May 31, 2004

More Thoughts About Kerry Health Care Proposals

The more I think about the Kerry health care proposals, the more impressed I am. Many of them really are very clever, and likely to (somewhat) work. It is indeed very nice to see a serious policy process once again.

I have spent many months of my professional life sinking into the Pit of Despond and the Slough of Despair. But the deepest I ever sunk was in 1993-1994, when I was working (part time) on the Clinton health care reform effort. We needed to find a way to provide both patients and doctors with powerful incentives to reduce the roughly one-third of medical spending that went for unnecessary and inappropriate care. That meant--in the managed-care Enthoven Jackson Hole-group framework the task force had adopted--finding some way to bring the hard incentives of the market system inside health-care decisions. But that proved remarkably hard to do--without producing a cure worse than the original cost-overrun disease.

The first problem is what hard market incentives threatened to do--and, in the past decade, have done--to HMOs and insurance companies. Only one in 250 of those filing private insurance claims file for more than $50,000 a year. But these one-in-250 account for 20% of private insurance payouts. HMOs and insurance companies have incentives to keep their customers healthy so they don't incur large health bills, yes. They have incentives to induce their customers to get their preventive care, yes. But they have much bigger incentives to figure out how not to be holding the bag when somebody gets really sick--to make sure that those really sick who cost them 50 times the average and more are insured by somebody else, or not insured at all. Ratcheting up the bottom-line pressure on HMOs and insurance companies will also ratchet up their incentive to avoid covering sick people, and they will find a way (and they have found ways) to do so.

The second problem is on the consumer side. If you purchase health insurance, you are charged full freight--including the cost of treating you if you should get really, expensively sick. If you don't purchase health insurance and you get really sick, it is still very likely that somebody will pick up the tab. If you don't own a house and have few other assets people can come after, and if you are relatively young and healthy, buying health insurance can seem like a sucker's game--it's expensive, and although you get a little extra help for small bills the large bills the insurance really covers are bills you weren't going to pay anyway. Ratcheting-up the bottom-line pressure on the system creates big pressures on consumers to simply drop their coverage--unless, of course, they have good reason to believe that they are likely to get very sick.

On the one hand, increasing market pressure on the health care system gets you gains: reduced unnecessary and inappropriate care. On the other hand, increasing market pressure gets you big losses: powerful financial incentives for providers not to treat (or not to pay for treating) the really sick, and for consumers to drop their coverage (and thus make somebody else pay for their bills). One step forward, two steps back. And trying to regulate the market to try to get the forward and not the backward steps lands you in the Pit of Despair and the Slough of Despond.

The Clinton health care reform effort is a decade dead. But now the Kerry campaign has dusted off and brought forward a very clever idea from Brandeis's Stuart Altman to not eliminate but at least diminish the magnitude of these two ways that market-based health-care reforms self-destruct. The idea? Have the government take its task of social insurance seriously, and reinsure private insurers and HMOs: construct a 'premium rebate' pool to pay annual health-care bills over $50,000. This greatly diminishes the cost to insurers and HMOs of covering the really sick. The cost of treating the really sick will then be on the taxpayer rather than on the insurance-purchasing consumer. Insurance rates will fall. And the incentive for the young without many assets to go naked and uninsured will diminish as well.

Thus two of the big problems with our health care system become smaller problems. If this plan is enacted, we will no longer have to worry as much (i) adverse selection--the enormous financial incentives HMOs and insurance companies have to figure out some way not to cover the sick people--and (ii) cost shifting--the fact that those who buy insurance have to pay not only their own routine costs and their own catastrophic costs but the catastropic costs of others and the uninsured as well. The first means that--often--those who need health care the most have a hard time getting it. The second means that--often--those who could afford or would buy insurance if it were priced at its fair actuarial value don't because of this cost shifting.

It's a serious and clever proposal. It's a proposal for the government to do something--risk spreading--for which it has, potentially at least, a powerful comparative advantage. And it's a government program that would significantly diminish the market failures that gum up the private sector health care market.

It's a Kerry campaign idea, but it should be a Bush campaign idea too: the Bush campaign should steal it immediately. And would, if there was anybody in the Bush White House actually interested in a better American health care financing system.

Posted by DeLong at May 31, 2004 03:46 PM | TrackBack | | Other weblogs commenting on this post
Comments

This is an interesting proposal but one question I have that is not addressed. Currently, insurers have an incentive to prevent catestrophic health problems for their insured to avoid the outliers who incur 50k plus illnesses. To do this, the insurers provide a broad array of preventive services. If they no longer have to fear the catestrophic what incentive do they have to continue the preventive care services?

Posted by: dmh on May 31, 2004 04:24 PM

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Thanks for this post -- I feel like I've learned something important from it.

How competitive is the insurance business, though? Is it realistic to expect that the market will force them to give this proposed windfall back to their customers?

Whenever the government talks about paying large companies a lot of money, it scares me -- even if the intentions are good, there's a lot of potential for abuse.

Posted by: Alex S on May 31, 2004 04:38 PM

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The fundamental problem, or the hardest problem, in provision of public goods in health care is the problem of rationing, I think. You have to draw the line somewhere.

There may be lessons from the battle field, where primarily the good doctors decide how to allocate the limited resources at their disposable among those who happen to need them.

And another important aspect of provision of public goods in health care would relate to government support to research and development and rules concerning intellectual property rights.

A question occurred to me recently: As Goverment may expropriate land for public benefit in return for fair price being paid to the owner, should Government also expropriate intellectual property rights as well, for public benefit, and again at ** fair price**? Thus the Government would buy patent from patent owner and then let generics move on with that patent?

Yes, there is always potential for abuse.

Posted by: Bulent on May 31, 2004 04:56 PM

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I don't think that this plan would cause insurance companies to stop being proactive about preventative care. It's still in their favor. There are a lot of diseases and disorders in the sub-$50k/year range that can be more cheaply treated with preventative care. It's hard to imagine a health insurance policy dictating to a doctor's office that they cannot run certain tests during a routine physical in the hopes that a certain disease won't turn up. That wouldn't really help them anyway, they're still on the hook for the 1st 50k/year.

Posted by: Mike on May 31, 2004 05:52 PM

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I have seen suggestions for making medical insurance premiums 100% deductable for business. Any comments?

Posted by: Palolo lolo on May 31, 2004 06:00 PM

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what evidence do we have that the insurance companies would drop their rates under these conditions, rather than just accumulate larger profits than they already enjoy?

for a long time, I have been interested in knowing the actual costs of insuring people. it seems to me that doctors, medical centers, and the government (read: taxpayers) carry the costs of the uninsured. meanwhile, the benefit I get from my insurer decreases, while the cost goes up. if I knew they were making, say, 10% profit after all the costs were added up, I'd say to myself "well, that's what it costs to insure someone." as it is, I have a deep suspicion that they are raking in money hand over fist, and I deeply resent the lock they have on the healthcare industry.

does anyone know the figures?

Posted by: rebecca blood on May 31, 2004 06:04 PM

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Well, in theory, some insurers would accept a lower profit margin, reduce their prices and bolster their profits by increasing their market share. Free enterprise, I think it's called. Unfortunately, theory isn't the same as reality, and capitalism isn't the same as free enterprise.

It's occurred to me that one way out of what might be called the windfall profits conundrum would be for the government and major insurees to simply buy up ownership of the insurance companies. That'd give both a role in deciding what profit margins would be and/or how any excessive profits were dispersed. But that'd be (shudder) socialism...

