How healthcare will evolve – an optimistic take

We all know that even though we often analyze things as if other things are held constant (for simplicity), those other things will not, in fact, be constant. So, what are the dynamics likely to be? Tyler Cowen, assuming that the fines/penalties are sufficient to induce everyone (or most everyone) to be insured, has the following take:

Many Americans will receive subsidies for insurance, from what I understand roughly in the range of 6k to 12k.  Many other Americans — namely those who already have health insurance — will not receive direct subsidies of this nature.  Yet the subsidy-receiving and non-subsidy-receiving Americans will very often belong to the same income classes.

This is because some will be employer-insured (no subsidy) while others will be self-employed or employed by a small business and thus get a subsidy and use the insurance exchanges. He continues:

This disparity does not bother me personally (I have other worries about the subsidies), but I believe it will be very unpopular once it is publicly understood.  One way or another, the “firewall” between the exchanges and the employer-supplied system will break down.  Some people will want to spread the subsidies, others will want to limit them.  Yet the former is budgetarily problematic and the latter will be politically difficult.

Now, he continues to address the reality that we have three systems of healthcare:

A second and related issue is that the differences in reimbursement rates — across private insurance, Medicare and Medicaid (highest to lowest) — will become a more pressing issue.  For one thing, Medicaid patients will be crowded out by those buying private insurance on the exchanges, plus they will be crowded out by the growing number of Medicaid (and Medicare) patients.  There will be pressure to fix this problem and the difference in rates will lead to growing supplier gaming, queues, quality differentials, and so on.

Reimbursement rates are what insurance pays doctors. What he means when he says “Medicaid patients will be crowded out” is that since they have the lowest reimbursement rates, they will (on average and over time) have a harder time getting healthcare – longer waits, more distant appointment times. Some doctors will decline to accept Medicaid (some do already).

Over time, reimbursement rates across programs (insurance subsidies, Medicare, Medicaid) will converge to an increasing degree.  Subsidies will be increasingly determined by income class rather than previous insurance history.

In the limiting case (I’m not suggesting we will get there), everyone will receive means-tested subsidized vouchers for regulated private insurance.

I also think a limiting case could be one of government provided insurance – the “socialized medicine” everyone fears along the lines of the public school system. I prefer the vouchers.

In this strange way, Medicare and Medicaid could end up partially privatized and Ezekiel Emanuel — a voucher advocate — will end up being more influential than his brother Rahm.  We will have to live with the problems of means-testing to a higher degree than today, but we will have something closer to a unified system, as do most other countries with universal coverage.  There will be political pressure for compulsory health care savings, as they have in Singapore, to lower costs of finance.It would be good if such vouchers could evolve in the direction of emphasizing catastrophic care and eventually they will have to.

Massive pressure will be put on such vouchers if either health care consumes 30-40 percent of gdp or income inequality continues to rise.  In the former case, subsidies become increasingly expensive and involve extraordinarily high implicit marginal tax rates (earn more, your subsidy declines in value).  In the latter case, it becomes increasingly difficult to ensure “near-equal” levels of health care access at feasible subsidy levels.  Those pressure points are not unique to the Obama bill, but they become especially critical under the evolutionary scenario I am outlining.  Perhaps we would give up the ideal of near-equal access, but that day is a few decades away.

He mentions “high implicit marginal tax rates” which is the same thing I discuss here. The idea is that if you get a large subsidy due to your low income, if your income rises and you lose your subsidy, you could actually be worse off in terms of net benefit= (higher salary – subsidy you lost).  This effect is a disincentive to attempt to move up in terms of salary, job, etc.

I’ll post again on a scenario where the fines/mandates are not enough to induce the healthy to get insured and employers to provide healthcare. This scenario is less optimistic.

Uh-oh. Evidence from Maine.

From the New York Times:

Maine is the Charlie Brown of health care. The state’s legislators have tried for decades to fix its system, but their efforts have always fallen short: health insurance premiums are still among the least affordable in the nation, health care spending per person is among the highest and hospital emergency rooms are among the most crowded. Indeed, many overhauls to the system have done little more than squeeze a balloon — solving one problem while worsening another.

…

To conservatives, Maine proves that government efforts to strictly regulate the nation’s health insurance market are doomed. Many of the reform proposals circulating on Capitol Hill have already been tried in Maine…To others, Maine’s failures show why some reforms can be tackled only on a national level.

