James Capretta and others put together a comprehensive health care policy proposal. If the 2016 Presidential campaign ever gets serious, this is probably the plan that the Republican nominee should be pushing. A brief excerpt:
Health Savings Accounts (HSAs). HSAs should be a central component of health care in the United States. The accounts provide strong incentives for their owners to seek the best value for their health care purchases, and they provide a ready vehicle for providing additional protection against high medical expenses. Existing rules should be modified to allow all Americans to make annual contributions to an HSA, and a new, one-time federal tax credit would provide a strong incentive for those without accounts to establish them. HSAs should also be fully integrated into the Medicare and Medicaid programs.
The goal of their reforms is to increase consumer choice and market incentives in health care. They want to reduce the centralized management from Washington that was in place prior to Obamacare and then was greatly expanded by that legislation. Their proposals seem to me to accomplish those goals, and I believe that the result would be much better performance of the U.S. health care system.
So overarching principle seems to be that the federal government spend far less money on healthcare, have consumers pay much more, and start to tax peoples employee health benefits.
Here’s how I understood their proposal:
(1) replace obamacare with a refundable, age-adjusted tax credit equal to what one would get in an average employer plan combined with a federal regulation that mandates health insurance companies must give you health insurance as long as you stay continuously insured.
(2) keep the obamacare cadillac tax on employer health benefits
(3) block grant medicaid and start having the federal government spend significantly less money on it. If healthcare cost inflation does not moderate or go down, then this will quickly turn into massive cuts to the program.
(4) expand HSAs
(5) turn medicare into something like Obamacare. I never did understand this one — if you are opposed to obamacare because its fiscally unsustainable why would you turn medicare into it?
I am not clear on how this would reduce healthcare costs since it doesn’t address state level healthcare regulations. Nor do I see what this would do for people who have expensive medical conditions that either are too “rich” for medicaid but too “poor” to afford health insurance (whether that’s a problem for government to solve is of course going to depend on your ethical and political leanings). Since the tax credit does not adjust for health status — i am sure that if it did the credit would become significantly more expensive — I would expect it be a very common situation.
The paper’s theory is that by forcing consumers to pay more for healthcare and taxing them on their healthcare benefits (politically toxic when apply to anyone but poor people), they’ll force consumers to forego expensive medical care or minimally price shop around (when this has been studied the results have been very mixed). This in turn will create a “competitive” market place for health care that will drive down cost and therefore make “affordable healthcare” affordable to everyone.
I am skeptical since (1) most empirical data (i would say all but i haven’t read every single study nor plan to) on how countries handle health care costs indicate this would not happen, (2) almost all other first world countries spend far less, have comparable health care outcomes but have more government control/regulations. If you are Robin Hansonian, you would say that just shows that most healthcare consumption is a waste and healthcare outcomes are not driven by health care services or what we spend on it. 🙂
I personally would find it helpful if conservatives would point to some other first world country’s healthcare system, where the populace has comparable or better healthcare outcomes to the US, and then say we want to implement something like that. It would be much more compelling then talking about Hayekian theories of knowledge and theoretical competitive market places that will let everyone have their cake and eat it too.
Joseph,
You said it all.
Gotta love that the foundation of what should be ” the plan that the Republican nominee should be pushing” is a regressive tax credit.
Yeah, that would be great for the people who fall between Medicaid and the Top 20% or so. 🙂
geez.
No, the tax credit is the nudge to incentivize people to set up the account.
Was the Obamacare penalty regressive?
Just as soon as someone sets up Kayak for comparing prices from my computer for every provider and procedure, service, drug, device, and so forth, and which can also tell me how soon I can make an appointment with which doctors in order to get that price.
We don’t have anything even approaching that, and despite California’s price transparency initiative, most providers treat price lists like national secrets. I used to have an HSA, but even putting aside all the fundamental challenges with trying to make medical expenditure decisions, it was simply infeasible to ‘shop around’ in this way.
Maybe that’s a ‘market failure’ or maybe it’s not, but it seems to me one would need a pretty substantial state intervention to enable something like Kayak-for-health-care and make this market work.
