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September 11, 2007
Ponnuru on Health Care
It's sort of a shame that Ramesh Ponnuru's article on health care is behind The National Review's* subscription wall, as it's a very serious exploration of the issue that's fairly notable in its stubborn refusal to engage in the usual demagoguery (When's the last time you heard a conservative say, "Even the single-payer proposal is less radical than it may sound. It would make explicit the current system’s prepayment and socialization of costs, while reducing its administrative costs and its penalization of people with pre-existing conditions."). I'll probably do a few posts on it, but for now, this is an important graf:
The very fact that the tax code encourages employers’ provision of insurance introduces another distortion. If workers were buying a policy themselves, with no tax break to affect their decision, they might prefer a cheap policy that covers only catastrophic medical expenses while leaving them to pay for routine care out of pocket. But the playing field isn’t level: Your incentive is to have as many of your health expenses as possible qualify for the tax break, which means you want your employer-provided insurance to cover even routine expenses. Health “insurance” is no longer primarily a matter of insuring against remote but predictable risks, but of prepaying for health expenses. Instead of hedging risks, it socializes costs.
For the moment, I'll leave out the likely policy outcomes of the first few sentences, which would see a deterioration in coverage among the young and healthy, leading to rocketing prices among the old and sick, leading to a huge class of individuals being priced out of health insurance.
But in that last line, Ponnuru gets to the heart of the debate: Liberals really do craft health care policy with the intent of broadly sharing costs. The idea is that everyone should be able to afford care and coverage. Conservatives are trying to move towards a system where we pay basically what we owe, with insurance acting -- for those who can afford it -- as a check against ruin. Both systems create winners: In the conservative vision, it's those who are healthy and/or young and/or lucky and/or conscientious. In the liberal vision, it's rather the opposite. A liberal will tell you that, eventually, we're all going to be part of that opposite group, and that's the moment when policy should protect us. A conservative would say that sets up incentives to ignore your health and overuse care. But that, on a policy level, is the debate.
*Incidentally, I subscribed to The National Review a few weeks ago under the rationale that I need to follow conservative commentary, rather than just liberal commentary about conservative commentary. I haven't regretted it.
September 11, 2007 in Health Care | Permalink
Comments
I think the core debate is really about health insurance (or "insurance" as he puts it) versus health care. Republicans want health insurance for all with the distorting profit motive included while Democrats want health care for all.
Posted by: Col Bat Guano | Sep 11, 2007 12:34:15 PM
I think this really is the key issue in the health care debate -- the division of the cost burden between individuals as consumers of health care and individuals as employees/taxpayers. Too much of the public debate seems to focus on how to deliver health care rather than how to finance it.
Posted by: henry evans | Sep 11, 2007 12:36:55 PM
Moral hazard with regards to health care is an incredibly stupid concept. It is potentially criminal when applied to others in your care such as children, the infirm and elderly. When applied to yourself you are typically impaired to some degree. And the typical person is does not have sufficient information to make a truly informed decision in many situations.
A reasonable health care system can more than tolerate the occasional over care. Skin in the game is corrosive to the net benefit of the system. Health care should not be a hedge against catastrophe. High deductible major medical *might* keep you alive but they will not save you from financial catastrophe. And they will typically lead to treatment avoidance that will make catastrophe more likely.
UHC should be a given in a society as wealthy as ours. It is the only rational approach.
Posted by: Nat | Sep 11, 2007 12:42:40 PM
To be fair, I think that a lot of liberals would say that the appropriate response is not to view health care in terms of incentives and disincentives and instead view it as a right guaranteed by the government. The idea that young people need to receive more health care than they need so that old people don't receive too much--it's kind of a silly system. If we had a single payer system, that would cease to be a concern, and everyone would have exactly as much insurance as they need. I suppose that in either case, the people in need of care depend on the people who don't really need it so much to pay, but a single payer system would still do it in a more logical, equitable, and effective way.
Posted by: JKP | Sep 11, 2007 12:43:30 PM
He also misses what ought to be an obvious point -- those smaller routine costs, that people might "prefer" to pay out of pocket, include the basic screening and preventive care that avoid much higher costs later. And rather than paying for them out of pocket, many people will simply forego them -- which will increase health care costs in the long run, not reduce them.
