.jpg)
|
|
Lord Maynard Keynes
|
A software program for lashing fifty thousand computers together, called Hadoop, is what gave macroeconomics, the study of huge populations, its big push. The aristocratic Maynard Keynes, who invented macroeconomics, would probably not be amused on looking up Hadoop on any search engine, to find it is possible to download it free of charge to anyone who asks. Fifty thousand computers? Anyone can also rent eight hours of time on them from IBM or Amazon, for about ten dollars. Not many great scientific discoveries have become widely available so quickly or so cheaply.
Although the news media will probably concentrate on locating spies in Central Asia, or predicting the outcome of national elections, or telling which dot in the sky is really an approaching asteroid, Hadoop will certainly make it easier to make advance predictions in health insurance. Creating 300 million individual policies is do-able, projections of the gross domestic product are much easier, more accurate and can extend farther into the future. Ideas of preserving privacy in this avalanche are simply swept away by the discovery that much of what we thought was privacy was just a matter of being lost in a forest of data. So let us momentarily feel safe in predicting that a system of individually owned health insurance is entirely practical, cradle to grave, or at least need not be rejected as impractical because of size. If the Federal Reserve can manage a portfolio of $3 trillion, a national piggy bank for health care costs is not beyond our ability to manage. Set aside for a moment whether it is desirable to do such a thing, it is definitely possible to do it. Since small-scale tests seem to show potential savings in American healthcare costs in the range of 5% of annual American GDP, development costs need not stop us. Although the plans of Obamacare could bankrupt the nation, it is also a possibility that what is truly wrong with them is the thinking is too small. Bad implementation is expensive, failure to abort a failing program is worse. But getting the wrong design for the program is fatal.
The general process for getting things right in politics is to do something, and see if something bad happens. If not, do even more of it. But if your monitor shows that something bad is really happening, drop the project. Big Data, the process of monitoring huge amounts of data simultaneously, using Hadoop and fifty thousand computers in the desert, could be a monitor for experimental changes in the health insurance system. The trick is to include automatic monitoring alarms as enormous volumes of data flow past. The incentive for alertness is this data will be there anyway, and somebody in the role of trial attorney can go back in retrospect and show you missed a trend.
Presumably, the outcomes to measure are whether health is improving, and costs are going down. Compared with past trends, and other nations. Doing localized experiments, by states perhaps, would allow you to compare that state with others. It's rather like politicians giving speeches, and then watching what happens to their popularity polls. But it can be like counting the number of grains of sand on the beach -- who cares?
When any innovation is this new, powerful and cheap, it is almost impossible to slow the stampede to try it out. Almost anything which can be imagined will be tried out, and a few surprising things will be discovered quickly. But then it can be predicted that things will settle down to using this big machine on statistical issues which were formerly just beyond its reach, leaving acceptance of Hadoop computing to find its niche. Genomics comes readily to mind in medicine. But already a quite different sort of use has appeared in statistics. Statisticians have built up a whole structure around the estimation of large numbers by careful examination of small samples. The science of such approaches is the science of carefully selecting representative samples of a predetermined size, measuring their contents, and then extrapolating the size and composition of the original. Quite often, more time and expense was devoted to assuring the representativeness of the sample, than was spent extrapolating the answer.
Almost overnight, that whole approach has been swept away. With fifty thousand computers, it is easier just to count the whole thing than to bother with samples. The interesting thing for medicine will be the immediate reconsideration of subsets. When a study is conducted, let's say to see if a drug helps high blood pressure, a lot of data is collected. Regardless of whether the drug helped high blood pressure or not, it is possible to see if it helps the blood pressure of Hispanics, or of Chinese, or young women, or old men, or people with diabetes, or, well, you get the idea. In statistics, it is assumed something is true if there is a 95% chance it is true. But 5% of the time, or one time in twenty, it just happened that way by coincidence. So, if you go on splitting the data into a hundred pieces, it will appear to be true in five of them, when it was really only due to chance, and maybe wasn't true in any of them. That error, which is very common, is eliminated by measuring the whole experimental group instead of taking samples and extrapolating from them. So, the long and the short of it is a whole profession of sample analyzers is now out of a job, while the amount of false information is greatly reduced. Now, we can start to see the power of Hadoop emerging, although it is too soon to say what it will be used for.