In another NCH sector with it’s own legally-special savings vehicles, notice how hard it is to genuinely ‘shop around’ for college these days. All colleges purport to publish their sticker-shock tuition rates these days, but it is also widely known that at many of the most expensive places few students pay full price, with all kinds of non-loan grants and aid going to different people for various reasons and in a way that is hard to predict and an opaque black box to most prospective students.
You cannot learn the ‘real deal price’ for you at any place until after you’ve already applied and been admitted, but sticker shock prevent many students from even trying their luck.
Very true. I got the pricing runaround twice last year, both involving insurance coverage gaps. I needed surgery for a broken wrist, and only after a bunch of teeth pulling was I able to get a single quote in CA, and only from the facility that provided my Xrays and cast. They quoted $10k for the surgery. I called around everywhere else I could within a 25mi radius and no one could come anywhere close to providing any cash price. I ended up at http://surgerycenterok.com/ — one of three prominent “transparent menu pricing” surgery centers in the US. There is one in CA, it turns out, another in NY, and this one in Oklahoma City. Surgery and immediate followup cost under $5k. I paid more out of pocket for the prescribed physical therapy.
Later that year, my dad was working on a short-term contract in CA, and he developed a kidney stone. He was just transitioning from employer insurance to Medicare, and somehow ended up in a one month coverage gap for a certain lettered portion of Medicare (I forget). We went the ER at a John Muir facility in the Bay Area, they accepted his Medicare card, recommended a CAT scan, performed it, identified a small kidney stone, and sent him along the way with some mild prescriptions, expecting it to pass normally.
Then we get a bill for $12k. Cue a massive saga filled with swearing as we tried to negotiate the bill down to what Medicare *would have paid*. I’m not sure exactly if and how this has been resolved.
> Surgery and immediate followup cost under $5k. I paid more out of pocket for the prescribed physical therapy.
Awkwardly worded — I paid about $400 for the PT in the following months.
LOL,
I was about the write a comment that you got ripped off by the therapist’s company.
Do you think this problem disappears when you don’t see it? Or is it still there but nobody cares and they just throw money at it? HSAs are the solution. There just aren’t enough of them.
What I am saying is that, for a variety of reasons, the ‘market’ for health care in the US is especially broken in terms of the ability to “shop around for prices.”
One of those reasons is that medical providers themselves, perhaps incentivized by contracts with the insurance industry and the regulatory and legal climate, are extremely resistant to playing it straight with ordinary consumers, in a way which makes used car dealers look like models of integrity and transparency.
This is simply an essential and indispensable feature of any functioning market, and without which it is totally naive to hope for better results simply because of introducing some inadequate pastiche of ordinary purchasing dynamics.
I had an HSA for a few years and I tried to make it work, and believe me, it was a nightmare. Shopping around was something even a sophisticated consumer coldn”t do well, and I’m confident that it was utterly beyond the capacity of at least half the population.
The problem is that the existing US ‘marketplace’ is in a regulatory and commercial equilibrium that is simply too many steps removed from an environment in which these sorts of mechanisms and “Kayak For Healthcare” could actually work.
As bad as it may presently be, the whole domain between the current equilibrium and a more genuinely market-like equilibrium is a vast no-man’s-land of even more dysfunctional instability. This type of circumstance is usually a big factor when bad systems are surprisingly stable.
Again, anyone that proposes a reform that relies on nudging the system towards the market-equilibrium from where we are now by taking one little step is being very naive. One has to accept the possibility that we might have to pair pro-market moves with non-Libertarian coercive regulatory actions, at least in the short-term.
The state may have wrecked this market, but in order for reform to work, the state would also have to fix it along multiple dimensions and intervene to ensure that, at the very least, medical providers had to behave like ordinary retail enterprises with regard to publishing prices and the ease by which consumers could access and compare those prices.
The HSA studied already worked even in their limited existence. Most market participants don’t have to shop around. I’m not being naive at all.
“if conservatives would point to some other first world country’s healthcare system, where the populace has comparable or better healthcare outcomes to the US, and then say we want to implement something like that.”