Posted by: Tom Marney on May 31, 2004 06:24 PM

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How about this as part of the solution; force the medical insurance industry to combine life insurance with health insurance in a single policy; if they refuse treatment and you get sick and die, they have to pay on the life policy.

I admit it's not well thought out, but I like the explicit feedback mechanism.

Posted by: djs on May 31, 2004 06:25 PM

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I think dmh is wrong in saying:
"insurers have an incentive to prevent catestrophic health problems for their insured to avoid the outliers who incur 50k plus illnesses. To do this, the insurers provide a broad array of preventive services. If they no longer have to fear the catestrophic what incentive do they have to continue the preventive care services?"

There is and has been little incentive in fee-for-service coverage for preventive services. Most HMOs (or MCOs) have annual enrollee turnover rates high enough (median is around 25%) so that they have little incentive for preventive care. It is the problem of why should company A pay for preventive services when company B will reap most of the rewards in 5 or 10 years.

To my knowledge, most preventive care programs for walking soon-to-be disasters (the smoking diabetic with hypertension) are employer based. That is why one of these programs big problems is confidenitality concerns -a middle manager who gets wind that a person is being treated in one of those has an incentive to solve the problem once and for all by getting rid of the employee. And to my knowledge, employers and employer health insurance purchasing cooperatives are the ones who have put a great deal of pressure on HMOs to provide adequate preventive services. This makes sense because employee turnover rates are much lower (national aveage is around 10%, I think) than HMO enrollee turnover rates.

And from what the clinicians, epidemiologists and actuaries I have heard at conferences, HMOs operating in the current business environment are not providing adequate preventive health care for smoking, overweight, hypertension, pre-diabetic syndromes, etc.

And I think part of the Kerry program's advantages is that it would give incentives for more people to be covered, and those folks get no preventive care at all now.

Posted by: jml on May 31, 2004 07:04 PM

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Its remotely possible this plan would have its intended effect over the long term. The not-for-profit insurance plans might be more inclined to rebate reduced underwriting losses in the form of lower premiums and increased coverage. In turn lower premiums from the not-for-profits would (could) induce the for-profits to reduce their premiums, even if their first impulse is to retain the windfall profits for their shareholders.

Posted by: flory on May 31, 2004 07:28 PM

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I think I have the same opinion as other people..it's a good idea, but I think one needs to be a bit more cynical. I don't think the problem is HMO profits, the problem is costs to employers/employees.

And how X will result in Y..well..who knows? In theory, reducing costs will result in lower prices. In cynical world, the money will be pocketed and the problem won't go away, the numbers will just be different. (Maybe it'll allow more political pressure)?

Is there a market solution for this problem?

My money is on unfortunately, no.

But the problem has to be fixed, or the whole economy will be sucked down that black hole.

Posted by: Karmakin on May 31, 2004 07:32 PM

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The Kerry proposal is a non-starter for the Bush crowd. It does not contain any tax cuts for rich people or gifts to well connected campaign contributors. Besides, it violates the basice GOP philosophy: "If you want something, pay for it yourself. If you cannot afford it you do not deserve it."

Posted by: bakho on May 31, 2004 08:19 PM

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Bulent:

“As Goverment (sic) may expropriate land for public benefit in return for fair price being paid to the owner, should Government also expropriate intellectual property rights as well, for public benefit, and again at ** fair price**?”

As I understand the original intent of the power of imminent domain the state could take private land for public *use*, not public benefit. The distinction between “use” and “benefit” is crucial because the latter can, and has led to widespread abuse. For example one city decided to seize a Chevrolet automobile dealership and replace it with a Porsche dealership under the theory that Porsche dealership by selling more expensive cars would provide greater public benefit by way of increased tax revenue to the city. As far as I know imminent domain only applies to real property. Back the late 1970s the city of Oakland California tried to prevent a football team from moving to Los Angles by imminent domain. They lost in court, which held that imminent domain applies only to real property. Having the government take intellectual property, say drug patents would be extremely unwise as the “fair price” is too hard to determine. Even if proper return on investment could be determined, it would still have to be risk adjusted, and that’s too hard to do for a drug patent. The ultimate result would be less patents and more uncured disease. Want to chance that the drug you might need one day doesn’t get developed? As dirty Harry said: “Feeling lucky?”

Posted by: A. Zarkov on May 31, 2004 08:19 PM

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What is this talk about "expropriating" intellectual property rights regarding drugs? Most *novel* new drugs are the result of government or non-proift research. Big pharmaceutical companies apply for patents after most of the risky government or non-profit foundation work is done.

See following for muckraker version:
The Big Fix: How the Pharmaceutical Industry Rips Off American Consumers
by Katharine Greider
http://www.amazon.com/exec/obidos/tg/detail/-/1586481851/qid=1086062379/sr=1-4/ref=sr_1_4/102-3171302-8782562?v=glance&s=books

See following for academic approach using case studies:
The $800 Million Pill : The Truth behind the Cost of New Drugs
by Merrill Goozner
http://www.amazon.com/exec/obidos/tg/detail/-/0520239458/ref=pd_sim_books_1/102-3171302-8782562?v=glance&s=books

And how can the government expropriate intellectual property rights that are 90% a creature of the government in the first place? It is very cheap to reverse engineer a drug. So the intellectual property rights that are being appropriated only exist because of patent protection. Which is a creation of a (supposedly only these days) temporary monopoly by the government in the first place.

Big pharamceutical companies are not all bad by any means, but I wouldn't worry about them too much under any reasonable national health insurance plan.

Let's get back to the interesting question of whether government sponsored catestrophic medical insurance is a good idea.

I need to look this up, but is not a government subsidized catestrophic insurance policy used as a stop-loss clause in medical savings accounts? Or is that not true, I foget.

Posted by: jml on May 31, 2004 09:11 PM

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Oops! catastrophic

I need to write these comments out in Word first. I got good grades in spelling in school -except I remember when I spelled 'of' with 'uv' in one test.

Posted by: jml on May 31, 2004 09:14 PM

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I forget, I guess

Posted by: jml on May 31, 2004 09:17 PM

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Catastrophic? If you take any blood pressure medication, no insurance company in California will extend you the coverage. And what prevention programs? All you get is a stupid magazine.

Posted by: a on May 31, 2004 09:42 PM

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Well... if there's anyone among the bloggers I read regularly whom I feel I can trust on healthcare reform, it'd be Brad. Still, I feel like this adds another layer of complication, oversight, and mixed private-public regulation/responsibility. For instance, if there's a set of procedures and physical therapy that takes 18 months, and costs, as a whole, $60,000, roughly continuously, would insurance companies try to rush it into a single year to get $10,000 of it reinsured? That's one example that the health people from the Kerry campaign have probably already thought of and addressed, or maybe it isn't relevant, but it's just an example to think about how adding layers and complications can have unintended consequences.

Posted by: Julian Elson on May 31, 2004 09:53 PM

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A Zarkov:

"...the "fair price&" (for drug patent) is too hard to determine."

Yes and that's the biggest problem I see with my own idea. The fix could be to make this a special case of eminent domain in which the patent holder would be allowed to dictate price or ***reject expropriation***, but this time allegations akin to "saving Chrysler with public money" would emerge, i.e., allegations of over-pricing.

