Taking a Hatchet to healthcare (Pt. 3)

The first two parts of this series have looked at the private market for health insurance and the government programs.  Medicare is essentially unchecked while Medicaid gets a whole lot stingier.  The private market is allowed to exclude and underwrite in some circumstances while the federal government backs away from a lot of regulation. 

The most fascinating part is the financing mechanism.  Obamacare expanded coverage through a combination of generous tax credits and Medicaid expansion.  The CBO scored that this expansion was paid for by a combination of cutting down on Medicare Advantage payments and a wide variety of taxes such as the medical device excise tax, the Cadillac plan tax, sun tanning tax, the reinsurance tax and income tax surcharges on high income individuals and families.  The Hatch plan repealed Obamacare and all the taxes (interestingly, it also repeals a major student loan reform package, no mention of what is supposed to replace that system) but it claims to be deficit neutral so it has to pay for its limited subsidies somehow.

And the way it does is a doozy that immediately shows how politically not viable this proposal is:

Section 601: Capping the Exclusion of An Employee’s Employer-Provided Health Coverage

our proposal caps the tax exclusion for employee’s health coverage at 65 percent of an average plan’s costs. The value of employer-sponsored health insurance would be capped and indexed to grow at an annual rate of CPI +1.

So what does that mean? 

My health insurance just got a whole lot more expensive for me.  That is the short story.  My health insurance according to box 12DD cost $13,000 last year to cover my entire family.  That is 100% pre-tax dollars.  This proposal would make some of that post-tax dollars.  If average means average family plan, the average was $16,351 in 2013.  65% of that means $10,600 would be tax deductible.  The remaining $5,800 for the average person in an average family plan would be taxable.   Personally, I would be paying taxes on an additional $2,400 worth of compensation.  Some people with expensive plans would be paying taxes on a new $7,000 or $10,000 compensation that they don’t see in cash.  Most people would be paying taxes on significantly larger chunks of previously untaxed compensation. 

Furthermore, in the out years, the value of the exclusion gets weaker as either the health plan stays within the budget constraint of CPI+1 by significantly paring back coverage, or the average health plan costs increase and all of those increases shift to taxed compensation.   Again, this fits with the basic Republcian diagnosis of the “problem” that Americans have it too easy and too good and don’t have to worry about bankruptcy every time they blow out their knee while looking for their cat. 

From a build the system from scratch perspective, this is not a bad idea.  However, we aren’t building a system from scratch.  We’re tweaking a legacy system.  And given previous decisions, this translates into a massive tax increase for anyone who gets decent coverage through work and in the long run much lower acturial value of work provided coverage.

Problems with high deductible health plans

From a loyal reader, I was pointed to this story down in Georgia concerning state employees getting a slightly better health insurance plan mid-year.  I want to highlight the problem with the original health plan.

This year has brought on an onslaught of changes, which included one form of insurance from Blue Cross Blue Shield of Georgia – a high-deductible HRA (Health Reimbursement Arrangement) – and no additional selections to choose from. It is no secret that an HRA is not a one-size-fits-all medical plan for every family, particularly individuals with long-term illnesses….In late December, our family was notified that our daughter’s occupational therapy would increase from a $25 co-pay to $127 per one hour session. We are facing $1,000 per month in medical bills between insurance premiums and four hours of therapy….

Health reimbursement arrangements/health savings accounts/high deductible health plans are designed to do one basic thing.  That thing is to shift costs onto the individual for anything that could vaguely look like a “day-to-day” expense.  The theory of change is that the individual will be much more price sensitive and thus a much better price shopper as well as being much more not consume any medical service in a marginal situation.  From here, costs will stabilize and eventually decline.  That is the theory of change.

It is a theory of change that is built on the Rand Insurance Experiment.  The Rand Insurance Experiment showed that making people pay out of pocket reduced health care consumption and expenditure.  However the Rand Insurance Experiment also showed that people are not perfectly rational, infinitely discounting, amazingly discerning health care shoppers; people are human with the limitations of bounded rationality that is shaped by information processing costs and competing priorities.  People being people instead of perfectly rationalizing agents means high deductible cost sharing plan designs don’t guarantee that people get the care that they actually need which leads to worse health outcomes including death in some cases.

High deductible plans are appropriate choices for some people.  They are not appropriate for everyone if we value appropriate as a means of providing effective, efficient care that meets the medical needs of an individual without bankrupting them or their family. 