I’m not sure I buy that. They are basically arguing that Maine, as a population, is too poor, old, and sick to control costs. So I guess what they are saying is that they need young, healthy people from elsewhere to pay for their healthcare as a state. I thought large populations were supposed to help with some of that. How skewed could the distribution be? It turns out, they’ve tried:

… the state is one of 17 that limit how much insurers can charge people for being older, and it does not allow exclusions for previous illnesses — both policies that are part of national reform proposals.

But one result is that premiums for younger people are relatively high. Although national proposals would require that nearly everyone get coverage or pay a penalty, Maine’s Legislature rejected such a mandate so many young people do not or cannot buy insurance — further skewing the insured pool to sicker and older people and making premiums that much higher.

The problem here, of course, will be that even if Congress enacts a penalty, it will have to almost as high as the cost of insurance. If the cost of insurance is $10,000 per year (not a crazy number) then fining people $1,000 per year for not having health insurance won’t work. If they are young and healthy, they’ll pay the $1,000 and save nine grand. Raise your hand if you think Congress will impose fines on the order of $10,000 on young, healthy people who don’t get insurance.

As I’ve been saying: If we bring the costs down, all of this becomes more doable.  Here is another fun quote:

To compensate for such expensive care, the state pays doctors and hospitals relatively skimpy fees for treating Medicaid patients. As a result, doctors are closing solo practices and joining hospitals, which then have the market power to jack up rates to private insurers in a common problem called cost-shifting.

yet, we conclude with this:

After years of studying and suffering from these trends, Mr. White, the mechanic from Bar Harbor, said he has concluded that Maine’s last best hope is a national health care overhaul.

What evidence do we have that something that we know doesn’t work at the state level will suddenly be better when it is enacted at the Federal level?

simple fixes to better health care

Data. It seems trivial, but simply mandating disclosure on treatments given and outcomes of patients, along with anonymous patient characteristics will be a great first step in getting better outcomes. I think everyone agrees that this is necessary, and my only current theory as to why we haven’t seen more of it is the political power of doctors and hospitals.

…providing information does seem to drive change if only from the shame that a hospital receives when it is found not to be following best practices.  It’s true that report cards can cause problems when the drive to get a better score causes hospitals to be more reluctant to treat sicker patients but better data on patient characteristics (stage of cancer etc.) and better process/treatment information can alleviate this problem. In fact, all hospitals should be required to provide standardized information for all patients on patient characteristics, treatments and outcomes.  Only by making outcome information public will hospitals have the incentive and researchers have the ability to develop more accurate report cards.  In short, I cannot think of a simpler change that would improve health care to as great an extent as freeing the data.

Commenting on the Baucus plan

So, I’m back from vacation. I’m sure my one reader missed me.

Marc Ambinder, by all I can tell a left-leaning blogger, has a nice analysis of the Baucus plan on The Atlantic where he points out how it really is a good start to something moderate. On first blush, I’d agree, given that the ever-more-shrill Republicans broadly puked on it and the liberal left complained greatly. That says to me it must be pretty good!

The bill represents by far the most serious effort to implement the innovative thinking from the community of health care reformers looking to move the medical system away from today’s fee-for-service model toward a system that ties payments to providers to results for patients. It contains about a dozen major ideas-most of them implemented as national programs under Medicare, not merely as pilot projects-to nudge the medical system toward adopting the integrated models used by institutions such as the Cleveland and Mayo clinics and the Geisinger Health System to deliver high quality care at lower cost.

This may be a tad optimistic. Part of why those integrated health clinics do well is because they can skim the cream and only treat customers who they are good at treating. Let’s get some specifics:

Starting in 2013, the bill imposes payment penalties on hospitals who readmit too many patients for preventable reasons after treatment. It imposes more modest penalties on hospitals whose patients acquire the most infections within the hospital itself.

This is great. I think one of the biggest problems we have is the pay-for-treatment model. Any steps away from that I support. And penalties for re-admittance is likely a good idea – one of the great scandals in medicine today is how many infections are contracted at hospitals.

Another proposal addresses the concerns popularized by surgeon and New Yorker writer Atul Gawande on the vast divergence between spending on medical services in different communities: that provision would compare the amount all physicians spend on patients with similar conditions, and starting in 2015 cut Medicare reimbursements by five per cent for those who order up the most care. Hospitals would receive similar treatment. Today’s law requires hospitals to record whether they meet a list of quality measures, like providing aspirin to heart patients. The Baucus bill, for the first time, would link their reimbursements to their actual performance on those measures.

