Jason Furman Wants a Different Form of Health Insurance

His hope is that this will finesse many of the problems with HSAs. I don't know. I'm not a health economist. I just play one on radio sometimes:

Washington Wire - WSJ.com : A New Prescription to Curb Health-Care Spending: One Democrat is suggesting some tough medicine: force people to pay more of the bill, and spending will go down. Of course, this is not a Democrat who is running for office. It's a Democrat who is working for a think tank. Still, the idea may be intriguing to those looking to slow rapid escalation of health spending.

Jason Furman, a one-time economic adviser to President Clinton and Sen. John Kerry, is proposing a radical solution that might have trouble finding backers outside, say, a seminar at the Brookings Institution, where it's being unveiled this morning. Furman, now director of the Hamilton Project, a think tank organized to come up with ideas for centrist Democrats, suggests that the U.S. could reduce health-care spending big time if people shared a larger slice of the cost of care. After all, when consumers know how much something costs, and when they have to pick up a hefty chunk of the bill, they are more careful about what sort of tests and procedures get ordered up on their behalf.

This is the philosophy behind Health Savings Accounts, the health plan conservatives love and liberals love to hate. With Health Savings Accounts, participants have a high deductible, meaning they pay a large share of their health costs but are covered in case something really really expensive happens, like an extended hospital stay.

The problem with Health Savings Accounts, Furman argues, is that they are risky for low- and moderate-income families. As an alternative, he proposes income-related cost sharing; a typical family would pay half of their health costs until the family's out-of-pocket costs reached 7.5% of the family's annual income. The more money you earn, the more you have to spend on your own health care before full coverage kicks in. Citing an analysis done by the RAND Health Insurance Experiment, Furman estimates this could reduce total health spending by 13% to 30% without hurting health outcomes. "Every family would have an affordable limit on their out-of-pocket payments," he writes in a paper.

Implementing this idea would be a challenge....

In an interview, he added that while no one is rushing to propose this idea today, it could gain currency as part of a larger universal coverage debate as policy makers wrestle with how to control costs. "This type of idea can come in handy," he said. "It could be part of a political compromise. But I recognize it's not something we're going to do tomorrow."

Comments

["As you know" Bob]

I'm sure that with a little work, that could be made SO complicated that it would be COMPLETELY incomprehensible.

Remind me: just WHY is it we can't have National Health?

[Jim Satterfield]

Sigh. What is it about these people that just refuses to understand the real world of average people who go to the doctor? I have symptoms. I don't feel good. I have no idea what they mean unless it's something like the flu or a cold. You know, those common illnesses that we all have some experience with? Now, I have other symptoms. Do they match the things I'm familiar with? No? Time to go to the doctor. The doctor listens to me and then checks out the simple things that he can in his office. He orders the tests he thinks are necessary. I'm not standing there making suggestions.

Then they should remember that my doctor, be they my family doctor or specialist, as well as my dentist and my pharmacist is decided by whatever insurance company the small business I work for can afford.

Yet Mr. Furman thinks that there's nothing wrong with this system that offloading some more costs on people whose real wages haven't gone up in years wouldn't fix. Yeah. Sure.

[ToonArmy]

This is just another variant of the standard "insurance as moral hazard" fallacy regarding health care.

I'm not going to go looking for a major organ transplant just because it's free or subsidized by insurance. The cost of health care isn't rising because people are hanging out at the emergency room on Friday nights because it's cheaper entertainment than going to the movies.

[AP]

Patients aren't doctors. They can't make rational choices about what care is worth. All of these programs are non-starters.

[Kathryn in California]

A good friend of mine can only get the 'high risk' California insurance: over $700/ month AND a 20% copay for a person in her 30's. (and if you think you'll never fall into this group- she used to think this too. She's as healthy as anyone, except for one minor pre-existing condition.)

But knowing that going to the hospital will cost her $1000/day somehow didn't make it less likely for her to go to the hospital when her doctor told her to.

Nor did she have the ability to phone around and get price quotes from various hospitals.

[jim]

The fundamental disagreement is not about how to solve the health care problem; it's about what the health care problem is. In general, Republicans define the problem as too much money is spent on health care, that health care costs are out of control; in general, Democrats define the problem as unequal access to health care, that too many people lack insurance.

