September 15, 2009

Mailed Fist in Lizard-Skin Glove: Lizardian Alternative to Individual Health-Insurance Mandate

Hatched by Dafydd

The more I mull the arguments against the individual health-insurance mandate (hence, I-HIM), the more merit I see in them: It's inevitable that any such mandate, no matter how light the requirement begins, will eventually become a rigid rule that everyone must buy gold-plated ObamaPlans... which themselves are unsustainable and will quickly dissolve into full-blown, United Kingdom style National Health Service, with all the insane medical rationing and treatment denial that entails.

Even if the original mandate is merely for an HSA plus catastrophic care, Big Insurance will push and push, lobby and lobby for mandated coverage for this, required coverage for that; and soon you have the NHS. (The NHS as currently constituted didn't arise overnight either.)

So I bent my mighty reptilian brain -- about the size of a pomegranate seed -- and came up with an alternative that seems more free market, less statist than the I-HIM.

My sticking point in the past has always been the free-rider problem, which I explicated in a previous post. Here's how I described it:

In economics, [we have something] called the "free rider" problem; the classic example is a streetcar with a single driver who is also the ticket-taker, so he really has no ability to extract fares from riders not honest enough to pay voluntarily. These moochers start hopping on the streetcar without buying a ticket; eventually, as more and more people see others riding for free, even ordinarily honest riders start feeling like suckers. When they, too, begin doing the same, the streetcar line goes bankrupt. Then nobody gets the service.

In this case, if we have an unenforced system of health insurance, what happens when somebody without any insurance gets terribly sick or injured -- or worse, his child does. Given that Americans will not stand by and watch someone die from an easily treated disease or injury, the reality is that those free riders will, in fact, be treated. Maybe they'll be billed afterwards, but they can declare bankruptcy and weasel out of even that small bit of personal responsibility.

Similarly, Americans will never countenance senior citizens living on the streets or children growing up illiterate or otherwise uneducated: We have no stomach for willfully forcing people to pay a draconian, perhaps even fatal, price for stupidity... even less for making children pay the price of their parents' stupidity.

Without some solution to the free-rider problem, we cannot move to a system of full liberty. (I'm not saying it's insoluble, only that I personally don't know any solution.) But we can at least significantly pare back government intrusion to the least extent required to still leave nearly everyone covered for old-age health care, retirement, and some standard minimum level of education.

All right; I think I may have, if not a complete solution the free-rider problem (which I believe to be insoluble as a general paradox), then at least something that may mitigate it considerably -- perhaps desisively. I call it the mailed fist in the lizard-skin glove approach:

The problem is in one clause of one sentence above. "Given that Americans will not stand by and watch someone die from an easily treated disease or injury, the reality is that those free riders will, in fact, be treated. Maybe they'll be billed afterwards, but they can declare bankruptcy and weasel out of even that small bit of personal responsibility."

So here's the suggestion:

  1. Amend the bankruptcy rules so that only a certain dollar value of health-care debt, X dollars, can be eliminated via bankruptcy;
  2. Set X high enough to cover the deductable of any reasonable insurance;
  3. But also set X far too low to allow an uninsured patient to shield himself from the consequences of health-care debt by using bankruptcy to wipe it away.

For example, if a typical catastrophic health-care insurance policy had a $5,000 deductable -- normally paid by your health savings account (HSA) -- then X, the dollars of health-care debt you can discharge via bankruptcy, could be set to $5,000. If you have insurance, you're covered; if you only have catastrophic care, but your HSA is depleted (or non-existent), you can declare bankruptcy and discharge $5,000... which is your deductable. That way you won't be socked with life-altering bills, if you're at least somewhat responsible.

But if you've taken no insurance at all -- you're a smart-ass kid who thought he would never need it -- then you may end up with $90,000 of treatment debt, of which only $5,000 can be discharged under bankruptcy. That means you're going to have to agree to some payment plan for the other $85,000, or be taken to court and lose everything you own.

When word got around that you could be absolutely wiped out if you don't get health insurance, perhaps that would get through enough young, thick skulls that most of the free-rider problem would solve itself. As always, the deserving poor who literally cannot pay for health insurance could get federal, state, and local health-insurance subsidies (maybe a Medicaid Advantage program similar to the Medicare Advantage program that Democrats want to destroy).

At least it's something we can offer in place of the I-HIM, to be added to the other market-oriented reforms to produce a solid plan, which we can call the Health Reform Contract With America:

  • Attaching health insurance to the individual, not the employer, so it will be fully portable (and encouraging employers to offer defined contributions towards paying the premiums, if they want);
  • Removing all barriers to insurance companies selling policies of any kind to anybody anywhere;
  • Requiring insurance companies to accept people with pre-existing conditions from an "assigned-risk" pool -- perhaps they don't cover the pre-existing condition for the first six months after coverage begins, and thereafter they do, as with many group plans;
  • Allowing groups to be formed in many different creative ways, from members of a professional guild to subscribers to a particular magazine to membership in a service organization to being active-duty military, in the reserves, in the National Guard, or in the Merchant Marine, and so forth;
  • Allowing tax deductions for much larger HSAs than currently;
  • Allowing all individuals to deduct their health-insurance payments from their taxable income, even if they take the standard deduction (and allowing companies to deduct any payments they make to their employees' personal health-insurance plans);
  • Offering subsidies for the deserving poor to buy health insurance;
  • Amending the bankruptcy law to prevent free-riders from deliberately not buying insurance, gambling that even if they get sick, they'll be treated anyway... then declare bankruptcy to avoid paying for it even after the fact.

