Wednesday, April 09, 2008

ECON 365: Health Care Solutions

Here are several links to discussions of health care reform discussions. When evaluating health care proposals you should keep two questions in mind -- how does this plan help improve cost effectiveness by increasing quality, lowering costs, or (preferably) both, and how does this plan expand health insurance coverage (and hopefully expand access to health care)?

First, the KFF's overview of the presidential candidates plans.

Here's one health policy expert's examination of:

the Obama plan

the McCain plan

On the Democratic side there has been lots of debate about mandates.

Here's an extended discussion:

Here’s Paul Krugman:

Why have a mandate? The whole point of a universal health insurance system is that everyone pays in, even if they’re currently healthy, and in return everyone has insurance coverage if and when they need it.

And it’s not just a matter of principle. As a practical matter, letting people opt out if they don’t feel like buying insurance would make insurance substantially more expensive for everyone else.

Here’s why: under the Obama plan, as it now stands, healthy people could choose not to buy insurance — then sign up for it if they developed health problems later. Insurance companies couldn’t turn them away, because Mr. Obama’s plan, like those of his rivals, requires that insurers offer the same policy to everyone.

As a result, people who did the right thing and bought insurance when they were healthy would end up subsidizing those who didn’t sign up for insurance until or unless they needed medical care.
Here’s another more specific article on the “importance” of mandates.

On the other side, here’s David Cutler (my original advisor at Harvard and author of the Obama plan) with comments from Richard Escrow (note there are several very informative links at the start of this post before the interview I copied below; bold = questions from Escrow)

“I’d like to start with a general comment,” Cutler began. “Two possible reasons why people don’t have health coverage are usually given. One is that the uninsured are gaming the system. The other is that they can’t afford it and don’t know where to get it. Most of the literature suggests that the explanation is mostly the latter. That means the single biggest thing we can do to help the uninsured is to make coverage affordable and accessible.”

“That’s why all the Democratic plans focus on removing excessive profits where they exist, improving information technology, and so forth,” Cutler continued. “All the plans do those things, although I think the Obama plan does the most.”

“The mandate argument is: You must buy something – but I’m not going to tell you what it is, how much it will cost, or where you’re going to get it.”

“It comes down to this,” said Cutler. “You’ll never get someone to buy something if it’s not affordable and not accessible. People just don’t do it.”

That’s an area where the Edwards campaign has taken the lead. They suggest automatic enrollment whenever an American intersects with the health care system or government services.

“You can enroll them,” Cutler replied, “and then forcibly collect the premiums. That’s one way to solve the problem. But it’s not necessary to do that.”

“A better approach is to do everything possible to make it affordable and available. When it is, almost everyone will have it.”

There are a couple of concerns about that approach. One is the problem of “adverse selection.” Sicker people – or people with a greater likelihood of becoming sick – will enroll. That will drive plan costs up, making it prohibitively expensive.

“Let’s look at the level of coverage you can get without a mandate. Our estimates, based on studies in the literature, is that we can get 98% or 99% coverage without a mandate for adults. There may be some small pockets of people who choose not to buy it.”

What about those people?

“If there are free riders, Obama is open to mandates. But what he is saying is ‘Look, mandates seem like a panacea, but that’s not where the hard work needs to be done.’ Auto insurance is a mandate, too, and not everyone has that. You’ve got to prove to the public that you’re willing to do the hard work.’”

Would mandates be considered at that point?

“He hasn’t ruled anything out. It’s a matter of priorities. The fact is, the policy differences on the mandate issue aren’t that large at all. Sen. Obama believes they’re an option down the road, if other approaches don’t work.”

And yet Sen. Clinton made another speech about mandates and universal coverage yesterday. And the Clinton had ( Clinton Campaign Manager) Patti Solis Doyle and (Policy Director) Neera Tanden talk about health care differences with reporters this morning.**

And Paul Krugman weighed in on the pro-mandate side of the debate, too.

“I know the arguments,” said Cutler, “but look at the evidence. What really matters is: Can they afford the coverage?”

Part of the debate involves political communications: Is the mandate issue a winner for Democrats in the general election, or a liability?

“I don’t get involved in the politics of it.”

What about the concern – which I and others share – that insurance premiums are an inherently regressive form of ‘taxation.’ The state of Massachusetts has had to waive the mandate for 20% of the uninsured as a result. All the campaigns have been forced to create fairly complex subsidy structures in an attempt to offset that regressivity, but paying for some portion of health insurance out of general tax revenues – either for a public system or some type of voucher – would be less regressive. What about taxation as a funding mechanism?

“That doesn’t seem to be on the table now for any of the candidates.”

Then the devil is in the details, isn’t it? What would premiums costs? Who would get a subsidy, and for how much? Nobody is debating these issues with any specificity, and yet that’s where – arguably – the real debate should take place.

“That’s why we’re suggesting that we lower costs first. Otherwise, you’re saying you want to force people to buy something, but we don’t know how much it will cost or what you’ll get in return.”

There’s been talk that a consensus is forming among policy analysts that 10% of income is the right number for total out-of-pocket health costs, including premiums, copays, and deductibles. But that’s a very high number for lots of people.

“Well, healthcare is 16% of the GDP now. Some of that cost is being borne through taxes already. So it depends what you want to count.”

But 10% for whom? $4,000 for a family of four with income of $40,000 is a devastating figure. Whereas there are probably very few people in the top 2% of income who spend 10% on healthcare.

“That’s where the subsidy debate comes in, and is another reason to address the cost issue first.”
Here’s an example involving MA mandates and Medicare Part D subsides:

Can you really mandate people to buy health insurance?

That's not so much a policy question as a practical question and it is what Hillary Clinton seems to be saying is the big difference between her health care reform plan and the health reform plan of Barack Obama. That's why a news story this week out of Massachusetts caught my eye.

It seems that the Mass Department of Revenue is in the process of drafting new regulations to up the penalty for people who do not buy health insurance. If they are approved, the maximum penalty for those who do not buy health insurance would jump from $219 per year to a maximum of $912 in 2008. The penalty is estimated to be half the per person cost of the lowest priced health plan available.

Penalties would vary by age and the time a person was without health insurance. A 26 year-old would have a penalty of $672 per year and those over 26 would pay $912. So, a family of two adults over 26 would pay about $1,800 in penalties if they didn't buy health insurance (a reader has correctly pointed out children are not covered by the mandate).

The state health plan administrator- The Connector--has said that about 290,000 of the states 400,000, that were believed to be uninsured when the program was launched, have purchased coverage. But most of these people are those that get either all or most of their premiums paid by the state. Among those who get no subsidy, relatively few have chosen to buy insurance likely because they cannot afford the thousands of dollars in premiums for the minimum policy with a $2,000 deductible.

At a practical level, we are talking about middle class families being required to buy a health insurance policy costing $6,000 to $9,000 a year (with a $2,000 deductible) or having to pay a $1,800+ penalty.

The Connector has already exempted thousands of residents from the mandate because there was no way they could buy the coverage.

It is notable that the senior Medicare Part D drug benefit is voluntary but the vast majority of seniors have purchased it. Why? Because the government pays 75% of the costs and it is affordable. The Part D experience shows that if insurance coverage is affordable people will buy it.

The Massachusetts experience tells us if it is not affordable, people will not--or maybe more appropriately cannot--buy health insurance.

It's one thing to mandate health insurance coverage, but as we are learning in Massachusetts, the real challenge is making it affordable.

On the issue of health insurance mandates, Barack Obama, and the Republican candidates, are right.
Additional reading

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