Furman, though identifying as a Democrat, is defining the problem as a Republican. He looks to bring down aggregate health care costs. Given that definition, and a preference for market-based solutions, his proposal is not unreasonable. Whether it would work is problematic. Essentially aggregate health care costs get reduced by closing hospitals, closing laboratories, reducing the number of doctors and/or nurses and so on. It's not clear that market forces can efficiently accomplish these.

But, of course, his definition of the problem is wrong. We are a rich country. If we collectively wish to employ our riches in buying health care in the hope of prolonging our lives, there's nothing wrong with that. It's a rational thing to want. There is no a priori correct level of health care expenditure to which current expenditures should be reduced. To think so is interestingly redolent of nostalgia for central planning.

Furman needs to come back to the Democratic definition of the problem. Health care is inequitably distributed in this country. We need to find good ways to get sick people cared for without them having to apply for bankruptcy. It may well be that after the inefficiencies in the current system caused by moral hazard are swept away, we'll actually spend less. But that isn't the goal. Getting people cared for is the goal.

[anne]

Jason Furman was last found telling us how slashing Social security was actually not slashing Social Security, and here is telling us how limiting health care is not limiting health care. Were the idea of rationing health care for the wealthy so the less wealthy might have more, were the idea less absurd I might know how to work up a Monty Python routine.

Please, let Jason Furman become a Republican.

[anne]

Ah, the idea behind Health Savings Accounts, by the way, is to allow healthier persons to leave the general pool of health insurance applicants and so raise the cost of insurance. A pernicious effect for the general and hopeful insurance applicant.

Please, let Jason Furman become a Republican.

[Barry]

Anybody who writes for the editorial/comment page of the WSJ should be assumed to be lying until proven otherwise. At that point, they should still be punished, for lending even a speck of credibility to that cesspool.

[anne]

We are a country that can spend $2 trillion and more and more needlessly and tragically on war in and occupation of Iraq, but evidently we must ration health care for, well, us.

[anne]

On health care and a fierce sadness, military researchers are finding that 17.8% of returning soldiers from Iraq have suffered traumatic brain injuries. What have we done? What are we about?

[anne]

http://www.gazette.com/common/printer/view.php?db=colgazette&id=21097

April 11, 2007

Brain Injuries Plague Soldiers
By CARY LEIDER VOGRIN - GAZETTE

In what may be the largest study of its kind by a military installation, Fort Carson has found that 178 of every 1,000 soldiers returning to the post from the Middle East suffered from at least a mild form of traumatic brain injury.

"As it turns out, TBI may very well be the signature injury of this war," Col. John Cho said Tuesday while announcing the results of a 22-month study that included 13,440 soldiers. The post began screening soldiers for traumatic brain injuries in June 2005.

In all, 2,392 of the soldiers analyzed received a TBI diagnosis.

The injuries being seen among Fort Carson soldiers are overwhelmingly caused by explosions, said Cho, who commands Evans Army Community Hospital on post.

While shock waves from explosions are the leading cause of the injuries, TBI also can be caused by penetrating wounds from bullets or shrapnel....

[ken melvin]

Another contortionist in support of the private insurance industry.

[ken melvin]

Another contortionist in support of the private insurance industry.

[anne]

Interestingly, possibly maddeningly, so far no major American paper has reported the Fort Carson traumatic brain injury study which I only accidently found out about.

[D-Slam]

"After all, when consumers know how much something costs, and when they have to pick up a hefty chunk of the bill, they are more careful about what sort of tests and procedures get ordered up on their behalf."

Sigh... this rhetoric is totally misguided.... the "consumers" in this case have no idea what the BENEFITS of these tests are (if they did, they'd be doctors). How can they possibly be "careful" or "choose wisely"?

Someone else put it well: we need to ask the right question first: what is the "problem" that we think we're solving? Health care spending is going up, but is that a bad thing? There is more (but more expensive) care available, and "not dying" is something that people tend to value pretty highly.

[Roger Albin]

For some areas this proposal is foolish. There is reasonable evidence that providing free medications to individuals with some serious chronic conditions like diabetes reduces long term complications - stoke, heart attacks, blindness, renal failure - significantly and will probably reduce ultimate health care costs.