Workable? If not, why not? How can it be fixed better?

Hatched by Dafydd on this day, September 15, 2009, at the time of 6:16 PM

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Tracked on September 21, 2009 4:39 PM


The following hissed in response by: BigLeeH

I must admit that I don't buy into your central thrust here. The bulk of the uninsured -- who are frequently, if rather unfairly thought of as free riders -- are either young and bullet proof, or rather poor. The former group impose very little real cost on the system from a statistical point of view, and the latter, while they do impose noticeable costs, lack the resources to pay their way, no matter how draconian the penalties they might face. So, for your plan to have much effect you must either make the young and foolish more careful with their money than they are with life and limb, or you must find a different ending for the parable of the blood and the turnip.

The difficulty in controlling the unit price of health care -- in terms of dollars per disease cured, or doctor-hours expended to keep granny going for another week -- does not mostly arise from the few million who have no health insurance, but from the many millions who do. There is scarcely anybody in the country who cares, on a particular basis, how much any given procedure will cost. There is a general sense that "health care" is too expensive, but those concerns don't generally affect individual medical decisions, and in fact, it is considered a scandal that they ever might. Everyone earnestly believes that somebody else ought to do something about the cost but, with so many players in the game, the opportunities for finger-pointing and buck-passing are endless.

So, while I applaud your efforts to solve the free rider problem I am afraid that I neither think it is the most urgent problem to address nor do I think you have solved it.

I'm afraid you are charging at the cape here and ignoring the guy in the mirrored suit with the sword. But, none the less, a valiant effort. Ole!

The above hissed in response by: BigLeeH [TypeKey Profile Page] at September 16, 2009 12:36 PM

The following hissed in response by: cdor

BigLeeH, I am looking for any hint of a solution in your nicely worded critique. Who is the guy in the mirrored suit? If it is an old person with medicare slopping up an "unfair" share of healthcare at the end of his life, then perhaps what Dafydd has hissed makes a lot of sense. If we look at healthcare as something we own indivdually from birth, knowing that in life's continuum our youth will absorb less and our old age will absorb most, than there is nothing unfair about expecting young adults to contribute to what could actually be considered their own old age needs. This approach could be much more of a mandate than Dafydd's, however.

The above hissed in response by: cdor [TypeKey Profile Page] at September 17, 2009 9:58 AM

The following hissed in response by: BigLeeH

cdor, Thanks for reading my response. You are right that my critique was largely solution-free. I was writing to suggest that the extent to which the difficulties in controlling health care prices can be attributed to the free-rider problem is generally over-stated. The bigger problem is that hardly anybody expects to pay his or her own medical bills and, thus, hardly anybody really cares what medical care costs and there is surprisingly little demand for lower-cost alternatives. The best solution to the skyrocketing cost of health care would be for fewer people to be insured against non-catastrophic health care expenses, not more people. Or to say it the other way around, the best way to control health care costs is for most people to expect to pay for their own health care expenses so they will demand more cost-effective ways of delivering the health care services they need.

As a libertarian, of sorts, I am a bit leery of getting into discussions of positive government actions to address most problems. It's a bit like getting suckered into a discussion of how big a stick one should sensibly expect to use to beat one's wife. The only right answer is to stay out of the conversation. Dafydd has made something of this error by implicitly buying into the desirability of "universal" health insurance.

But, since I an way too independent-minded to take anyone's advice -- even my own -- there are a few things I would like to see done:

I mostly agree with Dafydd's list of other free-market reforms, particularly Tort Reform which is key. In the current, overly-litigious environment, marauding packs of lawyers keep the doctors and hospitals bunched up in tight defensive herds. Any medical provider that breaks from the herd and tries to innovate -- say, by using nurse-practitioners for routine care and only calling in the more-expensive doctors for exceptional cases -- will be sued out of existence. The result is a very homogeneous industry with the same cost-structures throughout, defensive medicine being the norm and neither incentive nor opportunity to innovate lower-cost systems of delivery.

I'd like to see the tax-detectability of health insurance premiums limited to the part of the cost that is attributable to catastrophic coverage. There is no compelling public interest in encouraging third-party payment of routine health care expenses, especially given that such a system mutes the market demand for lower-cost options.

To offset this I would like to see the concept of pre-tax "health savings accounts" beefed up a bit. If we are going to expect people to pay for their own health care expenses there are certain incentives we can put in place to help them do so. As currently, people could put aside pre-tax money to pay their medical expenses and this tax advantage would be tied to a catastrophic insurance policy. The innovation I'd like to see is incentives to lenders to help capitalize the HSA accounts when the amount available is less than the amount needed (or to create an account if none has been set up). What I have in mind would be something like the student loan program. That way when a young person who has previously never thought about health expenses has his first big expense (falls off his skateboard, say) he would get help paying for it and, in exchange for that help would be required to buy catastrophic coverage, at least until he had paid the bill off (using pre-tax dollars.)

The above hissed in response by: BigLeeH [TypeKey Profile Page] at September 17, 2009 1:37 PM

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