Universal health care won’t improve health, but I support it
Suppose there had been a futures market in the life expectancy differential between the US and Europe in the year 2030. Does anyone seriously believe that the passage of Obamacare would have reduced the expected differential? Liberals sometimes point to the higher life expectancy in Europe in support of health care reform, but I doubt that even they actually believe that’s what drives the difference. Until a few years ago Denmark and the US had the same life expectancy.
I’ve always thought the Rand study was the gold standard of health care research, and hence it’s good to see the Oregon study confirm the results. Robin Hanson is right, health care is not about health. BTW, I agree with people like Mickey Kaus and Matt Yglesias that health care is partly about peace of mind. But then I’m a hypochondriac, so I’d say that, wouldn’t I?
It’s quite possible that a 100% laissez-faire health care regime is optimal, or at least better than the current system. But that’s not politically feasible, and I’m not all that sure it’s optimal. However I am certain that we can do much better than our current regime, and I also believe that any move to a more sensible system would have to include universal health care. I happen to support the following:
1. Eliminating all tax subsidies (which amount to roughly 40% of private health care costs.)
2. Universal health insurance at the catastrophic level, and HSAs for smaller procedures. Subsidies for the poor.
3. A Singapore-style high savings regime, which means I’d probably never once in my entire life have to dip into the government catastrophic insurance system, as I’m a high saver with a good income. I’d also never have to deal with annoying insurance companies. And I wouldn’t be forced to buy coverage I don’t want. I suppose I’m OK with companies keeping their current health care benefits programs (insurance, HMOs, etc) as long as there was no tax subsidy.
4. I’d also deregulate the provision of health care services. Completely.
Because Singapore has price controls, there is currently no example of the system I propose. But the HSA approach as been used, as has the universal coverage of major health expenses. So I think various parts of the proposal have been tested.
Why support universal health care if it doesn’t improve health?
1. Utilitarian grounds—it helps those who are devastated by major medical expenses, especially lower income people.
2. Pragmatic grounds—I see it as the only way to get a sensible system that can begin to reduce the massive waste in our current system.
3. I hate insurance companies and government bureaucracies. I want to pay out of pocket.
Tags:
3. May 2013 at 08:22
There seem to be a fair number of countries which have better healthcare systems, based on population statistics, such as life expectancy, percent of GDP, etc. Why not try what they’re doing, rather than invent something new?
If not, what you propose sounds reasonable, subject to pricing issues (below) and deregulation including some check on quality and more of an ability for foreign medical providers to immigrate.
Regarding pricing, other countries have much lower costs usually due either to direct price regulation or the market power of a single payer. I find it hard to believe a deregulated market will do better (given the differences between healthcare and most other markets), but I’m imagining you have another view.
3. May 2013 at 08:34
I’d go with the Singaporean-style system, although you’d need to adapt it to a federal system. You could have federal oversight and state management, which would allow the price-setters for the catastrophic plan to set more local prices but also risk corruption and regulatory capture in the negotiations (states tend to be much more beheld to large employers – see regulations protecting car dealerships).
I like the idea of a federal HSA, although you should be able to use some of the money in it to buy supplemental insurance/maintenance money for stuff not covered by the catastrophic plan. All vaccinations should be completely covered too.
Just make it voluntary, so that people can provide health services outside of it but still use it as a reference point. It’d be sort of like the difference between a regular contractor and one who is “licensed and bonded” – you can use the other guy, but the latter is probably safer despite being more expensive.
@foosion
They could always shift towards offering compensation to supplement the taxation funneled in the HSAs. Or offer them subsidies towards treatment at particular networks of health care providers.
3. May 2013 at 08:45
I have to say I’m surprised, in a good way…. but only two comments? Probably Morgan W. is still typing… Ha!
3. May 2013 at 08:59
The US system shows us what you get when what is important is neither guaranteeing people’s health not maximizing freedom. Instead, we get a classic situation of government capture by lobbyists. If health care was unregulated, maybe we’d see competition drive prices down. If it was state driven, we’d see the state try to lower prices. Instead, we have doctors, hospitals and insurance companies all working to maximize their share of the pie through regulation.
