Furman Health Care Plan

Jason Furman says there's something to the right's Health Savings Account theory of health care reform -- if you make patients sensitive to the costs of health care, you can save a lot of money with no discernable impact on health outcomes. But, he says, HSAs with their flat, high deductible create a very bad situation for people of modest means. And, indeed, the evidence that such cost sharing need not lead to averse health outcomes wasn't actually from a study of HSA-type programs. Rather, Furman thinks that patients should need to cover 50 percent of their health care costs up to a fixed proportion of income, in particular he "would require typical families to pay half of their health costs until they reached 7.5 percent of their income; low-income families would not have any cost sharing." This would encourage the most downscale Americans to consume somewhat more health care at the low end, while providing cost control measures for more prosperous Americans in a manner that still leaves care deemed necessary clealry affordable.

It seems clever to me. Via Brad DeLong, here's a writeup. The long PDF version is here (PDF) which reveals a lot of ins-and-outs. In the most liberal version of the proposal, what you have is a single-payer insurance program with the insurance program designed with the cost-sharing provisions Furman outlines. Such a program might also offer certain things for free, namely "health treatments whose benefits are proven but currently underutilized, such as preventive care, statins for people with high cholesterol, or beta blockers to manage cardiac arrhythmiasover." There are, however, a wide range of other kinds of scenarios consistent with Furman's main point which, somewhat oddly, ends up leaving him agnostic about the basic questions about the nature of the health care system.

I'll look forward to seeing the comment of others more learned than I in such matters.

Comments

Let's see:
7.5% of a family of 4 making $25,000/year means missing food on the table, 7.5% of a family making $250,000/year means buying a used Benz for the Daughter.
It also means that people won't spend on preventative care.
Additionally, when people go over 7.5%, they will get everything they can that year, just as medical savings accounts have created November and December spikes in demand for Lasik.
Finally, you will end up with income management like the "estate tax management" for the wealthy folks.
FWIW, I do not support single payer. I support a UK/Canada style national health service, because our system is too far gone for anything else.

Posted by Matthew Saroff | April 11, 2007 12:42 AM

These rube goldberg liberal health plans are all designed to fail. The assholes who propose them and the assholes who promote them are beyond stupid.

The solution is simple. Provide medicare for everyone regardless of age. Medicare right now provides universal coverage for everyone 65 and over. It is effecient and it is popular with the population who knows the most about medical care, the elder.

Extend medicare to all ages and forget these stupid idiots who keep trying to invent a freaking new insurance plan to cover more people. I am sick of hearing about them and I am sick of people like Matt giving their ideas any kind of consideration.

They are not serious proposals. They are just serious wastes of time.

Posted by ken | April 11, 2007 1:05 AM

Everything is old is new again. As I noted on your old website for essentially the same posting on May 23, 2005--

"Actually Martin Feldstein proposed just such a catastrophic insurance plan back during the Nixon administration. He did a paper in the mid 90's updating the idea."
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=226533

Feldstein's plan, curiously, was a single payer system. I'm sure since then he's drunk the free market Kool-Aid and is on board with private insurers offering the catastrophic coverage.

And Saroff is right, copayments are just wrong. If you're affluent, its irrelevant to your decisionmaking-- You put it on your credit card and you forget about it. But if you're poor, its the difference between buying medicine or buying food.

I had to go to court a few months ago for a speeding ticket. I paid my $150 and I was out of there, but not before I saw folks there who couldn't pay a similiar amount thrown into county lockup until a friend or family member could come up with the cash (assuming they had friends or family nearby). People who live hand to mouth live in a different world than we do.

Posted by beowulf | April 11, 2007 1:29 AM

Furman is devising elaborate schemes for a problem, which scarcely exists. Elaborate co-pay schemes are scarcely necessary -- people necessarily have skin in the game, literally.

Some of the greatest distortions in our so-called system arise from the necessity to pay for the emergency treatment of those, who do not have the means to pay. Extracting the money to do that requires charging those with insurance very large fees, fees unrelated to the cost of services rendered to the specific insured. That's the chief problem, not the supposed willingness of subsidized consumers to undergo unnecessary heart by-pass surgery.

Posted by Bruce Wilder | April 11, 2007 1:49 AM

As a person who is already covered under a Health Savings Account, my experience is that there is very little that a person can do to control the cost of medical care except to forego medical care. You might do that for minor health concerns, but there's no way to avoid seeing a doctor for expensive treatments such as dealing with broken bones.

I had thought that I might be able to reduce my pharmacy expenses but found that most pharmacies charge similar prices for the medicines I use.

