No Prices, No Progress
Single payer makes health care simple, advocates tell us. How cute and charming. And nonsensical--to try to operate without prices.

When I read that under a proposal that draws at least some interest from Minnesota’s Rep. Keith Ellison, "Physicians and other health care staff are reimbursed within 30 days of service ..." my first thought was "And what price do they get reimbursed at?"

Before I clicked through to the original article, I thought “Perhaps it’s some made up price.”

And so I continued reading “ … and that reimbursement would be mandated to be at current pay grade.”

Pay grade? Perhaps Mr. Segal, legislative aide to Rep. John Conyers (D-Mich.) is referring to the Diagnostic Rate Groups (DRGs) used by Medicare. Great. If there’s any government program that is more convoluted and complicated than the internal revenue code, it’s Medicare and its DRGs. Yeah, right. More price-setting by government.

What we have in single-payer systems … or at least any single-payer system that incorporates enough of the population to have market power … is an attempt to allocate resources without prices. When you don’t use prices, you end up—when government is the purchaser—using politics. And with that comes rationing, political favoritism, misplaced priorities (bridges to nowhere), and a host of other ills.

This isn’t to say that that American health care policy is great. It isn’t. Government has too much power. So do corporate HR departments, and “non-profit” hospitals that operate in a quasi-monopolistic environment.

Can the status quo endure for long? I don’t think so. We’re going to complete the government takeover of health care, in which case politics will decide who gets treated, how diseases are treated, and so forth. Or we’re going to make a greater use of prices, in which people actually ask for the price of a treatment, medical providers actually have real prices, and trusted third parties help people decide among options.

For further reading on the topic, I’d recommend three resources. One is The Cure: How Capitalism Can Save American Health Care and Who Killed Health Care? are two great books. Who Killed Health Care? sketches out how the medical industry will have to adapt to greater use of market forces to fulfill its potential. Another resource is the web site State House Call, which focuses on state-level efforts to bring either greater political control or greater freedom to health care.

(First posted at Look True North)

Labels: Health care

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Who Should Control Your Health Care? You or Politicians?

One of the hottest issues of the day is health care. The following commercial is encouraging to anyone who believes in sensible state policy. Why? It's a demonstration that people who understand that markets work are fighting against the lure of government-run health care.






Did I just say "lure of government-run health care?" When you consider the service provide by many government agencies, you have to wonder.

Granted, some private companies in the health care sector leave much to be desired. One reason: they're sheltered from competitive forces through government policies that encourage consolidation and favor everyone but individuals have control over individual lives.

The alternative to government-run health care isn't the status quo. It's the same thing that we use to rely on improvements in most areas of life: consumer control and sovereignty.

The video points out that in Canada, government rations the delivery of health care. Truth be told, there's always going to be rationing in health care--just as there is rationing in the delivery of cars, electronics, food, housing ... just about anything you can name.

In a free society, the price of a good or service serves a rationing function. "Yeah, I'd like that Mustang, but I think I'll stick with my 12-year old Civic." The fact that something is related to health doesn't mean that we should do away with the price mechanism, along with competition among service providers.

If you want to do something about the fact that health care is sometimes--not always--a matter of life and death, the answer is not to turn it completely over to the dictates of planners, but to offer monetary subsidies to the poorest of the poor. For example, we have government hand out food stamps--not force everyone to purchase food through a government-run grocery store.

Let prices work!

For more on the subject, see the National Center for Policy Analysis, Consumers for Health Care Choices, and State House Call.

Labels: Health care

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Moving Towards a Consumer-Driven World.
The era of "organization man" is over as far as employment goes. Its grip over health care is slowly loosening as well, and none to soon.

Here's an article from the vault. As appeared on January 8, 2007

Jury is still out on consumer-driven health care plans

John La Plante


Health care will be one of the leading topics of the new legislative session. Should the session end with Minnesota government taking more responsibility?

Before we enter that debate, I’d like to introduce you to John Goodman, one of the most influential men that you may have never heard of.

Goodman heads the National Center for Policy Analysis (http://www.ncpa.org), a Dallas-based organization that promotes private sector alternatives to government regulations and programs. Over the year, Goodman, who holds a doctorate in economics, has called for changing the way that we finance health care.

He’s had some success in getting federal and state lawmakers to listen. Thanks in part to his work, health savings accounts (HSAs) are taking hold. These tax-favored accounts are coupled with high-deductible insurance policies. Currently, 6 million people have an HSA or similar arrangement. The Washington Post recently called Goodman “the man behind the plans.”

So how does they work?

Goodman’s logic is simple, if not universally accepted. In a normal market, buyers demand increasing quality and decreasing costs. But health care is not a normal market. The person who incurs the expense is not the person who pays for it.

Government agencies pay for half of all healthcare spending. Insurance companies pay for most of the rest. To a substantial degree, employers, not individuals, arrange and pay for insurance.

In recent years, businesses have been dropping coverage. Those that retain it move some of the costs to employees. Even so, most people have little direct incentive to care about the cost of insurance or health care. The subsidies they receive are not obvious to them.

HSAs are part of consumer-driven care, a move to make the costs of insurance and health care are made more transparent to individuals. High-deductible plans force consumers to pay attention to costs. The HSAs, funded by employers and employees, grow over time, cushioning the burden of high deductibles. The HSA is used for routine expenses, while the policy becomes a backstop to catastrophic events.

Where Are We Now?
Have Goodman’s ideas given us lower insurance costs and by extension, increased insurance coverage? The Galen Institute (http://www.galen.org) says the results are positive. “Consumerism is working in the health sector,” writes Grace-Marie Turner, president of the organization.

More than half the individuals purchasing HSA-paired insurance plans were previously uninsured, she says. To counter charges that HSAs appeal only to the young or wealthy, she notes that 40 percent make less than $50,000 a year, and half are over 40 years old.

But not everyone is convinced, with many public policy organizations favoring traditional insurance or a single-payer system. Citizens for Tax Justice (http://www.democracyinaction.org), for example, call HSAs “regressive.” It says that even now people are not using all the balances in their accounts, suggesting that the HSA will become the next tax dodge.

Never mind that today’s employment-based system is already regressive. The value of corporate tax breaks for premium costs increases along with a person’s salary.

Further, having money in a health savings account should be encouraged, not discouraged. Consider, for one thing, that the national average cost of a one-year stay in a nursing home exceeds $70,000. If people can build up substantial reserves in an HSA, that money could play a role in meeting the long-term care crunch.

Citizens for Tax Justice also fears that HSAs "will, over time, encourage healthier and wealthier people to leave the traditional health insurance market, which will make health insurance even less affordable for those at-risk workers and families who really need it."

If Galen’s numbers hold up, HSAs will reach across the economic spectrum. The criticism of HSAs dodges the question of whether today’s low-deductible, employer-selected and purchased insurance should be encouraged as the model, or if it is even sustainable in a global economy.

It has high costs, and not only in finances. It discourages employee mobility, which has economic and personal costs. It also ties a person’s most intimate concerns not only to an insurance company but also to the HR department.

There’s a lot that is right in American health care. There’s also a lot that’s amiss. The direction that health care takes from here depends in part on whether you think people can and should take more control over their lives, or whether that role should be given to corporate or public managers.

It’s human to want it all: excellent care, instant access and little cost. But those objectives must be balanced against each other. How will that be done? I’m casting my lot with Clive Crook, senior editor at The Atlantic. As he put it, consumer-driven health care may be "the least-bad option."

Labels: Health care, Legal-Ledger

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Long-Term Care: Who Needs It? Why Care?
Who needs long-term care? You might, if you live long enough. Current projections are that half of all people who reach 85 years old will require long-term care. Note that the "old old" (80+ years, if I recall correctly) are one of the fastest growing segments of the U.S. population.

If you're decades, even six or more decades from then, you'll have some interest in long-term care, if for no other reason that your tax dollars are going to pay for the LTC. The demand for taxpayer funding of LTC will only go up with time.

Stephen Moses, of the Center for Long-Term Care Reform, Inc., has assembled a resource list of speeches and reports on the topic.

Labels: Health care

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Let's make the costs of health care transparent.
Families USA, a group that advocates for government-run health care, has released a new study on the costs and medical problems of the uninsured.

The lead paragraph of a USA Today article on the subject is stark: "Hospitalized children who lack health insurance are twice as likely to die from their injuries as those with insurance, a new study reports." The implied suggestion is clear: expand government-paid health welfare programs.

Of course, there are alternatives to simply enrolling people in Medicaid, S-CHIP, or any number of government programs. One possibility? Premium supports so that people can buy insurance in the individual market--or what's left of the market, which has been devastated in some states by guaranteed issue, community rating, and excessive mandating of benefits.

At the end of last month, Robert Samuelson wrote a Washington Post op-ed that brings up a key part of any discussion of health care policy. "For decades, Americans have treated health care as if it exists in a separate economic and political world: When people need care, they should get it; costs should remain out of sight."

But due to soaring costs--increases that are driven in large measure because the costs are invisible, even for insurance--the availability of health insurance coverage continues to be a nagging concern.

Samuelson gives credit to President Bush for the effects of his latest proposal, which are to bring the costs of insurance into the open. "

By contrast, the plan of Governor Schwarzenegger (R-California) simply involves cost-shifting. "It's clever," Samuelson says, "but it perpetuates the illusion that health care is cheap."

(Cross-posted from StateHouseCall.org)

Labels: Health care

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Where There's a Healthcare Policy Sickness, There's a Solution. Or Two. Or Three.
One feature of being something of an expert is that you occasionally get unsolicited advice. Sort of like the company that is approached by someone with the newest mousetrap. In my case, it's health care policy.

I haven't written on the subject in a while, but I am listed in a few references, and of course there are some entries on this site on the subject. So last month I received a note for a mish-mash of a universal plan from someone I had never heard of. It looks like he has printed the same note on another blog that permits comments.

I don't have time to give it a review, so I'd say, "Get your own blog, sir." Same to the gentleman who sent me his 4 page proposal (single space, few paragraphs) to me via the USPS.

Labels: Health care

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Your and My Happy Days.
Do we still live in a world of Happy Days?

Public and corporate policy regarding retirement income and health insurance is based on the assumption that people would live in a nuclear family with one breadwinner and one bread baker. The single provider of income would, in turn, work at the same company throughout his working life.

As you know, that’s not exactly what the American society and economy look like today. Last week, the Bureau of Labor Statistics released the latest findings (PDF) of an ongoing project called the National Longitudinal Survey of Youth 1979. (Click here for one newspaper's summary of the findings.)

The study is a survey which tracks the same 10,000 or so Americans over time. The survey found that the average person in this group held 10.5 jobs between the ages of 18 and 40.While people tend to change jobs less frequently as they age, this group had on average two jobs during the age range of 36 to 40—one job every two years! (For what it’s worth, the survey focuses on employers, which means that an initial job, a lateral reassignment and a promotion all count as one job. This means that the survey may actually underestimate job hopping.)

Defined contribution plans, such as 401k(s), are more in tune with this new reality. The old version of Social Security, which worked best when Detroit’s Big 3 defined the world automotive industry, is obsolescent, and should be supplemented (for those who wish) with a 401(k) style plan that involves privately owned accounts.

In our health care approach, many people who lose their job lose their health insurance coverage. Whatever its merits in years past, it’s simply a stupid approach today. There are two alternative ways forward: government-run health care (socialized medicine) and individually-owned insurance.

Corporate policies can and do change, though the old approaches are still propped up by federal laws such as the tax code. Public policies, since they are driven by interest group politics, are slower to change. But as time marches on, we will find that they were designed for a world that, bit by bit, doesn’t exist anymore.

Labels: Health care

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LTC Insurance: A Modest Beginning.
Taxes, and tax credits, provide incentives. But how much incentive is enough?

If you read far into the literature on state finances, or health care, you'll find that the need for long-term care threatens to crowd out every other priority for government spending. Simply put, long-term care is expensive (running well over $50,000 a year for some services). The aging of the population means that more demand for long-term care (including but not limited to nursing homes) is going to rise, and the bulk of LTC spending is paid for by governments.

One way to avoid the budget disaster is for policy makers to do what they can to encourage the purchase of long-term care insurance. Various laws and policies (including a nursing home entitlement) mitigate against that. With premiums for such insurance amounting to thousands of dollars per year (perhaps per month--it's been a while since I have looked at the numbers) and a small industry of lawyers (who can help middle-class people eligible for Medicaid), it's little wonder that the LTC insurance market is stunted.

Offering a tax credit for long-term insurance could, in this light, be a useful means to shift some of the demand for LTC care payments out of the public sector.

Minnesota offers such a tax credit. But it's limited to $100 a year per individual.

That's not much of an incentive, is it?

Labels: Health care, Medicaid

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One of out two?
One out of two is a great batting average--but a horrible statistic if it describes the number of students who enter high school and graduate four years later.

The group Clergy for Educational Options reminds us why a state's poor record (in this case, South Carolina) matters:

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For Immediate Release

June 29, 2006

GRADUATION RATE HANDICAPS STATE PROGRESS
The NBA Finals just concluded and for those of you who care, the Miami Heat beat the Dallas Mavericks in six games. I’m a major fan of the NBA, but didn’t follow the season like I have in years past. But I did watch the finals. And as much as I think I know about basketball, I was somewhat amazed that one of the most dominant players of our time, Shaquille O’Neal, was not in during the final stretches of most games. Shaq, being such a dominant force on the court, would often cause me to forget that Shaq’s free throw percentage was 47% during the regular season and only 37% during the playoffs, knowing this, it’s easy to understand why their coach made that decision – Shaq would have been a handicap to their winning the title.
While I’ve heard numerous excuses as to why Shaq cannot make free throws. However, the fact remains that he cannot get the job done from the free throw line. Consequently, the coach made needed changes to help ensure they accomplished their goal of winning the title.

Unfortunately, the same cannot be said for the “coach” of South Carolina’s education system. Despite another dire report that shows South Carolina graduating only 52.5% of its students, Coach Tenenbaum and her “assistants” refuse to make needed changes to a system that clearly is not producing as it should. Instead, they continue to make excuses, saying it’s not fair to compare states because we have different graduation requirements.

What they refuse to acknowledge is that comparisons are not what matter most – it’s production. In this case, having a system that is producing only one graduate for every two that enter high school is the problem – not the comparison with other states. It’s time for the education establishment to wake up and realize that their excuse making only exacerbates the real problems associated with our low- graduation rate.

Regardless of where we rank nationally, the simple fact is that only 52.5% of our children are graduating. That is a horrendous statistic that cannot be discounted or excused simply because we make our high school students take a 10th grade level exit exam or require that they pass with 24 credits rather than the 20 many other states mandate.

Education and elected officials across South Carolina are doing a disservice to the state by not implementing real reform that will help increase graduation rates.

South Carolina needs to decide how we can better prepare more of our students for college and life beyond high school. That’s the only way South Carolina will better its economy and the quality of life of its citizens. The cost of not graduating more students has a tremendously adverse affect on our state. According to the Education Week report:

FYI: Subcommittee members voted 4-1 to adjourn debate on this bill - which was a procedural move to kill the legislation for this year. Rep. Lewis Vaughn voted against the adjournment motion while Reps. Adam Taylor, Lanny Littlejohn, Jim Battle and Herb Kirsh voted against children, parents and their colleagues by supporting the motion.


Over a lifetime, an 18-year-old who does not complete high school earns about $260,000 less than an individual with a high school diploma, and contributes about $60,000 less in federal and state income taxes. The combined income and tax losses aggregated over one cohort of 18-year-olds who do not complete high school is about $192 billion, or 1.6 percent of the gross domestic product. (Cecilia Elena Rouse, economist, Princeton University)
Individuals with a high school diploma live longer, have better indicators of general health, and are less likely to use publicly financed health-insurance programs than high school dropouts. If the 600,000 18-year-olds who failed to graduate in 2004 had advanced one grade, it would save about $2.3 billion in publicly financed medical care, aggregated over a lifetime. (Peter Muennig, Mailman School of Public Health, Columbia University)
Adults who lack a high school diploma are at greater risk of being on public assistance. If all dropouts receiving assistance had a high school diploma instead, the result would be a total cost savings for federal welfare spending, food stamps, and public housing of $7.9 billion to $10.8 billion a year. (Jane Waldfogel et al., Columbia University School of Social Work)
High school dropouts are far more likely to commit crimes and be incarcerated than those with more education. A 1% increase in the high school completion rate of men ages 20 to 60 would save the United States as much as $1.4 billion a year in reduced costs from crime incurred by victims and society at large. (Enrico Moretti, economist, University of California, Berkeley)

Additionally, the United States Census Bureau estimates that on average, workers with a high school degree earn 30% more than those who drop out of high school and that a worker with a bachelor’s degree earns 72% more than one with only a high school degree. And, according to the National Center for Policy Analysis, college graduate can expect to earn on average $2.1 million in his lifetime, nearly twice as much as a worker with only a high-school diploma.

With only 1 in 2 students graduating in South Carolina, the resulting costs associated with these statistics are staggering. We are clearly doing the state great harm by not implementing programs that can help graduate more students.

School choice is a proven method for accomplishing that goal. It is time to acknowledge that the public school system is not the answer for every child. We must offer children educational alternatives so that their individual needs can be met, leading to a better chance of graduation and a more prosperous life.

Labels: Health care, School choice

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Health Care and Lasik
The theory that giving more weight to individuals in the management of health care spending is a good idea has some support in the history of laser surgery.

In its March 10 editorial, the Wall Street Journal notes what has happened to the price of LASIK, a surgery that helps many people eliminate the need for corrective eyeglasses.

"In early 1999, shortly after LASIK was approved by the FDA, the average price for the procedure was about $2,100 per eye. By the end of last year, it had fallen about 20 percent to $1,687."

The editorial notes that today's "wavefront-guided" LASIK is an advancement over the technology of 1999, which means that the drop in price-for-value is even greater than 20 percent.

By contrast, the Journal notes, per-person spending on health increased from $4,400 to almost $6,300 during the same time.

Unfortunately, the editorial does not specify what percentage of LASIK surgery is paid for out of pocket or through similar arrangements such as HSAs or HRAs. To the extent that traditional insurance covers LASIK, the argument that markets work to contain costs is weaker.

Then again, one company with a national presence has sent me a trifold brochure for LASIK, which promises $0 down and 0 percent interest for 18 months. They also tout "competitive pricing, promotional LASIK financing, as well as the recognition of your HSAs and FSAs."

Labels: Health care

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The Collapse of GM.
The creative destruction of General Motors continues, with news of a dramatic buyout offer to be extended to workers at GM and Delphi.

As you might expect, both the Detroit News and Detroit Free Press are running multiple articles on the recent developments.

What follows is a recap of the stories, with some commentary mixed in. There's not as much commentary as I would like, but here's the quick story: this has been a long-time coming. An oligopoly of employers (GM, Ford, Chrysler) and a monopoly of workers (the UAW) have, over the years, created a business climate that extracted superior returns (wages 69 percent higher than for the average for manufacturing jobs) that could not be sustained. A tax system that favors employer-paid health insurance and defined-benefit pension plans, along with environmental regulations (CAFE) pumped up industry costs. An inflexible labor policy delivered through a union contract lead to the absurdity of the "jobs bank," paying people to not work--and delaying the inevitable contraction of the labor force. Meanwhile, the rise of automotive manufacturing in Japan, Korea, and even Mexico have made the "good old days" of the 1950s unsustainable.

Create destructions, friends. The old regime is being destroyed, the new one is not yet created.


First, the Detroit News.

In Remaking GM: Plan is a bold step to solving Delphi puzzle, Daniel Howes offers praise for the company:

This poster child of automotive ineptitude, if the conventional wisdom is any guide, is doing anything but marking time.

What has the company done right lately? Redo its lineup; sold stakes in foreign companies (presumably to get cash and refocus corporate energy); cut white collar staffing; closed superfluous plants; got the UAW to agree to historic (though modest) concessions on health care, and now, offer a sweeping buyout plan.

Not bad for a bureaucracy derided as congenitally incompetent, unable to change or grasp how quickly the world is moving away from it. These look as much like the actions of a distressed company selling everything that isn't nailed down as they do a stressed company doing what it should have done long ago to fix the business.

He warns that the most dramatic change has yet to occur: a drastic reduction in wages at Delphi, GM's former in-house supplier.

The next [deal] will be bigger, tougher and more wrenching for all sides because they won't be giving away money to go away. They'll be taking money away to stay and do the same work for fewer dollars per hour in a post-bankruptcy Delphi. Big difference.

Automaker's downsizing aims to ensure survival points us to the numbers:

by offering a wide range of retirement and buyout options to its 113,000 hourly workers, GM can now move in earnest toward its goal of cutting 30,000 manufacturing jobs and shutting six assembly plants by 2008.

The plan, which could cost up to $4.6 billion, is a way to reduce costs at GM directly, and indirectly. Directly, by reducing headcount. Indirectly, by freeing up slots that could go to workers at Delphi. GM spun Delphi off a few years ago, but still has some financial obligations as a result.

Delphi showdown threatens gives the backstory alluded to above: it's not just headcount at GM that is the problem, it's the financial situation of its parts supplier. Delphi is in bankruptcy, and wants to cut costs dramatically:

The Troy-based supplier, which filed for bankruptcy in October, contends that the $27-per-hour wages inherited in its 1999 spin-off from GM have put the company at a competitive disadvantage with other U.S. suppliers, where wages are $13-$14 an hour.