I personally like the Spanish system: You have a nice, albeit rationed, health coverage baseline. Want to skip the queues, or go to some private specialist? Fair enough, just pay for it. Having the public option there changes what the private clinics can sensibly afford, and makes private HMOs uncommon. Needless to say, it makes jobs like medical coding and billing rather rare compared to the US, where few doctors can operate without a team of people that just try to figure out who to bill, and how much.
3. May 2013 at 09:05
I would also suggest as 4) Supply-side grounds: Universal health care encourages risk taking entrepreneurship by removing the fear of lost coverage. http://www.washingtonmonthly.com/features/2009/0905.gruber.html
3. May 2013 at 09:07
“I hate insurance companies…I want to pay out of pocket”
Nobody would want to pay out of pocket today. One example is a recent laser procedure for a clouded eye lens. The procedure is 5 minutes and the allowed hospital charge by medicare is $200 but off the street out of pocket is $2000. Group negotiated (or regulated) prices are necessary in any real world system I can imagine. Even if you changed the system to eliminate all group coverage then eventually the market would re-invent groups to lower costs and share risks.
3. May 2013 at 09:07
One of the biggest problems with the current US system is cost opacity. I don’t know what you mean by deregulation on the provider side, but over-charging would be rampant without regulation. Currently, that’s managed by your insurance provider, even in your standard high deductible plan. The doctor bills your insurance company an outrageous rate, they respond with, no this is the pre-negotiated contract rate for that service and, by the way, collect from the customer directly. Some people think it’s feasible to expect people to shop around. For certain pre-planned healthcare it’s at least possible. But the typical way healthcare dollars are spent, weighted by dollar spent, is in a hospital receiving unexpected treatment, perhaps even as part of a planned procedure. But those add-ons really run up the bill and if you think hospitals are going to offer consumer friendly single price offerings… Anyways, I think your approach to payment is fine, but I think the system needs to provide structure for treatment and charges somehow.
3. May 2013 at 09:14
“It’s quite possible that a 100% laissez-faire health care regime is optimal, or at least better than the current system. But that’s not politically feasible, and I’m not all that sure it’s optimal. ”
I’d cite theory of the second best and bet a lot that approximations of laissez-faire are highly suboptimal to a universal (Singapore w/o price controls, but even NHS). The information asymmetries and absolute lack of control and competition are the best example of this. A heart attack patient isn’t operating under Walrasian conditions.
Health is one of the few places where I think the market fails absolutely and miserably. Or at least the market as we know it. (Which is to say we can perhaps achieve Paretian conditions but they are not desirable as in theory of second best).
I want to get rid of as much social risk as possible so that low-income people have no problem a) saving more and b) putting 90-100% of their income in equity. Btw, I don’t think this is necessarily correlated to background risk (see: http://ashokarao.com/2013/04/20/the-epiphenomenon-of-low-risk/) because Europe has intense social insurance policies but pathetic stock ownership rates.
America has always been more culturally in-tune with middle-class stock ownership.
By the way, I actually think people will save less with proper social insurance. One of the explanations for high rural savings in China is the highly underdeveloped insurance market necessitating high savings for consumption smoothening.
3. May 2013 at 09:20
Oh and I’m totally with you. The reason markets fail here is the complexity of the whole thing. Did you know you’re supposed to negotiate your hospital bill? I didn’t. And there are no incentives for the consumer to decrease costs.
My problem with universal healthcare is there is no shared savings in general. I’d say charge different rates progressively on weight (underweights get hurt, too). But people will scream social engineering and run away.
3. May 2013 at 09:40
Scott,
Completely agree with your proposed solution. I think you and John Goodman are on the right track in proposing changes, where the ACA is moving us in a fairly awful direction.
3. May 2013 at 09:47
Prof. Sumner said:
“I’d also deregulate the provision of health care services. Completely.”
This is a hugely important thing that is almost always overlooked. We need more providers and increased competition on the supply side, to bring prices down.
Couple this with the right demand reforms and I think the results would be head and shoulders above all the government models.
3. May 2013 at 10:07
I have been telling my students variations of this for a few years now and they look at me like I am a kook (especially when I say that we should pass a law that bans workplaces from providing health insurance–so I step back and say we should just tax insurance and other “benefits” as income). Now I know that I really am not. I would also add that, based on the outcomes of other nations, we will spend less on health care, an area of low ROI from a labor productivity perspective.