First, we have to locate a better populace, then. A population consisting of mostly well-educated Asians, such as Japan or Singapore, or Nordics (Norway, for example), or a population that is mostly well-to-do, say Luxembourg, would do wonders for our international ranking.
The “shopping around” issue strikes me as kind of a red herring. Compare this to today. I got an alternative-type tonsillectomy. But since it was “experimental” (aka superior) I had to pay out of pocket. It probably cost 1/10th of a standard tonsillectomy (for various reasons). The details aren’t important. What is important is nobody else is going to get the pay out of pocket improved version when the free version is available.
I too gave up on high deductible health insurance and went back to an HMO because of the difficulty finding out how much a surgery would be.
It’s too bad, because the HSA was half the cost of the HMO per month. But with the HMO you know exactly what your out of pocket cost will be.
Of course, the hassle with the HMO is the need to stay in network, and to get a referral for everything.
Never reason from the 1% of a market that is anti-subsidized…or something like that.
Does anyone seriously believe an individual negotiating an expense with a provider is going to have more power than an insurer able to shift all their clients, even as the individual has to negotiate at time of need while the insurer has pre negotitated rates for the following year? Once the individual has to pay retail while the insurer pays wholesale, the fantasy dies.
Yes. And another red herring. Do you negotiate the price of your corn flakes?
When enough people are doing it, then every one won’t have to do it every time. And it is a,surprisingly small number to get over the hump. But that number is greater than zero and still has to fight the government subsidy of the current price chaos. This problem is not the scale of the hospital being too powerful. It is that nobody has forced order into the pricing system because they are just throwing piles of money at it because of the screwed up incentives.
Yes. Barry Nalebuff has described the game theory and real world examples of exactly that.
Our government is mangling medical care and pricing much more than is commonly understood. This is the interaction:
() The doctor or Hospital wants say $100 for services.
() Medicare routinely sets reimbursement at 60% of the listed rate. This follows the bureaucratic belief that any market price is too high for government. Government must get a deal.
() Doctors and hospitals set rates at $167 to bargain for the $100 it really wants. A market price of $167 emerges as the standard.
() Insurance companies negotiate 60% off list, on par with Medicare. They don’t want to pay the inflated, artificial list price.
() Patients without insurance or who receive out of network treatment are charged list price, to preserve the agreements with Medicare and the insurers. That charge is 67% more than the in-network charge would be. If hospitals charged less, everyone would complain and want the lower price.
() Hospitals are required to provide emergency services regardles of the ability of the patient to pay. They inflate those charges in the same way, trying to be paid by insurers and those with assets for the services they are delivering for free. There is constant negotiation to set rates, give discounts, and somehow collect net income to cover costs.
If you ask about a price, either no one knows or they don’t want to tell you and open a negotiation dispute about all of their other charges.
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We must get the government out of healthcare to discover what the true costs and rates should be under competition. The government should at most subsidize healthcare for the poor, at market rates.
It is the socialist calculation problem in action. And expecting HSAs at their current pentetration to fix it is pretty silly.
There ought to be another law! That law would say that uninsured patients cannot be charged more than the Medicare rate.
Problem solved. Medicare pays 67% of list, and so do insured and uninsured patients!
As various others have stated here high deductible HSAs aren’t any kind of panacea in the USA.
Providers have unlearned how to function without insurance intermediaries. Everyone wants to run charges through an opaque 3rd party claims process. Which is where all the overhead costs are. Doubly hard now that hospitals are buying up all the private practices.
“Providers have unlearned how to function without insurance intermediaries.”
This. It would take a lot of experimentation with no slight risk of bankruptcy for existing providers to stick their neck out and try a more normal-market-like approach. The adjustment problem and associated costs would be terrific.
Somewhere along here there is a tipping point, where any provider who does not provide a reliable quote actually loses business.
An auto body shop that did not provide reliable quotes would rapidly go broke. Right now health providers can ignore HSA ahoppers because they are such a minority.
Incidentally, the proposed law that the uninsured pay Medicare rates is long overdue.
The problem is that the uninsured are not a voting bloc in the slightest. Legislators can ignore them and instead kowtow to hospitals who are big campaign donors.