Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Healthcare Reform: Looking Ahead (2)
The way to make certain you have enough -- is to have too much.

HSA: The Cruz Transition Proposal

Whatever any unrelated purposes might be, Senator Cruz' compromise proposal (to merge the point-of-sales of the two partisan types of health coverage), has merit. It directs healthcare choice toward the customer, away from the public's elected representatives. Skirting the Constitution, it softens partisan issues into something both sides might accept. It shifts the marketing from the management to an outside broker. Essentially, Cruz proposes that any insurance company selling Obamacare (annual term insurance with subsidies) may also sell the Republican replacement for it. It thus allows Obamacare to continue in existence, but it also permits individuals to dump it. That leaves a lot of detail to be argued over, but at least it gives the customer a choice instead of forcing him to accept some feature he abhors, one size fitting all. Many would think this is a step forward, although it permits everyone to imagine options which may not materialize. It even permits customers to demand new features later, and some company to introduce them, without struggling over something Congress is afraid to touch. A healthcare-coverage supermarket or its electronic equivalent is what seems to be proposed.

The Constitutional Tenth Amendment gives healthcare jurisdiction to the states, ERISA and Medicare make some of it federal without saying so. In either case, it still allows some form of government to license or regulate an industry, instead of leaving it to the customer and vendor to work things out. The government might even foreswear the ability to tax it, as its own contribution to peace. In any case, it discourages the forms of government from pre-empting territory, merely in order to keep others away from it. Checks and balances do somewhat encourage unnecessary government interference, as we might as well acknowledge.

The present arrangement tends to relegate certain vital participants to a lobbying role and confers advantages to some who have excessive lobbying leverage, in this case, the insurance companies, unions, and identity groups. The ability to affect taxes and trade counts for more in this struggle than it should. Obscure alliances combine to unite school lunches with sugar subsidies on one side or the other of healthcare subsidies for the disabled. The history of this sort of thing traces back to the Roman Republic, but it need not be so flagrant and politically divisive.

Apparently, the largest unwarranted purchase of Congressional votes was by large corporations, following the example of Henry Kaiser, eighty years ago. By seeming to give health insurance to employees they retained control of it, largely abandoning control to unions between crises. In time, pay packets readjusted and it cost business very little. In return, they get two tax deductions, one of which is given to their employees, effectively leaving them with more generous wages at a lower cost to everyone except competitors, who are in turn denied equal treatment. Since essentially all health revenue can be traced to the working age group from age 18 to 64, they have control of 70% of visible health revenue, and effectively of all of it, by controlling taxpayer subsidy and bondholder leveraging. This even affects Congressional consideration of capital gains tax reduction, since this largest of tax loopholes is paid for by tax reductions. It largely eliminates the cost of health care for many corporations, reducing if not eliminating, the incentive of business to have its own taxes lowered. It's a convoluted contrivance, making a variation of "too big to be allowed to fail". It really is too indirect to address a major factor in 18% of GDP by removing 70% of the largest block of customers from ownership control, even by simply changing policies.

It is equally convoluted to describe the potential advantage of this Cruz proposal for the equally important issue of pre-existing illness. Since the average worker changes jobs every 3.5 years, and when you change jobs you must change health insurance, the accumulated pre-existing conditions rise steadily with age, as well as for biological reasons. The premiums must, therefore, rise steadily with age. When the young are then forced to subsidize the elderly, the young drop out, and only a limited age subsidy becomes practically possible. Whenever a sharp cut-off separates two forms of insurance, a steep step is imposed at the border. When the incidence of expensive disease is comparatively rare (as it is in the young), the step is so steep it causes a public uproar and healthy young people decline to participate. Since future projections suggest this J-shaped curve will get progressively steeper, the sooner it is addressed, the better. One way to do this is to combine healthy young people with the 30 million uninsureds which even President Obama saw no way to ensure, rather than combine them with the relatively healthy component of the elderly, as at present. After the foreseeable wrangles about prison inmates and illegal immigrants, the effect of this would be to suppress somewhat the age-based cost differential and increase the willingness of healthy young people to save for their own retirements. Meanwhile, science will probably push health costs toward higher age groups. The overall result would be an improvement in longevity, reducing the proportion of people willing to gamble on indefinite good health. The inherent advantage of compound interest over inflation should make trends of this sort easier to finance. Some of this optimism is conjectural, but almost all of the pessimistic alternatives are certain. I warm to the Cruz proposal.

Originally published: Thursday, July 13, 2017; most-recently modified: Tuesday, May 21, 2019