Sending some of those jobs back to GM--a possibility in the various agreements to date--would save the company some dough. The GM buyout offer is extended to 13,000 Delphi workers, and 5,000 Delphi workers could "float back" to GM.

Oh yes, be sure to catch the line worker who is holding out for a buyout package of $300,000.

Buyout a mixed deal for UAW looks at the financial and political fallout to the union from industry shrinkage. Active membership is at 600,000, down from a peak of 1.6 million. To borrow an old phrase, what's good for GM is good for the UAW, and union leaders have come to recognize that.

Praise, caution greet deal is a "what do the workers" think piece. It points out that a large buyout could help some laid-off workers regain their status as active workers--though given the huge oversupply of labor, that is a questionable statement.

This article points out that some workers who would retire soon anyway--within 3 years--are going to get a nice bonus:

The chance for workers, on average, to be paid $2,900 a month to stay home and do what they want until they reach the 30-year mark will be attractive to many.

About the offers on the table gives the details:
[The] Special Attrition Program offers $35,000 to anyone who retires with at least 30 years of service.

...

Mutually Satisfactory Retirement : This is for employees at least 50 years old with 10 years or more of credited service.

...
Pre-retirement: A sliding payment scale allows workers with 27, 28 or 29 years of service to retire now and receive a monthly salary (between $2,800 and $2,900) until hitting the 30-year mark, then retiring.

Workers who agree to give up any claim to health care benefits will receive cash payouts. Their pension rights will be unchanged.

10 or more years of service: $140,000
less than 10 years: $70,000

For some workers, this could be a very good deal.


To take the deal or not to take the deal: That is the question is a decent rundown of the choices that workers must face. The offer is very good for those close to retirement. But,

If you can't afford to quit working, you need to decide how much of a risk you're running by staying on the GM/Delphi payroll. If too few of your union brethren and sistren take the incentives to leave, your job could be cut and you'd end up in the jobs bank.

Oh yes, the infamous jobs bank. At least that is due for negotiation when the contract expires next year. Think it will be extended?

The article also points out that some people may have to move to less expensive digs to make the offer work for them. For some, that will be an acceptable choice. Others may take their chances.


Editorial: GM buyouts reduce costs, but more reforms needed says

Give the company credit for offering a generous program to convince workers to leave. ... The United Auto Workers should be grateful for this good-faith gesture by the world's largest automaker. GM and Delphi could have insisted on harsher measures.

The editorial points out that the long-term success of the company depends on adjusting to changes in customer tastes, and changes in the union contract--including, first of all, the jobs bank.


Meanwhile, here's the line up at the Detroit Free Press.

For GM, this is merely a first step, by Tom Walsh, runs with a "take your medicine" approach:

Expensive? Incredibly so. Billions of dollars so far, and the weary GM number crunchers are still counting.

Mind-boggling? Absolutely. Paying an army of healthy workers up to $140,000 apiece to just go away?

Yes, it's expensive, mind-boggling and absolutely necessary if GM, Delphi, the UAW and the rest of Michigan's traditional auto industry are to survive and be relevant.

Susan Tompor, a financial columnist for the paper, says that Choice could be risky:

"The loss of benefits, such as life insurance or health care in retirement, can be huge. Many workers may underestimate how much they're giving up."

True, GM wouldn't offer the deal they didn't think it was a way to save money. Then again, the alternative may be bankruptcy and the voiding of labor contracts. Either way, workers are taking a gamble: will the buy-out sums be good enough to tide them over to another job? Or should they hope that their own jobs will hold out long enough until retirement?

Oh yeah, don't forget that you're going to have to pay taxes on that lump sum--perhaps $40,000. She runs through some of the basics such as return on investment and asking questions about future expenses.

The people with the easiest decision to make may be those near retirement (take the money and run) and younger folks (take the money and retool). It's those with 15-20 years of service who face the most uncertainties. Will the job be there 10 years from now? How difficult will it be to find another job? (Forget getting a job that pays as much).

Worker Reactions: Offers look good takes us through a range of thoughts.

Willie Jenkins, 51, is ready to retire with 30 years of service. He says "This is fantastic. I can't wait to get out!"

Speaking of younger workers who aren't sure what to do, he says "" ... if I were them, I'd take it. Because we just don't know if this place will be here next week, or next year."

No, they certainly don't.

Another worker says "At 55, I'm not ready to retire." Perhaps not--especially with a huge tax bill waiting. Another says "It's hard to give up what you've been doing for a lifetime."

Meet "creative destruction," friends.

Timeline of GM, Delphi's travails offers what you'd expect: when Delphi was spun off from GM, when X number of jobs were eliminated, and so forth.

March 2001: 11,500 jobs.
October 2003: 8,500 jobs.
November 2005: 30,000 jobs.

June 2005: "There is no reason at the present time why Delphi has to seriously consider a bankruptcy." -- Delphi CEO Steve Miller.

October 2005: Delphi files for bankruptcy protection.

Questions and Answers offers a rehash of the details. It points out that the "jobs bank" will still go on. It has to; it's in the contract. If you think about it, buy-outs are also a way of paying people to not work. But they are more rational: they are a recognition that the company can no longer support such a large workforce.

Labels: American automakers, Health care, Pensions

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Power to the People? Another Third Party for Health Care.
Consumer-directed health care, meet HR outsourcing.

Many employers have long since outsourced mundane tasks such as running employee cafeterias, if they ever had one. They are also taking steps away from the role of health care supervisor. That's a good thing: "if my wife is an alcoholic and my daughter wants an abortion, my employer is the last person I would want to know."

So we're seeing the development of consumer-driven health care, in which employers are more likely to give employees a chunk of money and say "there you go, find your own way through the health care market." (Of course this is grossly simplified, but let's keep things short.)

The health care market, of course, is horribly complicated and unlike almost every market out there. An article in Fortune magazine clues us into A New Guide to the Medical Maze. Companies such as Health Advocate, Care Counsel, and Patient Care, which as a Milwaukee Journal-Sentinel profile mentions, "is hired by companies to serve as a patient advocate for employees on health insurance issues." They charge employers up to $4 a month per employee--peanuts, compared with the costs of premiums. The upside to employers? HR staff can distance themselves from employee-insurer disputes.

Good first step. Since these companies are often hired by employers, the financial incentives still favor the employer. Still, the development of companies such as Health Advocate, Care Counsel, and Patient Care is a good move away from the HMO model, with all of its conflicts-of-interest.

While these companies can be compatible with employer-paid and selected health insurance plans, the health care advocacy companies could be useful in a system of consumer-driven health care, which requires greater patient involvement. The advocacy companies can serve as a Consumers Report, a law firm, or both, for consumers.

Labels: Health care

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Dull But Serious
Medicaid versus Medicare: do you know the difference?

Both are facing dismal fiscal futures. And while the federal government is involved in both, states have little to do with Medicare, and much to do with Medicaid. An article in today's Wall Street Journal (link for subscribers) lays out the scene:

With Medicaid costs now consuming about 17% of state general-fund budgets, and rising at more than twice the rate of inflation, state governments are scouring the health program for savings to protect their bottom lines.


To date, efforts to bring about cost control have consisted of cutting enrollment, and cutting payments to health care providers. The first route has some merit, as increasing enrollment through liberal entitlement guidelines can squeeze out the demand for private sector insurance, leading to an increased demand for government payments. The second route, cutting payments to providers, makes those on the dole rather unattractive customers--not exactly a way to promote public health.

The WSJ article mentions the goings-on in Missouri, which has made it more difficult for people to qualify for Medicaid. It used to be that a 3 person family had to have a household income of no more than $12,067 to qualify. Now the number is $3,504. Such moves have been, and will be, politically unsustainable. Even most ardent advocates of small government would be appalled at such a move. The problem with Medicaid goes far beyond households with $13,000 incomes getting benefits. The whole logic of third-party control, evidenced not only in Medicaid but in corporate America, needs to change.

Even if you've never taken a dime of Medicaid money in your life, the fiscal challenges of the program (or rather, programs: each state does it differently) will affect you. Your level of taxes and what other programs are funded are affected by Medicaid. In addition, changes in the operation of Medicaid can ripple throughout the economy. The ideas being floated in a few states to use vouchers could further accelerate a move towards consumer-directed health care. The net result will be good: why should you lose or change your insurance when you move to a new job?

The largest problem with Medicaid is the fact that is has become an accepted case of middle-class welfare for people who need long-term care.

"Changes aimed at low-income individuals may not deal with the biggest driver of Medicaid costs: long-term care for a relatively small number of elderly and disabled beneficiaries. About 4% of Medicaid recipients account for half the program's expenditures, according to the Kaiser Family Foundation."


With the enormous cohort known as the baby boom entering the years of retirement and increased needs for care, the problem is going to get worse before it gets better.

Labels: Health care, Medicaid

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Retirement and Health Care Plans: At a Tipping Point Towards Individual Control?
The era of Big Employer and Big Daddy is coming to an end--or perhaps just ramping up.

Unless you are living in a cardboard box, you probably have some combination of the following: homeowners insurance, renters insurance, and auto insurance. And you most likely bought them in the private market, on your own, and not through a government program or an employer. Having such insurance is either can, in addition to being good financial sense, be a requirement of a third party in the private sector (the company, if any, that holds the loan on your house or car.) Government gets involved when you wish to drive that car on public roads, when it requires auto insurance. But it does not tell you where to buy that insurance, or (beyond what is usually a minimal amount) how much to buy.

If you have children, minor children, you may be stashing away some money for their college education--again, probably not through your employer, though perhaps through a voluntarily entered-into government program known as a 529 plan.

What do auto insurance, homeowners insurance, and saving for college have in common? Planning for possible expenses incurred in the future, which is for the most part undertaken by the individual.

Now think about the two fiscal timebombs that threaten the economy: retirement savings and health care.

Here we have the heavy involvement of government and private sector third parties. Call the first the Big Daddy approach, and the other the Big Employer approach.

In retirement planning, each worker must surrender one dollar out of 7 to a government-designed, managed, and run program that will run out of money within a decade or so. In health care, Medicare (old people) and Medicaid (poor and perhaps not so old people) threaten federal and state budgets.

One theme common to these programs, and problems: individual citizens have no say in what goes on. Your social security "account" is not your property, and its "tax Peter to cut a check to Paul's grandmother" model robs citizens of thousands of dollars that would come from true investment accounts. In health care, why should anyone in a government program be a smart consumer of health care? It isn't there money, after all. And without having control over the power of the purse, they often get poor quality. (Ask your doctor: would he prefer to be a Medicaid patient?)

But it isn't only government that separates people from responsibility, power, and potential rewards of individual planning for the future. World War II-era compensation policy works the same way. If government is

Because government can't "go broke" in the same way that corporations can and do, the unsustainable nature of the Bigs will cause changes in Big Employer long before it brings changes in Big Daddy.

Companies have already started dumping traditional pension plans ("defined benefit") in which the risk and rewards of planning for retirement rest with the employer. In "defined contribution" plans, such as 401(k)s, people choose how much of their compensation goes into retirement funding, and how that money will be invested--far different from defined benefit.

More recently, but still in its early stage, is a move towards consumer-directed health care. In the purest form of consumer-directed care (not in place in many places if at all), companies give the cash value of insurance to employees and say "Good luck, boys. Go find your own insurance." There are several obstacles in that path, including the federal tax code and government regulations of insurance plans.

All this comes to mind as I watch the changes afflicting this country's Big Employers from the World War II. "Organization Man" has long since left the psyche of the American worker, and his compensation policy--someone else plans for retirement and health care as well--is changing as well.

Thanks to the problem of moral hazard, employers are dumping pension obligations on you and me, federal taxpayers, in the form of the Pension Benefit Guarantee Corporation, through the bankruptcy code. And corporate health care plans, in which employees have little stake, are being scaled back.

Simply put, government and corporate policy have for a long time fostered a corporate cost structure (and government cost structure) that cannot be sustained any longer.

Steel companies got out of this structure through the bankruptcy court. Airlines are going through it now. Many people speculate that the "Big 3" (now Big 2) auto makers will go next. (Contracts between the UAW and GM, Ford, and Chrysler have long been the exemplar of Big Employer benefits.)

The Wall Street Journal has a fine article on the subject today (link for subscribers).

Excerpts:
A larger number of companies are closing pension plans to new hires or to younger workers, including Motorola Inc., Lockheed Martin Corp., Hewlett-Packard Co., Aon Corp. and NCR Corp. Many have, at the same time, expanded defined-contribution retirement plans, such as 401(k) plans. In such plans, employees themselves contribute to retirement investment pools -- often supplemented by employer contributions -- and elect how to invest these savings. Employees, not employers, bear the risk of inflation, sour markets or outliving their savings. Total assets in private-sector defined-contribution plans first exceeded those of defined-benefit plans in 1997.

---
When they were very profitable, companies with stable, often unionized, work forces promised pensions. When markets turned, it became clear that some hadn't set aside enough money to fulfill those promises.


Detroit got away with this practice for years because of the near-lock that an oligopolistic industry had on the U.S. market. But the manufacture of automobiles is no something that the U.S. has an overwhelming advantage in, and consumers enjoy having the choices and quality available elsewhere.

The adjustments will be brutal.

Meanwhile, GM Chairman Rick Wagoner hints at an endorsement of socialized medicine, suggesting that Toyota and such have an advantage because they don't have to pay for health insurance. But this is self-serving verbiage. It's not just the Big 2 that compete against companies based in countries where the taxpayers as a whole assume the burden of health care for their employees. But the Big 2 were part of a small portion of U.S. companies that pursued an unsustainable labor policy for decades on end. (The Journal article makes no mention of this point, and gives great credence to Wagoner's remarks.)

Meanwhile, the U.S. Congress is set to make things worse when it comes to retirement, by increasing the moral hazard:

"Congress currently is contemplating contentious legislation to force some companies, particularly financially weak ones, to put more money aside for defined-benefit pensions and to pay more to support the PBGC."

Labels: Health care, Medicaid, Pensions

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Would You Like Health Insurance With That?
Another innovation propelled by the World of Wal-Mart: health insurance at the store.

From today's Wall Street Journal:

Sam's Club, the membership-warehouse division of Wal-Mart Stores Inc., plans to unveil a new health-insurance offering for its customers on Jan. 4, making such a service available in all of its U.S. stores for the first time.

Sam's Club, with nearly 600 U.S. stores, will allow small-business owners with Sam's Club memberships to purchase health-insurance plans for their employees through Salt Lake City-based insurance broker Extend Benefits Group LLC. The coverage is available elsewhere, but Extend Benefits will charge Sam's Club members lower administrative fees: $150 to establish an account instead of $500; and $4 a month for administration rather than $5.

The Journal notes that membership fees make up a substantial portion of Sam's net income, and that this insurance program may help justify higher membership fees. Good for them, perhaps: we need more alternatives for securing insurance. Corporate employment and government programs must not be the only options.

Labels: Health care

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A Dent in Middle-Class Entitlements.
For a look at how government programs can be a moral hazard and crowd out private initiative, look no further than nursing home financing.

Medicaid is perhaps best known as the program for "welfare families," single or divorced mothers of small children. But the single largest category nationally (and in most if not all states) in dollar terms is the adult population that needs long-term care, or colloquially, nursing homes.

Not everyone will need such care in their lifetime. This suggests that it's an unpredictable event (much like the possibility of a man dying at, say, 52), so you'd think there might be a good market for insurance policies.

Not quite. There is a long-term care insurance industry, but it market penetration is rather small--under 10 percent, I believe. (There are lots of numbers I could dig out from the hard drive for this essay, but hey, Christmas is less than a week away and there's a lot of work to do before the end of the year.)

Why is long-term care insurance to infrequently used? One reason is the stumbling of the insurance industry; companies have made some mistakes along the way, leading to some bankruptcies and rather unpopular premium increases.

But a more fundamental reason for the paucity of long term care insurance coverage is the moral hazard: why pay for insurance for an event that government will pay for? That's what takes us back to Medicaid, which funds the majority (again, if you want statistics, look 'em up--perhaps in the archives of this blog) of LTC.

Government funds the majority of long-term care? Isn't Medicaid just a program for the poor? Well, yes and no. There are ways to become poor, such as shifting assets to one's children, and thus qualifying for Medicaid. It's easy to rationalize this move by saying "Hey, I've worked hard all my life, paid my taxes, and I deserve this." And of course, when everyone else is doing it, the rare individual who pays for his own care has little impact on the public fisc.

State government politicians, meanwhile, like to get the feds (that is, people who vote in other states) to pick up as much of the tab as possible. So the last couple of decades have seen a cat and mouse game between federal and state officials, as one rule change in DC is met with new accounting gimmicks in the states.

Today, the Wall Street Journal (link for subscribers) says that the Washington branch of the political family is thinking of changing the rules again.

Now Congress wants to make it harder for some people who do have assets to get Medicaid to pay their nursing-home bills. The changes, already approved by the House and now before the Senate, would:

- Force people who transfer assets to wait awhile before Medicaid will cover their nursing-home care.

- Bar a person with equity in a home of more than $500,000 from Medicaid coverage. States can raise the limit to $750,000. Currently, in most cases, a person can own a home of any value and still have their nursing-home bills covered.

- Require states to look for inappropriate asset transfers during the five years before a Medicaid application, instead of the current three years.

- Classify certain annuities as assets that trigger the waiting period; annuities sometimes are used to turn large assets into small, Medicaid-friendly payouts.


All good measures, with this goal: "The changes could force the elderly and their caretakers to manage their funds more cautiously, perhaps by encouraging people with means to buy long-term-care insurance or to use the equity in their homes to pay nursing-home bills."

There's no easy way out of the LTC mess. Though technology can help (in-home monitors and the like), good long-term care is by nature labor intensive, which means expensive. Thanks to advances in science and medicine, as well as rising incomes, people are living longer. That's all good.

Demographic and lifestyle patterns have been changing for decades, changes that signal an increasing reliance on paid help. Women, historically the providers of LTC to family members, are overwhelmingly in the paid workforce, often unable to do much to help. Children from a family scatter across the country, making it hard for family members to pitch in together to help mom and pop. So the use of paid help, whether inside a nursing home or out, funded by insurance or by taxpayers, has increased, and will continue to increase, especially given that the "old old" (over 80 years) group is the fastest growing part of the U.S. population.

The ideal solution might be the development of a strong, vigorous, widely-bought-into market for long-term care insurance. But getting there requires dealing with a knot of problems across several policy issues, including regular health insurance and the federal tax code.

By contrast, reforming k-12 education to promote achievement, cost containment, and consumer choice looks easy.

Labels: Health care, Medicaid

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A New Resource for Health Care Policy Improvements.
Reform in health insurance policy and thinking is slowly coming, helped by a new organization.

Insurance by its nature means relying on a third party to pay some of your bills. But within the current policy framework, many other parties are involved: government regulators, politicians currying favor with patient groups and medical professionals, and HR departments who are looking for a way to save a buck or two on insurance costs.

Little if any of this is good for the individual consumer. Consumers for Health Care Choices
is one group pointing the way to a more sound approach in health care.

The group is off to a promising start with several issue papers.

Labels: Health care

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Vote for Me! I Expanded Welfare!
Does a pro-welfare stance win re-election campaigns? Some governors seem to think so. At least that's the argument that Merrill Matthews makes in an USA Today op-ed.

Matthews gives examples of a Democratic, Independent, and Republican governor who tout their expansion of Medicaid, the government-financed health care system.

"Ironically, for the past decade," he notes, "most governors have been trying to get people off the welfare rolls and into productive private-sector jobs. So why isn't the goal to get people off the Medicaid rolls and into private-sector insurance?"

Both welfare and Medicaid involve taxing some people go give to others. Yet Medicaid has avoided the stigma that propelled welfare into reform. (Welfare reform's effects have been oversold, but that's a story for another day).

As Matthews points out, welfare reform imposed a work requirement, as well as proceeded with a philosophy that people would make a transition to the private sector (in this case, work). But with Medicaid, there is not (yet) an expectation that people will transfer back to the private sector.

Of course, some people--the frail elderly who make up the bulk of Medicaid's expenses--cannot resume work. But there is still room within what we might some day call Medicaid reform, for private sector features. One way would be to convert money spent on Medicaid enrollees into cash payments that would then be used to purchase insurance in the private market, perhaps combined with a health savings account.

The welfare component would still be there--we are still talking about taxing some and giving to others, after all. But there are advantages--Matthews simply lacked the space to talk about them--of making the program more voucher-like.

Labels: Health care, Medicaid

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Bribe Me to Be Stupid?
Health insurance, pensions, and Social Security all three major problems in public policy today. And all three carry a common thread, according to two short letters in today's Wall Street Journal.

According to the first writer, defined benefit plans are inherently unstable:

Arthur Levitt Jr. calls for "accuracy, transparency and accountability" in pension accounting and reform of "the regulatory incentives and accounting rules that encourage employers to make, and employees to accept, promises that can't be kept" ("Pensions Unplugged," editorial page, Nov. 10).

"Promises that can't be kept" are inherent in defined-benefit plans, which call for payments in the never-never, not the here and now. Instead of trying to fix defined-benefit plans, we should encourage defined-contribution plans, where contributions are made in the here and now. There is no "promise that can't be kept." There is no promise at all. The employer has no pension assets or liabilities. The employee does not look to his employer for his pension. He looks to a company in the business of administering money, not making cars or running an airline. Ideally, the account is portable, meaning the employee owns it, and the plan may give the employee broad-brush authority to allocate assets.

