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Thursday, October 08, 2009

"A Better Way to Health Reform"???

Martin Feldstein says he can solve the health care problem for a mere $220 billion:

A Better Way to Health Reform, by Martin Feldstein, Commentary, Washington Post: The American health-care system suffers from three serious problems: Health-care costs are rising much faster than our incomes. More than 15 percent of the population has neither private nor public insurance. And the high cost of health care can lead to personal bankruptcy, even for families that do have health insurance.
These faults persist despite annual federal government spending of more than $700 billion for Medicare and Medicaid as well as a federal tax subsidy of more than $220 billion for the purchase of employer-provided private health insurance.
There's got to be a better way. And it should not involve the higher government spending and increased regulation that characterize the proposals being discussed in Congress. ...
A good system should not try to pay all health-care bills. That would lead to excessive demand, wasteful use of expensive technology and, inevitably, rationing in which health-care decisions are taken away from patients and their physicians. ...
Here's a better alternative. Let's scrap the $220 billion annual health insurance tax subsidy, which is often used to buy the wrong kind of insurance, and use those budget dollars to provide insurance that protects American families from health costs that exceed 15 percent of their income.
Specifically, the government would give each individual or family a voucher that would permit taxpayers to buy a policy from a private insurer that would pay all allowable health costs in excess of 15 percent of the family's income. A typical American family with income of $50,000 would be eligible for a voucher worth about $3,500, the actuarial cost of a policy that would pay all of that family's health bills in excess of $7,500 a year.
The family could give this $3,500 voucher to any insurance company or health maintenance organization, including the provider of the individual's current employer-based insurance plan. Some families would choose the simple option of paying out of pocket for the care up to that 15 percent threshold. Others would want to reduce the maximum potential out-of-pocket cost to less than 15 percent of income and would pay a premium to the insurance company to expand their coverage. Some families might want to use the voucher to pay for membership in a health maintenance organization. Each option would provide a discipline on demand that would help to limit the rise in health-care costs.
My calculations, based on the government's Medical Expenditure Panel Survey, indicate that the budget cost of providing these insurance vouchers could be more than fully financed by ending the exclusion of employer health insurance payments from income and payroll taxes. ... And unlike the proposals before Congress, this approach could leave Medicare and Medicaid as they are today.
Lower-income families would receive the most valuable vouchers because a higher fraction of their health spending would be above 15 percent of their income. The substitution of the voucher for employer-paid insurance would be reflected in higher wages for all.
Two related problems remain. First, how would families find the cash to pay for large medical and hospital bills that fall under the 15 percent limit? ... Second, how would doctors and hospitals be confident that patients with the new high deductibles will pay their bills?
The simplest solution would be for the government to issue a health-care credit card to every family along with the insurance voucher. The credit card would allow the family to charge any medical expenses below the deductible limit, or 15 percent of adjusted gross income. (With its information on card holders, the government is in a good position to be repaid or garnish wages if necessary.) ...
The combination of the 15 percent of income cap on out-of-pocket health spending and the credit card would solve the three basic problems of America's health-care system. ... All of this would happen without involving the government in the delivery or rationing of health care. It would not increase the national debt or require a rise in tax rates. Now isn't that a better way?

A benefit of making sure that the government is not involved in health care is that it ensures that  Medicare and Medicaid remain "as they are today"? So a benefit of getting rid of government involvement is that it preserves government involvement?

On the credit card proposal, what happens to a family with high medical costs after two or three years when the credit card balance is, say, $15,000? Do they get cut off? Does medical care end until they pay their newly acquired credit card debt, or can they keep running up the balance? How costly is it to garnish wages or send collectors after people who don't use this credit wisely (meaning, in some cases, giving up needed care)? That solves the bankruptcy problem? How do we stop people from using this as a fungible source of credit for other purchases?

There's lots more, but you can probably guess that this is not a proposal I'd favor. E.g. it does little to make routine health care affordable to households who are already having trouble making ends meet. If a household cannot afford routine care, if even, say, spending the first few hundred dollars means giving up essentials, having costs above 15% of their income covered won't help with that problem. High deductible, catastrophic coverage, which is essentially what this is, is not the best way to provide for our health care needs.

    Posted by on Thursday, October 8, 2009 at 12:42 AM in Economics, Health Care | Permalink  Comments (53)


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