When I first saw a summary of Jason Furman's health care proposal, my
reaction was to say "I'm not all that excited about" it. Briefly, the plan is:
Washington Wire: Jason Furman, a one-time economic adviser to President Clinton and Sen. John Kerry, ... now director of the Hamilton Project, a think tank organized ... for centrist Democrats, suggests that the U.S. could reduce health-care spending big time if people shared a larger slice of the cost of care. After all, when consumers know how much something costs, and when they have to pick up a hefty chunk of the bill, they are more careful about what sort of tests and procedures get ordered up on their behalf.
This is the philosophy behind Health Savings Accounts, the health plan conservatives love and liberals love to hate. ... The problem with Health Savings Accounts, Furman argues, is that they are risky for low- and moderate-income families. As an alternative, he proposes income-related cost sharing; a typical family would pay half of their health costs until the family's out-of-pocket costs reached 7.5% of the family's annual income. The more money you earn, the more you have to spend on your own health care before full coverage kicks in. Citing an analysis done by the RAND Health Insurance Experiment, Furman estimates this could reduce total health spending by 13% to 30% without hurting health outcomes. ... “This type of idea can come in handy,” he said. “It could be part of a political compromise. But I recognize it’s not something we’re going to do tomorrow."
Shortly thereafter, an email arrived suggesting I consider taking a closer look and, since my sentiment is similar to Brad DeLong's
His hope is that this will finesse many of the problems with HSAs. I don't know. I'm not a health economist. I just play one on radio sometimes
and having also played health economist, I thought I'd try to gather more information about the proposal. Tyler Cowen, Mathew Yglesias, and Arnold Kling have all made positive statements about the plan. But the most complete analysis I've come across so far is by Ezra Klein:
Cost Counts, by Ezra Klein, The American Prospect: ..."Universal health care" is an ingenious phrase; it easily garners majority support when polled and is almost impossible to argue against. ... The trouble is, defining the conversation in terms of universality (or a lack thereof) means implicitly defining the problem as an issue of access. Make no mistake, the fact that 45 million Americans are uninsured is a moral disgrace. But if we could achieve full coverage tomorrow, holding all other things equal, the system would collapse within a matter of decades. No one would be able to afford it. ...
Progressives tend to focus, rightly, on the access question. ... But how to best control costs should be considered... not only because the health system will collapse unless spending growth slows, but because we spend too much on health care in the United States. We spend more than we need to ... because our prices are so high and our system is so inefficient. But even if we could purchase care at wholesale rates and construct the most effective delivery system in the world, we would still be spending more than we probably should. On this, the data is clear: We purchase more care than really benefits us. ...
In their zeal to beat back universal health care, conservatives have argued that the primary problem with America's health care system is, indeed, overuse. We're all so heavily insured and totally insulated from health care costs, the argument goes, that we overuse care and thus make the system more expensive. And so if we exposed individuals to more of the cost of care -- if we paid for our actual health care, rather than paying premiums for our health insurance -- we'd use less of it. This is why conservatives love health savings accounts, which have high deductibles, forcing individuals to pay more for their care and, as the thinking goes, eventually use less of it.
You can, of course, dissuade individuals from using care by making it more expensive. Price an aspirin high enough and I'll never take one again. But there are a couple problems with that approach. The first problem, obviously, is income. Imposing a $5,000 deductible on a family that makes $120,000 a year will compel very different behavior than the same deductible on a family making $45,000.
The second is the conservative assumption that making us pay more and use less means we'll become smarter consumers of health care -- using less but doing just as well. The problem is, studies show that we're rather bad at discerning the good or necessary care from the bad or unnecessary, and, when prices go up, we tend to just cut back on everything. That's not only bad for health outcomes, it's bad for costs.
A 2006 study in The New England Journal of Medicine, for instance, compared Medicare patients who faced heavy cost-sharing for pharmaceuticals with those who had nearly unlimited benefits. The seniors with cost-sharing cut back on pharmaceutical spending (and thus, use) by about 31 percent. The results? More visits to the emergency room, more hospitalizations, and higher rates of death. And the upshot of all this is that the costs incurred by the deterioration in health completely erased the savings from the cost-sharing. So those with increased financial vulnerability not only had worse health outcomes, they didn't save money.
