Well, I’ve read through the healthcare sections on the major candidate’s websites, even in cases where it wasn’t made easy (Hey Edwards, if you want fair comparisons and accurate citations, don’t put you policies in PDF), and I’ve got some good news. If you take the best parts of the plans of Senator Clinton, Senator Obama, Senator Edwards, Senator McCain, Governor Romney, Mayor Giuliani, and Governor Huckabee (yep even he had a good point or two), the U.S. could have a plan that addresses the inequities, economic damage and waste in the U.S. healthcare finance system that I discussed in my prior three posts. All of them accept there is a problem, and that public policy is at the center of it. All of the Democrats propose reducing the inequity by creating a universal health care finance system. Most of the Republicans accept the need to limit the economic damage by separating health insurance from place of work, and some assert the need to force people to make cost-benefit choices in health care. In my next couple of posts I’ll lay out my suggestion, and to my surprise I’ll be able to do so while quoting all the candidates. The problem is that if you take all the bad ideas and put them together, you have a disaster on your hands. And most of the bad ideas are not the result of ideological beliefs; they are the result of bending those beliefs to accommodate those who benefit the mess as it is. This post is about the bad ideas.
The first bad idea is keeping any link, any link at all, between health insurance and place of employment. According to Senator Edwards “businesses have a responsibility to support their employees’ health care.” According to Senator Clinton “large employers will be expected to provide health insurance or contribute to the cost of coverage: small businesses will receive a tax credit to continue or begin to offer coverage.” All the Republican candidates save Romney explicitly propose providing tax deductions, credits and exclusions for individual policies, to “level the playing field” with employer-provided insurance. But those individual deals have limits, and no limits are mentioned on the permitted exclusion of employer-provided insurance payments from taxes. Why should the business one works for have any influence on what health insurance one has, other than from inertia as current workers keep their existing plans? This link needs to be broken, once and for all. The only role I see for employers is the responsibility to divert some federal taxes otherwise owed directly to the private insurance company of an employees’ choice, if that what the employee chooses.
A related bad idea is forcing businesses to pay for health care, and providing subsidies to those who cannot afford it. That, in essence, is Senator Clinton’s plan. Senator Edwards would require businesses to “provide a comprehensive health plan to their employees or subsidize insurance purchased through Health Care Markets.” A new refundable tax credit would subsidize insurance “on a sliding scale to middle class families and refundable to help families without tax liability.” Senator Obama would require that “employers that do not offer or make a meaningful contribution to the cost of quality health coverage for their employees will be required to contribute a percentage of payroll toward the costs of the national plan. Small employers that meet certain revenue thresholds will be exempt.”
A similar bad idea is similar: forcing people to have health insurance. According to Senator Edwards “Once insurance is affordable, everyone will be expected to take responsibility for themselves and their families by obtaining health coverage. Special exemptions will be available in cases of extreme financial hardship or religious beliefs.” According to Senator Clinton individuals “will be required to get and keep insurance in a system where insurance is affordable and accessible.” Governor Romney doesn’t go into details, but mandating that people have health insurance, and that businesses help pay for it, is at the heart of his Massachusetts plan. That is how he can claim to have provided health insurance without having a government program.
The problem with these mandates is that they would impose massive administrative costs and inefficiencies for no other reason than symbolism. A whole new bureaucracy would have to track down people and make sure they had health insurance. A whole new bureaucracy would have to check the income of such people, to see if they require subsidies, and how much, and to detect fraud. A whole new bureaucracy would be required to ensure businesses were providing comprehensive health insurance plans, and that those plans meet the standards. And a whole new bureaucracy would be required to determine if a given business should be entitled to subsidies, something that would shift every quarter according to business conditions. All this, just to pretend the money used to provide health insurance is not a “tax.”
