• *Catastrophic Care*: Chapter 9

    My guess is that if you’ve read other writing by Goldhill, you’ve already come across his proposed, ideal health care financing system. Since I haven’t, or not in years anyway, I didn’t know (or remember) what it was until chapter 9 of Catastrophic Care. In a nutshell, it’s this:

    • From birth to death, each of us gets an annual Health Grant, something like $8,500 per year. (I’m sure the exact figures aren’t as important as the concepts.) 
    • We each get a Health Account into which these funds are deposited and may be carried over if not used to buy, directly, health care services. (It’s not entirely clear from the chapter for what else, if anything, Health Account funds may be used and at what penalty, if any.)
    • We each purchase a TruCat (“True Catastrophic”) insurance product. It has a monstrous deductible, something like $500,000 over a lifetime.
    • All of this is mandatory.

    I can imagine some objections to and questions about this approach. I bet you can too. Why don’t you raise them in the comments?

    The first that may come to mind is, what happens to someone who hasn’t yet saved enough to address a major health problem and also hasn’t yet exhausted his or her deductible? The answer is, there must be a credit market that takes advantage of the Health Grant guarantee. That’s plausible. If I know you’re going to have a stream of income for life, I am more willing to lend you some money now. Still, will this credit market spring up on its own or require some other support? I don’t know. But it’s a crucial element.

    Next, how will the Health Grants and TruCat premiums be financed? The chapter doesn’t say, but my guess is income taxes.

    Still, even with these concerns and questions, among others, as a rough draft, Goldhill’s ideal is just fine by me. He admits that it is an ideal and promises to discuss in a subsequent chapter how we could transition to something like it very slowly. He’s up front about the political and cultural constraints to reform.

    The sensible approach in proposing an alternative to our current system is to respect what’s called path dependence. This is a fancy way of saying that societies don’t get a chance to genuinely start anything over again—that reforms must be built on top of existing structures, recognizing their established political support and existing ways of doing business as limitations on any changes. It’s what all the smart analysts do, limiting the development of alternatives to those that are considered realistic.

    Other posts about the book here.

    @afrakt

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    • If he truly believes in “path dependence”, why is he proposing a new, very complicated method of paying for health care (which, BTW, would still give us economic rationing of care)?
      Why not just something simple like Medicare for all? This is an existing system which works well at lower cost that all of the private alternatives. It is already established… we are on that “path” already.
      Just declare that everyone is eligible for Medicare and raise Medicare taxes to cover it (even the financing method is already in place). The net benefit will be lower health care costs and universal coverage. It will cut the profits of the health industry (insurers, providers, pharma, etc.) which is why the special interests will fight it but… do we have a government of the special interests or a government of the people?

    • Goldhill has a good point to make (i.e., consumers will spend less if they deal directly with providers), but his proposal doesn’t solve the moral hazard problem that he has identified. In the end, Goldhill proposes nothing more than two insurance systems, one for catastrophic events and the other for everything else (but that he calls health accounts).

      Goldhill would allow loans to individuals that they would not necessarily have to repay, so the same moral hazard would exist in his system as exists today. And both systems would be single payer in nature (whoop-de-do) – so much for freedom. For a longer comment about Goldhill’s proposal, see my post at http://alsanblog.com/2013/04/13/catastrophic-care-part-two-2/.

      • I don’t see how this proposal would leave anyone with less freedom to choose the healthcare they receive than the current system. Are you afraid the government would define healthcare more narrowly than insurance companies do?

        • Actually, I was only referring to the general loss of freedom (and thinking of the resulting stagnation and decline as compared to a decentralized approach) when the central authority takes over or otherwise heavily regulates one sixth of the world’s largest economy.

    • Is the $8500 a year for every citizen cradle to grave?

      That is $2.55 trillion. Even with the liberal accounting practices of the Federal Reserve, that is a sizable tax increase.