Before the First World War, it was common for prosperous families to have two houses, like migrating birds. There was the big house in center city and a second place to go in the summer to get away from typhoid and malaria. In the early days before municipal water departments, sources of clean water for home use and sewage disposal often dictated the location of such annual migrations. In time, a wider variety of destinations appeared. Summer arrangements might be a summer cottage on a lake or a mansion in Bar Harbor. Friendly local Indians and good land for fresh vegetables or milk cows made an attraction. Usually, there was some sort of recreational attraction, perhaps a summer hotel where the family went every summer, located along a railroad for easy commuting. Along the East Coast, it was common to own a beach house along the Jersey shore, and for fashionable people, it was common to have a summer place along the Main Line. Germantown was the first summer colony, started by the Allen family and soon followed by the Chews at Cliveden, who also had a house on Third Street next door to George Washington, and to Powell, the Mayor of the city. There were Germans in Germantown, of course, but they were not in the same circle, any more than the "permanent residents" of the New Jersey barrier islands mix in with the "summer folk", today. If you look at the big houses along Spruce and Pine Streets, you will see little neighboring houses in the next-door alleys. Sometimes these little houses had three rooms on three floors and were called "Father, Son, and Holy Ghost" houses. Sometimes these houses were for servants, sometimes for local tradesmen.
The implication was that if you had two houses, you must be rich. That's sort of true, but lots of families in Philadelphia had lived in the region for many generations, and had accumulated lots of real estate for the various cousins of a shrinking family. In a sense, a greater portion of Philadelphia savings was locked into this real estate, than in other cities. And there were quicks. One of the traditions of the Philadelphia political machine was to have a dinky little house in some working-class district, but a very large and opulent place at the shore, perhaps in Longport, N.J. It probably isn't necessary to describe the reasons for this.
It later turned out that the geographical size of the city was to make a significant difference. In a small village, there is little difference between the town and the countryside, but after a while, significant differences in taxes appear, particularly when our system of government begins to encourage federal, state and local taxes to become the legal or traditional province of a particular level of government. The tendency was for taxes to focus on government services from which people would be reluctant to flee. If people lived in the city for the schools, school taxes were applied to real estate. The federal system of dependence on income taxes, on the other hand, reflected an indifference to where you happened to live. This started a cat and mouse game among municipalities, states and counties, which unfortunately contributed to the direction of tax flight, when there appeared to be a reason to flee.
|
|
Depression of the 1930s
|
During the Depression of the 1930s, that new threat appeared. Maintaining two houses soon seemed a needless extravagance, and it made sense to sell one of them. At that point, a choice had to be made, and the advent of the automobile made it entirely practical to live in the suburbs and commute to the city. A small town found it made little difference, but a medium-sized city gave the suburbs an attractiveness. In the case of Philadelphia, the city-county consolidation widened the geographical reach of city taxes, before taxes and land values reached the inviting cliff where they abruptly fell to rural levels. By that time, clean water and friendly Indians were less important than taxes and upkeep. Some people had very bad luck in the Market, sold the big house, and moved into the little house behind it. More often than not, the big, house was converted into apartments or just plain torn down, or else it fell into shabbiness and the whole neighborhood deteriorated. After twenty years, everything got so bad in Society Hill, that you could buy any one of the mansions for $1500. It was a spiral, of course, and although you could buy a house for $1500, and resell it twenty years later for a million, during the intervening twenty years it was worth your life to go out on the street at night. Or so it seemed until Richardson Dilworth built a brand-new mansion on 6th Street, and Society Hill started its revival. So, with this little bit of real estate history, you ought to be able to summon up the tolerance to smile, when a senior partner of a law firm at a party tells you, "Philadelphia declined because everybody had two houses, and sold one of them." Not exactly everybody, but mostly everybody in the leadership did.
|
|
Richardson Dilworth
|
In fact, that was seemingly true for everybody, because the cohesiveness of Philadelphia culture led the followers to follow. But there was the next stage, after that. Bargain hunters found their bargains, word spread among immigrants from the South, and mansions turned into slums. To some extent, this migration was balanced by a white migration to the South, seeking cheap land and fleeing expensive union labor. Before long, air conditioning made this a natural, bearable counter-migration. In colonial days, just about everybody had a summer house for mainly health reasons, but now there was a new force causing people to relocate entirely in the suburbs. The tax cliff created by the city-county consolidation artificially raised city land values in anticipation of expanding settlement. It suddenly became cheaper to relocate or rebuild an entire facility just over the city/county line, in accordance with newer concepts of one-story buildings instead of three-story factories near a waterfall. And then a new way of life grew up around this necessity, with only the leaders returning to the city for banking, clubs, and opera "during the season". Invisibly, sanitation and air conditioning had removed the economic reason behind the former social structure, but permanent Philadelphia residents continued its customs while the Gilded Age was invisibly making it all a little silly. But hit it with depression, ruin the industrial base supporting it, and then watch it disintegrate. Housing patterns didn't cause the problem, but new ones certainly made it hard to recover the good old ways, once they disappeared.