Nevertheless, we have this unique case (the details of which I never got into)in which the cost of AIDS medication was reduced from over USD 11K per year to something like USD 150 per year, for Sub-Saharan countries, with patent holders making deals with generic manufacturers, ***under pressure from the Clinton administration*** -- and that **pressure***, I believe, constituted some sort of expropriation.

I still think the idea is worth continued consideration.

It may perhaps develop into something like public subsidies to licensing agreements between patent holders and generic manufacturers.

In fact, that kind of scheme could be much more cost-effective than the recent legislation (draft?) allegedly channelling huge funds to large pharmaceutical companies via Medicaid (?).

(Sorry for lots of ambiguity in this note; I rejected twice in my life applying myself to medical / health care subjects and my recent interest is indeed very recent.)

Posted by: Bulent on June 1, 2004 12:04 AM

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jml:

"...Most *novel* new drugs are the result of government or non-profit research. ..."

I didn't know that. Well, OK, so the ***expropriation price*** would be lower.


"...So the intellectual property rights that are being appropriated only exist because of patent protection. ..."

I think intellectual property rights should be revised any way; they should not prevent use; they should be revised to bring fair compensation to the IPR holder out of revenues / benefits being generated from its use.

Posted by: Bulent on June 1, 2004 12:14 AM

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PART - A:

With Federal assistance, I think, the States could/should intervene as health care service providers, under a scheme like the following:

1- The State would announce a Fair Premium Amount FPA for health care insurance premium.

2- Private insurance companies would be allowed to refuse coverage.

3- If the State cannot arrange coverage for a person with a private insurance company at a price equal to FPA or less, then this person would be covered under the State Health Care Program.

4- The State with Federal assistance would set up health care capacity, in other words, State Hospitals and Clinics, which would serve with priority to persons covered under the State Health Care Program and any excess capacity thereof being made available to persons covered under private insurance.

5- At the outset the State could contract health care capacity but in the long run I think the State should have its own network of hospitals and clinics serving with priority to persons not wanted by private insurance firms.


PART-B:

From another angle, maybe the problem is with "the business model" of private insurance firms, in that their profit is defined as premium revenues minus insurance payouts. Maybe the private health insurance firms should act as ** commissioners**, with premiums they collect being state money entrusted with them, and their profit would come from a fixed percentage of commission of the amount of state money they manage. Whatever funds left over, if any, from premium revenues minus payouts would not be their profit, it would still be state funds. And a State Government would license them to operate in that State. They would propose a better plan, with technical and financial parts, than competing firms to get licensed in a State and they would lose their license if they perform too poorly relative to the agreed plan without reasonable justification in terms of unexpected developments. The State would perhaps license a limited number of best proposals and perhaps **de-license** the worst performer(s) every x years.

Posted by: Bulent Sayin on June 1, 2004 01:14 AM

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"I have seen suggestions for making medical insurance premiums 100% deductable for business. Any comments?"

Posted by: Palolo lolo on May 31, 2004 06:00 PM

Aren't they already, as a business expense?

For individuals, medical expenses have to add up to a hefty figure before they are deductible.

Posted by: Barry on June 1, 2004 02:55 AM

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The Bush crowd will very likely adopt the Kerry plan, if enough attention is paid to it. Remember the "lock box?" The public liked it, Bush made the pledge, and has ignored it ever since. Bush's own medical policy innovations, discount cards and a drug benefit, are both pretty iffy as to real benefits to consumers, but the latter is a windfall to drug firms. Surely, insurance companies can find it in their hearts to dip into their pockets for a politician who seems likely to make a reinsurance plan more pro-business.

Oh, and Brad, never forget - we want the young to go naked. It should be a national policy goal. For the less young, we have to decide between a neutral policy and outright disincentives, but we need more nudity among the young.

Posted by: K Harris on June 1, 2004 04:30 AM

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Palolo -- they are already 100% deductable.

Health insurance is paid with pretax $ -- that is the main reason the system is through employment.

Posted by: spencer on June 1, 2004 04:34 AM

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"For example one city decided to seize a Chevrolet automobile dealership and replace it with a Porsche dealership under the theory that Porsche dealership by selling more expensive cars would provide greater public benefit by way of increased tax revenue to the city. "

You've got to be kidding me. Did they get away with it or did Chevrolet sue them to kingdom come?

Posted by: Ginger Yellow on June 1, 2004 05:05 AM

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http://pep.typepad.com/public_enquiry_project/2004/06/prof_delong_on_.html

Posted by: Adrian Spidle on June 1, 2004 06:52 AM

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It's *not enough to focus on insurance issues*.

There is a *tremendous* information problem out there in delivering medicine. Not only are patients ill-educated; doctors don't understand cost/benefit analysis and refuse to practice evidence-based medicine. For a good recent example, see this article on PSA tests and prostate cancer:

http://www.nytimes.com/2004/05/30/weekinreview/30kola.html

There must be some kind of top-down, population-wide assessment of costs and benefits. It ain't gonna happen if left to "the doctor and the patient." (I have nothing against leaving it to them...if it's not paid for out of insurance dollars.)

Posted by: liberal on June 1, 2004 07:00 AM

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"..doctors don't understand cost/benefit analysis and refuse to practice evidence-based medicine..."

I don't know what evidence-based medicine is but I know what cost/benefit analysis is and I would tend to think that doctors would be best geared to thinking along cost/benefit analysis in a public hospital environment.

Posted by: Bulent on June 1, 2004 07:14 AM

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I think analysis of the Kerry catastrophic coverage proposal needs to consider the effect of large corporations who "self-insure". The HMO's and Health Plans that "administer" these programs don't actually pay the costs, the corporations do. Would the corporations get the >$50 reimbursements or the health plans? This is a huge part of the company-paid health benefits in the US.

I do like the idea of the government being able to "condemn" for public benefit research or drug patents, although it might require a change in law. It would be fought to the death however, since there is an aspect of "venture capital rewards" to the present system.

This whole area is much too complex for being an election issue. Too many interests, too much public fear, too much complexity. I find it hard to see how we evolve out of the currently failing system.

The one idea I like a lot is to allow any company or individual to be able to get into the Federal Employees health care system.

Kerry has mentioned this in stump speeches, but with little comment. It meets one issue well: how to get everybody into a common risk pool to adverse selection goes away as an issue.

The Fed. employee health system seems to work, there is some competition, and those involved like it. Maybe that should be the first step toward a bigger solution: get most of the population into a federal voluntary program, and then cap the catastrophic expenses for the participating providers/insurers.

Posted by: JimPortlandOR on June 1, 2004 07:33 AM

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I have two potential practical problems with the proposal. If everything over $50K is paid by the government, where will the incentives to cut costs for these extreme cases come from? Seems to me, if an insurance company doesn't have to pay, it will likely stop caring about how much it costs. So the overall cost might actually go up. Second problem: How do you adjust the $50K ceiling going forward? Going by CPI would be odd, but going by medical-services inflation would be a vicious circle. Would you let the government decide on it periodically?

Posted by: walons on June 1, 2004 07:43 AM

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One of the factors that pulls down the US lifespan is the high infant mortality rate. In 2002, the US rate was 6.75/1000, over twice the rate of Japan at 3.3/1000. Even Canada has a rate that is 1/4 below the US. All the health care bills look at COSTS. A large problem with the US system is DISTRIBUTION.

BTW, the US ranks #35 behind Taiwan. Even Aruba is lower than the US.