All that a Health Savings Account accomplishes is to shift more of the cost to employees. In my case, the HSA is paired with a high deductible insurance policy. My deductible is several thousand dollars. I'm fortunate in that my employer contributes most of the deductible to my HSA. However, there's no guarantee that an employer will continue to do this.

Posted by FS | April 11, 2007 1:57 AM

On a related point, I've heard from several people nearing retirement that their companies are eliminating medical coverage for retirees.

Posted by FS | April 11, 2007 1:58 AM

It isn't difficult to find out how people will behave when they know exactly how much medical care costs. Just check with people who have things like California's "high-risk" insurance.

A good friend of mine has it-- it's over $700/month and a 20% co-pay for a single person in her 30s.

Funny, she doesn't have a lot of free time on her hands to call around and get prices for even minor doctor's visits. She's too busy working, and price quotes take time. The only exception is lab work, evidently, because one doesn't need to develope a personal relationship with a lab.

And when she had to go to the hospital last year... what, was she supposed to get a diagnosis on the first day, and then call around to get price quotes for if she changed hospitals? She's acutely, deeply aware of prices, and she can change what, exactly?

Posted by Kathryn in Sunnyvale | April 11, 2007 2:12 AM

Oh man, the hassle factor is unbelievable. I gotta fill out expense reports to spend my own damned money?

We gotta cool it on the special accounts, 401k, IRA, Roth Ira, 529, HSA, MSA, yeesh.

I want good liberal government to be sleek and easy, like a Mac, not like Windows Me. I'd rather configure IRQs and device drivers than HSA b.s.

Posted by chris | April 11, 2007 2:16 AM

would require typical families to pay half of their health costs until they reached 7.5 percent of their income; low-income families would not have any cost sharing

Despite its attractions to a certain sort of incentives based economist/wonk, any politically feasible plan is going by definition to let the middle-class off the sharpest end of incentive dilemmas, or it wont be successful.

Posted by otto | April 11, 2007 7:45 AM

Exactly who are all these people that are wasting money on the 'expensive' medical care? Do we really want people to think twice about going to the doctor to see if they have pink eye or the like?

Posted by daveNYC | April 11, 2007 8:07 AM

Furman's got his cart several miles ahead of his horse. His proposed scheme seems to presuppose some kind of single-payer system already in place, with which the government can tinker by imposing financial incentives for people to not seek unnecessary care. This is like designing the flag for the colony on Alpha Centauri before you've got a working warp drive to get there.

Also, all the posters above who argue the fundamental stupidity of his scheme are, in my opinion, correct. FS's observation that "there is very little that a person can do to control the cost of medical care except to forego medical care" should be quoted frequently when debating proposers of free-market-with-a-twist schemes like Furman's.

Posted by James Gary | April 11, 2007 8:55 AM

Have any of you experienced socialized medicine? I have and it's quite mediocre. Give me an American hospital over a German hospital any day. One thing that is nice though is you don't have to go through a barrage of tests just so the doctor can cover his ass. Reduce the liability of the doctor and healthcare costs will decrease.

Posted by mishu | April 11, 2007 9:30 AM

How can people can be so-called responsible consumers of health care when they don't even have rudimentary information on which to base a choice. Know any doctors that post prices? Hospitals? Labs? Ever tried to get them to say how much anything beyond basic diagnosis will cost? They can't say because they don't know. Treatment is too conditional. If a test is positive, then either more tests or x treatment. If treatment x fails, then more tests or y treatment. On and on in an accelerating spiral. It is hard enough to make medical decisions when you're sick, adding economic decisions at each step just adds stress -- which can affect recovery.

Posted by Emma Zahn | April 11, 2007 9:31 AM

Mishu, remember there's a difference between a completely socialized medical system and single payer. You miss the point, though, that increased government involvement in health care might be able to better control costs, encourage preventative care and other public health-realted activities, and improve quality of care.

But the important policy point is made by Bruce Wilder, FS and James Gary: where's the evidence that frivolous health care is a big problem? Where's the evidence that financial incentives can reduce this, when we already "have skin in the game, literally"?

Posted by jay | April 11, 2007 9:38 AM

I have dental insurance. This covers office visits. What is the point of paying an insurance company money for something like that? All it does it create bureaucracy and paperwork. There's no reason why I can't pay for my dentist visit myself, and get insurance just for cavities, root canals, etc. I go for a physical once a year. Why does the insurance company pay for that? We know the incentives are wrong, especially with somethings like $5 glasses. Why not correct part of the problem and see how big the effects are? The fact is we have no idea how much it could save until we try. It's possible the effects will be small. It's also possible they'll be far greater than we expect. See what the effect of the reform is, and if there are still market failures, plug them with aid.

