Framing the problem

Sorry to keep harping on my idea to recapture the tax expenditures we're making to subsidize private insurance's bloated administrative costs, but I want to emphasize another feature of the idea, that it helps correctly frame the problem clearly. In the fight to enact this proposal, its proponents can and should just repeat three things over and over:

1. Health insurance costs too much because insurance companies skim too much off the top
2. Insurance companies fighting this proposal just want to keep their special interest tax breaks for overhead, while we want to redirect the subsidy to providing actual care
3. When insurance companies say they could never reduce costs much more than they have, they're saying Medicare is more efficient than they can ever be

Best of all, these same messages help frame the debate over whatever the big proposal is that the tax is designed to help fund. Insurance industry running "Harry and Louise" ads? They don't think the plan won't work, they just would rather keep the money for their special interest tax breaks.

What kind of gradualism?

Matt Yglesias suggests a gradual approach to expanding good single-payer style programs instead of a "big bang" approach to getting universal health insurance now, but based on a cobbled together approach resting on the faulty premises of the employer/individual market systems.

The strongest reason for this approach is that it's good policy. Let's make sure our victories (compromises or not) work, instead of winning passage of a plan that fails and gives all UHC efforts a bad name. But Matt also makes a good political point:

It means the step-by-step defunding of the health-industrial complex that does so much to provide financial support for reactionary politics in America. The alternative -- sticking progressive necks out for the opportunity to direct customers to an insurance industry that hates us -- doesn't make sense.

This approach to fighting big tobacco has worked wonders (as the bunch of recent cig tax hike proposals can attest to). As smoking sections and warnings give way to taxes and bans on smoking in restaurants, bars and public buildings, the number of smokers declines and the tobacco industry has fewer people to whip into a fury and consequently less clout.

One question for Matt though: does this gradual approach have to be straightforward single-payer style programs or is there a role for policies like caps or taxes on administrative costs that make the current system better, rather than building on its flaws (as individual mandates and premium subsidies do)? The taxes or fines from these programs can help pay for the small expansions of medicare and also reduce the insurance industry's profit margins and clout. The drawback is, if these approaches work, they do lower the pressure for change. But is that enough reason to oppose them?

Health plans are in the air in... Pennsylvania

Gov. Rendell (D) has also proposed a new plan early in January to expand health insurance. Part of the plan is the fair share for healthcare model used to target Walmart retooled for small business:

The plan would also make it mandatory for small businesses -- those with fewer than 50 employees -- to provide health care or pay a fair-share assessment of 3 percent. It would be phased in over several years, with the smallest of employers, those with fewer than 10 employees, having to commit last.

Next, he proposes a cap on administrative cost (or floor on premiums going to healthcare):

Rendell proposes that rates for health care be set by an insurance commissioner, with 85 percent of the premium money dedicated to medical care. The remainder could be used for advertising and overhead.

The bulk of the program would be called "Cover All Pennsylvanians" (CAP) and, according to his press release:

Businesses may participate in CAP if they have not offered health care for their employees in the past six months, if they have fewer than 50 employees and if, on average, those employees earn less than the state average annual wage (approximately $39,000). Businesses that choose to join the program will pay approximately $130-per-employee/month and their employees will pay on a sliding scale, ranging from $10 to $70, depending on income.

Governor Rendell said all uninsured Pennsylvanians – no matter the size of their employer – will be able to purchase affordable health insurance through CAP. Every uninsured adult who earns more than 300 percent of the federal poverty level can participate in CAP by paying the full cost of the premium, which will be approximately $280 per month.

Uninsured adults who earn less than 300 percent of the federal poverty level and employees of small businesses whose average wages are lower than the Pennsylvania average will get help paying CAP premiums through discounts and subsidies. For example, a family of four who earns up to $60,000 a year will be eligible for assistance.

The individual mandate will focus only on individual earning more than that level and on employers (who have to "pay or play"), but presumably those beneath that threshold will still have the option not to buy a CAP plan, meaning Rendell's plan will still have more adverse selection costs than medicare for all. Still, the state subsidies will make CAP attractive for even those with relatively low expected costs, so this looks like quite an improvement. It expands coverage without adding too much to the private health insurance system with its high administrative costs.

Health plans are in the air in... California

In CA, GOP leaders reject governor's health plan, suggest an alternative. The alternative?

It includes expanding the role of clinics in caring for the uninsured as well as providing tax breaks and other incentives to get more workers and employers to voluntarily buy coverage.