D-Slam; how do many European countries get equivalent or better life expectancy and infant mortality rates with much lower total health expenditures?

[josh bivens]

i've got some problems with this proposal and its introduction at this point in the debate, but, in his defense, i'm quite sure jason never wanted a social security benefit cut nor obfuscated on its behalf.

i remember him being one of the more aggressive and effective attackers of every one of the admin's SocSec proposals.

just saying.

josh bivens

[Jason Allen]

We need to return "health insurance" back into to an insurance business.

There is no question that at some point everyone will be ill (cold, flu), need dental and vision care, need generic pharmaceuticals, need public health services (vaccinations, birth control), or sustain moderate injury (via accident, etc.). These types of services (office visits, ER treatment, dental, vision) should be readily accessible and offered via gov't; since the treatments aren't typically cutting edge, the costs should be able to be held down. It should be possible to even update the care standards every 10 or so years without dramatic increases in cost.

OTOH, the most expensive parts of healthcare have to do with *inefficient use of services* and *new or cutting edge treatments for chronic or intractable conditions*: probelms which aren't related. If people have universal access to basic care, the efficiency of the distribution should vastly improve, leaving mainly the latter problem.

Here is where markets *could* conceivably compete and drive better care: let the private sector duke it out for high stakes policies (covering chronic and intractable conditions, plastic surgery, optional procedures, etc.). This type of policy would behave more like traditional insurance, as only a small number of people would need the services each year. Insurers would be free to write a range of policies, with the requirement that:

1) every person have such a policy (some subsidy woould be necessary for poorer persons)

2) every policy be written assuming a state-wide pool, and such that no one could be excluded from any such policy for any reason whatever. Drug coverages for non-generic, biotech, and gene-therapy treatments MUST be included. All plans must be portable and provide some level of benefit everywhere (regardless of location).

3) participants could change plans at least once a year.

4) Lifetime annual benefits cap (if included) at least comparable to current private plans, say 2 million dollars.

[Jason Allen]

As an addition to the above, I am essentially against HSA and high deductible plans as formulated currently. Mainly, these plans are a way of:

1) Shrinking the size of the risk pool by selcting out healthier and wealthier people.

2) Reducing health expenditures (and also positive outcomes!) by limiting access to care via fiscal incentive. The type of person in a HDHP will probably not see a physician even when he/she needs to.

3) Reframing the debate to focus on "personal" accountability in the "choice" of health care consumption. This makes the discussion a moral debate, ignoring that most people are ill-equipped to make healthcare choices, and also disregarding the ethical question of forcing potentially ill persons to follow short-term financial incentives versus long term wellness (or survival!) concerns.

[Paul J. Reber]

Nobody should be allowed to to make a "moral hazard" argument about health insurance until/unless they have had to arrange surgery for one of their children. Then they have to spend 5 minutes considering whether they would argue/bargain with their surgeon about increasing risks by cutting costs or whether they would have gone to a cheaper surgeon or hospital for the procedure. That'll be the end of that discussion.

All the other usual points about how medical care simply does not function as a regular market have been well made above (choice & information are far too restricted).

I am quite puzzled why JBD brings up the moral hazard angle on health insurance as often as he does. From a macro perspective, why worry at all about increasing health care costs? Productivity gains in manufacturing are driving away those jobs (though downsizing/offshoring), why not crank up the relative size of the health industry to compensate?

I am less concerned about the health care industry growing than about it not growing fast enough -- insure the 47 million uninsured already. There's a problem that seems to be 100x the "moral hazard" to our society than the fact that I don't bargain with my doctor over prescriptions.

If health care expenditures rise to 25% of GDP, we'll get more health insurance billionaires instead of computer technology billionaires. But shouldn't we also expect to see some sort of rise in actual health care? If so, why oppose this?

Is there some downside to the long-term expectation of things like health care (& education) taking up a bigger fraction of our incomes than I'm missing? In my personal experience, as stuff I buy has gotten cheaper, a much greater percentage of my income has gone to housing/real-estate. That seems kind of pointless in comparison.