This study of Health Savings (and Retirement) Accounts was begun thirty years ago, and with increased intensity in the past five years. During most of that time, paying for health costs was the central concern. Paying a big chunk of health costs would be an achievement, paying for it all would be an impossible dream. Therefore, paying for the whole healthcare system became a goal of my proposals -- to extend the duration of the compound interest generated. If it fell short, well, it paid for a big part of it. Either way, we could afford to leave Medicare alone. But once Medicare came into focus as the main impediment to solving an even bigger problem for exactly the same age group, "saving" it becomes a relatively smaller issue. There had to be some money left over for retirement living, which meant all of Medicare must first be covered, and then, new revenue must be found. The quality of care must not be injured, and -- most of all -- public opinion must be re-directed. This is a specialist's game, but the public is now the supervising coach. Whether they realize it or not, a dependable agent is what they are going to need. And the agency has a long history of imperfection.
The New Goal: Legitimate Healthcare, plus a modest retirement.
|
|
|
Resource Assessment. Adding up all the other economies of Health (and Retirement) Savings Accounts, but now also including the retirement costs, the most optimistic goal is that
HRSAs might pay for substantial health costs, and some but not all retirement costs. Any politician who promises more is counting on a research miracle curing one or more expensive diseases. And the warning is: you will probably get less. Much of the shortfall comes from difficulty stating a "decent" retirement payment which would satisfy most people. That's enough for a Trappist monk is not enough for a movie star, and what will be called decent in 60 years is pretty hard to say. So the most we should promise is
healthcare plus some retirement; supplement more generous retirement as you are able. Even promising that much is a stretch, but is certainly superior to healthcare plans without the discipline of individual ownership. Unfortunately, it forces the individual to some choices he must make for himself, versus allowing some big anonymous corporation to do it all for him at a hefty markup. Let's specify the two big dangers he must navigate:
Imperfect Agents Theoretically, the best result anyone could provide would be to give a newborn baby a couple of hundred dollars at birth, let a big corporation do the investing, and pay a million dollars worth of bills over the next ninety years on his behalf, at no charge. The long investing period would provide some astonishing returns, and it would be entirely carefree for the customer. But that really overstates things quite a lot.
Unfortunately, experience over thousands of years has demonstrated agents eventually extract much of the profit for themselves. When they form large organizations with a business plan to maximize profits, the plan becomes institutionalized. Countless kings have been known to shave the edges of gold coins, even more, have been found to have employed inflation of the currency to pay their own bills. Investment managers are almost invariably well compensated, usually for mediocre returns to the investor. William Penn, the largest private landholder in history, was put in debtors prison by his wayward agent, as was Robert Morris, the financier of the American Revolution. Whole-life insurance companies are the closest approximation to an agent for a Health Savings Account who might propose to get paid a level premium for decades before paying out a limited benefit for a dead client. They seem to survive by promising a single defined fixed-dollar benefit and counting on inflation to work for them as it does for dictators, overseen by a politically appointed insurance commissioner. Unfortunately, they have the moral hazard of falling back on other surviving competitors to bail out bankruptcy, and the political hazard of trying to force premiums downward for the taxpayer without any reliable benchmark. Just how much they have been rescued by lengthened longevity is something only an actuary knows. Long ago, the situation was summarized by the question, "And where are the customers' yachts?"
