NOT FOR EVERYONE
Ewe Reinhardt (R) comments on a paper by D. K. Remler and S. A. Glied (R&G) on the Health Affairs blog site. The original paper looked at the effects of high deductible health plans (HDP) and health savings accounts (HSA) on cost sharing of healthcare expenses. One original premise of the combination of HDP and HSA was that this would shift first dollar costs to patients and make them more cost conscious. The hoped for result was a decrease in healthcare expenditures overall. (For info on HSAs and other alternatives, click here.)
R & G suggest in their paper that high tax rate individuals would actually face decreased cost sharing and would be likely to increase their healthcare expenditures, thus defeating one of the goals of the program. This, of course depends on how you do the accounting and, in any case, is neither new nor surprising. In this paper, the authors regard the tax savings as a subsidy to the patient.
R brilliantly points out that pre-tax accounts are more advantageous to those who pay a lot in taxes. This makes them less attractive to those in lower tax brackets. And just why is this a bad thing? Where is it written that one plan for healthcare must fit everyone? Tax law has always been used to induce behavior and frequently affects one level of income more than others. Want to start a Roth IRA? Not if you earn more than $150,000. R did have one interesting suggestion--index the deductible amount to income. If this were set to, say, 10% of income, then the average person would be entirely out-of-pocket for all healthcare. Insurance would kick in when expenses got serious, and overpaid executives would never receive any benefits.
Missing from all this debate is a clear statement of goals. Are we trying to decrease the amount of healthcare provided? Reduce the annual healthcare expenditure? Or reduce the public funds spent on healthcare. The first goal would require central planning (and control) which didn’t work for Russia, or anyone else who ever tried it. The second two goals could both be furthered by improving the efficiency in the system through cost competition at the individual service level. But no one is yet talking about this.
R & G suggest in their paper that high tax rate individuals would actually face decreased cost sharing and would be likely to increase their healthcare expenditures, thus defeating one of the goals of the program. This, of course depends on how you do the accounting and, in any case, is neither new nor surprising. In this paper, the authors regard the tax savings as a subsidy to the patient.
R brilliantly points out that pre-tax accounts are more advantageous to those who pay a lot in taxes. This makes them less attractive to those in lower tax brackets. And just why is this a bad thing? Where is it written that one plan for healthcare must fit everyone? Tax law has always been used to induce behavior and frequently affects one level of income more than others. Want to start a Roth IRA? Not if you earn more than $150,000. R did have one interesting suggestion--index the deductible amount to income. If this were set to, say, 10% of income, then the average person would be entirely out-of-pocket for all healthcare. Insurance would kick in when expenses got serious, and overpaid executives would never receive any benefits.
Missing from all this debate is a clear statement of goals. Are we trying to decrease the amount of healthcare provided? Reduce the annual healthcare expenditure? Or reduce the public funds spent on healthcare. The first goal would require central planning (and control) which didn’t work for Russia, or anyone else who ever tried it. The second two goals could both be furthered by improving the efficiency in the system through cost competition at the individual service level. But no one is yet talking about this.