That's what makes cost-sharing so tricky. You don't want to disproportionately penalize the poor, or keep them from seeking necessary care. You don't want to decrease the use of cost-effective treatments. You don't want diabetics to abandon their treatment regimens..., or for patients to drop their hypertensive medications and suffer heart attacks. Not only is it bad for the patient, it's costly for the system.
But even though conservatives have embraced a crude, even regressive, form of cost-sharing, there's a kernel of insight to their account. ... Moving some of the spending to the front-end -- making us pay for care rather than premiums -- would certainly right some ... incentives. But it should be done in the context of a system-wide shift to a nationalized structure. ... A major factor in our sky-high health costs is that Americans simply pay more per unit of health care than any other nation. We're getting gouged, and it has to stop. For that to happen, a new system must bring Americans into the same pool, so the government can use its massive market share to bargain down prices and advocate for their interests -- just like every other nation does.
So the question is how to create a cost-sharing system that is not merely progressive, but smart. And some of the most exciting thinking on the subject comes from a new paper by the economist Jason Furman on "The Promise of Progressive Cost Consciousness in Health-Care Reform."
Furman proposes a health system in which households making about 200 percent of the poverty line would pay 50 percent of health costs until they reached 7.5 percent of income. Above that, all expenses would be covered. Below 150 percent of the poverty line, there would be no cost-sharing, and between 150 percent and 200 percent, the limit would be 5 percent of income. Furman estimates that his plan would reduce health spending by an astonishing 30 percent.
That's a lot of money. And I'm a bit skeptical that any achievable plan could trigger such dramatic reductions. But there's no doubt that moving money from premium payments to point-of-care payments would reduce the amount of health care purchased. And that's largely to the good: ... the best evidence that we have suggests health outcomes would remain unharmed. And, if we do it right, they could even be improved.
The trick would be exempting certain conditions and treatments from the cost-sharing. For instance, it's cost-effective and medically important to encourage adherence to statin regimens (cholesterol-lowering drugs), and the evidence shows that co-pays compel some to stop taking the medication. So statins shouldn't be subject to cost-sharing. Indeed, the French system provides a useful model here, as it erases cost-sharing for various chronic conditions (like diabetes) and cost-effective medications (like hypertension treatments) where it's cheaper and more healthful to encourage health care use.
In order to do that, you need an integrated system capable of setting system-wide priorities. As Furman, in fact, says, in a surprising admission for an economist associated with the centrist Hamilton Project, "The simplest and cleanest way to implement income-related cost sharing would be as part of a far-reaching fundamental health reform. For instance, a single-payer system could easily incorporate [it]." Such a system would not only save money, it would likely improve outcomes as well. And there'd be nothing catastrophic about that success.
I still find myself with questions, some of which are hinted at above. For example, routine care - the type subject to routine decisions by consumers - is not the source of the majority of health care costs, costs are fairly concentrated [the top 10% of spenders account for 72% of all spending and the top 1% of spenders account for 30% of all spending, see here], so it's not clear how this proposal will control these costs or that consumers have enough information to make such choices. This says it well:
For one thing, insurance will always cover the really big expenses. We're not going to have a system in which people pay for heart surgery out of their health savings accounts and save money by choosing cheaper procedures. And that's not an unfair example. The Brookings study puts it this way: "Most health costs are incurred by a small proportion of the population whose expenses greatly exceed plausible limits on out-of-pocket spending."
Moreover, it's neither fair nor realistic to expect ordinary citizens to have enough medical expertise to make life-or-death decisions about their own treatment. A well-known experiment ... carried out by the RAND Corporation... found that when individuals pay a higher share of medical costs out of pocket, they cut back on necessary as well as unnecessary health spending.
So cost-sharing, like H.M.O.'s, is a detour from real health care reform. Eventually, we'll have to accept the fact that there's no magic in the private sector, and that health care - including the decision about what treatment is provided - is a public responsibility.
I'll keep an open mind, but I'm not convinced cost-sharing is the correct place to focus our current reform efforts, something I think Jason recognizes when he says "I recognize it’s not something we’re going to do tomorrow."