Posted by Matt | April 11, 2007 10:03 AM

You get dental insurance that covers office visits for the same reason you buy a gym membership: if you've already paid for the service, you're much more likely to go.

Posted by Kenneth Fair | April 11, 2007 10:36 AM

Matt,

First, over half of total US medical costs are attributable to less than 5% of the population. Can you guess which 5% that is? Those over 65 years old for those who don't know the correct answer.

Second, private health plans only pay around twenty percent of the total medical costs incrurred each year in the US. The bulk of medical care in this country is already provided for by state and federal programs.

So third, the expenses you complain about, physical exams and dentist visits, cumulatively amount to trivial rounding errors of rounding errors.

To want to waste our fucking time experimenting to see if this will save money is stupid. It won't save money. It will waste time.

Posted by ken | April 11, 2007 10:56 AM

It is easy to forget that the way to prevent lots of health expenses is to live with a good diet, proper exercise, drive intelligently, be careful in sports, etc.

Not giving proper incentives for those who can and will shape up and reduce obesity, exercise well, attend to safety issues, stop smoking, etc. is a huge mistake that the intelligent voter (and plan developer) will want to avoid.

Blank checks for health expenses are not the answer. I like the idea of having an account that can roll over (rewarding those who stay healthy). Tax credit for the poor makes more sense than "free pass" for the ER, scooters for the lazy, etc.

Posted by cfw | April 11, 2007 11:17 AM

It's clever, sure, but the extent to which it would actually reduce health care spending--the nominal goal of Furman's proposal (although this is part of a broader goal)--depends on an empirical question that I couldn't find an answer to in Furman's paper: What percentage of existing health care spending is on people whose total use of health care in a given year costs less than 7.5% of their income (or whatever the cut-off is; this appears to be an arbitrary number tied to the current threshold for tax deductibility and not actually central to Furman's plan), and what percentage is on people whose use of health care costs much more than that? Furman's plan only creates incentives for reductions in use below whatever the cut-off is, but if the expenditures on health care for people whose total use of health care in a given year falls below the cut-off account for only a modest percentage of national health care spending, changing the incentives for them won't do much to control health care spending or lower costs.

The research cited in Furman's paper also makes clear that, when people have the kinds of incentives he's proposing establishing, they are quite likely not only to forgo unecessary and wasteful care, but also care that is deemed to be necessary: The potential to create incentives for people to be "penny wise, pound foolish" (for example, skipping doctor's appointment's for asthma treatment to save money and then ending up in the very expensive ER when you can't breathe) is a challenge with this sort of incentive structure, albeit one that could be addressed, as the "smart" provisions to which Matt refers would to some extent do.

James Gary: Furman's paper explicitly says that it doesn't get into the specifics of proposals for such a program now because it is based on the premise that such a proposal would need to be nested in a system of universal coverage. The idea, I assume, is that such cost sharing would make such a system of universal coverage more affordable for government to enact, by reducing overal health spending.

Posted by s | April 11, 2007 11:47 AM

i admit that i'm torn on the use of cost-sharing. i guess a bit of economist indoctrination worked, as it sounds like it could be a cost saver (but, i think both Feldstein and Furman have way high upper bounds on this).

that said, the use of *leading-off* health reform discussions with this i'm pretty firmly against.

this is a second-order issue that should be talked about once the promised land of universal coverage is in place. putting it up-front is either a distraction of actively hampering this larger goal, i think.

josh bivens

Posted by josh bivens | April 11, 2007 12:20 PM

Hi s-

"The idea...is that such cost sharing would make such a system of universal coverage more affordable for government to enact, by reducing overal health spending."

I confess I didn't read Furman's paper and am relying on Matt's synopsis of it. But the fact is that enacting ANY kind of nationalized healthcare is going to involve a huge battle that, frankly, will not involve any kind of realistic assessment of workability, any more than the decision to wage war in Iraq had anything to to with presenting US voters with a realistic assessment of the threat Iraq posed.

There is no reason why Congress could not enact some kind of national health plan on the Canadian model and have it in place by this time next year, if the political will to do so existed. Pretending that a sufficiently clever plan can overcome the opposition of those who are ideologically opposed to ANY plan is simply naive.

Posted by James Gary | April 11, 2007 1:01 PM

Copayments for nonscheduled visits (as vs. physical or dental checkups)--nontrivial ($10? $15?) but also nonpunitive--are the simplest answer here. With exemptions for people who are by some reasonable definition(s) poor. Why get into all this other income-based nonsense?

Posted by elle loco | April 11, 2007 1:17 PM

Furman's idea is so basically wrong on two major counts that there is no need to parse the details.

