Tuesday, July 11, 2017

A ray of health insurance hope

Kristina Peterson, covering the senate health bill in in the July 11 Wall Street Journal reports a ray of hope for our legislative and policy process:
“If we’re going to subsidize Americans who can’t afford health insurance, do it directly. Don’t do it through the premiums of others,” said Sen. Jeff Flake (R., Ariz.) 
Few wiser words were spoken.

Our government wants to subsidize some people's health insurance -- poor, sick, old, disabled, veterans, children, people with specific diseases, and so on. And, in many cases, rightly so.  But our politics are allergic to "tax and spend." So, we hide it -- we force some people to buy overpriced insurance to subsidize others.

It is financially completely equivalent to taxing and spending. To those who don't want "taxing and spending," you are fooling yourself by allowing cross subsidies instead.

Except it's far more damaging to the economy than the disincentives of broad-based taxation.

Cross-subsidies cannot stand competition.

If competition and free entry are allowed, insurers offer policies tailored to the wealthy, healthy, young, able-bodied, etc., and peel them off from the cross-subsidy scheme. The equivalent tax and spend can simply say, here is a voucher, go buy health care and insurance from an innovative, competitive, dynamic, cost conscious markets.

A health care and insurance market that subsidizes certain groups cannot be competitive. Then costs spiral, then health care and insurance are even more "unaffordable," then the need for subsidies is greater, the overpriced insurance rises to ridiculous costs, and people need to be herded ever more reluctantly into the system.

Peterson's reporting neatly captures this lovely revelation.
The biggest sticking point in recent days has centered on a provision supported by GOP Sens. Ted Cruz of Texas and  Mike Lee of Utah that would allow insurers that sell plans complying with ACA regulations to also sell health policies that don’t.
Well, that sounds sensible, no? Why ban competition and innovation in health insurance? Whatever happened to selling insurance across state lines anyway? Well,
Health analysts say that would likely lower premiums for younger, healthier people, who would buy more limited policies, while causing premiums to rise for people with pre-existing conditions, who would buy the more comprehensive plans that comply with the ACA.
And
“His proposal would lead to unaffordable rates for people with pre-existing conditions,” Ms. Collins said Monday of Mr. Cruz’s proposal.
Cross subsidies cannot stand competition.

Senator Flake has it right. We are at a crossroads. America can choose to acknowledge the extent of subsidies we wish to have in our health care system, and forthrightly tax people to provide subsidies, transparently, on budget, where we can see what we're doing, and allow a vibrant competitive health care and insurance market to emerge -- or we can continue the cross-subsidy / anti-competition spiral to its inevitable denouement.

The Cruz/Lee/Collins/Flake debate hopefully makes that choice  abundantly clear. That this little bit of freedom -- you're allowed to sell off-exchange policies again -- cannot be tolerated ought to make the choice so clear, so stark, so simple that perhaps they will all see that "muddle through" is at an end.

Michael E. C. Moss puts it well in a related blog post,
the obvious compromise, the only good solution, is to do both: free-market pricing of healthcare and insurance in order to drive down prices, coupled with government subsidies for the needy to enable them to buy care and insurance at market prices. 


10 comments:

  1. That seems perfectly reasonable, and perfectly outside the realm of possibility with regard to any final legislative product.

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  2. "Per me si va ne la citta dolente,
    per me si va ne l'etterno dolore,
    per me si va tra la perduta gente.
    Giustizia mosse il mio alto fattore;
    fecemi la divina podestate,
    la somma sapienza e 'l primo amore.
    Dinanzi a me non fuor cose create
    se non etterne, e io etterno duro.
    Lasciate ogne speranza, voi ch'intrate."

    "Through me the way to the city of woe,
    through me the way to everlasting pain,
    through me the way among the lost.
    Justice moved my maker on high.
    Divine power made me,
    wisdom supreme, and primal love.
    Before me nothing was but things eternal,
    and eternal I endure.
    Abandon all hope, you who enter here."

    http://etcweb.princeton.edu/dante/pdp/
    Divine Comedy by Dante Alighieri,
    Book Inferno, Canto III: 1-9

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  3. I agree with this post. Cross-subsdies are poor economics.

