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the conservative health insurance solution, once upon a time
Well worth revisiting in a new time when so many influential rightwingnuts failed second grade social ethics and are demanding that the healthy not be forced to help the sick --- as if they themselves will never be sick, or old, and never were infants.
"Butler [Heritage Foundation, in 1989] opposed community rating, viewing it as an indirect tax on the healthy – but called instead for big subsidized high-risk pools to cover those private insurers would otherwise shun."
In other words (i.e. other words I've posted here before), instead of subsidizing the less healthy by taxing the healthy [read young], one can get rid of a tax on the healthy (by charging actuarially fair rates [+ profit margin]) and replace the lost money with subsidizes out of general taxes.
This would have two effects - reducing adverse selection, and broadening the tax base for subsidizes.
Some people seem to feel that healthy people, and not just any healthy people but only those among the 7% who buy individual health insurance, should bear a disproportionate share of the subsidy costs. I respectfully disagree - IMHO the burden for a program that benefits the commonweal belongs on the populace at large. Completely and transparently.
Assuming that virtually all people get the health care they need, the total cost of this care is essentially constant regardless of where the money comes from. So what we're looking at is just a shell game. The government can hide the costs somewhere where people won't see it directly (and then mandate that a few people pay those costs), or it can put it out in the open, where everyone can see it.
It can ask the public whether they're willing to collectively pony up the money necessary to see that everyone gets the healthcare they need - the money that's already being spent.
Krugman seems to be saying that the public would answer "no" ("I have real doubts about whether this would have been workable.")
There are a fair number of nuances here. I'm talking about something very specific - I'll try to clarify by working my way down from the broad to the specific.
Broadly - there is funding (where the money comes from), and paying (who takes that money and pays the health care providers). Even Medicare isn't true single payer. Obviously Part D (drugs) isn't because you pay premiums to private insurers who then pay the providers. Nor is Part C (Medicare Advantage). In Medicare Advantage, it's the private insurer that negotiates contracts with providers and pays those providers (albeit with funding primarily from the government possibly supplemented with Part C premiums).
I'm talking just about who funds health care, not who ultimately pays the providers.
Between Medicare (14% of people), Medicaid (20% of people), and other government programs (2%), coverage for about 3/8 of the populace is funded by the government.
Another half (49%) of people are covered through their employers. For these people, the funding for coverage comes from a combination of employer payments, individual premiums, and hidden government tax subsidies to the tune of $250B/year. That's the result of the government not taxing the benefit.
Of the remaining 16%, about half (9%) are uninsured. Some of these are exempt from the mandate for various reasons. Of the 7% who are in the individual market, some are older or otherwise at higher risk. Their premiums are set below the value of the insurance they're receiving. Others are healthy and are thus getting charged more than the value of the insurance they're receiving.
Add together all the uninsured people subject to a mandate (including scofflaws) and all the healthy people buying individual policies, and you still wind up with a relative handful of people who are being forced by the government to pay excess amounts into the system in order to reduce insurance rates for others.
That's an indirect tax borne by few. It's based on health, not these people's income or wealth. IMHO that's not right. If the government wants to bring down rates by giving the insurers more money, it can subsidize them directly and transparently out of general tax revenues instead of hiding the subsidies in inflated rates for the young on individual plans.
============
One often hears that insurance only works if you have healthy people subsidizing sick people. That's true only in a very limited sense. It's not true in the way that it's being used - to justify overcharging people at low risk in order to subsidize rates for people at higher risk.
Suppose everyone were identical. You'd charge them all the same rate, because they'd be at the same risk of needing care. Over time, some people would need care, others would not. Luck of the draw. The premiums from those who remained healthy would in a sense be subsidizing the the rates for the others. That's how insurance is supposed to work - it spreads the risks.
People are not identical. If you have 9 people with a 20% chance of needing $10K of health care, and 1 person with a 90% chance of needing $10K of health care, you charge the nine people $2K (20% x $10K) and you charge the one person $9K. (Tack on some amount to all premiums for profit if the absence of profit in this discussion is distracting.)
Obviously the variation of actual health care expenses incurred from year to year with just 10 people would be huge. But spread across enough people and these figures would be pretty accurate. That's what insurance does.
Say that this one individual could only afford $6750. The government could bring the rate down by providing a tax subsidy of $2250, funded out of general taxes.
Lots of benefits to this approach. People are more inclined to participate, since they get what they pay for (premiums are fair for each individual). Those with higher premiums get subsidies only if they can't afford the premiums (as opposed to bringing down the high end premiums categorically regardless of ability to pay). Transparency - the subsidies used to bring down premium costs are out in the open, part of the government budget.