Universities provide portable, defined-contribution pensions through TIAA-CREF. Yet professors, many with seven-figure accounts, tend to favor a political party that opposes the same arrangement for Social Security. That opposition would presumably extend to pensions for auto and airline workers. The university elite may not consider free choice and the assumption of responsibility appropriate for those less gifted. Worse, portable defined-benefit pensions might turn workers into capitalists. How shocking.

S. Paul Posner
New York

And the second reminds us of the values of diversification--something that is actually discouraged by current tax laws.

Mr. Levitt outlines serious problems in both private and public employee pension plans, but his proposals are palliatives that miss the main point.

Any Wall Street Journal reader knows the need to diversify asset holdings, yet almost all of us rely on a single provider, our employer, for our wages, health care and pensions. (Even if employees directly contribute much of the funding, the employer usually is or selects the manager.) Why do we do that? Because our tax structure -- in which employers deduct benefit costs when paid and employees receive benefits tax free or tax delayed until retirement -- bribes us to be stupid.

No amount of regulation, especially by a federal government whose Social Security and Medicare benefit promises are far more unfunded than almost anything in the private or state and local government sectors, can be a true fix. The true solution is tax reform that removes the stupidity bribe and encourages people to provide for their own retirement and health care, either individually or in groups not connected with their employer.

Roger Nils Folsom
Professor Emeritus of Economics
San Jose State University
San Jose, Calif.

The common thread? Employer-based provision of a person's health and welfare.

Labels: Health care, Pensions

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Is There Hope for Michigan and Detroit?
Detroit, and to some extent, Michigan, has been in trouble for quite a while. Is it going to have to get worse before it gets better?

Though the auto industry is not as important to the state and metro region as it used to be, it's still a player. But the prospect for long-term success is challenging, at best.

Auto manufacturing is a mature industry; cars can be made in a lot of different countries, many times at a lower cost than in the U.S.

Costs for retirement and health benefits (and health benefits for retirees) are a significant burden on companies in the industry. If you want to look at the problems caused by third-party payment of health insurance costs, look no further.

The recent bankruptcy of auto supplier Delphi (a company spun off a few years ago by GM, in an attempt to get out from under some of the heavy legacy costs) suggests that current and former workers may have some "downshifting" to do in expectations for pay and benefits.

Who or what is responsible for the mess? There are a lot of possibilities, most of which can be lumped under "stupid management" and "overly generous union contracts." Don't forget federal tax and regulatory policy, which encouraged the third-party payer system for health insurance and the defined benefit approach for retirement planning. Add in environmental and safety regulations that drive up the price of vehicles, encouraging people to delay purchases. Subtract the benefit of those regulations, which raise the barrier to entry from other countries. (Companies in India can make autos, but they won't pass U.S. legal requirements.)

How lawmakers and the public respond to these problems will affect the state and region for years to come. The Democratic governor has dabbled in economic development fads such as "Cool Cities," and her Republican predecessor spent the latter part of his 12-year tenure plumping for government-directed economic development projects. Neither approach is promising.

Unions, of course, are important in the political system of the state, and not just unions in the auto industry. Include the MEA (the teachers union) and other government employee unions, and you've got a lot of people who have an incentive to lobby for traditional policies that may have worked for a while, but cannot last in an increasingly competitive economy. But the pressure for continued dependence and expansion of the regulatory, welfare, government-influenced economy is likely to continue if not increase.

The Rust Belt may rust some more--as has happened in upper New York State. I fear it's going to get worse before it gets better. Old ways of thinking die hard.

Labels: American automakers, Cool cities fad, Health care, Pensions

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Will Medicaid Embrace Consumer Savings Accounts?
Market-oriented policy geeks call for Medicaid to use health savings accounts. The program would move in that direction under legislation introduced in Congress.

Writing in a newsletter of the Consumer Power Report of the group Consumers for Health Care Choices, David Hogberg explains the Medicaid Health Opportunity Account Act of 2005.

The bill lets states set up "health opportunity accounts," much like Health Savings Accounts. The federal government would match state contributions to the accounts, up to $2,500 per adult and $1,000 per child. States could use these accounts for targeted populations, so it's unlikely that they would be applied to everyone in Medicaid.

Money in the accounts would be used only for health care expenses. But as an incentive to move beyond poverty, if the person who holds the HOA earns too much money to qualify for Medicaid, the funds can be used to purchase a health insurance, college classes, or job training.

Unfortunately, the bill also contains several measures that, as Hogberg puts it, "insulate health insurance providers from competition."

Labels: Health care, Medicaid

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Quote of the Day.
"This doesn't lower costs; it just shifts the cost from government onto people. That doesn't solve anything." -- Sen. Chris Steineger, D-Kansas City.

Steineger was referring to promoting the private purchase of long-term care insurance and clamping down on Medicaid scheming, whereby wealthy individuals artificially impoverish themselves in order to get taxpayers to pick up the tab for their nursing home stays.

It "doesn't solve anything," ignores at least two simple questions: Is socialized medicine the best path as long as it applies to nursing home care, especially if it means that people of modest incomes subsidize those better off? And if you're an advocate of taxpayer-funded health care for the poor, why would you endorse rules and an ethic that winks and nods at efforts to game the system out of money that could be going to the truly poor?

Labels: Health care, Medicaid

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Pound the Treadmill, Get a Discount.
The discounts-for-healthy-living model is finally moving to the public sector.

Life and health insurance companies typically give discounted premiums for non-smokers. Some health insurance companies provide discounts or subsidies for people who regularly hit the gym.

The public sector is picking up on this model. There's a proposal floating for Michigan's Medicaid program. Follow state requirements to quite smoking, keep doctor's appointments or lose weight, and enjoy reduced copay requirements (which are minimal to begin with) or expanded benefits.

Predictably, some folks play the class card. A spokesman for the "Michigan League for Human Services," writes the Detroit News, "said the plan is unfair because unhealthy behavior is a societal problem and this approach singles out the poor."

But people in the optional population of Medicaid--where the proposal would be applied--are already "singled out" by virtue of their relying on government funds. As the legislative author of the proposal points out, people on Medicaid smoke more and are in general more overweight than the general population. The plan, then, is a way to control cost increases, conceivably allowing for more people to enroll. At the least, the plan offers the idea of incentives to a population that has so far received services with nothing at stake.

Labels: Health care, Medicaid

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Consumers of Health Care, Unite.
One of the leading lights of public policy when it comes to health care reform has a new organization.

Greg Scandlen, former analyst at various organizations, has struck out on his own with Consumers for Health Care Choices.

The 501(c)4 organization describes itself as a "not-for-profit grass roots organization that represents the views of the health care consumer to policy makers and industry leadership." It advocates defined-contribution benefits, health savings accounts, and basic (minimal mandate) insurance.

Labels: Health care

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Federal Legislation to Promote Health Insurance Affordability.
Three reform bills being floated in Congress are steps in the direction of making health insurance affordable and equitable. Three analysts for the Heritage Foundation call the proposals A Good Start.

A first proposal will "enable small businesses to band together through trade associations to purchase coverage for their employees" through Association Health Plans. It is a small step towards reducing the disadvantage faced by employees of small businesses, compared with people who work for large corporations. One weakness of the bill: it merely extends the employment-based system of insurance, which has its own problems.

A second proposal would effectively create a national market for health insurance. People could shop around in a large market for the policy that fits their needs. It also promises larger pools of insured individuals. Here's how it would work: each company selling insurance would be subject to state regulation (as is the case now), but it could sell policies across state lines. Like the legislation dealing with Association Health Plans, this bill would help close the gap between large company and small company employees. It would also promote competition and consumer choice: if you don’t like the policies issued in your own state, you can find one issued elsewhere. (Some basic regulations would still be applied by the state in which you live, even to policies sold from out-of-state.)

The third proposal sends more federal money to states so that they can create high-risk insurance pools for people who currently have a hard time finding an underwriter. This is fine as far as it goes, though it also risks creating incentives for states to shift their costs to the federal government and not making their own reforms or paying their own bills.

Finally, Edmund F. Haislmaier, Robert E. Moffit, Ph.D., and Nina Owcharenko, authors of the report, call for ending the discrepancy between employer-paid insurance and individual-paid insurance through extending insurance-based tax breaks to individuals. The current approach, which gives you a tax break only when you buy a policy through your employers, favors employees of large companies over employees of small companies, the occasionally employed, and everyone else.

Favoring the employment-based approach to insurance locks too many people into their current jobs (think of people who stick with a job only because of the insurance coverage it offers). Locking people into one employer’s coverage raises privacy concerns, introduces a third party (the HR department) into personal decisions, limits personal choice (what does your employer offer?), and promotes a mismatch between people and jobs. Further, the tax breaks are regressive, meaning that their benefits actually increase as personal income goes up.

For a few folks, the siren song of involuntary, politically-driven insurance--socialized medicine--is still alluring. But the problems in health care are not too little government, but too little competition. The proposals outlined in this report point in the right direction.

Labels: Health care

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The Fee, Not Tax Follies.
Numerous other bloggers have commented on the missteps of Governor Tim Pawlenty (R-Minnesota). (A spot-on essay, plus a link to many other commentator, can be found here.)

There are two things to say about this in the context of public policy:
1. Taxes are taxes are taxes. As I argued in a piece for the Mackinac Center for Public Policy, tax increases, even cigarette taxes, destroy jobs--jobs that might be used to, well, pay more in taxes. (The Mackinac Center has an updated critique of Michigan's "tax patch," emphasizing the danger to public safety from cigarette smuggling, made profitable by pumping up the cigarette tax.

2. By insisting on calling the tax a fee, Pawlenty breeds cynicism. In the eyes of some observers, increased cynicism may be a good thing for advocates of effective but limited government: if people think that all politicians are flim-flammers, it makes it more unlikely that the public will be willing to accept new government-directed responses to public issues (think HillaryCare, for example).

Fine. It may be the case that cynicism will deter the development of new programs. But the cause of effective-but-limited government cannot proceed unless some significant reforms are made. Three looming problems are health care (health care costs, and Medicare in particular, is the 800 pound gorilla that will squash everyone), education (where we must deal with an unacceptably lousy system in k-12) and retirement planning (Social Security's going to implode).

Implementing meaningful and liberty-enhancing changes to respond to these policy challenges will require straight-shooting politicians whose word can be trusted. Why? Each of the policy areas I've mentioned require significant departures -- departures that many people will find scary -- from the status quo. Shop on your own for insurance? Subject k-12 schools to the competitive marketplace? Do away with the "secure" benefits of the Social Security system as we know it? In each case, known but fatally flawed models must be replaced by approaches that promise superior performance, and (this is where politicians come in) uncertainty.

So what does reforming health care, improving K-12 education, and re-doing our approach to retirement planning have to do with one broken (excuse me, allegedly broken pledge) have to do with Governor Pawlenty? Plenty. While the Minnesota executive doesn't have much to do with the solution to any of these problems, his example, if followed by others in office, will harm prospects of reform.

Pawlenty drew a line in the sand: no new taxes. After two years of standing firm, he blinked. He could have made an honest appeal to voters: "I've changed my mind," perhaps, "and here's why." Or maybe "My hand was forced by the opposition," might have worked for some people. Whatever.

But when politicians respond to critics with "this isn't a tax" and "I don't care what you call it, I call it a solution" can only encourage the kind of cynicism that will doom necessary reforms.

Labels: Health care

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Small Business Owners for Government-Oriented Solutions
A long-standing error of Marxist thought, that lives on today, is that economic interests drive views on politics and policy. This is even seen in the one group that is widely thought to be anti-government, small business.

The National Federation of Independent Businesses can be counted on to oppose higher minimum wages, laws that require employee-paid health insurance, or otherwise increase the role of governments at all levels.

On the other hand, the American Small Business Alliance takes a different approach. It favors, for example, "reasonable health, safety and environmental standards" and "balanced solutions on other issues such as taxes and regulatory reform."

Well, that sounds fine. But as this profile notes, the ASBA supports the Family Leave Act, increases in the minimum wage, shills for government loans to business (something not exactly pushed by the NFIB.)

Now I haven't done a thorough reading of ASBA's history or positions--their web site is sparse--but its criticism of NFIB as "a tool" for "the right wing of the Republican Party" (Fortune, June 2005) suggests that even among small business owners, economic interests alone are not entirely reliable predictors of preferences.

Labels: Health care

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Health: A New Blog for Insurance Policy.
One great thing about blog publishing: it's an easy way for people to offer information and analysis on the most specialized of topics, including individual health insurance. While most people rely on group coverage, individual decision-making in insurance won't be so esoteric for much longer.

Increasingly, families and individuals will make their own decisions on health care, and health insurance, and rely less on the choice of employers. We've seen that move towards consumer freedom and responsibility in retirement planning, with the move from defined benefit pension plans to defined contribution 401(k)s and IRAs.

Coming up: consumer-directed health care, in people take a more active role in selecting health insurance policies and making treatment plans. One avenue for that direction is the advent of health savings accounts (HSAs). The Individual Health Insurance blog is fairly new, and so far focuses on providing links to news reports dealing with the rollout of HSAs.

Labels: Health care

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Pope John Paul II on Economic Freedom.
While John Paul II may go down in history as the pope who helped end communism, his scholarship was significant as well. In particular, his seminal work on economics, the encyclical Centesimus Annus, is worth looking at.

Here are some excerpts of that teaching, which is about anthropology and theology as much as it is economics. The arabic numbers reflect the paragraph numbers of the original.

It is best to think of this as a compilation of discrete thoughts, since as a whole it may not flow very well. In addition, the text has been strongly edited, taking the first few words of one sentence and then skipping to the end of a sentence four sentences away, skipping three in between. Some sentences that appear to be a single sentence may have been two or three in the original. Still, the excerpting was done with a desire to not distort the meaning of the original.

The watchword of the blogosphere applies--"read the whole thing." But since the whole thing is rouhgly 50 pages (12 point font), few people will actually do that. In this case, excerpts are better than nothing.

4. Toward the end of the last century the labor became a commodity to be freely bought and sold on the market, its price determined by the law of supply and demand without taking into account the bare minimum required for the support of the individual and his family.

The prevailing political theory of the time sought to promote total economic freedom by appropriate laws or, conversely, by a deliberate lack of any intervention.

5. The pope and the church with him were confronted, as was the civil community, by a society which was torn by a conflict … between capital and labor.

As in the days of Pope Leo XIII … ideologies are being increasingly discredited. Now, as then, we need to repeat that there can be no genuine solution of the "social question" apart from the Gospel …

7. … Pope Leo XIII's encyclical also affirms … is the "natural human right" to form … trade unions: … because the right of association is a natural right of the human being.

… The encyclical affirms … the right to legitimate rest, and the right of children and women [21] to be treated differently with regard to the type and duration of the work.

8. The pope immediately adds … the right to a "just wage," which cannot be left to the "free consent of the parties … A workman's wages should be sufficient to enable him to support himself, his wife and his children.

9. Pope Leo … affirms the need for Sunday rest so that people may turn their thoughts to heavenly things and to the worship which they owe to almighty God.

One may ask whether existing laws and the practice of industrialized societies effectively ensure in our own day the exercise of this basic right to Sunday rest.

10…. Rerum Novarum" criticizes … socialism and liberalism. … … . The richer class has many ways of shielding itself and stands less in need of help from the state whereas the mass of the poor have no resources of their own to fall back on and must chiefly depend on the assistance of the state. It is for this reason that wage earners, since they mostly belong to the latter class, should be specially cared for and protected by the government." [33]

What we nowadays call the principle of solidarity … is … one of the fundamental principles of the Christian view of social and political organization.

11. … Pope Leo's encyclical on the "condition of the workers" is … on the poor and on the terrible conditions to which the new and often violent process of industrialization had reduced great multitudes of people. Today in many parts of the world similar processes of economic, social and political transformation are creating the same evils.

This should not however lead us to think that Pope Leo expected the state to solve every social problem. … inasmuch as the individual, the family and society are prior to the state and inasmuch as the state exists in order to protect their rights and not stifle them. [37]

Beyond the rights which man acquires by his own work, there exist rights which … flow from his essential dignity as person.

CHAPTER 2
Toward the "New Things" of Today

12. Socialism is … a solution which, by appearing to reverse the positions of the poor and the rich, was in reality detrimental to the very people whom it was meant to help. The remedy would prove worse than the sickness. By defining the nature of the socialism of his day as the suppression of private property, Leo XIII arrived at the crux of the problem.

13. The fundamental error of socialism is anthropological in nature. Socialism considers the individual person simply as an element, a molecule within the social organism, so that the good of the individual is completely subordinated to the functioning of the socioeconomic mechanism.

In contrast, from the Christian vision … the social nature of man is not completely fulfilled in the state, but is realized in various intermediary groups, beginning with … family and including economic, social, political and culture groups which stem from human nature itself and [which] have their own autonomy,…

14. The pope does not… intend to condemn every possible form of social conflict. … what is condemned in class struggle is the idea that conflict is not restrained by ethical or juridical considerations or by respect for the dignity of others …

Therefore class struggle in the Marxist sense and militarism have the same root, namely atheism and contempt for the human person, which place the principle of force above that of reason and law.

15. "Rerum Novarum" is opposed to state control of the means of production, which would reduce every citizen to being a "cog" in the state machine. It is no less forceful in criticizing a concept of the state which completely excludes the economic sector from the state's range of interest and action. There is certainly a legitimate sphere of autonomy in economic life which the state should not enter. The state, however, has the task of determining the juridical framework within which economic affairs are to be conducted and thus of safeguarding the prerequisites of a free economy, which presumes a certain equality between the parties such that one party would not be so powerful as practically to reduce the other to subservience. [43]

Just reforms can restore dignity to work as the free activity of man. … protecting the worker from the nightmare of unemployment. … either through economic policies aimed at ensuring balanced growth and full employment or through unemployment insurance and retraining programs …

Furthermore, society and the state must ensure wage levels adequate for the maintenance of the worker and his family, including a certain amount for savings. This requires a continuous effort to improve workers' training and capability so that their work will be more skilled and productive, as well as careful controls and adequate legislative measures to block shameful forms of exploitation, especially to the disadvantage of the most vulnerable workers, of immigrants and of those on the margins of society. The role of trade unions in negotiating minimum salaries and working conditions is decisive in this area.

Finally, "humane" working hours and adequate free time need to be guaranteed as well.

The state must contribute … by creating favorable conditions for the free exercise of economic activity … … by defending the weakest by placing certain limits on the autonomy of the parties who determine working conditions and by ensuring in every case the necessary minimum support for the unemployed worker. [45]

The encyclical… influence is evident in … social security, pensions, health insurance and compensation in the case of accidents …

16. … the workers' movement … began as a response of moral conscience to unjust and harmful situations, … its efforts were often joined to those of Christians ….. Later on this movement was dominated to a certain extent by the Marxist ideology …

17. Pope Leo's whole magisterium … points … to … an error [of] an understanding of human freedom which detaches it from obedience to the truth and consequently from the duty to respect the rights of others.

However, it is only when hatred and injustice are sanctioned and organized by the ideologies based on them, rather than on the truth about man, that they take possession of entire nations and drive them to act. [World War II reference]

18. … For many years there has been in Europe and the world a situation of nonwar rather than genuine peace. [It was bad.]

An insane arms race swallowed up the resources needed for the development of national economies … Scientific and technological progress … was transformed into an instrument of war: Science and technology were directed to the production of ever more efficient and destructive weapons. Meanwhile, an ideology … provide[d] doctrinal justification for the new war.

The logic of power blocs or empires … led to a situation in which controversies and disagreements among Third World countries were systematically aggravated and exploited in order to create difficulties for the adversary.

The concepts of "total war" and "class struggle" must necessarily be called into question.

19. World War II, … should have reestablished freedom and restored the rights of nations, [but] ended without having attained these goals.

Following the destruction caused by the war, we see in some countries and under certain aspects a positive effort to rebuild a democratic society inspired by social justice, so as to deprive communism of the revolutionary ….

[Social democracy makes]… such attempts ... to preserve free-market mechanisms, .. [but also] try to avoid making market mechanisms the only point of reference for social life, and they tend to subject them to public control …

Other social forces and ideological movements … [are] emphasizing and increasing the power of the state[;], they wish to protect their people from communism, but in doing so they run the grave risk of destroying the freedom and values of the person, the very things for whose sake it is necessary to oppose communism.

The affluent society …. seeks to defeat Marxism … by showing how a free-market society can achieve a greater satisfaction of material human needs than communism, while equally excluding spiritual values. …. In reality … it agrees with Marxism in the sense that it totally reduces man to the sphere of economics and the satisfaction of material needs.

20. During the same period, a widespread process of "decolonization" occurred … however … decisive sectors of the economy still remain de facto in the hands of large foreign companies … Political life itself is controlled by foreign powers, while … tribal groups not yet amalgamated into a genuine national community. Also lacking is a class of competent professional people capable of running the state …

Given this situation, many think that Marxism can offer a sort of shortcut for building up the nation and the state …

The overall balance of the various policies of aid for development has not always been positive.

The United Nations, … has not yet succeeded in establishing as alternatives to war effective means for the resolution of international conflicts..

CHAPTER 3
The Year 1989

23. Among the many factors involved in the fall of oppressive regimes … was the violation of the rights of workers. … It was the throngs of working people which forswore the ideology which presumed to speak in their name.

