Single payer by inches?

File this under Half-baked Ideas and What's a Blog For?....

Dave Anderson, Louise Norris and I were noodling about stability funds, reinsurance, high risk pools, and the probably minuscule chance that Republicans would demand something acceptable in exchange for coughing up some federal "stability" money for states without repealing the ACA when a thought emerged...

What if the federal government undertook to foot the bill for all truly catastrophic claims -- say, those over $200,000 a year -- for all insurers, paying Medicare rates for care?

For hospitals and doctors, that would mean status quo ante payments for patients already on Medicare; a severe haircut for patients covered by commercial insurance; but a corresponding bump-up for patients on Medicaid. The rate (Medicare plus or minus a bit) could be calibrated to net out even, or a bit less than even in exchange for giving providers the certainty of getting major claims paid.

The tradeoff would be reduced rates for commercial insurance in exchange for a universal tax increase -- say, added to the Medicare payroll tax. In FY 2015, the 2.9% Medicare tax yielded $234 billion, so perhaps every additional 1% would yield another $80 billion, adjusted for growth and inflation.  If the reinsurance brought down commercial rates, that should translate into lower premiums and out-of-pocket costs for employees and/or higher wages.

Who might suffer "rate shock" under the Affordable Care Act?

Avik Roy's much-debated screed implying that the launching of the ACA exchanges will trigger widespread "rate shock" among legions of healthy young people who could previously by insurance more cheaply relies on misleading comparisons, as Ezra Klein, Jonathan Cohn and Rick Ungar charged. None deny, though, that the price of the most minimal available insurance will rise for a subset of healthy young adults

In an essay suggesting that rate shock is real, Will WIlkinson recounts that for a brief time a year or so ago he was paying about $100 a month for a catastrophic plan that he found through the Freelancer's Union (presumably a more honest broker than the scammy online broker Roy relied on).

I clicked through and tried the union's plan-finder with random zip codes in the northeast, south and west; it wasn't until  my fifth try that I found a zip code -- 27108, in Winston-Salem, NC -- in which a UnitedHealth quote was available. If I were my 22 year-old son, I could get a plan for $79 a month with a $10,000 deductible and 70% of expenses paid after that, with a total out-of-pocket expense cap of $15,000 (except that if I were my son I couldn't, because he had hip labral surgery this year, which would doubtless jack up his rate if he were searching now -- see Ezra Klein on this.) For $105 per month, I (or 22-me) can get the same deal with a $5,000 deductible and $10,000 annual cap on my out-of-pocket expenses. (Of course, that's a posted plan from just one provider in one market, and comparing ACA offerings to the current individual market is not just comparing apples to oranges, but 50 different fruits to hundreds of other different fruits. But the offering is roughly in line with what Roy found on eHealthInsurance.com)

Goldhill's health care fix: cure worse than disease?

David Goldhill's massive case for a radically "consumer-driven" health care system -- which I've always considered the worst, most Darwinian form of health care delivery -- deserves respect. I still believe that the incentives in a system where we each paid out of pocket for all medical expenses under, say, $50,000 would be even more skewed than those of the current system. But Goldhill's willingness to rethink the entire system of health care delivery raises several crucial and sobering points and claims worth thinking about, e.g.:

• While current U.S. health care spending may be more wasteful than that of any other developed country, health care inflation in countries with better systems, such as Canada and France, is almost as bad as in the U.S. No current system is controlling costs effectively. (Though Goldhill may overstate the equivalence. From 2000-2005, he claims, U.S. per capita health care spending grew 40% vs. 33% in Canada. That's not an insignificant difference.)
  
• The skewed incentives in the U.S. (and presumably other industrialized) systems go beyond those caused by fee-for-service; incentives are distorted primarily by the fact that we the consumers are not the "customers," i.e., the payers to whom the service providers are accountable.
• Health care is the only industry in which technological improvements lead to higher rather than lower costs.
• Health care is the only industry in which pricing is almost completely opaque (see Andrew Sullivan's view from your sick bed series, in which several participants have detailed the impossibility of getting pricing information in advance of service).
  
• In those few health care markets in which insurance does not kick in -- such as laser eye surgery -- competitive pricing and outcomes information have become a norm.
• Almost all of us are paying more in our working lifetime, via Medicare taxes, lost wage increases and co-pays, than we would likely spend on health care out of pocket, with catastrophic insurance.

Goldhill envisions a system in which we would each pay modestly for megacatastrophic insurance (covering expenses over, say, $50,000), make mandatory contributions to an HSA for major health care expenses, and pay smaller expenses out of pocket. The government could pay for the poor's catastrophic premiums and HSA contributions at relatively modest cost - less than that of Medicaid. Charity care would "go away." Doctors, hospitals, and specialty care facilities unleashed to compete with hospitals would be accountable to each of us for outcomes and cost.

What's wrong with this picture? I've always assumed that, faced with major surgery, it would be brutal to be forced to choose among competing surgeons based on cost and outcomes data. That's not necessarily so, if transparent data were to become the norm. Nonetheless, I think we'd all be faced with untenable cost-benefit calculations. A quadruple bypass or an operation for early stage prostate cancer may or may not be the best course of action for different patients. Should the prospect of spending $10k or $40k out of pocket tip the balance? Should such decisions be easier for the wealthy than for the middle class? (The poor would presumably be subsidized more heavily.) Not in what I would consider a civilized society.

As a counter-example to Goldhill's portrait of the laser surgery market, consider dental care, for which very few have insurance. The market is opaque and expensive, with no good outcomes data. There's nary a dentist who will not recommend more x-rays than you need. And in America today, poor teeth are a class marker; the poor generally simply don't get dental care.

Goldhill argues that bureaucratic cost controls can't control prices with the efficiency that a competitive market does. That may be true generally, but the proper comparison for health care is not with other consumer markets. The health care market is in some key ways naturally opaque. We'd be better off knowing what different surgeons charged for a prostate cancer operation. But we often can't know what we'll gain by getting the operation-- or what we'd lose (i.e., potentially, our life) if we abstained. Cost should figure into that equation -- if under certain circumstances "watchful waiting" or chemotherapy is as likely to have a good outcome as an operation. No provider should have an incentive for doing the more expensive thing. But cost shouldn't determine the individual's choice.