The government would pick up 100 percent of the tab for health care over a certain percentage of adjusted gross income—the number would have to be negotiated through the political process, but I have suggested between 15 and 20 percent. There could be special treatment for people living at or near the poverty line, and for people who have medical bills that exceed the set percentage of their income for five years in a row, so that the poor and people with chronic illness are not disadvantaged by the system.
This is part of asymposium to try to address the problem that pre-existing conditions pose for standard health insurance.
I strongly agree that a simple, minimalist government solution that leaves plenty of room for market innovation would be the best approach.
So, what happens when someone’s treatment costs infinity? Pre-existing conditions don’t cause any (political) problems for insurance, it causes problems for distributionists and those of us who don’t think political distribution should be done through private insurance.
Andrew is right. The demand for health care is almost unlimited. Public policy must address this by putting a firm cap on the amount of public money spent on any one person. The answer to make this palatable is to provide an incentive for people to forgo health care.
Copays provide one financial incentive to not get health care. But the economic incentive would be even greater if people were paid not to use health care. And in the case of late life, intensive care, the reward could be substantial. Consider: the government could spend an extra $100,000 on a patient or the patient could accept a $5,000 check to go home.
When the question is the spending of other people’s money rules are necessary to discourage additional spending – for there is no personal or institutional incentive not to spend more if someone else is paying!
Dan W. (and Andrew’):
Economics fundamentals: People have unlimited (infinite) wants, but are faced with limited (not infinite) resources to satisfy those wants.
Not if the Government promises to pay for all those wants once they exceed 15% of income, which is the proposal here.
Ask people how their health care spending changes once they hit their plan deductible. It shoots through the roof! For once a person has paid out of pocket all that the plan requires to be paid out of pocket the only disincentive to additional health care spending is the person having the time to spend the money.
Yes, they will be limited, once the government’s budget is threatened. That is in fact where we are. The universal coverage is the red herring to cover universal payment.
In practice, I suspect this would result in further weighting of healthcare away from prevention toward end of life as patients and hospitals have little incentive not to pursue heroic low probability of success measures.
This will inevitably result in NICE-style political control of healthcare rationing.
How is her proposal anything other than single-payer with a high deductible? I don’t see how that could plausibly solve the problem of the lack of market pricing in health care. Medical costs are highly concentrated among a few people. 10% of people incur 66% of costs in any given year with an annual mean expenditure of over $28,500. 50% of people incur over 97% of costs with an annual mean expenditure of $8,300. Hospitals receive nearly all their revenue from very sick people who would be over their 15%/20% income deductibles. Therefore, the Government would be the only payer for hospitals and many other types of providers and the Government, not any kind of market, would set those prices and dictate all kinds of things about the care. That seems even worse than the quasi-market that we have now.
Yes, it moves in that direction. I won’t say it is inevitable, yet when the loudest complainers are those who feel aggrieved that premiums and deductibles are too high on policies that objectively are correctly underwritten or even too generous to the customer (think what the Risk Corridors represent….too generous underwriting) what did you imagine would happen? More public funding. Could be this or it could be a bunch of special programs offsetting pre-natal or NICU costs or exceptional drug costs or any other thing that customers get cranky about.
Arnold and Megan:
I agree.
I have one suggestion to offer for both of your considerations. And I offer this suggestion only as a slight improvement on what I consider the already brilliant suggestions you’ve made.
Megan, you said, “The government would pick up 100 percent of the tab for health care over a certain percentage of adjusted gross income—the number would have to be negotiated through the political process, but I have suggested between 15 and 20 percent.”
My suggestion is intended to support that, but possibly even further reduce the complication.
I suggest the “government” pick up 100 percent of the tab for health care – but do so, ultimately, only by way of the government foregoing its right to tax private income that is actually spent on health care, or even health insurance.
This is NOT a new concept. The current system of business paid health insurance is the foundational working model. Business does not get “subsidies”, or “tax credits” for doing this. It is merely an “adjustment to gross income” artifact, that in all respects merely reflects that income (from any source) will not be taxed, if it is diverted to health care insurance. Part of the problem, as you note, is that pre-existing “adjustment to gross income” immunity from taxation is only extended to and through business – not to individuals. Just extend it to individuals, ALL individuals. And as an “adjustment to gross income” – the bottom half of the first page of the 1040.