The fall of this kind of "bloc" or empire was accomplished almost everywhere by … peaceful protest, using only the weapons of truth and justice. …. appealing to the conscience of the adversary and seeking to reawaken in him a sense of shared human dignity.

24. The second factor in the crisis was certainly the inefficiency of the economic system, which is … a consequence of the violation of the human rights to provide initiative, to ownership of property and to freedom in the economic sector.

It is not possible to understand man on the basis of economics alone …
… At the heart of every culture lies the attitude man takes to … God. Different cultures are basically different ways of facing the question of the meaning of personal existence. When this question is eliminated, the culture and moral life of nations are corrupted. For this reason the struggle to defend work was spontaneously linked to the struggle for culture and for national rights.

But the true cause of the new development was the spiritual void brought about by atheism.

25. The events of 1989 are an example of the success of willingness to negotiate and of the gospel spirit in the face of an adversary determined not to be bound by moral principles.

Not only is it wrong from the ethical point of view to disregard human nature, which is made for freedom, but in practice it is impossible to do so. Where society is so organized as to reduce arbitrarily or even suppress the sphere in which freedom is legitimately exercised, the result is that the life of society becomes progressively disorganized and goes into decline.

Moreover, man, … bears within himself the wound of original sin … The social order will be all the more stable, the more it takes this fact into account and … bring [personal interests and societal interests] into fruitful harmony. … Where self-interest is violently suppressed, it is replaced by a burdensome system of bureaucratic control which dries up the wellsprings of initiative and creativity.

When people think they possess the secret of a perfect social organization which makes evil impossible, they also think that they can use any means, including violence and deceit …

Politics then becomes a "secular religion" which operates under the illusion of creating paradise in this world. But no political society … -- can ever be confused with the kingdom of God.

26. The events of 1989 … have worldwide importance. [One consequence has been] an encounter … between the church and the workers' movement, … came about as a result of an … explicitly Christian reaction against a … injustice. … In the crisis of Marxism, the … workers have re-emerged in a demand for justice … in conformity with … of the church. [57]

The sincere desire to be on the side of the oppressed and not be cut off from the course of history has led many believers to seek in various ways an impossible compromise between Marxism and Christianity.

27. The second consequence concerns the peoples of Europe themselves. … Many … injustices were committed during … communism ….

What is needed are concrete steps … capable of .. appropriate arbitration

For a long time the most elementary economic relationships were distorted, and basic virtues of economic life, such as truthfulness, trustworthiness and hard work were denigrated. A patient material and moral reconstruction is needed …

28. It is right that in the present difficulties the formerly communist countries should be aided by the united effort of other nations.

it .. corresponds to the interest and welfare of Europe as a whole,

This need, however, must not lead to a slackening of efforts to sustain and assist the countries of the Third World …. Enormous resources can be made available by disarming …

But it will be necessary above all to abandon a mentality in which the poor -- as individuals and peoples -- are considered a burden … [They] ask for the right to share in enjoying material goods and to make good use of their capacity for work,

29. Finally, … The apex of development is the exercise of the right and duty to seek God … The recognition of these rights represents the primary foundation of every authentically free political order. [63] It is important to reaffirm this latter principle for several reasons:

a) Because the old forms of totalitarianism and authoritarianism are not yet completely vanquished

b) Because in the developed countries there is …an excessive promotion of … immediate gratification,.

c) Because …forms of religious fundamentalism …deny to citizens of faiths other than that of the majority the full exercise of their civil and religious rights….

CHAPTER 4

Private Property and the Universal Destination of Human Goods

30. Leo XIII strongly affirmed …. the right to private property … [But] the church teaches that the possession of material goods is not an absolute right …

The "use" of goods, while marked by freedom, is subordinated to their original common destination as created goods, as well as to the will of Jesus Christ …

"In making use of the exterior things we lawfully possess, we ought to regard them not just as our own but also as common, in the sense that they can profit not only the owners but others too";

31. God … gave the earth to man … But the earth does not yield its fruits without .. work.

Work becomes ever more fruitful and productive to the extent that people become more knowledgeable of the productive potentialities of the earth and more profoundly cognizant of the needs of those for whom their work is done.

32. In our time, … there exists another form of ownership … .: know-how, technology and skill. The wealth of the industrialized nations is based much more on this kind of ownership than on natural resources.

A person who produces something … does so .. that others may use it after they have paid a just price, mutually agreed upon … The ability to foresee both the needs of others and the [means of] satisfying those needs that constitutes another important source of wealth in modern society. … A source of wealth in today's society … [is] initiative and entrepreneurial ability … [70]

Besides the earth, man's principal resource is man himself. … His intelligence … His disciplined work in close collaboration with others … Important virtues are involved … such as diligence, industriousness, prudence in undertaking reasonable risks, reliability and fidelity in interpersonal relationships, as well as courage in carrying out decisions which are difficult and painful but necessary ….

The modern business economy has positive aspects. Its basis is human freedom exercised in the economic field …. Whereas at one time the decisive factor of production was the land, and later capital … today the decisive factor is increasingly man himself, that is, his knowledge, especially his scientific knowledge, his capacity for interrelated and compact organization, as well as his ability to perceive the needs of others and to satisfy them.

33. Many people … do not have the means … to take their place … within a productive system. They have no possibility of acquiring … knowledge … They have no way of entering the network of knowledge … They are … marginalized; economic development takes place over their heads. … Sometimes there are even attempts to eliminate them through [coercive family planning and abortion.]

Many other people … for a bare minimum …. In fact, for the poor, to the lack of material goods has been added a lack of knowledge and training which prevents them from escaping their state of humiliating subjection.

Unfortunately, the great majority of people in the Third World still live in such conditions.

Even in recent years it was thought that the poorest countries would develop by isolating themselves from the world market and by depending only on their own resources. Recent experience has shown that countries which did this have suffered stagnation and recession

However, … in developed countries, … Those who fail to keep up with the times can easily be marginalized …

34. the free market is the most efficient instrument for utilizing resources and effectively responding to [some] needs. But … there are many human needs which find no place on the market.

In Third World contexts, certain objectives stated by "Rerum Novarum" remain valid … [including] a sufficient wage for the support of the family, social insurance … and adequate protection for the conditions of employment.

35. We find a wide range of opportunities for … trade unions …

The church acknowledges the legitimate role of profit as an indication that a business is functioning well. … But … it is possible for the financial accounts to be in order, and yet for the people … to be humiliated and their dignity offended. … Human and moral factors must … be considered which, in the long term, are at least equally important for the life of a business.

We have seen that it is unacceptable to say that … capitalism [is] the only model of economic organization. It is necessary to break down the barriers and monopolies which leave so many countries on the margins of development … [Weaker] nations … must learn [make] the necessary efforts … by ensuring political and economic stability, the certainty of better prospects for the future, the improvement of workers' skills, and the training of competent business leaders

The principle that debts must be paid is certainly just. However, … the debts which have been contracted should [not] be paid at the price of unbearable sacrifices.

36. Today the problem is not … of supplying people with a sufficient quantity of goods; but also of responding to a demand for quality

It is here that the phenomenon of consumerism arises. … Of itself, an economic system does not possess criteria for correctly distinguishing …. artificial new needs which hinder the formation of a mature personality. Thus a great deal of educational and cultural work is urgently needed, including … intervention by public authorities. [But who decides? Authorities? Yes--drugs, pornography “and other forms of consumerism which exploit the frailty of the weak.”]

What is wrong is a style of life … which .. more … as an end in itself. [75]
{Economic activity - apart from a realization of a responsibility to God - promotes an abuse of the earth and deprives future generations}.
37. In his desire to have and to enjoy … man consumes the resources of the earth and his own life in an excessive and disordered way. [I think JP is drinking too deeply from the well of the “limited earth” way of thinking.]

38. In addition to the irrational destruction of the natural environment, we must also mention … the serious problems of modern urbanization, of the need for urban planning which is concerned with how people are to live, and of the attention which should be given to a "social ecology" of work. [Social structures can constrain people.]

39. The first and fundamental structure for "human ecology" is the family … founded on marriage, in which …children can be born and develop their potentialities. But … people to consider children as one of the many "things" which an individual can have or not have, according to taste, and which compete with other possibilities.

It is necessary to go back to seeing … as … the gift of God -- can be properly welcomed and protected.

The encyclical "Sollicitudo Rei Socialis" denounced systematic anti-childbearing campaigns which… are extending their field of action by the use of new techniques.

If … the production and consumption of goods become the center of social life and society's only value … the reason is to be found not so much in the economic system itself as in the fact that the entire sociocultural system, by ignoring the ethical and religious dimension, has been weakened, and ends by limiting itself to the production of goods and services alone. [79]

All of this can be summed up by repeating once more that economic freedom is only one element of human freedom. When it becomes autonomous… economic freedom … ends up by alienating and oppressing him. [80]

40. Here we find a new limit on the market: there are collective and qualitative needs which cannot be satisfied by market mechanisms. There are important human needs which escape its logic. There are goods which by their very nature cannot and must not be bought or sold. Certainly the mechanisms of the market offer secure advantages: they help to utilize resources better; they promote the exchange of products; above all they give central place to the person's desires and preferences, which, in a contract, meet the desires and preferences of another person. Nevertheless, these mechanisms carry the risk of an "idolatry" of the market …

41. Marxism criticized capitalist bourgeois societies, blaming them for the commercialization and alienation of human existence. … However … collectivism does not do away with alienation but rather increases it, adding to it a lack of basic necessities and economic inefficiency.

Nevertheless alienation -- and the loss of the authentic meaning of life -- is a reality in Western societies too. This happens in consumerism, … Alienation is found also in work, when it is organizing so as to ensure maximum returns and profits with no concern [for] the worker …

A man is alienated if he refuses to transcend himself and to live the experience of self-giving and of the formation of an authentic human community oriented toward his final destiny, which is God. A society is alienated if its forms of social organization, production and consumption make it more difficult to offer this gift of self and to establish this solidarity between people.

42. Can it perhaps be said that … capitalism should be the goal of … the Third World?

If by "capitalism" is meant the economic system which recognizes the fundamental and positive role of business, the market, private property and … free human creativity … then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a … "free economy."

But if by "capitalism" is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative.

The Marxist solution has failed, but the realities of marginalization and exploitation remain in the world, … as … human alienation ..

The collapse of the communist system in so many countries certainly removes an obstacle to facing these problems … [But] there is a risk that a radical capitalistic ideology could spread which refuses even to consider these [moral and social] problems, in the "a priori" belief that … blindly entrusts their solution to the free development of market forces.

43. A business cannot be considered only as a "society of capital goods"; it is also a "society of persons" in which people participate in different ways … There is still need for a broad associated workers' movement, directed toward the liberation and promotion of the whole person.

The obligation to earn one's bread by the sweat of one's brow also presumes the right to do so. A society in which this right is systematically denied, in which economic policies do not allow workers to reach satisfactory levels of employment, cannot be justified from an ethical point of view, nor can that society attain social peace. [88] Just as the person fully realizes himself in the free gift of self, so too ownership morally justifies itself in the creation, at the proper time and in the proper way, of opportunities for work and human growth for all.

CHAPTER 5

State and Culture

44. Pope Leo XIII … presents the organization of society according to the three powers -- legislative, executive and judicial … Such an ordering reflects a realistic vision of … protecting the freedom of all. … It is preferable that each power be balanced by other powers and by other spheres of responsibility which keep it within proper bounds. This is the principle of the "rule of law," in which the law is sovereign, and not the arbitrary will of individuals.

In modern times, this concept has been opposed by totalitarianism, which in its Marxist-Leninist form, maintains that some people, by virtue of a deeper knowledge of the laws of the development of society, or through membership of a particular class or through contact with the deeper sources of the collective consciousness, are exempt from error and can therefore arrogate to themselves the exercise of absolute power. It must be added that totalitarianism arises out of a denial of truth in the objective sense.

45. Totalitarianism … involve a rejection of the church. The state or the party which claims to be able to lead history toward perfect goodness, and which sets itself above all values, cannot tolerate the affirmation of an objective criterion of good and evil beyond the will of those in power, since such a criterion, in given circumstances, could be used to judge their actions.

46. The church values the democratic system … as it ensures the participation of citizens in making political choices, guarantees to the governed the possibility .. of electing and holding accountable those who govern them, and of replacing them through peaceful means when appropriate.

Authentic democracy is possible only in a state ruled by law, and on the basis of a correct conception of the human person.

Nowadays there is a tendency to claim that agnosticism and skeptical relativism are the philosophy and the basic attitude which correspond to democratic forms of political life. [But] … As history demonstrates, a democracy without values easily turns into open or thinly disguised totalitarianism.

Nor does the church close her eyes to the danger of fanaticism or fundamentalism among those who … claim the right to impose on others their own concept of what is true and good. Christian truth is not of this kind.

47. Following the collapse of communist ... regimes, it is necessary … to give democracy an authentic and solid foundation through the explicit recognition of those rights. [96] Among … these rights, … the right to life, …. the right to share in … work, and to derive from that work the means to support oneself …; and the right freely to establish a family….. In a certain sense, the source and synthesis of these rights is religious freedom, understood as the right to live in the truth of one's faith and in conformity with one's transcendent dignity as a person. [97]

Even in countries with democratic forms of government, these rights are not always fully respected. Here we are referring not only to the scandal of abortion …. Democracies themselves … seem at times to have lost the ability to make decisions aimed at the common good. …

The church respects the legitimate autonomy of the democratic order and is not entitled to express preferences for this or that institutional or constitutional solution.

48.. Economic activity … [in] … a market economy… presupposes guarantees of individual freedom and private property, as well as a stable currency and efficient public services. Hence the principal task of the state is to guarantee this security….

The state could not directly ensure the right to work for all its citizens unless it controlled every aspect of economic life and restricted the free initiative of individuals. …. Rather, the state has a duty to sustain business activities by creating conditions which will ensure job opportunities, by stimulating those activities where they are lacking or by supporting them in moments of crisis.

The state has the further right to intervene when particular monopolies create delays or obstacles to development.

In addition … in exceptional circumstances the state can also exercise a substitute function, when social sectors or business systems are too weak … Such supplementary interventions, … must be as brief as possible, so as to avoid removing permanently from society and business systems the functions which are properly theirs.

In recent years the range of such intervention has vastly expanded, to the point of creating a new type of state, the so- called "welfare state." … Excesses and abuses … have provoked very harsh criticisms of the welfare state, dubbed the "social assistance state." Malfunctions and defects in the social assistance state are the result of an inadequate understanding of … subsidiarity …

By intervening directly and depriving society of its responsibility, the social assistance state leads to … an inordinate increase of public agencies, which are dominated more by bureaucratic ways of thinking than by concern for serving their clients, and which are accompanied by an enormous increase in spending.

Certain kinds of demands often call for a response which is not simply material but which is capable of perceiving the deeper human need. One thinks of the condition of refugees, immigrants, the elderly, the sick and … drug abusers

49. …The church has always been present and active among the needy, offering them material assistance …

To overcome today's widespread individualistic mentality, what is required is a concrete commitment to solidarity and charity, beginning in the family

Apart from the family, other intermediate communities exercise primary functions and give life to specific networks of solidarity. … The individual today is often suffocated between two poles represented by the state and the marketplace. … People lose sight of the fact that life in society has neither the market nor the state as its final purpose,

50. …Evangelization too plays a role in the culture of the various nations, sustaining culture in its progress toward the truth, and assisting in the work of its purification and enrichment.

51. The way in which he is involved in building his own future depends on the understanding he has of himself and of his own destiny. It is on this level that the church's specific and decisive contribution to true culture is to be found.

52. Just as the time has finally come when in individual states a system of private vendetta and reprisal has given way to the rule of law, so too a similar step forward is now urgently needed in the international community. Furthermore, it must not be forgotten that at the root of war there are usually real and serious grievances:

For this reason, another name for peace is development. [105] Just as there is a collective responsibility for avoiding war, so too there is a collective responsibility for promoting development.

This may mean … enabling every individual and all the peoples of the earth to have a sufficient share of those resources.

Labels: Economic freedom, Health care

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Health: Two Tools for Insurance Shopping.
Changes in health care policy still need time to work themselves through the marketplace. Two web sites can help consumers find insurance policies they need.

HSA Insider and ehealthinsurance.com

Labels: Health care

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Health: Consumer-Directed Measures Work.
While economic theory supports the case for moving health care from third-party payers to involve consumers more directly, theory is not the only support for the move. Experience bears out the value of consumer-directed approaches, such as HSAs and shopping around for prescription drugs, as well.

Here's a note that my CPA sent to a local reporter who wrote about health care plans and pricing:

Topic 1: It is true that relatively few people incur the majority of expenses. As an ex-smoker, I can testify that smoking is an unhealthy lifestyle, as is eating too much which leads to obesity, diabetes, etc. As Mr. Spartz asks: "how can we incent people to engage in healthy lifestyles..." My answer is "hit 'em where it hurts, the pocketbook." We have put up www.HealthSavingsAccountMinnesota.com so people could learn about HSAs. There is anecdotal evidence that people with High Deductible Health Plans have increased their preventive checkups and decreased their
overall health care spending. People are a little more careful how they
spend their health care dollar when it is coming from their retirement money
(the Health Savings Account) than just paying $15.00 for a service. I am
also attaching a five-year claims history for a small business that will
benefit enormously from using the HSA approach. Under current ownership
(11/01/1999 to 10/31/2004) the firm's health carrier has paid $12,308.46 to
providers of medical care and $57,253.24 to the government and its other
enrollees. All or part of that $57,000 could be sitting in the 5 employees
Health Savings Accounts.

Topic 2: We note that a change from $15.00 copay, then 100% plans to a $5,000 family deductible HDHP (High Deductible Health Plan which conforms to Congress' requirements) creates about a 35% decrease in premium on a group insurance plan. The same individual could purchase a $5,000 family deductible individual (non-group) HDHP with an approximate 50% decrease in premium. Why the difference? The state of Minnesota mandates coverages for employer-paid programs that are not mandated for individual plans. Does this affect the 3M's and General Mills's in this state? No. Larger corporations self-insure under ERISA, a federal law, which supersedes state law. It leaves the small business owner who cannot self-insure to pay for the state mandates. While the small business in topic 1 still cannot escape the mandates, they can do a sort of self-insurance by using HSA accounts.

Topic 3: There is a lot of use of ongoing generic medication for cholesterol, high blood pressure, asthma, etc. I recently found out that one can purchase these generics for a fraction of what pharmacies charge. My spouse's generic albuterol which is a $12.00 copay (actually 19.99 at Walgreens) can be gotten at Faircare Rx for $6.49. http://www.faircarerx.com/complist.html. Needless to say, but I still will, Faircare Rx is recommended by us when we set people up with health savings accounts.

Labels: Health care

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Health Care: Insurance Can Be Made Appealing to Youth
Blue Cross of California believes that insurers can attract more youthful, younger customers if they simply try harder. Maybe they're right.

The San Diego Union reports:

Tonik is one of the first efforts by an insurance company to make health care coverage appealing to young adults. Blue Cross designed the slickly packaged plan for 19 to 24 year olds, a notoriously uninsured but reasonably healthy age group (minus the occasional accident). It's name was chosen because of sounded appealing.

[snip]

Blue Cross realized it had an untapped market with young adults after the company got a surprisingly strong response to a plan that was loosely marketed to the age group in 2003. The company launched Tonik at the end of 2004.

[snip]
Through market research, Blue Cross found that young adults think insurance is too expensive, too complicated to understand and too difficult to apply for. As a result, the company makes enrollment available online and eschews all insurance lingo.

Labels: Health care

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Health Care: Do HSAs Play in ... Wichita? Yes.
The value of health savings accounts won't be realized without banks and other financial institutions getting in the game. That's starting to happen.

Last week, Intrust Bank became the first locally-based bank in Wichita to offer HSAs, which complement high-deductible (and lower-cost) insurance policies. It joins UMB Bank of Kansas City, Missouri, in offering the accounts in the American heartland.

Said Bob Harbison, Intrust's vice president for business development, "We think that most of what we consider standard health plans will go away... and people will move to high-deductible plans." As for business, Harbison told the Wichita Eagle, "We're getting a lot of interest."

Will this movement of the financial sector into health care be met with groans from advocates of government-financed-and-run health care? Perhaps; there is always a small minority of people who think that "profit"--something the banks are clearly counting on earning--is a dirty word.

But for the rest of us, the move of financial institutions to start offering HSAs shows that the trend to consumer-driven health care is well under way.

Labels: Health care

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Health Care: Promote Health By Depending on Cigarette Taxes?
Kathleen Sebelius, governor of Kansas, has suggested insuring more people by depending on cigarette taxes.

Though the state's Medicaid budget has increased 65 percent in the last five years, and Sebelius wants to add more, by increasing the cigarette tax by over 100 percent, to $1.29 a pack.

State Rep. Brenda Landwehr, who chairs the House Budget Subcommittee on Social Services, says "I think it would be unwise at this time to expand our Medicaid program.

I've already argued that a similar proposal for Oklahoma was an inferior way of expanding health insurance coverage. In a companion piece, Steve Anderson argued that the numbers in Governor Henry's plan didn't add up.

Labels: Health care, Medicaid

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Health: Who Pays for Long-Term Care?
Welfare isn't just for the stereotypical single mother with a poor education and minimal job prospects. It's also for middle-class individuals who turn to Medicaid to pay for long-term care in their old age. And it's slowly eating the budgets of states around the country.

