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HSA Thought

It seems to me that do to the intersection of corporate profit-seeking and conservative ideology, this fine nation is doomed to dwell in the swamps of the Health Savings Account for a little while. In the long run, I'm fairly certain that the GOP's encouragement of this device will merely hasten the death of the current American health care system and quicken the birth bangs of socialized medicine.

But let's say conservatives are right. Let's say the main problems with the US healthcare system really are overconsumption (i.e., third party payment encourages people to use health care services they don't really need) and overregulation (i.e., mandated features on insurance plans designed to make them better just price them out of the range of too many consumers) and that, therefore, HSAs are a good solution. Isn't universal health care still the way to go? Now you wouldn't have universal health care à la France, Canada, or the UK if you thought this was the correct analysis, but I think you would want to do something like this. First, eliminate the tax preference for health insurance as compensation vis-à-vis money. Next, implement a national catastrophic care program where the government will pick up the tab for any health expenses you incur over a "deductible" of $X which you need to pay out of pocket. Providing catastrophic care to the entire under-65 population shouldn't be particularly expensive. Ending the insurance tax deducation should pay for it and leave money left over to spare either for worthwhile things (not bloody likely!) or else tax cuts for rich people.

Now I don't think that's a good idea, but I do think that if you grant the conservative analysis of the problems with the status quo it has to count as a good idea. Indeed, as a better idea than HSA. The only -- er, let's make that "only" -- downsides to my plans vis-à-vis HSAs is that they neither create a potential windfall for private insurance companies (indeed, my plan would be terrible for insurance companies) nor a potential massive tax shelter for very rich people. No small concerns when talking policy with a GOP hack, but on an ideological basis I think it's much sounder. Indeed, Milton Friedman himself agrees with me though he regards this as politically infeasible. As a second best, he proposes HSAs (though he calls them "Medical Savings Accounts"), the end of the insurance tax deduction, and the elimination of Medicare and Medicaid. Since it is not, in fact, possible for anything to be less politically feasible than the elimination of Medicare and Medicaid (seriously, what would it be?) I think Friedman should have just stuck to his guns.

May 23, 2005 | Permalink

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» Catastrophic Non-Sequitur from The Bit Bucket
I'm very confused by this Yglesias post. Here's his take on the rationale for health savings accounts: Let's say the main problems with the US healthcare system really are overconsumption (i.e., third party payment encourages people to use health care... [Read More]

Tracked on May 23, 2005 9:18:24 PM

» Do only conservatives think rationally about healthcare? from Half Sigma
Somewhat liberal Matthew Yglesias writes: But let's say conservatives are right. Let's say the main problems with the US healthcare system really are overconsumption (i.e., third party payment encourages people to use health care services they don't r... [Read More]

Tracked on May 23, 2005 9:29:15 PM

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The Left hand of the Brothers Grimm. [Read More]

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» TANSTAAFFL from Sick Transit
Articles like this one just drive me batty, and it's unfortunate that even smart guys like Matthew Yglesias seem to swallow it. The article complains that high-deductible insurance plans are a way for employers to 'cost-shift' onto employees. The... [Read More]

Tracked on May 24, 2005 12:30:40 AM

» POLITICS: Health Savings Accounts from Baseball Crank
Matt Yglesias argues: But let's say conservatives are right. Let's say the main problems with the US healthcare system really are overconsumption (i.e., third party payment encourages people to use health care services they don't really need) and overr... [Read More]

Tracked on May 24, 2005 7:42:09 AM

» HSA Can You See? from The Fly Bottle
Tim Lee has a good post on HSAs in response to this bit of Ygelasiasism. (By the way, if Matt's claim that HSA's will hasten the arrival of socialized medicine in America is not a fine, fine specimen of the... [Read More]

Tracked on May 24, 2005 9:43:10 AM

Comments

What fucking planet is Friedman living on? It's not just this issue, after all, where he not only favors insanely inachievable market solutions, but convinces himself they are the only solution.

Posted by: bobo brooks | May 23, 2005 7:28:19 PM

Matt, the Democrats have lost again. Cheers!

Posted by: Jennifer | May 23, 2005 7:51:53 PM

I think you can get away with eliminating Medicaid. Medicare, no dice. The key to protecting the poor is to keep them jumbled in the minds of elderly voters.

Posted by: praktike | May 23, 2005 7:54:25 PM

What is a compromise when the Republicans get just what they want and the Democrats get nothing? But there is a compromise. What a lovely group of judges there will be. When the Republicans were a minority in Congress they knew how to fight and win. Domocrats know how to lose.