The plan also contemplates redirecting hundreds of millions of dollars in tobacco tax money that now goes to preschool and anti-smoking programs to pay for health care programs.

Health plans are in the air in... Maryland

Maryland Pushes Expansive Coverage

The most ambitious of several new plans is offered by Del. Peter A. Hammen (D-Baltimore), the health committee chairman and "would affect about a third of the state's uninsured but leave a half-million people without coverage." Its features:

• Workers earning four or five time the poverty level mandated to get insurance or pay fee (possibly as a lost tax deduction)
  
• $1 Cigarette Tax
• expand Medicaid coverage to many low-wage workers who now are eligible only if their income is 40 percent of the federal poverty level, which is set at $10,210 for an individual or $20,650 for a family of four
• subsidize small businesses to encourage them to provide coverage for their employees

And Governor O'Malley's plan? Its features (or bugs, you decide):

• No Cigarette Tax
• Small businesses would set up accounts for their workers to use tax-free dollars to buy coverage

Why is NJ looking to emulate MA on Universal Care?

After cutting property taxes, NJ's Governor Corzine (D) and state legislators appear to be looking at an expansion in health insurance modeled after Massachusetts.

Can I just ask... why? Sure, nearly any policy to cover uninsured people might be good in the short run, but the Massachusetts plan, less than a year old, is already falling short.

The MA plan involves and individual mandate with some state assistance in paying premiums for those with incomes too high for Medicaid but too low to afford insurance on their own. Gov. Romney (R) vetoed the version of the plan that penalized employers for not providing insurance, so naturally, the individual market is growing more important and driving prices up for bare-bones plans. The "Connector" agency established to help make sure there are low cost plans is bewildered:

Disappointed by the high costs of the minimum insurance plans – which average around $340 to $380 per month – the Connector told insurers to "sharpen their pencils and come back with more affordable options," said Joe Landolfi, spokesperson for Connector chair Leslie Kirwan.

Of course, the basic dynamics of a relatively-unregulated individual insurance market will prevent any premiums from coming in much lower - sharp pencils notwithstanding. Unless administrative costs of private plans are address - through caps, taxes, or some other kind of limit - private plans for individuals will never be a good deal.

Healthcare Xbox Style

Remember all those riots over Xboxes and, I think originally, cabbage patch kids? I think "medicare for all" advocates could use that marketing model for their own policies. One idea my friend Raj mentioned seems particularly promising:

A number of states have great, cheap, efficient health insurance for state or municipal employees. Some have suggested allowing small businesses or self-employed folks to buy into these plans, since the regular insurance market is so expensive or skimpy for them. The problem with that is that those most likely to need care would buy-in, driving up prices, while others would buy cheaper private plans. The ideal solution, "medicare for all," forces everyone to buy-in, but we're working on making that politically feasible.

Raj's idea is to start with a pilot program. By limiting the number of businesses who could buy in, the adverse selection problem would be pretty minor and the overall premium rates would stay more or less the same. Perhaps more importantly, small businesses who didn't get picked for one of the coveted pilot slots would start clamoring (and lobbying) for the program to be expanded so they too could get the good insurance for reasonable prices that the state's low administrative costs make possible. The public clamor (though maybe absent the riots from the Xbox fights) would help change the debate and show how well public insurance works and that everyone wants in.

The legislature could respond to the lobbyists by saying "well, we can't scale this up too much more without diluting the pool . . . unless you want to put everyone in the pool by making it mandatory." And a lot of small business (not to mention Ford and GM and others with legacy costs) might be pretty happy at that point to take them up on it.

The Moral Foundations of Health Insurance

Jennifer Prah Ruger here at Yale at the School of Medicine has a new paper posted on SSRN on the moral foundations of health insurance. Thanks to Alan for the heads up.

From the Abstract:

The US and numerous developing countries do not provide universal health insurance coverage to their populations. Academic approaches to health insurance have typically adopted a neo-classical economic perspective, assuming that individuals make rational decisions to maximize their preferred outcomes, and businesses (including insurance companies) make rational decisions to maximize profits. In this approach, individuals who are risk-averse will purchase health insurance to reduce variation in the costs of health care between healthy and sick periods. In empirical studies, however, individuals do not always make rational choices. They also find it difficult to assess their health risks and to know how much insurance they need.

By contrast, medical ethics has focused on the issue of equal access to health care, but provided little in the way of philosophical justification for risk management through health insurance per se. Nor has it shown how the practice whereby many at-risk individuals pay premiums to cover one individual's expensive health outcome ('risk-pooling'), is ethically desirable, except insofar as it ensures equal access to health care and equal income to purchase it for all contributors.

