Samwick on Health Reform

Andrew Samwick has a great post on health care. He discusses an issue that is what I think is a central issue in our high cost of health care but is rarely explored: why does health care operate in a manner so distinct from other markets.

More ACORN Fallout

Now that ACORN has been revealed as an insidious organization (funny thing how offering to aid someone in trafficking 13 year olds for prostitution will tarnish your reputation) people are starting to look at ACORN's other activities. Kathy Kersten suggests voter registration should be an area of interest (in a rare fit of non-Michele Bachmenesque batshit insanity). It isn't such a massive stretch to think that some of these fraudulent voter registration drives might have yielded...voter fraud, which in the context of an election decided by 380 votes is troubling.

Palin's Memoir

I almost want to buy this just for spectacle aspect of it. I sincerely hope that it was not ghost written. It would be the first political tract with a heavy use of LOLcats.

Believing Your Own Spin, pt. 2

Ezra Klein again:

"Atlanta: If it's so easy to save $500-600 BILLION on medicare (doesn't Obama say: we can cut payments for medicare by that much?) - then why don't they just pass that bill?

Are they saying there is that much waste in the program? Why are they holding that money hostage? If it's the lowest hanging fruit (they say it is, it must be true) - just pass whatever needs to pass to save that money. Would anyone vote against that bill? Really?

Ezra Klein: Oh yeah. Saving that money isn't the hardest thing in the world, but nor is it the easiest. A lot of politicians are willing to do it if they also get health-care reform out of the deal. But they're not willing to do it if it's not part of a trade.

I've said this again and again, if the Republican Party included real deficit hawks, they could make an incredible bargain here. They could rip up the employer tax deduction and create a powerhouse MedPAC board and much, much more. The fact that they're just crossing their arms and shouting "no" suggests they're not particularly worried about spending, after all."

He is right that the Republicans have largely limited their participation in the reform effort to say no, however, the one substantive idea that Republicans have offered is to rip up the employer tax deduction or cap it. This was a center piece of the McCain health care plan, and consequently became the target of a very effective (and opportunistic and shameless) attack ad by the Obama campaign. Obama and the unions have taken the employer tax deduction off the table, not the Republicans. This is unfortunate because it manages to achieve two very important things at once: 1. raise revenue; 2. Control costs.

Believing Your Own Spin

Here is Ezra Klein, a blogger I regularly follow, like, and disagree with:

"Portland: So, have YOU ever actually had bulls testicles, a la Padma? If not, would you??

Second question - why this 2013 start date for reform? That's a llllong time from now.... And do you think if this passes and the Republicans regain control of Congress before 2013 they can just undo it before it even starts?

Ezra Klein: I have not, but certainly would try them.

As for 2013, there are two answers. One is that it can't be implemented till then for technical reasons. I think there's more to this than people are giving it credit for. The second is that it makes hc reform look cheaper in the 10-year window, which helps for budgeting."

Ezra gives 2 of 3 reasons why 2013 is when a lot of the health care bill is slated to ramp up:

1. Implementation is actually difficult.

2. Postponing implementation is a budget gimmick used to keep the cost artificially low (if you only show expenditures in five years out of a ten year budget window the program will appear cheaper than it really is).

And what Ezra omitted.

3. 2013 is after 2012, an election year. In the event that the reform is unpopular people will not be able to express the dissatisfaction for several more years.

That is sort of an obvious one. When you omit something like that you might as well be on payroll.

More on Health Care

Johnathon Rauch has a satirical piece probing the absurdity of health care. It's a good, if saddening, read. It is still bizarre to me that one of the major objectives of health care reform is to incentivize more people to pay a third party to pay for predictable expenses. Current proposals will simply exacerbate this perverse trend.

Why Community Rating is Bad

Community rating is where an insurer would be prohibited from charging policy holders different prices on the basis of risk. It is viewed as an essential part of health care reform by progressives and even some conservatives. The motivation behind community rating is sensible, some people have conditions which they have no control over and when insurers consider said condition the price of a policy is likely to be unaffordable. This is unfortunately what insurers do. Some view this as sinister but it too is sensible.