3. May 2013 at 10:46
Sounds reasonable, but your #2 demands clarification:
“2. Universal health insurance at the catastrophic level, and HSAs for smaller procedures. Subsidies for the poor.”
What is meant by “catastrophic”? A high deductible universal plan? What is the level of the deductible? Does the deductible depend on income/family size? Are the “subsidies for the poor” to enable them to purchase a “non-catastrophic plan”? With what sort of deductible? Who is “poor”? *Death panels*?
Sorry, but unless basic questions like this are answered, we’re not saying much.
Here’s someone who appears to generally agree with you about the general issue of “catastrophic insurance” of why it would reduce costs:
http://www.realclearmarkets.com/articles/2013/04/02/the_obamacare_story_starts_to_unravel_100235.html
The Obama plan generally goes the other direction: “catastrophic plans” are only permitted for those under 30, per the above article (I have not read the proposed regs, many of them have not yet been written and I’d be surprised if anyone ever will read them all). I’m not sure how this was defined in the past; however, we seem to be talking under the PPACA of about a $4K -$12K annual deductible depending on family size and whether the plan is grandfathered. This, combined with the other minimum coverage requirements goes in exactly the opposite direction of what you are proposing. The need for this, of course, is to force Scott Sumner into a non-catastrophic plan solely so that he is forced to pay more and subsidize others in the pool. Without that subsidy, the system won’t work. In other words, “catastrophic” plans are not only not the rule, they are generally not even legal.
3. May 2013 at 10:47
The U.S. already had the most “universal” system in the world — all the socialist systems are much more likely to deny you care the U.S. would provide. That’s why we do 2x the organ transplants, 2x the MRIs, 3x the cancer screenings, etc etc.
Plus, we’re the only country paying for pharmaceutical R&D. Pretty much everyone else is just stealing what we paid for.
If we could de-link employers from insurance, we might actually an efficient pricing market, too.
3. May 2013 at 11:22
There seem to be a fair number of countries which have better healthcare systems, based on population statistics, such as life expectancy, percent of GDP, etc.
It’s really tragic that so many people still believe this. But it’s clearly bunk — the differences between U.S. states are larger than the differences between the U.S. and any other OECD country.
http://en.wikipedia.org/wiki/List_of_U.S._states_by_life_expectancy
http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy
3. May 2013 at 11:29
Just for fun, I thought I’d point out that in his 1985 budget proposal, Ronald Reagan proposed a universal catastrophic insurance plan run through Medicare.
Not that I support that; I’m a firm believer in privately-provisioned healthcare, which I think is most responsible to the chronically ill (especially people who poorly understood problems, who would likely get no care whatsoever if the government ran things). But as Switzerland and the Netherlands show, you can have universal healthcare that is privately provisioned.
3. May 2013 at 11:37
@TallDave
The fact that you clumped a highly diverse set of universal health care systems into “all the socialist systems” is telling. We’re not the best system on almost any metric, not even wait times (the Germans beat us on that). The Japanese do far more MRI scans, and they’re much cheaper.
Only 4 of the top ten pharma firms are American. Two are Swiss, two are British, one is German, and one is French. Considering that we have far more of a population and economy than those four countries combined, it’s not that impressive.
The US is the largest spender in Pharma R & D, but does not represent an overwhelming majority of it. There was about 36.5 billion dollars spent on Pharma R&D in 2011 in Europe, compared to 38.5 billion in the US (Link – used converter to convert Euros in dollars based off 2011 exchange rate. Over 70% of that is in four countries in Europe.
You would just drastically reduce the negotiating power of consumers to drive down prices. I don’t mind partially including that as part of a Singaporean “Universal Catastrophic Care plus Forced HSA available for supplemental insurance spending” plan, but not for the entire health care system.
3. May 2013 at 11:47
Alan, If people paid out of pocket then providers would have to slash prices, otherwise people wouldn’t buy. In a deregulated system I’d bring in lots of Bangladeshi doctors and undercut existing hospitals by 90%.
Ashok, You said;
“Health is one of the few places where I think the market fails absolutely and miserably.”