Posted by: Jennifer | May 23, 2005 7:56:58 PM

It's completely fucking stupid to innovate a solution that might work in some people's theory, when we can steal a solution that works in practice in twenty other countries. This is not some hypothetical stupid; this is a multi-billion-dollar waste of some number of million person-years of life (decrease the average lifespan of 300 million people by a year or two, you're talking a lot of person-years).

It is an extremely high-probability waste-of-time to suppose that the conservatives are right on this issue. I mean, sure, it shows that they are shilling for big business, but we knew that already, and anyone who doesn't believe it is not going to be convinced by this analysis.

Posted by: dr2chase | May 23, 2005 8:14:56 PM

Matt,
I work in the HC insurance industry. The company I work for is large and is not-for-profit. We accumulate residuals of approximately 2.25% of gross revenues. Approximately 1% of that was earned through investment of operating capital.

Our administrative costs are around 8.5%. Some of that 8.5% is loss from operating safety net programs (Medicaid, CHPs, etc). We see that as a cost of doing business in communities. Hence the inclusion in administrative costs.

So get the fuck off your high horse and stop slinging around crap about "greedy" private health care insurance companies. It's obviously a sector you don't understand - or don't care to understand.

We've been raising premiums steadily just like everyone else. I can tell you for certain that over-consumption plays a major roll in rate increases.

Outright fraud is also a significant contributor.

The greatest contributing factor is that ofmedical technology advancement. There is simply so much more that can be done for each person and for every person. Thus, utilization increases and, thus, costs keep increasing.

Some of this is good. And some is not. The costs don't equal the benefits.

Contrary to what you may believe, the name of the game is utilization management. Impress a sense of value in the market where there is little incentive to consider value - the consumer at the point of purchase (who pays $0 or a fraction of the cost) and the physician/provider who has a classic priciple/agent problem at best.

HSAs do not impress me based on the real world numbers I've seen. They may work out ok for a small segment of the market, but never will for the majority.

Nor am I impressed - from a financial/economic perspective - with socialized or single payer systems.

These systems are an improvement from an egalitarian standpoint, but probably represent nothing by way of savings or utilization management.

I believe that politicians would just campaign on a platform of increasing whatever benefits had made the front page recently until the system was a utilization management nightmare.

Posted by: avedis | May 23, 2005 8:20:46 PM

Oh, BTW Friedman is an ass and everyone knows it. Why not approach the topic from a more nuanced and real angle.

I also should have added that HSAs are only good for the healthiest people who also high enough income earners that they can responsibly establish savings accounts.

Still, the market gets segmented. The least healthy people cannot save enough. They would not subsidized by the healthier people as they are now. They rot and die, I guess.

Everyone knows this. That's why HSAs are a boutique product and why they always will be.

Friedman is the lunatic fringe.

Posted by: avedis | May 23, 2005 8:38:22 PM

So, basicly your plan is to tax privately funded health care, to pay for publicly funded health care, so that the latter will end up looking better in comparison, and thus will gradually take over?

Posted by: Brett Bellmore | May 23, 2005 8:39:59 PM

What if the whole market model and the concept of consumer-driven health care were fundamentally inappropriate?

When Markets Attack...

Posted by: Jon | May 23, 2005 9:42:06 PM

Re: Providing catastrophic care to the entire under-65 population shouldn't be particularly expensive.

Actually yes it can be. The cost of catastrophic care is one of the most expensive elements of current health insurance costs. Most programs pass them onto a reinsurer and the reinsurance premiums which the primary insurer pays are quite exorbitant. This is why Kerry proposed having the government take this over: it would have greatly lowered the benefits costs of businesses.
As for HSAs, if a way could be found to make them universal (through tax credits etc.) and yes I knwo that's a big if) would they really bet hat bad of an idea?

Posted by: JonF | May 23, 2005 9:45:53 PM

"What if the whole market model and the concept of consumer-driven health care were fundamentally inappropriate?"

It might be, given the pervasive presence of several infamous market failures in "the system".

However, no one serious is explaining - using science, stats, economics, and reality - what a good alternative would be and why and how it would work (details, details, details); and that includes universal health care, single payer, socialized.

Yes, there are emotional appeals from all sides, but little else.

And what works in other countries may not work in the US due to our rather unique culture and history.

Posted by: avedis | May 23, 2005 9:54:04 PM

There are too many middlemen in American healthcare to enumerate, adding to cost with no added value. But the biggest villains are the insurance and pharmaceutical industries.