An event that is likely to occur is not an insurable event. If I wanted to build a house in area where hurricanes hit annually and houses were frequently destroyed the only way for an insurer to make a profit (or stay solvent) would be to set my premiums at the level of an expected future payout. Otherwise, given the predictability of a payout, a premium any cheaper would essentially constitute a direct transfer of wealth from the insurer to me. However, the information conveyed by the premium price is valuable. It tells the prospective homeowner that unless the homeowner is able to build a house that can withstand repeated hurricanes (or frequently rebuild a house that can't) that building the house is probably not advisable or affordable.

If you allowed insurers to price their premiums on risks where the policy holder has control over, such as their weight, activities such as smoking or excessive consumption of alcohol, or indicators such as high cholesterol or high blood sugar you would provide policy holders with stronger incentives for healthier lifestyles. This is not to say that all policyholders would adjust their behavior but at the margins some would. This would not obviate the need for other insurance reforms such as guaranteed issue and renewal, prohibition on excluding policy holders with pre-existing conditions, catastrophic re-insurance, and ex-post readjustment. But it would lead to a healthier population and lower health care costs over the long term.

Partying Like it's 1994

Here is an article discussing the Senate Finance bill proposed...in 1994. It's amazing how similar the current bill is to the bill discussed then. I half wonder if the Baucus bill was a copy and paste job.

Obama's Speech

I didn't listen to the whole thing. There were aspects of it that were good, some that were innocous, some obnoxious. I love that health care reform is being billed as a free lunch. I actually agree to some extent, there is waste, fraud, and abuse in medicare and there are substantial savings to be gained. I just don't think it will happen and even if they did the savings are likely to be substantially lower than predicted. Some of those savings, such as cutting Medicare Advantage, aren't really "waste, fraud, and abuse" but cutting seniors benefits. Which is fine with me, but it is a misleading argument. I think the president deserves some credit for putting the individual mandate in there. That is an important part of health care reform and it is an unpopular part. The pay fors are stupid. This tax on insurers is absolutely absurd. The tax will be passed on to the consumer, so you might as well place it on the consumer. What I am afraid of is that the since the tax is opaque that consumers, such as public sector unions, will still insist on cadillac coverage as they aren't exposed to the full cost of coverage (you don't see the employers contribution on your pay stub) and thus will not achieve much if any cost containment (while deriving little revenue). This is just a stupid idea.

Increasingly I don't think that universal health care reform will happen. That said it's interesting to think about what a smaller scale reform package would look like. You can't really do community rating without a mandate. You can't do a mandate without subsidies. One area where you probably could get wide agreement would be on the national exchange. This would benefit those who live in states where real insurance (catastrophic) has been regulated out of existence. This wouldn't increase coverage much but it would be a significant step in the right direction. I could also see a cap on the employer exclusion making its way back into the conversation. I think what you would see is that the cap would be fairly high but not obscenely high and the tax exemption would be extended to everyone. This would be far from optimal policy but it would be an improvement nonetheless. The other thing I suspect would be part of a scaled down bill would be some form of medicaid expansion (more limited) and maybe a very limited tax credit for folks up to 300% of the poverty line.

Things that would be left out from current bills are: mandates (employer/individual); insurance reform (maybe with the exception of recission; that is probably happening regardless); anything involving medicare; any substantial pay fors (income surtax, taxing benefits; the goofy insurer tax); malpractice reform.

ONE LAST NOTE: I hated when he said it costs three times as much to buy health care on the individual market than as when your employer provides it. One might pay three times as much as their employer is not providing an premium contributions, but the cost is the same. If I have a plan through my employer that is $100 a month and my employer pays 2/3rds of the premium, the cost of the premium is still $100 a month, I just happen to pay directly $33 out of wages and another $67 (potentially) out of foregone wages. If I pay for a policy on the individual market the cost could be the same- $100 a month- but I would paying the full cost from wages. The difference is not cost but rather whether the policy is being paid for in the form of after-tax wages in the individual market or pre-tax wages/employer contributions(foregone wages). What you could say is that it costs more in relation to the tax advantage. If my marginal tax rate is 25% and I buy a policy in the individual market with $100 I would need to make $133 in before tax wages to pay for the policy. If I get my insurance through my employer the policy is paid for in pre-tax wages so that is a a real bonus (thus I would only need to earn $100 to pay for the $100 policy).