So what should be done about it? Stephen Moses (Center for Long-Term Care Financing) and Josh Wiener (RTI International) debated the question last year in a forum available here. It's a "Crossfire" kind of format, with people talking on top of each other, and "inaudible" comments. Still, it's not a bad introduction to the question. And it has the benefit of offering two very different prescriptions.

Moses gives a brief "how we got here" introduction, and it seems that Wiener agrees with the diagnosis.

But the two men differ in their suggested outcomes: Moses thinks the market for long-term care insurance can be improved through various policy choices, including doing away with the current policy that lets people qualify for Medicaid (and its financing of long-term care) regardless of how much home equity a person has.

Weiner, by contrast, thinks that this is only a minor part of the solution. Further, he values the notion of "social insurance" implied in the welfare state, and thinks we ought to expand taxpayer funding of long-term care, even if it means adding another 4 percentage points to the payroll tax.

Here are two quotes that show some of the themes of the debate:

Moses: "The reality in this country is you can ignore the risk of long-term care, avoid the premiums for private insurance, wait until you get sick, and the government pays. It's been that way for forty years, and as a consequence, we have this nursing-home-based welfare-financed system that institutionalized our whole World War II generation unnecessarily. We need to change those incentives."

"For reasons that, frankly, escape me," he says, "if you are unlucky enough to get Alzheimer's disease, then you know, we are—our societal response is basically, you know, “Come back to us after you have impoverished yourself and then, you know, we'll provide you with some financing and some services.”

But, you know, the fundamental issue here, and I think you put your finger on it, is, is this really an issue where it's sort of up to the individual and their family? Or is this a societal concern that we as a society as a whole are going to sort of step forward and say that people who need these kinds of services are going to get them regardless."

Moderator Morton Kondrake tries to put an ideologically summary to the debate as thus: "we have here Sweden and Margaret Thatcher."

Labels: Health care, Medicaid

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Health Care: Medicaid Funding is Like Handing Out Credit Cards.
A fundamental problem with Medicaid is that it imposes little or no sense of fiscal cost on people enrolled in the program. You may spend your own money wisely, but the temptation to squander someone else's is great.

It's against that backdrop that the Illinois Policy Institute issues this warning:

Would you give your credit card to a perfect stranger?Absurd isn?t it? However, that is exactly how Illinois manages its Medicaid Program.

Unless we figure out how to fix it, Illinois will find itself exactly where you would expect to find yourself if you gave your Visa to a stranger.

When you or I purchase health insurance, or choose our employee benefits, we make decisions based on what services we need and how much we will pay. Medicaid enrollees use services as they wish with no ?costs? to consider. Even when seeking treatment for something as routine as a cold, a Medicaid enrollee can enter the ER and seek treatment on demand rather than be bothered with making a doctor?s appointment like everyone else. The result is that taxpayers are stuck paying for an expensive ER treatment, instead of a reasonable doctor?s visit ? and the difference is enormous.

Illinois? Medicaid program costs taxpayers $7 billion per year. Over $6 billion comes from the state?s general fund (nearly a quarter of the overall appropriation). That comes to about $570 per person or $2,300 for a family of four. Instances exist where a family can pay more for Medicaid than for their own insurance. For example, a state employee supporting a family of four pays about $2,000 per year for HMO coverage.

Illinois currently has 1.8 million Medicaid enrollees. One in seven Illinoisans are covered by the program. Two out of every three nursing home residents and one out of three children are covered. Elected officials seeking votes continue to expand the program ever further beyond the federal poverty line. For example, an Illinois family of six with an annual income of $50,000 is Medicaid eligible. Despite what Governor Blagojevich calls the worst financial crisis in the state?s history, Medicaid eligibility has been expanded in five of the last seven fiscal years, and this year the Governor vowed to expand the program to 200% above the poverty line.

As currently configured Medicaid is unsustainable. Since 1999 the program has grown at 8% per annum and, if present trends continue, the program will double in costs every nine years. It does not take an expert to determine that the current trend ends with bankruptcy. At some point Illinois will be forced to reform; it?s not a question of if but of when.

Illinois is not unique, of course. Most states operate in a similar fashion. But it's time for all to inject some principles of personal control and personal incentives (much like a health savings account) in its taxpayer-funded health care programs. Of course, it would also help if public officials could stop expanding government rolls, crowding out the market for private insurers.

Labels: Health care, Medicaid

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Health: Utah the Model for Medicaid Reform?
Since the former governor of Utah is now the cabinet official who oversees Medicaid, it may be worth looking at Utah's Medicaid system.

This New York Times article gives a brief overview:
Utah spreads out a lower, more basic level of care to more people, and reduces coverage for some traditional beneficiaries by imposing co-payments for services. And second, it relies on the generosity of doctors and hospitals to provide specialty services free of charge.

In the broad, Michael O. Leavitt, new HHS secretary, has it right:
"Wouldn't it be better to provide health insurance to more people, rather than comprehensive care to a smaller group Wouldn't it be better to give Chevies to everyone rather than Cadillacs to a few?"

A key part of any Medicaid reform is introducing people to the fact that health care is not free:
The plan is deliberately constructed with modest premiums and co-payment schedules, they say, to offer a lesson on how health insurance works to people who might never in their lives have carried a private policy.

But there is still a problem with the plan: it relies on generosity for catastrophic care. The ideal would be for people in the program to somehow obtain low-cost, high-deductible insurance policies (with accompanying health savings accounts) that would meet the gap. Together with the state's basic care package, people might actually have health insurance, rather than a package of prepaid health care services.

Labels: Health care, Medicaid

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I Owe My Health Care to the Company Store
If you hate your HMO now, just wait until your employer becomes your HMO.

Quad/Graphics, a large commercial printer in the Milwaukee area, made the front page of the February 11 Wall Street Journal with its approach to deal with rising costs in its health care budget (no link; paid subscription required). About 80 percent of the Quad’s employees get their primary health care at the company store, or more specifically, doctors and other medical professionals who are on the company payroll.

This is not simply the company doctor who attends to factory workers who suffer on-the-job injuries; this is a replacement for primary care. The company employs 26 doctors, including pediatricians and gynecologists. It even has its own facilities for offering X-rays and EKGs.

A number of “household name” companies, including Toyota, Spring, and Miller Brewing already do this, or are considering it.

While the arrangement does have its upside -- the company spends 30 percent less on health care than the average company in Wisconsin -- there are a number of risks for workers.

Consider privacy, for example. Your spouse is an alcoholic, your daughter is thinking about an abortion, and your son has HIV. Do you want to trust this information to your boss? There may be a “Chinese Wall” policy between the medical staff and the rest of the company. But even the best-designed safeguards may not work to avert corporate scandals.

Or what happens if your job gets cut in a corporate reorganization? Not only do you lose your place on the shop floor, or in the row of cubicals, your co-workers and your sense of something you do every day, you may also lose access to your doctor’s office.

To some extent, Quad’s actions are merely different in scope, not in kind, from what many companies already do. But it’s a dangerous step to tie not only one’s income, but one’s health, to a job.

The CEO of Briggs & Stratton, which now contract with Quad for its own employee health care program, says "There's only one way to avoid paying more and more for the health-care system” is “for corporations to get back into the health-care business."

Wrong. It’s time to unleash innovation in the health insurance market, and promote true consumer-directed, and consumer-controlled care and financing. Let insurance companies write policies across state lines. Relax mandated benefits that only drive up the cost of policies. Eliminate the bias in the tax code that favors employer-paid health insurance, and now, health care.

For most of us now, the Tennessee Ernie Ford song about owing your soul to the company store ("Sixteen Tons") is merely rhetorical. It would be a tragedy if something as personal as health care becomes even more tightly connected to the company store than it is now.

When it comes to health care, it's time to give cash, and do away with scrip that can be used only at the company store.

Labels: Health care

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Health: States, Feds Spar Over Medicaid. Again.
HHS Secretary Mike Leavitt chides governors and legislatures in a speech on the "seven harmful habits of highly desperate states."

This put-down comes as the Bush Administration wants to encourage experimentation among states as a way to bring Medicaid costs (currently 22 percent of the average state's budget) under control. But most governor want simply to keep the cash flowing in, though the National Governors Association has said it wants reform.

This article in the Christian Science Monitor presents a few interesting stats about Medicaid:

• The "$120 billion states spend annually on Medicaid is already more than they spend for K-12 education."
• "While the elderly and nursing home residents make up only 6.5 million of the 50 million people Medicaid serves, they account for 42 percent of the program's $300 billion annual price tag."
• 70 percent of the elderly in nursing homes are in Medicaid.

You might get the impression that it's a fairly well program from this article. "While private health-insurance premiums went up more than 12 percent, Medicaid's annual spending per capita was up only 4.5 percent." Yet the first number reflects a (somewhat) free market in spending, while the latter number is comparatively low because states have employed various ways (cutting benefits or the rolls, mostly) to keep costs from going up even more. That doesn't mean that the program is doing well. Far from it. Significant reform is needed, not only for reasons of cost control, but to improve quality of patient care.

Labels: Health care, Medicaid

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More Medicaid Reform: Proposals in North Carolina, Kansas.
Medicaid is finally getting the attention it deserves as a policy challenge. The latest evidence: The John Locke Foundation offers several proposals for getting Medicaid costs under control.

One option: get a handle on enrollment. "If North Carolina’s percentage of residents enrolled in Medicaid (15 percent) fell over time to Virginia’s percentage (10 percent), that would represent a savings of $800 million in the state budget when fully implemented."

Another: limit services. "If, instead, North Carolina focused on matching Georgia’s more limited benefits package and reduced its cost per enrollee to Georgia’s average, that would represent a state-budget savings of $630 million."

The view from Kansas is just as bleak: "Right now, the program is the fastest growing portion of the Kansas budget, with the cost of state health care coverage for the poor rising 121 percent in the last five years," say my colleagues at the Flint Hills Center for Public Policy.

One way to make health coverage more affordable: follow the lead of Colorado, Florida, Montana, North Dakota and Utah and pull back on state mandates on private-sector insurance plans.

Labels: Health care, Medicaid

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Medicaid Reform: Good for the Public, Good for the Poor.
Today's lead editorial in the Wall Street Journal (subscription required) praises a Medicaid reform plan in Florida.

The plan, which requires a waiver from the federal Department of Health and Human Services, is a large step towards consumer-centered care. Participants get a risk-adjusted amount of money (meaning the sicker you are, the more money you get) which they can use for various forms of care or insurance (HMOs, for example). In other words, it actively involves the patient in selecting the treatment.

It also gives each person in the plan a financial incentive for smart shopping and healthy living. Patients who follow the recommendations of their doctors receive bonus money that can be used (through Flexible Spending Accounts) on eyeglasses or other expenses not normally covered in Medicaid.

And even better for those who are or can become healthy enough to rise to economic self-sufficiency, the money in the FSA belongs to the person who leaves Medicaid.

As the Journal notes, "This emphasis on personal responsibility will encourage healthy outcomes by providing incentives for patients to comply with their doctor's orders. And since a huge share of Medicaid budgets go to managing chronic conditions that often can be ameliorated by personal behavior, the potential to save money is enormous."

The plan may not be the model that every state follows, but clearly something must be done to both bring fiscal soundness to the system and improve the quality of care that people receive. Roughly one-quarter of Florida's budget goes to Medicaid, and similarly high figures can be found elsewhere. Nationally, states spend more money on Medicaid than they spend on K-12 education.

Labels: Health care, Medicaid

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A Wish List for Texas-Sized Price-Driven Reform.
To finish up posts about Texas, the Texas Public Policy Foundation unveils its handbook (warning: 100+ page PDF file) for policy reform.

legendary architect Daniel Burnham once said "Make no small plans," and the TPPF has heeded that advice, offering suggestions on fiscal policy, education, health care, transportation, insurance, telecommunications, water supplies, and legal liability reform.

Labels: Health care

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10 Easy Reforms for Health Care.
John Goodman, president of the National Center for Policy Analysis, and long-time health care policy analyst, offers 10 easy reforms for health care.

Four of the ten involve health savings accounts (HSAs) or their ugly sister, flexible spending accounts (FSAs).
1. Encourage innovation in HSAs
2. Permit funds in FSAs to rollover from year to year.
3. Channel Medicaid funds into HSAs.
4. Change the rules for Roth IRAs to encourage their use for health care expense.

Three involve changes to employer based plans:
1. Use current Medicaid dollars to subsidize the purchase of employer-based plans.
2. Allow employers to include the cost of insurance plans in wage calculations for minimum wage purposes (this is an easy reform?)
3. Allow employers to purchase individual insurance plans for employees (currently, all employer-purchased plans must have group coverage).
4 and 5 Allow employers to substitute cash for insurance coverage, a choice that currently jeopardizes the tax status of an employer plan.

Labels: Health care, Medicaid

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Health Savings Accounts Have a History.
Andy Laperriere of ISI group provides a quick review of Health Savings Accounts (HSAs) in today's Wall Street Journal. After explaining how HSAs work, Laperriere reminds us that HSAs are already proven:

Aetna recently initiated a consumer-driven health plan called HealthFund with incentives similar to HSAs and found that in 2003 costs in the consumer-driven plan went up 3.7% compared to a 16.2% increase for a similar patient population in traditional insurance plans. Patients in Aetna's HealthFund used the emergency room less, switched more quickly to generic drugs, and took greater ownership of their own health care by researching prices and medical information using Aetna's Web-based resources.

One thing governments can do to promote this innovation: make HSAs an option in health care coverage for public sector employees. Better yet, make it a mandatory part of any coverage.

Labels: Health care

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How Much Does that Health Care Cost You?
Citing the January/February 2005 edition of Health Affairs, the Wall Street Journal notes the following data bites about health care spending:

- Out of pocket expense went up 7.6 percent in 2003.
- One quarter of out-of-pocket expense are for prescription drugs. (That is one reason, perhaps the leading one, for the demand for cheap drugs.)
- Total health care spending in 2003 was $1.7 trillion, or $5,670 per person. (Consider that figure next time you think you are underpaid. Are you counting the value of any employer-paid insurance premiums?)
- Spending growth in Medicaid was 12.1 percent in 2002, and 7.1 percent in 2003. The similar numbers for Medicare were 7.6 percent and 5.7 percent.
- Insurance premiums rose 10.7 percent in 2002, and 9.3 percent in 2003.

Rising spending is not in itself a problem. As the country gets wealthier, it's natural to want to spend more on personal well-being.

On the other hand, some of it is the result of the price illusion, in which it's easy to say "Somebody else is paying for it." But as the example of employer-paid insurance premiums demonstrate, you pay for it one way or another.

Labels: Health care, Medicaid

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Medicaid: Go Back to Cash.
My colleague at the Flint Hills Center, Matt Hisrich, writes to the Hutchinson (Kansas) news about the plight of Medicaid.

Though the numbers he uses are specific to Kansas, the problem exists in various forms at all states. Likewise, part of the solution--increased consumer participation in the management of health care dollars--applies to all states as well. "Medicaid," he writes, "is actuarially bankrupt, producing low-quality care and falling victim of fraud and abuse." It's also unsustainable in its current form. One alternative: Give people cash and help them buy appropriate services or insurance policies.

Labels: Health care, Medicaid

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If You Want Health Insurance for the Poor, Don't Expand Medicaid as We Know It
One fourth of the Texas population is without health insurance. The status-quo solution is to pour more money into Medicaid, and shuffle the uninsured (some poor, some not poor) into that program.

But that's an unsustainable and inferior path, says Chris Patterson. As structured, Medicaid threatens the budget of Texas, and every other state. Currently it is the #1 or #2 spending category for each state, consuming 26 percent of the state budget in the case of Texas.

A better path than putting more people into an unreformed Medicaid program would involve seeking federal permission to expand the use of vouchers within Medicaid, so that people can set up Health Savings Accounts and purchase insurance in the private market.

Labels: Health care, Medicaid

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Why the Delay in HSA Offerings?
While HSAs (health savings accounts) are the biggest market-based reform to hit health care policy in years, it may take a while for the idea to take off.

Writing in the November 3 Wall Street Journal, Ron Lieber offers several reasons why. One: "Most larger employers plan their insurance offerings for the following year by the middle of the previous year, but it took the Treasury department until this summer to sort through all the questions that employers had about how to administer" the new arrangements.

A second reason, he says, is the question of how the accounts will work for people with chronic conditions. "Many employers would like to give enhanced overage to people with these diseases, paying for care and drugs related to certain conditions before the employee has hit the deductible. If they can't, then people with these afflictions will drain their savings accounts year after year as they reach and pass the deductible."

In the worst case, it would seem that this will turn out as a wash for the employer. Through expensive low-deductible coverage that serves more as a pre-paid services plan rather than an insurance plan for unexpected, catastrophic events, employers (and in reality, employees) are already paying large sums. If the employee must take the money out of the HSA, then the HSA is simply making the spending explicit. But other employees, by contrast, can benefit from the growth of HSA funds that are unused, roll over from year to year, and growth through compounding returns.

Lieber says that some companies are considering HRAS (health reimbursement accounts) as an alternative. That's not as worker-friendly as the HSA path. An employee who leaves a company can keep the funds in his HSA, but funds in an HRA can revert to the employer in the case of an employee departure.

Labels: Health care

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Medicaid Nursing Home Payments, the Middle Class Welfare Program
Few situations in health care illustrate the perverse incentives and consequences of our health care financing system than nursing home care.

For a variety of reasons (some legitimate, others not), insurance to cover long-term care is expensive. Given the fact that government (Medicaid) will pick up the tab, most people don't buy the insurance. (Come to think of it, this activity, which suppresses demand, may be one reason why rates are so high.)

Few people are willing to cough up their life savings to make out-of-pocket payments for nursing home expenses, and few boomer parents are willing to see their inheritance spent on mom's stay at Shady Rest Skilled Nursing Facility--especially when they see other families getting their stays covered at the taxpayers' expense.

Now, there's Medicaid, but that's a program for the poor and even destitute, and most people who enter nursing homes are not destitute. So what to do? Engage the services of a small industry of lawyers whose practice is engaged in hiding or shifting assets in order to qualify an elderly person for nursing home coverage. It's good business for them, and of a certain financial advantage to the families. After all, if your own sacrifice for the good of the public fisc. is going to be overwhelmed by everyone else dipping into the public pool, why sacrifice yourself?

Yet this scenario presents plenty of problems not only for the public purse, but for those who engage in this asset-shifting.

Few people are more tireless in their efforts to find a way out of this morass than the principals and staff behind the Center for Long-Term Care Financing. Here's an excerpt from one of their weekly newsletters.

"Is it a legitimate function of Medicaid to pay for long-term care so that people can buy more expensive homes, cars and funerals? At whose expense? Taxpayers? Yes. But private-pay residents in nursing homes have to pony up half again as much as Medicaid for their care. That's called cost shifting. People who also pay LTC insurance premiums are thus triply taxed while the clients of Medicaid planners skate. ... As we've said before, as long as people can ignore the risk of long-term care, avoid the premiums for private insurance, and pass the cost of care to Medicaid, most won't buy insurance and Medicaid will continue its precipitous decline."

Labels: Health care, Medicaid

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All About HSAs
Though the Health Savings Account (HSAs) is a promising new product in the health insurance market, it's still not widely known. HSA Insider hopes to change that.

The site features news about the latest HSA products, as well as how companies and individuals are using them. There is, for example, a list of companies that can help self-insured employers offer HSAs to their employees. Then there's a alphabetical list of insurance companies offering HSA-related products. There's even a pull-down menu through which you can get a list of companies in your own state.

Labels: Health care

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Health Care Financing Makes the Tax System Look Rational.
If you think the federal income tax system, with its nightmarish audits, special favors, and impossible-to-understand rules is bad, you should consider our health care system.

Over 90 percent of people with employer-sponsored insurance are in some sort of managed care system that restricts their ability to choose a doctor.

People who work for small companies face the worst of it. They already get paid less, and because of behind-the-scenes regulatory requirements, they tend to pay more for insurance--if they can get it.

Perversely, the federal tax treatment of insurance gives greater benefits to the higher-income workers.

Meanwhile, Medicaid and Medicare are such poorly run programs that they would be shut down by regulators, if they were private companies. Medicare is governed by 110,000 pages of regulations--six times as many as those governing the tax system. It attempts to bureaucratize every medical procedure known to man, using over 7,000 billing codes that include treatment for falling from a spacecraft.

Of course, one of the biggest problems is that 40 million people don't have health insurance--sometimes from their own choice, sometimes out of financial desperation.

Some people might, when confronted with this situation, call for even more government-based reform efforts. But we got into this mess by heavy-handed, top-down, government involvement. Bureaucratically-driven health care financing and administration has become a full-time employment act for lawyers, accountants, and consultants. Much like the tax system, in other words.

It's time to move away from that. Allowing fraternal and religious groups to form insurance pools, letting people buy insurance across state lines, giving people who buy insurance on their own the same tax treatment as large corporations, and promoting the value of health savings accounts, not to mention reforming a sometimes out-of-control legal system would all go a long ways to promoting more sensible health care purchasing.

Labels: Health care, Medicaid

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Want to Make Health Insurance More Affordable? Slash Regulations.
Health care, perhaps more than most areas of policy, suffers from the free-lunch illusion. You know, we can get everything we want, and get someone else to pay for it. There's one significant problem with that thinking: it doesn't work as designed.

A new analysis from the Cato Institute finds that regulations inflate the costs of health care by $339.2 billion a year. Christopher J. Conover says that the regulations have a benefit of $170.1 billion, leaving a net cost of "only" $169.1 billion per year, or $1,500 per household.