I’ve written before on Atul Gawande’s findings, but I’m a bit skeptical here. I like linking pay to outcomes, but the problem is that many of the outcomes are hard to measure. A hospital may be great at getting aspirin to heart patients, but worse in other areas that are harder to measure. I suppose it is an improvement, but there will most certainly be unintended consequences.

This is also a good idea:

The bill does use the pilot mechanism for another big reform: it authorizes a voluntary national test on bundling payments that would provide incentives for doctors, hospitals and nurses to coordinate care for a patient admitted to hospitals. The bill would encourage such providers to work together by allowing them to share in any savings they produce.

And this is my favorite part, but also the one most likely to be attacked by a traditional Democratic power base, the unions.

One final element in the bill could also put downward pressure on long-term costs: the tax on the most-expensive insurance plans. That proposal achieves, in somewhat diluted form, the goal many reformers hoped to advance by capping the tax exclusion for health insurance provided through employers: encouraging consumers to pick less-expensive plans.

I hope that one stays in. This will be one of the harder things to keep in the bill, but Obama has supported it, so hopefully it will also stay:

The bill creates a second new institution that could be even more important: an independent Medicare Commission, as Obama has proposed. The commission would be required to offer proposals for cost-savings whenever Medicare spending rises too fast and Congress would be required to give their proposals fast-track consideration. The commission would likely become a vehicle to move into law the most promising payment and coordinated care reforms that emerge from the tests and pilot programs that the bill’s other provisions set in motion. “If it develops into a respected independent body it could be one of the most significant parts of this legislation,” said the senior administration officials. “I think that’s the most auspicious path forward for promoting fundamental reform.”

We’ll see. There are a lot of new incentives in this bill – if it passes in any form like it is right now, things will definitely change, and hopefully for the better. The problem with any big change is that there most certainly will be unintended consequences, just like when they passed the tax deduction for employer-provided health insurance decades ago.

health care fatigue

So, I’m officially tired of talking about health care. I didn’t get much from Obama’s speech (except the tort reform, which Travis already mentioned – I agree with him on that). So, I think I have a few “scenarios” where I advocate a position:

1. Realistic but really long term. Also really different from anything really being considered now.

• Mandatory insurance with a very high deductible (minimum $10K) which covers minimum catastrophic care, including things like car accidents and results from car accidents, cancer, and other early-onset chronic diseases. The goal here is to cover the unlucky, either due to accident, genetics, or whatever. There may need to be a rescission clause or something, or at least a legal process which mandates care while proceedings continue (so someone can’t die waiting for their court date). I’ve intentionally left out community rating here because I don’t think it should be needed for this type of care, at least not yet. I may be convinced otherwise later.
• Healthcare Savings Accounts along the lines of a 401k. Money can only be withdrawn for qualified medical expenses, similar to the way they work now. Those below the poverty line get $10K per year put into this account by the government, and there could be a sliding scale of some sort after that – like from poverty to 200% of poverty get $7500, etc. or, better, just a  % of income (like a negative income tax).
• Free Annual Preventative Care – this could either just be free, or vouchers, or something. We know people won’t want to pay for it, so we can do this to make it as easy as possible.
• The HSA should rollover and hopefully be saved most years. There should be no caps on the amounts; employers may even want to contribute to it. The idea is that the HSA also serves the purpose of providing a large amount of cash for old-age. In fact, people should be encouraged to save money in their HSA for retirement medical costs. Then, Medicare can become more vanilla (i.e. provide basic needed senior care) and people can make their own choices about more advanced treatments.
• Insurance regulation at the state level should be removed. Any firm in any state can sell to anyone in any state.
• The tax deduction for employer based insurance should be removed. Probably phased out slowly so we don’t shock the system. An alternate, but less good option would be to simply give the same tax deduction to individuals so there is no longer an advantage to employer-provided care. This is necessary to decouple healthcare from employment.
• Somehow figure out a way to pay doctors a simple salary, not based on per-procedure. Medicare is a primary player driving this, so perhaps medicare simply starts reimbursing a flat fee per patient based on patient status plus some premium for any accidents or other “catastrophic” events for seniors. I’ve not fully thought this one out yet – more market forces may blow it up anyway, but right now with third party payment, it won’t go away without some major change in Medicare, I don’t think.

