Tyler Cowan over at Marginal Revolution and Jane Galt at Asymmetrical Information have interesting posts on the productivity of American health care, health care cost, and related statistics. Mr. Cowan concludes that Americans pay more for health care than other countries, but get better health care in return. We die sooner than people in other countries because we eat too much and exercise too little, among other facts. Similarly, Ms. Galt points out that many of the outcomes measured in the health care debate are both difficult to measure between countries, primarily because many have non-health-care contributing factors. Both posts are insightful and well worth reading.
As each of these posts reflect, generalized nationalized health care is no panacea for the problems that we face in America’s health care finance system.
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Quite true. I would say that neither is totally privatized care. The health care crisis, unfortunately, demands a complex, multifaceted approach that doesn’t reduce well to sound bites.
My sense is that some type of nationalized health care finance package is necessary for citizens who cannot afford private health insurance or are uninsurable for other reasons. The tough decisions there are in regard to limitations of coverage, but my sense is that the doctors probably do that informally now in regard to the uninsured, so that can probably be worked out. However, for the rest of us, I am persuaded that self-insurance, with an umbrella policy for catastrophic illness or injury, is the only way that we are going to bring sensible economic and financial decisions back into the marketplace. Until individuals are making cost-benefit decisions with their doctors in regard to certain treatments, tests, etc., I am pessimistic that we are ever going to get health costs under control. Those decisions are simply not being made efficiently with third party insurers being responsible for payment of the health care services and products being purchased.
Can you elaborate a little bit on what you mean by ‘self-insurance’?
It is woefully underpublicized, but one example of self-insurance are the Health Savings Accounts that were enacted into law last year.
Prior to the enactment of the HSA’s, every dollar an employer pays in employee health insurance premiums avoids income and payroll taxes. For a middle-income employee, this generous tax subsidy means that government is effectively paying for almost half the cost of the health insurance. On the other hand, suppose the employer tries to put that same dollar in a savings account, from which an employee pays medical expenses directly. In this case, government will fully tax the dollar, taking almost half of it before it lands in the account. In this way, our tax law lavishly subsidizes third-party insurance and severely penalizes individual self-insurance. It encourages us to use third-party bureaucracies to pay for minor discretionary expenses, even though it would make much more sense for patients to manage those expenses on their own.
The new legislation changes all of that. It gives deposits to HSAs the same tax advantages now granted only to health-insurance premiums. It allows individual self-insurance and third-party insurance to compete against each other on a level playing field by allowing individuals to control some of their own health-care dollars without a tax penalty. And, for the first time, it allows a rational approach to the difficult social problem of how to allocate scarce dollars between health care and other goods and services.
Advances in medical science have reached a point where we can probably spend the entire GNP on health care — in useful ways. The Cooper Clinic in Dallas now offers a super-duper checkup (with a full body scan) for about $1,500 or more. If everyone in America took advantage of this opportunity, we would increase our nation’s annual health-care bill by a third. There are more than 900 diagnostic tests that can be done on blood alone, and one doesn’t need too much imagination to justify, say, $5,000 worth of tests each year. But if everyone did that we would double the nation’s health-care bill.
So how do we decide which procedures are worthwhile and which are not? There are basically only three ways. In other developed countries, the decisions are made either directly or indirectly by government. But government-imposed rationing is arbitrary, inefficient, unfair and probably unacceptable to most Americans.
The second method is to restrain spending using the techniques of managed care. But during the 1990s, voters expressed discomfort with having employers and large insurers ration their health care.
The third option is to allow individuals to make their own choices between health care and other uses of money, through a vehicle such as HSAs.
The concept of HSAs is neither conservative nor liberal politically. It should appeal to liberals who want an alternative to HMO rationing. It should appeal to conservatives who want an alternative to government rationing. It should appeal to every individual who suspects that impersonal bureaucracies care less about us than we care about ourselves.
Since 1996, a pilot program has made Medical Savings Accounts available to small businesses and the self-employed. But because there have been so many restrictions, only about 70,000 people have these accounts. A Treasury ruling two years ago allowed large companies to establish Health Reimbursement Arrangements, and at last count, 1.5 million employees had enrolled. But these accounts are also unreasonably restricted.
HSAs are the most flexible, consumer-friendly accounts yet devised. They allow individuals and their employers to make deposits each year equal to their health insurance deductible. The funds will grow tax free and people may use them to pay expenses not covered by insurance, insurance premiums between jobs, and health expenses during the years of retirement.
However, the new law is not perfect and it is woefully underpublicized. I considered opening such an account this year when I renewed my health insurance, but simply did not have enought time before my renewal deadline to complete a considered cost-benefit analysis. But I am definitely considering opening up one next year, and I am hopeful (although not confident) that this type of consumer-driven health care will incrementally grown within our health finance system.
Wow. Sounds like a promising venture, though I’d suggest that it alone is not going to “solve” the health care problem (nor, I suspect, is it intended to).
Would you mind posting your comment in the body of a blog post so I may link to it?
You are correct that HSA’s are only part of the solution. Clearly, some sort of nationalized insurance or federally-backed private insurance is going to be necessary for people who simply cannot afford to fund HSA’s or buy private insurance and for people with severe medical problems who cannot afford the costs attendant to those problems. In regard to this group of people, the tough issue is how do you ration the health care? Or, stated another way, there must eventually be a consensus on the limitations of such insured health care. Otherwise, you have another federal program that simply balloons into a huge governmental financial debacle.
However, for us fortunate to be healthy and reasonably productive, the concept of HSA’s is a viable alternative to high cost private insurance, which really does not have any meaningful competition in the health finance marketplace right now.
I’ll clean up my above commments on HSA’s and post it on my website, and let you know when I do. Clearly these are important issues that are being largely ignored by this Administration, which is troubling to say the least.