To address those who might note that “poor” people do earn enough income to either pay their medical bills OR even have to file a 1040, I would respond: It doesn’t matter. As long as I, or anyone else, who DOES have an income can pay for their health care treatments, AND gain an “adjustment to [my] gross income” for having done so, I (and all other Americans) will do it.
Under current law, I can only get a tax deduction for MY incurred health care costs, and only to the degree that those actually realized costs exceed my gross income by 10%, and then only if I itemize. The tax code doesn’t preclude me from helping with other people’s health care costs directly, it merely taxes the income I could/would divert to that purpose, and precludes me from receiving any tax benefit from having done so – a tax privilege it does extend only to business.
Why doesn’t the tax code reflect a far more efficient, effective and moral basis of not taxing any income, irrespective of who earns the income, or how much they earn, as long as that income is diverted/spent on actual incurred health care costs? No complicated formulas, no “tax credits”, no “subsidies”, no income limitations, no “rich”/”poor” moralization. We, the American people will do it, if the “government” merely agrees to forego its right to tax the income we have to generate and divert to actually doing it.
Incidentally, I’ve already provided some supporting foundational theory for doing this and doing it this way: It is available here and here.
(I was commenting under the name “shayne” at the time.)
People should pay for the healthcare they consume until they can’t. Most people need a cost smoothing financial mechanism for this, and we misuse insurance for this today. This should be addressed.
Once someone can’t pay over the long term, I agree with Andrew that we shouldn’t use insurance companies and hospitals as instruments of political distribution, so government should pay for anything that we demand be provided by law.
Once the consumer no longer pays, any discussion that doesn’t tackle the decisions on what is and isn’t consumed, and who gets to decide is of little or no value. At the heart of the matter is always who plays the role of the buyer, weighing the tradeoffs in the various value propositions, and acting accordingly. Any plan that doesn’t define that is no plan at all. “Insurance” should play no role in healthcare.
What if someone proposed “people pay their own car payment until it reaches 20% of their adjusted gross income, then the government pays everything over that”? We are letting the fact that people don’t usually want healthcare do a lot of heavy lifting in our assumptions without discussing what else might be true if those assumptions didn’t hold.
Why just income? Most means-testing takes a look at your assets too.
Does ‘catastrophic health insurance’ also need to be ‘wealth insurance’?
Yes, there are incentive problems if you penalize those who saved relative to those who consumed. But there are also solutions for the problems.
Still, if I a procedure isn’t worth $X to you for saving your own life, then why is it worth $X to everybody else?
And speaking of incentive problems, are we talking household income or individual income? Distortion or System-gaming is possible either way.
I like this and think it could work because it isn’t minimalist government at all, but far greater government intervention than anything we have since they would be covering some 70% of total cost. When costs reach this point, there is no shopping or price comparison occurring because it is all covered by insurance anyway. Markets do work much better when costs are individually addressable.
Here is my plan:
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.
Let me offer a similar plan to Megan’s and Floccina’s:
1. The penalty for not having insurance would be 3% of income. (we are not far from that now.)
2. Paying the penalty would give one the coverage of Medicare Part A (for hospital and surgical charges).
3. The government would not try to dictate how one pays for preventive care, or ambulatory and discretionary care.
This should not result in deficit spending. Let’s say that ten million uninsured persons
had incomes of $30,000 each and paid their 3%. This would bring in $9 billion.
Now let’s say that 5% of this younger group had a hospital event each year, i.e. 500,000 persons. For each event, Medicare Part A paid $20,000, for total payouts of $10 billion. Darn near in balance.
There would need to be collection mechanisms for the self-employed uninsured, and there would need to be adjustments for family uninsured coverage.
I think this would get rid of the worst kinds of Obamacare policies, which wind up being an insecure and expensive version of catastrophic insurance.
Of course there will be protests from libertarians. My response would be that America has an extensive system for emergency care, which is effectively open to all, and everyone should pay for it in some fashion, either through buying insurance or paying their penalty. Everyone pays for the fire department, too.
The penalty for not having insurance should be that one simply pays more if an unexpected health care expense is experienced.
Insurance is for unexpected expenses. One cannot insure expected costs. One can only change how payment is financed. ACA is awful for many reasons, one of which is that it encodes in law the concept of prepaid health care – that by paying up front people are somehow going to get a good deal on their health care spending. Evidence is making it clear that no such deal exists.