Most agree that employers and individuals should contribute to providing health insurance, and that their contribution needs to take into account their ability to pay. Fine. We have a program and an organization in place to ensure that: the Medicare payroll tax and the IRS. All that would be required is a higher rate, the inclusion of certain forms of non-work earnings, and the ability to offset health insurance premiums confirmed to have been paid against required withholding, rather than have the money make a round trip to the government and back health insurance company in every case. Instead of a new form and a new organization, there would be another few lines on the W4 (or quarterly tax withholding for the self-employed or retired), another few lines on the W2, and another few lines on the pay stub. Instead of tracking people down to make sure they pay separately from the tax system, the tax system itself would do the work, with the sole addition of a feedback loop between the health insurers and the IRS confirming that those not sending the money along have coverage.
And if people paid the taxes they owed, they would be insured, whether they decided to be or not, whether they were working for company that provided group health insurance or not. They would just be automatically enrolled in something. Something like a new version of Medicare. More on that next post.
Trying to maintain a universal community rating system in private insurance, with everyone charged the same for health care no matter how old they are and what chronic conditions they have, is another bad idea. According to Senator Edwards the government would require plans to “charge fair premiums, regardless of preexisting conditions, medical history, age, job or other characteristics.” Senator Obama promises “Guaranteed eligibility. No American will be turned away from any insurance plan because of illness or pre-existing conditions.” And Senator Clinton wants to “End to Unfair Health Insurance Discrimination: By creating a level-playing field of insurance rules across states and markets, the plan ensures that no American is denied coverage, refused renewal, unfairly priced out of the market, or forced to pay excessive insurance company premiums.”
The idea of a community rating is that private insurance companies will, in effect, redistribute income from younger, healthier people to older, sicker people by charging both the same, even though the latter cost more. In effect the younger, healthier people are forced to pay a private “tax” through higher insurance payments than their own health care costs should require. That private tax is regressive, since it does not vary with ability to pay, the more so since most members of younger generations are likely to have lower real incomes throughout their lives, and are certainly worse off today. This inequity is above and beyond the “cat and mouse” game of community rating, with every health plan benefiting from shifting older and sicker people to some other health plan, and the “moral hazard” of healthy people seeking the stingiest plans and sick people the most generous, until the latter goes broke. The community rating system gives everyone a huge incentive to cheat.
Obviously, if we are going to have universal health care finance, there is going to be a redistribution of income from the young and healthy to the old and sick. Rather than be sneaky and try to impose a regressive private tax through mandates, however, why not just use the progressive income tax to fund the higher costs of the latter? This can be done by having the government health insurance payment and/or tax credit vary by age, sex, and certain agreed expensive chronic conditions. If the relative government payment levels are set correctly, there would be no reason for a health insurance plan, public or private, to benefit from having a cheap twenty-something instead of a fifty-something with diabetes as a customer. And if such insurance companies were seeking twentysomethings and trying to drop fiftysomethings, the right response would be to cut government funding for the former and increase it for the latter.
Providing Money Through States or Expanding Medicaid is another really horrible idea, but like the link between employment and health insurance, the link between states and health insurance is one that no one seems willing to break, just because it already exists. According to Senator Edwards “the U.S. government will help states and groups of states create regional health care markets” and “allow states to expand Medicaid and SCHIP to serve all adults under the poverty line and all children and parents under 250 percent of the poverty line.” Senator Obama “will expand eligibility for the Medicaid and SCHIP programs and ensure that these programs continue to serve their critical safety net function…The Obama plan builds on these efforts and does not replace what states are doing.” Senator Clinton promises to “strengthen Medicaid and CHIP: The Plan will fix the holes in the safety net to ensure that the most vulnerable populations receive affordable, quality care.” Governor Huckabee “values” the role of states. And Mayor Giuliani will “encourage states to improve health care quality and make health insurance more affordable by offering block grants to encourage innovation, reduce health costs, enroll eligible uninsured, and solve adverse selection issues.”
