A NOBEL LAUREATE ON HEALTH CARE REFORM

Like everyone else, Gary Becker has a blog. Last week he wrote a post about American health care. Though aware of its defects, Becker sees a lot of good in the U.S. system:

International comparisons underrate American health care. This is partly because these comparisons give insufficient weight to the fact that most of the new drugs to treat major diseases originated in the US, along with many of the new surgical procedures … The US is also much more generous than other countries, such as Great Britain and France, in making expensive surgeries and drugs available to older persons through Medicare and private insurance.

Becker does, however, have a few suggestions for making the system better:

1) Eliminate the link between employment and the tax advantage of private health insurance.

2) Encourage the spread of HSAs that encourage consumers to economize on unnecessary medical expenditures.

3) Reform medicare while greatly increasing the generosity of Medicare drug coverage.

4) Require everyone to buy private catastrophic health care insurance.

Needless to say, item four stuck in my craw when I first read it. As I have said many times before, I’m no fan of health insurance mandates. However, as mandates go, this is the least offensive variety.

That is to say, Becker’s mandate would not require people to buy what Arnold Kling correctly calls health insulation. It would require people to buy a cheap policy that would cover huge, anomalous health disasters.

His mandate proposal nowithstanding, Becker’s take on health reform is objective and refeshingly free of moral posturing. And, if followed, his reform suggestions would do a lot of good.

[HT Healthcare Economist]

Comments 19

  1. Lisa Emrich wrote:

    I appreciate reading your posts although I do not always agree with all of the positions. Reading this one makes me wonder – what are examples of “huge, anomalous health disasters”? Also, I have a situation which I’d like to have your take on….
    The Value of Money or the Value of Health – What to you See?
    thanks in advance

    Posted 22 Jan 2008 at 9:48 am
  2. Matt Horn wrote:

    Hi Lisa, from an actuarial standpoint an anomolous claim can come in any denomination, but I believe what he is referring to would be claims that adversely affect the risk pool of the group the member is a part of. Since he seems to be talking about the populace as a whole, I would tend to raise the bar to claims at the >$150K level. Of course, that could trend based on the cost of practicing medicine and treatment advances.

    Posted 22 Jan 2008 at 1:51 pm
  3. Catron wrote:

    Lisa, not only was I alluding to the kind of risk pool issue that Matt raises, but also to the kinds of personal health care events that lead to financial ruin. So, catastrophic coverage should not cover routine office visits to the doctor, or other minor expenses, but should instead pay for such things as cancer, heart attacks, or serious accidents.

    Posted 22 Jan 2008 at 6:32 pm
  4. Lisa Emrich wrote:

    Matt Horn wrote:
    Hi Lisa, from an actuarial standpoint an anomolous claim can come in any denomination, but I believe what he is referring to would be claims that adversely affect the risk pool of the group the member is a part of. Since he seems to be talking about the populace as a whole, I would tend to raise the bar to claims at the >$150K level. Of course, that could trend based on the cost of practicing medicine and treatment advances.

    Posted 22 Jan 2008 at 1:51 pm ¶

    Catron wrote:
    “Lisa, not only was I alluding to the kind of risk pool issue that Matt raises, but also to the kinds of personal health care events that lead to financial ruin. So, catastrophic coverage should not cover routine office visits to the doctor, or other minor expenses, but should instead pay for such things as cancer, heart attacks, or serious accidents.”

    So if one goal is to insulate against personal financial ruin, how could private individual insurance be modified to do just that without mandates? In my situation, I have an individual policy which protects the insurance company against large pharmacy costs. Drug benefits are capped at $1500 each year which is standard in the individual market in D.C. So basically, it doesn’t matter what the pharmaceutical prices are because the insurance company isn’t ultimately responsible for the costs beyond $1500.

    For an individual who may not be facing an incident of cancer, or heart attack, or major accident, the routine pharmaceutical costs can still be devastating. A great example is the cost of a disease-modifying medication used to treat (not cure) multiple sclerosis which costs $21,000-27,000 each and every year. In my case, this pricetag can equal my self-employed income. But the programs which are supposed to assist with such a devastating expense are not effective in doing just that. The individual is left with undesirable choices to make.

    This is the situation which has initially made me interested in health policy as I have struggled with the money aspect for the past two years, since the diagnosis of multiple sclerosis. So far I haven’t come across a proposal which would truly address my concerns…but I’m still looking.

    Posted 23 Jan 2008 at 12:44 pm
  5. Catron wrote:

    “The individual is left with undesirable choices to make.”

    This is the definition of life in real world, Lisa. A mandate won’t make that go away. What you really seem to be saying that you want someone else to pick up the tab.

    Posted 23 Jan 2008 at 12:57 pm
  6. Lisa Emrich wrote:

    First of all, thank you for conversing with me. I appreciate that.

    Catron said: “This is the definition of life in real world, Lisa. A mandate won’t make that go away. What you really seem to be saying that you want someone else to pick up the tab.”

    I am definitely living in the real world. Being self-employed and desiring to participate in the greater risk-pool which is insurance, I researched and chose the very best policy available to me 7 years ago after leaving the student insurance field while working on my doctorate.

