Topic: General

HSA Gumbo

A Lousiana blogger named Dr. Hébert offers a skeptical but open-minded critique of health savings accounts. Hébert is board certified in internal medicine and pediatrics. I addressed many of his criticisms in a recent study on HSAs, but I’ll see if I can tackle his concerns head-on – and perhaps more succinctly.

Here are Hébert’s main concerns, saving the biggest for last.

1. HSAs favor the wealthy. Yeah, that’s pretty much true. But the fault here lies more with the problem that HSAs attempt to correct. The federal tax code has exempted employer-sponsored insurance premiums from payroll and income taxes for over 60 years. The wealthy get the biggest tax breaks from that exemption. (See neat graphics to that effect on pp. 14-15 of my paper.) But money saved or used to purchase health care directly is subject to both types of taxation. That causes people to rely on health “insurance” more than they should. HSAs are an attempt to level the playing field between health savings and out-of-pocket expenditures on the one hand and third-party payment on the other. So extending to HSAs a tax break that already benefits the wealthy naturally will benefit the wealthy more than the poor. Since eliminating those tax breaks entirely doesn’t seem politically feasible, HSAs are the best shot we’ve got for fixing what the tax code has done to the health care sector.

2. Employers won’t pass the savings on to workers. HSAs make it easier for employers to provide less health coverage, because they and/or their workers can contribute money to the worker’s HSA tax-free. But if employers cut back on coverage, how can we be sure that employers will “pass on this savings to their employees by paying higher wages”? In the short term, we can’t be sure; employers could just pocket the savings. (If there are any savings – the rising cost of health insurance could eat up any potential wage increase even if employers cut back on coverage.) It’s in the long run that economists agree that non-cash compensation reduces cash wages. And it’s in the long-run that premium savings will be passed on to workers.

3. HSA rules discriminate against those who want traditional insurance. Okay, I have to agree with Hébert again. And with Jason Furman of NYU. It is inconsistent for HSA supporters to say that people are smart enough to shop around for medical care, but not smart enough to choose their own health insurance. That’s one reason I’ve proposed turning HSAs into “large” HSAs, where you would get a tax break on up to $8,000 in HSA deposits ($16,000 for families) and you could use that money to buy whatever kind of health insurance you prefer.

4. HSAs are not a good deal for those with high expected medical expenses. As I discuss in my paper, HSAs may be unpopular with people whose health insurance currently pays for what are essentially uninsurable expenses. In order for insurance to work, coverage has to be confined to expenses that are unknown. If you try to force insurance to cover known expenses, you drive people out of the market – because they know you’re just trying to extract wealth from them. This is not an argument against subsidies, only an argument against trying to cram subsidies into “insurance.” As I wrote in an exchange with Matthew Holt from TheHealthCareBlog.com:

My preference is to let insurance markets do all they can do to improve efficiency, particularly by encouraging patients to pay directly more often. Some people will still require assistance, though with a more efficient health care sector their numbers should be smaller. We should subsidize those who remain directly, with cash.

But that hardly means that chronically ill patients won’t like HSA coverage. As the Congressional Research Service notes, HSAs could be popular with many such patients because they offer much more control over one’s medical decisions.

5. HSAs won’t result in higher quality care. Hébert gives two reasons. First, patients not always in a position to shop around, because you can’t comparison shop when you’re on a gurney. Yet as I wrote in my paper:

Most health care spending occurs in circumstances under which the patients can comparison shop. For example, emergency room care accounts for only 3.3 percent of health expenditures. Hospital and nursing home care combined account for 45 percent of personal health care expenditures, yet many hospital expenditures are discretionary. Spending on physicians, prescription drugs, home health care, and other services accounts for 55 percent of personal health care expenditures. Those data suggest that a large share of health care spending does allow time for considering one’s options.

Hébert’s second reason is that medical billing is too complicated for patients to comparison shop. Yet the scenarios he offers are no more complicated than comparing prices for cars or houses or mobile phones with calling plans – and consumers comparison shop for all of those things, sometimes all at once. When they need help finding value, they find an agent (e.g., realtors) to guide them. Which brings me to Hébert’s main critique.