If I was the health insurance dictator in this country, I would allow high deductible plans to be sold.  They would only be sold to individuals and families who are reasonably young (age is a pre-exisiting condition) without any signifcant claims history.  The policies would not be automatically renewed until the most recent claims and medical history was reviewed.  Furthermore, the potential buyer pool would be limited to people who have the ability to absorb a one-time shock of several thousand dollars without it being a crisis.  This sub-population is fairly small, and can absorb the risk shifting that is inherent in a high deductible plan design.  Anyone with chronic conditions or recurring health maitenance problems should not be a plan designed like this if the goal is to effectively manage health.

Taking a Hatchet to healthcare (Pt. 2)

We talked about the private insurance market yesterday and how the PCARE proposal would change it compared to the baseline of Obamacare (as that is where we are today.)  Today let’s review government programs that provide healthcare.

Section 301 Capitation payments for Medicaid

The most important thing about 301 is it is the implementation of a massive clawback of Medicaid that happened in Section 101 which repealed all of PPACA.  This means the Medicaid expansion got rolled back for working age adults who make below 138% of Federal Poverty Line.  From here, the Medicaid formula is readjusted to account for lagging population in poverty and it would be limited to the classes of people who were eligible in 2009.  Long term care (a major Medicaid expense) would be block granted and the block grant would grow at CPI+1% or in most years, a decrease in real purchasing power.

This section has several significant problems if one believes people should be covered.  First, the block granting system creates a strong incentive for states to cherry pick healthy populations for coverage as that would bring in “profitable” federal money that can then be skimmed off for tax cuts for the job creators as having a job makes you healthy (let’s not worry about causality direction here).  Secondly, it immediately screws quite a few people who are now covered but lose coverage and the ability to afford coverage. 

In West Virginia, the old Medicaid guidelines would not cover a health, childless adult between 18 and 64.  Under expansion, that individual can get coverage.  Under this proposal, someone 33 years old making $5,200 a year gets a $1,560 tax credit and told to find coverage on their own.  The only coverage they can get at their pricing is catastrophic coverage with $15,000 or $20,000 deductibles (and that assumes the individual passes underwriting as a great bet — which is unlikely).

Section 302 Reauthorize Medicaid HSA demonstration program

Minor piece of housekeeping, a demonstration program allowed states to offer high deductible health plans with state/federally funded health savings accounts.  This demonstration program would be extended.  I don’t think HSAs and high deductible health plans are particularly appropriate for people who don’t have the financial resources to take either an unexpected $2,500 expense or recurring $1,000 expenses, but this is fairly anodyne. 

Section 401 Tort Reform 

Defund a major Democratic donor class. The Texas system of damage caps and tilting the field in favor of providers did not solve a fundamentally minor problem although it made trial lawyers significantly poorer, and thus the Texas Democrats significantly poorer and weaker

Section 501 Price transparency

The first few sentences are a de facto brag that your insurance will get worse, cover less and may not even cover you at all.  That is how insurance companies can most easily reduce premiums — don’t pay out high cost claims by not covering high cost services or high cost individuals.  The second paragraph is a repeat of Obamacare mandates that plan designs are made available in plain English (we’re still working on that as an industry).

The policy meat of this section is the last paragraph which is actually interesting exercises in division:

our proposal would require hospitals who participate in Medicare to provide to consumers the average amount paid by uninsured and insured patients for the most common inpatient and outpatient procedures.

This is not a bad idea.  Massachusetts is taking this idea and supersizing it by requiring providers provide accurate pre-service pricing estimates that are customized to the patient.  Price transparency is a good thing. 

And that is part 2.

Taking a Hatchet to healthcare (Pt. 1)

This will be a multi-parter on the P-Care proposal from Republicans.  I’m busy today.

Section 101: Repeal Obamacare
Standard Republican boilerplate with a lie in the first sentence as healthcare costs as a proportion of GDP actually decreased last year.