The federal-state Medicaid program is an inequitable, expensive disaster. People are free to cross state lines in this country, and according to a ruling by the Supreme Court, every state has to provide health services under Medicaid to those who show up from any other state. Just as private health insurance companies have an incentive to try to shift sick people to other plans while collecting premiums from healthy people, so states have an incentive to collect low taxes from the healthy and wealthy and be stingy with the sick and poor, sending them to states like New York when they need care. And that is what happens. The federal government makes matters worse by forcing some states to pay for a higher share of the Medicaid expenditures within their borders than others, and as it happens the states where the federal government foots most of the bill have lower taxes and are gaining people and jobs, while the states where the federal government forces additional state and local taxes to be charged for health care are losing. Through the Medicaid program, the federal government is killing off Michigan to subsidize Tennessee, and killing off New York to subsidize North Carolina. And to make matters worse for New York, a state by state program raises the possibility that given state legislature will be captured by the health care industry and suck the state dry. As it has here.
As for new public-private partnerships on a state-by-state level, don’t forget what happened the last time a health care reform plan was being discussed. The original Hillary Clinton Plan, rather than impose a national tax for a national health insurance program, would have required those living in each Metropolitan Area to pay for the health care of others in that Metropolitan area. In the New York area, that led to a political scramble to warp the definition of a Metropolitan area so that the affluent suburbs of New Jersey and Long Island were, in theory, not part of the same metro as the poorer, sicker City of New York. We’re one country. People move from one part of it to another. Let’s have a national market in health insurance, with the public funding at the federal level. Let state and local governments fund and manage public services that don’t move across borders, infrastructure and housing for example. More on that later.
And if we are going to have one national healthcare market, let’s have one funding stream to pay for it. Because having multiple government programs, subsidies and systems to pay for health insurance, with every person theoretically qualifying for one or perhaps more than one, is another bad idea. In addition to keeping Medicaid and, in most cases, the tax subsidy created by the exclusion of employer-provided health insurance from taxable income, the candidates propose various government programs, and tax credits, deductions and subsidies for private health insurance. Senator Clinton, I believe, has five or six. The reason is to keep existing benefits for existing excess beneficiaries, so they won’t object. In addition to massive administrative complexity, these multiple programs and funding streams would make it possible, if not likely, that some will fall between the categories and qualify for nothing. And they would make it almost certain that two people with the same age, sex, health history and income could be entitled to wildly divergent levels of government health insurance funding, based on what groups they happen to fall into. And that the payment levels would be manipulated based on relative political power, like the old New York State school aid formula, to the detriment of the less well off. The way the government pays for health insurance needs to made more simple, not more complex. Let’s not add to the mess by creating one separate program after another. Let’s get rid of some we already have.
It is reasonable, in my view, to limit government funding to basic, established, absolutely necessary health care, but there are some bad ideas out there on the Republican side for determining what such care is. Some candidates proposed cutting back on state rules that require private insurance companies to cover certain excessive services, services that may have been mandated at the behest of a politically powerful health care industry seeking to increase its revenues. Governor Romney want to “encourage states to eliminate the cumbersome insurance regulations that drive costs up and providers out of the market” and “give states flexibility to spend their Medicaid dollars in whatever way they find most efficient and effective.” Mayor Giuliani, coming from the state with the most such mandates, proposes to make coverage affordable by reducing the “over 1,900 state mandates limit coverage options and increase costs from 20 to 45 percent. If a state’s mandates prevent affordable health care coverage, citizens should be allowed to purchase coverage through interstate markets.”
That sounds like a good idea, but it could be a bad idea. How? Thank God my family is very healthy, including my two daughters — our typical number of days of work or school missed in a year due to illness is zero. But down the street there is a family with two daughters with cystic fibrosis, a disease that was once a death sentence but could now be sufficiently managed that its victims can live a fairly long productive life — but only with extensive therapy and very, very expensive drugs. Many of the state mandates are, in reality, an off-the-books private tax on families like mine to subsidize families like the one down the street through “community rating” with private health care insurance. Let’s say people in New York, probably the state with the most mandates, were allowed to purchase health insurance in some other state that allowed private insurers not to cover cystic fibrosis? That means that my family could save a lot of money by purchasing our health insurance from a state where such a plan was offered. But what about the family down the street?
The attempt to get around state mandates just shows that state-by-state health insurance and public healthcare financing programs, and the hidden private tax of community rating, don’t work. The regulatory decision as to what must be covered is a national decision, and the obligation to aid the sick is a national obligation.
