Thursday, January 18, 2007

Why does he think his scheme will work this time?

John Kitzhaber was the architect of Oregon's "model for the nation" health care plan. After only a few years its costs had run out of control and the rationing mechanism that was supposed to keep costs in check was not working.

Kitzhaber himself said that it had failed.

Now, he's back, with a new plan to cover not just needy Oregonians, but every man, woman and child in the state. The Oregonian started their cheerleading today with the oh-so-neutral headline: "Kitzhaber offers health care cure."

His new plan seems similar to the Oregon Health Care plan, except it is broader. When he designed the OHP he wanted an employer mandate, but he wasn't going to get it, so he settled on taking the Medicaid dollars, combining them with Oregon general fund dollars, and designing a system that ranked medical procedures based on priority, and the available dollars would determine where the line between what was paid for and what was not paid for would be drawn.

This idea had at least the advantage of being intellectually honest. Most universal health care plans pretend that there is no need to ration health care services if the government is in charge. Kitzhaber's OHP at least implicitly acknowledged that there had to be some rationing system.

Our current system rations service on price. If you can afford insurance, you get pretty darn good care. Unfortunately, millions are priced out, and that is indeed a problem.

Single payer systems ration medical service not on price, but by queuing. Wait in line until your number comes up. It is certainly more equitable on its face - high income and low income folks all have to wait - except for the fact that people with means simply go pay for what they need and refuse to wait in line for medically urgent services that lower income folks sometimes die waiting for.

So Kitzhaber's OHP did have a rationing mechanism, but it didn't work. The feds weren't flexible enough with all their medicaid rules to allow Oregon to determine which services were paid for.

So Oregon never got to move the line of which services were paid for up when money got tight. The result: runaway costs.

In hindsight it is not clear whether there ever would have been the political will in the Human Services agency to actually move the line up when necessary, even if the feds were OK with it. Much easier to play the crisis game.

And this is the central flaw with Kitzhaber's current plan, and also with Ron Wyden's plan, the Senate plan and any other universal health care plan out there: there is simply not enough money to provide "free" health care to everyone.

The problem, in economic terms, is called a "price illusion." If people make their health care consumption decisions knowing that their consumption behavior costs them little or nothing, they individually use far too much in service, and they do not care about the price of those services. The cumulative effect of this behavior is to make the system's costs spiral out of control.

We have this precise problem even with our current private medical insurance, which generally uses a third party payer method. If you don't pay for the services you use, you use more than you should.

This is why I am opposed to every universal health care system I have seen. Every one suffers the same flaw - price illusion that will make costs increase far beyond estimates.

Medicare was created in 1969, I think. By 1989 its costs were ten times what Congress had estimated. The same will happen to any universal health care plan.

Look, I agree that our health care system is an inequitable mess. I don't have the answer - but I think I know what won't work. Any system that has a built-in price illusion will not work.

I use a Health Savings Account. I have a $5,000 deductible insurance policy that costs me about $4,000 per year, and I have a savings account into which I put up to $5,000 each year (pre-tax) to pay my family's medical expenses. Anything we don't spend stays in the account and accumulates.

We have become true consumers of medical services. We ask how much procedures cost, and we shop in much the same way we'd shop for any similar consumer good.

I'd like to see a universal health care plan that turned people into consumers. I know that any single payer system or any other system that perpetuates the price illusion is destined for expensive failure.


Anonymous said...

Are you saying that you would support a universal health care plan that used government funds to subsidize health savings accounts for low income people?

Rob Kremer said...

I'd have to see the details - how it was paid for, who it covered, etc. I would certainly support shifting medicare and medicaid into a HSA structure, for starters.

Anonymous said...

It is not the poor that are responsible for monopolistic prices.

Shoveling money into a pot to be used for the poor is hardly an adequate substitute for the vast array of monopoly-supportive schemes that abound, at the hands of government for the private financial benefit of a few.

When I look at extraction of Monopolistic Economic Rent I do not need to make any distinction between private monopoly and public monopoly, as both require the active assistance of government to escape the rigors of competition.

Any mandatory participation in a health related funding scheme must be coupled with matching power for the consumer to obtain services at a price that would at least resemble that in a non-monopolistic price environment. If someone is honest about holding down costs they must first start by isolating out health care costs from the terms of wage employment.

The public trough (via taxation) is today tapped like a raging river to cover the health care costs of people who offer labor to the public to accomplish the public interest goals of the general public. We must decouple this health care component from the terms of pay so that the wage laborers in public service obtain cash only, from which they can spend as they like just as with anyone else. The evil of monopoly pricing (or monopoly power) is that the entity can maximize revenue by reducing services and making much more money per unit of service that they deliver. It is not the profit per se that is evil, but that it means delivering less total services to the entire community.

