Responsible National Health Insurance Part 2

In the first part of this series, I hope I convinced most readers that if Americans want responsible national health insurance, BernieCare–the Medicare for All plan supported by Senator Sanders–would represent a huge step in the wrong direction. The annual hidden costs of BernieCare–including deadweight losses, avoidable waste, rationing costs, and social costs of reduced innovation–would together amount to $1.25 to $2.8 trillion every year. Worse, the plan overall would add $61 trillion to the nation’s unfunded liabilities tab. This well-intentioned, but hugely misguided plan is the very opposite of responsible national health insurance.

This post will strike a much more positive tone as it focuses on a plan that well illustrates a far more responsible approach to national health insurance: the Purple Health Plan developed by Laurence Kotlikoff, a professor of economics at Boston University. The virtues of this plan are best understood when contrasted with the parallel flaws in BernieCare. So I have organized this post along the same five dimensions I used to critique Senator Sanders plan in part 1.

Deadweight Losses

These would be considerably lower under the Purple Health Plan because it would be a capped entitlement. Everyone would receive a government-funded voucher to purchase a standard health plan, but government spending on these vouchers would be capped at 10 percent of GDP. But because the Plan also requires that the roughly 10 percent of GDP now spent or allocated by federal and state government on health-related programs such as Medicare and Medicaid, as well as on the tax exclusion of employer-provided health insurance premiums, be reallocated to help finance the vouchers, it means total government spending on health care will remain unchanged from current levels [1].

In short, in sharp contrast to BernieCare, which entails tens of trillions of dollars in new tax spending on health care over the next 10 years, the Purple Healh Plan will incur no deadweight losses above and beyond those already being incurred for tax-financed health spending. Indeed, over time, the amount would inevitably would be much lower than it otherwise have been since growth in tax-financed health spending has outstripped growth in the general economy for decades.

Waste

BernieCare is a one-size-fits-all plan that would mirror Canada in prohibiting any sort of patient cost-sharing for services covered by the plan: no deductibles, no coinsurance, no copays, that is, absolutely nothing that might inhibit patients from overusing the system. Regrettably, the standard plan under the Purple Health Plan also would be one-size-fits-all, designed by physicians in light of the 10% cap on vouchers.

However, as part of this standard benefits package, the Purple Health Plan would include a uniform co-pay and uniform deductible specified by Uncle Sam as part of the basic plan. Given that Medicare beneficiaries are well used to deductibles and coinsurance ($1,364 per hospitalization, 20% of physician services etc.), it seems likely that the uniform cost-sharing requirements might well mirror the amounts already in use by Medicare. Medicare has an actuarial value of 80%, which the RAND Health Insurance Experiment implies would result in about 10% wasted spending overall–well below the 30% waste that would be created as a result of completely free care offered under BernieCare.

Moreover, as described by Prof.will be intense competition to provide the best quality of care and in order to This will squeeze out the excessive costs being paid insurance companies for running their businesses so inefficiently.

Rationing

BernieCare would entail the same sorts of price controls seen in Canada, e.g., global budgets for hospitals and government-determined fee schedules for physicians along with government-negotiated prices on pharmaceuticals. There would be no private health insurance companies, so all rationing would occur at the point of service by providers.

In contrast, the Purple Health Plan would be much more market-driven. Admittedly, the amount of vouchers would be government-determined. Each voucher would personalized for each patient, i.e., risk-adjusted so that it represented the expected dollar amount of plan-paid care each year plus a “reasonable” profit margin for the health plan. While this sounds potentially complicated we have pretty good experience with similar forms of risk adjustment in both the Medicare Advantage program and Medicare Part D prescription drug program. As a consequence, it is unlikely the Purple Health Plan would result in systematic discrimination against high risk patients since such patients will be paying the plans they join a much higher dollar amount than the average patient and consequently would be more profitable to such plans on a per person basis. As a consequence, plans might well compete very hard for such patients, for example by offering them Centers of Excellence for their unique health needs.

The same sort of fierce competition for plan members described above should likewise minimize any incentives to ration care by waiting around since unsatisfied plan members will be able to switch plans every year. As with most types of business, it will always be cheaper to re-enroll existing plan members than to recruit and sign up new plan members. Plans therefore are likely to find the most cost-effective ways to provide access to care (e.g., Minute Clinics vs. emergency rooms for after-hours care; greater reliance on physician assistants and advance practice nurses etc.).

Author: timercash

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