[John Bolton]

Further evidence that this "Hamilton Project" has one very useful purpose: Much like, say, the American Enterprise Institute, as soon as some gasbag announces his affiliation with it, you know that you don't need to waste time listening to him.

[anne]

Paul Reber:

"Nobody should be allowed to to make a 'moral hazard' argument about health insurance until/unless they have had to arrange surgery for one of their children."

Yes; but you had me at "nobody."

[anne]

So, we should be increasingly understanding the sadly astonishing casualty rates in Iraq. The Veterans Administration recorded over 100,000 returned soldiers who had been granted various disability status by October 2006. But, the military was only recording over 50,000 casualties in December 2006 and when an academic researcher wrote of the 50,000 number the military lowered the count below 25,000.

Well, we understand now that the traumatic brain injury count alone for returning soldiers is 17.8%. That makes it easy to understand the overall casualty count of about 20%, and the over 100,000 disabilities granted those 6 months ago.

[anne]

http://www.nytimes.com/2006/10/11/washington/11veterans.html?ex=1318219200&en=57988c04bbbbd7d4&ei=5090&partner=rssuserland&emc=rss

October 11, 2006

Data Suggests Vast Costs Loom in Disability Claims
By SCOTT SHANE

Nearly one in five soldiers leaving the military after serving in Iraq and Afghanistan has been at least partly disabled as a result of service, according to documents of the Department of Veterans Affairs obtained by a Washington research group.

The number of veterans granted disability compensation, more than 100,000 to date, suggests that taxpayers have only begun to pay the long-term financial cost of the two conflicts. About 567,000 of the 1.5 million American troops who have served so far have been discharged....

[We can expect about 400,000 soldiers to be granted disability status in time.]

[dale]

Of course 7.5% of some family's annual income is not a problem. Maybe defer the new Mercedes for a year or so. For others 7.5% of annual income may entail serious hardship.

[Nat]

As we boomers age those of us not on track to retire with medical benefits are entering an insurance shadow in our late '50s. Our ability to get affordable coverage is vanishing. I find it hard to imagine having insurance for the next 10 years until I qualify for Medicare.

My guess is that my cohort will arrive at Medicare eligibility with a very substantial backlog of deferred care that we will not have been able to afford out of pocket.

[anne]

"I find it hard to imagine having insurance for the next 10 years until I qualify for Medicare."

Then, importantly, expand Medicare as John Edwards is suggesting and as we can easily afford.

[Cardinal Fang]

So... doesn't this plan just doom people with expensive chronic conditions to have to pay 7.5% of their family income every single year? And this is good how?

[C. L. Ball]

Amen to jim's post.

[anne]

Cardinal:

"So... doesn't this plan just doom people with expensive chronic conditions to have to pay 7.5% of their family income every single year? And this is good how?"

Precisely; what is being suggested is an end to health care insurance. We are dealing here with a suggestion for the destruction of insurance.

[anne]

Darn; we are now 2 days after a military medical study showing that 17.8% of soldiers returning from Iraq have traumatic brain injuries, but not a single major news organization has found the stuy worth reporting. This on a day when we learn of the extending of soldiers' time in Iraq to 15 months.

What are we about?

[Doctor G]

What are we about?

War crimes, Anne. War crimes.

[Robert Waldmann]

your excerpt didn't include a very important part of Furman's "plan". He doesn't want copayments for statins, this that and other underutilized forms of preventive medicine which save money in the long run. He seems to consider underutilization of preventive medicine to be a minor factor compared to overutilisation of un needed health care. I totally disagree

I am glad that Hamilton project Democrats don't want bureacrats to micromanage the private sector and just want them to decide which pharmaceuticals and health care procedures are underutilized.

Living over here in Rome, I would assume that such a plan is a recipe for corruption, but, I know that you don't have any trouble with any of that over in the USA.

A better approach would be to divide the country into regions and allow one private firm per region to sumplement the universal insurance (that is pay people to take pills if there is no copay) and, in exchange get average per patient costs times (per patient costs in their region in the year before the program is introduced minus average per patient costs in the base year) minus their regions costs + average spending on prevention by all such firms times a fixed rate of return equal to the T-bill rate.
(OK different regions are different so they should get

This would have 0 impact on the federal budget deficit by construction if there are no unconvered investments in preventive medicine which return over the t-bill rate and an improvement if there are any. It would imply average (very safe) returns on investment equal to the t-bill rate and it should make us healthier as well as wealthier.