Inexperienced Solo Management. If Warren Buffett had an HSA, he would have no problem managing it, and neither would a great many other savvy folks. The problem is to make the management so simple and standard that expenses can be kept low without injuring investment returns, for the average citizen. This consideration almost drives the conclusion that lifetimes would be best divided into at least three component parts, with benchmarks and averages published more regularly, since the medical and beneficiary problems divide into the same three (childhood, working age, and retirement) components. It begins to look as though a new profession of fee-for-service advisors needs to become educated and distribute themselves widely, perhaps in local bank branches, and they must develop a professional ethic of fiduciaries. As will be described in later sections, the need is for the income stream at least to be kept in balance with the probable expenditures, adjusted for inflation or deflation -- and volatility. It is not to achieve the maximum possible revenue return, regardless of risk. That is to say, the purpose of the HRSA is not to make as much money as possible, but to be sure as much medical need as possible can be provided by the revenue available. Let's put it all in a nutshell: There's a big difference between designing a system to cover a public need inexpensively -- and designing a business model to make a profit. But that's not nearly as big a problem, as doing both at the same time, because it tempts the agent to be too timid.
If you spend too much too early, you won't have anything left for later.
|
|
|
After Assessing Obstacles Comes Strategy. Most HSAs make cash payments with a debit card compatible with long-term passive investing (utilizing total market index funds) by staying within the stream of cash deposits, on behalf of inexperienced investors and for otherwise unevaluated accounts. If deposits fall, or expenses are unexpected, they may need reserves. Theoretically, a single investor with a single advisor may reduce this need and improve the overall return. However, there's a technical problem: the earning period is not the first stage of life; it's the second, following nearly a third of life in childhood and educational dependency or debt. Health expenses in the childhood third of lifespan may be comparatively small, but the earning capacity of children is essentially zero. This unconquerable fact leads to splitting investment considerations into three stages, the first and last thirds subsidized by the middle one. The result is, two systems feeding off the middle third in opposite ways, requiring opposite approaches. Somehow, it must all come out in balance at the end. And remember, it starts with a deficit in the obstetrical delivery room unless we re-arrange something else. That's the biological situation, against which financial systems must lean their weight. Therefore, there is a need for different agents for different age groups. This has not yet been fully worked out, so there is a constant need for transferability of accounts between agents.
Clinton Health Plan: Promises Broken?
GEORGE ROSS FISHER
AEJ March 1994, Vol. 22, No. 1
There is growing recognition the Clinton health plan bears little resemblance to the Clinton health speeches. I intend to respond to the program chairman’s instruction to discuss the Clinton plan, as leaked in a 250- pages documents to Democratic leaders. But, I must state this: just as the leaked Clinton plan bears no resemblance to the Clinton speeches, it is also likely the Clinton plan is only a tool, not a blueprint, for the Clinton strategy. The written Clinton plan reads like a deal-making machine. It is filled with quid pro quo, with veiled threats for non-cooperation, and with hints of possible rewards for interest groups who fall in line. Many proposals are made, but in politics, it is, of course, not necessary to push all of them with equal vigor, or any vigor at all.
Distorting the National Incentive System
A number of large corporations have been unsuccessful competitors in recent years, chief among them is the auto industry. Unless failing firms reduce surplus capacity, corporate raiders will reduce it for them. The chief response has been to offer early retirement to older workers.
Because health insurance in America has an unfortunate linkage to employment, it has been common to promise to pay the health insurance premiums for early retirees until they reach Medicare age. The promise is, of course, a blank check, and fair accounting of it nearly wiped out the net worth of many large but essentially failing businesses.
The Clinton proposal would lift this burden from the back of the industrial failures to keep them alive a little longer. The rest of the population will pay for this in one way or another, depending on how the other deals are made. Of one thing you can be sure: every man, women, and child are not going to smoke 16 packs of cigarettes daily to pay for it with tobacco taxes. And, if you suppose $234 billions of waste, fraud, and inefficiency can be wrung out of Medicare, you can have it on the word of the world’s chief Medicare hater, me, such an idea is either fanciful or demagoguery, depending on your political party.
Now, the news of the early retiree swindle was leaked to the press by a Democrat spokesman, so we can hope the real Clinton strategy is to broadcast the promise but try to make it look as though Republicans in the Senate were the ones who killed it. If it should unluckily pass, there will be highly undesirable consequences. Chief among them, of course, is the incentive of rewarding failing businesses by taxing successful ones. Successful growing businesses, to underline the point, are not retiring people early, they are trying to hire extra employees.
Intergenerational Equity
The second incredible consequence of the early retiree deal is to cripple the stated goal of the program, which was to ensure the uninsured. You would think the program would lower insurance premiums for people who are typically uninsured; unfortunately, the proposal is to balloon such premium by 500 percent.