Among the factors driving up costs: litigation, FDA regulation, mandated health benefits, and accreditation and licensure requirements.

The high costs of regulations have implications for both health coverage (responsible for 16 percent of the number of uninsured) and life itself. Says Conover, "4,000 more Americans die every year from costs associated with health services regulation (22,000) than from lack of health insurance (18,000)."

Labels: Health care

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Health Care: You're Paying for it Whether You Know it or Not

Writes Holman Jenkins (link is valid for seven days), "The problem [with healthcare] is we hide from consumers what their health care is costing them, though hiding the cost in no way relieves them of having to pay the cost."

As he points out, the tax deductibility of health insurance premiums for employees represents an extra tax benefit for people with higher incomes (in other words, it's a "regressive" benefit.) For that reason, perhaps, he favors eliminating all business tax benefits for insurance premiums, which would mean that the purchase of insurance proceeds without any tax distortions.

Given political realities and force of habit, that's unlikely to happen (as Jenkins admits), so he favors Health Savings Accounts as a second-best strategy. But HSAs supplement, not replace, insurance policies. Should people who buy insurance policies that go with HSAs also get a tax break? Jenkins is not clear on this point, but here's what I say: Yes, if businesses get tax breaks, so should individual purchasers who buy policies.

Where Jenkins shines is his analysis of the political hijinks that occur under the present arrangement, which combines tax breaks that favor employment-based insurance and politically-driven regulation of insurance. Assorted mandates imposed by government allows "politicians to spend the public's money on health care in ways the public would never choose for itself either in the marketplace or the voting booth."

How's that? The additional money spent on insurance, as a result of political controls (mandated benefits and other forms of regulation) is money not available for business investment or pay raises for employees.

"The middle class pays for the middle class's health care, whether by taxes, insurance premiums, reduced wages or over-the-counter prices. And the sooner the middle class is empowered to judge the value of health care versus its cost, the sooner we'll get a system that produces results to justify the resources that American workers pour into it."

Labels: Health care

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Companies Start Hiring Based On Health Records.
With our reliance on employer-paid health insurance, it was bound to come to this: if you smoke--even in the privacy of your home--you don't get a job.

The idea of charging higher insurance premiums for smokers is nothing new, especially in life insurance. But according an article in today's Wall Street Journal (subscription required), higher premiums may be the least of it. "Union Pacific Corp. Recently stopped hiring smokers in seven states as a pilot program to weed out potential high-cost workers."

Now, I should make the obligatory disclaimer: I don't smoke, and think it's a vile habit. But tobacco is a legal product used by millions. I also think that if a company wants to not hire someone because he smokes, it should be free to do so.

So I mention this story not to call for yet another government intervention into employer-employee relations. Instead, it points to the folly of our tax system, which provides a bias towards employer-sponsored and paid health insurance. Once people have to pay their own premiums, such matters as whether or not to smoke will work themselves out.

Labels: Health care

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About those Safe Drugs From Canada.
During last night's debate, Kerry (and to some extent, Bush) talked about getting cheaper, safe prescription drugs from Canada. But there's just one problem: doing so is not necessarily safe, either in the short-run or the long run.

Here's an essay I recently wrote on the subject. Normally I simply link to my work published elsewhere, but it's not yet online. I'm not going to re-create the hyperlinks; write to me if you would like the footnotes.

ALTERNATIVES TO PRESCRIPTION DRUG IMPORTATION
Facing tight budgets, discontented citizens and activists group, and perhaps seeking an opportunity to gain political advantage by striking a populist pose, many a government official may be tempted to endorse, facilitate, or even engage in the "re-importation" of prescription drugs from Canada or other countries. While the appeal is understandable, more effective and useful means are at hand.

A Faulty Solution
The importation of prescription drugs bypasses the usual process of FDA approval and controlled distribution within the U.S. There are several health related, legal, and other reasons why this is a faulty solution.

Imported drugs are not necessarily safe. The FDA cannot and does not assure that drugs imported from other countries are safe. U.S. Customers and FDA inspectors can not possibly keep up with the quantity of imported drugs that came from Brazil, Pakistan, and other countries. And while some countries have agencies analogous to the FDA, they do not vouch for the safety of drugs shipped elsewhere. Many drugs purportedly to come from Canada, for example, are first shipped there from elsewhere, leaving a murky trail of accountability and mishandling that may reduce drug potency and effectiveness.

Drug importation is against the law. To date, at least five states have actively violated federal law by helping residents or state employees "by setting up Web sites to help citizens buy less expensive prescription medicine from Canada" as well as other countries. But William Hubbard, associate commissioner of the FDA, says, "at some point we may have to go to a federal judge to referee this matter and get a ruling on the legality. We think we would win fairly easily."

Imported drugs may be funding organized crime and terrorist activity. In the word of former New York City mayor and prosecutor Rudy Giuliani, a "high profit, low risk business for the counterfeiters or those involved in circumventing the laws in supplying medicines outside the traditional distribution chain” may “be appealing to organized crime and terrorist organizations."

Importing drugs from other countries brings harmful price controls here. A drug produced by an American drug company, in America, usually costs less when purchased in another country. That is usually because the foreign country can set its own price; that is, it can (and does) impose price controls. As one commentator explained international law essentially handcuffs our drug companies when they negotiate with other countries. It allows a country to violate a drug patent — steal the new drug — if the country is unable to negotiate a contract at "reasonable commercial terms." As FDA Commissioner Mark McClellan has said, "the needed incentives to develop new medicines through excessive price controls is slowing the process of drug development worldwide." So far, the U.S. market has been large enough to cover the costs of drug development--up to $1.7 billion per new drug to market, by one estimate--and provide the necessary profit. But it will not be sufficient if American governments help bring foreign price controls here.

Importation can hurt U.S. pharmacies and pharmacy employees. Money spent on pharmacies or distributors outside the U.S. means a loss of income, and perhaps jobs, U.S. pharmacy workers. When a local or state government assists or participates in a purchase contrary to U.S. law, it inflicts an economic loss to honorable businesses and individuals who play by the rules governing the distribution of prescription drugs.

Where to Go From Here?
The desire of officials to "do something" is understandable. But too much of "doing something" is doing harm.

Demagoging drug companies is not helpful. Research-based pharmaceutical companies face bipartisan criticism for allegedly excessive profits. But as physician David Gratzer pointed out, drug companies, motivated by profit, invest $6 billion a year on cancer research, not to mention hundreds of other drugs. The result of profit-driven research: improved quality of life and in many cases, saved lives. Tour de France champion cycling Lance Armstrong said of the pharmaceutical company that saved his life, "had they not been in existence, these drugs would not have been in existence. I wouldn't be alive. That's the bottom line."

Any taxpayer-provided benefits should be means-tested. Tax dollars should not be taken from a thirty-something working family to subsidize the prescription drug purchases of a wealthy individual who chooses to forgo health insurance.

Make health insurance more affordable. Prescription drugs are but one form of medical spending; any improvement in the affordability of health insurance frees up money that can be used for necessary prescription drugs. The issue of state mandates and insurance regulation should receive strict scrutiny.

Promote health savings accounts. Under new federal legislation, people who purchase certain insurance policies can have a health saving account (HSA). By accumulating funds on a tax-free basis, people are free to purchase drugs that are best for them. Smart shopping can make those dollars go farther; a review of pharmacies in Michigan found that the retail price of a prescription drug can vary by up to 400 percent.

Promote the use of pharmaceutical discount plans. A number of pharmaceutical companies have programs to assist low-income households. The web site NeedyMeds, for example, has information on over 1,900 prescription drugs and dosages that are available through a variety of patient assistance programs. Some offer reduced rates, while others give drugs free of charge. State and local offices should be able to find creative and effective ways of publicizing these programs.

Call on federal officials to reform the FDA approval process. Dr. Mark McClellan, commissioner of the Food and Drug Administration, has recognized that process for approving new drugs takes too long, costs too much money, and thus adds unnecessary expense to cost of developing new drugs.


UPDATE: I'll have more comments on this issue in a day or so.

Labels: Health care

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Smart Drugs, Smart Consumers, Dumb Incentives.
Vioxx, a painkiller, has been taken off the market--and the insurance market may be to blame.

Holman W. Jenkins, Jr. provides some details in today's Wall Street Journal. Roughly 4.5 million arthritis sufferers face a severe risk of stomach bleeding -- which can lead to death -- from conventional painkillers. Some 16,000 people die each year from such bleeding. That's where a class of drugs known as COX-2 inhibitors (including Vioxx) comes in: they deal with the pain without the internal bleeding. In 1999, when Vioxx was introduced, hospital admissions for pain reliever-induced bleeding decreased 8 percent. That translates into cost savings in hospitalization, better lives for people who take the drug, and potentially, fewer deaths.

But like many drugs (including standard painkillers), Vioxx has side effects of its own. In this case, it brings an increased risk of heart attack or stroke.

So clearly Vioxx wasn't for everyone. It was best for those people who had to weigh the increased risk of heart attack or stroke (Vioxx) against the increased risk of fatal bleeding (other drugs.) If you weren't at risk of fatal bleeding, in other words, you were probably better off with something else. But if you were, it may have been worthwhile.

So who ended up taking the drug? Some 65 percent of those taking Vioxx were in fact not at risk of severe stomach bleeding. In other words, the majority of the people taking the drug should not have, strictly on medical grounds.

So why did they? Were these people duped by an evil and greedy drug company, unable to resist the snare of advertising? Not quite. Economics, and our twisted health care system, play a key role. Says Holman:

As a matter of statistical revelation, drugs turn out to be part of the health-care system, exhibiting all the maladies thereof. Bruce Stuart at the University of Maryland examined thousands of patient records and found that whether a patient took a Cox-2 or a cheaper drug was determined less by medical need than by whether or not an insurance company was picking up the tab.

Labels: Health care

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Destroying the Market for Individual Health Insurance.
One way to promote government-run health insurance is to destroy the market for individual insurance, complain that there is no place for people to go, and then offer a government program as a solution.

That cynical ploy may or may not have actually been executed, but things have played out as if that was the case in several states. I've already written about this topic in Maine.

Conrad F. Meier offers an updated and extended examination of the situation in Maine. In addition, he discusses 7 other states in which the market for individual insurance has all but disappeared to a combination of factors, including various forms of regulation.

Labels: Health care

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Use of Employer-Paid Insurance Continues to Decline.
When people lose their jobs (common during a recession), they lose health insurance. But lately, during renewed prosperity, it's not unheard of for people to lose insurance as well. Companies look for ways to remain profitable, and health insurance, with its double-digit increases year after year, is one target.

Medical Progress Today (can you see that I'm catching up on some reading?) summarizes a recent article on the subject from the Center for Studying Health System Change:

The Center for Studying Health System change has found that the number of Americans with employer-sponsored health insurance declined 4 points from 2001 to 2003 (from 67 percent to 63 percent). This translates into nearly 9 million Americans who lost their employer sponsored health insurance.

Our health care system is in crisis because the people who use it are isolated from its costs, and therefore have no incentives to economize on treatments and no leverage to demand better patient care. The situation is further aggravated by the fact that both states and the federal government have inundated insurance markets with regulations that make insurance vastly more expensive. As a result, quality is poor and yet costs still spiral out of control.

These problems are endemic to third-party insurance systems, and won't abate until we place more responsibility for health care decisions with individuals, as opposed to employers or the federal government.

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Drop in Employer-Sponsored Care Calls for Personal Health Markets.
Speaking of health insurance, I make a (brief) argument about necessary health care reforms in the Detroit News here and here.

Labels: Health care

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Develop a National Market for Health Insurance.
Since the whole idea of insurance is to pool risks, why not have a national market for health insurance? That way, the financial cost of the ill is spread out across the much wider number of healthy individuals?

The ideas has been floated from time to time, first by think tanks, and most recently by President Bush.

There's only one problem: state governments are loathe to give up control over health insurance regulation. They say that without state oversight, consumers will lose valuable "protection." But as I have argued (the following files are in PDF) regarding guaranteed issue and mandated benefits, state regulations are part of the problem, sometimes killing off segments of the insurance market. They are not the solution to increased access to health care coverage.

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Consumers May Gain More Control Over Health Care Dollars with FSA Changes.
In an arrangement called a Flexible Spending Account, "When you sign up, generally through a regular payroll contribution, your boss puts the amount you select into a personal account for you to use to pay for medical expenses or dependent care costs not covered by insurance."

That's the good news--as is the fact that the money you put in there goes in tax-free. But the major problem with FSAs--one reason why they haven't caught on as much as hoped--is the "lose or use" proposition. Money put into the account in one year must be spent that year. If you don't spend it by the end of the year, you lose it. It's hard to set aside money for an expense that has so much variability, especially when the penalty for miscalculation is (effectively) a 100 percent tax.

(The ability to roll money over from year to year is one very large advantage of the more recently developed Health Savings Accounts.)

Still, there are a lot of FSAs around, and the September 15 Wall Street Journal had an article on the subject by Tom Herman. Congress is debating whether to revoke the "use or lose" rule.

"An estimated 12 million to 18 million workers have Flexible Spending Accounts," says the Journal. The average contribution into such accounts is $1,136. Plans currently in place allow workers to put in anywhere from $3,000 to $5,000 a year. Considering that a family insurance plan can cost upwards towards $10,000 a year, there's clearly money there that could be put into such tax-sheltered accounts, if the rules provided the right incentives. In the coming years, we may (I hope) see an explosion in the number of people with Health Savings Accounts, which do have the right incentives.

It's time, for a variety of reasons, for people to take back from their companies the way that we finance health insurance. The current method of tying insurance to employment inevitably leads to less insurance coverage in times of layoffs.

Labels: Health care

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The Recession Hits Government Workers.
Minnesota Public Radio puts the "public" (as in "government") in radio in more ways that one. The other day it ran a piece on the fact that some Minnesota government employees have lost their jobs or are getting only modest pay increases.

"Judging from job numbers, government workers in Minnesota, especially those in local government, are in more of a recession than a recovery." So goes the introduction to a series of stories on the economic recovery, the object of which seems to find a dark cloud while everyone else is looking at the after-the-storm rainbow.

Granted, some government employees aren't doing as well as they used to. But then again, it's not unusual for employees in the private sector to foregoe pay raises--or even endure pay cuts when The Man's finances are doing badly.

The article also under-estimates the value of total compensation that public sector employees sometimes enjoy: more paid holidays, more plush health insurance plans (i.e., lower premiums and deductible), more job security, flextime (often not available in the private sector) and so forth. In detailing the plight of one teacher, MPR neglects to tell us that his district has also contributed $400 to a medical savings account, money that can easily be turned into cash.

My favorite story about "no pay increases," though remains one I once heard at a public hearing for a school district referrendum. One person advocated a tax increase, saying that the teachers had already done their share of suffering; they had not had a pay increase during the last contract.

Not exactly. As a further question revealed, many teachers DID receive more money based on "steps" on the pay scale that rewards longevity and number of college credits, rather than productivity. The pay scale itself had not changed, but many teachers had moved UP on the (stationary) pay scale. More money in your pocket? Sounds like a pay raise to me.

On a personal note, I've got nothing against government workers as such. I used to be one, in fact, so I know that many are hard workers, and just doing a job. (Others, of course, abuse their privileged positions.) Despite this, it is disturbing to see reports such as this one, that underestimate total compensation, and implicitly treat government agencies as if they were primarily job programs.

Labels: Health care

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Why Does Your Boss Determine Your Health Plan?
Today I went to a conference on the economy and public policy. While I may not agree with everything the paper presenters had to say, I joined in when one speaker produced the only applause line in the day: "We have got to get away from tying health insurance to employment."

I suspect that some in the crowd would prefer that employer-sponsored insurance be replaced by national health "insurance" (it's not really insurance if the buyer--government--is the same as the provider). But at least it is a move to what, I hope, is making insurance portable, or something that people purchase free of third-party involvement, just like auto insurance, retirement, and, well, most everything else in life.

Labels: Health care

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Health Insurance Costs Increase; Coverage Decreases.
The Kaiser Family Foundation reports that health insurance costs have risen over 11 percent this year--the fourth year of double-digit growth. For the average price paid for family coverage (almost $10,000), you could buy a cheap new or decent used car. Not surprisingly, the number of people who get insurance through work has declined by 5 million since 2001.

Now, increased spending on health care is generally a good thing. New treatments and drugs extend and improve life all the time. But what we're talking about in this survey is increased spending on employer-paid or sponsored health insurance, which is an expensive, inefficient, antiquated, and increasingly ineffective way of providing financial protection against substantial loss. (Actually, it's become an expensive pre-payment plan, but that's a post for another day.)

Labels: Health care

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Who Controls Your Health Care: You, the Boss, or Uncle Sam?
We spend a lot of money on health care in this country. Unfortunately, it's often spent the wrong way. The people who pay for health care (taxpayers, employers) are not the ones who use it (people in public programs, employees). There's a fundamental conflict of interest, in other words. Remember the political version of the golden rule: he who has the gold makes the rules.

One exciting policy innovation that's slowly growing is the shift to consumer-controlled health care spending. Instead of your boss saying "here's you're health plan, it costs $X a month," for example, he says "Hey, here's $X, find a plan that works for you; here's a list."

This idea--"ownership"--is one of the themes that could get a lot of play in a second Bush term. Grace-Marie Turner of the Galen Institute provides a review of these ideas.

President Bush expanded his health reform agenda last week with a series of new proposals, and Health Savings Accounts take center stage.

The president touts HSAs in virtually every speech as a way to give millions of Americans a chance to participate in his vision of an "ownership society." His new proposals focus on offering new subsidies and purchasing options for small businesses and the uninsured.

HIGHLIGHTS:

Small businesses: Mr. Bush would give small businesses a boost in setting up HSAs for their employees by providing companies a rebate for deposits they make to their workers' HSAs - up to $200 for individuals and $500 for families.

Creating an HSA also would allow employers to purchase health insurance with higher deductibles that would likely be less expensive so they could stretch their health insurance budgets further.

The credit to small employers is a brilliant mix of good politics and good public policy and gets around our usual opposition to giving health subsidies to employers. This one is visible to the employee, and it is portable since the money is put into the employee's HSA. It has the added advantage of giving companies an incentive to set up HSAs for their workers.

The uninsured: The president would build on his idea of providing refundable tax credits to the uninsured by giving them the option of splitting the subsidy, using part of it to purchase a high-deductible health insurance policy and depositing part into an HSA. Uninsured families could get a $1,000 contribution to their HSA, with a $2,000 refundable credit to help purchase a high-deductible health plan. [Editor's note: a "refundable tax credit" means you get a "tax cut" even though you paid no taxes. At least it's better than making people suffer through a public program such as Medicaid.]

Cross-state purchasing: People must buy a high-deductible health insurance policy to accompany their HSA, and that is a problem in many states that have driven up costs by over-regulating and over-mandating their health insurance markets. President Bush would set up competition by allowing people to buy health insurance across state lines. If you live in New York and can't afford to buy insurance there, you could shop in Connecticut to try to get a better deal. [Editor's note: great idea!]

There also are plans that involve more government, including signing up "millions more SCHIP and Medicaid-eligible children," creating more community health centers, and giving grants to the states for state-run insurance pools "to help low-income Americans get the most out of their credits." But the vision of consumer choice, market competition, and individual ownership of health insurance clearly are bedrock principles.

Labels: Health care, Medicaid

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What Insurance Crisis?
That's the question asked by David Gratzer; his answer: not much. If you take away those on Medicaid (or eligible but not signed up), as well as those who could afford insurance (earning $50,000 or more annually) but choose not to buy it, the number of "uninsured" is deflated by over 80 percent, from 45 million to 8.2 million.

What to do about those people? There are many steps that could be taken, but Gratzer offers this:

"Washington should offer states block funding (using welfare reform as a model) and allow them to experiment with coverage options. Some states would spend the money on the people who need it most: the chronically uninsured. By not focusing on the higher-income uninsured, or those eligible for government insurance, a state-created voucher program could potentially offer thousands of dollars per person for coverage — enough to buy insurance in any state in the nation."

Labels: Health care, Medicaid

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Minimum Wage Hike: Least of Worries to Small Business.
Fortune Small Business says that a $1 an hour increase in the national minimum wage is in the works. Surprisingly, business groups don't seem that upset at the idea. Why? They're dealing with even greater increases in costs for employee health insurance premiums for several years running.

The final paragraph of the story illustrates how political posturing undermines the alleged rationale for policy changes:

Even proponents of the minimum-wage hike agree that it is a blunt instrument: Much of the added pay will go not to the working poor but to the children of prosperous families. Clearly, a better approach to address family poverty is to expand the Earned Income Tax Credit, which returns to the working poor a portion of the regressive federal payroll taxes that they pay. But in Washington, any boost to the EITC can be portrayed as "deficit spending." Most pols prefer to take the credit for a minimum-wage hike and let small-business owners pick up the tab.

Labels: Health care

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Free to Be Fat.
Nick Gillespie takes a quick survey of government efforts to encourage thinness, and takes a dim view of it all.

The typical justification is to save on health care expenses from the public purse. Gillespie points the attention, correctly, to another problem--our system of third-party payment of health care expenses.

If being overweight contributes "significantly to our health care costs," the best way to reduce our dangerous dependency on imported stretch fabrics is to make individuals internalize those costs the same way they scarf down the Big Macs and (formerly) supersized fries. That means reducing the publicly funded elements of health care. An added benefit of that would be to deny politicians -- and your taxpaying neighbors -- any right to shape your personal lifestyle.