2. Realistic Short Term. I don’t think big-bang will work, so what I’m proposing above won’t work as one big bill; people will barf on it. We have to get there incrementally. So here is what I think we can do now:

• Create Healthcare Savings Accounts just like 401k accounts. Make them tax deductible, also. But they should be primarily in more liquid investments, not equities, because people may need it at any time and wouldn’t want to be forced to liquidate.
• Fund the HSA with some amount for those at or near poverty – the $10k above was for the deductible, but that’s not a bad place to start. This money could be used to buy “Medicaid Advantage Insurance” in the same way seniors augment Medicare.
• Eliminate the state supervision of insurance to create a national market. This will do more than the Public Option to create competition.
• Simultaneously reduce the employer tax credit and create/increase an individual tax credit together such that they move in equal and opposite directions. The idea is to equilibrate the tax incentives slowly.
• Increase the qualification level for Medicaid. My hope with my above plan is that Medicaid can be phased out, but in the meantime these are people who are most at risk.
• Expand Medicaid or Social Security to handle the “Uninsurable” who are currently uninsured but have a chronic disease.

As I’ve said, I’m more concerned with costs than the uninsured because if we only cover the uninsured without controlling the costs, then we have big budget problems. If we control the costs, many of the uninsured will now simply be able to afford insurance, and those that still can’t we can cover at lower cost. My basic belief is that the American public is not ready to totally reform one sixth of the US economy (I’ve heard that as an estimate of health care % of GDP) in one fell swoop. So whatever we do has to be incremental. I think my plan is somewhat modest and would help, though I admit it moves in almost the exact opposite direction as the current legislation.

Now, if I were a moderate Democrat or Republican (which I would be if I were in Congress – not sure what party, though), I may be able to back something with the Mandate-Guarateed Issue-Community Rating-Subsidy if the mandatory coverage were mostly catastrophic with a high deductible. I may have to come down to something like $3000, though, with HSAs. And in return, I’d want to even out the tax incentive problem and a national insurance market.

FriscoCare?

From this NY Times op-ed:

The early results are in. Today, almost all residents in the city have affordable access to a comprehensive health care delivery system through the Healthy San Francisco program. Covered services include the use of a so-called “medical home” that coordinates care at approved clinics and hospitals within San Francisco, with both public and private facilities. Although not formally insurance, the program is tantamount to a public option of comprehensive health insurance, with the caveat that services are covered only in the city of San Francisco. Enrollees with incomes under 300 percent of the federal poverty level have heavily subsidized access, and those with higher incomes may buy into the public program at rates substantially lower than what they would pay for an individual policy in the private-insurance market.

To pay for this, San Francisco put into effect an employer-health-spending requirement, akin to the “pay or play” employer insurance mandates being considered in Congress. Businesses with 100 or more employees must spend $1.85 an hour toward health care for each employee. Businesses with 20 to 99 employees pay $1.23 an hour, and businesses with 19 or fewer employees are exempt. These are much higher spending levels than mandated in Massachusetts, and more stringent than any of the plans currently under consideration in Congress. Businesses can meet the requirement by paying for private insurance, by paying into medical-reimbursement accounts or by paying into the city’s Healthy San Francisco public option.

There has been great demand for this plan. Thus far, around 45,000 adults have enrolled, compared to an estimated 60,000 who were previously uninsured. Among covered businesses, roughly 20 percent have chosen to use the city’s public option for at least some of their employees. But interestingly, in a recent survey of the city’s businesses, very few (less than 5 percent) of the employers who chose the public option are thinking about dropping existing (private market) insurance coverage. The public option has been used largely to cover previously uninsured workers and to supplement private-coverage options.

RomneyCare?

From this CNN article:

“Seven in 10 people in the state support the program, and no more than one in 10 would repeal it.” said Robert Blendon with the Harvard University School of Public Health.

Unlike Democratic proposals that would give Americans the choice of joining a government-run health care plan, Massachusetts has no public option. Instead, people in the state are required to buy private insurance, and the poor get subsidies.

…

And under the 2006 legislation, there are several requirements for insurance companies.

According to Brian Rosman of Health Care for All, a nonprofit based in Massachusetts, the requirements include:

Minimum benefits, such as preventive care, mental health care and hospitalization

A ban on gender discrimination

Limits on total out-of-pocket costs

A prohibition on pre-existing conditions as a qualifier for health coverage

No medical underwriting, so insurers can’t ask an individual about his or her health status in order to determine coverage

Limits on age restrictions, which means what is charged for an older individual cannot be more than double what is charged the youngest.

Analysts say “Romney care” is basically “Obama care” minus the public option.