To understand the issue, you need to know two things. First, most people without health insurance are young. Second, health insurance for young people is cheap, unless tinkered with. The Clintons tinker, all right, using something called “community rating.†Community rating is charging everybody the same premium, in spite of knowing the true cost for a person age 25 is only 20 percent of the true cost of someone aged 55.
Where in the world did this idea of community rating come from? Let me tell you. First and foremost, it reduces the cost to the government of picking up the early retirees. It is beyond my resources to calculate the relative cost of the two items overall (young uninsured versus middle-aged retirees from mismanaged businesses); but, it looks likely mismanagement costs the country more, even in the short run.
You might as well know some more. Until recently, the dominant form of health insurance was Blue Cross, and Blue Cross always used community rating. I suspect they were responding to union negotiations which tend to offset health insurance fringe benefits against hourly wages in the “pay packetâ€. It does not matter; Blue Cross dominated the scene with community premiums. Eventually their competitors, notably the HMO’s learned how to enroll younger subscribers selectively and take the resulting profit for themselves. First, the Blues were left with sicker older subscribers and got in so much financial trouble their premiums had to skyrocket, causing them to spinal again into still more loss of business. And second, states like New York, Massachusetts, and Vermont got themselves into trouble by passing a mandatory community rating law, which was nicknamed in the legislative corridors the Blue Cross Rescue Lawâ€.
Under this new law, the New York insurance department set the premium for a 30-year-old at $7800 per year for a family plan. Keep that figure in mind when you learn the Clinton plan proposes a national premium of $4200. I guarantee any state government with a disparity like that is willing to suspend disbelief if their dream is to redistribute costs to other states, particularly to young people in some other state. Young people better look out for their interests.
Yuppies do seem to be waking up. It is a universal truism among Yuppies to expect to be cheated by Social Security when they get to the right age. So, it should be a fairly easy belief, however attractive the Clinton health plan may be for their parents, that it too will all go up in smoke for baby boomers when the time comes. Mr. Clinton minimizes the cost and asks Yuppies to think ahead. It will be most unfortunate for his plan politically if they do.
What young people need is a credible guarantee. It would be even nicer if their guarantee could be put away at compound interest and actually reduce the lifetime cost. Time prevents a digression to the Health IRA proposal, which would do just that. What is central to an economic discussion to Health IR proposal, which would do just that. What is central to an economic discussion is the principle of necessary private ownership of policies. What is true of Social Security is also true of the health scheme the federal government simply cannot invest money. Senator Moynihan of New York once blew the whistle on the way purchasing U.S. government bonds for Social Security Trust Funds merely underwrites the federal deficit. The U.S. government can scarcely be expected to buy bonds of foreign governments. And, if it bought a trillion dollars' worth of common stock, we would quickly have the Communist ideal of government owning the means of production.
Government is inherently incapable of being an investor on behalf of its citizens. Although the government puts a spin on it, we are necessarily facing another “pay as you go†plan in the Clinton health proposal. Even “pay as you go†might be tolerable if it were based on present value accounting, net of inflation. Such accounting is improbable since the Clintons are already forced to pay for present health care in one scheme by postulating future reductions ($200 billion from Medicare) in another.
Let us return from investment digression. Young people are to believe community rating is designed to spread the risk of the unfortunate sick. It is not. Like “pay as you goâ€, it is intended to make young people subsidize the payoff of major corporations for making management blunders, and politicians who court their support.
The nature of required support is becoming clearer. For the past six months, the medical community has watched a remarkable onslaught of demands from insurance companies for them to participate in the price and utilization control system known as “managed careâ€. The insurance companies are careful to explain they are only responding to intense pressure from employers. The force of that was brought home to me when I recently addressed the Chamber of Commerce of Philadelphia. In a day-long symposium on health care, the representative of the hospital and I were excluded from the room while the chairman of the meeting lectured the corporate benefits managers for two hours. Who started this rumpus, which is obviously timed to coincide with the Clinton health speeches?
Well, obviously, I do not know. But, Joseph Califano would certainly be on my short list of suspects, because the auto and steel industries have been so outspoken for so long. And, they needed a trusted insider in the Clinton campaign. Potentially, however, there is grim pleasure in imagining how angry steel and auto moguls will be when nasty gridlocked Congress deletes the early retirement deal in a House-Senate conference committee closed session.
