Sanctuary

marc:

I’ve avoided posting about health care reform because it’s such a complex and controversial issue. But, I’ve decided it’s time to share my thoughts, no matter how unpopular or ridiculed they will be.

Everyone wants quality care with lower costs. Everyone wants Stephen Hawking and Ted Kennedy to have health care while avoiding Death Panels. Everyone is against rationing of health care until they realize that virtually all private insurance and government programs have caps and rules that amount to rationing. Most everyone wants universal coverage so we can insure the 15 percent (or so) of Americans who lack coverage. But, there’s lots of debate and disagreement about how to achieve those goals.

The Public Option

I know most of my friends and followers are probably liberals who support a public option for health insurance. And, I’m pretty liberal in general. So, I’ll get my most heretical position out of the way early. I don’t support a public option. I don’t think it will be the end of the world if one is passed, but I also don’t think it’s the best way to achieve our health care goals.

Proponents of the public option point out that existing government health insurance programs like Medicare are generally considered to be well-run and to have low administrative overhead. Granted. They also note that the programs often have a better track record when it comes to approving requests for medical procedures and medications than private insurance companies do. Granted. And, these programs don’t try to drop patient coverage or try as hard to cap coverage as private companies do. Again, granted.

You know what else those programs have in common? They are increasingly expensive and increasingly underfunded. Medicare may run out of money by 2017 unless health care reform or budget infusions save it. Given the dire state of Medicare financing, it is deeply ironic that many look to a public insurance option as a way to bring down health care costs.

The idea starts with the fact that the federal government already insures around half of Americans through Medicare, Medicaid, SCHIP, and government employment benefits. A public insurance option would give the government an even larger share of the insurance pie. The government could then, in theory, bring down medical costs by fiat based on its market power. If a doctor or company wouldn’t meet the government’s price for something, they might be locked out of 60 percent, 75 percent, or more of health care spending.

That sounds nice in theory and it might very well bring down costs. But, I’m concerned there will be problems in practice.

Will partisan politicians worried about reelection set up a public option wisely? And, will they avoid tinkering with it in destructive ways over time to please different interest groups? I wish you could hear me laughing as I write this. If you followed the budgetary debacle that was the Medicare prescription drug benefit, you will understand that the answer to these questions is No. I do not trust our political system to create and maintain a public option that isn’t debt ridden and laced with political pork.

Moving on, conservatives and the private health insurance industry are worried that a public option will create a slippery slope toward the U.S. having a single-payer, government-run health insurance system. As much as it pains me to say this, they do have a point here.

Think about it. A public option won’t have to pay taxes, won’t have to make a profit, and won’t have to worry about a stock price. It may enjoy regulatory advantages. And, it could even get infusions of cash from Congress if it was in financial trouble. This would create an extremely uneven playing field for private insurance companies. Add all those advantages to the existing market power the government wields with Medicare and its other insurance programs and the uneven playing field becomes a slippery slope.

To compete with the lower premiums and market power that a public option would have, private insurers would likely have to cut their own premiums. Those cuts would hurt their profitability, which would also hurt their stock prices. Many might find that they can’t make a profit when competing against the public option or that their margins are too thin to make the effort worthwhile. The result over time could be that little to no meaningful private insurance exists in the U.S.

So what? If we get cheaper health insurance what do we care where it comes from? What do we care if the private insurance industry implodes? Well, we should care because research and development in health care matters. And, while we need to reduce health care costs, we need to channel our remaining spending intelligently to encourage effective R&D.

Let’s be honest with ourselves. America spends the most per capita of any nation on health care because Americans demand the latest, greatest procedures and drugs. We have been willing to pay almost anything to get what they want. This, more than anything else, has driven up our health care costs. But, it has also resulted in a ton of health care R&D.