Big pharma's do or die issue regarding the Medicare Rx bill was banning US government involvement in bargaining for drug prices. The result is that Keystone, BC/BS, etc. get to bargain with Pfizer against France, Germany, Canada, etc. as a whole. Last year the US accounted for MORE than 50% of pharmaceutical profits IN THE WORLD. Because conservatives refuse, due to fusty ideology, to allow the US to use its clout in the marketplace.

Insisting on a free market solution to drug prices when the rest of the world's nations bargain as socialists, is like standing down with our nukes unilaterally because we are against nuclear war. Nice thought, the execution of which makes no sense.

But the insurance industry is a big part of the problem. They, and their apologists like Avedis, claim that insurance can best cover healthcare, but insist that the government care for the elderly and poor, through Medicare and Medicaid, respectively. But since the elderly and the poor by FAR the most expensive to care for, the industry gets the right to insure an enriched, cherry-picked pool of patients.

Meanwhile American industry, like GM, that must add almost $1500 to the price of each car to pay for the healthcare that the Japanese automakers don't, are going under.

We spend more, our health is worse, and it's killing our industry, but, hey, Avedis has a good job.

Word to the wise Avedis: a little knowledge is a dangerous thing.

Posted by: epistemology | May 23, 2005 9:59:42 PM

"The cost of catastrophic care is one of the most expensive elements of current health insurance costs."

That is true. Particularly with experience rated products.

There is a lot of financial risk involved because the cost of these sorts of incidences is harder to predict, harder to control, and keeps increasing due to technological advancements and product enhancements on the provider end.

Posted by: avedis | May 23, 2005 10:02:55 PM

"Let's say the main problems with the US healthcare system really are overconsumption (i.e., third party payment encourages people to use health care services they don't really need)"

I don't think the idea is that people are using too much health care as much as it is they they are not encouraged enough to shop around for lower prices, which would reduce what doctors can charge.

Posted by: Glaivester | May 23, 2005 10:06:10 PM

Matt! "birth bangs of socialized medicine." NO!

Birth pangs = labor pains
Birth bangs = poorly timed intercourse ("um, hon, thanks for the thought but things are kind of busy down there right now, what with all the dilating and the pushing...")

More substantively, Avedis, the insurance industry has not acquitted itself well, so even if there are some very nice not-for-profit companies who happen to do good stuff, they are simply not representative of the industry as a whole.

8.5% administrative overhead does not impress me--Medicare has a 2-3% administrative overhead. I also find it confusing that you suggest Medicaid administrative costs are pushing up your administrative overhead. Commercial insurance administrative overhead tends to be much higher than Medicaid overhead (10-30%, compared to 6-7%). Here are some interesting stats from Maine. Perhaps, though, your market is different.

I would support the demonstrably higher inefficiency of commercial insurance if higher administrative costs had delivered good things like real care management and quality improvement throughout the system. Unfortunately, they haven't. Because it turns out that it's really hard to get decent care to people. With capitation, insurers tried to shift the financial risk onto doctors so they'd fix the system. But that didn't work. So insurance companies have largely quit that, and have instead focused on easier, more insurance-focused business activities like brokers' kickbacks, targeted advertising and other cherry-picking activities, utilization review, legal wrangling over denial of services, formulary management, payment negotiations with providers, building networks of providers willing to accept discounted rates for volume guarantees, and immense executive salaries.

Frankly, aside from a few regional players (I'm thinking of Kaiser and similar kinds of organizations), HHS has been a more effective innovator than any insurance company. They pushed through innovative payment schemes like RVRBS. They're the ones who forced providers to file claims electronically through HIPAA. Right now, the shoestring-budget VA is providing some of the best chronic care in the country. The bottom line is that government providers have been cheap as hell, and shockingly effective at innovation on their far lower overhead.

Commercial insurers, on the other hand, have been extremely expensive, and while they have come up with some really good ideas, they have [b]as an industry[/b] almost completely failed to effectively implement them, instead opting time and time again for the quick buck. This makes sense--as a business, your job is to maintain solvency/generate profits for your shareholders, not to fix the healthcare system.

But, sorry, we can't carry you anymore. The system is too expensive, and too many people are suffering. Our money would be better spent employing a handful of y'all in a think tank to come up with cool ideas for HHS to pilot.

Posted by: theorajones | May 23, 2005 10:07:51 PM

".... the insurance industry is a big part of the problem. They, and their apologists like Avedis, claim that insurance can best cover healthcare, but insist that the government care for the elderly and poor, through Medicare and Medicaid, respectively. But since the elderly and the poor by FAR the most expensive to care for, the industry gets the right to insure an enriched, cherry-picked pool of patients."

