Another Bush Insurance Racket
Today White House economics adviser Allan Hubbard uses the New York Times op-ed page to make the administration’s familiar case for gutting traditional, comprehensive health insurance and replacing it with catastrophic-only coverage, preferably with the help of tax-free health savings accounts.
If you’ve read this space before, by now you know the biggest problem with such a transformation: It would transfer the burden of medical expenses from the healthy to the sick…
…which is precisely the opposite of what many of us believe insurance is supposed to do.
Hubbard insists this concern is overblown -- because, with catastrophic insurance, "the low premiums compensate for most, if not all, of the policies' higher deductibles":
Consider the following two real policies offered by the same insurer in Columbus, Ohio, for a healthy family of four earning $50,000 a year. A Health Savings Account policy has a premium of $3,750, a deductible of $3,000, and co-insurance of 20 percent up to a maximum of $5,000. Meanwhile, a traditional Preferred Provider Organization policy has a premium of $5,800, a deductible of $1,000, and 10 percent co-insurance up to a maximum of $2,000.
If the family's medical bills totaled $1,000, they would save $1,900 by choosing the Health Savings Account policy. Under the president's policy proposals, the savings would jump to $3,200. Even if something catastrophic confronted the family with $10,000 in medical bills (fewer than 20 percent of families face costs this high in a year), under the current law, the family would pay only $400 more by choosing the Health Savings Account rather than the P.P.O. Under the president's proposals, they'd save $1,600. That's why 40 percent of these Health Savings Account-based policies are purchased by families with incomes lower than $50,000.
Hmmm. Let’s look more closely at these numbers. Hubbard's basic point here is that even somebody with relatively high medical costs -- in this case, a family with $10,000 in annual medical bills -- won’t be much worse off with an HSA plan. By his calculations, the family would owe just an extra $400 a year more than they would if they had bought the more traditional (PPO) plan.
That seems to be roughly correct, if I’ve calculated correctly. (Warning: Numbers ahead.) If have traditional insurance, your medical spending for the year would be $5,800 in premiums, plus the $1,000 deductible, plus $900 from the 10 percent cost-sharing on everything over the deductible. That comes to $7,700.
With an HSA, your medical spending for the year would be the $3,750 premium, plus $3,000 in deductible spending, plus 20 percent cost-sharing on the remaining $7,000 ($1,400). Add it up and it comes to $8,150. So, indeed, the HSA plan is only $450 more. (Actually, Hubbard says $400. I’m not sure if he just rounded differently or if there are some more detailed wrinkles about cost-sharing that aren’t included in the op-ed or if I missed something about the tax effects. Or maybe I’ve just added wrong? Help welcome here.)
Of course, if you’re living hand-to-mouth, an extra $400 may seem a little more significant than it does to Mr. Hubbard, who could cover that added expense simply by spending slightly less of his apparently ample financial resources on contributions to Republican Party candidates.
But never mind that. The real problem here is that the added financial burden of high deductible insurance will cost some families a lot more than just $400.
A family in which somebody has a serious chronic disease could easily spend more than $10,000 a year. If you have diabetes, for example, not only are you paying for regular checkups and insulin; chances are you’ll end up in the hospital more frequently. And just two nights in the hospital can go well into five figures, depending on what treatments you get.
The higher your annual spending, the more the financial difference between traditional and catastrophic plans grows. The hypothetical family Hubbard cites is already approaching its maximum exposure under the traditional PPO plan. So no matter how much higher their medical bills go, the expenses they pay directly could grow by no more than another $1,100, at which point they’d hit the $2,000 limit on out-of-pocket spending.
By contrast, the catastrophic coverage that comes with the HSA has a much higher ceiling on out-of-pocket spending. Hubbard’s hypothetical family could end up spending another $3,600 of its own money.
That’s a difference of $2,500 dollars. Throw in the $400 from the original, and now you’re looking at a difference of $3,000 a year. That’s serious money, particularly if it hits you every year.
Maybe Bush and his supporters believe that’s a good thing. But, if so, they should come out and say so rather than trying to convince everybody that imposing higher cost-sharing through the use of HSAs is a good deal for people who face medical or financial hardship (or, as so often happens, both).