Worst Sports Column EVER!

See this. This may actually be the worst column ever, not just the worst sports column. By way of background, the column is directed at Jaycee Lee Dugard who was abducted when she was 11 and just recently freed from the clutches of her kidnappers 18 years later. In the interim she has had two children, so it seems safe to say that she spent a good portion of those 18 years getting raped. Anyhow, the columnist, Mark Whicker (you can email him here to tell him what a dumbass he is-mwhicker@ocregister.com) wrote an entire column on sporting events that Jaycee missed while she was kidnapped. This in of itself, while stupid, doesn't necessarily sound venal, but if you read the opening of his column he makes light of the whole situation. I don't know how this made it to print.

(hat tip- Megan McArdle

My Idol

Here is a great article on D.C.s best: Marion Barry.

More Health Care Thoughts

Thought 1: I have probably said this previously but I think the biggest peril in health reform lies in the convergence of two areas- the minimum benefit and an individual mandate. If the minimum benefit is generous (i.e. covers all the first dollar stuff like physician visits and eyeglasses) than it will be fairly expensive. This will be problematic as even with subsidies (currently proposed for folks with an income up to 3X-4X the poverty level) a lot of the middle class that do not get their insurance from an employer will find themselves still unable to afford healthcare (maybe less so than before) and will now face the prospect of a penalty for not having complied with the mandate. Sounds fantastic.

Thought 2 (closely related to thought 1 for those keeping score): The emphasis on coverage thus far has been on the first dollar variety (e.g. low deductible, low copayment, low coinsurance). This emphasis is misplaced. Going to the doctor for your annual physical, semi-annual dental checkup, and some antibiotics are the typical interactions for most people with the medical system. This can be done and should be done out of pocket. These are predictable events not suited for insurance and add to the overall cost growth of health insurance in creating administrative waste. What is important though is that you are covered when something unfortunate does happen, such as getting hit by a bus, a sudden stroke, etc. This is what insurance is typically for, low frequency events with high payouts. It is this type of event, a catastrophic event that causes medical bankruptcies for the uninsured. It would thus seem logical that a mandate would involve such a plan-catastrophic coverage-as opposed to something that makes sure you can get a pair of designer glasses and prescription sun glasses without having to reach into your wallet.

Thoughts 3&4 (interrelated thoughts: Out of Pocket Spending and Administrative Waste)- Everyone decries out of pocket spending as if there is something tragic and immoral about having to reach into you pocket and plump down a sweaty wad of cash for medical care. In a sense this is logical, at least in the employer provided and medicare context. Most people are insulated from the full cost of their healthcare. Your contribution of your premium comes out of your paycheck, which you probably don't think about if you are like me and only really pay attention to the actual amount that gets direct deposited into your account. Your employer pays anywhere between 50% and 100% of your premium which you never see (note: this portion, or a portion thereof, really are foregone wages). So all of sudden you have a big medical expense, a couple hundred for a specialist visit outside of your insurer's provider network, which you have to pay out of pocket and you scream bloody murder. But you shouldn't and here's why: a direct payment is a lot more efficient. The public discussion of administrative efficiency focuses exclusively on how adept your insurer is at denying your valid claim or medicare is at rubber stamping your fraudulent claim. Certainly this is a significant portion of the health care industry's administrative overhead but it also neglects a significant portion. Think of the process of going for your annual physical. You call your doctor set up the appointment and go. You pay a $25 co-pay, give the clerk your insurance information and leave. What happens subsequent to your visit is absurd. Your doctor then sends a bill to your insurer. Your insurer (if they are all like mine) then sends you a letter each week for the next month telling you that you owe the provider and every letter the amount changes (it usually goes down). I suspect during this period that the doctor's staff is trying to get full reimbursement from the insurer and probably resubmits the bill to they get full reimbursement or that the staff just keeps haranguing the insurer. Then at some point once the doctor has failed to get reimbursement from the insurer they send you a bill indicating the amount you owe them. I suspect that your doctor doesn't play too direct a role in this but his staff does which he has to oversee (this sucks because the more time he spends managing the less time he can spend giving care which is how he is going to make bank). And have you ever noticed that seemingly there is at least a 1-1 match between doctors and administrative staff. I can't imagine what my iPod would cost if the typical purchase was conducted through a 3rd party payment. It would probably cost me a grand for a damn refurbished iPod shuffle. If you cut out all of this nonsense, i.e., by just paying up front, couldn't the doctor/practice have a much smaller staff and then pass those savings on to you? I bet you the net result would be a total payment in the neighborhood of a copay- maybe $50? Honestly, when you are at the doctor's office, they spend maybe 3 consecutive minutes with you, maybe 5 total. How long does it take to diagnose if someone has strep or chlamydia, not long. Let's be conservative, you get 5 people per hour (that's 12 minutes per person=quality time) at $50 bucks a pop, that's good money. That's a half million before taxes.