Economic theory is the equivalent of the Ptolemaic system -- it is based entirely on assumptions which are false and do not pertain in the real world. This is true in all fields of commerce, but it is most sharply obvious in health care. Economists are not scientists, they are theologians. Nobody should pay any attention to them.
Posted by: cervantes | Sep 11, 2007 12:43:39 PM
Those "conscientious" people who don't take care of themselves are really making out in the "cost sharing" system. After all, they're getting health care that they didn't pay for to save their lives that they don't deserve. And it's just so horrible that the healthy, young, and lucky would have to help bear such a burden.
The difference is between the "liberal" and "conservative" health care visions is really between those who would share and those who simply won't. Some people just can't bring themselves to share, even when it is in their own best interest. They're thinking that they only want to pay for "their own" coverage. The fact is the actual cost of universal and comprehensive coverage per individual would be far less under a risk and cost sharing system. But that would involve sharing.
Posted by: postxian | Sep 11, 2007 12:48:37 PM
I agree with Henry... if a new system in properly financed, it's in a better position to provide access to all.
One question though on the following comment:
"would see a deterioration in coverage among the young and healthy, leading to rocketing prices among the old and sick"
I used to think this was a strong argument for single payer advocates or for those espousing a system where people must purchase insurance. But after reading Tyler Cowan’s book, I started to think through this a bit more; I’m starting to think this may not be a reality; that a majority of young and/or healthy people are still risk averse. And while purchasing a cheaper plan may make economic sense in the abstract, the reality is that they’ll want full coverage because of their aversion to risk. I may be wrong. But either way, can anyone point to some good reading on this subject? I’d be interested in knowing the deeper mechanics of this theory.
Posted by: DM | Sep 11, 2007 12:48:38 PM
Ezra,
I haven't read the article-- but from the part you posted, it may be thoughtful-- by someone with no actual understanding of health care.
His argument, at the end of the day, is that one driver of our health care cost growth is because consumption of health care is tax-advantaged, and if it were not the case, then health care costs would not be growing so fast.
There is no health policy expert that I am aware of that agrees with that sentiment.
A more direct point: he assumes that there is no correlation between access to routine care and need for catastrophic care. Not accessing the former will increase the likelihood of needing the latter. He completely misunderstands the reason routine care is part of health plans-- its not about tax advantage, its about prevention, monitoring, screening, etc.
There are several other obvious, fundamental flaws with the statement above. Just classic punditocracy blowing smoke, as far as I can see, with little actual knowledge of the issues themselves.
Posted by: wisewon | Sep 11, 2007 12:59:50 PM
This is a very incomplete way of looking at the problem.
Aside from the "winners" and "losers", transferring wealth from the healthy to the sick makes it possible to have advanced care at all. There's a really important point here about infrastructure and overhead costs. Every day, there is a massive overhead involved in running advanced care facilities like hospitals. It's truly spectacular. But at any given moment only a tiny percentage of the population actually needs the most expensive forms of health care. And of that tiny world of "people who are sick today," very, very, very few of them are rich.
Let's take the extreme case. In a universe where people have different levels of wealth, but everyone pays full freight on healthcare at the moment of delivery, there's almost no demand for anything but the most simple outpatient procedures--and even the economic demand for those will be far less than the medical need. Few people have the wealth to pay out of pocket for critical care after a car accident, or for cancer treatment with a massive radiation machine, or to fund the research and clinical testing that led to these things being invented in the first place.
So, no one will build these things. Worse yet, no one will invent them. You can't figure out the best way to rebuild a thigh broken in three places during a car crash until you figure out the best way to have a patient live through the surgery to stop the internal bleeding caused by the car wreck. If you're not even med-evacing them to the hospital because they can't pay for it...well, you're not having surgeons practice, learn, and invent improvements in critical care.
The skewed distribution of health needs combined with the skewed distribution of wealth will make advanced healthcare disappear.
So, in the liberal world you don't just get losers and winners. You also get hospitals.
That's a big difference.
Posted by: anonymous | Sep 11, 2007 1:12:23 PM
Ezra, I've been thinking about your assertion that allowing the young and healthy to reduce expenditures reduces the pool of available resources for the old and sick. I can buy that argument but why not solve that problem with policy? We have all kinds of laws and regulations that prevent insurance companies from forming over-selective risk groups. (Laws against red-lining in property insurance are examples.) Surely the same could be done for health insurance.