    I’m not saying that I necessarily want someone else to pay my bills. I’m concerned that individuals such as myself are paying into the risk-pool, then being left out when the shared risk is needed. I read my policy very carefully before signing and in comparing the wording to the current policies being issued, it is apparent that some slightly ambiguous wording has been tweaked. In this case, the original policy indicated that the coinsurance (10% in my chosen plan) would take effect after the $1500 cap was achieved. This is not the case and differs greatly from the group policies issued by the same company.

    I am concerned that there is such a great difference in group vs. individual insurance plan ‘rules.’ I don’t want someone to simply pick up the tap, I want to be allowed to continue to pay a shared-cost in which case the insurance company would still be inclined to negotiate better deals with the pharmaceutical companies. I think that negotiation is very important to maintain balance within the “health care system” we already have.

    As it is, the current arrangement requires that I keep my income below 200% federal poverty level to qualify for receiving the medication at reduced cost for the hope of protecting my ability to remain a productive member of the economic society. I would even like to maximize my earning potential while continuing to share costs within the greater risk-pool, but as a self-employed person I am somewhat left out of that equation.

    Posted 23 Jan 2008 at 1:35 pm
  7. Rich wrote:

    I think it would be useful to have a personal stop-loss product – one that kicked in when medical expenses exceeded a predetermined amount over the course of a period of time. This may be more useful than traditional catastrophic insurance, as it would cover non-catastrophic expenses that accrued slowly over time, as well as a costly hospitalization.

    Posted 23 Jan 2008 at 2:02 pm
  8. Matt Horn wrote:

    Rich, that really would be a key initiative. I think that there really could be legs under something as simple as a $20K catastrophic re-insurance. Problem is, we are one again stuck in the world of government mandated benefits. Way back, I used to carry a $10K policy that ran under $100/year.

    Lisa, I never commented on your blog, but have read you because I have family that have the same concerns. You stated that the policy read that after the drug cap it was paid under co-insurance. I am assuming that you pursued that? What was their answer? Also, do your drug cost accrue towards your out of pocket max under the plan? Since you are self employed, have you ever considered going into partnership with someone that does similar work? It may allow you to get into a group plan, and also give you some more clout in other buisness ventures. (This is what I did when self employed.) Since I am not in D.C. and don’t work the individual market, I am afraid I can’t give much more help.

    Posted 23 Jan 2008 at 3:48 pm
  9. Catron wrote:

    “I am concerned that there is such a great difference in group vs. individual insurance plan rules.”

    This is an artifact of the employer-based health insurance environment that we live with in the U.S.

    The solution to that is not a mandate. The solution is remove the web of perverse tax incentives that has been gradually put in place since WWII, create a national health insurance market by removing the state-to-state barriers that currently impede competition among insurers, and stop states from dictating what sort of coverage insurers can offer.

    Posted 23 Jan 2008 at 4:52 pm
  10. Lisa Emrich wrote:

    Matt said:”Lisa, I never commented on your blog, but have read you because I have family that have the same concerns.” Stop by any time you want.

    “You stated that the policy read that after the drug cap it was paid under co-insurance. I am assuming that you pursued that?” Yes I did.

    “What was their answer?” No, that once the cap was met, I no longer had benefits, thus nothing to apply the coinsurance to. It’s a little confusing as the main policy specifically excludes pharmacy benefits, but they are included in a separate rider. The coinsurance doesn’t apply to terms of the rider, although the coinsurance would apply if the main policy included the benefits directly. Crazy, huh? And Virginia Department of Insurance makes no claim to regulating insurance riders.

    “Also, do your drug cost accrue towards your out of pocket max under the plan?” No, costs incured beyond covered benefits do NOT count towards the out-of-pocket max which is $3000 in my case.

    “Since you are self employed, have you ever considered going into partnership with someone that does similar work? It may allow you to get into a group plan, and also give you some more clout in other business ventures.” I am a member of the Musicians’ Union through which I could apply for a guaranteed policy during open season. However, last year’s premiums exceeded $9000 for an individual and the drug benefit had a strange wording regarding self-injectable meds – subject to 50% coinsurance, although tier 4 drugs are listed as having a $75 copay. I was unable to get a clear answer, before signing up, as to what my costs would be.

    Thank you Matt

    Posted 23 Jan 2008 at 6:29 pm
  11. opit wrote:

    News releases I’ve been seeing indicate federal interference with state initiatives on healthcare.
    The “elephant in the room” on healthcare is the mess multiple ‘insurers’ make of accounting : a diversity of sources with different qualifications all trying to evade paying yet seem to provide the best options. ( Bullshit is cheaper than payouts.) This in a dynamic situation which does not allow a private party to ‘shop’ normally – and pressures for discounts !
    Talk to a doctor. He will tell you the American ‘system’ -isn’t.
    You can downrate Klein all you like. I’ve been very impressed with the way he worries at the situation like a dog with a bone and continually researches the situation. He’s been doing that for years.