Anyhow, those are my thoughts. I find them persuasive, which is good, otherwise no one would.

P.S. Thought 5 (post conclusion thought)- There is a big status quo bias in favor of the present system because, well, it's the status quo. But also, as previously mentioned, what most people really obtain is not so much insurance (characterized by infrequent events and high payouts) but rather a product called insurance that really functions as insulation or consumption smoothing (characterized by frequent events and low pay outs). Imagine for a moment that instead of having your employer pay a portion of your premium they gave you that money in wages and you had to go buy your own health insurance. I think a lot of people would get plans that were less generous and choose to spend the money on more important things like crack and iPods. If this were the norm (minus the crack and iPods bit, ok, just minus the iPods) the notion of paying out of pocket wouldn't be so jarring. My wonderful co-worker, who will given the pseudo-nym Jane Median Voter, would not brag to me that her plan covers prescription sun glasses but would instead be bragging about all the extra smack she could buy because her wages were higher and her premiums were lower, which, pace the Rand study would have no impact on health outcomes. That sounds like a much better world indeed.

P.P.S. Thought 6 (preventative care, what about preventative behavior)- I am fat, probably technically obese, but you wouldn't know it because I carry my weight very well. I am an extreme outlier in being a lardass but simultaneously passing for studly. This is what happens when you have broad shoulders, they are very deceiving to the eye. Back to my point, it's absurd that I should pay the same premium as someone that is in good shape. Now, I do to some degree buy the argument, however self-serving, that there is no real difference between an active fatty like me and someone that is thin. But what if you are obese, or smoke, or mainline heroine, or have really high chlorestorol, some combination of the above or or other unmentioned behavioral characteristics, shouldn't you pay extra? Car insurers don't have good risks subsidize bad risks, why is that the norm in health care? My wife gets speeding tickets like their going out of style. Actually she mostly gets out of them because she is a girl (an attractive girl, this a crucial distinction unfortunately, it's a cruel world). But even a speeding ticket or a little fender bender where you are at fault will cause your premiums to go up. And this is all logical, if you drive like a moron there is a greater chance you'll get into an accident which implies a greater chance that your insurer will have to pay out a large sum of money because you drove like a moron one too many times. This was the underlying incentive structure (reward healthy behavior, penalize bad behavior through premium adjustment) that Safeway adopted that President Obama commended (which by the way would not be allowed under community rating which both the house, the HELP committee, and the President have all proposed).

Kennedy and Colson

Hanna Rosin has a blog post bemoaning references to Mary Jo Kopechne and Kennedy because Kennedy suffered some consequences and did good deeds later which distinguishes him from many others. She compares him to former Nixon aide Chuck Colson who founded Prison Fellowship. The big difference is that Chuck Colson didn't have the Kennedy name to trade on and actually did have to go to prison. Kennedy didn't really suffer any consequences. She argues that he partially repented by not running for president but this is incorrect; he did in fact run for president in 1980, running against Carter for the democratic nomination and losing. I have heard others suggest the fact that he wasn't ever president was consequence enough, implicit therein that the presidency was his birthright as a Kennedy. Kennedy certainly deserves to be remembered for his accomplishments, which were considerable, but also his flaws which in the case of Mary Jo Kopechne, were tragic.

