Priceless: Chapter 10

I wish Chapter 10 of John Goodman’s book Priceless had come sooner. It’s excellent. I agree with the vast majority of it. Though I have concerns about a few of his policy suggestions, I’ve covered some of them already. Others I just don’t feel like addressing right now as they’re not the core of his proposal, the gist of which is to reform how insurance is regulated and taxed to encourage consumers to have more incentives to pay 100% for certain classes of care at the point of purchase (or fewer disincentives not to).

With sufficient assistance for low-income families and thoughtfulness in defining what these certain classes of care are (elective visits and procedures, yes; emergency open heart surgery, no), I think this is a fine idea. I, for one, would love to pay reasonable prices out-of-pocket for email and phone access to doctors, for example. I am largely able to achieve what I want because I know a lot of doctors who will respond to my emails and phone calls for free, but I’m lucky. Not everyone is buddies with Aaron, for example. I can tell you from this experience, however, that it is very valuable. It saves time. And, even at some reasonable price, it’d save money. A $20 phone consult to avoid a $100 office visit is a win for me. Is it a win for the doctor? OK, maybe it has to be $50 for that phone call.

One issue John hasn’t yet addressed is how value-based insurance design would apply to his approach. Insurers, even those overseeing catastrophic plans, might have a financial interest in incentivizing some preventative and disease maintenance care that offset future cost. This is how health insurance plans rationally become health incentive plans.

John wants people to have no incentive to choose health care over another good or service or vice versa. Why then does he advocate so many ways of making spending for health care tax free? All other goods and services are taxed, both because the income or capital gains we use to buy them is taxed and through sales taxes. We can’t not tax everything. So the only way to level the playing field is to tax dollars used for health care too.

But, at the 30,000 foot level, I find many of John’s policy ideas worthy of consideration. Why don’t more people? I think it’s how they’re set up. Whether John realizes it or not, he packages things in a contrarian cloak. I don’t think he need do this. Just go back and read what I wrote about much of the first half of the book. (See the Priceless-tagged posts.) He’s bending over backwards to explode everything you might think is decent about the status quo. Sure, some of it should be blown up. But a lot of people aren’t ready to see it that way. And some of it need not be blown up.

John’s core ideas won’t resonate with many because the packaging is too extreme and off-putting. It’s also not practical and not the way things would happen in real life. Major reform would be phased in. It has to be. The system can’t turn on a dime. John may not like incrementalism, but he might find his ideas more accepted by others if he leaned a bit in that direction and stopped taking on unnecessary fights in the process.

For all that, keep in mind that not all of John’s ideas would save money system-wide. Using Medicaid dollars to subsidize private insurance would cost more. The benefits may be worth the price, but let’s not imagine it’s a lower price.

This passage caught my eye:

The problem with the current system is that neither employers nor sellers of group insurance are allowed to adjust an individual’s premiums to reflect higher expected healthcare costs. This encourages insurers to seek the healthy and avoid the sick before enrollment. After enrollment, insurers have an incentive to overprovide care to the healthy and underprovide to the sick.

These incentives need to be reversed. In the Medicare Advantage program, the government pays higher premiums for seniors with more expensive health needs. This encourages insurance companies to create specialized plans—especially for chronic illnesses—that compete with each other.

Beneficiary-paid MA premiums are still community rated. Also, even with risk adjustment, plans still have incentives to underprovide for the sick relative to the healthy. Plans always have incentives to spend less and to select for healthier patients. No prospective risk adjustment will ever fully address that. This is a limitation of a multi-payer system. In the eyes of many, the strengths may outweigh it, but that doesn’t mean it doesn’t exist.

John notes that “individual insurance premiums for, say, a 60 year old are often five or six times higher than for a 20 year old.” He has a few suggestions for how to help retirees not yet eligible for Medicare. But none of them would go a long way toward changing the fact that the premiums they would face would still be very high, too high for many people to afford. This is one of the issues that community rating is meant to address. Yes, that’s redistributive. You can’t address this problem without redistribution in some form. Can we all at least agree that’s a fact?

I’ll post on Chapter 11 on Friday.

@afrakt

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