Individual Rather than Company Ownership of the Policy
For quaint historical reasons, those conference committees on health will be made up of the leadership of the Senate Finance Committee and the House Ways on Means Committee, the supreme court of national taxation. Now, Sherlock Holmes noticed it was particularly a dog did not bark, and the Clinton proposal has one big omission, too. He does not touch the $48 billion annual tax entitlement of wages paid in the form of health insurance premiums. Even without the revenue loss, this is the heart of the artificial crisis which President Clinton proposes to solve.
As you know, it got started when Henry Kaiser offered fringe benefits as a way around wartime wage controls, and the War Production Board felt income taxation would expose them as disguised wages. Regardless of history, the tax-exempt feature of employer-paid health insurance premiums is the main, or possibly sole, reason employer-basing is the main form of American health coverage. Consequently, along with getting divorced by a working spouse, it is the main reason losing your job means losing your health insurance.
For years, the Census Bureau found roughly 37 million people lacking health insurance every time they conducted a spot check. It took a while before they asked the longitudinal question of how long the individual had been without coverage. It took a while before they asked the longitudinal question of how long the individual had been without coverage. It turns out 28 million of the 37 million can be accounted for as partial persons, constituted out of a pool of 68 million who lack insurance for an average of four months during a two-year period. Leaving aside the quibble that treatment for most medical conditions can be deferred four months, it emerges our problem is not what we thought it was. More or less, permanent lack of coverage is found in 9 million people, most of whom could probably be fit into Medicaid. The rest, having a far more pervasive if a less severe problem, could be cured of their difficulty if the employer turned over the ownership of the health policy to the individual employee, never mind who paid for it.
What is the slogan to be derived from this? Must break the link between health insurance and employment. In my opinion, we do not need to rearrange health care to do it. Just declare as of the signing of this Act, health insurance belongs to and can move with the person it covers. Never mind who writes the premium check.
Cost Shifting
Speaking of national tax policy, the contentious 1993 budget bill, passed by only one vote, purported to contain $250 billion in expenditure cuts; $50 billion, or 20 percent of that, was to come from reducing Medicare, and $42 billion was from reductions in hospital expenditures. Well, guess what. Hospitals will immediately react to those federal revenue losses by raising prices to the other clients in the hospital, mostly paid for by employer group health insurance. In this way, a $50 billion cut in expenditures is instantly transformed into a $ 50 billion tax on business.
Now, the Clinton health plan proposes to pay for several hundred billion in new programs by a new $238 billion cut in Medicare and Medicaid. To the extent this is not just “fantasy†in Senator Moynihan’s phrase, it will effectively be a new round of taxes on business. More likely, the Medicare squeeze-process has already been pushed past the point where the Medicare program can survive if it is seriously extended. Since the collapse of Medicare is more than any political party could survive, the absolutely certain outcome is a larger deficit, or more taxes, or both.
And even if that does not work, am I being extreme in saying it will endanger the health of the nation?
Bringing Welfare recipients into the Workforce
There is one legitimate social argument for risking massive disruptions of a good medical system. Every welfare program has the same difficulty that the person who leaves welfare may then be worse off financially, even though he takes some low-paying job. In our system, Medicaid medical coverage is an important asset for the welfare recipient, particularly pregnancy coverage for young women. A young person's taking marginal jobs may gain a sense of pride, but marginal jobs seldom give out health insurance. It thus appears attractive “to break the chains of welfare†by giving subsidized health insurance to young persons in low-paying jobs.
People who use this argument usually refuse to accept identical logic with regard to repealing the minimum wage laws so their sincerity may be open to challenge. However, the main problem created for health care reform is equalizing the discrepancy which forces the benefits package of the new insurance to match that of Medicaid, unless the choice is to make Medicaid coverage worse. Generous benefits packages delight doctors, of course, but using a politically correct benefit package for Medicaid makes the whole Clinton scheme too expensive for governors and legislatures even consider.
By this circuitous route, we get to the idea of merging Medicaid with the mainstream of health insurance. Once merged, legislatures do not have to pay for fixing the Medicaid mess, a business will. Business leaders may now imagine they have an inexpensive bargain since they already pay taxes which go toward Medicaid costs. A small price to pay for getting rid of the early retiree burden, no doubt.
Business leaders are so utterly wrong about the future size of this welfare cost, it is not acceptable to let them stew in their own juices. The country cannot afford to let them ruin their companies that way.