Also, note that large corporations that fully or partially self-insure, thereby becoming their own group, are already suffering from this problem. Worse, people get fired for being too much of a burden on the group.
-------------
Nat--
High deductible major medical *might* keep you alive but they will not save you from financial catastrophe.
I'm not following you here. If you're a rational actor, you choose a deductible you can afford, and insurance covers the rest. How does this lead to financial catastrophe?
Of course, you can argue that rational actors are thin on the ground. But they're needed for all kinds of social functions. Health care isn't special in this regard.
Posted by: TheRadicalModerate | Sep 11, 2007 1:19:55 PM
Does anybody know what health insurance benefits the National Review offers to its editors and employees? (Catastrophic coverage only, with self-funded HSA's?)
Posted by: Aaron | Sep 11, 2007 1:25:23 PM
Anon, are you asserting that hospitals currently aren't amortizing their advanced care by charging a premium for their basic care? If so, how is advanced care being funded today? Which leads to a second question: if you have a single-payer plan without market forces setting the price structure, how will capital be allocated for investment in advanced care? By fiat?
Posted by: TheRadicalModerate | Sep 11, 2007 1:35:14 PM
What's amazing is that Ponnuru thinks that his idea - giving everyone less coverage and forcing them to pay it out of pocket - is a winning one.
Posted by: Jinchi | Sep 11, 2007 1:41:12 PM
"What's amazing is that Ponnuru thinks that his idea - giving everyone less coverage and forcing them to pay it out of pocket - is a winning one."
I think Ramesh would probably say that this is only one side of the coin. The other side is that workers would see an increase in wages, firms would be more profitable, and tax revenues would increase as workers paid income taxes and businesses paid corporate taxes (which then would allow tax rates on the wealthy to be lowered, undoubtedly).
By the way, quick question re: "overusing care." Is there any evidence that this has occurred? Not in the sense that people will go to the doctor when insurance is paying more often than if it is not, but that they will go in situations where they shouldn't have? It strikes me that the proposition is really hard to believe -- going to the doctor is a hassle, and I really doubt that someone is going to go get a checkup every three months (or whatever) just because someone else is paying. Now, I'm sure someone with a tummy ache or some equivalent might choose not to go without the benefit of insurance, but if you have a bad enough tummy ache that you are willing to make an appointment, take time off work (probably), and go to the doctor, then isn't that a problem that warrants medical attention? And you are using medical care appropriately?
Posted by: Joe | Sep 11, 2007 2:12:06 PM
TheRadicalModerate: may I refer you to Jane Hamsher and her ongoing battles with both cancer and the medical financial system we call 'private health insurance'? One's so-called 'coverage' is just the starting point for the battle over $$$.
'Rational actor' and 'insurance covers the rest': great concepts, but they are not the reality I deal with.
It has been my experience that you pick the coverage you can afford not based on a rational decision between one policy or another. You buy the best you can afford, period. The real either/or unless it is crappy coverage or *none at all*. Everyone would pick complete coverage if they could. That is no longer an option for my family. When I was twenty something my insurance was so cheap it had minuscule deductibles and I paid nothing for it.
My wife and I are in our mid-50's. She is a breast cancer survivor. I have a chronic GI issue. We either have a huge deductible per person, with and even larger deductible per family per year, or zip. Any significant medical circumstance that spans years and we are toast. We have insurance to perhaps survive medically but we have no delusions that we will survive something serious financially.
My wife's illness fortunately fit exactly within a year: diagnosis in January and treatment concluded by Thanksgiving. But we had several variations of Jane Hamsher's problems. My wife's surgeon dropped our insurer (a huge company) in mid stream. We ended up agreeing to pay her out of pocket to keep from finding another surgeon at the last minute. They changed their bill from the negotiated amount. The lab work was done by another group that had dropped the insurer. That was a prolonged haggle and more money out of pocket. The medical outcome was very positive but I count our blessings that we had relatively deep pockets, are well educated and were able and willing to haggle. The finances were a trainwreck despite having much better coverage than we now have.
The vast majority of people who enjoy our current system are either too rich to need it or who have not yet had the catastrophe that most of us eventually have.
Posted by: Nat | Sep 11, 2007 2:29:51 PM
I'm glad to see Ezra advocate for something I've believed in all along - sampling a variety of the ideas out there really does help to inform one more deeply on a topic. I think there's a lot of incentive (speaking on the topic) for people to find on the web many things to agree with and avoid things they might disagree with. My own preference is to see a wide sampling, then see where I stand.