Posted by: bakho on June 1, 2004 08:09 AM

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"public goods in health care"

Assuming you're not talking about something like prevention of communicable diseases, health care ISN'T a public good. It's clearly rival and excludable.

If we're actually interested in solving the problem of getting health CARE for people, then we need to think along the lines of IRA-like accounts combined with catstrophic insurance.

Also, we have to face up to the perverse incentives that drive medical care professionals' malpractice insurance through the roof.

Posted by: Patrick R. Sullivan on June 1, 2004 08:19 AM

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It seems to me that the health savings accounts which are a feature of this administration, and have been routinely denigrated, function on this model. One buys coverage for aggregate claims over a high level, like $2000, and pays for the rest of the health care coverage as one sees fit, either with one of these accounts, which are administered by insurance companies, or out of your own pocket.

Also, I think that the administrative costs of the current system are very high, and much of it is going to people who are not providing health care. I live in a Bill Frist's hometown, a town famous for its invention of the various systems of profiting from health care, and a whole lot of non-doctors live in houses that only doctors could afford 25 years ago.

A system of reinsurance would go some distance to dealing with the problem. But it has to be a stop-loss policy; which means that the insurance company has to pay the claim, and only then seek reimbursement from the pool. That way, the government can insure the the company has not done something irrational in paying a claim, or in unfair or unreasonable dealing with the person before the claim exploded.

Posted by: masaccio on June 1, 2004 08:43 AM

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I have two potential practical problems with the proposal. If everything over $50K is paid by the government, where will the incentives to cut costs for these extreme cases come from?

I haven't read the proposal, but if the government is providing reinsurance, rather than reimbursal, there's a few mechanisms to be used (for one thing, the plans that have lower costs for extreme cases can simply be charged less for their reinsurance). It'd be like, oh, I don't know -- charging less for supercat reinsurance to companies that have proportionally less insurance written in hurricane or earthquake zones.

Posted by: Steve on June 1, 2004 08:45 AM

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"the insurance company has to pay the claim, and only then seek reimbursement from the pool..."

To play the devil's advocate, this seems like an administrative nightmare. If 1 in 250 claims are catastrophic, then, assuming 100 mil claims a year (I'm guessing one third of the population goes to a doctor per year), it's 400,000 claims per year that have to be examined for their merits. A bonanza for bureacrats and lawyers, perhaps. The problem is also related to the observation that "the plans that have lower costs for extreme cases can simply be charged less for their reinsurance". In this case, the incentives would be the opposite to the reimbursement scenario: companies would want to be skimpy on care, becasue it reduces their rates and/or increases their chances of getting back the money from the gov. Do we want medical service providers to have incentives to economize on care? Isn't that what HMOs are routinely accused of doing?

Posted by: walons on June 1, 2004 09:24 AM

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"I have two potential practical problems with the proposal. If everything over $50K is paid by the government, where will the incentives to cut costs for these extreme cases come from? Seems to me, if an insurance company doesn't have to pay, it will likely stop caring about how much it costs."

The reinsurance has to come with some standards that don't make it an insurance-company entitlement with no accountability.

"Second problem: How do you adjust the $50K ceiling going forward? Going by CPI would be odd, but going by medical-services inflation would be a vicious circle. Would you let the government decide on it periodically?"

I'd be tempted to adjust it by some measure like median income, which seems a better definition of "catastrophic" than a CPI-based one, or a "medical-services inflation"-basis.

I'd even be further tempted to make it a personal catastrophic coverage with the threshold by personal (or household) income (perhaps using a 3-year window or something like that), (the payments would still go to the insurance company to the extent that the insurance company was paying the costs), which instead of merely subsidizing those who are already likely to get insurance and maybe tweaking their incentives and costs, would actually do more to lower disincentives to cover the people that actually have trouble getting coverage now, and who are, therefore, most likely to be being treated at public expense in the ER as a last resort rather than having regular access to doctors.

Posted by: cmdicely on June 1, 2004 09:35 AM

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It seems that the Kerry idea does "remove" the cost-sharing burden by healthy individuals - but does it not, in reality, simply shift it from being the clear burden (via insurance price) to a less-clear one (via increased taxes to cover the cost of reinsurance)?

Kind of like the trick employed in funding social security - tell them half of it's being paid for by their employers (they're not smart enough to figure out that they're actuall paying almost all of it).

Posted by: Ron on June 1, 2004 09:41 AM

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JimPortlandOR:

"...The one idea I like a lot is to allow any company or individual to be able to get into the Federal Employees health care system...."

A-ha! Maybe the following scheme...

1- Allow private insurance companies to reject coverage.

2- Admit those rejected by private insurance companies to Federal Employees health care program even if they are not otherwise qualified at this time.

This might be a quick solution to the problems as posed by Prof. DeLong in the note initiating this thread, i.e., remove the incentives that lead to unproductive / undesirable behaviour on the part of insurees and insurers.

Posted by: Bulent on June 1, 2004 10:01 AM

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“There is a *tremendous* information problem out there in delivering medicine. Not only are patients ill-educated; doctors don't understand cost/benefit analysis and refuse to practice evidence-based medicine. For a good recent example, see this article on PSA tests and prostate cancer:”

The problem is with the PSA test itself, not the doctors. The test lacks both sensitivity and specificity. I recommend everyone who is interested in this topic read the April 2004 issue of the Journal of Urology. You can have a PSA score below 4 and still have prostate cancer. A low PSA doesn’t mean you won’t have a high Gleason score should you have a positive biopsy. On the other hand, about 60% with PSA > 4 have a negative biopsy. To complicate matters further, there is the (more expensive) free PSA test. So what happens if you have PSA >4 but a normal free PSA? Some doctors say that means you don’t need a biopsy. But the Mayo Clinic disagrees. They use a cutoff below 4, and they age adjust the reading. They use free PSA only in the case of chronic elevated PSA with negative biopsies. The biopsy itself is not absolutely definitive. It has a 20% false negative rate and about a 2% false positive rate. According to Stamey at Stanford, what we really need is a test that correlates with the Gleason score from the biopsy. Someone will eventually work this out and patent it.

Posted by: A. Zarkov on June 1, 2004 10:03 AM

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jml: "Most *novel* new drugs are the result of government or non-proift research."

I think “novel” is the keyword here. Generally industry does not pursue treatments for rare diseases because the market would be too small to justify the investment. So naturally the government and non-profit organizations would fill the gap.

Posted by: A. Zarkov on June 1, 2004 10:16 AM

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Isn't dealing with the insurance conundrum only one side of the problem? I'd like to see something more from Kerry, or anyone, on the supply side of services: the problems of underserved communities, hospital monopolies, the shrinking number of emergency rooms (while they become primary providers for the uninsured); med students heading to specialization rather than opening much-needed family practices (to pay their school bills, it's said); and so on.

I'd also like to see someone talking about the many self-employed and other self-insured who cannot deduct all their payments from taxes and who pay higher rates than do employers who insure their workers. If, as it seems now, the US is headed in the direction of more personal responsibility -- self insurance, private pension plans etc -- it should also be a goal to keep such plans affordable. Currently, all efforts seem directed toward savings for employers.

Posted by: paulo on June 1, 2004 10:23 AM

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I believe Zarkov's example of condemning a Chevy dealer to build a Porsche dealer is an illustrative hypothetical, and not a real instance of eminent (not 'imminent') domain.