      All income, estate, and Social Security taxes will barely raise $2.4 trillion, and there are these nasty claims from defense, energy, the court system, and Social Security and interest on the debt to clear off first.

      OK, let’s pull back for sanity and assume that the $8500 applies to anyone not on Medicare and Medicaid or in prison or in the miltary.

      That comes to about 200 million getting grants, We are now at $1.7 trillion a year and all we have odne is to tund the deductibles.

      I must be missing something.

    • The idea of having 2 separate plans – catastrophic coverage and underlying coverage is very appealing.
      Fortunately, the ACA seems to alow for this type of innovation.
      In our patented design, that is exactly what we do.
      Instead of needing $8,500 every year, by contributing $300 a month, one can have a paid-up benefit that increases each month, totaling $25,000 of paid-up benefits after 36 months and $50,000 of paid-up benefits after 56 months.
      By having catastrophic pay-as-you-go coverage only after 36-60 months, ome’s premium is reduced 60-80 % off of traditional ACA premiums.
      Don Levit

    • It will take 59 years to accumulate $500,000 in the health savings account. In the mean time, all medical care is out of pocket. Who would ever finance kids with severe problems? What about the newborn with a 50% chance of survival?

      I knew a kid born with a heart valve defect. He’d had open heart surgery at least twice by the time he was a teenager and would need another before he became an adult. Goldhill’s system leaves him a pauper or debt slave for life.

      But the other issue is that the average 20 year something will have more than $100K in their health savings account, far dwarfing any other asset. There will be huge pressure to use that for a down payment or college, or any other immediate need. What will then happen to the people who do this and then have a catastrophic accident? They’ll be bankrupt and lose their home. Sound familiar?

      • 2 excellent points.
        First, $500,000 is too high to start the catastrophic point. Through our work with Milliman, we established that $25,000 and $50,000 were the 2 significant “break points.”
        While people can accumlate over those points with their paid-up insurance, they get less “bang for the buck.”
        2. The savings account/paid-up insurance must not be available for cash out of “surrender value.” They are available only for medical expenses. They actually represent reserves of the insurer that are “shared” with the policyholder, unless the policyholder does indeed cancel his policy.
        Don Levit

      • No, Goldhill’s proposal would not leave the heart defect kid a pauper or debt slave for life. Loans would be available, but an individual would never have to pay back more than the amount of lifetime contributions. The excess represents free money and it creates the same moral hazard problem that Goldhill purports to solve. His system is very similar to insurance today except that we would use the word “contributions” instead of “premiums.”

    • The chain of reasoning that led to Mr Goldhill’s thesis runs something like this:

      a Health care costs must be regulated, or they will take over federal and state and even corporate budgets like Pac-Man.

      b. Cost regulation by state and federal authorities has been largely ineffective, whether CON laws or Medicare regulations.

      c. Individuals regulate their own budgets all the time.

      d. So let’s give health care dollars to individuals and let them do the regulating.

      One has to read people like Paul Starr and Joseph White for perspective. Americans seem unable to make public choices, so we fall back on the idea that private choices will save our systems.

      Under Mr Goldhill’s system, we would see an explosion of medical tourism for non-emergency procedures. (both domestic and foreign tourism). This will decimate some number of hospitals, who have been floating along with bloated budgets for years. Sort of like what happened to some major airlines after deregulation.

      Another thing we will see are more bad decisions by patients. Some persons will postpone diagnostic tests in order not to spend their
      medical savings account. This is not rational behavior, but it will happen.

      We may long for the simplicity of the Canadian system — where
      primary care is free at the point of delivery, and the penny pinching is done elsewhere in the system.

      • Pardon me for getting philosophical but it is impossible to say that a person is worse off by postponing diagnostic tests in order not to spend. Just as it is impossible to say that a person will be better off by living close to work in order to avoid early death by car accident. I am just guessing but I would bet that a law that greatly reduced driving would have more impact on longevity than would medicare for all which I would bet would have an impact too small to detect.