If I were selling milk and I could get half the population to pay double the price per unit then I could dismiss the other half of the population and my profit would increase by the amount I saved by having to only produce half the amount of milk.

A health savings account (invested by happy idiots into Wall Street) does not address this pricing problem faced by the poor. "[S]ubsidize[d] health savings accounts for low income people" does not either -- but to me looks a whole lot like the Wall Street game of converting pay-as-you-go public pension schemes to funded accounts backed by the taxing power to subsidize stock price speculation and to reward stock option gaming.

Rob, I could argue, ideologically, about the how the D's and R's together desire to pimp-the-poor. But this does not do justice to the broader and empirically measurable end-result of the present trajectory of such political tweaks. Public monopoly and private monopoly must be viewed as one in the same. My objections to private monopoly are fully portable to objecting to public monopoly. The folks that support private monopoly will, as has been proven many times over, be left utterly without anything but vacant ideology to rebut the takeover of private monopoly through the electoral process so that it is the elected folks and their limited constituency that then benefit from the extraction of economic rent, to supplement their power to tax others.

Take the liberal hands-off approach that is accorded by government and courts regarding the "business judgment rule" for private enterprise and then port all government actions onto such businesses via the notion of social investing. I like this recent phrase to describe the classical net result: "Superfluous Authoritarianism." It is cuter than consolidation of power and whatnot.

The target of my objection to Pension Obligation Bonds was/is the R's that used the taxing power of the state to guarantee private investment profits for one class of Oregonians against another.

There is little difference between David Reinhard advocating that every Oregonian, including the poor, must obtain insurance and Castro ordering folks out into the fields to gather fruit. Regarding individual liberty Dave Reinhard has gone off into some alternative universe. (I'd prefer to pick fruit in return for necessary medical services --where the doctors are compelled to offer their services in return -- to a cold demand to pay money to an insurance company to cover monopolistic prices. It is dry economics, and the necessary result of arguments like that offered by folks like Dave that would be the proximate cause of such a choice.)

I don't have 5,000 to pay for medical services, let alone avail myself of a tax gimmick to throw 5,000 more at the Wall Street casino so as to reduce my tax burden. I just want reasonable prices on the cost of medical services, free from monopolistic economic rent. David would make me pay a fine for being poor, which is like "Superfluous Authoritarianism" on top of my present desire to simply stay as far away from any medical establishment as I can and for as long as is humanly possible. If Dave is confined to trying to preserve a cut of the take for the insurance companies then it should be obvious that at this stage -- at this economic stage in the eyes of classical economists -- that Chavez is only playing a game of catch-up, by comparison.

Decouple all health care from the relationship between employer and employee, particularly for public servants, and let all people face the prices I face, so that we have a shared interest in tamping down economic rent.

The Chavezes in our midst have no objection to monopoly, even to the temporary active support of private monopoly, because it fits into their longer-term vision of total authoritarian ownership and control of all the valuable means of production, and economic rent is just an enhancement of the value of that control over ALL citizens. When there is nothing private left to tax then the only tool remaining is that of the club.

I don't care if it is Dave or Ted or John or Clubman-Westlund that says I must pay for insurance, the net result to me is the same.

Pretend that I am in the class of 100,000 Oregonians who have for 20 years socked away the maximum allowable into savings, to get tax breaks, that are characterized as Health Savings Accounts. Then imagine that the feds and state both choose via the legislative process to lift the restriction on the use of those savings for only health care expenses. Can you think of any principal that can be raised in the judicial arena that would prevent such removal of restraints. I can see none. And, if the restraint could be lifted in total it could be lifted partially so as to accommodate something like use for private school education or a near infinite list of uses, all the while restricting use for expenditures that are implicitly not allowed. It strengthens the hand of arbitrary decision making by political wonks to play the role of authoritarian, definitionally on a whim. Or stated differently -- It does not enhance individual liberty.

It certainly does not enhance any call to control monopoly pricing. The very existence of a general savings inducement that is instead dedicated to one kind of expenditure is supportive of monopoly pricing of the kind of expenditure. It is a pattern or formula that is being repeated for many politically powerful group of recipients of consumption. It has no end until ALL individual savings are in one or another such dedicated fund, at which point there battle will rage only in the legislative bodies (rather than at your discretion) over how YOU get to use YOUR savings. Is it then your savings? Or someone else's raging river of cash, like some sort of new water right?

Are you a witting or unwitting Socialist? Or are you just a witting authoritarian in Socialist clothing, like BlueOregonians?

Reject the dedicated savings accounts.

Decouple health care from terms of pay, for both public and private employment.

And more generally just attack monopoly pricing where ever it is found, your liberty depends on it, and it would certainly help the poor more than ANY HSA program would.