Rather than digress into political solutions at this convention of economists, it seems better to propose the legitimate social and economic goal of reducing the barrier for welfare-leavers only. Or some extra benefits for welfare leavers could center o pregnancy coverage, the main medical issue which would affect employment choices (as drug abuse and AIDS, aimed at hopeless cases, probably would not).
Risk Pooling, Reinsurance, and Alliances
The problem of uninsurability for medical reasons positively cries out for some form of risk pooling. Medium-sized business probably would be well served by reinsurance, while small business groups and individuals might be better served by assigned risk pools or joint underwriting. Although these approaches are thoroughly understood and tested within the insurance industry, the Clintons heard about them from Alain Enthoven but propose something quite different.
The contrivance is called an alliance; it is really a forced merger of insurance companies, with a political board of directors and an enormous bureaucracy. Since the solutions to the uninsurability issue are so straight-forward and time-tested, one has to suspect the true main purpose of the alliance is to supervise price controls.
There is a saying among manipulators that the way to hide something is to put it in the next-to-last paragraph, which careless people often do not read. At approximately that point in the Clinton, Health Proposal is a description of the transition plan-how the country is to get from here to there. It centers on the risk pooling idea, acknowledging to Alain Enthoven it has been considered. Perhaps a way can be devised to get into the transitional stage and never go any further. The first Tuesday in November 1994 seems like an appropriate time to start a mid-course correction.
Redefining the Concept of a Hospital
The Clinton plan proposes to transform hospitals from revenue centers to cost centers of “alliances,†using the Kaiser model, we presume. Unfortunately, the rest of the country does not have the luxury of choosing where to place hospitals which fit into the Kaiser system of doing business, avoiding other areas less adaptable to that system. Many hospitals are run by churches, many are the solitary facility in a region. Anyway, the long-term trends seem to lead in other directions.
Hospital care is moving from the center of cities to the suburbs, where it is cheaper to be but where the service mode is different. Patients with educated families and bathrooms on the ground floor can go home early, often the day after surgery; social isolates in walk-up flats need a bed in the hospital for a week. Meanwhile, continuing care retirement centers in more centripetal areas are rapidly coming to provide post-operative care “at home†in their infirmaries. These all seem desirable evolutions but it is uncertain where they will lead. Five-hundred-thousand senior citizens now live in a retirement village with infirmaries, but how far that trend will go, and what part of the urban landscape they will occupy in unclear. If you believe in market solutions, you will let this sort itself out. If you believe in central planning, you will have those consumer committees in health care alliances decide it for the country.
Copayment and Supplemental Insurance
Finally, I come to a technical blunder in the Clinton plan which could easily slip past. Almost everyone agrees partial payment by the patient is desirable, and the Rand Corporation showed evidence it could reduce overall health costs about 30 percent. The Clinton plan provides for a 20 percent patient copayment for all services.
However, patient copayment comes in a variety of forms. I want to leave you with the opinion that all copayment is a good thing, except the 20 percent coinsurance variety, which is a bad thing, or at least a delusion.
Visualize an individual’s annual health cost as a rectangle. You can shave off a part for the patient to pay from any of the four sides. At the front, you have what is known as a deductible-and it is a good thing because it reduces the administrative cost of petty claims. At the back, is balance-billing, which serves as a safety valve for luxury demands and helps adjust imbalances between premium collection and inflation or technology advances. Balance billing is a second good way to involve the patient in his costs.
But, shaving 20 percent off the longitudinal side is a dumb idea. It doubles the administrative expense. It is only a great favorite of insurance marketing departments because it reduces the premium exactly 20 percent, whereas it requires an actuary to tell how much the other types of copayment are worth.
However, there is that darned supplemental insurance, the “65-special†or whatnot. It can be purchased for, guess what, 20 percent of the cost of the main policy, and you are, thus, back to total insurance without any patient copayment at all. You also then have two insurance policies instead of one, with any patient copayment at all. You also then have two insurance policies instead of one, with double overhead and double confusion. I can understand how people on a fixed income wish to budget their medical costs. I hate to forbid anything by law which does not hurt someone else. And yet, it is quite clear the purchase of supplemental insurance to cover cash obligations will utterly defeat the cost-consciousness of patient and provider.
So, as this health care debate goes on and on, remember something. Do not outlaw supplement insurance; outlaw 20 percent coinsurance provisions in the main policy. But, do it without damaging front-end deductibles, or back-end balance billing.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