Instead, we have a system where the government forces the nine people to pay an extra $250 each. This allows the insurer to set the rate for the last person at $6750 (not more than 3x the other premiums) and still receive the same revenue. Here we've got nine young people being taxed indirectly so that the tenth, older person can pay an affordable rate, and the direct government subsidy is cut (to zero in this example).
Take the benefits paragraph above and turn it around. The young are disinclined to participate because they know they're getting a raw deal. Rates for older people are artificially low, even for Steve Ballmer, age 61 (assuming he's not getting his coverage as a Microsoft retiree). Some of the funding for this is hidden - paid for by hiked premiums on the young/healthy rather than by on-budget government subsidies.
Of course one could cut out the insurance middleman entirely and have the government pay for (as well as fund) everything. But that's not necessary in order to get rid of the indirect tax that Butler was describing.
There again seems some sense in what you write, here on middle paths, and I am curious that no one else analyzes the situation as you do (that I know of). I wonder why. I hope you can collect and cook your last half-dozen HC posts and submit them somewhere (one of the good half-dozen online mags) for smarter review than this notionally financial forum. I bet that your finer means-testing advocacy would get some response. "Those with higher premiums get subsidies only if they can't afford the premiums (as opposed to bringing down the high end premiums categorically regardless of ability to pay)" --- this might work against your outlying definitions of fairness and unfairness, as I can understand them. For many, or some anyway, fairness is less granular and broader. I also wonder if the anti-categorization spirit that so often imbues your analyses would make for situations more subject to system gaming.
@davidrmoran- The problem with guys like msf is that they are too smart to get involved with politics. Can you imagine how great a country like the US could be if it was actually run by intelligent, reasonable people?
Edit/Add: Actually, there are a few intelligent and reasonable people in Congress, on both sides of the aisle. Unfortunately, they are completely overwhelmed by the morons and the cretins (not necessarily one and the same). It's hard to imagine how anything could be more frustrating for them.
In trench politics, some people, maybe more than some, really do have towering intellects, and of the genuinely usable sort. One of my brothers served twice in State, under Carter and then Clinton. (Before and since, he is a dean / program head / chaired prof at a local university.) He said long ago that, from many meetings and face time, the smartest people he had ever seen in action, including at Harvard and elsewhere in academe, were Ted Kennedy, Bill Clinton, and Michael Dukakis. Vast recall, instant availability to memory troves of data and anecdote and example, supple analogizing, imaginative and pointed counterarguing capability, creative and sympathetic debate skills. More recently he has mentioned Summers and Obama and HClinton. Not defending any of them particularly, and not at all hero-struck. To the contrary. I always found these observations just fascinating. Ted K! Anyway, there is still lots of this going around. But as you say, the evil stupid remain dominant.
Comments
In other words (i.e. other words I've posted here before), instead of subsidizing the less healthy by taxing the healthy [read young], one can get rid of a tax on the healthy (by charging actuarially fair rates [+ profit margin]) and replace the lost money with subsidizes out of general taxes.
This would have two effects - reducing adverse selection, and broadening the tax base for subsidizes.
Some people seem to feel that healthy people, and not just any healthy people but only those among the 7% who buy individual health insurance, should bear a disproportionate share of the subsidy costs. I respectfully disagree - IMHO the burden for a program that benefits the commonweal belongs on the populace at large. Completely and transparently.
Assuming that virtually all people get the health care they need, the total cost of this care is essentially constant regardless of where the money comes from. So what we're looking at is just a shell game. The government can hide the costs somewhere where people won't see it directly (and then mandate that a few people pay those costs), or it can put it out in the open, where everyone can see it.
It can ask the public whether they're willing to collectively pony up the money necessary to see that everyone gets the healthcare they need - the money that's already being spent.
Krugman seems to be saying that the public would answer "no" ("I have real doubts about whether this would have been workable.")
So yours is an arg for single-payer? That's your conclusion?
>> Assuming that virtually all people get the health care they need,
uh and wow to that assumption.
>> The government can hide the costs somewhere where people won't see it directly (and then mandate that a few people pay those costs)
'a few'? Not following.
Wide taxation has many benefits, doesn't it.
The genius who warned that the stock market would crash if Trump was elected.
Broadly - there is funding (where the money comes from), and paying (who takes that money and pays the health care providers). Even Medicare isn't true single payer. Obviously Part D (drugs) isn't because you pay premiums to private insurers who then pay the providers. Nor is Part C (Medicare Advantage). In Medicare Advantage, it's the private insurer that negotiates contracts with providers and pays those providers (albeit with funding primarily from the government possibly supplemented with Part C premiums).
I'm talking just about who funds health care, not who ultimately pays the providers.
Between Medicare (14% of people), Medicaid (20% of people), and other government programs (2%), coverage for about 3/8 of the populace is funded by the government.
