In a prior quote, Victor R. Fuchs, Ph.D., Professor of Economics (Emeritus), Stanford, stated, “National health insurance will probably come to the United States after a major change in the political climate – the kind of change that often accompanies a war, a depression, or large-scale civil unrest.”

Theodore R. Marmor, Ph.D., Professor of Public Policy and Management and Professor of Political Science, Yale University School of Management, responds:

“I am always amused to read the political analysis of economists. Fuch’s heart is in the right place, but his suggestion that war, etc. will be needed is, I believe, just plain wrong. It did not take war or depression to get Medicare; it took a shift in the political balance of power, which might have emerged from such tragedy, but did not in that instance. This is why Oberlander and I wrote the piece we did on progressive reform. Note that if these were the preconditions, we all should either stop thinking about it or push for tragedy. It is a call for hopelessness in part. The discussion of the rise of menu health insurance is much more useful.”

USA Today
June 26, 2002
IRS rule may foster new type of health plan By Julie Appleby

New types of health insurance plans aimed at getting patients to act more like shoppers could get a crucial boost from the Internal Revenue Service this week.

The IRS is widely expected to formally allow employees to roll over, tax-free, money employers give them each year to help pay the out-of-pocket costs for certain high-deductible health care insurance policies.

Here’s how the plans work: Employers provide high-deductible health insurance policies, whose premiums are cheaper than those for typical low-deductible health insurance. At the same time, companies also give employees a set dollar amount in individual worker accounts to help cover those deductibles. If the worker’s account falls short of the deductible, the worker makes up the difference.

Any money left in the accounts at the end of the year generally rolls over to the next, an added incentive for employees to be judicious about their use of health care services.

Jon Camola of the Wye River Group, a think tank that promotes the policies as a way to slow rising health costs:

“We’ve learned the IRS wants to support what’s currently taking place in the market.”

http://www.usatoday.com/money/health/2002-06-26-irs-plan.htm

Comment: Is this health policy or tax policy or something else? Let’s look at some numbers. It is important to note that, although these numbers are hypothetical, they very accurately demonstrate the nature of the distortion of the insurance risk pool that takes place when switching from a single risk pool to a combination of personal health accounts and a catastrophic risk pool.

Hypothetical assumptions:

Health care costs average $5000/person (actually $5427 per CMS)

Our hypothetical pool contains 200,000 people

Therefore, the health care costs for this pool are $1 billion

40% of funds are placed in the personal health accounts -$400 million

The other 60% pays for catastrophic coverage – $600 million

The insurance plans have administrative costs of 20% -$120 million Thus $480 million is available to pay catastrophic health care costs

80% of the insured are healthy and account for 20% of costs – $200 million 20% are unhealthy and account for 80% of costs – $800 million

The 20% that are unhealthy use their own accounts – $80 million And they use the catastrophic funds – $480 million Spending the total of available funds – $560 million

But, their costs are $800 million This leaves a deficit of $240 million

To cover the deficit, with added administrative costs, catastrophic premiums would increase by $300 million Adding to the original $600 million, total catastrophic premiums would be $900 million This is 90% of the total health care costs

But the claim is that catastrophic insurance is cheap, priced at maybe only about half of the amount paid for more traditional insurance. Yet we see that the premiums charged in this hypothetical example would save only about 10%. How could that be?

The fundamental principle is very simple. Equitable insurance risk pools are funded by everyone, with each paying a modest amount to assure the financial security of those with high health care needs. The individuals with high costs consume a large percentage of the health care funds. Removing the personal health account funds from the risk pool significantly reduces the total funds available. The funds in these personal accounts are permanently sequestered away from the global risk pool, and, presumably, the healthy would eventually divert them to other personal uses. Yet the health care costs must be met. That means that these sequestered funds must be replaced by higher premiums, or worse, by making care unaffordable for those with high needs through increased out-of-pocket expenses.

This is not good health policy and it’s not good tax policy. Let’s reject this terrible idea and adopt an equitably-funded universal risk pool. We’re already paying for it. We should have it.

Clarification – Health Reimbursement Arrangements (HRAs)

Today the Department of the Treasury released its rulings on Health Reimbursement Arrangements (HRAs). HRAs that meet specified requirements are not taxable, and the funds can be carried forward even into retirement. However, if the funds are used for other purposes, they become taxable. They are not the same as Flexible Spending Arrangements (FSAs).