This article offers an alternative moral framework for analysing health insurance: that universal health insurance is essential for human flourishing. The central ethical aims of universal health insurance coverage are to keep people healthy, and to enhance their security by protecting them from both ill health and its economic consequences, issues not adequately considered to date.

Universal health insurance coverage requires redistribution through taxation, and so individuals in societies providing this entitlement must voluntarily embrace sharing these costs. This redistribution is another ethical aim of universal health insurance unaddressed by other frameworks. This article is part of an alternative approach to health and social justice, offered here and elsewhere, that builds on and integrates Aristotle's political theory and Amartya Sen's capability approach.

Op-ed: "Fix the system with Medicare for all"

Dr. Marcia Angell, a senior lecturer at Harvard Medical School and former editor-in-chief of the New England Journal of Medicine, wrote an op-ed published in today's Boston Globe: Fix the system with Medicare for all.

Looks like the "medicare for all" framing is catching on, which I couldn't cheer more.

In coming weeks, I'll analyze some of the state plans like those in MA that try to cobble together fixes without fundamentally changing the employer-provided insurance foundation. Obviously, some politicians prefer incremental approaches, but these seem to be particularly inefficient models.

So, the $64,000 (or, um $1.9 trillion) question is:
Besides phasing Medicare in for younger workers, what are other incremental approaches progressives might pursue?

I Undersold Myself By Half

In the last post, I suggested taxing insurance companies directly on their administrative costs, but realized there's another way to do this that may already have momentum behind it.

President Bush wants to phase out the deduction for health insurance to discourage "gold-plated" plans. Why not use the same method to discourage plans with bloated, inefficient bureaucracies. It may be hard to convince Americans that healthcare shouldn't be deductible, but why not require insurers to specify how much of premiums actually go to healthcare and how much goes to profits and administration.

People could still deduct the healthcare part, but would get no deduction for the overhead. Even having access to these percentages would help people and employers shop around (and probably lead them to government plans where available), but the tax change would further that effect. It may be more popular to levy the tax on the insurance companies, but in the end, the economic effect would be similar, except that using the income tax system would distribute the burdens more progressively. The revenue raised could be targetted at buying or subsidizing insurance for the uninsured directly or through an offsetting tax credit.

Dueling Republican and Democratic Plans in Connecticut

Connecticut's Governor Rell has also come out with a "Charter Oaks" health plan.

Basically, she hopes to attrach a private insurance company to offer coverage for $250 per person to all adults between 19-64. The claim is that the only costs to the state will be administrative and marketting, so one wonders why insurance companies how haven't done this already would be willing to do it now. Perhaps she is expecting the democrats to add premium support and doesn't want to be the one to propose significant spending as a bargaining position.

She and the Dem House leader have raised questions about funding for the more significant State Senate proposal. Senate President Don Williams has said everything, including tax increases are on the table. They could raise income taxes. They could follow the Governator's model of taxing doctors and hospitals and then returning them the money in higher medicaid payouts. But why tax the part of medical care we like (actual services), which may be passed onto those who need the care, instead of taxing the costs we don't like. Here's a proposal:

Let's levy a 20% tax on insurance companies on all premiums that don't go directly to service provision. Unlike the hard floor of 85% for services the Governator proposed, this would allow some flexibility for insurance companies to achieve efficiency, while giving them an incentive to do so and raising revenue to boot.

Connecticut's new health proposal

Connecticut's State Senate majority leader announced a new plan to dramatically expand and streamline the state's medical insurance system. It's difficult to know whether the plan will get through the conservative Democrat led House and moderate Republican Governor in anything like its current form, but it's worth a close look. CT borders MA and legislators here don't want to be outdone by the universal healtchare promised by their neighbors to the north.

While not universal, the plan sets the stage for a much more coherent system than the MA/Clintonian model of employer and individual mandates. It's nice to see the State Senate Leader's release using the words "looks ahead to 'Medicare for all.'

A little more than half of the $450 million proposed would go toward raising reimbursement rates for Medicaid as well as slightly more expansive state programs HUSKY and SAGA to levels more similar to Medicare. This change will make doctors much more willing to see patients enrolled in these programs and may ease the pressure on raising costs to privately-insured patients.