To date, the spending of American patients (generally via our insurance providers) has sent market signals to health care companies about where their R&D dollars should go. And, that spending has also rewarded those companies that invested their R&D dollars wisely based on those market signals. More people developed diabetes, they were willing to spend more to manage their condition, and so we got Wilford Brimley talking about Diabeetus for Liberty Medical. (OK, perhaps that’s a bad example, but you get the idea.)

With a public option, prices driven down by fiat may less accurately signal the true needs and wants of patients. Companies may then focus their R&D less effectively and we end up with fewer medical advances where we most need and want them. If the government sets the price for something 20 percent lower than patients and private insurers would have been willing to pay for it, we will see less R&D around that thing.

Yes, private insurers set the prices they will pay for things too. But, no single private insurer has anything like the market power that a public option coupled with existing programs would. The public option could radically change the way R&D is funded and directed.

I’m not going to rhapsodize about the invisible hand of the free market here. Markets are about money and many of the uninsured don’t have much money. So, I’m not saying we should be completely laissez faire about health care. But, we alter market-based signals for health care R&D at our peril.

You might object that countries with “socialized” medicine and lower health care costs don’t seem to have suffered from a lack of medical innovation. That is largely because they benefit from America’s health care profligacy. The R&D we spawn eventually trickles down in the procedures and drugs used in other nations’ health care systems. But, if we drive R&D less effectively, who will take up the slack? Probably no one.

We need to bring down health care costs and to expand coverage, but we need to do these things in a market-driven way rather than in a government-driven way. And, we need to do them in a way that politicians cannot easily corrupt or corrode.

What I Would Do

Let me say here that my knowledge of health care is largely armchair and I fully expect many people to question could things I’m saying. But, based on the knowledge I have, here’s what I would do regarding health care reform.

As I see it, we have three major problems. The first is the lack of insurance coverage for many Americans, the second is the lack of insurance portability, and the third is the high cost for health insurance and health care in general.

Coverage

So, where do we get the money to insure 15 percent of Americans? Since I’m not running for political office, I’ll tell you. We tax health care benefits, meaning the health plan contributions made by employers and employees along with medical spending accounts. It’s really income after all, so taxing it isn’t that radical of an idea. A tax would bring in around $246 billion a year at marginal tax rates. But, perhaps we don’t tax them at marginal rates. Perhaps we use a means-tested progressive tax and cap it at 15 or 20 percent of health care spending. That’s still serious money while giving employers and employees a tax incentive for coverage.

We can use this new tax money to subsidize uninsured Americans so they can buy private health insurance. This too would be means-tested and progressive. Everyone would get insured. But, we first need to make the insurance portable and somewhat cheaper than it is now.

Portability

Why is it that we get auto insurance on our own and homeowner’s or renter’s insurance on our own but most of us get health insurance through our employer? Because our government in its wisdom allowed employers to use health care benefits as a form of tax free compensation, that’s why. That policy has helped many full-time employees get health insurance. But, it’s kept many hourly, part-time, and unemployed people uninsured. It’s also made insurance non-portable and cost the government lots of tax revenue. And, portable private insurance is often prohibitively expensive since there’s no employer contribution. We need to change all this.

An employer and employee should be able to contribute to a private health care insurance plan of the employee’s choosing with the reduced tax rates I described above. All plans should be independent of the employer—completely portable. If the employee leaves the employer, they could choose to bear the full cost of the plan or choose to have a new employer contribute some amount to the plan if the employer is willing. If they are unemployed, they could use money from unemployment benefits (and perhaps the health care spending tax fund) to cover their plan premiums for awhile.

This would unleash a lot of innovation in the health insurance industry. Most of us must use the health care insurance offered by our employer out of economic necessity. We can’t search for the plan that best fits our needs and the needs of our dependents. We can’t change plans when we see a better deal elsewhere. We often can’t meaningfully tailor the costs and benefits of an employer plan based on our circumstances and stage of life. Truly independent and portable plans will change all that. More insurance companies would offer a wider variety of plans.

Costs

There are a number of ways to reduce health care costs, but since we’re already talking portability let’s look at how it can lead to better cost transparency and an incentive for patients to reduce costs.