    • From what I understand, Goldhill’s preferred system (catastrophic insurance combined with health savings accounts) is very similar to Singapore’s system of health care financing. The questions then become:
      1) Maybe this method of finance is necessary, but is it sufficient? That is, does Singapore also make use of other methods (all payer rate setting or other price controls, for example) in tandem with the method of finance? Can Goldhill’s preferred method work without whatever else Singapore does?
      2) What are the pros and cons of the Singaporean system anyway? It would be useful to know that when holding up something like their system as the ideal.

    • It has been a while since I read about Singapore, but my memory is that the HSA’s were built by mandatory contributions, and that the catastrophic insurance was like Medicare Part A and funded by taxes.

      Which raises a point I have been making for a long time.

      Any advanced health care system requires some level of coercion in its
      financiing.

      The question is, will that coercion be in the form of taxes, like Canada. or in the form of employer/employee hard mandates, like Germany, or in the peculiar American form of suing patients for unpaid medical bills.

      From what I read so far, Goldhill is rather dodgy on where his coercion will take place. This dodginess is not uncommon among libertarians when they address health care.

      Americans do not want to believe that loans and debts and rents may be worse for them than higher taxes.

      Bob Hertz, The Health Care Crusade

    • I really like the $500,000 life time deductible. If you do just that the state is only financing care above the average. There is no provable benefit of the state financing care for people with above median income and below median healthcare spending. None.

      I think that one of the goals of reform should be to get the more capable half of the population to shop for price as much as possible. Another goal should be to remove 3rd party payment as much as possible. I think that his plan moves use in that direction but I think that the annual deposit is not a great idea and I think that care for the poor needs to be subsidized from early on without the use of debt. So I would not what the annual deposits but would prefer a deductible for low income earners based on their income (or in the case of children their parents income.)

      • We have, as Stephen Brill demonstrated opaque, predatory pricing for urgent medical care. We have a pharmaceutical industry that spent $30B marketing, including one rep for every 8 doctors. Yet rather than regulating some of this, like every other European country does, policy maker expect sick, hurt people with no medical background to make the right choice.

        That’s just ridiculous.

        • policy maker expect sick, hurt people with no medical background to make the right choice.

          I expect their GPs to help them make many of these decision with not only their health in mind, as it is today, but also with their money in mind. Medical care has less conflict of interest in this regard than other services in that a GP will do little of the expensive work himself and so is less biased than say an auto mechanic. I have had a couple of experiences where when Doctors learned that our deductible was $10,000 they changed the prescribed course of treatment to dramatically cheaper alternative. I have friends with no insurance who have experienced the same thing.

          Your GP gets to know you and your family over time and so wants to help you more than he wants to help the insurance company or the hospital or the drug company. This is natural and normal.

          • Good luck getting any cost information out of a GP or any other health care person or institution.
            My personal experience has been that no one will quote you a firm price. At best they will give you a “ballpark”. Most of the time they ignore you or laugh at you. Also, they only give you a piece of the puzzle.
            For instance, elective surgery has many different cost components: surgeon, assistant surgeon, anesthesiologist, OR fee, drugs, supplies, radiology, lab, radiologist fee, pathologist fee.
            Nobody can give you all of these prices even if they wanted to (and they don’t).
            It is a myth to believe that patients can “shop around” for the best prices. They can’t even find prices and they have no way to evaluate different providers and services.

      • Capable half? Very generous, and I would lower the figure by a significant amount.

        Brad

    • Here comes another of my pet concerns,

      Is it right to judge health care systems by mortality rates?

      Picture 2 contrasting systems.

      One has no deductibles or coinsurance, and all drugs at generic prices, but not very much life-saving medicine for cancer etc Dialysis is just denied over age 75

      The other has vast resources for life saving care, but no long term care coverage and many bankruptcies, and life expectancies are 3-5 years longer than Option A.

      As Linda Richman used to say on SNL, ‘talk among yourselves.”