As I see it, Consumer Driven Health plans really are simply our parents' old "major medical" from the 50's, dressed up in fancy new (tax-advantaged) drag.
And the "promise" of consumer-driven, as actually reducing health costs, has distinct limits. If an ER doctor wants to do a CAT scan on my concussed daughter, in what position am I, on the spot, to argue either that it is unnecessary, or that a cheaper alternative (?) is better? Now, if my back is hurting, I can get on the slippery slope to a disc fusion operation--or just go to a competent chiropractor.
April 3, 2006 11:11 AM | Reply | Permalink
As to the emergency room situation, I had your exact example just 3 weeks ago. My teenage daughter was in the emergency room after a slip and fall. The doctor wanted to make sure she didn't have unknown head trama and ordered a scan. I found out 2 weeks later that cost $1,600 plus change. Nothing showed up, thank God, but I wasn't in any position to negotiate the price. Total emergency room bill, $3400. I will end up paying $2000 out of pocket. I have an HSA.
Ron Byers
April 3, 2006 12:31 PM | Reply | Permalink
The comparisons for chronic diseases are likely even a little worse, because an HSA-complementary plan is likely to have worse prescription-drug coverage than a conventional plan (or no coverage at all), which means a fast rise in out-of-pocket costs for drugs and medical supplies. (We found last year that our insuror had switched from nominal copay to a 50% reimbursement schedule, about the time our child started needing monthly antiviral protection at roughly $1K a vial.)
April 3, 2006 12:34 PM | Reply | Permalink
And how about the idiotic example of Lasik eye surgery, the claim being that since its price has fallen while not being covered by insurance, that less insurance would lower the price of other procedures. Lasik is elective surgery so of course people have the time to shop around and be more price-sensitive -- and technology has made it easier to competition to take hold. But if you're in an accident or get a disease, how exactly is this shopping around and comparing prices supposed to work?
April 3, 2006 1:00 PM | Reply | Permalink
We're having lots of fun with Hubbard over on THCB today. And it took ages for one of my lackeys to point out that this guys main claim to fame is that he was Dan Quayles Chief of Staff. So being unclear on the concept is second nature to him.
Matthew Holt The Health Care Blog
April 3, 2006 1:02 PM | Reply | Permalink
Do the HSA's negotiate costs with hospitals and doctors, the way that regular insurers do, or do you have to pay the list rates (typically twice or more than the best negotiated rates) out of pocket? This could make a huge difference.
April 3, 2006 1:09 PM | Reply | Permalink
Health coverage shoud be total at the bottom to take away all expenses, so there is no disincentive to preventive care. If most families don't need major medical why not have the government pick up that tab?
Leave the small stuff to premium-based insurance, and regulate the premium. That way insurers compete with efficiency, not claims denial, since they will have to pay all claims.
What is wrong with this?
April 3, 2006 1:44 PM | Reply | Permalink
If you are not convinced by their argument, let me try again. Let's compare PPO to a more real alternative: Having no insurance whatsoever.
If family medical bills are $1000 per year, the family with no insurance saves $5800 a year! I don't know what kind of elitist, ivy-league educated family you have, but that's a lot of money to real Americans.
Now, suppose something really catostrophic happens to the family and they incur medical costs of say ... oh ... pick a number, like, $7444.44. Most americans don't incur that much in medical costs, but even in this case, the family with no insurance is no worse off than the family with PPO.
See? The whole thing about the 40+ million americans with no health insurance is obviously a huge red herring. They're probably better off than they would otherwise be.
:)
more seriously,
1) how in the hell does "something catostrophic" only cost $10,000? i bet getting something common like a broken leg treated will cost you $5000.
2) the reason families making under $50K a year purchase HSAs is likely one of:
a) they have a crappy job and their employer is forcing them to take something like that -- if they made $100K a year, they would probably have an employer paying a good percentage of their premiums for a PPO plan
and
b) they don't have that much money, so are in a position where it makes sense for them to gamble that they won't have any major health costs in order to save some extra money, maybe so they can afford to send their kids to college when they grow up.
is that right? putting people in a position where they gamble their health?!?
the economic argument is a canard. even though you are right and win the economic argument, you are stuck in an economic argument and are distracted from the real argument. people living in a rich, advanced, industrialized nation, should not have to make bad health decisions to try to save a few bucks.
