Topic: Health Care & Welfare

Since When Does the Right Have Any Health Care Prescriptions?

Ezra Klein responds to my post on the Citizens’ Health Care Working Group, where I lament that its tax-and-spend approach to health care shows that it was hijacked by the left—despite having a business-community chairman and Bush’s HHS Secretary on the panel. Klein provides an alternative interpretation: “the right’s prescriptions on health care didn’t even convince the panel’s Republican ringers.”

I’m new to the blogosphere, so I’m not clear what the rules are regarding subtlety. My point was that the right doesn’t have any prescriptions or even premises when it comes to health care—at least, not of their own. To compensate, they adopt the left’s premises (“we need to expand health coverage”) and prescriptions (“we need a Medicare Rx benefit”). For examples, click here, here, here, here, here, here, here, here, and here. Even when the right comes across a good idea (e.g., health savings accounts), they often gravitate toward it not because they understand why it’s a good idea, but because they think it serves leftist premises (“HSAs will … reduce the number of uninsured!”). The exception that proves the rule would have to be the GOP’s Rep. John Shadegg and Sen. Jim DeMint, who have a smashing health care proposal and who know why it’s a good proposal.

In general, Republicans and conservatives do not understand health policy, and do not have a health policy agenda that distinguishes them from the Left. Then, lo and behold, we get the GOP’s top health care guy sitting on a panel that (tentatively) recommends universal coverage financed by tax increases.

Go figure.

Private Answer to Stem Cell Debate

Harvard has announced that it is launching a privately funded, multi-million dollar program to clone human embryos for use in stem cell research. In this 2004 column, I argued for exactly this kind of private sector initiative to solve the politically divisive debate over stem cells.

I wrote in part,

By its very nature, government politicizes everything it touches. Science is no exception. Stem cell research needs neither government money nor politics. It is better to get the government out and let the private sector continue its good work. Those people calling for increased funding could take out their checkbooks and support it. Those who oppose embryonic stem cell research would not be forced to pay for it.

Harvard is proving one again that civil society can do what government can’t.

Holt & HSAs: Perhaps Fruitful after All

Matthew Holt writes:

The argument I want to have is a theoretical one about what would happen if we had essentially a completely personalized account-based system, as he advocates in his Large HSA proposal.

Holt raises important questions about what would happen under a system of large HSAs, where workers would get a large but limited tax break for cash that they (and/or their employer) deposit in an HSA – tax-free cash that workers could use for health savings, spending, or insurance as they wish.

Holt’s first concern is that “a significant number of people would take the money and buy no or minimal insurance coverage.” That some would choose to drop health insurance is certainly a possibility. I have two responses. First, that is already an option. People can and do choose to “go bare” and use their money for savings or other spending. The large HSA approach could marginally increase the number of people who do that, but only if the newly “bare” actually put money aside for future medical expenses. (Actually, large HSAs could even encourage today’s non-saving uninsured to start saving for their health expenses.) That brings me to my second response. If large HSAs do increase the number of people who “go bare,” the only people they would add to the ranks of the uninsured would be savers. As those “health savers” build up large balances in their large HSAs, it will occur to them, “Gee, one serious illness could wipe out all the money I’ve got stashed in my HSA.” How do people typically protect their assets from such unforseen losses? Insurance. So there’s a built-in incentive for health savers to purchase insurance.

Holt’s second concern goes like this: Were we to allow people to take all of their health benefits in the form of a cash contribution into a large HSA, and let them choose how to allocate those funds (among savings, spending, and insurance), that would begin a process known as “risk segmentation.” As I describe in my paper, some people would “go bare,” many would purchase less comprehensive health coverage, and many would migrate to the individual insurance market, where their premiums (typically) would be based on their individual health risk. What concerns Holt is that sicker people would have to pay more for health insurance, to the point where many sick people could not afford it.

My response is not that sick people should not be subsidized.  (I would prefer that they not be subsidized by government, but let’s assume that all options are open.) It is that sick people should not be subsidized through the vehicle of “insurance.” Attempting to deliver such subsidies through “insurance” destroys much of the good that insurance markets accomplish. Insurance premiums cease to deliver price signals about the costs of bad behaviors (e.g., smoking, obesity, waiting until you’re sick before you buy insurance). Many consumers drop insurance rather than pay the higher-than-necessary premiums, which increases the number of uninsured and tempts government to force people to buy insurance. Most importantly, when patients are spending someone else’s money, we lose a very important ally in the fight to curb wasteful medical expenditures: the patient. Instead of nagging providers about delivering value for the dollar, patients – especially the high-cost ones – line up with providers on the side of more spending. 

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.