The restriction on use of savings, via a HSA, is a whole lot like the restriction on a laborer's freedom to spend their income on something other than health care. Both are restraints on individual liberty, but just barely colorable as a voluntary restraint. You talked the good talk on liberty the other day -- put it into practice.


Rob Kremer said...

Wow, nag, you get the award for the most turgid comment of the week.

You appear to think that the reason medical costs are increasing so fast is because of monopoly pricing by medical service providers.

I disagree, but I'd be interested in you expanding on the point. Specifically who is the monopoly?

Anonymous said...

Invert the facts for the HSA, for the sake of argument. Create a savings account where you get a tax break on money placed into your personal savings and where the central condition is that you can spend it on anything that is NOT related to health care. (I'd prefer characterization of my comment as Rhetoric rather than turgid.)

Would this tend toward increasing or decreasing the price of the medical services offered? The answer should be obvious, and so too the political response by the organized service providers.

A catchall rebuttal to many socialist programs is that throwing money at a problem does not solve the problem, but rather compounds it or postpones the search for a remedy.

You could, alternatively, set up a tax break induced savings account thing to accommodate speculation in Beanie Babies or Pet Rocks or Rare Stamps, and it would at least be less disruptive to the pricing of medical services faced by the poor. (The plausible ad hoc public purpose here could be the same as with creating state-approved video poker -- entertainment. Which is quite distinct from the notion of keeping the mob out of town -- to justify intruding into personal liberty to entertain oneself.)

Much of the high prices for medical services to accommodate public servants cannot be viewed in isolation, as if in some clean room where it is purely an issue of a laborer's liberty to contract, but is blended with other legislative level motivations to assure profitability for the medical service provider. This too should be obvious.

While a court would reject an inquiry into the motivations of a legislative body, being simply problematic from a judicial point of view, I can certainly point it out here.

Go ask Ben, and the largest donors to his campaign(s), if they would object to a savings account inducement that was premised on NOT being spent on health care. (Just to note the absurdity of it all. The supporters might not represent a monopoly, but they can sure make Ben jump like a jumping bean.)

Again from the perspective of the majority of the population, who have no savings (before even examining mortgage debt and net savings), the existence of the HSA option is just another gratuitous tax break but that here is a marginal enhancement of monopolistic prices of health services.

Here is a proposed remedy for the inequity of the tax break thing for a health care savings account, but that remains neutral as to the common gripe of the rich that they subsidize the working poor on health care:

[blockquote] From the outset of the creation of a savings account tax inducement, allow every person to alternatively accumulate a cumulative theoretical deduction to be used at some future time in the event of their use of medical services as a direct reduction on their taxable earnings. And make it retroactive to the calculation of their taxable earnings for prior years, going back as far as is necessary to exhaust the accumulated deduction that they could have availed themselves of if they had disposable income, but no further back than the effective date of the matching HSA account "opportunity." I would not make the lack of disposable income a precondition, thus allowing even the rich to accumulate the very same cumulative theoretical deduction as an alternative to actually putting money into a special savings account (for which the professional money managers are surely eager to receive, as evidenced by lots of TV adds trumpeting the tax benefits). [/blockquote]

Back to the 8:54 Anonymous challenge:

[blockquote] "government funds to subsidize health savings accounts for low income people" [/blockquote]

Would my proposal of accumulated unused deductions be better than actually appropriating taxes to put into professionally managed savings accounts? If you do not see the tendency of HSAs to contribute to higher prices (even without identifying any particular entity as a monopolist) then you would also have to admit that the accumulation of a cumulative unused taxable income deduction by the poor would also not have a tendency to increase prices for medical services.

Don't forget that in almost every instance where the government makes a payment in the name of a poor person that the government asserts a claim in the same amount against that person, for which the DHS is extremely thorough at identifying any potential resource available to the poor person, so as to act as the de jure and de facto (purely administratively and without much review) collection agent on behalf of the medical service provider recipient of cash. It should go without saying that the prices that are charged have a disproportionate impact on the poor, relative to their minimum available resources to merely survive, than to anyone that can avail themselves of any sort of tax code inducement to save.

I need not identify a particular monopolist to identify a harm that is considered an evil of abuse of monopoly power. Let's just say that there are things that some enterprises could not get away with were it not for the aid of legislators in calling something a public policy for the public good. It is the government then that is the entity that is the key to the exertion of an abuse of monopoly power.