The other $200 million or so would increase the eligibility for these three programs to include all children and families up to 185% of the federal poverty level, including dependents up to age 26 if enrolled in school, and even single adults earning less than $9800. It would also combine a few of the programs to deal with a problem many enrollees have: constantly being shuffled between programs due to relatively small fluctuations of income.

The last major item is a panel to look at solutions for the other 60% of the uninsured, and those who are struggling to remain insured. As the nod to "medicare for all" suggest, single-payer suggestions are at least nominally on the table.

On Wisconsin!

Three cheers for Wisconsin's Governor Jim Doyle. If his proposal for a statewide ban on smoking in restaurants and taverns and a $1.25 tax a pack on cigarettes is adopted, it will:

1) Help curb teen smoking, which is highly responsive to price
2) Reduce damage to non-smoking patrons and employees
3) Lower costs for the state's medicaid program
4) Finance the costs that remain with the cig tax, freeing up health funds for CHIP or other health priorities

As a smug non-smoker, I've loved being able to go to bars without someone blowing smoke in my face and on my clothes in NYC. All the doomsaying from tavern owners that this will destroy their business turned out to be overblown there. A year later, some where saying their increases in family business more than compensated for any disgruntled smokers who chose to drink and smoke at home.

I'm still waiting for a WI transfat tax though. Since 2003, it is no longer the fattest state in the union...but that's because the other states gained weight.

More on Bush's "Plan"

The NYT's "Experts See Peril in Bush Health Plan" elaborates on some of the points made in yesterday's editorial about the economic distadvantages of Bush's plan.

Unfortunately, the article focuses too much on this year's tax consequences of the plan for various families and only to a lesser extent on the transformation it may initiate in the health insurance markets.

Although economists debate how extensive a shift toward the individual insurance market Bush's plan might create, it clearly will create some shift. The emphasis so far has been on whether employers will now decide to drop coverage (presumably using the money to increase wages) because their employees can then purchase their own insurance on the private market.

This has too problems. First, as already noted, the same insurance is much more expensive on the private market because of adverse selection. Plans that offer decent coverage attract more individuals who think they're likely to need it, and thus are much more expensive than similar plans given equally to all employees of a single business.

Individuals must purchase insurance to get the standard deduction, but insurers will continue to deliberately design plans with holes in areas like mental health that are highly correlated with other types of expensive care to try to convince individuals with high expected costs to choose other plans.

The other problem is that employers may simply drop coverage while providing little or no bump in salary. Even if raises initially offset the costs of catastrophic insurance, there is little guarantee that wage increases will rise at the same rate as insurance premiums. In fact, the predictability and lower rate of increases is precisely why employers may want to stop providing insurance in the first place.

How to Make Bush's Health "Plan" Work

The NYT mentions how President Bush's plan would add to the "dysfunctional individual policy market, where administrative costs are high and insurers strive to avoid covering people who are apt to become sick." This is dead on and may imply they finally started reading Krugman's columns on their op-ed page.

So, how should Democrats respond to his proposal with a more progressive policy proposal of their own?

First, they could replace the "standard deduction" with a credit for all health care or insurance expenditures. If the credit were refundable, it would be worth the same to all families, as opposed to the standard deduction, which is worth over $5,000 to families in the top bracket and nothing to the more than 50 million wage earners who don't otherwise owe federal income taxes.

The credit change isn't enough though, because it still undermines the risk pooling of the employer-based solution without providing a replacement. This is likely to increase costs for everyone as insurers ramp up administrative costs and invest more money in avoiding the individuals who are most likely to get sick and require expensive care. It will also dramatically raise costs for those with preexisting conditions, who may not be able to get insurance at all.

Along with converting the health insurance deduction to a credit, Congress should copy the best features of Governor Schwarzenegger's recent proposal.

First, they should require that at least 85% of premiums pay for direct health services, effectively capping administrative costs at 15%. This limit forces insurers to focus on improving efficiency (rather than just weeding out applicants and denying care) to remain profitable.

Second, they should enact a "community rating" law requiring insurers to charge everyone the same, regardless of age or preexisting conditions.

Along with the tax credit proposal, these two simple changes could make health insurance dramatically more affordable without adding to the federal deficit or violating Pay As You Go rules. Insurance companies will still tinker with their policies to try to be unattractive or annoying to those who tend to use their insurance, but that's difficult to get rid of in a private system.

Insurers will probably complain that they can't reduce their bloated administrative costs below 15%. When they do, Democrats can point out that maybe it's time to let younger people buy into a system where administrative costs total only 2%, like say, Medicare.