I’m not sure how much of this Holt will find persuasive. Given that we agree that providers are riding the gravy train, I would think that having millions of patients nagging providers about value would hold some appeal.

He and I agree on something else. HSA supporters too often ignore these issues.

Response to Holt

My back and forth with Matthew Holt on HSAs continues…

In my previous post, I wrote that Holt’s critique of my paper made it appear that he hadn’t read the paper very closely. As I understand his response, he is “not very interested” in doing so. He is already convinced that we need “compulsory social insurance” with “incentives for providers that induce them to provide cost-efficient care.” Fair enough.

Or maybe not. Holt continues to misrepresent my views and what that paper says. He variously accuses me of believing that his owning an HSA invalidates his criticisms of HSAs; believing that health insurance is unnecessary; and having no interest in (or proposals for) reducing the burden of expensive flat-of-the-curve medicine. These and other errors could have been avoided by carefully reading my paper.

Since this exchange seems to be bearing little fruit, I will not take it much beyond the following brief summary of my actual views on these issues.

There are some medical expenditures that should not be covered by insurance. Beyond a certain point, problems of moral hazard, fraud, low-quality care, medical errors, and loss of control over one’s medical decisions tend to overwhelm the benefits of additional coverage. (This occurs whether the excess coverage comes through the private sector or the public sector, and even if the state limits supply.) Consumers do a better job than government of establishing coverage up to that point and then stopping. That argues for letting consumers control all the dollars involved, which is at the heart of my large HSAs proposal.

In other words, if you want to subsidize uninsurable medical expenses, you don’t want to do it through insurance. You would do less damage by giving them cash.

Unnecessary Restrictions Are Holding HSAs Back

Federal law requires consumers to have a “qualified high-deductible health plan” before they can open a tax-free health savings account (HSA).  Today, Sarah Rubenstein of the Wall Street Journal reports that those rules make HSA-compatible coverage more expensive than necessary. 

In a recent paper, I argued that Congress actually requires HSA holders to have a “high-but-not-too-high-deductible health plan,” and that Congress should let consumers choose their own health insurance.

No, Really — You Have a Point

Matthew Holt of TheHealthCareBlog.com devotes a lengthy post to criticizing my (much lengthier) paper, “Health Savings Accounts: Do the Critics Have a Point?

Holt – who has an HSA himself, as I understand it – is not entirely critical. For example, he calls Cato “the sensible libertarian’s think-tank.” As for the uncomplimentary parts, I found them odd.

For example, Holt accuses me of concluding that no, critics of HSAs do not have a point. Yet the paper has an entire section titled “Criticisms That Raise Serious Issues” (pp. 11-22) where I validate many criticisms of HSAs. In particular, I agree that in some instances people with high-deductible insurance might skimp on care in ways that harm their health (though there is scant data to demonstrate that this actually happens). Thus, I agree with the Commonwealth Fund that HSAs should be liberalized to allow people to choose insurance with coverage below the deductible.

Also, Holt accuses me of ignoring the fact that risk segmentation results in reduced subsidies to the sickest insureds. Yet that is a central theme of the “students & professors” hypothetical (pp. 6-8). And on page eight I write:

Though HSAs may reduce hidden subsidies to sicker workers, they do not preclude subsidizing those workers in other ways.

I could go on. From his criticism of it, it doesn’t appear Holt read the paper very closely.

Spending Your Tax Dollars to Advocate for Even Higher Taxes

In 2003, Congress created a “Citizens’ Health Care Working Group” to gather from the citizenry ideas on how to fix America’s health care sector. This past Friday, the group released interim recommendations worthy of the Clinton Health Care Task Force:

It should be public policy that all Americans have affordable health care

This and other of the recommendations contained here call for actions that will require new revenues… We recommend adopting financing strategies…such as enrollee contributions, income taxes or surcharges, “sin taxes”, business or payroll taxes, or value-added taxes that are targeted at supporting these new health care initiatives.

One need not be an advocate of socialized medicine to see that America wastes gobs and gobs of money on health care, which is one of the reasons that health care is so unaffordable. And these people think we should spend more? The group does recite the usual incantations about how the government should use electronic medical records, evidence-based medicine, et cetera to improve efficiency. But it does not pretend that such efforts would obviate the need for new taxes to achieve its goals. Nor does it consider that such a tax burden would hamper the economy’s ability to deliver on the group’s promises. Nor does the group seem to have any comprehension of the enormity of the task of making “affordable health care” actually happen. (For more on that point, see the introduction to Healthy Competition.) The public can read the group’s interim recommendations here and comment on them until August 31.

Kudos to the Left. They seem to have successfully hijacked this panel – despite the group having a chairman from the business community and one member who is a cabinet official in the Bush Administration.

Go figure.