6. HSAs equal less health care, and that’s bad. Hébert’s biggest concern seems to be that HSAs will cause people to cut back on their medical consumption, particularly visits to primary care physicians. The way HSAs are set up right now, many primary care visits are not be covered by insurance, although preventive care may be covered below the deductible. That means that patients may face actual tradeoffs if they want to go to the doctor, and will therefore demand more value. If primary care physicians provide as much value as Hébert believes, he should have nothing to fear from cost-conscious patients. But if it turns out we are wasting money even on primary care – and there’s evidence to suggest that is the case – then maybe primary care physicians will have to focus more on providing value.

Hébert predicts that HSAs will meet the same end as HMOs. I disagree, because HSAs give people more control over their health care decisions, and people are not going to want to give that up. HMOs did exactly the opposite. But Hébert offers a testable hypothesis to which I hope we both shall return in the coming years.

(Hat tip to Trapier Michael, the hardest working man in health policy.)

RIAA to Congress: Jump! Congress: How High? On One Foot or Two?

The entrenched powers in Washington are continuing their efforts to stamp out the consumer-friendly technology spawned by satellite radio.

From Congressional Quarterly:

Majority Leader Bill Frist (R-Tenn.) quietly has gone to bat for the Recording Industry Association of America and other groups to make sure that a key industry priority was included in the massive overhaul of telecommunications laws that the panel approved just before the July Fourth recess, several Senate Commerce, Science and Transportation Committee aides confirmed.

The provision Frist helped place prevents satellite radio listeners from being able to record, store and rearrange music they receive from popular subscription services such as XM and Sirius. Music industry officials say that such copying would cheat labels and artists out of fees that consumers otherwise would pay when buying music on CDs or from online music services.

But the push by the record labels is rankling radio, electronics and consumer groups, who argue that listeners should be able to store songs for personal use as long as they are not selling or passing them along.

Several Commerce Committee aides confirmed that Frist had made it clear that he would allow the telecom bill to come to the floor only if it included the measure, which is commonly called the “audio flag” provision.

[…]

Beyond what appears to be a home-state interest in the issue, aides and lobbyists close to the debate noted that former Frist Chief of Staff Mitch Bainwol now heads the record labels’ lobby, the RIAA.

The provision is ridculous, of course. XM and Sirius already pay royalties for use of the copyrighted songs, and users are already permitted to record from the radio for personal use by other means. RIAA’s position is that there’s something about digital recordings that deserves extra protection. In truth, this bill will effectively kill XM and Sirius attempts to innovate and offer a more interactive, useful, and interesting form of radio.

Of course, this isn’t the first time a Washington dinosaur has attempted to use the regulatory process to stamp out innovation from satellite radio at the expense of consumers. The National Association of Broadcasters has been waging a protectionist campaign against satellite radio’s efforts to localize for years.

Topics:

As the Supply Curve Shifts…

Today’s New York Times runs an oped on the supply of physicians by David C. Goodman, an investigator with the Dartmouth Atlas of Health Care. The Dartmouth Atlas does invaluable work documenting the waste that exists in Medicare and other parts of the U.S. health care sector. Goodman critiques a recommendation by the Association of American Medical Colleges that the United States increase its output of doctors by 30 percent to meet the needs of the growing number of elderly Americans. That critique is excellent as far as it goes, but it seems to miss half the picture.

Goodman argues that increasing the number of physicians will do nothing to improve the quality of health care. He cites the sort of data for which the Dartmouth Atlas is famous:

Many studies have demonstrated that quality of care does not rise along with the number of doctors. Compare Miami and Minneapolis, for example. Miami has 40 percent more doctors per capita than Minneapolis has, and 50 percent more specialists…

The elderly in Miami are subjected to more medical interventions — more echocardiograms and mechanical ventilation in their last six months of life, for example — than elderly patients in Minneapolis are. This also means more hospitalizations, more days in intensive care units, more visits to specialists and more diagnostic tests for the elderly in Miami. It certainly leads to many more doctors employed in Florida. But does this expensive additional medical activity benefit patients?