I think it's that simple.

[anne]

Nicely argued, Robert.

[Eric Ralph]

Related to some other comments here, it is far from clear that the unexpert rationing that an individual exercises is at all efficient. It turns out people see the doctor much more often when the doctor is easy to see. This is true of rich as well as poor people. Moreover, your overall health & life expectancy rises with the ease with which you can see a doctor. Upping the price for any given visit does not constitute making it easier to see a doctor.

Of course, it is another more difficult question to determine whether high visit costs would bring us closer or further from the optimum, but the evidence available does suggest when people face costs they do see the doctor too little.

(On all this, see, eg, the 2nd chapter on health insurance in The Escape from Hunger and Premature Death, 1700-2100: Europe, America and the Third World, Robert William Fogel, 2004, Cambridge University Press: Cambridge, UK)

[t]

I haven't read all of the comments, but most people don't seem to have understood the full character of Furman's argument, likely because (I'm guessing) most haven't read his full paper. For shame!

Furman bases his proposal on the RAND health insurance experiment which showed two key things: 1) increased cost sharing significantly reduced total spending on health care, and 2) it did so without adversely affecting health outcomes in most cases (according to a wide variety of measures and a thorough investigation). Furman's paper explicitly states that in cases where cost sharing has been shown to harm health outcomes (for low-income families, for those with multiple chronic conditions, etc), cost sharing should be minimized. As others have noted, Furman also excludes important preventive services, and another Hamilton Project paper released at the same event actually called for a new federal agency to cover priority preventive care services universally (by Jeanne Lambrew). What does that imply about Hamilton?

Furman's argument is that Americans tend to spend more money on health care than is optimal (from an economic or a health standpoint), and do so because they see health care as being heavily subsidized, and (as Furman starkly lays out in his paper) even more so over time (even though in reality, they do bear the costs, in the form of lower wages, etc). Europeans spend far less on health care, per capita, than do Americans, though there is no consistent difference in health status between the two, a fact supported by many studies.

In short, Furman's proposal is a level-headed way of tackling the problem of overspending on health care -- something which raises health care costs, which in turn raises premiums and makes insurance an even greater impossibility for millions of working Americans -- while also reducing financial risks from health spending, and all while having only negligible effects on health (with very explicit language in his proposal that more research needs to be done to confirm that the proposal would have only minimal effects on health). In addition, Furman includes a cap on out-of-pocket spending in his proposal, which means that families would not be subject to theoretically unlimited costs, which can be the case under the current system.

Hence, the oft-told tale in these comments of "I desperately need life-saving medical services and Furman wants me to have to pay more" is misleading and misguided. That is the last thing he wanted to do with this proposal, and he takes great pains to reduce the impact such a scenario would have on families under his proposal.

A more accurate representation would be: "Because I have to pay to get this papercut checked out, I'll skip it. By consequence, I will reduce the demand for frivolous health services, lower the price of health care for everyone, and make health insurance more afforable for millions of Americans."

I don't think that is such a bad deal.

[anne]

"Because I have to pay to get this papercut checked out, I'll skip it. By consequence, I will reduce the demand for frivolous health services, lower the price of health care for everyone, and make health insurance more afforable for millions of Americans."

Precisely why these Hamiltonians are such twerps.

[anne]

http://select.nytimes.com/2007/02/09/opinion/09krugman.html

February 9, 2007

Edwards Gets It Right
By PAUL KRUGMAN

What a difference two years makes! At this point in 2005, the only question seemed to be how much of America's social insurance system — the triumvirate of Social Security, Medicare and Medicaid — the Bush administration would manage to dismantle. Now almost all prominent Democrats and quite a few Republicans pay at least lip service to calls for a major expansion of social insurance, in the form of universal health care.

But fine words, by themselves, mean nothing. Remember "compassionate conservatism?" I won't trust presidential candidates on health care unless they provide enough specifics to show both that they understand the issues, and that they're willing to face up to hard choices when necessary.

And former Senator John Edwards has just set a fine example.