April 3, 2006 2:13 PM | Reply | Permalink
Malcolm Gladwell exposed the lie of the "Moral Hazard" in the New Yorker. (The Moral Hazard Myth.)
The patient that asks for unnecessary treatment is an extremely rare individual and the behavior is so illogical that it has a name, Munchausen's Syndrome, I believe. Even among those of us that are well-covered a significant number, including me, resist regular checkups.
The idea that people exploit health coverage inefficiently is ludicrous. If pressure is needed somewhere to reduce truly frivolous expenses it should be directed against doctors that have a side business in diagnostic machines and other pricey services.
April 3, 2006 2:45 PM | Reply | Permalink
(Actually, Hubbard says $400. I’m not sure if he just rounded differently or if there are some more detailed wrinkles about cost-sharing that aren’t included in the op-ed or if I missed something about the tax effects. Or maybe I’ve just added wrong? Help welcome here.)
Hubbard's numbers seem a bit screwed up to me. For the example where costs are $10,000, I can get a difference of $382.50 if I assume a 15% tax savings on all premiums and out of pocket costs. Maybe this is what Hubbard has done. However, if I make those same assumptions for the first example (for $1,000 in health care costs), I don't get a difference of $1,900. To get $1,900 (really $1,892.50) I have to assume a 15% tax savings on all premiums and out-of-pocket costs except for the $1,900 in out-of-pocket costs paid under the traditional plan.
That said, I don't have any problem with HSAs and catastrophic plans--they are actually a good solution for some people. However, I don't think they do anything to solve the real problem, which is that too many Americans are uninsured and too many who are insured are struggling to meet the cost of their insurance. I don't think the so-called "consumerism" of HSAs will do anything to reduce costs, since I don't believe that very many people are over-consuming health care. And, furthermore, the traditional plan already has a strong incentive to prevent people from overspending on care: after all, the covered individual is paying the first $1,000 out of pocket and then 10% of the cost after that (up to the maximum). $1,000 is a significant amount of money for a family of four earning $50,000--and they're not going to "waste" it on frivolous and unnecessary care.
April 3, 2006 4:26 PM | Reply | Permalink
One plan I discussed today with our broker was from Blue Cross. She said that you get the network discounts of the major medical plan.
MsAnnaNOLA
New Orleans, Louisiana
April 3, 2006 5:15 PM | Reply | Permalink
When two members of my family got sick in Australia, the total bill plus med's was less then the co-pay for my insurance plan. When the voters of America get over saving stem cells and bashing immigrants, gays, Iraqi's, and freedom of choice, maybe America can elect representatives interested in a real healthcare system.
April 3, 2006 6:06 PM | Reply | Permalink
Without going through all the sound and fury, and to me black comedy, of my (uninsured) treatment of a leg infection, let me merely take you to the ER where I finally was sent. Now, understand I have a strong medical background -- I like to say "I'm not a physician but I simulate them on computers" -- and knew perfectly well what was wrong and what needed to be prescribed.
What I also knew that I did not need an $800 ultrasound to rule out a possible more serious condition, but I knew why that was unlikely and I was willing to give a waiver for it. I had finally gotten into the ER ($275 visit, $250 for ER doc), and was asked, by a somewhat mystified ER physician who had already gotten four other physician calls, what I wanted done. I told him, and he agreed but felt he ought to "rule out deep vein thrombosis" (i.e., with the $800 ultrasound).
I tried to explain, systematically and scientifically, why it wasn't needed, but the pain got so bad I was reduced to gasping. No luck.
I got the hospital bill, insisted on an itemization, and found drugs that I could not possibly have been given. No recourse.
I don't have an answer, other than if I had still been with the old primary care physician who knew me well, I could simply have called him, given my tests and diagnosis, and had the right drugs phoned in. When, after two weeks, the first antibiotic hadn't cleared it up, I could have called him and gotten the second--we would have agreed on the drug to use, but I doubt there would have been any question.
Knowledge alone doesn't seem to be enough.
April 4, 2006 8:22 PM | Reply | Permalink