In today’s Quote of the Day message, reference was made to “personal health accounts.” A few of the details included might not apply to the HRAs. Nevertheless, these programs do remove funds from insurance risk pools and segregate them for individual use. So the analysis presented, demonstrating the negative impact on the insurance risk pool, still definitely applies.

Regardless of their tax treatment, the high-deductible plans associated with these products will either require higher premiums, or will shift costs to individuals that have high health care needs. They are not a solution for any of the major health care problems that we face today, and are detrimental for those with severe acute and chronic disorders.

For the Department of the Treasury release on HRAs:

http://www.ustreas.gov/press/releases/po3204.htm

The Washington Post

June 9, 2002
Associated Press

HERSHEY, Pa., June 8 — Members of Chocolate Workers Local 464 voted overwhelmingly today to approve a new contract with Hershey Foods Corp., ending the longest strike in the company’s history.

The main issue had been health care costs. Under the previous four-year contract, workers paid 6 percent of their health care costs, and the company wanted to increase the workers’ share to 12 percent over four years.

The agreement kept the workers’ share of health care costs at 6 percent in exchange for a smaller wage increase.

Bob Oakley, head negotiator of Chocolate Workers Local 464:

“The people were adamant about it.”

http://www.washingtonpost.com/wp-dyn/articles/A18413-2002Jun8.html

Comment: Hershey workers made a decision to pay more for continued health care security by using their own wages. This is an explicit example of the contention of most economists that health benefits provided by the employer are actually a part of the employee’s total compensation package. Employer-provided health benefit programs are funded by reductions in employee wages.

Health care costs continue to escalate because of the failure of our market approaches in containing costs. The Hershey experience makes it very clear who is paying these increased costs, and that is the individual employee.

Another lesson is that Americans do want to preserve comprehensive programs of health insurance in order to provide them with financial security in the event of significant medical expenses. That has always been the most important function of health insurance.

A common claim is that insurance is only for the purpose of insuring catastrophic loss, and that individuals should be responsible for “routine” expenses. Major acute or chronic disorders create “routine” expenses that are unaffordable for many moderate and low income individuals. Even very modest cost-sharing has been demonstrated to impair outcomes because of the financial barriers to care.

Chocolate Workers Local 464 has drawn the line on shifting risk to those who have the greatest health care needs. Let’s hope that the rest of the nation is inspired by their wise decision. Once this threat is quashed we should move forward with establishing a single national risk pool for everyone. A monopsonistic program of national health insurance would reduce health care inflation while assuring that our abundant health care resources would be effectively targeted to patient care. Then, finally, we would all have health care security that is affordable.

The New England Journal of Medicine
June 6, 2002

What’s Ahead for Health Insurance in the United States?

By Victor R. Fuchs, Ph.D., Stanford University

The announcement that most of the nation’s biggest insurers – Aetna, CIGNA, Humana, the United Health Group, and Wellpoint Health Network – will be introducing a new kind of health plan during the next year or two signals the beginning of a new era in health insurance in the United States. These plans feature a complicated menu of premiums, copayments, and deductibles that will add impetus to the trend of employers’ offering a defined contribution for health benefits. Each employee will get a fixed amount of money to spend as he or she sees fit and will use the Internet to “shop” for medical care. The plans will encourage the use of medical savings accounts in combination with catastrophic-illness insurance to cover expenditures that exceed a large deductible. One of their major effects will be to shift the burden of health care costs from employees who use little care to those who use more. Thus, the new plans will be another nail in the coffin of health insurance as a form of social insurance.

(Dr. Fuchs then discusses the erosion of social insurance, the advantages and disadvantages of the new plans, and the problems with reliance on catastrophic-illness insurance. He then closes with the following comments on the reemergence of social insurance.)

The case for the fairness of the social-insurance model will be strengthened as people realize that most health problems have, at least in part, a genetic basis. The case for the model’s efficiency will benefit from recognition that employment-based insurance has high administrative costs but provides no advantages to society as a whole. The desire to exert more direct control over increasing expenditures will provide an additional reason to introduce some form of national health insurance.

The timing of such a change, however, will depend largely on factors external to health care. Major changes in health policy are political acts undertaken for political purposes. The political nature of such changes was apparent when Bismarck introduced national health insurance to the new German state in the 19th century. It was apparent when England adopted national health insurance after World War II; and it will be apparent in the United States as well. National health insurance will probably come to the United States after a major change in the political climate – the kind of change that often accompanies a war, a depression, or large-scale civil unrest. Until then, the chief effect of the new plans will be to make young and healthy workers better off at the expense of their older, sicker colleagues.