My proposed remedy of accumulated cumulative unused tax deductions thing posited here could be ported to all dedicated savings accounts, including for public and private pensions. Taken together, the poor (and rich too to be equitable and accommodate their liberty to control their own investments) could just stack the accounts up and apply them against nearly all non-luxury expenditures as they arise out of necessity notwithstanding the lack of savings of any kind. Some on the Rhetorical-Right like to oppose classifications in the tax code that exempt poor folks from payment of taxes -- I could merely take this opposition to classification based on income and apply it to all targeted savings accounts for which the poor can't take advantage of anyway (but this would not extend the option for the rich to also accumulate cumulative unused deductions just like the poor).

Can you see how the professional money managers (inclusive of the Oregon Investment Council) want to penalize you (by denial of tax code benefit) for not delegating to another the investment decisions on your own savings? This is actually quite independent of the precise parameters on how such money would be spent when withdrawn from accounts. It all just fits within the notion of building political support for such abdominal things that spew forth from legislative bodies. Just picture the increasingly aggressive "social investing" by the state treasurers and tell me if you can see any endpoint or limit short of complete domination by collective action of state treasurers, consistent with the goal of the National Education Association.

OregonGuy said...


And I thought I was excitable.

I've been to the gov's website on his proposal to help the kids, and can't seem to find a price tag anywhere. Have you seen it?

Please, let me know.

Anonymous said...

Sometimes being exhaustive becomes exhausting.

Ask any member of any certified profession if they would voluntarily relinquish their certification, but not their occupation? They would have to confront Head On the odd logic that the certification justification is supposedly strictly for the benefit of the public whereas in reality it is to monopolize the occupation (or the activity described for a profession) among a discrete set of certified folks, to make the profession more profitable among the members. Viewed in this light the very word "professionalism" within and among a class of certified folks is itself certifiable.

If I do not travel (for free speech purposes) between what constitutes professionalism and the bounds of actionable libel or slander then I have failed. I must be excited, because to act calm and professional would be . . . well. . . unprofessional for a self-designated critic.

Tell me when Ted will require that doctors pay Kids to visit? (More than a lollipop.) Rather than pay to advertise how sweet they are, like luring them to some gingerbread house.

Tell me when a court will end the practice of doubling a lawyer fee when the lawyer challenges the "government" and "wins" in the public interest? (Converting the certification process in the pubic interest fully on its head into a private pot for riches.) It is only for a limited set of cases, you see, so that it doesn't raise eyebrows as a clue to some sort of systemic failure. Quit rewarding legal fees for those that challenge the government, or skip over the lawyer and give the award to the supposed victim instead or no one at all.

When hell itself freezes over.

Is there something sacred about insurance companies? Sure, sharing the risk of the cost of catastrophic events is an OK thing (voluntarily). Do you remember when the word "proactive" was used by insurance companies, where they themselves could pencil out a net financial benefit for actually paying to treat routine care so as to save on the higher costs that might result from lack of routine checkups? Talk about mission creep.

Look around and you will see a sea of oblivion -- to everything other than the common denominator of self-interest sold as synonymous with the public interest. The key feature that distinguishes a conceptualized non-profit and a sovereign entity is the power to tax. Stripping tax deductibility for contributions to claimed public interest non-profits could be a sane step toward remedying our collective insanity in using the tax code to regulate our lives (others lives).

I have trouble these days finding a professional non-profit that does not feature KIDS as their principal selling point. It works. It works best.

Now imagine my challenge of explaining why, on principal, I would refuse to buy Hershey's candy bars from a kid as part of a PPS fund raiser. I instead found a 1975 McDonald's commercial on youtube showing a jingle to remember the ingredients of a BigMac and then insist that he should apply that same to a sales pitch of the ingredients for a NEW candy bar from Hershey -- for Kids sake (for Christ's sake).

Ted is like the consummate Girl Scout, selling cookies from one of two manufacturers, neither of whom are local. Should we buy it because we think he is a good sales person, and for no other reason? It is enough for most folks to buy in.


OregonGuy, does price even matter? (It implies that you are already sold on the idea.)

OregonGuy said...

Yes. Price does matter. Because a low enough price will ensure that high barriers will be in place for use. I do believe there are some people in each community that are so worthless, so despised, so unreliable that without government being able to step in and help provide for their children their children will suffer. But this should be the One Percenters. People for whom help or entitlement is wasted. Only for their children.

What the gov has proposed is a system that will guarantee that every deadbeat loser in the western fifteen states will be beating a path to Oregon. Four times poverty level to participate? Free healthcare?

Priorities have never been a problem for democrats. While we're still missing hundreds of state troopers--cut for what reason?--your governor is proposing to drain the bank with this fantastic proposal.

Is price important? Sure. Without a clear pricetag for the State how can a voter make a reasoned, educated decision? Otherwise, if it's for the kids, the elderly, teachers or government employees, it's gonna pass. (In Oregon we don't oppose things for kids, the elderly, schoolteachers or government employees. In Un-Oregonian.)