Posted by: RonK, Seattle on June 1, 2004 10:36 AM

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ginger yellow:

“You've got to be kidding me. Did they get away with it or did Chevrolet sue them to kingdom come?”

I got this from an article in the Wall Street Journal a few years ago that discussed the ever-increasing abuses of the power of eminent domain. As far as I know they did get away with it. But when Donald Trump tried to get Atlantic City to grab block of private homes so he could enlarge a parking lot next to his casino (which loses money and just missed an interest payment on its junk bond), he lost in court.

Here is what Black’s Law Dictionary says about “eminent domain:”

“The power to take private property for public use by the state, municipalities and private persons authorized to exercise functions of a public character.”

As far as I know this pertains only to real (or perhaps) tangible property. One possible exception. Under the Atomic Energy Act knowledge could be “born classified.” Meaning if you discovered something on your own using only unclassified sources, the feds could still seize your work and lock it up. You could not look at your own work unless you had clearance. But I think you could still retain patent rights. Yes there are classified patents.

Posted by: A. Zarkov on June 1, 2004 10:38 AM

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Isn't dealing with the insurance conundrum only one side of the problem? I'd like to see something more from Kerry, or anyone, on the supply side of services: the problems of underserved communities, hospital monopolies, the shrinking number of emergency rooms (while they become primary providers for the uninsured); med students heading to specialization rather than opening much-needed family practices (to pay their school bills, it's said); and so on.

That's why I prefer the plan to be personal and income-linked, with insurers only getting compensation for costs over the threshold if and to the extent that they are paying them. It's a market based solution that directly targets the uninsured and underserved by giving them (1) personal resources for "catastrophic" care, where "catastrophic" is defined in terms of personal capacity, (2) providing an incentive (or reduced disincentive, at least) for insurers to rpovide them reasonable insurance rates, which can provide access to basic care and reduce the need for catastrophic care.

Encouraging insurance in such a way also may help the other problems; one reasons for a lot of the supply problems is reimbursement rate cuts by insurance providers and even moreso by public programs. If your cost control method is getting more people hooked up to good preventative care rather than cutting reimbursement rates across the board, maybe you weaken the pressures that cause supply problems.

I'd also like to see someone talking about the many self-employed and other self-insured who cannot deduct all their payments from taxes and who pay higher rates than do employers who insure their workers.

That's an issue too; I'm all for making self-insurance or out-of-pocket medical costs fully deductible.

Posted by: cmdicely on June 1, 2004 10:50 AM

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I come from a country where the health care debate is rather different, and so I don't understand much of the vocabulary in this discussion. Please bear with me...what precisely are you trying to accomplish here? What does this do for the uninsured? How does this equalize access? Extend life spans? And so on...

Posted by: Mandos on June 1, 2004 10:56 AM

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I come from a country where the health care debate is rather different, and so I don't understand much of the vocabulary in this discussion. Please bear with me...what precisely are you trying to accomplish here? What does this do for the uninsured?

Kerry's plan, IMO, helps the uninsured indirectly by reducing the costs of insurance and thus making it easier for either them or their employers to insure them; my variation above would also provide some targetted encouragement for insurers to try to get more coverage in groups that are economically disadvantaged -- and thus more likely currently uninsured --particularly if income-based discrimination in rates was prohibited.

How does this equalize access?

By increasing access to insurance as described above.

Extend life spans?

Presumably, indirectly, by increasing access to basic care.

Posted by: cmdicely on June 1, 2004 11:07 AM

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Sorry for the muddled posts. Keep forgetting that this blog doesn't like italics tags in comments...

Posted by: cmdicely on June 1, 2004 11:08 AM

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Sorry for the muddled posts. Keep forgetting that this blog doesn't like italics tags in comments...

Posted by: cmdicely on June 1, 2004 11:08 AM

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Ah, OK. That's pretty succinct. Like I said, for an outsider the debate is so jargon-filled and laced with history and ideology that it's hard to figure out what a given change to the system really means in human terms. Which is, after all, what this is all about.

Posted by: Mandos on June 1, 2004 11:09 AM

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http://www.guardian.co.uk/Iraq/Story/0,2763,1228331,00.html

Is there really a serious effort to reinstate the draft?

Has the US newsmedia really kept this issue quiet?

Posted by: OT on June 1, 2004 11:27 AM

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“If this plan is enacted, we will no longer have to worry as much (i) adverse selection--the enormous financial incentives HMOs and insurance companies have to figure out some way not to cover the sick people--and (ii) cost shifting ... “

If the Kerry plan were enacted then my health insurance premiums should go down because the upper tail of the payout distribution is transferred to the federal government. However, my taxes will go up because someone has to pay. But as I understand Brad’s analysis, in effect we are making more people pay for the upper tail, since those who choose to opt out of the insurance game (but are covered anyway for catastrophic illness) would have to pay taxes to support the Kerry plan. But would they? Those with incomes below the median pay little or no tax, and the unemployed don’t pay tax either. So it would seem that the new source of revenue comes from young healthy people who pay taxes, but choose not to be insured. It seems to me that my taxes will go up more than my premiums will go down. The Kerry plan will make me poorer. The problem with the plan is that it does nothing to contain costs. The other problem is that it has no incentive for people to take better care of themselves. The current system (and Kerry’s plan) creates a kind of moral hazard where people don’t have a strong incentive to take care of themselves. And Americans don’t care of themselves. About two thirds are overweight (BMI > 25), about 90% of those over 55 have hypertension, and few people exercise. Yet they all want medical insurance (preferably at someone else’s expense).

Posted by: A. Zarkov on June 1, 2004 01:31 PM

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"...Assuming you're not talking about something like prevention of communicable diseases, health care ISN'T a public good. It's clearly rival and excludable...."

People drive utility from their neighbors and friends and fellow citizens and even fellow human beings' remaining in good health. This makes health care a public good, at least in part, even outside of public health concerns. Hence subsidies in health care, for example. Any subsidy, like any piece of legislation, is a public good. Therefore there ARE public goods in health care, even beyond "public provision of public goods" in the area of public health.

I consider myself only ten percent of an economist. A **full** economist would I hope correct me if I got it wrong about the public goods.

Posted by: Bulent on June 1, 2004 01:36 PM

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" But as I understand Brad’s analysis, in effect we are making more people pay for the upper tail, since those who choose to opt out of the insurance game (but are covered anyway for catastrophic illness) would have to pay taxes to support the Kerry plan. But would they? Those with incomes below the median pay little or no tax, and the unemployed don’t pay tax either."

Those with income below the median pay considerable payroll tax; since the "trust fund" gimmick is bunk anyway, and the current surpluses generated by those fund the rest of government spending, we probably shouldn't ignore those taxes.

Also, if (as it should, but its an indirect effect) the Kerry plan takes pressure off the emergency rooms by increasing access to insurance (as it gets more affordable, more employees should choose to cover it, since it is a competitive advantage in attracting employees; also, as it is more affordable, more people who aren't covered by their employer will choose to cover themselves), it should also improve access to emergency care for everyone. Also, moving people into private insurance (by that means) from public last-resort coverage may reduce costs to the insured by reducing the demand on mandatory public funded programs that may reimburse below the actual service costs (or at the service costs, but with substantial delay, where time is money).

"The current system (and Kerry’s plan) creates a kind of moral hazard where people don’t have a strong incentive to take care of themselves."

If "not dying" isn't an incentive, saving a few $ isn't going to be, either, for most people.

