Helping the Medically Needy, Part One

By Greg Scandlen

In an earlier posting I said that health reform needs to be broken out into several discrete topics, with each one debated on its own. I listed them as –

— Medicare payment reform
— Insurance regulation
— Assistance to the needy
— Management technology upgrades
— Workforce initiatives
— Quality improvement initiatives
— Professional liability reform

These are just top of the head. There are certainly other topics that need discussion. But these are a pretty good beginning. It was nonsensical for the Democrats in Congress to lump them all together in a single package, and think there could be any rational understanding or even discussion of the proposal. As I said, ObamaCare was simply too big to ever succeed.

Now that we’ve spent some time on the last item on the list, professional liability, let’s introduce a new topic – assistance to the needy.

In my opinion, by far the most elegant idea was developed by John Goodman and written about in many places but perhaps most comprehensively ten years ago in Characteristics Of An Ideal Health Care System.

I call it elegant because it is simple to understand, can be applied universally with a minimum of administration, and will actually get the job done.

The two basic ideas are these:

  1. People should be insured if at all possible, but they cannot really be required  (“mandated”) to do so. All that can be done is fine them if they fail to do it. Let’s assume the fine is $2,000 per person. Fining non-compliers $2,000 is precisely the same as rewarding compliers $2,000. So giving a voucher in the amount of $2,000 for every person who has health insurance is exactly the same as placing a $2,000 fine on those who fail to have it. In either case, non-compliers are $2,000 worse off than compliers.
  2. We already know how much our society values health coverage. We know that by how much our society spends to provide care to the uninsured. This isn’t part of John’s argument, but I would add we also know by how much we currently subsidize those with employer-based coverage. Curiously that number is about the same in both cases. In 2007, the Congress’s Joint Committee on Taxation reported that the value of the exclusion for employer-based coverage was $143.3 billion in foregone income taxes and $100.7 billion in foregone payroll taxes, or $244 billion in that year alone. Assuming 160 million people receiving employer-sponsored benefits, that is $1,525 per person in 2007. Goodman estimated that in Texas in 2001, each uninsured person received about $1,000 in free care. So, our ballpark estimate of $2,000 per person today is probably not far off the mark.

So, John’s proposal is to provide a voucher of $2,000 (or so) to every person who buys health insurance. Those who do not choose to buy it would have their voucher deposited in a safety net program. This would be financed by eliminating the employer exclusion, as well as other existing free-care programs for the uninsured.

Before we get into the politics (winners and losers) of this idea, let’s supplement it with some additional thoughts.

  1. It is clear (at least to me) that some not-small number of people cannot handle coping with any kind of insurance program. They may be mentally ill, drug addicted, illiterate, or in some other way dysfunctional. There are people with poor impulse control who are simply unable to plan ahead even for a few weeks. They don’t keep appointments, don’t fill prescriptions, don’t understand the difference between an optometrist and an ophthalmologist. It is simplistic to think that sticking an insurance card in their wallet will do anything positive for them. It will not. These folks need the direct provision of services, not insurance of any kind. The Goodman proposal is the only idea out there that accounts for their needs.
  2. Very low-income people’s needs could be supplemented with state funds, especially if this idea supplanted Medicaid – and it should. Medicaid is a very poor insurance program that looks great on paper but pays so poorly that many enrollees can’t find a doctor to see them. Hence, about one-third of the uninsured are already eligible but haven’t bothered to enroll. Rather than corralling people into a Medicaid ghetto, this proposal would enable them to have real insurance, just like their neighbors. It also accounts for frequent changes in eligibility, as people get and lose jobs.
  3. Similarly for SCHIP. It has never made sense to divorce children from their parents to obtain health insurance. One policy is hard enough to understand without having several different programs for different family members. It would also be more affordable for children to be covered as dependents on their parents policy than to farm them out to a state program. I mean, ObamaCare is allowing independent “children” to age 26 to stay on their parents’ policies. Why in the world should an 8-year old be treated differently?
  4. The current punitive approach in ObamaCare is so full of holes that it will never actually work. Most of the uninsured are too poor to pay taxes, so a tax penalty will have absolutely no effect on them. Goodman’s approach rewards everyone equally, regardless of their income level.

I’m going to leave it there for now, but there will be much more to say about all this in future postings.

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Chronic Failure

By Greg Scandlen

Every federal initiative that I can think of in health care has been a failure. Maybe you can think of some that have worked as promised. I can’t.

This is not an ideological critique, but a practical one. Most Americans are practical people. We like to do what works and avoid repeating our mistakes. This country is famous for “second acts” and “second chances.” We don’t condemn people for making mistakes, but we expect them to learn from the error and do better the next time. But that assumes that the second act is not an exact repeat of the first one.

Unfortunately, today we are repeating all of the things that have been proven failures in the past. Managed Care was soundly rejected by most of the public, so now we are doing it all over again with a new name – “Accountable Care Organizations.” Much like today, we tried to lower health care costs by reducing the supply of health care services with the massive federal Health Planning Act in the 1970s. It had the exact opposite effect. Hospital rate setting was tried by 30 states in the 1980s and repealed in all but one (Maryland.) But today there is new talk of a new round of hospital rate setting. Community Rating and Guaranteed Issue have been tried with horrendous results, but today it is national policy with one small twist – everyone will be required to buy whether they want to or not.

Even the much-touted Medicare program is a failure by any standard. Yes, it is popular and defended by the elderly. Of course it is. The “beneficiaries” pay a mere fraction of what the program costs. Of course they like it. And there no longer exists any alternative in the market. Of course they defend it. That does not make it a success.

As John Goodman writes in Forbes, Medicare’s unfunded liabilities are $89 trillion on top of any expected premiums and dedicated taxes. Or, he adds, if we froze the program today and just looked at what is owed to today’s worker’s and retirees the unfunded amount would equal $33 trillion. That is – 33,000 billion dollars, or about $100,000 for every man, woman, and child alive in the United States today.

More recently, writing on the From Forum, Bruce Bartlett looked at an obscure federal report, “The Financial Report of the U.S. Government,” that takes an accrual approach to obligations, rather than the cash flow approach of the federal budget. Every private corporation in the United States is required to use accrual accounting in its financial statements, says Bartlett.  He reports that Medicare liabilities over the next 75 years were $38 trillion at the end of 2009, but were cut by $15 trillion in 2010 because of the health reform law. Of course, that $15 trillion “cut” was just being transferred from Medicare to the other programs within ObamaCare, so it isn’t really saving money at all.

So, the program is massively insolvent. But it is also a lousy insurance program. You would not be able to sell this program as a private benefit plan. It has a bewildering array of deductibles, coinsurance, and limits on covered benefits. In fact there is absolutely no limit on the out-of-pocket liability for beneficiaries, so that most people on the program also have to buy an expensive supplemental policy to cover all the coverage gaps.

The list of failures is so long it would take a book (which I am currently writing) to list them all. The SCHIP program was supposed to ensure that all low-income children would have insurance coverage. It didn’t. Hillary Clinton’s federal vaccine program was supposed to ensure that all kids could be vaccinated at low cost. The doses rotted in warehouses.

It is not the opponents of these programs that are ideological, but the supporters. In most cases the skeptics were willing to give the ideas a chance to succeed even while doubting that they would. But the supporters are unwilling to ever admit failure and keep pushing the same ideas in spite of all the empirical evidence.