How would the poor pay for insurance?

How would the elderly? They are very expensive. Their premiums would be too high. If they were pooled in with everyone else then a lot of working class folks would be priced out of the market.

Why is that so hard to understand?

I agree with you regarding the pharmas. But go ahead and show me the evidence that private HC insurance is greedy and/or inefficient.

Go on. What are the facts and figures you used to base your assertion.

Then show me how they compare to government run programs. BTW, I am not necessarily opposed to govt run. I just say that the big improvement you think will be there, won't be.

So go ahead. Back up your assertion. I'm waiting.

Posted by: avedis | May 23, 2005 10:09:30 PM

birth bangs?

Posted by: mikey | May 23, 2005 10:12:44 PM

"8.5% administrative overhead does not impress me--Medicare has a 2-3% administrative overhead."

Safety net products are included because we loose money on them for a host a reasons, including legislation that dictates rates and other crucial arrangements. It's a cost of doing business.

Without those losses admin is far less.

I don't know where you get the idea that Medicare operates at 2-3% admin costs.

I would suggest to you that many direct and indirect costs are expensed in other areas of the federal budget.

Certainly they don't have marketing/advertising costs.

I would add that any savings ther are lossed due to inefficiencies in other areas of program management.

Fraud and abuse is greater in Medicare and Medicaid programs, etc, etc.

Posted by: avedis | May 23, 2005 10:16:46 PM

RE: Medicare admin costs.

It occurs to me that you are comparing apples to oranges.

Medicare beneficiaries are far higher utilizers and far more costly. Therefore the denominator from which you derive your percent is much lower, driving the percent figure down.

I'd be more interested in seeing an admin comparison based on $s per enrollee.

That would be a fairer assessment. I'll bet it would come out pretty close.

Still, Medicare skimps on important areas of management. Quality concerns??

Posted by: avedis | May 23, 2005 10:25:43 PM

Higher demoninator, that is

Posted by: avedis | May 23, 2005 10:31:11 PM

Avedis, for some of us health care, unlike pork bellies, is not a commodity. Safety nets are not "products."

Posted by: fnook | May 23, 2005 10:42:38 PM

http://www.ncpa.org/ea/eaja94/eaja94c.html

It seems there is plenty of evidence out there that suggests - as I did - that the true cost of administration for Medicare is higher than avg. private insurance; especially on a per memeber basis. Just one link. Many more you can find on your own.

fnook, yes, I know. I have a wife and children and elderly family too, you know.

But (and I hope I'm sounding condescending) it's kind of like how so many liberals are into conservation of the earth and its (her?) resources. And a good thing thing they are.

When something is scarce and precious, valuable (give it a name) you preserve it by using it wisely and cautiously. Health care is scarce because it is expensive. As I tried to demonstarte through my company's figures, it is not expensive because insurance companies are walking off with the money.

It is expensive for far more complex reasons.

Being expensive it must be used wisely (we currrently spend 15.5% of GDP on HC). The best common language we have to discuss the wise use/allocation of valuable resourcs is that of economics.

If we don't approach HC as an economic commodity then it will get used up/inefficently allocated and there will be no more available for those who need it most.

An imperfect method, but the best we have.

Posted by: avedis | May 23, 2005 10:55:14 PM

Actually Martin Feldstein proposed just such a catastrophic insurance plan back during the Nixon administration. He did a paper in the mid 90's updating the idea.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=226533

Posted by: beowulf | May 23, 2005 11:03:14 PM

Kind of off-topic, but please have your readers look at this post--it's important:

whowilldietoday.blogspot.com

Posted by: rk | May 23, 2005 11:12:05 PM

Final comment:
One of the leading (utilization) covered surgical proc.s is, in the vanacular, stomach stapling with a diagnosis of morbity obsity. Lipitor is one of the leading prescription drugs paid for by HC insurance.

The CDC (see Healthy People 2010) correctly states that obesity, smoking and substance abuse and sedentary lifestyles is the leading source of disease in this country.

So come on. A bunch of fat lazy Americans are eating and sitting on their fat asses until they experience major health crises that their insurance has to pay for. Then when rates go up they bitch and moan and declare the system broken.

And I'm sinister for declaring that a sense of value needs to be instilled in the market and for referring to HC insurance as a product.

I'll go now so you can return to your regularly scheduled chaotic bashing of capitalism, big business, wealth, personal responsibility..........

Posted by: avedis | May 23, 2005 11:15:57 PM

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