Apparently not. The elderly in places like Miami do not live longer than those in cities like Minneapolis. According to the Medicare Current Beneficiary Survey, which polls some 12,000 elderly Americans about their health care three times a year, residents of regions with relatively large numbers of doctors are no more satisfied with their care than the elderly who live in places with fewer doctors. And various studies have demonstrated that the essential quality of care in places like Miami — whether you are talking about the treatment of colon cancer, heart attacks or any other specific ailment — is no higher than in cities like Minneapolis.

In other words, doctors in some areas of the country order up a lot of health care that seems to benefit no one but the doctors themselves. All that apparently value-less health care costs workers and taxpayers tens of billions of dollars per year.

But Goodman does not address an equally important question: whether an increase in physician supply could make health care more affordable. In the standard supply and demand model, loosening a constraint on supply shifts the supply curve to the right, which reduces prices. With third-party payers, the process gets pretty attenuated – probably more so when the government is paying than when a private insurer is paying. But that’s not the same thing as saying it breaks down. In fact, it’s hard to believe that increasing the supply of anything by 30 percent over time wouldn’t have an effect on prices.

Goodman might have noted that (1) the persistence of expensive, low-quality care and (2) a relatively unresponsive price mechanism are both enabled by the same same feature of the America’s health care sector: our over-reliance on third-party payment. As Mike Tanner and I noted in Healthy Competition, we even nose out Canada in terms of the share of medical care purchased by third parties.

Fixing that problem could address both cost and quality problems. Miami patients would be less likely to let their doctors order up useless tests if those patients are paying, say, 5 percent or 10 percent of the cost. And price is much more likely to respond to supply shifts if you have 200 million price-sensitive purchasers as opposed to a few hundred third-party payers, not all of which are price-sensitive.

Goodman’s Dartmouth colleague John Wennberg has recommended using medical savings accounts to cut out some of the waste in Medicare. Here’s an idea for getting rid of even more useless medical care: just give Medicare beneficiaries a lump-sum payment, adjusted for their individual health risk, and let them purchase medical care and coverage until it stops providing them value.

That might even change the political dynamics enough that we could eventually put to bed these wasteful political discussions about whether we should allow 30 percent more people to become doctors each year.

New at Cato Unbound: What to Do about Iran?

In this month’s Cato Unbound, “What to Do about Iran,” Reuel Marc Gerecht, resident fellow of the American Enterprise Institute and author of The Islamic Paradox, argues in a provocative new essay that diplomatic attempts keep Iran’s clerical regime from getting nuclear weapons will fail, so the U.S. must choose between preemptively bombing Iran’s nuclear facilities or allowing the mullahs to have the bomb. Arguing that the latter option “would empower its worst enemies in Tehran and spiritually invigorate all Muslim radicals who live on American weakness,” Gerecht advises the former: a policy of preemptively bombing Iran’s nuclear sites.

This week and next, a panel of defense strategy and foreign policy experts will challenge Gerecht’s argument, starting with Ted Galen Carpenter, vice president of defense and foreign policy studies at the Cato Institute, and followed by Edward N. Luttwak, senior fellow of the Center for Strategic and International Studies and author of widely discussed recent article in Commentary, “Three Reasons Not to Bomb Iran — Yet,” and Anthony H. Cordesman, Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies and author of Iran’s Developing Military Capabilities.

Is Gerecht right? Are all non-military approaches to the Iranian nuke bound to fail? If so, should the U.S. resign itself to a nuclear Iran and rely on deterrence as it did during the Cold War? Or is deterrence ill-suited to a regime run by religious extremists?

Stay tuned for incisive commentary and criticism by some of America’s leading defense policy thinkers.

Crocko

Filmmaker Michael Moore is not doing much to inspire confidence in Sicko, his upcoming film on the U.S. health care sector. According to Variety.com, Moore wrote the following in an email to supporters:

If people ask, we tell them Sicko is a comedy about the 45 million people with no health care in the richest country on Earth.

One can only assume Moore is talking about “the” 45 million Americans who lack health insurance. Never mind that a lot of them will not be among those who lack health insurance tomorrow. Never mind either that government eggheads believe “that the estimate is inflated due to poor reporting of Medicaid coverage and perhaps other coverage types as well.”

No, what’s really interesting is that Moore says the uninsured receive no health care. He might be surprised to know that people have actually researched this topic. In 2003, the journal Health Affairs published an article titled, “How Much Medical Care Do The Uninsured Use, And Who Pays For It?” Turns out the uninsured received $99 billion of health care in 2001. The uninsured probably receive even more health care today.