Posted by: cmdicely on June 1, 2004 01:44 PM

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Patrick R. Sullivan writes:

>> "Assuming you're not talking about something like prevention of communicable diseases, health care ISN'T a public good. It's clearly rival and excludable."

To a large extent, health care IS a public good.

Suppose an uninsured 20-something has a skateboard accident and cracks his skull on the sidewalk. He has no insurance and no assets and thus can't afford the medical care needed to save his life. If health care were truly a private interest, we would say, "Tough luck, kid. You chose to gamble and it didn't work out for you," and we'd let him die.

In fact, that will never happen, because the general public will not stand for it. The general public will insist that he be saved. And likewise for all sorts of less dramatic examples of patients who need health care and can't pay for it.

Maybe it shouldn't be that way. Maybe we really should let people who can't afford health care go without -- just as someone who can't afford a big-screen TV must go without -- but the reality is we don't. As long as that's the case, health care of those who can't pay for it (including those who neglect to insure for it) is a public good.

The market failure here is that we don't recognize it as a public purchase and treat it accordingly. That's why a single-payer public program for some forms of health care is more market-efficient than the current system, not less.

Posted by: Mark D Lew on June 1, 2004 01:53 PM

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"Confiscating" patents in the public interest needn't have anything to do with eminent domain. There is no natural property right to a patent. It only exists because the government granted it. Patents already granted are safe, because the government made a contract and should keep its word. But change the patent law and any patent granted thereafter is fair game.

Patents exist for the reason stated in the U.S. Constitution (I.8.8): "Congress shall have the power ... to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."

In other words, the government says to the inventor: If you agree to make public the nature of your product, we agree that for the next 20 years we will not allow anyone to copy the product. The reason we do that is to "promote the progress of science", because we realize that without that protection, there would be a lot less inventing and a lot more secrecy, which is bad for scientific progress.

The point is, a patent is not a natural property right, it's a contract negotiated with the government, and the basis for that negotiation is the government's estimation of the public interest. If we believe the public interest would be better served if the government had an option to buy back a patent at a certain price, then just change the terms of the contract. Change patent law so that from now on instead of promising we will protect you from competition for the next 20 years, we will do that OR we will pay you a fee of $x million calculated according to such-and-such formula.

Any patent granted from then on comes with a built-in buy-back clause.

mdl

Posted by: Mark D Lew on June 1, 2004 02:08 PM

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The more I think about it, the more I seem to lean away from **Clinton/Kerry idea** of "Federal reinsurance" scheme for the "really sick" and lean towards a separate, public-funded health care program for the really sick.

The State Government / Legislature would decide to allow private insurers to refuse to cover the really sick. The State Government / Legislature would at the same time develop, with financial assistance from Federal budget, its own scheme to take care of the really sick rejected by private insurers.

And maybe the Federal Government would approve of the State's program before the State could allow private insurers to reject coverage.

Competition between states in caring for the really sick would probably lead to innovative schemes and new best practices.

This approach would also make for a gradual transition and evolution towards a better overall system of health care.

Posted by: Bulent on June 1, 2004 02:28 PM

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Competition between states in caring for the really sick would probably lead to innovative schemes and new best practices.

Why would the states compete? Even if the really sick had the wealth to move, states might compete for the worst service, to make the budget problem easiest -- as all the really sick that could would leave.

And the Kerry plan isn't just for the "really sick" in the sense of people with existing conditions that would be rejected for traditional insurance, but for things like heart attacks, which can be had by people who are otherwise healthy, and will return to reasonable health, but cost a whole lot to get care for for a while.

Frankly, I think Kerry's plan is a lot better, and my personal threshold variation is still better yet.


Posted by: cmdicely on June 1, 2004 02:34 PM

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The basic idea with patent rights at this time appears to be one of monopoly over the use of the patent. So much so that if I feel a patent is threatening to my business, I can buy it and bury it for nearly forever, depriving the public from the benefits of the use of that patent, thus in a way perverting the original intentions about patent rights as depicted in the Constitution.

And so I think the basic idea with changing patent laws should be to change the patent rights from one of monopoly to the right for receiving a fair share of the benefits generated from the use of the patent.

With that change, I would go ahead and use the patent and the patent holder would go ahead and demand his fair share of benefits from my use of his patent.

Yes, the lawyers would handle it. Why not? And in time, market rules would emerge and procedures would be streamlined and I think that not only there would be more incentive for scientific progress but also there would be even more economic and social benefits derived from scientific progress.

It is possible that lack of monopoly might discourage investment required for using a patent. That would be easy to correct. Allow monopoly on the condition that the patent would be used, that investment would be made for the use of it, while monopoly would not be allowed for sitting on the patent.


And in process of granting that monopoly for the use of the patent, the price for the State's option to buy back the right to monopoly could be fixed as well, as proposed by Mark D Lew.

Posted by: Bulent on June 1, 2004 02:55 PM

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In response to Rebecca Blood:

Net profit margins of some of the more profitable HMO's:
United Health Group - 6.89%
Anthem - 5.12%
Wellpoint - 4.9%
Oxford - 6.62%

Data from Yahoo finance.

Link to United's key financial stats:
http://finance.yahoo.com/q/ks?s=UNH

Posted by: mcwop on June 1, 2004 02:56 PM

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"...Why would the states compete? Even if the really sick had the wealth to move, states might compete for the worst service, to make the budget problem easiest -- as all the really sick that could would leave...."

Caring for the really sick requires technical capacity and that means business activity and jobs and income, which is good for local economy. And there would be financial assistance from Federal budget -- and one would hope that better performers would receive more assistance.

When I say "technical capacity", I mean, for example, the Mayo Clinic -- I don't know where it is but I know that they get patients (and revenues) from all over the world.

World class capacity to care for the really sick cannot fail to attract demand and revenues paid by parties other than the US Government, or other than one's own State, which in itself would be sufficient motivation for a State to want to compete with other states in developing that capacity and offering it in the market.

So, yes, the really sick would leave the States that cannot compete well in that area and move to those States that can.


-----


"...And the Kerry plan isn't just for the "really sick" in the sense of people with existing conditions that would be rejected for traditional insurance, but for things like heart attacks, which can be had by people who are otherwise healthy, and will return to reasonable health, but cost a whole lot to get care for for a while...."

In that case, I must say that I think that perhaps the Kerry plan is even a worse idea than I thought it was -- what you are saying does not allow for "rationing" of health care provision, the way I see it. Even if I'm wrong on this, however, what I propose above would not preclude a scheme in which the Government would pay for "unexpected and catastrophic" cases. What I am proposing is different than that, obviously, it pertains to "expected catastrophies", people whom the private insurers do not want to insure.


Posted by: Bulent on June 1, 2004 03:17 PM

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In that case, I must say that I think that perhaps the Kerry plan is even a worse idea than I thought it was -- what you are saying does not allow for "rationing" of health care provision, the way I see it.

Presumably, it does in the details, we've only gotten the broad-brush, here. Much of what has been questioned here is what strings are attached to the "reinsurance".

Posted by: cmdicely on June 1, 2004 04:46 PM

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Mark D Lew:
"To a large extent, health care IS a public good.

Suppose an uninsured 20-something has a skateboard accident and cracks his skull on the sidewalk. He has no insurance and no assets and thus can't afford the medical care needed to save his life. If health care were truly a private interest, we would say, 'Tough luck, kid. You chose to gamble and it didn't work out for you,' and we'd let him die.