If people want to pay higher insurance costs, a suitable arrangement can be worked out by consumers and insurance companies. But with someone else (government, employers) paying the bill, individuals have little financial incentive to keep fit, and governments (and employers) have plenty of financial incentives to cajole or even regulate private behavior through seat belt laws, jawboning fast-food restaurants into downsizing their food portions, and so forth.

Labels: Health care

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A National Market for Health Insurance?
Your doctor may have been educated in another state, and his office equipment probably was as well. Yet when it comes to buying health insurance, state goverment rules the day. That would change under legislation currently in the U.S. House.

The Health Care Choice Act (HR 4662) would open up a national market for people who wish to buy individual health insurance. Its chance of success is limited in this election year. But it takes time to bring about important changes, and this may be just one step of many to bring about necessary reforms to health care financing.

Labels: Health care

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Helping the Uninsured (and insured) by eliminating mandates.
The Flint Hills Center for Public Policy has a new policy brief describing the costs of
state-required provisions to health insurance policies. There's no such thing as a free lunch, and feel-good mandates increase the cost of insurance for us all.

"According to new estimates, each percentage-point rise in health-insurance costs nationally increases the number of uninsured by 300,000 people. A savings of 7 to 17 percent on average is possible for states without mandates or any-willing provider legislation. For the average family, that could translate into a savings of anywhere between $600 - $1,500 off their current policy."

Labels: Health care

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Towards a Better Oklahoma
The Oklahoma Council of Public Affairs has recently published Oklahoma Policy Blueprint '04, a collection of ideas to improve life in the Sooner State by enabling enhanced consumer responsibility and choice and sharpening government's tasks on its core missions.

Among the topics: K-12 education (teacher pay, home schooling, education spending and performance, plus more), health care (Medicaid for the poor, insurance regulation for the rest of us), economic development, and various tax policies. Read the fine print, and you'll find that I was one of several contributors, a fine list indeed.

Labels: Health care, Medicaid

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Welfare Dollars = Independence?
The State of Maryland is launching an oddly-named welfare benefit card.

Maryland has moved to an Electronics Benefits Transfer (EBT) system for the distribution of food stamps. It uses technology similar to ATM and debit cards: swipe a card at the supermarket, and money is withdrawn from the buyer's account and sent to the retailer.

There is, though, a significant difference. The money in the "account" is not earned by the grocery store customer; instead, it is given to him as part of a welfare program.

Now as far as welfare programs go, there's something to be said for EBT cards. If we are going do things such as give people money for food, having an EBT card can bring some efficiencies and perhaps accountability.

I also think it would be great to use this model for health care. Instead of putting everyone involved through the mess that is Medicaid, spend the money on health savings accounts (HSAs) for the poor, and purchase high-deductible insurance policies as well. An EBT can serve as the way for people purchase medical services from the HSA (one of the most promising alternatives in health care financing in a long time.) So, in the abstract, EBT cards have some advantages.

But Maryland gives its EBT card for food stamps an odd twist. As a matter of policy it has decided that some people we will depend on others for their food budget. Nothing new there.

Just what do they call this new EBT card? The Independence Card.

Thanks to the guys at powerlineblog, who call this "beyond euphamism."

Labels: Health care, Medicaid

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Half-way there to Socialized Medicine
A survey of Wisconsin residents finds that half of the adults in the Badger State get their health insurance from a government agency.

The report, Health Insurance in Wisconsin (PDF copy here), is based on a survey of 1,000 residents.

"Wisconsin residents with private health care insurance pay twice for health care coverage. First through their taxes they pay the insurance costs for public employees. Secondly they pay much higher premiums for their own insurance to cover the cost-shifting associated with low reimbursements to providers for government health care coverage."

Labels: Health care

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A Crisis of the Uninsured?
It's "Covering the Uninsured Week," meaning you may be hearing from advocates of the mess of bureaucratic socialism that got us into this mess.

The insurance commissioner of Kansas, for example, says "We cannot expect the private sector to do all of this on its own. The public sector is going to have to step forward."

Well, the public sector can step forward--not by enrolling more people into failing government programs, but by reforming insurance regulation and changing tax laws to make the individual purchase of insurance more appealing. A shift in attitudes from health insurance to true insurance, rather than pre-paid care, is also required.

The Flint Hills Center for Public Policy reminds us that "While it is often assumed that a lack of resources is the culprit behind a lack of insurance, this may not always be the case." "In the last decade," it says, "the greatest increase in the uninsured took place among the wealthiest Americans, while the least wealthy actually experienced a decline."

Labels: Health care

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Consumer-Driven Health Care Gaining Strength
Your employer is going to cut back on the insurance plan he offers you. How would you like to use the opportunity to gain some financial advantage and control over your health care decisions?

The cover story of Fortune Small Business is about Affordable* Health Care. And as the note for the asterisk explains, "that's no typo." Health care can become affordable to more people, if we change our model of financing it.

The problem of insurance costs is particularly important to small businesses; the smaller the size of a company, the greater its premium increase last year. (For firms with 200-999 employees, 2003 premium increases were 12.4 percent. For firms with fewer employees, the increase was 15.5 percent).

So what to do? More "and more entrepreneurs are turning to consumer-driven plans, which typically combine a high-deductible health insurance policy and a tax-advantaged, employee-managed medical account that covers some or all of the deductible. Any money left in the account at the end of the year generally rolls over to the next year, an incentive for employees to spend prudently."

The number of people in these plans is growing, jumping from 100,000 to 500,000 in just 2002 to 2003. Still, that's barely over one quarter of one percent of all people with insurance. There's still a lot of change awaiting, then.

Critics argue that companies are using consumer-driven plans as an excuse to cut down on their spending on insurance. True enough. But they're going to get their costs under control in some way.

One way is to cope by keeping the status quo: increasing employee share of premiums, raising co-pays, deductibles, and co-insurance amounts, or simply laying off employees to account for ever-increasing compensation costs.

Another way is to move towards consumer-driven plans, which put employees in charge, and give them incentives to shop and live wisely--and perhaps accumulate a small fortune in the process.

Which would you choose?

Labels: Health care

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Ignorance Drives Disdain for Health Savings Accounts
The attempt to move health care out of the bureaucratic, government-directed world into the realm of market transactions faces many obstacles, including much faulty thinking on the subject. David Hogberg takes on the Des Moines Register, and refutes that paper's skepticism on health savings accounts.

The Register doesn't like the fact that HSAs are not a comprehensive approach to health care financing. But that's exactly the point, says Hogberg: "If it functioned like a true free-market, health-care consumers would have many different options to choose from when deciding which health insurance to buy. That’s how it works in a true free market: consumers have options."

Another criticism of HSAs: they take healthy people out of the insurance pool, and thus drive up costs for everyone else. But as Hogberg says, that just isn't so: an HSA must be accompanied by an insurance policy (so much for leaving the pool). PLUS, more people are actually getting insurance--enlarging the pool--thanks to these relatively new arrangements.

Labels: Health care

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Another case of broken windows thinking
Government spending is often justified in terms of how many widgets government offices make. It's often just another case of the broken windows theory.

I'm reminded of Bastiat's broken window theory (funny that there's another "broken windows theory" out there, but it deals with crime) as I am reviewing some state budget numbers. (Bastiat's story answers this question: if throwing a rock in a window creates more work for the glazier--in itself a good thing--why not throw rocks in all the windows one can find?)

To take just one example out of millions. The executive budget proposal for Oklahoma says that the state's $2.45 billion in Medicaid spending "is estimated to have supported 93,000 direct and indirect jobs within the health care industry and $2 billion in income." (I would link to it, but do you really want to plow through a budget proposal? I didn't think so.)

Well, yes, I suppose that could be true. Left unsaid is how many jobs that money could have supported if it was left in the hands of taxpayers. Or if the people on whose behalf the money was spent had more control over how it was spent (say, through subsidies for health insurance rather than handing money over to HMOs that serve as contractors for the state.) Or perhaps with a different financing arrangement, the same number of people could have been served by only $1.9 billion, and the balance could have been used to support X more jobs.

In short, saying that "X dollars in government spending created YZ number of jobs" is a weak rationale for a government program. It's often not the only rationale offered, but it's powerful enough to see daylight quite frequently.

Labels: Health care, Medicaid

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Health Savings Accounts: "A Slam Dunk"
Fortune magazine says that for people looking for a new way of doing health insurance, Health Savings Accounts are a slam dunk.

Established by the otherwise-awful Medicare reform bill of last year, HSAs are a permanent and improved version of Medical Savings Accounts (MSAs). MSAs, while powerful in theory, were severely hampered by the restrictions that were put on them in the game of political bargaining. (If nothing else, the evolution of the MSA to HSA shows that pilot programs, even ones created with strict limits, can contribute to bigger policy improvements down the road.)

To set up an HSA, you must also purchase a catastrophic-style health insurance policy, that is one with a deductible at least $1,000 per person, rather than the $250 or so that often goes with the many policies sold today, which effectively combine an element of prepayment with true insurance. (This mix is just one reason why health care spending, and premiums, keep going up.)

So why would you ever want to take an insurance policy with a high deductible? For one thing, it's the smart thing to do when it comes to auto and homeowners' insurance: it keeps the premiums lower. But with those forms of insurance, you do bear the responsibility of putting aside money to pay for the smaller bills.

The same logic works with HSAs and medical expenses. But keeping a high deductible on health insurance can be a lot easier than keeping a high deductible on casualty insurance. Why? If you use an HSA, you get to deposit money into an account (that's the "Account" part of Health Savings Account) to save up for those expenses that you would incur under the deductible amount.

What's so great about that? Let us count the ways.

1. The money you deposit is tax deductible--unlike money you put in a garden-variety savings account. How much money can you put in each year? With some limits, whatever your deductible is. Take a policy with a $1,000 deductible, put $1,000 into the account, on a pre-tax basis. In other words, you're getting paid to save. Don't forget, this means you are not going to pay federal income taxes, state income taxes, local income taxes, Medicare taxes, or FICA (Social Security) taxes on that money. That could be a 20-50 percent benefit right there.

2. You can invest the money until you need it, and the earnings are tax-free, unlike money you would set aside in a regular bank account.

Now, you're probably going to put it into a short-term bond fund or a money market fund--this is money you may need to pull out on short-notice, after all. So don't expect to invest it in the next Microsoft (though you could try).

3. Before HSAs, there were other ways to set aside money, pre-tax, to pay for health care expenses. One example is the "Section 125" or "Flexible Spending Accounts" that some employers offer. With those accounts, you must guess, in January, how much you will need to spend that year. If you don't spend, it, guess what happens to the money? It's gone. Lost. Vaporized. You bet it all on "Final Jeopardy," and lost. But with an HSA, it just stays in the account, ready to be used, or grow, the next year.

4. It gets even better. Remember the old IRA? You put money in, get a tax deduction, but then you have to pay taxes when you take the money out? Or the newer Roth IRA, which reverses the process? (You don't get the deduction going in, but then, you don't have to pay when you take it out.) Well, HSAs are tax-free on both ends. When you take the money out, and spend it on medical expenses (there are some restrictions; this is tax law we are talking about, after all), you still don't pay taxes. (There is a 10 percent penalty if you take money out for non-health expenses.)

Says one financial planner, "Nothing else allows you a deduction today and tax-free withdrawal tomorrow."

Now, the HSA isn't perfect. You still need to purchase the insurance policy, after all. If you depend on your employer to buy insurance for you, he gets a tax deduction for the policy, not you. (You would still be able to get the deduction for the deposit into the account, should your employer offer a qualifying insurance policy.) If you are your own employer, then you could, of course do this and write off the cost of the policy premiums, as well as the deposits to the savings account. President Bush has proposed that employees be able to deduct insurance premiums, just as businesses currently do. But that's probably not going to happen for a while. (It would "cost" the treasury too much money, and it would shake up the insurance industry.)

The Fortune article gives an example of how an HSA can work. A 47-year old man was facing a 30 percent insurance premium increase. Instead of spending $818 a month on a Blue Cross family plan, he went with a high deductible plan costing 43 percent less, or $470 a month. True, he had to then face a $4,000 family deductible. But his premium savings were even more than that amount ($4,713). Plus, again, he gets all the tax advantages mentioned above.

This is the future of health care financing. It will just take a while to get there.

Labels: Health care

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Moral Hazard, or Why Be a Sucker?
Many public policies are riddled with the problem of moral hazard, in which people do what they ought not to do simply because someone else is picking up the tab. Perhaps the most costly case of this is Medicaid, which pays the bulk of nursing home for the aged in this country.

While the program was initially meant to help the impoverished, it's become a middle-class entitlement, a way for people who could pay for nursing home care to foist the burden off on to taxpayers. As the Center for Long Term Care Financing points out in one of its newsletters, there's a whole industry of lawyers willing and able to help middle class (and wealthy) families get their elderly parents on the dole. In effect, these lawyers help families save their inheritance by making sure that mom or dad's care is paid for not by their own savings, but by the taxpayers.

There's also a problem of collective goods at work here. Say that the John Jones family pays for nursing home care for Jones out of his savings? At around $75,000 a year, a stay in a home will put a dent in any family's hoped-for inheritance. Will it, on the other hand, do much good for taxpayers for this and that family to forego attempts to use the system? No. And one family's actions won't affect everyone else that much. But add them up, and you've got a health care system that approaches the Pentagon in terms of spending heft.

There is insurance that one may buy to cover long-term care. It's expensive--perhaps too much so for most people. That's one reason why Medicaid scams are so popular. But the easy availability of Medicaid financing for nursing home care undercuts the market for LTC insurance, leaving us trapped in a vicious circle.

Labels: Health care, Medicaid

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The Literary Class and Socialized Medicine
There are many reasons why we haven't made more progress towards bringing economic rationality and market power to health care. Over the last week, I've been reminded of what may be one of those reasons: it's the literary class.

What prompts me to say this? An e-mail exchange I have been having with members of a professional association of freelance writers and editors. After one person ranted about the cost of her health insurance premiums, the discussion has turned into one after another cry for socialized medicine.

We need the Canadian system, said one writer. Another favored France. If support for socialized medicine makes me a communist, said a third, so be it. (These are my recollections, not exact quotes.) I've made a spirited defense, but it's hard to start from square one, and I am getting (thus far) no public support.

Now, I know that it's easy for writers (and many others) to over-estimate their importance: "I'm going to change the world!" But there is something to the notion of the Italian communist, Antonio Gramsci. Here's the dimestore version of one of his key thoughts: "Historically, different intellectuals have created the ideologies that have moulded societies; each class creates one or more groups of intellectuals. Thus, if the working class wants to succeed in becoming hegemonic, it must also create its own intellectuals to develop a new ideology."

Pick up a copy of most magazines in the popular press -- Time, Business Week, Women's Day, Consumer Reports, the New York Times, the syndicated news stories carried in your local paper, what have you -- and most of the time, any treatment of health care policy will emphasize more government regulation of insurance, expansion of government programs such as Medicaid, the weakness of market-based approaches, and a criticism of any new proposals to bring competition and consumer responsibility (with its attendant benefits) to the field of health care.

Is there something about earning a living as a writer that prompts people to think this way? Perhaps. For one thing, many are self-employed freelancers. They look at employees of large corporations, and see generous benefits and low premiums (if they exist at all). By contrast, the small business owner has had a more difficult lot. They want better--and see a move towards socialized medicine as the solution.

There is no necessary reason for this situation to exist. The current tax code, among other structures in the policy environment, have brought us to this point. (For more information, see the Galen Institute for its page on the Consensus Group, which outlines a way out of our current mess.)

Change is hard, and there are certainly ideological and business interests that impede policy reform in this direction. Add to that list, the frustrations of a small but important profession trapped by current policy.

Labels: Health care, Medicaid

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KidCare, the Back Door to a National Health Service?
The Christian Science Monitor reports that S-CHIP, Medicaid for children, is largely being spared from budget-cutting rounds in state capitols.

"Last year, the number of children enrolled in SCHIP went up 7 percent, a rate far slower than in past years. Still, that brought the total number of children covered to more than 5 million, at least during some period of the year."

Some states have raised co-payments, and others have capped enrollment. There are five million children in S-CHIP programs, and the number could soar 80 percent if all who were eligible were actively signed up.

Now, criticism of S-CHIP is like criticism of healthy children, which ranks at or near the top of sacrosanct policy goals. Still, the questions remains of how to achieve that goal. At least the Monitor does bring in a quote from Nina Owcharenko, an analyst at The Heritage Foundation, who favors efforts to make greater use of the private insurance market over another government-run program. (Too bad, though, that state regulators have done so much to damage that alternative.)

In an old yet still relevant essay (PDF), John Hood says that for many children, being uninsured is a state that lasts only a short time. He also warns that the number of uninsured is overstated. Laying the problem of uninsurance on unaffordability brought on by the tax code and regulations, he calls for states to eliminate the mandates that drive up insurance costs, and for refundable tax credits (state, federal, or both) for the purchase of insurance in the private market.

Labels: Health care, Medicaid

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Medicaid Scammers: We Told You So
Governments are keen to prevent the proliferation of schemes--except when one level of government is trying to scheme another.

Recently the Illinois Policy Institute warned against a proposal in the Land of Lincoln to game the Medicaid system (PDF link here). In short, the state taxes hospitals, who pass along the cost, ultimately to people with insurance. In turn, the federal government gives Illinois more Medicaid money, which is then turned over to the hospitals. It's all an attempt to keep the creaky government-run program going, rather than change it fundamentally by using market forces.

Now the federal government is questioning state schemes, in a report carried by the Birmingham (AL) News. Among the practices under question: diverting federal money intended for health care to other purposes. (Wouldn't this be called a case of fraud if a non-profit organization did this?)

Each state has some unique problems with Medicaid, but there are some interesting proposals in Ohio that could be adapted by other states.

Labels: Health care, Medicaid

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California: Insurance Mandate May be Repealed
A new initiative measure to repeal government-dictated health insurance is underway.

Last year, the California Assembly enacted a proposal to require employer-sponsored health insurance for all companies with over 50 employees. (Guess how many businesses with 49 employees will try hard to avoid having to hire that 50th employee?)

Costs of the measure range from $1.5 billion to $11.5 billion, depending on whom you believe. Here's a hint: advocates of increased mandates and programs tend to overstate the benefits and understate the costs of their plans. Naturally, opponents do the opposite, but my money is with them.

Health Care News reported back in January that Governor Schwarznegger will lend his support to terminating the law.

This classic brief from the National Center for National Analysis explains why such a mandate is a job-killer.

Labels: Health care

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Mass Transit Doesn't Move Me
The Illinois Department of Transportation says that the next stage of transportation improvements in the far western suburbs of Chicago is three to five years away. It expects the area (US 59 to I-39) to double in population by 2030. One of the most sensible steps is one of the mostly hotly contested (by a minority of anti-auto activists): building a new road between I-88 and I-80. (Take a look at a map and you'll see a space just crying out for a road, especially given the population growth in the region.)

Of course, some will want more money on mass transit. But, as the Daily Herald notes, "though the Chicago area has the second highest usage of public transportation in the nation, over 90 percent of traffic is passenger vehicles."

Meanwhile, bus drivers in metropolitan Minnesota are on strike, and have been for over a week. (It's the usual culprit: disputes over pay, including health insurance plans.) The Taxpayers League of Minnesota has run a brief fact sheet/commentary on mass transit during the strike. Some examples:

Low income individuals, for whom transit is often seen as a vital service, make less than 5 percent of their trips by transit.

Mass transit wastes energy. Per-passenger mile, autos are 16 percent more efficient.

How about "social costs" of pollution, noise, and so forth? Cars win again, with a cost of 7 cents per passenger mile. A bus costs 40 cents a mile, and light rail--what captures the most imagination of transit advocates--costs up to $1.09 a mile.

American cities have nowhere near the population density required to make transit cost-effective.

Labels: Health care, Transportation

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Medicaid Expansion: Up in Smoke?
Here's a rule that guides government programs: once it's started, a program will expand in scope beyond all initial promises. Such is the case with government health care programs. States have added to Medicaid by two means: increasing the number of people in the program (by lowing income thresholds and adding new categories of people who qualify) and by increasing the number of services covered over time (chiropractic, etc.)

In Oklahoma, Medicaid has been customized as SoonerCare, and it's a problem with a long history of trouble. Now, the governor, Brad Henry, has proposed raising the state's cigarette tax to bring in new money--and people--into SoonerCare. To his credit (on both policy and political grounds) he has talked of using a chunk of the money to subsidize private-sector insurance plans rather than dump new people into Medicaid.

(Cliche alert). The devil's in the details, and they don't look good. Steve Anderson says that the plan would lead the state down the path of every-increasing costs, supported by an ever-shrinking revenue base. He makes a very smart point that the rate of uninsurance--often quoted as nearly 20 percent--is grossly overstated. Of course, some people without insurance are young and reasonably healthy, and so it's not surprising they choose to forgo insurance. But a more Sooner-specific fact is that nearly 8 percent of the state population qualifies for treatment by Indian Service Units. Take out the Native American population--its percentage of the population is higher in Oklahoma than anywhere else--and the state's uninsured percentage drops below the national average.

Of course, the fact that some people can qualify for a government program isn't necessarily a good thing, a point I make in a companion piece for the Oklahoma Council of Public Affairs. I call for revisions to the tax code, the promotion of Health Savings Accounts, and greater use of vouchers for Medicaid patients.

