Health Care Compromise – Reinsurance of catastrophic care
From the Boston Globe
“…the chiefs of Ford, General Motors, and Chrysler went to Washington to meet with the president and supported a suggestion John Kerry proposed during his presidential campaign: a reinsurance arrangement to pay for chronic or catastrophic healthcare costs, thereby effectively taking those cases out of private health-insurance plans.…The Plan called for having the federal government pay three-quarters of the additional expenses for patients whose healthcare costs exceed $50,000 a year, provided savings from that cost relief helped reduce health-insurance premiums.
Removing those costs from private plans could have big effects. Although they constitute less than 1 percent of all cases, catastrophic care accounts for 20 to 30 percent of healthcare expenses.
If the government were to pick up most of the bill for catastrophic care, health-insurance premiums wouldn’t be under such constant pressure. According to some estimates, premiums would be 10 percent lower than if private plans continued to pay for such care.
Health-coverage costs are a recognized drag on US firms competing with companies from nations where health coverage is a government responsibility. It is a particularly pronounced burden in the auto industry, adding as much as $1,500 to the price of a new vehicle.
…a plan like this could cost at least $40 billion a year and could be paid for by repealing the Bush tax cuts for households earning more than $200,000.”
If we also standardize record keeping and remove competitive obstacles to interstate insurance companies we can move towards an optimal system that preserves the efficiencies of free markets with minimal government bureaucracy. I would also prefer that each individual or family own their own policy to optimize portability and responsibility.
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12 Responses to “Health Care Compromise – Reinsurance of catastrophic care”
This baffles me. If the “government picks up most of the bill”, that means that, ceteris paribus, there will need to be an additional tax on businesses, an additional tax on individuals, or we’ll borrow the money.
I can see why companies who entered into imprudent contracts with their employees are eager to get shed of them. What I can’t see is why other businesses or individuals should be compelled to do that.
Who pays isn’t the only problem with our health care system. There’s probably some overconsumption (I don’t think that’s a determinative factor in our hugely large health care expenses, though). There’s a tremendous supply/delivery problem (we graduate the same number of docs from medical school today that we did 25 years ago).
But, ultimately, I think we come back to the fact that we have the highest cost of health care administration, the highest paid doctors, and the most expensive hospitals in the world by a significant margin.
Just exactly what illness is “catastrophic�. My concern about any proposal like this is the definition would start morphing towards the companies benefit. One thing I have not understood is why corporations have not been pushing for a national heath care system, allowing them to get out of this benefit and the associated costs.
I can also promise you that it wouldn’t help nearly as much as the proponents think. Why? The pressure from Wall Street on publicly held insurance companies wouldn’t change. The insurance company that covers the company I work for wanted to jack up our rate by 11% this year. If this proposal went into effect I think they might, if we were lucky, only increase our costs 10%. Not that big a difference. It is still my opinion that the kinds of pressure for profits and growth that is placed on public companies is incompatible with health care.
You each raise reasonable concerns, even though a more careful reading of the article might answer some.
Also my sympathy is not with the Auto Makers but with the larger community of US industries who have to compete against international companies that do not have the direct burden of health care.
What solutions do you recommend for universal health care that would be acceptable to the extremely powerful insurance industry, fiscal conservatives who still dominate the congress, the large number of people skeptical of a government run program, and politicians who have to defend the plan…?
Every suggestion has weaknesses but at some point we do not want the perfect to be the enemy of the good.
Some concerns I’ve got:
…catastrophic care accounts for 20 to 30 percent of healthcare expenses…According to some estimates, premiums would be 10 percent lower than if private plans continued to pay for such care.
So if the government picks up the tab for something that accounts for 20-30% of health care costs, premiums only go down by 10%? That seems fishy.
In addition, $40 billion is a LOT of money, and it’s sure to rise. This proposal will cost well over a half TRILLION dollars over the next decade. To put that into perspective, the entire Apollo program cost an estimated $135 billion in 2006 dollars.
I’m all for finding ways to lower health care costs and make health care available to more people, but how about finding some ways to simply save money first? Requiring people who want health care to get a yearly checkup would do wonders for lowering costs, since treatment is cheaper when a condition is found earlier. Similarly, looking at ways to get malpractice suits under control would also help tremendously. Reducing some of the bureaucracy that health care providers must deal with would probably also go a long way. Rather than just tax and spend, first let’s find ways to reduce costs.
Paul in Austin, good question. One thing to consider is how the government handles this problem. The government will pay so much towards a healthcare plan. The employees chose from the plans available in their area, in some cases there are quite a few to chose from. The head to head competition between companies is quite intense as they develop plans to get people to sign up. You can choose the plan that best fit your needs, a bare bones plan if you are young and healthy, more coverage as you get older or have a family. Maybe we could develop a system where the government and the business contributes a set amount to a plan and the employee pickis up the difference depending on need.
The proposal was for the Government to pick up PART of the catastrophic costs.
$40 billion is a LOT of money but it is a relatively minor percentage of the overall US health care costs and may be a modest investment to allow for universal coverage. Meanwhile costs of doing business may decline and improve US productivity and competitiveness.
There are many opporutnity to make Health Care more efficient and hopefully they will be proposed regardless. Even Newt Gingrich and Hillary Clinton teamed up to make one proposal for electronic data management.
grognard:
“The government will pay so much towards a healthcare plan” What criteria might you suggest:
Age, region, health conditions, income?
Why should businesses continue to contribute to employee insurance rather than simply increase wages and let the employees handle their own policies?
“What solutions do you recommend for universal health care that would be acceptable to the extremely powerful insurance industry, fiscal conservatives who still dominate the congress, the large number of people skeptical of a government run program, and politicians who have to defend the plan…?”
Well, you sort of killed it with that first part of the list. No meaningful plan will be acceptable to the insurance companies. Even if a proposal came along that would do something for the uninsured, who currently contribute nothing to their profits they’d insist that they ought to get a cut. Remember, they don’t care about the health of Americans, only the health of their profits.
Paul in Austin, I was thinking that the government and company might contribute towards a basic no frills plan. If the employee wanted more then he or she would pay a premium. Good point on just increasing the pay of the employee in order to cover costs, that could be another way to do it, you also might be able to do it with an income tax credit. I am also not sure about a government subsidy as far as causing a problem with any trade agreements , it might be considered a [usually banned] subsidy for the corporation.
A government program to cover catastrophic costs is a major subsidy to the insurance industry.
Allowing any American to buy into Medicare would be a much better solution in all respects. (Assuming we fix part D.)
A young American covered by Medicare would look very attractive to an employer, given that they wouldn’t need to pay for insurance. Indeed, even a pay bonus that more than covered the price of Medicare would be a huge cost saving for almost any company.
Andrew,
That was a thoughtful, useful and polite response.
Thank you.