In fact, that will never happen, because the general public will not stand for it."

The difficulties arise because the general public will not stand for it, but are unwilling to accept the consequences of carrying this attitude through to its logical conclusions when applied to the general case as well as the individual highly-publicized cases:

The elderly will receive disproportionately more care than the young.
Those with chronic conditions will receive disproportionately more care than those without such conditions.
The poor will receive disproportionately more care than the rich.
Households with children will receive disproportionately more care than households without.
If 15% of GDP is the "proper" amount to spend on health care, and unless we are willing to tax the household with $10M in income $1.5M for their health care each year, the median household will pay disproportionately more for their care than the rich household.

Posted by: Michael Cain on June 1, 2004 08:16 PM

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Health care is a good different from John's stake besides the fact that the former is much more of a public good than the latter (as there are probably not any purely private or purely public goods). I see two special aspects of health care as a good, and this is the way I'll try to explain them:

When you see John's having a nice, juicy piece of stake, you might want to have one too.

When John's having an open heart surgery (may God never make that necessary for any one), however, well, you might want to pray to God that nobody ever needs one, especially you!

At the same time, you would like to be darned sure that if you ever needed an open heart surgery, you would get one, of respectable quality and reliability, and without going financially broke or near broke or even without losing any siginificant portion of your wealth. And you would like the same to be true for your loved ones as well; the same for even any body you just happen to know; and then the same for even every body on earth... except that, at one point, you would add a qualifier to your well wishing: "IF POSSIBLE", you would add -- whatever that means.

So, two things here:

1- The good in question is not really health care; it is "access to health care".

2- Access to health care may have to be "rationed". (I mean it does need to be rationed in terms of large numbers of people but a given individual may never even feel or know about such rationing if (a) there is sufficient health care capacity to go around in the community/country he lives in (b) he is in middle income group or better (c) rationing is done wisely (d) he is in reasonably good general health and (e) he is jussst a little bit lucky.)


Then I would add that the most critical element of health insurance is the nature and extent of **health care capacity** that is available and operational at any time.

Set up the capacity and ration it in such a way that most people would not even notice rationing and it would not cost them an arm and a leg to feel assured as such.

I guess that's the summary of it; unless greed gets into picture, the desire for profiteering from people's need for health care ( demand elasticity (?) hurf! Econ 101!!!!)

Posted by: Bulent on June 2, 2004 05:26 AM

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It's a pleasure to read a varied, intelligent, and civil discussion of the healthcare insurance issue. I hope the following criticisms of some of Zarkov's comments fits as well: (1) "It seems to me that my taxes will go up more than my premiums will go down. The Kerry plan will make me poorer." Probably any approach to expanding healthcare coverage will cost more than the present system, which is increasingly rationing good care to the rich and those employed by large companies. Zarkov seems mainly concerned with his cost, but is the problem with healthcare the cost, the effectiveness, the efficiency, or the combination of these elements?
(2) "The problem with the plan is that it does nothing to contain costs." I suppose Kerry has ideas about cost containment as well; this one idea is not a panacea.
(3) "The other problem is that it has no incentive for people to take better care of themselves." I agree with the tenor of the comments to the effect that people already have (and ignore) far more powerful incentives than any new system can provide.

Posted by: Keith on June 2, 2004 09:50 AM

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A. Zarkov has his Eminent Domain law pretty messed up. The test is whether or not the "taking" was for a "public purpose." "Public use" is a general term for this and creates no distinction from public purposes (read the next paragraph in Black's). Generally, courts have been very deferential on the point of what is a public purpose. The case of the Chevy and Porsche dealerships sounds apocryphal (aren't the makes a convenient juxtaposition?) but there was a case some years ago when the city of Detroit (or Flint) condemned a bunch of occupied houses and businesses so that it could give the land to GM to build a new plant. The Court thought that was OK.

Eminent Domain is certainly not limited to real property. So-called "inversed-takings" cases have been applied to noise, noxious fumes, sight-lines, and the right to peaceful enjoyment, among other things. Patents are simply a state recognition of a property right (a right of exclusive use, in other words) the US could certainly take that right away the Constitution simply mandates payment for taking it away. There have been many proposals over the years for the Feds to condemn life-saving drug patents (particularly AIDs drugs). I have never heard any disagreement with the inherent legality of doing this.

The city of Oakland won the Raiders case, by the way. The Court found they were right on the law but simply refused, as a political matter, to issue an enforceable injunction. Even with the Supreme Courts recent retreats in takings law (generally dealing with conditions on land use, rather than outright appropriation), I don't think there is any serious disagreement that a city could condemn a sports team. If one could force the league to keep the team in the league rather than simply dismissing it and granting a new franchise to another locality is a separate question.

Posted by: DCMike on June 2, 2004 11:45 AM

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DCMike:

Thanks very much for the corrections. I did not research the Raiders case. Such are the perils of remembering what you read in the newspapers more than 20 years ago. Nevertheless I am skeptical as to whether the City of Oakland would have survived an appeal. At the time the City did admit that it’s legal theory was “novel.”

The Chevy and Porsche (it might have been BMW or some other expensive import) dealership case was discussed in the Wall Street Journal, and according to the WSJ the city did prevail. I think this story is real not apocryphal.

There might be a problem with international patent law if the US government decided to “take” (assuming they could) the patents of multinational drug companies; one would need to research the pertinent treaties. In any case, I think “taking” drug patents is unwise for several reasons beyond conflict with treaties. Such takings are likely to have a chilling effect on drug research to the detriment of everyone.

Finally as to the question of how far eminent domain can be stretched beyond real property, stay tuned; I might have more to say on this later.

Posted by: A. Zarkov on June 2, 2004 01:03 PM

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“The city of Oakland won the Raiders case, by the way. The Court found they were right on the law but simply refused, as a political matter, to issue an enforceable injunction.”

No ultimately, Oakland lost. The Third District Court of Appeals ruled against Oakland. See 174 Cal.App.3d 414, 220. 1985

“Plaintiff City of Oakland appeals from a judgment after a court trial in favor of defendants Oakland Raiders, et al. We have determined that plaintiff's proposed exercise of eminent domain power would, in this case, violate the commerce clause of the United States Constitution. Accordingly, we affirm.”

Read the whole decision at http://www.ipwatchdog.com/Raiders2.htm.

However, California Supreme Court did rule that Eminent Domain could be used to “take” intangible property, but they lost anyway. Perhaps there is a later case that yet again reverses, but I doubt it.

Posted by: A. Zarkov on June 2, 2004 02:24 PM

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Ouch! I was completely wrong. The US government can and does take patents and copyrights. It’s even authorized to do so by statute: 28 USC 1498 which says:

“Under this statute the US government does not have to seek a license or negotiate for use of a patent or copyright. Any federal employee can use or authorize the use of a patent or a copyright. The rightowner is entitled to compensation, but cannot enjoin the government or a third party authorized by the government, to prevent the use. Any contractor, subcontractor, person, firm, or corporation who receives authorization from the federal government to use patents or copyrights is construed as use by the federal government, and cannot be sued for infringement.”

Moreover there is legislation pending to clarify the compensation: HR 1708.

Here is lots of stuff compulsory licensing of cipro:

http://www.cptech.org/ip/health/cl/cipro/

Live and learn!

