Foundation for discussing healthcare

Last updated on: September 23, 2007 at 5:14 am by M.Z.

Foundation for discussing healthcare 2007-09-23T05:14:06-05:00 M.Z.

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My patience for most healthcare discussions is fairly low. Too often the discussion is a group of cliches. I will confess to not having a healthcare solution. My sympathies are with a public sector intervention. Before I do a post on such a thing though, I want to get several things out of the way.

Proposition: Cable and satellite television and other non-essential expenses are depriving the healthcare industry of necessary funds thereby causing healthcare providers to increase prices on those able to afford care.
Reply: Let’s take a moderately expensive cable plan of $60 per month. A little multiplication brings us to an annual cost of $720. I do not have cable for those who insist upon knowing. The typical premium for an individual health policy is over $4000. The typical premium for a family health policy is over $9000. This does not include copays, deductibles, and co-insurance. Feel free to add additional money for that. Either I’m woefully uninformed about the typical American’s television spending or somebody isn’t a part of the rational discussion of healthcare policy.

Proposition: Malpractice claims and “defensive medicine” are responsible for a significant amount of the cost of care.
Reply: One would intuitively think so. Harvard and the Congressional Budget Office have studied the question, and they estimated the costs of malpractice (rightfully or wrongfully awarded) account for under 1% of medical costs. Call this the rule of really big numbers: when aggregate costs are super high, sometimes ‘high’ costs aren’t all that high. An MRI might run $2000. This MRI may not be purely necessary, but it is precautionary. You add a few of these up, you are talking about money right? Well no. There is only so much duplication possible. No matter how defensive a doctor is, he can’t make a patient go through breast cancer treatment twice simultaneously. Breast cancer treatment at $35,000 or so a crack is significantly more expensive than that MRI. In short, the extra costs generally go to the diagnostic side which isn’t all that expensive, relatively speaking.

Proposition: Free loaders such as illegal immigrants or those that choose not to have health insurance are driving up health care costs.
Reply: This will take you a little ways until you start digging. Most often these costs are cited as an aggregate number. In regards to illegal immigrants specifically, one needs to be certain they are actually talking about the illegal immigrant himself rather than his citizen children. I will not be debating illegal immigration; what I will tell you is that barring a constitutional amendment there is no legal basis to deny coverage to the child born in the US to an illegal immigrant compared to any other US citizen. In healthcare debates, I prefer to stay in the reality based community rather than debating whether the Supreme Court interpreted the 14th Amendment correctly. More often than not, people are stealing a base and claiming that underfunded Medicaid reimbursements are causing hospitals to close in the inner cities and other places where Medicaid is heavily utilized. This is indeed true, but it isn’t a children of illegal immigrants issue per se.

Resuming after the necessary diversion, the aggregate number is not near as important as implied. A significant portion of the care provided is care that would have been provided regardless. Such care may not have been provided at a hospital, but may have instead been provided at a walk-in clinic if the uninsured person cared more about cost. Walk-in clinics are not free. (Even free clinics aren’t free in the economic sense.) This means that the savings are hardly total. In the aggregate sense, better appropriating this care will provide savings of perhaps as much as 40%; it will be no where near 100%.

Proposition: I noticed in the last reply you still assumed that everyone would have to pay for it.
Reply: You are observant. You already pay for someone else’s care if you have insurance. That is the principle of insurance. I can’t tell you whose risk pool the previously mentioned folks will become members, but there is every possibility they could be in your risk pool. Those of you in the insurance industry know that insurers have insurers, so in the end we are dealing more with an accounting issue rather than a transference issue.

Proposition: Half the problem is the government is hip deep in health care. 50% of the country is covered by Medicare and Medicaid.
Reply: This is true. It is also true that these programs have impacts on those who don’t receive any benefits from them through increased costs in there own care. I know you’ll be shocked to hear at this point that there is some complexity about to be explained. Yes, there are additional costs. There are also hospitals where there wouldn’t otherwise be hospitals. If it wasn’t for Medicare and Medicaid, many of the hospitals in communities under 15,000 people would simply be gone. Yes, it would be cheaper to transport people to the major cities, but I think it is only fair to point out that having a stable, large payer does have some benefits. This is part of the trade off, and I’m not claiming this is good, bad, of indifferent.