At first glance, the Edwards health care plan looks similar to several other proposals out there, including one recently unveiled by Arnold Schwarzenegger in California. But a closer look reveals extra features in the Edwards plan that take it a lot closer to what the country really needs.

Like Mr. Schwarzenegger, Mr. Edwards sets out to cover the uninsured with a combination of regulation and financial aid. Right now, many people are uninsured because, as the Edwards press release puts it, insurance companies "game the system to cover only healthy people." So the Edwards plan, like Schwarzenegger's, imposes "community rating" on insurers, basically requiring them to sell insurance to everyone at the same price.

Many other people are uninsured because they simply can't afford the cost. So the Edwards plan, again like other proposals, offers financial aid to help lower-income families buy insurance. To pay for this aid, he proposes rolling back tax cuts for households with incomes over $200,000 a year.

Finally, some people try to save money by going without coverage, so if they get sick they end up in emergency rooms at public expense. Like other plans, the Edwards plan would "require all American residents to get insurance," and would require that all employers either provide insurance to their workers or pay a percentage of their payrolls into a government fund used to buy insurance.

But Mr. Edwards goes two steps further.

People who don't get insurance from their employers wouldn't have to deal individually with insurance companies: they'd purchase insurance through "Health Markets": government-run bodies negotiating with insurance companies on the public's behalf. People would, in effect, be buying insurance from the government, with only the business of paying medical bills — not the function of granting insurance in the first place — outsourced to private insurers....

Better still, "Health Markets," the press release says, "will offer a choice between private insurers and a public insurance plan modeled after Medicare." ...

[anne]

Please, anything but Hamiltonian health care.

[anne]

http://www.nytimes.com/2007/04/12/us/12mass.html?ex=1334030400&en=72e8400a4a2326e2&ei=5090&partner=rssuserland&emc=rss

April 12, 2007

Massachusetts Offers Details on Health Coverage
By PAM BELLUCK

BOSTON — Massachusetts is poised to become the first state to make it possible for 99 percent of its adults to be covered by health insurance, with an ambitious plan that sets limits for the premiums people would be expected to pay.

State officials said that under the plan, they expected that all but about 65,000 of the 328,000 adults who are currently uninsured would be able to get affordable coverage.

The proposal sets a sliding scale of affordability standards in which, for example, a single person earning $40,001 a year would be expected to pay no more than 9 percent of income, or about $300 a month, for health insurance; a single person earning $25,000 a year would be expected to pay a much smaller percentage, about 3.3 percent of income, or $70 a month.

The plan is expected to be approved by the Commonwealth Health Insurance Connector Authority on Thursday.

Jon Kingsdale, the executive director of the authority, the agency set up to administer the plan, said setting the affordability standards "was always the most difficult and innovative element" of the state's groundbreaking health care law, passed a year ago.

The law required all residents to get health insurance or face a fine or tax penalty. But from the beginning, there was concern that available health plans might be too expensive for some people, or, that some affordable plans might provide skimpy coverage. Last month, the authority voted to require all plans to have substantial coverage, including prescription drug benefits, which raised further questions about how expensive the insurance would be.

"To do this right means we're walking a tight rope," Mr. Kingsdale said. "We don't want to be too punitive, we don't want to put too high a standard of affordability, but we don't want to let too many people out of a universal requirement. We've been putting a lot of stakes in the ground, but this is the center pole that will allow us to put up the tent and get everybody covered."

The plan, if approved Thursday, would still need to be presented at public hearings across the state and face a final vote in June. The proposal would cost the state $13 million more than the $200 million it was planning to spend.

This proposal changes premiums and subsidy rates that were established earlier. It would allow about 52,000 more low-income people to qualify for free or cheaper coverage. A person earning up to $15,315, one and half times the federal poverty level, would not have to pay anything under this proposal.

Individuals earning $30,630 to $50,001 would not be eligible for state subsidies, but they would not be penalized if they could not find health insurance priced at $150 to $300 a month. People who earn more than $50,001 would not be given a cap on insurance costs.

People who claim they cannot afford coverage under the new system could apply for a waiver....

[DRR]

Ezra Klein just gave a positive review to Furman's plan on his blog.