Another half (49%) of people are covered through their employers. For these people, the funding for coverage comes from a combination of employer payments, individual premiums, and hidden government tax subsidies to the tune of $250B/year. That's the result of the government not taxing the benefit.
Of the remaining 16%, about half (9%) are uninsured. Some of these are exempt from the mandate for various reasons. Of the 7% who are in the individual market, some are older or otherwise at higher risk. Their premiums are set below the value of the insurance they're receiving. Others are healthy and are thus getting charged more than the value of the insurance they're receiving.
Add together all the uninsured people subject to a mandate (including scofflaws) and all the healthy people buying individual policies, and you still wind up with a relative handful of people who are being forced by the government to pay excess amounts into the system in order to reduce insurance rates for others.
That's an indirect tax borne by few. It's based on health, not these people's income or wealth. IMHO that's not right. If the government wants to bring down rates by giving the insurers more money, it can subsidize them directly and transparently out of general tax revenues instead of hiding the subsidies in inflated rates for the young on individual plans.
============
One often hears that insurance only works if you have healthy people subsidizing sick people. That's true only in a very limited sense. It's not true in the way that it's being used - to justify overcharging people at low risk in order to subsidize rates for people at higher risk.
Suppose everyone were identical. You'd charge them all the same rate, because they'd be at the same risk of needing care. Over time, some people would need care, others would not. Luck of the draw. The premiums from those who remained healthy would in a sense be subsidizing the the rates for the others. That's how insurance is supposed to work - it spreads the risks.
People are not identical. If you have 9 people with a 20% chance of needing $10K of health care, and 1 person with a 90% chance of needing $10K of health care, you charge the nine people $2K (20% x $10K) and you charge the one person $9K. (Tack on some amount to all premiums for profit if the absence of profit in this discussion is distracting.)
Obviously the variation of actual health care expenses incurred from year to year with just 10 people would be huge. But spread across enough people and these figures would be pretty accurate. That's what insurance does.
Say that this one individual could only afford $6750. The government could bring the rate down by providing a tax subsidy of $2250, funded out of general taxes.
Lots of benefits to this approach. People are more inclined to participate, since they get what they pay for (premiums are fair for each individual). Those with higher premiums get subsidies only if they can't afford the premiums (as opposed to bringing down the high end premiums categorically regardless of ability to pay). Transparency - the subsidies used to bring down premium costs are out in the open, part of the government budget.
Instead, we have a system where the government forces the nine people to pay an extra $250 each. This allows the insurer to set the rate for the last person at $6750 (not more than 3x the other premiums) and still receive the same revenue. Here we've got nine young people being taxed indirectly so that the tenth, older person can pay an affordable rate, and the direct government subsidy is cut (to zero in this example).
Take the benefits paragraph above and turn it around. The young are disinclined to participate because they know they're getting a raw deal. Rates for older people are artificially low, even for Steve Ballmer, age 61 (assuming he's not getting his coverage as a Microsoft retiree). Some of the funding for this is hidden - paid for by hiked premiums on the young/healthy rather than by on-budget government subsidies.
Of course one could cut out the insurance middleman entirely and have the government pay for (as well as fund) everything. But that's not necessary in order to get rid of the indirect tax that Butler was describing.
I wonder why. I hope you can collect and cook your last half-dozen HC posts and submit them somewhere (one of the good half-dozen online mags) for smarter review than this notionally financial forum. I bet that your finer means-testing advocacy would get some response. "Those with higher premiums get subsidies only if they can't afford the premiums (as opposed to bringing down the high end premiums categorically regardless of ability to pay)" --- this might work against your outlying definitions of fairness and unfairness, as I can understand them. For many, or some anyway, fairness is less granular and broader.
I also wonder if the anti-categorization spirit that so often imbues your analyses would make for situations more subject to system gaming.
Edit/Add: Actually, there are a few intelligent and reasonable people in Congress, on both sides of the aisle. Unfortunately, they are completely overwhelmed by the morons and the cretins (not necessarily one and the same). It's hard to imagine how anything could be more frustrating for them.
One of my brothers served twice in State, under Carter and then Clinton. (Before and since, he is a dean / program head / chaired prof at a local university.) He said long ago that, from many meetings and face time, the smartest people he had ever seen in action, including at Harvard and elsewhere in academe, were Ted Kennedy, Bill Clinton, and Michael Dukakis. Vast recall, instant availability to memory troves of data and anecdote and example, supple analogizing, imaginative and pointed counterarguing capability, creative and sympathetic debate skills.
More recently he has mentioned Summers and Obama and HClinton.
Not defending any of them particularly, and not at all hero-struck. To the contrary.
I always found these observations just fascinating. Ted K!
Anyway, there is still lots of this going around. But as you say, the evil stupid remain dominant.