First of all, people do not adopt a healthy lifestyle because they are concerned about some future catastrophic expense. Telling people they would get cancer didn't stop smoking, and showing them pictures of automobile wrecks doesn't stop drunken driving. Being surrounded by morbidly obese people does not stop them from ordering another burger.

The big-ticket prices on catastrophic bad choices vastly outweigh routine care for the normal healthy majority. Tweaking the office-visit co-pay is just fiddling with the details while Rome burns.

Second, people have little choice in utilization. Adding more rules is not how you give people more choice- institutions respond by interpreting the rules to add more hoops for patients to jump through.

Over 50,000 people die each year because of healthcare mistakes. This implies that a much larger number have tests that are misinterpreted, are prescribed drugs that don't work, and suffer from problems that are not properly diagnosed. This enormous amount of incompetence cruises merrily along on one basic underlying presumption- healthcare providers never pay the costs of bad work. It's always the patient who is told what they "must do" next, and no money is ever refunded because the lab botched the analysis or the doctor missed the diagnosis.

Of course, all of this is what you would expect from a system where the doctors have a monopoly, the drug companies have a monopoly, the employers tell employees which doctors they can see, and the insurance companies routinely and fraudulently attempt to avoid paying.

It's not the behavior of the patient that needs to change.

Posted by serial catowner | April 11, 2007 2:03 PM

Not all costs are monetary

You don't need to impose monetary disincentives on patients to encourage them to use less health care. Whatever the economic arrangements in place to pay for medical services, patients have to "pay" for medical care, in terms of blood, sweat and tears, far in excess of the valuation they place on the monetary costs of this care. Health services are expensive in direct, and almost rigidly proportional, relation to the invasiveness of those services. If you were offered a second, completely redundant, colonoscopy, for free, would you want it? Trust me on this, based on my experience as both physician and patient, but you would willingly pay money exceeding the entire cost of a colonoscopy, not just some fractional co-pay, if you could get the same protection from colon cancer without having to have any colonoscopy. That is because your negative utility from the invasiveness of the procedure exceeds your attachment to the $500 or so a colonoscopy costs in monetary terms. You don't need a co-pay to further incentivize you against unnecessary colonoscopy.

Posted by Glen Tomkins, MD, MPH | April 11, 2007 3:23 PM

Hi Glen Tomkins-

You have to realize that the *entire premise* of market-driven healthcare reform is that the present existence of such overuse constitutes an opportunity for huge savings.

That is to say, the people who have an interest in market-driven healthcare reform really do believe (or pretend to believe, or at least maintain) that Ameircans are engaging in redundant colonoscopy in great numbers, and that such wasteful behavior needs to be stopped.

It's like Reagan's example of the Cadillac-driving "welfare queen," only about a million times less plausible.

Posted by James Gary | April 11, 2007 4:04 PM

Glen Tomkins -- well said. I've never in my life met anyone who savored a trip to any kind of clinician. I really have to wonder, who do economists hang out with, that they know all these people eager to scoop up discount-priced phlebotomies and biopsies and such?

Post-Autistic Economics, anyone?

Posted by sglover | April 11, 2007 4:13 PM

Dr. Tomkins is right. Studies have repeatedly shown that people delay seeking treatment, and normally seek an opinion from a friend or family member before they seek a professional opinion. The biggest cause of people dying of heart attacks is that they don't call for help or go to the ER soon enough.

Posted by serial catowner | April 11, 2007 5:39 PM

I question how large a percentage it is of total health care spending...but there is a fair amount of data demonstrating that a non-trivial amount of health care spending goes to unnecessary visits and procedures.

the obvious example is doctor's visits for the common cold (parents are especially prone to taking their kids for this)...the visit serves no purpose whatsoever.

personally, I'm in favor of a single-payer system with something on the order of a $50 copayment for unscheduled visits and the like (with obvious reductions for the truly poor).

people like Saroff and beowulf up the thread just give the whole discussion a bad name by being so blatantly clueless.

the vast majority of Americans are neither dirt poor nor affluent (although living in NY it's easy to see why urban dwellers might be confused into thinking this is the case)

Posted by Nathan | April 11, 2007 6:53 PM

I think that it is a great idea. It amount to an extra tax, somewhat progressive, except that centered on the sick among the middle class and the wealthy.

As it is, all too many middle class and middling rich families are so insulated from risk that they are leveraged to the hilt. Because of high quality health and accident insurance they do not have to save for such eventualities. You would be amazed how many 100k/year households cannot easily spare 7.5k. But they should!

Go get them!

Disclaimer: some, or all, of the above remarks may contain elements of snark.