Posted by: A. Zarkov on June 2, 2004 06:20 PM

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If you genuinely believe that Socialized Medicine (HillaryCare) is such a brilliant idea, read this:
http://www.ncpa.org/iss/hea/2003/pd101703b.html
There are many more factual examples that decisively trump the policy wonk junk science on this blog available for the asking. If the disasters that Government housing and Government education are don't convince you, you need to move to Cuba.

Posted by: latigo on June 2, 2004 09:15 PM

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"..The rightowner is entitled to compensation, but cannot enjoin the government or a third party authorized by the government, to prevent the use...."

I think that ought to read, under revised law, as follows:

"..The rightowner is entitled to compensation, but cannot enjoin any party to prevent the use, except in case of **monopoly concessions**..."

I think that many right owners really don't need monopoly rights any way; they need the right to fair compensation. Monopoly concessions should be justified by a plan of substantial investment as required for the use of the patent or copyright and implementation of that plan.

I mean thinking along those lines could be useful.

Posted by: Bulent on June 3, 2004 05:22 AM

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"Only one in 250 of those filing private insurance claims file for more than $50,000 a year. But these one-in-250 account for 20% of private insurance payouts."

I find it peculiar that these high payouts to a handful of insured customers are presented as problematic. Of course a small number of people receive the vast bulk of insurance payouts; that's the whole point of insurance. Most people with car insurance don't get in accidents in any particular year either.

Posted by: Matt Madsen on June 3, 2004 07:09 AM

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Does it matter that, due to entropy if nothing else, we will all eventually require more than $50,000 to keep us alive?

Also, this doesn't address the problem of fat smokers freeriding on a healthier base that now has no way to opt out. Smoke and drink all you want, kids, the guv'mint will pick up the tab!

Posted by: Jason Ligon on June 3, 2004 10:29 AM

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"I think intellectual property rights should be revised any way; they should not prevent use; they should be revised to bring fair compensation to the IPR holder out of revenues / benefits being generated from its use."

There is already a working example of this concept in copyright law: mechanical royalties. If a record label wants to sell a reproduction of a cover tune, they must pay the songwriter the going statutory rate or negotiate more favorable terms. Currently, the statutory rate, set by congress, is $.08 per reproduction for songs five minutes or less in length or $.0155 per minute per reproduction for songs that are over five minutes long. Of course these terms are the result of a long controversial debate that is still ongoing, but their existence gives me reason to believe that a similar arrangement could be made for patents.

Posted by: basta on June 3, 2004 05:13 PM

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Professor DeLong & Friends:

Ever since I chanced upon Dr. DeLong’s web site a few months ago, it has provided much enjoyable relaxation while I sip my second cup of coffee of a morning.

For there is much entertainment observing ambitious young people trying desperately to comprehend the state of nature through the narrow prisms of first, neat linear models, and then, ever more difficult nonlinear systems purporting to describe the economic behavior of individuals and collectives. But after prolonged exposure to the jargon of both “pure” economics and the world of business--incentives, market forces, public goods, “growing” a business, and so on--the whole exercise becomes really quite bizarre, as well as monumentally uninformative about real solutions to real problems in the real world.

But the most recent discussions on Professor DeLong’s web site of our US health care snake pit point to the essential problem with giving over education in political economy to the post-WW II neoclassic cyborgs and (new) institutionalists who, in addition to their iron grip on academic economics and governing elites, have invaded biology, engineering, law and practical theology in Episcopal seminaries.

There are of course “markets” in the several health care sub-industries, but, as only one brave blogger suggested, they are markets wholly controlled in the interest of profit by rival oligopolists. The only way in which they successfully “compete” is in the amounts of payoff their lobbyists provide national and state legislators. Moreover it appears that nice Mr. Kerry isn't about to cross them.

And the real costs to the nation's lower 99 percent are reaching staggering proportions.

Even if GDP and profits are increasing for the top one percent, and even if employed laborers near the bottom can afford big, black, shiny, aggressive SUVs, do you really believe that the marginal benefit/cost to the polity, or even any privileged segment thereof, is positive if 40 million or so of their labor underclass are without organized health care?

In the "post-post-modern" interconnected planet where overpopulation has now become a warm, cozy host for world-wide viral populations, if you think you are safe in Barrows, Boalt or Haas from the secondary fallout of this model of social organization, you are out of your friggin’ skulls.

There is only one economically efficient solution to the US health care problem--single-payer National Health Insurance modeled on Medicare, with the private sector picking up supplements under standard reporting systems, etc. (There is a large literature on the issue that goes back at least ten years; check it out.)

Finally, I would respectfully suggest to Professor DeLong that he strongly recommend to his undergraduates (I suspect that his graduate students can scarcely find time for a weekly bath) that they do some light reading of the classics among the loyal opposition, starting with, say, Joan Robinson, and adding a contemporary radical or two who still have jobs in reputable departments, like, say, Thomas Weisskopf at Michigan. Also, they need some understanding of the minimal history of their craft. Wesley C. Mitchell at least should be good for openers.

Ever yours,

bph

Posted by: a reader on June 6, 2004 11:39 PM

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This looks like what I have come to associate with the national health plans that I have benefitted from in my expatriate employment over the past twenty five plus years in two European countries, although fortunately I have not had to access them for catastrophic coverage. I think that there is probably the rub, as people may want more than the state is willing or able to fund to cover treatment outside the home country when patients and their families desire it.

Posted by: R Chatel on June 16, 2004 03:14 PM

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This looks like what I have come to associate with the national health plans that I have benefitted from in my expatriate employment over the past twenty five plus years in two European countries, although fortunately I have not had to access them for catastrophic coverage. I think that there is probably the rub, as people may want more than the state is willing or able to fund to cover treatment outside the home country when patients and their families desire it.

Posted by: R Chatel on June 16, 2004 03:15 PM

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Three Factors Indentified as Reasons for Despond and Despair

1. [Insurance companies have] incentive to avoid covering sick people

Yes, that's true. And when the government takes the liability, government will have the same incentive to avoid covering sick people. The government however has the power to require compulsory participation in its program, cradle-to-grave. The government also has the power to prohibit group experience rating arragements. I think the government would like to do both. Otherwise, opting in or out based on the health of the individual or group at the moment (i.e., adverse selection) can drive up cost in the government program, just as it does in private insurance schemes. However, who in Congress will come out for "no choice". Which Senator will break the news to union plans that they have to give up the benefits they negotiated over the years? So I don't think either will happen. As the result, some adverse selection will remain in a governmental plan, along with the cost of that adverse selection. Not a trivial point.

Posted by: John Fembup on July 5, 2004 05:58 AM

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Three Factors Indentified as Reasons for Despond and Despair

1. [Insurance companies have] incentive to avoid covering sick people

Yes, that's true. And when the government takes the liability, government will have the same incentive to avoid covering sick people. The government however has the power to require compulsory participation in its program, cradle-to-grave. The government also has the power to prohibit group experience rating arragements. I think the government would like to do both. Otherwise, opting in or out based on the health of the individual or group at the moment (i.e., adverse selection) can drive up cost in the government program, just as it does in private insurance schemes. However, who in Congress will come out for "no choice". Which Senator will break the news to union plans that they have to give up the benefits they negotiated over the years? So I don't think either will happen. As the result, some adverse selection will remain in a governmental plan, along with the cost of that adverse selection. Not a trivial point.

Posted by: John Fembup on July 5, 2004 05:58 AM

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