That said, Ponnuru is himself a bit of an outlier among conservatives; he's critical of a lot of conservative ideas, and tends to position himself as a "thoughtful" philosophically minded contrarian. It's a nice pose, but Ponnuru, as wisewon points out, is not necessarily the deepest of thinkers, and the problem with his ideas often is not that they're "controversial" in conservative circles, but simply badly thought out.
As such, I disagree, as wisewon does, with Ponnuru's premise: his talk of the "incentives" that employer-based health insurance creates is off, mostly because he sees consumers involved in the process in an active way that's really not the case (and, come to think of it, reinforces that Megan post from a few days ago that we all argued over). Most employee covered recipients are far more passive about their approach to care than Ponnuru's trying to suggest - they are often young and healthy, and do, as insurers want, with only the occasional checkup, and do not ask about other services. And if they do get sick and look at additional services, it's often with an expectation drilled in by older folks - and probably by their HR department - that things will be covered, and whatever the doctor says will be taken care of.
Ponnuru's right that, in theory, if you took away the employee benefit, most people would buy a cheap, high deductible policy that potentially only covers catastrophic events... what he fails to consider is that this would simply make things worth for people's health, driving people to last minute solutions, and seeking care well after a point when preventive measures might have saved everyone heartache, illness, and, really, money. And as wisewon says, there's an assumption about costs not rising in Ponnuru's thinking that simply doesn't bear out.
But that's Ponnuru for you: he talks of "incentives" when its convenient, but faced with the "incentives" a high deductible policy might create, he goes rather silent. And if challenged (as he probably will be), he'll probably start again, and find some other way to cut his solution to fit his politics, and not the other way round.
Again, this all says to me that the real problem on the right is still a lack of serious thinkers on healthcare. There's some market-based arguments floating around, but no one asking, really, some basic questions about the care people receive beyond the question of how it's paid for. When we talk about health care reform on the left, even if we're a little too payment obsessed lately and single minded on demonizing insurers, we're also clear that there's more than money here: this is people's health we're discussing, and it really can't be just the shims of the market that determine whether one gets care, or really, who lives or dies. Ponnuru likes to claim a "dispassionate" pose in much of his theorizing, an objective way of looking at things unhooked from emotion. In this case, though, I think that just comes off as cold. I don't need healthcare policy developed by a calculator. I need something more human.
Posted by: weboy | Sep 11, 2007 2:31:44 PM
I don't need healthcare policy developed by a calculator. I need something more human.
God save us from policy by sentiment.
Posted by: Senescent | Sep 11, 2007 3:54:15 PM
overusing care--Is there any evidence that this has occurred? Not in the sense that people will go to the doctor when insurance is paying more often than if it is not, but that they will go in situations where they shouldn't have?
I don't expect there is in going to the doctor, but at the margin when there's a "wait or test" option (say, an MRI after a knee injury that might be a sprain or might be a damaged ligament), or a "cheap or new" drug option (diuretic vs statin for blood pressure), I would expect that the more expensive option is far more often chosen when the person has insurance.
It's hard to identify the causal mechanism, but Ezra, you need to come up with some analysis that incorporates the fact that private-pay healthcare (LASIK, cosmetic surgery) has declining prices and insurance-pay healthcare does not.
Posted by: SamChevre | Sep 11, 2007 3:58:40 PM
Senescent - I'm not saying a policy fueld by emotion (I cringe at the "see how Grandma suffered" coverage of healthcare issues too), but I think we can't turn the discussion of healthcare into simply a cold bottom line discussion of best attempts at cost management. I think the big problem conservatives have in discussing healthcare is that what's really at issue - how sick people get care and how best to manage that - is something they see as personal and no place for government to be involved, which really stops things before we even get to some key issues. Ponnuru's doing an economic analysis here (and a not great one at that), and one of its biggest problems is that it's divorced from seeing health care spending not as spending but as the health care it provides. That's not sentiment, it's human, is all I'm saying.
Posted by: weboy | Sep 11, 2007 4:22:27 PM
"*Incidentally, I subscribed to The National Review a few weeks ago under the rationale that I need to follow conservative commentary, rather than just liberal commentary about conservative commentary. I haven't regretted it."
