Tuesday, March 15, 2011

More on Vouchering Medicare

Yesterday I wrote that the current budget discussions don't address the main driver of the long term deficit which is health care costs, and suggested a consequential policy that would address costs: limiting the tax subsidy that has been afforded to employer provided health insurance since World War II. This policy would be flexible, meaning work with just about any imaginable health reform direction and there is bipartisan support for this change since Democrats already voted for it in the ACA (tax on high cost insurance), and most Republican plans assume more of it.

I further stated that I would prefer Michael Cannon's health plan to the status quo, though it is not my preferred choice. A key aspect of his plan is the vouchering of the Medicare program, in which beneficiaries would get age and risk adjusted vouchers with which to purchase private insurance. This is similar to the Medicare option of Paul Ryan's roadmap proposal.

A commenter to yesteday's post (Steve) asks a question about vouchering Medicare:

"Has anyone priced out what private insurers would charge these elderly for insurance. I have asked my broker and they will not quote prices for Medicare aged buyers."

This question, and many related questions that flow from it are the primary reasons that vouchering Medicare is not my preference. I cannot decide if I am skeptical for political only, or political plus technical reasons. Leaving aside the political concerns, and the irony of critics of the ACA essentially wanting to create the structure of the ACA for Medicare, here are a mixture of assertions (end in period) and questions (have a question mark) I have about vouchering Medicare.

I would be interested in people's insights, especially if it is in the form of 'no, we can deal with that in this way' or 'no, you are wrong and here is why.'

  • Insurance is the trading of a known cost (premium) for protection against an uncertain occurrence of a potentially catastrophic cost
  • Many/most Americans think of health insurance as a mechanism to finance care
  • Before Medicare was passed, about half of the elderly had no health insurance, though private insurance did exist
  • There have been private plans in Medicare for about 35 years or so; until the BBA of 1997, they were straight cherry pick deals in which healthier people signed up and the HMO actually increased costs. Subsequent modifications of the program have resulted in continued overpayment and muddled answers to questions about which are more efficient or higher quality.
  • Vouchering Medicare will require 100% of beneficiaries to be included, including the 7.5 Million dual eligibles.
  • In FFS Medicare, around 10% of the beneficiaries consume around 60% of the dollars in a given year.
  • Everyone dies, and it is well known that costs rise near death.
  • Medicare insures 13% of the population, but covered 83% of the people who died last year.
  • Private Medicare plans are increasingly focused in a few large private insurance companies. This would seem to be bad from a competition standpoint, but good from a risk pooling standpoint. Would the vouchering of Medicare not simply produce a few very large private plans who would function like public utilities? Would that be bad from the perspective of advocates of vouchering? If a small entrant got a bunch of dual eligibles in their pool, wouldn't they be sunk?
  • Why would an insurance company want to be in this private Medicare insurance business in the first place since the profit in insurance is not in volume, but in margin? And Medicare is about volume (high costs).
  • If private vouchering Medicare works and saves money, doesn't that mean that less care is delivered and/or less is paid for the same care? Is the real reason to voucher because advocates don't think FFS Medicare can say no (via expert driving rationing say), but they you assume that profit driven insurance companies will be more incentivized to say no?
  • Are there ways in which this is mostly semantics and Medicare is not as dissimilar as private vouchering?
I haven't sourced all of this because it is a bit stream of consciousness. Interested in thoughts of others.

Update: Austin Frakt has some interesting posts on competitive bidding (the way to set the voucher amount) in Medicare here and here (with many links to take up your entire day!). He is quite positive about the technical possibility of this approach mixed with realism that it will be hard to address costs in any way.

Rehan Salam on why he wants to voucher Medicare but doesn't like similar structure for non-elderly in ACA.

Ezra Klein: responding to Salam (who was responding to him) and making the point that structure of vouchering can work, the key is cost control (Ryan roadmap for example says 1% above general inflation).

The biggest problem for Conservative critics of the ACA is they have said that steps to slow costs in the ACA won't be taken because they are too hard, but their plans also rely on equally hard (or harder) steps. We need a political/cultural deal on how we will address coverage, and then focus on costs. If the focus is on policy, we can work it out. So long as it is only a political football 'your hard thing is impossible, but mine is easy' we are doomed to talk about cutting NPR while not addressing the real cause of the long range deficit: health care costs.

4 comments:

  1. You write:

    "Many/most Americans think of health insurance as a mechanism to finance care."

    I think this is the correct way to view the constellation of products that we commonly misname health insurance.

    These products typically do not indemnify the injured person against the total economic cost of injury. Instead, they indemnify the health care provider against the cost of providing healthcare services to the injured person.

    Consider that we attach the date of liability for a treatment to the date of the service, rather than to the date of the injury. This is how people who became severely ill while they had insurance can suddenly find themselves uninsured and unable to pay medical bills.

    So, yes, it is correct to view "health insurance" as a mechanism to finance health care.

    In this context, I generally favor structuring "health insurance" under universally available subsidized vouchers. The intent of vouchering is to provide less care, or care at lower costs, by empowering more self-directed and price conscious purchasing decisions at a point where the consumer has decision making power (which is not typically at the point of care).

    And yes, I want to purchase "health insurance" products from a company that will say "no" to everyone else, but always say "yes" to me.

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  2. Michael D
    thanks for comments. This sentence from you important "The intent of vouchering is to provide less care, or care at lower costs, by empowering more self-directed and price conscious purchasing decisions at a point where the consumer has decision making power (which is not typically at the point of care)."

    Don't think many of the advocates own up to this point. Another way of saving every dollar or saving or even 'waste' is a dollar of someones income. Docs and hospitals invented insurance in the US and the goal was for them to get paid....the last step of saving will be hard because of this.

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  3. The problem with vouchers is that private insurance companies do not have to take the vouchers provided. Hi BigInsCo, I'm a 58 yo with a history or prostate problems + my voucher - will you insure me? There's nothing in the voucher programs that guarantees coverage, so Mr. 58 yo is standing outside of the care system with a worthless piece of paper. I don't see how vouchers stop cherry-picking and punishing people for their own genetics.

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  4. Nice post.....Thanks for sharing useful information....I really like this kind of informative post...Please keep sharing like these useful information with us.....!

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