Fundamentally, we have the issue of how we are going to provide care for the elderly and poor. And this is really an issue of how and not if. I’m certainly not going to make the claim that this has to be done by the federal government. It will have to be done however, and those more able will have to subsidize those less able. We don’t live in a Libertarian paradise. For those holding out for one, I’m not really interested in debating you. No offense, but it is a waste of my time. Care will be provided to the elderly and the poor, and the grown ups will figure out how to pay for it. Do Medicare and Medicaid’s reimbursements cover the true cost of care? No. This is more a question however of whether you pay for it with higher taxes or higher fees. There is no great savings about to accrue.

Proposition: Higher deductibles will result in better discernment among patients.
Reply: This is highly debated. The move to the HDHPs has shown some initial progress on premium rates. However – you knew this was coming – by definition, there needs to be a certain amount of discretionary income for such a plan to work. Ignoring premiums for a moment, I think we agree that there is a rational limit to the amount of a person’s income that should be spent on healthcare. For arguments sake, let’s call that 15% of a person’s income. Let’s take a $2500 family deductible plan. This means that by definition, this family needs to make at least $17,000 before the plan consumes too much income. For every $10/month in premium, you need to add $800 income to keep the plan rational. If the employee pays $200/month in premiums, you need households with income more than $33,000. At that point, you have excluded the bottom third of society from the plan. Taking the employer partially out of the equation, let’s make me the employer. I quoted myself with Anthem. I picked the Lumenos Health Incentive Account Plan 2. $3000 family deductible, $6000 OOP max. Total premium was $6400 a year. Just taking the premium over 15%, we come up with a minimum income of $42,000/year. For giggles, add just $2000 in OOP costs, and you get a minimum household income of $56,000. You have now excluded 45-55% of the population if everyone has to pay their own way on the premium. Most conservatives will claim that we should be moving away from employer provided health insurance. Needless to say, the ability of high deductible plans to work over all segments of the population is limited.

Proposition: State provided healthcare is an obvious violation of subsidiarity.
Reply: Blue Cross/Blue Shield for all of its joys and beauties is not a family unit. Considering that most people are rational, at least for this argument, we can see plainly that people generally do not address their healthcare needs at the family level. I worked at a relatively small company administering healthcare plans. We had under 300 employees, and we insured close to 100,000 people. By the time I left the company, the smallest unit that could competitively be insured as its own pool was 100 employees. Those plans didn’t assume a lot of risk on the employer’s behalf. Some had specific deductibles – amounts the employer had to subsidize on a given person before their insurance kicked in – as low as $12,500. When I was leaving, it was hard to find plans under $25,000. To avoid more detail, let me state that in my professional opinion the smallest social unit that could provide care for one another without significant dependence upon others social groups was 3,000 people. This would have allowed for about a $100,000 specific deductible. This is not to say that the reinsurance needs of a group of 3,000 was insignificant. The point is that in the consideration of subsidiarity we are probably talking about an organization unit at least the size of a city. Those who want to interject about public versus private in regards to subsidiarity don’t understand subsidiarity. There may be reasons why healthcare is better administered in the private sector versus public sector, but reasons of subsidiarity are non-determinative here.

Having said that, subsidiarity can be used to argue that States should administer health plans versus the Federal government.

Proposition: One should fear the government compelling or denying certain care.
Reply: My personal preference, if there is to be a public health plan, is that there would be the option to accept care under it or not. This does not mean that the government would have some sort of obligation to ensure parity between public and private care. In other words, I’m not opposed to the situation where the only rational choice is the government plan. Additionally I’m not opposed to the government extorting money from the citizenry to pay for such a plan. Taxes are to provide for the common good, and a reasonable argument can be made that a benefit provided to all members of society should be born by members of society. If a person thinks such a burden is too great, he can leave that society. A person can still choose not to accept the benefit. I know there are many people who did not support the Iraq War. We do not allow them to opt of paying for it.

In application, the only disappointment has been the funding of abortion. This is not a minor detail. As a side note, many State programs cover abortions for the poor presently. This does not make it good. It just means that this won’t really change unfortunately.

Proposition: The State unduly interferes with the Church when it provides medical care, since it is a work of charity.
Reply: I regret to say that that ship has sailed. The Church through its hospitals is no longer primarily performing a work of charity. She is engaged in business like her secular peers. Let me be clear lest there be any confusion: there is minimal to no charitable medical care provided out of the tithes the Church receives. Nearly all charitable medical care is funded out of the economic operation of the hospital, i.e. through higher fees for those able to pay. If we lived in a society where the Church was the center, I would have no problem with the Chruch administering the schools and hospitals.

Health Care

M.Z.

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