Section 201: Adopt Common-Sense Consumer Protections
Reinstate the popular to the employed middle class parts of Obamacare. Keep kids on parents’ insurance until the end of age 26, disallow life time limits. Tweak the age rating bands from a 3:1 ratio (Obamacare law) to 5:1 (pre-Obamacare usual and customary) despite that change having little acturial impact. The 3:1 ratio is roughly equal to the actual expected cost ratio for 21 to 64 year olds.
Guaranteed renewability is the Republican means of dealing with pre-exisiting conditions. However medical underwriting will now be allowed so the incentive will be for insurance companies to go do a very thorough record review to look for application ommissions such as failure to list acne as a pre-exisiting condition to deny cancer claims. It says there will be strong regulation, but really, how stupid are we to expect strong regulation from a Republican bill?
Section 202: Pre-exisiting conditions covered based on continious coverage
Continious coverage is the key here instead of the banning of medical underwriting. Basically, if someone is able to keep covered themselves insured, a new policy can’t be medically underwritten against them, they get general rates. The problem is people who have significant health problems AND significant income variation are highly likely to have months where they can not keep continous coverage. One bad stretch and a person is priced out of health insurance for life (although that life will be fairly short)
Section 203 – Empowering Small business and individuals
Basically allow for small business to pool resources together to reduce acturial variance and TAX CREDITS. Or we could just use the SHOP exchanges to do the same damn thing.

Refundable tax credits to individuals and families up to 300% Federal Poverty line. Obamacare has refundable tax credits up to 400% of FPL. Don’t allow those tax credits to be used for abortion (which basically would mean the individual health insurance market would offer very few if any policies covering abortion). Value of those credits are significantly reduced compared to Obamacare credits. For intsance a single 64 year old at 200% FPL would get a $3,720 Republican credit while s/he gets a $6,100 Obamacare subsidy. Two 64 year old non-smokers at 200% FPL would get $13,000 in subsidies from Obamacare or $8,800 from this Republican bill.

Oh yeah, since the Republicans have re-instated medical underwriting, those 64 year olds have the pre-exisiting condition of being OLD. They won’t get Obamacare rates, their rates for anything that provides decent coverage will destroy their subsidy in three or four months.
The idea behind the Republican bill’s smaller subsidy is that people have too much good insurance as it is, so a smaller subsidy will force more people to get catastrophic coverage only and then pay for day to day expenses out of pocket. The threat of destitution will make people extremely cost sensitive and thus extremely efficient shoppers.
Section 204 — More power to states
States can automatically enroll people into coverage equal to their subsidy value. I don’t have a problem with this. Given subsidy levels, these default plans will have deductibles in the $15,000 to $20,000 range. High risk pools will be formed again and be chronically underfunded. Interstate compacts are allowed (as they are now for regulation and selling of insurance, but the Georgia and Maine examples show that few companies really want to sell across state lines)
Section 205 Expand HSAs and Consumer Directed healthcare
Allow pre-tax dollars to pay for non-prescription and over the counter goods and services. Expand allowable uses of HSA dollars. Either of these proposals is worth talking about as they are fairly small bore.

Being broke is not being poor

Paul Krugman is reraising a common and key insight into poverty which is not well captured by federal poverty guidelines:

By security, I mean that you have enough resources and backup that the ordinary emergencies of life won’t plunge you into the abyss. This means having decent health insurance, reasonably stable employment, and enough financial assets that having to replace your car or your boiler isn’t a crisis.

There is a clear distinction between being broke and being poor from this insight.  Being broke means having no cash available, but having access to sufficient resources that the every day minor oh-shit moments are not a crisises as resources were available to manage the problem.  Being poor means the minor oh-shit moments can easily become a crisis because there are no resources available.

When I was in college, I was consistently broke.  I lived in a flophouse one summer with anywhere from seven to sixteen other people paying some share of the monthly rent.  The most I paid was $86.75 for August.   I sold myself to science as the pay and food was good, and I knew where there was free food offered by every department.  As a student I was broke and under federal poverty guidelines, I was poor.

However, I had resources.  I had good health insurance through my parents.  When I woke up and my knee was swollen to the size of a grapefruit while the patella had dislocated itself, I swore in pain but not in concern about how to get through the day without seeing a doctor.  I went to student health services after calculas, and then hopped a bus to see an orthopedic surgeon.  She  drained 38 CC of fluid.  I owed $20 in co-pays and had to buy a cane. I would have rather spent the $20 on beer, but oh well, I could walk well enough in three days.   When I was scrambling to come up with a security deposit for the first apartment that I would share with my girlfriend and now wife, I could go to my parents and ask that the security deposit and a good dinner with family be my graduation present. 

This is a crucial distinction between being poor where there are few good choices over the long run as people operate from scarcity thinking  and being broke.  I was able to access resources and behave almost a Friedmanesque lifetime income hypothesis individual.  (As a side note, this is why I discount the experiences of the 1% who claim they were poor in college — they might have been broke, but mommy and daddy could take care of anything)  This is a weakness of the poverty guidelines as they are income based and not resources based.  Some people may have rather low incomes but have the ability to call on resources in an oh-shit scenario, and others may have slightly above poverty level incomes but have no resources that turns an oh-shit scenario into a crisis. 