One bad idea that fortunately no Republican candidate mentioned, but many conservative wonks have, is limiting third party payments, public or private, to expensive, catastrophic costs only. The conservative wonks are rightly concerned that third party payments inflate health care spending, since after an individual person has paid their insurance premium they no longer worry about how expensive health care is, because the insurance company or government program pays. But the wonks recognize that people really can’t save up enough money to pay hundreds of thousands of dollars if they are unlucky enough to have a severe illness. So their solution is to have insurance for such severe illnesses, but to have people pay cash, perhaps through healthcare savings accounts, for routine health expenses, so they’ll watch their pennies.
The problem with this approach is that it does nothing to limit huge healthcare expenses, because once one has spent enough insurance kicks in. Meanwhile it pushes people, particularly less well off people, to think twice rather than pursue cheaper, cost effective care. Some of that care has social benefits, and arguable should be free, or people should even be charged for not getting it. Do we really want people to worry about the cost of vaccines? To think twice before getting pre-natal care? Are we willing to spend hundreds of thousands of dollars to treat a severe case of drug resistant tuberculosis, but unwilling to make sure a poor person can afford to the antibiotics needed to cure TB before it reaches that stage and threatens us all? Are we willing to pay for people to have expensive cosmetic surgery, but not asthma inhalers? To pay for hip and knee replacements, and not walking canes? As Governor Huckabee said, “the health care system in this country is irrevocably broken, in part because it is only a ‘health care’ system, not a ‘health’ system…We have to change a system that happily pays $30,000 for a diabetic to have his foot amputated, but won't pay for the shoes that would save his foot.”
Cost should be only one of several factors in the division between individual and community responsibility in paying for health care. Cost effectiveness is a second. Whether healthcare for an individual provides a community benefit is a third. And whether it is absolutely necessary for life, or productive life, or just nice to have is a fourth.
Sending additional government assistance to those who have been the most irresponsible in funding health care is another bad idea. Senator Clinton proposes “a new tax credit for qualifying private and public retiree health plans will offset a significant portion of catastrophic expenditures, so long as savings are dedicated to workers and competitiveness.” Why not provide government funding for health insurance to all retirees, not those who were fortunate enough to have been granted retiree health care? Why not provide government funding to relieve the health care costs of all companies and governments, not just those that benefited in the past from deferring such costs? Providing more assistance to those who have spent more, and decided they are entitled to more, is a lot like the New York State school aid system, which redistributed education resources away from poor children. Senator Clinton has recognized a problem I spoke about in my economic damage essay — the cost, including the health insurance cost, of retired public employees is going to cause soaring taxes and drastic service cuts in aging suburban communities, just as it did in older central cities in the 1970s. But the solution is equal public health insurance funding for everyone, not a special deal for those who watched happily from across the border as the cities declined and burned.
Many of the candidates point out that people should be expected to have health insurance and pay in, rather than going uninsured when they are healthy and then expecting to be cared for when they become sick. As Governor Romney puts it, the goal is to “Stop The Free-Riders.” Even the federal Medicare program has insurance “premiums” people are expected to pay. But if it is agreed that everyone should be entitled to basic health care, why should anyone be required to pay for insurance? As I discussed in a post on the rationale for congestion pricing, the reason to fund a public service or benefit with a specific charge rather than a general tax is to prevent the wasteful use of scarce resources. But people use scarce resources by receiving health care, not by being insured, so a charge for basic insurance discourages the wrong thing. Therefore, charging people for insurance instead of health services is a bad idea.
Senator Clinton proposes a refundable tax credit “designed to prevent premiums from exceeding a percentage of family income, while maintaining consumer price consciousness in choosing health plans.” To maintain consumer price consciousness, however, it would be better to require that consumers pay the first dollar of a health service via a co-payment, and the last dollars if the price exceeds a socially funded amount or recipient chooses a form of care more costly than basic. Not to charge for insurance. Like Clinton’s insurance premium, co-payments could be adjusted based on income, so less well off people aren’t unduly discouraged from seeking necessary care, while better off people are not exempted from being inhibited from consuming healthcare wastefully. The co-payment could be eliminated for socially beneficial care (vaccines) or healthcare on a schedule (routing preventive care and check-ups). It could equal a half hours pay (or its retired or unemployed equivalent) for a doctor visit or prescription, and a days pay for an emergency room visit, surgical procedure, or day in the hospital, for example. A charge discourages what is being charged for, and if it is believed that people ought to have at least basic health insurance, then that basic health insurance should be funded by general taxation, not charges.