Posted by piotr | April 11, 2007 7:35 PM

Here we have yet one more proposal in the discussion of how best to influence folks' medical choices. I have two problems -- not with this particular proposal but with the discussion in general. First, I lack context; I would like to know for example, the percentage of health expenditures that occur in the last month of life. The last two weeks? Two days? You have the idea. I suspect it is a lot, and I suspect the folks making these "choices" don't see that they have much choice: "Gee. Life . . . or death? Hmmm." Second, from my own experience and from what I've read, health expenditures are not very responsive to changes in cost; if the Doc thinks XYZ is a good idea, you get it if you can afford it. It thus seems to me that the wonk-based discussions about cost-control are about as realistic as a discussion about how best to get men pregnant.

Posted by David Zuckerman | April 11, 2007 9:52 PM

Nathan,

People don't go see their provider for symptoms that later prove to be just the common cold unless they're concerned that these symptoms represent something else. Just last week I brought my own 8 year-old nephew in to see his pediatrician for what sure looked predominantly to be the common cold, but turned out to be strep-positive on the throat swab. The common cold we could have handled all right at home by ourselves, but I needed the pediatrician for the antibiotic that may well have spared my nephew the lifetime on dialysis he could have been up for had we not treated his strep throat.

You're right that there is some tendency to be a little freer to see your doctor for trivial things like common cold symptoms than would be ideal. But lay-people can't be expected to be perfect self-diagnosticians, and I have found that they hew much closer to the bone, with a clear tendency to err in the other direction, of not being ready enough to come in to seek help, the more potentially serious the diagnosis behind the symptoms. This is the same point I made when I stated in my last posting that expensive rises in proportion to invasive. People aren't quite so strict at rationing themselves on professional care when they have cold symptoms, because they are not at risk for anything much invasive when they see the doctor for that (not that they still don't have adequate motive, from the time and hassle it takes to get even a quickie cold appointment with your doctor, to minimuize care to what they really need). But a little looseness on colds also doesn't cost the health care system much. Having to chase down chest pain in a 45 year-old, on the other hand, can be expensive, even chest pain of fairly low probability that it really is the heart behind the pain, and not just heartburn. But patients are much more stringent on themselves when deciding whether or not a chest pain deserves a doctor visit, precisely because they know that even a false alarm chest pain visit puts them at risk for all sorts of horrid, invasive, yes, expensive, experiences at the hands of modern medicine.

But we really don't have to take my anecdotal evidence experience as the best available evidence. I served twenty years in the Army, in a system of out-and-out "socialized medicine" under which we are not allowed to charge any co-pays or deductibles whatosever for outpatient care. We have consistently found no overuse whatsoever of primary care services, whether for common cold or chest pain, compared to systems with any size co-pays and dedctibles. (For clarity's sake, military medicine serves military families, and retirees and retiree families, as well as active duty soldiers. The studies I refer to looked at these other groups, and not active duty, who are admittedly atypical in their use of medical services.) This may seem counter-intuitive, but actually makes perfect sense. I had to pay a $15 co-pay to get my nephew seen by his civilian pediatrician. This $15 was absolutely no disincentive to me whatsoever, because the hassles of: 1)taking the time to get his appt, 2)to get him to his appt, 3)to get the antibiotic at the pharmacy, 4)and mostly(!), the time and effort needed to get him to take the anti-biotic; so far outweighed $15 worth of trouble as to make the money absolutely trivial in comparison.

Co-pays for medical care are something like the death penalty. There is little to no evidence that they do a damn thing to deter capital crimes on the one hand, or the "crime" of overuse of medical resources on the other. But the popular imagination so rebels at the thought that somewhere, someone is accessing medical care that he or she doesn't really need, that justice cries out to punish these offenders by sticking them with a $15 co-pay. It isn't really a matter of practical economics, so much as retributive "justice".

Posted by Glen Tomkins | April 11, 2007 10:17 PM

One thing is that hypochondriacs do exists and they can extract an amazing amount of tests etc. from doctors.

It is also possible that hypochondriacs are underrepresented among the volunteers for military service. However, I guess that there are not that many of them in general, and the only example I know makes up for it by having excellant life style and damn good health considering his 89 years.

Small co-payments are probably OK, except that they creep up. 5 dollars, 10, now it is 15 in my plan, plus 25 for major tests and visits to emergency room.

Posted by piotr | April 12, 2007 12:15 AM

One thing is that hypochondriacs do exists and they can extract an amazing amount of tests etc. from doctors.

Show me the hypochondriac who can get his physician to perform significant invasive procedures, and maybe I'll stop laughing at your post.

Posted by sglover | April 12, 2007 2:52 PM