How would we know, as the market has never been tried?
mpowell, You said;
“but over-charging would be rampant without regulation”
That’s funny, health care just might be America’s most regulated sector, and yet it’s extremely expensive.
Vivian, Yes, the details would have to be worked out, and yes, the public catastrophic plan would include European-style death panels. Of course people would be free to buy non-cost effective life-saving procedures with their own money.
Joe, I don’t have strong views on who should provide the catastrophic insurance. Would it be possible for public and private plans to compete? It seems to me that the first step is to eliminate the tax subsidy to health care—that’s a no brainer. Then deregulate provision. Then see what sort of system is evolving and go from there.
3. May 2013 at 12:14
My bad, apparently it was his 1982 budget proposal.
3. May 2013 at 12:18
two thoughts.
There is very little correlation between life expectancy and healthcare spending. The biggest driver of life expectancy statstics is infant mortality. The bulk of health care expenses, effort, etc. is spent extending the last year of life.
In fact, as neo-natal quality improves, infant mortality begins to rise. Babies that would have been still-born are now given a chance to live. A signifcant percentage of these children unfortuatately do die.
The big problem with market solutions to healthcare problems, is that there is a lack of a market. The health care consumer rarely pays for his care. Even if the consumer had more interest in making the best cost / benefit decision, there is very poor information. Largely this is because there is just too much to know. i.e. what are my treatment options and what is best for me. But, there is also a complete lack of cost information comming from health care providers.
3. May 2013 at 12:22
Mr. Sumner, I agree with you about deregulation, though tax credits are politically unavoidable, I think. As for catastrophic universal healthcare, there is a perfectly good free-market way to do it: an individual mandate to purchase insurance. As for the public option, I’m agnostic, mostly because I think our broken civil service culture combined with fiscal austerity would quickly neuter it.
3. May 2013 at 12:49
Get rid of employee insurance!
Im glad to see that its suggested.
My Dad’s cousin lives in Canada, he’s pretty wealthy. He told me in some provinces where they allow private medicine, there are “boutique” doctors, where you can go an unlimited amount of times for about $1,500. That covers non-catastrophic health right there. I think its essential that we distinguish between catastrophic and non-catastrophic health care. the Paul Krugmans of the world tend to mix them up.
Scott, did you ever read Paul’s paper he wrote with his girlfriend Robin Wells? In it, he said that 20% of the populations bears 80% of the health care costs? Do you think thats true?
3. May 2013 at 13:02
“How would we know, as the market has never been tried?”
That’s why I said, “I think” not “I know”. And Steven Brill’s article is a great place to start. I can’t even wrap my head around how warped it is. Consumers are too misinformed for a competitive market to work.
Again this is what I “think”.
3. May 2013 at 18:21
Joe, I hope you are wrong about taxes, as health care reform will fail if we can’t get rid of the deduction for medical expenses.
Edwards, Those sorts of statistics are highly misleading, for much the same reason that income distribution data is highly misleading.
Ashok, Brill sees the problems all right, but for some reason thinks they are caused by a free market in health care.
3. May 2013 at 18:27
Brett,
I said we pay for pharma R&D, not that the companies were American. Surely you’re aware that we’re the only major free market for pharma? Virtually every other country has monopsony pricing. It’s why we get new medicine an average of a year or two earlier than Europe — and why our top few hospitals alone do more trials than any other OECD country.
The USA has the world’s best health care system by virtually every possible metric that involves actual health care provision. The NGOs rate us down for not being socialist enough, and our pricing has issues, but overall we deliver better care than any other country.
People who can afford not to don’t use Germany’s socialized system — Germany’s system is what the U.S. would look like if Medicaid covered 3/4 of the population and did less than half as much healthcare per capita as it does now.
Of course it’s more efficient, too. What you have to remember is that 90% of healthcare is marginal — a system that is more efficient lets a few more people die, but those people would have been very expensive to save or diagnose (this is why you don’t get an MRI with your annual physical). The Germans have always had a certain practical efficiency about death.
3. May 2013 at 18:48
I think it’s pretty funny that you say a laissez-faire system is politically not feasible, then make a bunch of policy recommendations that are utterly politically infeasible. Indeed, the elimination of tax subsidies for employee health plans was contemplated during the drafting of Obamacare and led to a big fight. In the end they settled on a tax on so-called “Cadillac health-care plans,” but even this was vigorously opposed by public-sector unions.