(Note: The Quote of the Day messages will be suspended for two weeks while we travel. On returning, we’ll be back attempting to change the political climate without the necessity of experiencing war or a depression, although maybe it’s time for some good, old-fashioned civil unrest.)

NPR
June 5, 2002

“When asked more specifically to name the two most important health care issues for the government to address, access to health care and insurance issues (54 percent) received the most mentions. Large majorities favor a wide variety of options to guarantee health care for more Americans, including expanding state government programs for low-income people (84 percent), expanding neighborhood health clinics (80 percent), requiring businesses to offer insurance to employees (76 percent), and offering tax credits or other financial assistance to help the uninsured purchase insurance on their own (73 percent). The only option asked in this survey that was not favored by a majority is a national, single payer health plan (favored by 40 percent).”

http://www.npr.org/news/specials/healthcarepoll/index.html

The actual question asked in the survey:

13. I’m going to read you some different ways to guarantee health care for more Americans. As I read each one, please tell me whether you would favor it or oppose it. Do you favor or oppose (INSERT ITEM)?

a. A national health plan, financed by taxpayers, in which all Americans would get their insurance from a single government plan Favor 40 Oppose 55 Not sure 5

b. Requiring businesses to offer private health insurance for their employees Favor 76 Oppose 22 Not sure 2

c. Offering uninsured Americans income tax deductions, tax credits, or other financial assistance to help them purchase private health insurance on their own Favor 73 Oppose 24 Not sure 3

d. Expanding state government programs for low-income people, such as Medicaid and the Children’s Health Insurance Program, to provide coverage for people without health insurance Favor 84 Oppose 15 Not sure 1

e. Expanding neighborhood health clinics Favor 80 Oppose 15 Not sure 5

http://www.npr.org/news/specials/healthcarepoll/results.pdf

Comment: Once again, a major national poll has been widely reported as showing that Americans do not favor “a national, single payer health plan.” But, once again, the actual question asked included “taxpayers” and “government plan,” terms which many find difficult to endorse.

And once again, we can only speculate what the response would have been if the question had been, “Would you favor a single national insurance program that provided comprehensive benefits for everyone, with free choice of health care providers, and with administrative efficiencies that would protect us from cost increases?”

However, some important tentative conclusions can be extracted from the responses to this question:

** The respondents do support a variety of measures that would guarantee health care for more Americans.

** The respondents support employer mandates, although no questions were asked about the threat to the fiscal solvency of businesses, particularly small businesses.

** The respondents support tax policy that would assist with the purchase of individual health insurance in the private market. But it is important to note that no questions were asked to ascertain whether they understood that this approach would threaten the employment link to insurance and subject individuals to the higher premiums characteristic of the individual market as compared to group coverage.

** The respondents do support government programs for low-income individuals and neighborhood health clinics. No questions were asked to ascertain whether they perceived this to represent a lower tier of health care.

** The polls following the tragedy of 9/11 indicated that Americans have greater confidence in the government than previously. But the questions were related to providing security against the threat of terrorism. This poll indicates that this confidence in government does not extend to our health care system, except for the uninsured.

The policy issues are quite complex. Even relatively sophisticated individuals do not have the time to investigate the full implications of various health policies. Consequently, it is essential that health policy decisions should NOT be made based on these important polls of uninformed respondents.

Numerous studies have established the credibility of the single payer model. Yet most Americans have no understanding of the policy implications of single payer. To ask Americans if they want to pay taxes to have a government health plan is not asking a question about single payer reform. It is asking a rhetorical question about government interference and taxes. Maybe someday the pollsters will address the issues of equity, efficiency, universality, comprehensiveness, portability and other features of the single payer model. Until they do, we should not use their polls to determine the direction of national health policy.

My reply to DuPont is: What about Medicare? Is he willing to criticize Medicare (and commit political suicide) since it is a government program. Of course it does include choice. And is EMTALA un-American? It mandates (a classic unfunded mandate) that all emergency departments treat all comers without regard to ability to pay? As good Americans we already believe that many or most of us DO deserve coverage: the elderly, the emergencies, the poorest of the poor, the pregnant and babies, and as the patches in the quilt get smaller and smaller, the wonderfully inclusive programs covering dialysis and HIV care and the blind and many others. The people whom we discriminate against the most are young taxpayers who don’t have coverage from their work. That doesn’t sound very American to me. I believe universal coverage is true to the American Dream, even the conservative Republican dreams of Pete DuPont.