    Posted 24 Jan 2008 at 10:28 am
  12. Matt Horn wrote:

    Lisa, you may want to keep your eye out on the OV for some plans. There are some plans that exclude injectibles from the drug card, but cover them deductible and co-insurance if done in the office. I know some of the MS meds are administered multiple times a day, so that might not be an option either. Sounds like the union plan may be worth looking into further. My thought is that if ithere is a co-insurance benefit, there may also be an out of pocket max. Also most group plans wont cap out, just in case it does fall under the tiering.

    Posted 24 Jan 2008 at 10:59 am
  13. Leslie Akins wrote:

    I am a Nurse Practitioner who works in a clinic for the working uninsured. My husband is a surgeon. We are living both sides of this issue. I can tell you–from 30 years of experience–that the American hospitals and health care providers are shouldering the burden of the uninsured–for whatever reason a person is uninsured. Insurance companies totally control the healthcare industry and operate relatively unchallenged. For instance, among my patients, the 50-64 year old group is primarily uninsured. Why?? Because the women fall out of childbearing years (and aren’t covered by gov’t programs) and they are too young for Medicare. They are also at a “less-employable age” than their younger counterparts–and more likely to have health issues, which makes the employers’ health insurance premiums go up. My BIGGEST complaint is the fact that an insurance company can declare a person “uninsurable”. This can happen to ANYONE–regardless of your income. Once this happens, you can’t obtain commercial insurance, and even if you are poor as dirt, you may not qualify for the state Medicaid programs. It is TOTALLY UNTRUE that the poor can always get state Medicaid. In Tennessee, you can only get on our program is you are a single parent of minor children and are at 100-150% of the Federal Poverty Guidelines (which is another subject), pregnant, or declared disabled. If you are a 50 year old woman with ovarian cancer and are uninsured—you are out of luck. Period. Who shoulders the burden of care? The hospitals and doctors who operate for free. This is okay in small doses, but with the rampant diabetes and heart disease in America (All uninsurable conditions), the system is at a breaking point. I do not see this issue addressed in the Free Market Cure videos, and do not see how HSA’s would help this group. The people I care for are primarily 40-64 y/o, working at minimum or lower wage unskilled jobs, and would never have enough $$ to put towards an HSA. In Murfreesboro, it takes 2-2 1/2 weeks of income below 200% of the Federal Poverty Guidelines to just pay housing and utilities. I do not see these people represented in the Free Market Cure discussions, but they are there, costing our hospitals and physicians millions of dollars. This can happen to anyone, believe me.

    Posted 25 Jan 2008 at 6:58 am
  14. Catron wrote:

    The plight of the uninsured is a symptom. It is impossible to cure the disease by treating this symptom. Attempts to do so result in the kind of idiocy that we see in Massachusetts.

    Posted 25 Jan 2008 at 7:36 am
  15. Matt Horn wrote:

    Hi Leslie, thanks for relating your experiences. I would like to thank you for your contributions in helping those in need. The Free Market Cure Pieces are meant to debunk common misconceptions. The biggest is the number of uninsured and why they are uninsured. Others surround the misconception that the single payer system is superior to the market system. Really, the bottom line is that you get to make the decisions with your patients on a course of treatment in the current system. In a single payer system, the government makes those decisions for you and your patient. Our system does have warts, but I would rather have warts than tumors.

    Posted 25 Jan 2008 at 11:32 am
  16. drmatt wrote:

    “the plight of the uninsured is a symptom” this is an incomplete sentence, allow me.
    the plight of the uninsured is a symptom of a for profit system, remove profit motivation, remove uninsured/uncovered/deviant access to health care. David, what do you know about treating diseases and symptoms?

    Posted 25 Jan 2008 at 1:00 pm
  17. Catron wrote:

    I was obviously using the words “symptom” and “disease” metaphorically, drmatt. I do know quite a lot about health care economics, which is why I understand that simply removing the “profit motivation” will have no effect on the underlying affliction (metaphor alert!) that plagues (metaphor alert!) the system.

    Posted 25 Jan 2008 at 1:49 pm
  18. drmatt wrote:

    it will have the most important impact on the “plight of the uninsured”. anything else is a joke to them, try being one. The remainder of the plague will have to be dealt with in a multifaceted approach, you can’t just burn the bodies, you have to get rid of the waste and the rats. and the question on symptoms and diseases (SARCASTIC JOKE ALERT, i am from the northeast afterall).

    Posted 25 Jan 2008 at 2:19 pm
  19. Marc Brown wrote:

    Matt Horn said:

    ‘the bottom line is that you get to make the decisions with your patients on a course of treatment in the current system. In a single payer system, the government makes those decisions for you and your patient.’

    Are you actually trying to say that all our many private schemes – with their many exclusions and conditions – offer more choice than say the French or British state systems? I think you’ll find that the reverse is true, as your ‘system’ is driven by expediency and cost, which is why, for example, your mastectomy rate is much higher than in Europe, where rates of breast conserving treatments are higher. You also have much greater protectionist working by doctors, who don’t like to relinquish profitable patients into the care of others offering different treatments.

    Posted 26 Jan 2008 at 1:55 pm

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