July 17, 2014


Obamacare Isn't What's Slowing Costs (Megan McArdle, 7/05/17, Bloomberg View)

[I] think we can be pretty sure that public policy is not making the system more efficient, for two reasons. First, the decline started in the middle of the last decade, and there's no plausible policy mechanism that would have caused cost growth to moderate just then. And second, the same broad trend shows up in pretty much every high-income country. No matter how smashing you think Obamacare was, it didn't stabilize health-care spending in Switzerland.

Ms McArdle, of all people, should have known better than to pick Switzerland, Why Switzerland Has the World's Best Health Care System (Avik Roy, 4/29/11,Forbes)

Long-time readers of this blog will know that my favorite health policy topic is the Swiss health care system. So I was glad to see Megan McArdle, Tyler Cowen, and Ezra Klein devote some space to the topic on Monday, provoked by Paul Krugman's fact-free claim that "consumer-based medicine has been a bust everywhere it has been tried." (Indeed, as Tyler and Ezra point out, Krugman once praised Obamacare as a "plan to Swissify America," arguing that "a Swiss-style system of universal coverage would be a vast improvement on what we have now.")

Megan's piece is especially worth reading, as she tackles the question I have been spending a lot of time on--whether or not it is better for individuals or governments to be in control of health spending:

It's all very well to say that people shouldn't have to make those decisions on the basis of money.  But that's all the government is going to do.  Sure, there are some procedures that people just shouldn't have (like a lot of back surgery). But a lot of this is value judgements: hip replacements for elderly patients, expensive chemotherapy that may extend life by a few months, more convenient dosing schedules or better side-effect profiles for brand name drugs.  Unless we simply rely on across-the-board reimbursement cuts-which would be moronic on every level-the government is mostly not going to be deciding which treatments are effective; it's going to be deciding which treatments are cost-effective.  We haven't taken doctors out of the business of selling health care to patients; we've just added a middleman.

Now, maybe you think that the government is smarter than the consumers it's speaking for.  But how does the government know what you value most: an extra three months of life when you have cancer, or an extra five years of walking after age 89, or an extra $4,000 right now? [...]

The most significant difference between the Swiss and American systems is in the ability of individuals to consume health care in value- and cost-conscious ways. Only one tenth of Americans buy insurance for themselves, the rest getting coverage through their employers or the government. In Switzerland, everyone buys insurance for himself.

An American adaptation of the Swiss system would not require an individual mandate: there are market-based alternatives for avoiding the "adverse selection death spiral," such as requiring those who opt to forego insurance to wait a few years before buying insurance again. Ideally, the American version would give insurers a lot more latitude to come up with innovative plan designs, so that insurance could remain inexpensive, while reflecting what consumers actually want. It wouldn't force young people, just entering the workforce, to subsidize the old. Also, the Swiss system's goal of preventing individuals from spending more than 10 percent of their income on health insurance exposes the system excessively to health cost inflation; instead, the U.S. would be better off adopting a defined-contribution system, like the one proposed by Paul Ryan, in which insurance subsidies grow at a pre-defined, sustainable rate.

And, of course, we all know why the decline began in the middle of last decade, The Health Savings Account Turns 10 (Steve Harris, 4/09/14, HealthCareDaily)

In December 2003, President Bush had just signed the Medicare Prescription Drug Improvement and Modernization Act into law. [...]

According to the Employee Benefits Research Institute, since the bill was signed into law, HSAs have grown to $16.6 billion in assets. In 2013, these assets grew $5.3 billion, a jaw-dropping 47 percent increase over 2012 assets. Meanwhile, Health Reimbursement Arrangements are moving in the opposite direction. Assets have shrunk by 2 percent to $5.7 billion last year.

There is a massive shift taking place in the market as consumers shoulder more out-of-pocket healthcare expenses and demand greater transparency over quality and cost. It has forced hospitals and physicians to cope with collections and bad debt since 'We the People' are not always as reliable paying our bills as a large insurer. HSA linked plans have also sparked innovations from new swipe-card technology to alternative forms of free market care delivery.

Unfortunately, the party didn't follow his lead when he sought to reform healthcare, sticking us with the much more timid Obamacare instead, Bush Promotes Health Savings Accounts (Michael A. Fletcher, 1/27/05, Washington Post):

President Bush laid out a plan yesterday for reducing the nation's spiraling health care costs, proposing tax credits to encourage expansion of health savings accounts and calling for allowing small businesses to pool together for health coverage across state lines. [...]
The main element of Bush's plan would be health savings accounts, which allow people to save money tax-free. The accounts are used for medical expenses up to a preset deductible amount, and once that threshold is met, insurance takes over. Any money not used can roll over from one year to the next, and the cost of the policies is usually lower than that of traditional health insurance plans.

"Health savings accounts all aim at empowering people to make decisions for themselves, owning their own health care plan, and at the same time bringing some demand control into the cost of heath care," Bush said. "Our view is that if you're a consumer of health care and you're in the marketplace making health care decisions, it is more likely that there [would] be more cost control in health care than a system in which the consumer of health care has his or her health care bills paid by a third-party provider." [...]

The concept is a component of Bush's vision for an "ownership society," which seeks to reduce the cost of government entitlements. The administration pushed for inclusion of health savings accounts in the 2003 Medicare prescription drug legislation.

Posted by at July 17, 2014 6:32 PM

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