country.

[Lafayette]

anne: we are terribly vulnerable in this country but do not properly understand as a country.

Because there is no collective sense of solidarity in America. We are a nation brainwashed into thinking we are all uniquely responsible for our little lives and whatever fate befalls us, both good and bad.

It is like people passing the scene of a terrible road accident, gawking to see the damage, leaving thinking "Wow!, am I glad THAT isn't me!". And, never thinking of it again because it's simply road-kill on the highway of life.

Ask not for whom the bells toll. They toll for thee.

Whatever became of that nation, "We, the people ... "?