Labels: Health care, Medicaid

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Middle Class Says: We Want Our Medicaid
There are many ways in which health care is already socialized in this country. There are, for example, two very large government programs that threaten to consumer the national budget, as well as all state budgets. They are Medicare and Medicaid.

Medicare, which gets all the press, is for people aged 65 and older. Then there's Medicaid, which is for low-income people, as well as some other individuals who fall into certain categories.

It's easy to confuse the two. If you're over 65, Medicare (that is, taxpayers) pays for a lot of your expenses, except if you go into a nursing home for an extended time. If you're going to need that, then Medicaid picks up the tab.

But there's a catch. You have to be poor to get Medicaid benefits. And after a lifetime of working hard, saving, paying off mortgages and accumulating pensions, many people can afford to pay for their nursing home care (at least for a while) by drawing down their assets.

Naturally, this is an unpleasant prospect, both for parents (who would like to have something left over to give heirs) and children (who would appreciate the boost of a tidy inheritance check).
Given current tax laws, we rely on employers to provide health insurance, but there is little incentive to purchase the kind of insurance that would pay for long-term care. Given the fact that Medicaid is out there, there's a strong temptation to think that anyone who pays for his own long-term care is a sucker. A small (and growing) industry has grown up of accountants and lawyers who will help the elderly, and their children, hide assets from the government. It's all an attempt to ensure that taxpayers pay for Mom and Pop's nursing home care rather than the family.

Many states try, with much futility, to stop this practice, with "look back" periods and other techniques. One such technique is "asset recovery," or going after the estates of people after their die, in an attempt to partially repay taxpayers with the proceeds of the estate. Sounds cruel, of course, but the alternative is a financially unsustainable system that breeds a culture of dependency.

The Detroit Free Press reports the incredible news that Michigan is one of two states that do not use "asset recovery." Governor Granholm is hoping to start that up, as a way of getting some revenues to plug an expected budget deficit.

State Sen. Toni Harp, a Democrat, puts the issue this way:

It has become an entitlement. The problem is, we have this huge bubble in the baby boom generation that's growing older . . . I don't know if we, as a country, can continue thinking about this in this way.

She's got that right.

Labels: Health care, Long-term care, Medicaid

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Health Care Policy: Don't Make More of the Same Mistakes
The Illinois Policy Institute has come out with a new report on what's wrong with health care policy in the Land of Lincoln, and indeed, much of the country. (It's in PDF format, available here.)

Among the most interesting arguments: the biggest problem with health insurance is not the number of insured. In fact, says Randy Pozdena, the report's author, "Americans with health insurance have too much of it."

Also useful: a brief history of how payment for health care has changed over time.

If you think more government involvement in health care is a good thing, remember, our problems stem in large part from increasingly relying on bureaucracies (public and private) for health care.

Labels: Health care

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The Dangers of Expanding Medicaid
Oklahoma's governor, Brad Henry, has proposed raising cigarette taxes and adding up to 200,000 more people to SoonerCare, the state's Medicaid program. Some of those people (or actually, their employers) will receive subsidies to buy private insurance, though it's not clear what the ratio of employer-coverage versus SoonerCare enrollment would be.

Even if you don't live in the Sooner State, the ensuing debate is worth watching if you are interested in health care policy. The Oklahoma Council of Public Affairs has published two viewpoints on the subject. In the March 2004 of Perspective, I give support for superiority of premium supports over increased enrollment in SoonerCare. Even better, though, would be giving refundable tax credits to the uninsured, as well as loosening regulations that drive up the cost of insurance.

Steve Anderson calls the governor's plan "very bad, and details how the cost of Medicaid programs have historically far outstripped initial projections.

Labels: Health care, Medicaid

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The Non-Poor You Shall Have Always
Jesus said "the poor you shall have always." A derivative of that saying may be "the non-poor you shall have always--in your state programs for the poor.

Michael Bond writes briefly for the Buckeye Institute about Ohio's Medicaid program, which threatens to consume much of that state's budget.

"As the State struggles to deal with a serious budget problem a reasonable question is why a program for the poor covers far more than the total number of impoverished in the State?"

The answer, he writes, lies in the programs continued expansion of the program beyond its original intent. First, the income level to qualify for the program was increased, so that you didn't have to fall under the federal poverty level. Second, eligibility was not limited so single parents; you simply had to fall within the income guidelines.

Some people consider the expansion of government programs a sign of success--more people, in this case, are getting health coverage. But as Bond points out, it's a less sanguine situation: 50 to 75 percent of new Medicaid enrollees dropped their private insurance coverage. In other words, by design or accident, Medicaid expansion has contributed to the decline of personal health insurance and the rise of bureaucratic, socialized medicine.

Labels: Health care, Medicaid

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Hospitals Free to Cut Prices
One obstacle to injecting a cash-for-service model into health care (taken to the greatest degree by groups such as SimpleCare) has been the question of what prices hospitals should charge to people without insurance.

It's been common for hospitals to have very high list prices that are then discounted for HMOs, governments, and other third-party payers. The prices are in some ways artificial, since they are almost always discounted. However, people without insurance, or who would pay cash (say, from a Medical Savings Account) face the prospects of prices beyond their reach.

Hospitals have defended the practice, saying that federal rules require it. This week, the Department of Health and Human Services has said not so. In a letter to the American Hospital Association, Secretary Thompson responded to that interpretation:"Your letter suggests that HHS regulations require hospitals to bill all patients using the same schedule of charges and suggests that as a result, the uninsured are forced to pay 'full price' for their care. That suggestion is not correct and certainly does not accurately reflect my policy."

He further writes "hospitals can provide discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations. Nothing in the Medicare program rules or regulations prohibit such discounts."

The implications have yet to be worked out, but this is promising. It means that rational (not dictated by government) pricing can develop. Analogies always imperfect, but consider this: what would happen if half of all auto repairs were covered by a government insurance program, and you tried to pay for a new muffler outside that program? You may be looking at a bill of, oh, $900, simply because that was the "list price" set before government discounts.

Labels: Health care

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The Perfect is the Enemy of the Good (Again)
Rising premiums for medical malpractice insurance--driven in large part by lawsuits--have meant that some patients who sue in the future won't be getting large payouts. They may get little at all, even.

The January 28 edition of the Wall Street Journal notes that a growing number of doctors and other health care providers are "going bare," or foregoing malpractice insurance. In effect, they are saying "So sue me." They're not stupid, of course. Five percent of doctors in Florida, knowing that their homes an annuities are protected from creditors by state law, and able to shelter their assets in trusts, are without insurance. (In Miami-Dade county, it's one-in-five.)

The downside for physicians: they may have trouble getting hospital privileges, or on the roster of an HMO.

Seeing the trend, the American Medical Association (AMA) no longer, as an official policy, recommends that physicians carry malpractice insurance.

Labels: Health care

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TIME For Socialism
The February 2 issue of Time hit a relative's mailbox yesterday, where I picked it up while doing some housesitting. The cover story on the prescription drug controversy (motto: We want drugs, we want them cheap.) is an exercise in populism, economic ignorance, and socialism. To read the whole treatment online, you either have to be a subscriber, or read it through a library or other service that subscribes, but here's a link to excerpts.

I've identified roughly 20 themes in this cover story. Here they are:

1. Guess what? Corporations and government have conspired to cheat you out of the good things in life. (Sometimes this is true, but the authors call for more government, not less.)

2. People who are wealthy (never defined, by the way) got that way through luck, or political manipulation. (To be sure, this is true of some people, such as, oh, the Kennedys.)

3. Life is becoming more complicated; people have to take on more risk. That's unfair. Government ought to "take care" of people. (Waa! Me want bottle!)

4. Off-shoring is bad and should be stopped. (I guess we should be making our own underwear rather than letting Bangladeshis have a job making Fruit-of-the-Looms).

5. Congress is responsible for high drug prices and the fact that some people have no health insurance. (True enough--but not for the reasons the authors have in mind. State and federal tax codes, along with state and federal regulations on insurance, as well as an out-of-control tort system are responsible. Of course, all these contributing factors have been sold as what is good for us.)

6. Anyone who buys a high-deductible insurance policy is a sucker. (In fact, more people ought to be able to buy such policies, but state and federal laws make that nearly impossible.)

7. It's unfair that cash-paying patients pay more than people in Medicaid/Medicare, and private insurance. (This is indeed a problem--precisely because we ought to be using cash more often for medical purchases. The high list price of services is a direct response to the bureaucratic command-and-control system we are using currently--a system that Barlett and Steele (the authors) want to use even more.

8. Congress ought to ensure that all people have "the same incentives and rewards." (Since this is not possible--we all start out with different family and social endowments, for example--this is a call for socialism, a leveling of all differences.)

9. People who buy prescription drugs in Canada are not breaking the law; they are in fact heroes striking against The System. (On a human level, one can understand what these folks are doing; but they are responding to failed government policy more than anything else.)

10. Marketing of prescription drugs is expensive, artificially inflates demand, and is bad. (But how would people know of the drugs that are, by the author's worldview, their birthright?)

11. Congress, the FDA, and Big Pharma are in collusion. (It is true to this extent: the requirements for FDA approval of drugs raises the barrier to entry for new companies as well as new drugs. As such, they do raise consumer prices.) Congressional negotiations are in secret, and the FDA is doing the work of Big Pharma. (True enough--though that's hardly the problem with drug prices.)

12. Consumer prices are artificially high, due to political and other manipulation, especially when we look at the prices paid in Canada. (See number 11; also, the series pays little attention to the damage inflicted by price controls, which is why Canada pays less-and why there is no significant drug industry there.)

13. Drug companies are just plain evil. They are "raping the American people," says Dan Burton, a Congressman whose district includes research drug maker Eli Lilly. (Maybe people in Indiana ought to fire him and get a new congressman who understands why his constituents have jobs.)

14. Prescription drugs are so important to human well-being that the industry ought to be run by government. Says John Edwards, pharmaceutical efforts to hold back Canadian importation (read: price controls) is an act of "taking the democracy away from the American people." Says Gil Gutknecht, a Minnesota Republican, pharma companies are profiteers. (How much more explicit can you get about the need for socialism than by stating that the people ought to set prices? As for what kind of service that would produce, think: Postal Service, IRS, inner-city public schools, etc.)

15. Drug companies just make too much money. They can afford price controls. (Folks, how many drugs have charities developed? The Salvation Army is a fine organization, but I don't recall that they have developed treatments for diabetes, cancer, high blood pressure, etc.)

16. The federal government is wrong to stop cheap imports. (Funny how that line of reasoning doesn't apply to foreign-made steel or, well, anything sold at Wal-Mart.)

17. The recent addition of prescription drug benefits to Medicare is a political sop, a scam. (They're right, though of course, for the wrong reasons.)

18. People are right to resent having to pay for drugs. (And houses, and bread, and cable tv, and ....)

19. There are many causes of higher drug spending (they get this one right).

20. The feds ought to "negotiate ... to get better prices." The VA already does. Medicare ought to do the same. (Yes, and the VA, as important as it is, does not make up half of all spending on health care--so the goose that lays the golden, err, drugs, has not yet been killed. And have you heard that some doctors are so fed up with Medicare red tape and low payments that they have stopped selling their services to government patients? You want to extend that model?)

21. Pharma efforts to defend themselves--lobbying Congress (golly, they have more lobbyists than Congress has members), lobbying the FDA, enforcing contracts with Canadian pharmacies to get them to not sell their drugs on the sly to Americans--are evil. Remember, that's because Pharma is evil. Why, those greedy fiends even refuse to let the feds audit their books. (Sigh).

22. The argument that reimportation of drugs is dangerous is a scam. (Not exactly, but it is not the strongest argument against reimportation and price controls. See point 15.)

23. Don't be worried about socialism in drug production; with NIH and university research, we already have it, and we're doing fine. (The article grossly over-estimates the importance of taxpayer-funded research.)

******

Charlatans. Demagogues. Economic illiterates. Too bad so many people will read this TIME report uncritically. Then again, most are graduates of government schools--institutions known for poor performance in delivering any form of literacy.

Labels: Health care, Medicaid

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Drop That Cookie
An Associated Press story making the rounds says that fat is costly. "Taxpayers foot the doctor's bill for more than half of obesity-related medical costs, which reached a total of $75 billion in 2003, according to a new study."

Well, yes, taxpayers will pay about half of all obesity-related medical costs--because taxpayers already cover about half of all medical costs anyway, through Medicare (for the old), Medicaid (for the poor, and the old in nursing homes), VA hospitals (for veterans), and for insurance programs for government employees. And don't forget the tax subsidy that business (but few individuals) get for buying health insurance.

Expect this new study, though, to be used by the "food police" to call for higher prices on food, to discourage over-eating, by trial lawyers seeking to get fat wallets (as they did with the tobacco settlement), and all other sorts of, well, ills.

Oh yes, the NYT (registration required) edition spells out some costs ($7.7 billion in California alone), and a quote from a well-known public fear-mongering group.

Labels: Health care, Medicaid

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IRAs Revolutionized Retirement Savings. Can HSAs Save Health Care?
Despite the record of recent years, which has not been kind to retirement accounts everywhere, IRAs (Individual Retirement Accounts--to be distinguished from the political/terrorist group in Europe) have become an established part of American life.

Perhaps--one hopes--Americans will, in a similar way, start taking control over their own health care financing needs through the recently created HSAs, or Health Security Accounts.

Like the traditional IRA, an HSA is funded through pre-tax dollars (translation: you get a tax deduction). The money is then used for various medical expenses. The result: the bias against individuals taking out their own health insurance policies, much as they do for home or auto insurance, is reduced.

Why is this a good thing? First, think of the oddity of the current system: you don't buy your auto insurance through your employer, why should you buy your health insurance? Second, it may reduce the number of uninsured. Right now, if you lose your job, you will most likely lose your health insurance. Third, it bears some hope of keeping health care spending under control. Finally, if you manage your health well, and have good genes, the money you put away in an HSA could turn out to be a rather nice stash to use in retirement.

The new HSA is vastly superior to Flexible Spending Accounts. Under the old accounts, for example, money not spent in one year is wiped out. Gone. You lose it. That doesn't happen with the HSA.

Labels: Health care

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Primary Seat Belt Laws: A Change in Law Enforcement on the Road
Eric Peters nails the problem with "primary" seat belt laws, which allow the police to pull motorists over for the simple act of not wearing a seat belt.

"Moving violations -- things for which the police can pull you over and issue a ticket -- have until quite recently been based on the premise that whatever it is you're doing could endanger the other drivers out there. Otherwise, it was hands-off."

Driving without a belt, he writes, "is akin to being overweight or smoking; clearly not good for you -- but of no direct consequence to others."

The camel's nose under the tent door, as it were, is the issue of insurance costs, especially for health insurance. But there are many other steps that can be taken to reform insurance before we go down this road.

Labels: Health care

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Government Employee Health Insurance vs. Community Mental Health Treatment
A tight budget in Gogebic County, Michigan, is pitting health insurance coverage of county workers with mental health treatment for county residents.

No, the county is not planning to cut its budget dramatically. In fact, the budget grows faster than inflation (just over 3.25 percent). But funding for Gogebic Community Mental Health has been cut 44 percent from last year (from $90,000 to $50,000). Meanwhile, spending on health insurance for county employees has gone up $125,000.

Health is a good thing, and if people want to spend more money on it as their incomes rise, so much the better. But health insurance premiums have seen double-digit increases in recent years, in part because the incentives are all wrong. When insurance costs are borne primarily by a third party (in this story, the county as employer), there's no reason for the end user (the insured) to be a smart shopper, and costs soar.

Now, I don't know much about the Gogebic County budget, nor do I know any of the County employees. But I suspect that the County could be spending less money on insurance and more money on treating the mentally ill if its employee insurance plans were less in the traditional mode and more in the direction of individual responsibility. Something along the lines of Health Savings Accounts could be just what the doctor ordered.

Labels: Health care

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Prices Affect Health Care Decisions. Of Course.
A study in the New England Journal of Medicine, summarized ever-so-briefly in the Chicago Sun-Times, reports that when it comes to health care, prices do make a difference. The study looked at two large companies that went to a tiered co-payment schedule. Under this arrangement, employees have the lowest co-pay for prescription drugs, more for drugs on a company formulary, and even more for drugs not on the formulary. The findings: some people stopped taking some of the drugs altogether.

I suppose this is vindication of sorts, for those who think (as I do) that health care costs ought to be more visible. People do respond to incentives. That's the clear message of this experiment.

This may be spun by opponents of Medical Savings Accounts as a cautionary tale: "See, see, when people have a financial stake in their own health care, they won't take care of themselves as they ought to. They will even stop taking drugs they should be taking."

That would be the wrong lesson. Of course there are financial incentives in health care, and few people get everything they want or even need. But right now, the economic constraints are not visible; rationing is not self-selected by consumers, but done less visibly by government officials, hospital staff, insurance company technicians, corporate benefits managers, and the like. The problem with the companies examined in the study is not that financial incentives were visible to employees (they were--for drugs), but they are not even more clearly seen. It's time to expand the use of low-cost, high-deductible insurance to cover only catastrophic events, as well as things such as Medical Savings Accounts and Health Reimbursement Arrangements to address less costly expenditures.

Labels: Health care

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One More Step Towards Socialized Medicine
No, I'm not talking about the Medicare bill--though that's bad enough. Michigan, like other states, received federal money for a program for children's health insurance. Nationally, the program is called S-CHIP. Michigan, which calls its program MIChild, received $200 million more than required. For once, the federal budget crunches overestimated the demand for a program. Now, Michigan wants to use that money to prop up some programs for adults.

A spokesman for the Centers for Medicare and Medicare Services isn't offering much help to Michigan: "[The money] was originally intended to serve children, the disabled and the aged. Able-bodied, middle-aged people were not the intended target of this program." Meanwhile, others are calling for the state to find ways to spend the money on children: ""The money should really go for what it was designated for: children. There are many children still in Michigan who don't have health insurance."

Whether or not S-CHIP is a good program, or the adult-oriented program (called alternately, Plus Care or Care First ) is a question for another time. But it's worth pointing out that money is fungible. If Michigan gets approval from the feds to divert the money, it's yet another clue for advocates of taxpayer-financed health care: establish a program and get money for it in the name of children (the easiest sell, emotionally-speaking), and then spread the money around to everyone in a few years.

Labels: Health care

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The High-Stakes Search for New Drugs
As consumers, aided by a bipartisan coalition of politicians, whine for free drugs, the Detroit News reviews a few facts about drug development.

For example, for every drug that Pfizer (the largest drug company, and one with a substantial presence in Michigan) brings to market, there are 5,000 failures. In the 65 years that the company's research facility in Ann Arbor has been open, the staff have brought ... 7 drugs to market. The company hopes to raise the productivity of its research efforts to the point where it is successful 10 percent of the time. That would be a huge increase.

The result of this and similar records: $802 million per each drug actually brought to market in 2002.

Due to the complexity of chemical interactions, the human body, and the requirements of FDA approval, developing a new drug is a long and expensive process. It's easy for the consumer to see only a "white tablet," and focus on the very low cost of stamping out the one-thousandth pill, and forget the expense of being able to make the first one. That's one reason for the demagogic play against pharmaceutical companies.

Another reason is an entitlement mentality that has grown up around third-party payment of health care: someone else is going to pay, out of insurance, and my insurance better be cheap. And if I'm a senior citizen, well, I built this country, and ... blah blah blah.

Ironic. Something so valuable has health, and we expect it to be nearly cost-free.

Labels: Health care

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Rube Goldberg to Fix Health Care--Again
In a measure to game the Medicaid system (and taxpayers in other states) the Illinois General Assembly is considering a measure to tax hospital bed stays. Thanks to federal matching funds, the hospitals get the money back, and more, while insurers pay most of the initial tab. The goal is to bump up Medicaid payments, which are historically low, to hospitals, without spending any more state money. (For more details, see here).

The Assembly is also considering a similar scheme to promote insurance coverage, especially in rural areas. In brief, local governments take money already in the budget and transfer it to the state. The state records the money as "state effort" dollars, thus attracting federal money. The state takes the old, local money, and new, federal money, and gives it over to not-for-profit, local corporations. The new corporations sign up a bunch of people in such numbers that they form an insurance group. The corporations, using the new federal money, subsidize the insurance policies, so employers and employees can buy into the new insurance at a discount.

You have to give some credit to the first person who came up with this idea--credit, at least, for creativity.

But this is simply another Rube Goldberg operation, tinkering with and playing in the same old broken system of third-party payers and government programs.

There are many ways to make insurance more affordable, besides playing such games. Of course, boosting incomes through economic growth (better schools, lower taxes, etc.) would help, though these are long-term solutions. More directly, significant tort reform would lower the cost of medical care. Opening up Association Health Plans to all states would be a private sector-friendly alternative to a new government group. Liberalizing the use of Medical Savings Accounts would help out. So would legalizing basic insurance (that is, not filled with mandates). Tax parity between employer-sponsored and individually-purchased insurance would remove a hidden subsidy to third-party payers. Letting people buy insurance from a company licensed in any state--not just Illinois--would spur competition.

As the above list suggests, state policy makers have limited options. The biggest problem in health care is the discrimination against individual health insurance in the tax code--at the federal level. But there are options for the state as well--options that don't rely on (yet again) scheming the federal rules.

Labels: Health care, Medicaid

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