The best solution I’ve seen yet

From the same article by Goldhill. Basically, from my previous post, I believe this will provide #2 Free Choice to Medical Services and #3 Cost Containment by removing some of #1 Insulation from costs. But mind you, the total exposure is still capped. He doesn’t mention it explicitly, but clearly implies a removal of the tax deduction for employer based health care.

A more consumer-centered health-care system would not rely on a single form of financing for health-care purchases; it would make use of different sorts of financing for different elements of care—with routine care funded largely out of our incomes; major, predictable expenses (including much end-of-life care) funded by savings and credit; and massive, unpredictable expenses funded by insurance.

…

First, we should replace our current web of employer- and government-based insurance with a single program of catastrophic insurance open to all Americans—indeed, all Americans should be required to buy it—with fixed premiums based solely on age. This program would be best run as a single national pool, without underwriting for specific risk factors, and would ultimately replace Medicare, Medicaid, and private insurance. All Americans would be insured against catastrophic illness, throughout their lives.

Proposals for true catastrophic insurance usually founder on the definition of catastrophe. So much of the amount we now spend is dedicated to problems that are considered catastrophic, the argument goes, that a separate catastrophic system is pointless. A typical catastrophic insurance policy today might cover any expenses above, say, $2,000. That threshold is far too low; ultimately, a threshold of $50,000 or more would be better. (Chronic conditions with expected annual costs above some lower threshold would also be covered.) We might consider other mechanisms to keep total costs down: the plan could be required to pay out no more in any year than its available premiums, for instance, with premium increases limited to the general rate of inflation. But the real key would be to restrict the coverage to true catastrophes—if this approach is to work, only a minority of us should ever be beneficiaries.

How would we pay for most of our health care? The same way we pay for everything else—out of our income and savings.  Medicare itself is, in a sense, a form of forced savings, as is commercial insurance. In place of these programs and the premiums we now contribute to them, and along with catastrophic insurance, the government should create a new form of health savings account—a vehicle that has existed, though in imperfect form, since 2003. Every American should be required to maintain an HSA, and contribute a minimum percentage of post-tax income, subject to a floor and a cap in total dollar contributions. The income percentage required should rise over a working life, as wages and wealth typically do.All noncatastrophic care should eventually be funded out of HSAs. But account-holders should be allowed to withdraw money for any purpose, without penalty, once the funds exceed a ceiling established for each age, and at death any remaining money should be disbursed through inheritance. Our current methods of health-care funding create a “use it or lose it” imperative. This new approach would ensure that families put aside funds for future expenses, but would not force them to spend the funds only on health care.

What about care that falls through the cracks—major expenses (an appendectomy, sports injury, or birth) that might exceed the current balance of someone’s HSA but are not catastrophic? These should be funded the same way we pay for most expensive purchases that confer long-term benefits: with credit. Americans should be able to borrow against their future contributions to their HSA to cover major health needs; the government could lend directly, or provide guidelines for private lending. Catastrophic coverage should apply with no deductible for young people, but as people age and save, they should pay a steadily increasing deductible from their HSA, unless the HSA has been exhausted. As a result, much end-of-life care would be paid through savings.

Anyone with whom I discuss this approach has the same question: How am I supposed to be able to afford health care in this system? Well, what if I gave you $1.77 million? Recall, that’s how much an insured 22-year-old at my company could expect to pay—and to have paid on his and his family’s behalf—over his lifetime, assuming health-care costs are tamed. Sure, most of that money doesn’t pass through your hands now. It’s hidden in company payments for premiums, or in Medicare taxes and premiums. But think about it: If you had access to those funds over your lifetime, wouldn’t you be able to afford your own care? And wouldn’t you consume health care differently if you and your family didn’t have to spend that money only on care?

For lower-income Americans who can’t fund all of their catastrophic premiums or minimum HSA contributions, the government should fill the gap—in some cases, providing all the funding. You don’t think we spend an absurd amount of money on health care? If we abolished Medicaid, we could spend the same money to make a roughly $3,000 HSA contribution and a $2,000 catastrophic-premium payment for 60 million Americans every year. That’s a $12,000 annual HSA plus catastrophic coverage for a low-income family of four. Do we really believe most of them wouldn’t be better off?

Some experts worry that requiring people to pay directly for routine care would cause some to put off regular checkups. So here’s a solution: the government could provide vouchers to all Americans for a free checkup every two years. If everyone participated, the annual cost would be about $30 billion—a small fraction of the government’s current spending on care.