Eh, NRO is free. When I used to read NRoDT there was some really egregious shit that never made it to the web. The section called "The Week" was a long litany of ridiculous gotchas like "liberals say they're pro choice, but what about school choice?! ZING!"
Posted by: digamma | Sep 11, 2007 4:51:04 PM
This isn't a rhetorical question: does anyone know somebody who, because the costs of care are disguised, goes out and "consumes" medical care as if were going out of style? I have a very good PPO plan from my employer and my son and I only go to the doctor when we need to.
Case in point: I walked around with a herniated disc in my upper back for months, using over-the-counter pain relievers until I could find the time to get it treated. I don't think that I'm THAT unusual in this regard.
People assume that people go to the doctor for every minor ailment because the cost is hidden from them and, more importantly, that their "consumption" of medical services will decline if they know how much it costs. That seems to be the logic behind "buy catastrophic care insurance" and pay out of pocket for the rest. I don't see it. What am I missing?
Posted by: Roberto | Sep 11, 2007 7:09:12 PM
Re: elective treatment cost dropping vs other costs. Of course, Lasik and others cherry pick the best cases and highest margin, taking that work away from the high end acute care (such as university) medical centers that, yes, used the margins from those treatments to cover the low margin, difficult treatment they do for, say, very sick or very unusual cases. Fortunately health care is still difficult so even the discounters have a limit. Personally, I've seen the value of major medical centers, my wife is an 11 year cancer survivor with a type of cancer that many, including her cousin, do not survive. Her doctors "wrote the book" on her treatment, which cost well over $80,000 (to her insurance company) but saved her life. She was healthy, took great care of herself, was _nothing_ like any profile of someone who did not take care of herself. Yet she came down with cancer. Happens every day. But she was covered, got treatment, and is alive today. No one should have to hesitate to receive care when they are sick. Too many do. And it costs society, one person, one family, one loss at a time.
Posted by: John Kahler | Sep 11, 2007 7:40:38 PM
"It's hard to identify the causal mechanism, but Ezra, you need to come up with some analysis that incorporates the fact that private-pay healthcare (LASIK, cosmetic surgery) has declining prices and insurance-pay healthcare does not."
Private pay healthcare is COMPLETELY OPTIONAL and thus is subject to the rules of normal economics, supply, demand, choice .. all that good stuff.
Insurance pay healthcare is, more often, REQUIRED OR YOU DIE (or at least suffer in some real way). This means that it is not a "normal" type of economic good like, oh say, a cheeseburger. If you need cancer surgery you do not shop around for the best price, you probably don't even shop around for the best treatment, you just pray that you aren't going to die and trust that your doctor knows what he/she is doing. This is not the circumstance best suited to cost containment.
Posted by: rob in toronto | Sep 11, 2007 8:47:07 PM
*Incidentally, I subscribed to The National Review a few weeks ago under the rationale that I need to follow conservative commentary, rather than just liberal commentary about conservative commentary. I haven't regretted it.
If I read this right, the National Review doesn't comp the Prospect an online subscription? The Prospect doesn't buy a subscription to every major opinion journal (by circulation/impact, not rectitude), for the use of its staffers? This seems odd to me.
In the spirit of not wanting you to spend your own money (especially on a magazine that employs the denizens of The Corner), I note that there are these things called 'libraries', which have 'photocopiers' for when you encounter articles of particular interest. Though I admit I've not visited a library (other than a research library) in many years.
Posted by: Warren Terra | Sep 11, 2007 10:07:33 PM
If you need cancer surgery you do not shop around for the best price, you probably don't even shop around for the best treatment, you just pray that you aren't going to die and trust that your doctor knows what he/she is doing. This is not the circumstance best suited to cost containment.
Exactly! I'll go one step further: it's also true if you have a debilitating, albeit not life-threatening, condition. As with the back problem I mentioned above: when my doctor said that I needed an MRI to determine the best course of treatment, I (or anyone in my position) was not in any position to question the economic utility of having an MRI. I hurt; my doctor said I needed one; and I had one. Period.
I recall reading that a disproportionately-large percentage of health care expenses occur in the last year or so of life. If true, there's another instance where people are highly unlikely to be at all cost-conscious. You might eventually decide that "enough is enough" but not until you've exhausted reasonable treatment options. The "patient as consumer" model doesn't apply here, either.
Posted by: Roberto | Sep 12, 2007 7:40:20 AM