3. May 2013 at 19:52
Scott, completely agree that health coverage is essentially about peace of mind. But peace of mind is hard to come by. A couple of nitpicks about Singapore, HSAs and catastrophic insurance:
– average amount in the Singapore HSA plan is less than US$10k. That kind of amount would be eaten by a single surgery in a day.
– so you do need catastrophic insurance. But SG does not have universal catastrophic insurance, this is optional. A lady once proudly told me she bought her house cheap because the previous owner got cancer and thusly had to sell it quick.
– catastrophic insurance is riddled with devils in the detail. Typically it covers inpatient expenses only (like the private plan that we have here). Sounds reasonable except for the fact that this also excludes, say 10k/month lifelong cancer drugs that could save you indefinitely as long as you pay, or lifelong chronic illness expenses, that are treated outpatient.
– the market does funny things to contracts. Example, our catastrophic private plan says the insurance can terminate it unilaterally any time with 30 days notice. Does that mean as soon as you actually get seriously ill they can just terminate your policy? I hope I don’t have to find out. I thought I’d never say this but regulation seems a must here to create an insurance that is actually doing some insuring because my peace of mind doth not come forth under these circumstances.
– if you don’t like gov bureaucracies then HSAs are not for you. HSAs are the same kind of thing as 401ks. Technically your money, but its use is highly restricted. The SG HSAs are subject to a complex maze of what when and how much and what for you can use your funds.
– as a result the typical SG medical case is an amalgam of partly paid, partly refunded by HSA hospital bills that to begin with are partly subsidized by government (depending on your immigration status – only citizens get full subsidies), family jumping in, a little insurance here and there, and the rest applied for discretionary subsidy by government on poverty grounds.
4. May 2013 at 05:44
dbeach, I think it’s pretty funny when you say something is politically infeasible, when Congress has already started to do so, and the law already passed will gradually phase out the deduction over time, unless the law is reversed. And a President of either party would veto any attempt to stop the phase out.
mbk, You said;
“so you do need catastrophic insurance.”
If by “you” you mean me, then no. My HSA would have enough money where I probably never needed to use a catastrophic plan in my entire life. But of course I favor catastrophic insurance, just in case.
You said;
“if you don’t like gov bureaucracies then HSAs are not for you. HSAs are the same kind of thing as 401ks. Technically your money, but its use is highly restricted. ”
I love 401ks, so that’s a huge plus to me.
You said;
“as a result the typical SG medical case is an amalgam of partly paid, partly refunded by HSA hospital bills that to begin with are partly subsidized by government (depending on your immigration status – only citizens get full subsidies), family jumping in, a little insurance here and there, and the rest applied for discretionary subsidy by government on poverty grounds.”
This sounds like a good way to hold costs down. I know that Singapore spends very little on health care, and has just about the highest life expectancy in the world.
I don’t doubt that the plan over there is not perfect, but it seems far better than the US, where we spend 18% of GDP instead of 5%.
4. May 2013 at 08:10
“Ashok, Brill sees the problems all right, but for some reason thinks they are caused by a free market in health care.”
What we have today isn’t a free market. Conditions for one go beyond government laissez-faire. I should have information to make a choice. In a heart attack situation no one can really sit and “mull over the options”. People can’t bargain in healthcare, but are (apparently) expected to.
Plus, a simple universal system is worth it just by the fact someone else has to deal with crappy and annoying insurance companies and/or bureaucracy.
Hayek saw this a long time ago.
My view on markets is that the government should deeply control medicine, defense, education, and public infrastructure, incentivize high savings and completely stay out of most everything else. (all at a very basic level).
A free market would work better if we get rid of background risks of war, health, bad retirement etc.
4. May 2013 at 08:12
Oh and it’s worth noting Brill had a substantially more market-oriented reaction to his own investigation than most left-leaning economists (like Wonkblog or Yglesias) did.
5. May 2013 at 05:27
Ashok, I’d like to dramatically reduce the government role in health care, education and infrastructure.
5. May 2013 at 05:35
re: tax subsidies.
