Gary Becker: Why He Prefers “No Change” to Health Care Delivery Over the US Health Care Finance Reform Law

Gary Becker, Professor of Economics at the University of Chicago Booth School of Business, wrote an excellent piece on the recently-passed health care finance reform legislation.

Yet when I was recently asked whether I prefer the present healthcare bill to no change in the health delivery system for a decade, I answered “no change”. […] The bill is filled with many complicated, and generally bad, new regulations, higher subsidies, and greater taxes.

He calls out several of the law’s sins, both of omission and commission, including the following. I recently heard Jeremy Siegel, Professor of Finance at The Wharton School of the University of Pennsylvania, mention several of the same points.

  • Little focus on reducing – or even exposing – health care costs leaves the main problem unaddressed
    • The cleanest way to reduce overall costs is for consumers to have more responsibility/control over what’s required for deductibles and co-pays (Becker mentions that Switzerland’s out-of-pocket spending is 30%+ compared to the USA’s 12% – leading to a lower % of GDP spent on health care in Switzerland with similar outcomes)
  • Re-emphasis on employer-provided health insurance drags down the overall economy
    • Tax-deductibility of employer-provided insurance encourages low deductibles and co-pays, leading to higher costs
    • Non-portability of health insurance leads to a much less flexible work force
    • New requirement on small businesses to provide health insurance to employees will necessarily slow job creation and dampen wages

Becker also mentions other serious flaws in the legislation:

  • Non-inclusion of Health Savings Accounts
  • Repeated pipe dream of actually reducing payments to Medicare providers (legislated and scheduled many times over the past years, but always overridden by Congress)
  • Focus on comprehensive-benefit insurance rather than catastrophic coverage

I find his arguments quite disconcertingly convincing. Is there a good economic basis on which to refute them?

Health Savings Accounts: Two Interesting Articles on Their Effectiveness

Recently I’ve read two good recent articles on Health Savings Accounts and their usefulness reducing health care costs, increasing health care quality, and helping employees take home more cash.

When I was on the management team at a former company, we agonized about employees’ health care. Not just how (or whether) to absorb the astonishing annual increases in their health insurance premiums, but what we could do to help them get better care, not to mention even to let them actually take home the money we were willing to pay on their behalf (as opposed to having it vanish into those insurance premiums). Seems HSAs, if implemented properly (that is, the employer not trying to hold on to too much of the savings), are a good technique.

A non-ideological, results-driven report on how even public sector employees are choosing Health Savings Accounts when HSAs are offered. Be sure to read the reader comments – quite a useful discussion going on there. I like Daniels’ summary paragraph, too.

The Indiana experience confirms what common sense already tells us: A system built on “cost-plus” reimbursement (i.e., the more a physician does, the more he or she gets paid) coupled with “free” to the purchaser consumption, is a machine perfectly designed to overconsume and overspend. It will never be controlled by top-down balloon-squeezing by insurance companies or the government. There will be no meaningful cost control until we are all cost controllers in our own right.

I’ve no idea what this blog is – this is the first I’ve run across it. Has the sort of scary vibe of a libertarian polemic, but this article, at least, is almost entirely reasonable. Emphasizes how the structure of the HSA can reduce the distortions in the US health care market. Makes good sense to me. And I like how the author links HSAs to health insurance portability.

True portability.   As stated earlier, typically health insurance for an employee and perhaps their family disappears with the loss of the job.   It is common to hear of people staying with jobs they don’t like, “just to have the health insurance”.   What does the employer gain from that?   What do the employer’s customers gain from that?   Note that the savings account of the HSA is owned by the employee, not the company.   So over time, this pool of money can grow and provide financing for medical expenditures regardless of employment. Furthermore, since the accompanying catastrophic policy would be dramatically cheaper than a “traditional” plan, it would be inherently more affordable during an period of unemployment.

As I mentioned in an earlier post touting David Goldhill’s cover story in The Atlantic (September 2009), I think the structure of health care financing in the US is the primary cause of both rising health care costs and poor health care outcomes. Would be nice to see HSAs in wider use, see if they help address the problems.

An Indiana experiment that is reducing costs for the state and its employees.