Health insurance is one of the most important resource that is an on-call and hopefully not needed resource, so two individuals with the same income but where one has decent health insurnace and the other does not have two very different abilities to absorb bad news from a doctor.

7 million will be reached

Some important news on Exchange enrollment from the Health and Human Services blog:

Since the beginning of open enrollment, millions of Americans are gaining access to health coverage–many for the very first time—thanks to the Affordable Care Act. The most recent data indicates that approximately 3.0 million people have now enrolled in a private health insurance plan through the Federal and State-based Marketplaces since October 1.

This data strongly implies one million people enrolled for the February 1st coverage start date during the month of January.  That is a minimal pressure deadline as someone who was healthy enough to not get in on the December rush is probably healthy enough to not really need to get in on February. Procrastination is only so much fun.  I am projecting the same number of people will sign up for the March 1, 2014 coverage start date by February 15th.  That pushes the number to roughly 4 million private policies. 

The Massachusetts experience was that the greatest wave of enrollment was right before the hardest deadline when actual money was on the line.  We know there was a big flurry of older and probably sicker people signing up in December.  The young are entering the pools number, so getting an enrollment wave as large or larger than December for the March 15th deadline is highly probable.  And if that is the case 6.5 to 7 million people will be enrolled by April 1, 2014.  And then there will be the normal enrollment churn as people have different qualifying events that will put them on and take them off Exchange. 


Open Thread – When I make a word do a lot of work like that, I always pay it extra…

I love words, despite the indignities I enforce upon them, so I relish a little bit of grammar geekery.

Geoffrey K. Pullum has a wonderfully nasty post up at Lingua Franca and a wonderfully wonky post up at Language Log, both discussing an article by Washington Post blogger Alexandra Petri.

Petri piles on poor old Bill Keller (isn’t being married to Emma punishment enough for you jackals?), not only for being a concern troll and a horrible human being but, worse still, a blatant and premeditated user of “passive constructions” in his writing. As Petri puts it:

Concern trolls thrive on passive constructions the way vultures thrive on carcasses.

Pullum wonders whether Petri might be getting her “passive” confused with her “obscured agency”, and details his analysis in the Language Log post. There are tables and numbered lists. It’s great fun.

Pullum also links to his tutorial essay which provides a “clear and simple explanation of what a passive clause is” in English, and his forthcoming article Fear and Loathing of the English Passive (pdf):

No folk rhetorical property could yoke together this diverse array of constructions. What is going on is that people are simply tossing the term ‘passive’ around when they want to cast aspersions on pieces of writing that, for some ineffable reason, they don’t care for. They see a turn of phrase that strikes them as weak in some way, or lacks some sort of crispness or brightness that they cannot pin down, and they call it ‘passive’ without further thought. And such is the state of knowledge about grammar among the reading public that they get away with it.

If concealed passives dipped in a little bit of scorn are your thing, then that will keep you entertained for a while.

Meanwhile, in segues, music. Sunday is Australia Day, and one of Australia’s proudest traditions – besides pretending to have invented pavlova*; meat pies; footballers in tiny shorts; dispossessing indigenous peoples; and shipping coloured people back where they came from – is the Triple J Hottest 100. Voting on the best music releases for 2013 has ended, but if you feel like an Aussie weekend, tune in online at 12 noon Sunday Sydney time (Saturday evening for most of you).

You may have to crank up the thermostat and buy some Australian beer to get you in the mood. Think James Boag or Little Creatures. Please don’t buy Fosters, because it is watered-down mule piss.

Cheers, buckeroos. I’m off to bed, for there is to be much drinking today, so that we’ve got a headstart on Sunday. I’ll post a post at Hottest 100 kickoff time for anyone who wants to listen along.

ETA: * Edited for accuracy

EATA: Jesus, you’re going to turn me into Greenwald.

Petri probably was using the term “passive construction” in some rhetorical sense to mean “hiding behind the alleged views of others”, but that means she was being unclear, and exposing herself to the argument that she didn’t know what the term meant. I’m a writer who agonises over every word (and I still manage to fuck up half my posts). I try to use words in a way that avoids confusion, and Petri wasn’t doing that.

I agree, however, that that doesn’t mean she deserves to be called a nincompoop.

EOATA: It is, of course, entirely possible that Ms Petri is, in fact, a nincompoop.

At this stage, I’m just enjoying typing “nincompoop”.