An Ugly, No Good, Very Bad Chart

If you look at the image to the left you can see that the finances for social security have gone to crap as a result of the recession. In the current year it appears that social security will break even, i.e. there will be enough money coming in to pay out benefits, but not a penny more. Further, it looks like the point at which Social Security will take in less money than it pays out will move forward from late next decade to the middle of the decade (or about 6 years out). Given that the trust fund does not have actual assets or fungible debt it will be interesting to see how the politics of Social Security evolve. For one, I expect a lot of people to stop talking about how the trust fund will maintain Social Security's solvency till 2042.

Delectable Edwards Trash

There may be a sex tape.

Great Health Care Article

This is one of the better ones I have read recently. The author does a great job of cataloguing some of the absurdities of the health care industry. His prescriptions are quite radical and I can never imagine them being passed which is unfortunate. It is deeply unsettling to me that the basis of reform is essentially not to disrupt the current system but rather to build on it. If everyone is in agreement that a policy sucks why should the emphasis of reform be to further establish said system. The alternative that has been discussed, and has been the source of much left wing frustration, has been the public option or in extremis a medicare for all approach. But yet again, this too is merely an expansion of the status quo. Medicare is a huge and unsustainable portion of the health care industry, why does it constitute an adequate model for reform? At what point in the health care debate do we move from heated discussions of the virtues of Policy A (Employer Based Insurance)and Policy B (Public Option/Medicare for all)--which both suck and where the sole distinction is whether your overinsurance is provided by tax dollars or foregone wages--and move to a discussion of Policy C (something that doesn't suck)?

More Health Care

Apparently the Senate Finance Committee big proposed revenue source is a 35% levy on insurance companies premiums for plans above $21k. This is daft on so many levels. One, this utterly ignores tax incidence. As Diane Lim Rogers notes, you can't tax things, you can only tax people. Conceivably insurers will stop selling "cadillac" plans but more likely insurance companies will simply pass on the cost of taxes on to the consumer. Outside of providing a paltry revenue source this doesn't do much.

The problem with this proposal is not that individuals will ultimately be taxed but rather in its opacity it is unlikely to get people to make more cost concious decisions vis-a-vis their health insurance. If you were to eliminate the employer exclusion or cap it then at least a portion of the employer contribution would be taxed as income. One, the employee would have visibility as to the amount they are foregoing in wages as a result of health care. Two, the employee would then have an incentive to obtain less generous coverage. Going back to the Rand Study we know that increased cost sharing has a neglible impact on health outcomes while drastically reducing health expenditures. The important exceptions to this finding were those who were lower income and had chronic diseases such as hypertension. These finding should be the basis for health care reform. But instead there is an obsession with first dollar coverage and a public plan whose purpose is ill defined.

The Best Health Care Post Ever

Check out Chris Hayes blog post "Your Questions About Health Care Reform Answered". This is my favorite part:

"3) I heard the proposals currently under consideration provide seniors with option of free counseling sessions under Medicare, where they can discuss a living will and end-of-life care.

That's a huge misconception. The bills require all senior citizens (who are non union members) be euthanized on their 70th birthday. Under section 278(c)ii all last rites will be performed by Jeremiah Wright using a Q'uran."

Murdoch Saves Newspapers?

Murdoch is planning on charging for all the web based content of his newspapers. The real issue is whether other newspapers will follow suit. If they restrict their content as opposed to giving it away for free then ostensibly their advertising would be worth something again.

More Health Care

Political Calculations has a handy dandy chart adjusting OECD life expectancies for non-medical fatalities (automobile accidents, homicides) and interestingly the U.S. jumps from 14th place to 1st place in terms of life expectancy at birth. I imagine the margin would increase if the data were further adjusted to normalize the data for premature births (in europe premies that die within a certain time period are counted as stillbirths and aren't figured in the life expectancy statistics). This doesn't mean that the US healthcare system isn't craptastic. However, it does seem to indicate that public health measures, transportation policy, and crime prevention will ultimately have a much greater impact on life expectancy than health care.