    Of course, Rural America is a pinko-wonderland awash in cross-subsidies. Every time you buy an airline ticket, pay an Internet or phone bill, or turn on a light switch you are cross-subsidizing Rural America. Corn fuel-ethanol anyone?

    But to health care.

    Maybe this is why the VA model---federal hospitals on federal land, staffed by federal doctors, nurses and administrators, for the benefit of 22 million former federal employees, all paid for by income-taxpayers and no co-payments---is accepted. Though pure communism and treated as sacred, the VA does not entangle other sectors of the economy.

    The VA claims to provide health care services on par with the private sector. Certainly, not a single GOP representative is even hinting the VA should privatized, or eliminated.

    So, perhaps the VA model is the solution. Just expand the VA to cover a larger population. The right-wing gas already embraced communism as the solution for health care, in its hug of the VA.

    Still, as a practical matter, I wonder why a Great Britain or Japan can provide medical care for mush less, with the same outcomes, roughly.

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    Replies
    1. Doc at the Radar StationJuly 13, 2017 at 7:25 AM

      I like the idea of funding through taxes rather than premiums generally. I've always wondered about a federal consumption tax that's set up there pretty high to fund this expanded VA idea or something similar. It would be regressive by design-nothing exempt (food, i.e.). That way the people who benefit from it most are paying - some skin in the game. With skin in the game, maybe we can get costs under control like Britain or Japan. The potential win-win with consumption tax funding would be a reduction in consumption and an increase in savings. That would reduce the trade deficit.

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  4. Senator Flake got it wrong. If you subsidize high risk people directly, where will the money come from? It has to come from the taxes. Most people are healthy, so the money must come mostly from the healthy people. Whether it comes through higher premiums or taxes, it is not substantively important. What the Republicans are hoping for is that they will get the support of the healthy majority, who will have lower premiums (and less protection if they get really sick), but they are not telling them that their taxes will go up to pay the premiums of sick people with pre-existing conditions. Finally, please name a country which allows pre-existing conditions.

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    Replies
    1. Good point. If we want to subsidize the poor and those with preexisting conditions it is either through cross subsidies or through higher taxes. Argument against cross subsidies is that they are somewhat obtuse to the casual observer and it is good to do government interventions out in the open in the light of day so voters know what is going on and can make their opinions known. Higher taxes that need to be enacted because of government subsidies to the poor and the sick are more or less right there for all to see. But that will make it all that harder to maintain the level of necessary funding; tax payers rebel against higher taxes and programs to help the poor and, even the sick, don't always fend well. Witness the constant attack on welfare programs. So the cross subsidy model may be better. Remember, the young don't stay young and on the negative side of the cross subsidy, and as they age they will get less healthy with a high chance of being on the positive side of the cross subsidies. With regard to health care, I think the model of "we are all in this together," is a good one.

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    2. Flake is correct. It makes a huge difference. Broad based taxes are much less distortionary than artificially inflated premiums, which is the point of Dr. Cochrane's post.

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  5. Paolo MartelliniJuly 11, 2017 at 9:37 PM

    One assumption behind Cochrane's argument -both here and in After ACA - is that competition has a different impact in the following 2 situations: 1) no screening on observables, same insurance for everyone, cross-subsidization; 2) tailored insurance for the young, or the sick etc. If lower costs and higher quality allow to lower the AVERAGE price of the insurance in scenario 1), then competition is still effective. My understanding of Cochrane's idea is that a system in which you can offer an insurance product targeting patients with cancer maximizes the incentives to innovate in cancer-related technology. Still, it's not obvious to me why such incentives should be 'much' lower in a system where cancer is just one component of a larger bundle (or in which cancer is just a risk and not already a realized outcome)

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  6. I think everyone has it wrong. Get the price of medical care and prescription drugs under control first.

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    Replies

    1. The reason the 'price of medical care and prescription drugs' is the current system of using third-party payers. You can only get prices 'under control' by not using government controls. You have to let the give and take between producers and consumers control prices.

      A system in which one party consumes something that is produced by a second party, but paid for by a third party is an exceptionally poorly thought out one. We need LESS reliance on health insurance. Not more.

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