Finally, not providing a choice of both a public health insurance program and private health insurance would be a bad idea. Fortunately, none of the Democratic candidates have proposed a single-payer system, although Senator Edwards notes that a choice of public or private insurers “may evolve toward a single-payer approach if individuals and businesses prefer the public plan.” Wherever there is a public service without a competing private alternative, there is be a tendency for organized interests to divert more and more of the cost of the program away from actual services to the customer to payments for not working. That’s certainly what public employee unions seek — more sick days, earlier retirement with richer pensions,, more days off, shorter work hours — more being paid not to produce services instead of being well paid to produce services. Monopolists with access to tax dollars like to be paid for nothing.
On the other hand, if all you have is private contractors without the competition of a public-sector provider, you may very well end up having more and more of the cost diverted to richer rewards for management, stock options, and higher profits, with less and less available for services. That’s why military procurement and infrastructure contracts, for example, cost so much. None of the Republicans, however, have proposed a public insurance option, and several are specifically opposed. They ought to remember that although business can be more efficient, one of the things it does efficiently is fleece the government.
Without a public program, there would be no reference point to determine what private health insurers should be allowed to charge. In the Medicare program for senior citizens, for example, the government matches its payments to private health insurers under Medicaid Managed Care to actual costs in the public Medicare program. Without that reference, and with the private health insurers organized into a powerful lobbying force out for as much public money as they can get, how would payment levels be set? We could be faced with a rapacious, national version of Local 1199 and the Greater New York Hospital Association, both “private sector” organizations.”
There are additional “small government” reasons to have a competing public program. First, without a government option, the only way there can be automatic enrollment in a health insurance plan is if the government decides which private plan a person is to be automatically enrolled in, if they do not choose otherwise. The corruption possibilities are obvious.
Second, the Republican candidates have come up with all kinds of seemingly reasonable ways they want the health care delivery system to change. Senator McCain proposes “clinics in retail outlets,” “telemedicine,” “community and mental health clinics,” “routes for safe, cheaper generic versions of drugs and biologic pharmaceuticals,” and “vigorous enforcement of federal protections against collusion, unfair business actions, and deceptive consumer practices.” From Governor Huckabee “we do need to get serious about preventive health care instead of chasing more and more dollars to treat chronic disease, which currently gobbles up 80% of our health care costs, and yet is often avoidable,” presumably by using the coercive power of government to “encourage the private sector to seek innovative ways to bring down costs and improve the free market for health care services.” From Giuliani, we find “thousands of hospital deaths are attributed to preventable medical errors” and need “public-private partnerships to improve and set standards for health IT (information technology” as well as “new initiatives to promote healthy lifestyles and wellness programs.” Well, if the federal government doesn’t have its own program, how will these ideas be implemented? But regulation and bribing private health insurance companies on a broad scale, that’s how.
It would be far better for politicians to impose their own ideas on their own health insurance program, while keeping restrictions on private health insurance to a minimum. If those ideas were more cost effective or produced better healthcare, people would shift from private insurance to the public program, and private insurance companies would respond by copying them. If they weren’t, people would move in the other direction, and the government program could be adjusted. Either way, people would have a choice.
I would agree that those who have existing private health insurance and are happy with it should be allowed to keep it, and receive the same public healthcare funding toward that private insurance that (given their age, sex, and health history) they would get in a different private or government program. And I agree that senior citizens currently receiving Medicare as it now exists, and happy with it, should be allowed to continue as they are. But other than that, the current health care finance system is a disaster and a disgrace that is wasteful, inequitable, and does economic damage. It has no moral standing. Let’s move on, and reapportion all that direct and indirect public funding for health care in a sensible why. I’ll say how in my next post.