How ’bout treating health like we treat essential / primary foods (generally exempted from sales tax)? Given we seem to think health is as important as food – and it’s easier politically to remove taxes for all than the opposite (take away a subsidy – aka increase taxes for a subset).
So don’t tax it at all. Hmmm, imagine the innovation we’ll see – and a shift in investment given returns – when we carve out a tax haven for 10-20% of the economy.
And we should be generous what we label as medical and health services to be excluded from any forms of tax.
5. May 2013 at 06:14
“Ashok, I’d like to dramatically reduce the government role in health care, education and infrastructure.”
Re: healthcare depends what you mean by “dramatically reduce”. I want no bureaucracy and no healthcare management. I think universal medicine of the Singaporean or Swiss flavor achieves this.
And humans discount too much to actually invest in social and physical infrastructure (including basic research etc.)
For education, I’m with you on college etc. but think inequality makes our decentralized system too much of a mess. Voucher systems in Louisiana have become government-legitimized Bible thumping. There need to be national guidelines that are strict. If this can be done within a private environment I’m all for it, but current experiments are not hopeful.
5. May 2013 at 08:57
In a heart attack situation no one can really sit and “mull over the options”. People can’t bargain in healthcare, but are (apparently) expected to.
This is a pretty common argument but it’s nonsense. Over 90% of healthcare spending is non-emergency.
Also, patients should not have to bargain. You don’t bargain at WalMart, after all, and yet they have very good prices. Most won’t eben have to comparison-shop — studies have shown if you can set up a regime in which everyone sees the same price, if even 5-10% of shoppers are price-sensitive they will drive almost all of the pricing.
6. May 2013 at 06:21
Here is my idea on how to improve the healthcare situation:
The state would provide insurance to all Americans but the annual deductible would be equal to the family’s trailing year adjusted income minus the poverty line income (say $25,000 for a family of 4) + $300. So a family of 4 with a trailing year adjusted income of $30,000 would have a deductible of $5,300. A family of 4 with a trailing year adjusted income of $80,000 would have a deductible of $55,300. Middle class and rich people could fill the gap with private supplemental insurance but this should be full taxed. This would encourage the middle class and rich, who are generally capable people, to demand prices from medical providers and might force down costs. They could opt to pay for most health-care out of pocket while the poor often less capable would be protected.
It is not a perfect plan but it might help. Some deregulation of health-care would also help the poor gain access. The gauntlet that Doctors have to run these days to get to practice seems like an anachronism in today’s world. Let smart people get to practice medicine after on the job training. Let the medical businesses decide who is qualified to practice medicine. 12 years of training to tell if my child has an ear infection is overkill and reduces access to health-care for the poor.
Another benefit of my plan is that it would encourage capable Americans (the rich and middle class) to be a counter weight politically against the providers.
To me a big goal is to get the most capable Americans to shop for price and thus push the market.
6. May 2013 at 07:41
To what Ashok Rao wrote:
The information asymmetries and absolute lack of control and competition are the best example of this. A heart attack patient isn’t operating under Walrasian conditions.
And to what many other say along the same line:
Medical care has a big advantage over many other services in this regard due to the fact that GP’s do very little of the high cost medical care themselves. They are thus is in a good position to seek low coast care for their patients who that often have developed a relationship with. Right now he does not bother with guarding you pocketbook because of insurance but he would if everything was out of pocket.
I and friends have experienced telling a Doctor that I have a $10,000 deductible and having them find much cheaper options.
16. June 2013 at 11:49
Many good points and I am sorry I am joining so late.
Why not have Medicare provide the catastrophic insurance?
– this means no discrimination due to age and medical history
– if a Medicare claim is denied, the patient is not liable either
– we could raise taxes on the uninsured.
– we could raise payroll taxes for corporations of all sizes who do not pay for coverage…..because essentially they are tossing their employees into Medicare.
Some will protest that my plan involves compulsion.
However, every other industrial nation uses compulsion and taxes to fund their health care.
So does America over age 65.
And in fact, we use a kind of compulsion for those under age 65. They are compelled to pay hospital bills, at least legally compelled although some bills are forgiven.
A small tax to provide a payor of last resort seems to me a pretty mild kind of compulsion.
Bob Hertz, The Health Care Crusade