Now, you might think $99 billion is not enough. You might even think $99 billion is too much. But if you think $99 billion equals $0, you might be Michael Moore.

I’m actually looking forward to agreeing with Sicko about how the U.S. health care sector is bloated and inefficient, and how health care providers routinely rip off taxpayers. But I can’t help this feeling that Moore is going to recommend that we turn that mess over to a sector of the economy that is even larger, even less efficient, and an even bigger rip off.

I’m hoping for a surprise ending.

Ron Paul in the Post

The Washington Post profiles libertarian congressman Ron Paul (R-Tex.) – in its Sunday Style section, which is sort of a throwaway placement.

It’s one of those 1970s-style laundry list stories:

The amiable Texas congressman would do away with the CIA and the Federal Reserve. He’d reinstate the gold standard. He’d get rid of the Department of Education.

Rather than really try to present the argument for individual rights and limited constitutional government, drawing on public choice economics and the failures of government programs, the reporter just lists one out-of-the-mainstream position after another. Still, she does make it clear that he’s philosophically principled and not your typical Bush-supporting JFK-lookalike 21st-century congressman.

Here’s an interesting point about Ron Paul that I haven’t seen anyone make: As far as I know, Ron Paul is the only member of Congress who has been elected three times as a non-incumbent. Two of those times he beat an incumbent.

He first won a special election in 1976, then lost that fall. Two years later he came back and defeated incumbent Bob Gammage. After three terms he ran for the Senate, losing the Republican nomination to Phil Gramm. The really bad news was that he was replaced by Tom DeLay. In 1988 Paul was the Libertarian Party nominee for president. Then in 1996, 20 years after his first election and 12 years after he had last won election to the House, he ran again in a differently configured district. He had to beat Democrat-turned-Republican incumbent Greg Laughlin in the primary – against the opposition of the National Republican Congressional Committee, the National Federation of Independent Business, the National Rifle Association, former attorney general Ed Meese, Senators Gramm and Kay Bailey Hutchison, and Gov. George W. Bush.

Given that kind of firepower and the incumbent reelection rate of about 99 percent these days, Ron Paul has a remarkable political record. He must be doing something right back in Texas.

Remembering Japanese Internment

Over the 4th of July, I headed out West to a family reunion in a very remote part of the U.S.: Minidoka County, Idaho–an apocalyptically stark stretch of mile-high lava rock and sagebrush in the heart of the Snake River basin, unfolding like a moonscape from the base of the Albion mountain range at the Utah-Idaho border.

I’d grown up on my dad’s stories about his Idaho childhood. One story that intrigued was his very early memory of working my grandfather’s fields alongside Italian and German World War II POWs, who were held in a prisoner-of-war camp near Twin Falls, Idaho. POWs were used to remedy a shortage of farmhands in agricultural areas throughout the U.S.

Not long ago, I asked my dad if any World War II Japanese internment camps had operated in the Minidoka area. He wasn’t aware of any. Imagine my surprise then when I learned of this memorial service, held today, for the Minidoka internment camp–one of the larger Japanese internment camps operated during World War II.

Its no surprise my dad–otherwise an encyclopedia of information about southern Idaho–was caught short on this question. Virtually nothing of substance remains to memorialize the camp today, although a more substantial memorial is planned.

Minidoka residents–fond of calling their region the “Magic Valley“–shouldn’t get off so easily. Just as the government loaned Axis POWs to some local farmers, it loaned Japanese-Americans to others. Some 2,300 “Nisei” camp residents worked area sugar beet farms on “agricultural leave” from the Minidoka camp–hard, backbreaking work at a time when local farming was undertaken without modern tractors or modern irrigtation technology. To be sure, the camp residents weren’t technically forced to work, as this bit of outrageously upbeat 1943 government propaganda notes–but the Japanese internees had little other choice of employment.

This shameful episode–part of the darker history of communities throughout the West and a telling example of the worst that can happen when courts abdicate oversight of the political branches during wartime–deserves substantial local recognition in Minidoka and other host communities. For more about the location of internment camps, see here and here.