Making healthcare worse

Opinion pieces and speeches by EPI staff and associates.

[ THIS ARTICLE ORIGINALLY APPEARED IN THE SEPTEMBER/OCTOBER 2006 ISSUE OF CHALLENGE MAGAZINE, vol. 49 no. 5. COPYRIGHT © 2006 BY M.E. SHARPE, INC. ALL RIGHTS RESERVED. NOT FOR REPRODUCTION. FOR INFORMATION ON HOW TO OBTAIN THIS ARTICLE, PLEASE CONTACT M.E. SHARPE AT 914.273.1800 OR WWW.MESHARPE.COM . ]

By Elise Gould and Max Sawicky

In the provision of affordable, adequate health insurance, Benjamin Franklin’s adage applies: “If we do not hang together, we will surely hang separately.” Meaningful insurance requires that many diverse persons join together in “risk pools” that spread their future health-care costs over the healthy and unhealthy, rich and poor, young and old. The Bush administration’s major proposals for “consumerdirected” health-care reform would undermine the fundamental objective of risk pooling. Although purported to be effective instruments of cost containment, the proposals would not combat the principal sources of growing medical expenditures nor the rise in the number of people who lack health insurance.

In the United States, risk pooling is accomplished primarily through the use of employer-sponsored group health insurance plans, and secondarily by the principal federal programs of Medicare and Medicaid. In the name of individual choice and cost containment, all three vehicles are under attack.

This paper discusses administration proposals to encourage highdeductible health insurance plans, combined with health savings accounts, to facilitate the formation of “association health plans,” to provide a tax credit for the purchase of individual health insurance, and to reduce spending growth in the Medicare program.

Critics of our current system claim that consumers receive too many medical services with low or negligible value because their insurance shields them from the prices of the services they receive. In other words, they feel that public policies cause people to receive too much medical care and to carry too much insurance.

Our current health-care system does have genuinely wasteful expenditures, but the president’s proposals would do a poor job of reducing them and may end up exacerbating them. Moreover, the Bush plan would leave most health-care spending beyond the reach of realistic consumer decisions. To the extent that consumers are forced to make spending decisions, they may forgo care that saves money in the long run.

In addition, the Bush proposals accomplish little to nothing at all in improving access to adequate health insurance for the 46 million uninsured Americans. Our medical bill far outweighs that of any other country, and yet we are the only developed country that leaves a large share of the population without insurance.

In sum:

• No scheme for sensitizing consumers to their “first dollar” of health-care expenditure addresses where the vast bulk of healthcare costs lie—in big-ticket expenditures that exceed the ranges where deductibles, copays, or coinsurance might apply and their tax deductibility makes them poorly suited for cost containment

• Health savings accounts (HSAs) would raise the costs of insurance for those most in need of it by facilitating the flight of relatively young, healthy persons from group plans

• Tax credits associated with HSAs are insufficient to cover the uninsured

• Association health plans would be infeasible for many who now currently lack health insurance, are based on unstable risk pools, and blatantly disregard state regulations that protect consumers

• Cuts in Medicare and Medicaid benefits would leave families at the mercy of prohibitively high costs for health care.

Elise Gould and Max Sawicky are economists at the Economic Policy Institute in Washington, D.C.

[ POSTED TO VIEWPOINTS ON OCTOBER 19, 2006. ]