If you have employer-provided insurance, do you actually know how much your employer contributes to your plan each pay period? Do you know how much you contribute? I bet many Americans with good insurance plans through employers haven’t a clue.

Why should they? They had little choice in choosing their plan. And, their employer/employee insurance contributions are on auto-pilot. Other than deductibles and co-pays, their health care costs are largely fixed unless they have a major long-term condition or catastrophic illness. This is both good and bad. They’ve got good coverage, but little incentive to reduce costs.

(I’m going to talk a bit about my own experience here. I’ve been lucky enough to be healthy throughout my life thus far and to always be well-insured. I realize many who read this may not have been so fortunate. Please know that I don’t take my good fortune for granted and that I realize not everyone has been as fortunate.)

I’ve always been on employer-provided insurance plans, so I’ve never had the ability or incentive to tailor my coverage much or to search for the best health insurance deal. What’s worse, I also haven’t really had much incentive to control my health care spending (not that I spend much).

I have never had a doctor or dentist tell me how much a procedure or drug was going to cost and then ask if I wanted it. They have recommended something and I have taken their recommendation. I have either not known the costs or found them out after the fact. My only expenses beyond my ongoing insurance contributions have been fairly minor co-pays.

I’m certainly lucky to be healthy and well-insured. But, what if all health care plans were portable and easy to join and leave? What if I could find one that was cheaper and/or better tailored to my needs and I could pocket the savings? Since I could structure the plan to save me money, couldn’t that structure also give me an incentive to negotiate down prices for procedures/drugs and to question their necessity? Me and every well-insured patient could be helping to drive down health care costs instead of being largely oblivious to them.

There are a number of other cost-saving measures that I support. I won’t belabor them here since they have been discussed so much elsewhere. But, they include:

• Common-sense, practical tort reform to reduce liability insurance costs for the health care industry and thus reduce costs. Some studies say it won’t save as much as we think. But, every little bit helps. And, morally, this needs to happen.
• Savings from preventative care for the newly insured. By getting everyone insured and getting them quality preventative medical care, we can reduce emergency room visits and catch more medical issues earlier. Again, some studies say it won’t save as much as we think. But, again, every little bit helps.
• Digital medical records. All medical records should be digitized and a secure system should be created to easily, safely share records with all of a patient’s medical providers. This would reduce duplication of medical procedures and the time and cost needed to move physical records around.
• Default aggregation of anonymous medical data. Unless patients decide to opt-out, their anonymous medical data should be aggregated in national databases. This would reduce research costs, speed medical advances, and help to track the spread of diseases.
• Aggregation of all health research that receives government funding. Any study or research done with government funding should have its results stored in national databases. This would reduce duplicate research efforts and speed medical advances.
• Higher insurance premiums or higher taxes for the obese. Yes, politically it will never fly. But, I can dream. As I wrote earlier, if the behavior of a group of people is costing the health care system an extra $200 billion a year, I see no reason why they shouldn’t shoulder those costs. This would help reduce costs for patients overall and may help lower obesity rates over time.

Wrapping Up

I think taxing health care spending to provide private, portable health care for all makes sense. And, I think it should be done in concert with common-sense sense steps to cut health care costs. Alas, I’m not sure that many agree with me on these points.

I have seen some people accuse Barack Obama of caving in to Republicans and Blue Dog Democrats on health care when he should be knocking heads. I’m conflicted on that since I don’t want a public option and that’s what the head-knocking would likely be about.

I believe that Obama was gun-shy over health care reform after watching the Clintons’ effort go down in flames in the 90’s. I think he has talked about his guiding principles for health care but let Congress craft specific legislation because he worried a plan of his own would get Hillarycared.

I would have loved to see a true Obama legislative package that people could have wrapped their arms around and then supported or criticized (hopefully constructively). But, Obama knows much more about politics than I do and time will tell if his strategy was wise. I’ll keep my fingers crossed that we get meaningful reform this year.