On Wyden-Bennett

August 13, 2009 at 4:38 pm (By Maxwell James)

Like President Obama, if I could wave a magic wand and create an all-new healthcare insurance system for the United States, I would probably choose single-payer. Yes, it can create rationing problems, but with proper incentives to expand supply this can be managed reasonably well (as it is in Canada, France, and the Netherlands). It is inherently more cost-efficient – as Nate Silver argues, health insurance competition, particularly the sort of mini-monopolistic competition we have here, does little to control costs or improve services. It would cover everyone. And it has the attraction of being simple and easy to understand.

But, that’s not the world we live in. Most Americans don’t agree with me; they don’t want single-payer healthcare. And increasingly they don’t seem to want the “public option” either, either because they think it will constitute single-payer by stealth, or that it will turn into another Fannie Mae. So it goes.

And yet healthcare reform remains necessary. Healthcare costs have been rising at an unsustainable rate for decades now. Those costs will bankrupt Medicare in just a few years if nothing is done. We also have de facto rationing by the market, along with priviliged care for the wealthy who can jump lines the rest of us cannot. And for all that we spend on healthcare – 17% of our GDP – we don’t get quality of care that is especially good when compared to peer nations.

So with all that said, I’d like to put in a few kind words for the other healthcare bill floating around Congress – the Healthy Americans Act, or Wyden-Bennett.

Wyden-Bennett strikes me as a definitive example of radically moderate legislation. It’s radical because it breaks the key feature of our current insurance system for people under 65: the tax break on health insurance when it’s paid for by your employer. It’s moderate because it achieves near-universal health insurance while actually increasing market competition. And according to the Congressional Budget Office, not only would it be budget-neutral by 2014 (as of 2008), but in time it could actually reduce our government’s expenditures.

How does it work? Wyden-Bennett mandates that all Americans and permanent residents (other than the elderly and the military) must purchase private health insurance  through a state-based pooling system. This purchase would be facilitated by a large tax exemption ($6000 for individuals, up to $15,000 for families) that decreases as income rises, eventually disappearing for earners in the top tax bracket. People under a certain percentage of the poverty line would be eligible for a voucher on top of that. The premiums you would pay for your insurance would be community-rated on the basis of your pool – i.e., sicker people would not have to pay higher premiums.

For most people this would replace their employer-based insurance; it would also replace Medicaid and SCHIP programs, as well as the individual insurance market.This is of course the most radical aspect of it, since the conventional wisdom is that most Americans like their current insurance and want to keep it. Of course, that conventional wisdom was formed in 1993 during the Clinton attempt at healthcare reform; things have changed since then.

For example, portability of healthcare insurance, has become far more important. Very few of us keep the same job our whole lives. And very few of us remember the last time our country approached 10% unemployment. If you would resist Wyden-Bennett on this basis, it’s worth asking: if you were to lose your job, how quickly do you think you could get a new one in this economy? What kind of job could you replace it with? The simple fact is that for anyone who does not have tenure, relying on your employer for your health insurance is considerably more risky than it used to be.

Wyden-Bennett would establish standards for the new plans offered through the pools that would be actually equivalent to the Blue Cross/Blue Shield plan that is currently the standard for federal employees. It would control costs by offering incentives for insurance providers and healthcare providers to improve efficiency, and for purchasers to engage in preventive care. It’s not perfect by any means – and it desperately lacks a constituency to get behind it. But it’s the best option currently on the table.

For further reading:

Here is a balanced analysis of Wyden-Bennett by the Center on Budget and Policy Priorities.

Here is a tool from the Kaiser Foundation that allows you to compare the current health care reform plans side-by-side.

Here is an interview between liberal health care policy wonk Ezra Klein and conservative senator Lindsey Graham on Wyden-Bennett.

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15 Comments

  1. amba12 said,

    I’m finding the Graham-Klein dialogue a good shortcut to understanding the issue, the impasse, the bill in question, and the way forward.

    But then I’m a longtime fan of Graham, which feels pretty lonely since he seems to be cordially hated both from the left and from the right. Maybe that’s the mark of a genuine centrist, not just a mushy-middle compromiser: you want both extremes pissed off at you, and then “they will come”. Kind of the way you know you’re middle-aged when old people think you’re young and young people think you’re old.

  2. howard said,

    Wyden-Bennett isn’t everything I would hope for in hcr, but it’s probably better than any other realistic outcomes of the current debate. That’s why it pains me that options like this seem to be getting drowned out by the louder voices in the room (town hall room or otherwise).

  3. blake said,

    I suppose it’s too radical to propose that the gov’t just get out of the healthcare business entirely?

    With so many people apparently for helping out the needy, the shortcomings could be easily made up for with charity.

    No? Gotta have the gov’t involved with everything?

  4. howard said,

    “With so many people apparently for helping out the needy, the shortcomings could be easily made up for with charity.”

    Blake,

    Really? I wonder how many people who say things like this actually believe them, and given the wording, I wasn’t quite sure you mean it, either.

    I’m all for private charitable giving, but based on my experience in fundraising efforts, I just don’t see the shortcomings being “easily made up” this way. Maybe if we were more conditioned as a society toward caring about other people, I suppose that might make a difference. But I just have a hard time seeing a society driven by love of money doing much to encourage that outcome.

    Not to necessarily stab at you, Blake, but several people I know who’ve made this argument aren’t the most charitable people I’ve ever known.

  5. Randy said,

    Blake: Does your proposal include shutting down Medicare?

  6. michael reynolds said,

    Maxwell:

    An intelligent and well-reasoned post.

    But I’m bummed there’s no death panel provision.

  7. Jason (the commenter) said,

    I don’t understand from this post how Wyden-Bennett would stop the cost of health care from rising. At best you would have a one-time savings from having people in large pools; then health care costs would continue to go up.

    How does forcing lots of healthy people, who didn’t have health insurance, to start giving money to insurance companies going to decrease health care costs? I can see how it would help insurance companies. They’ll get tons of new healthy people (who wont be using their policies) giving them money. But that doesn’t cut costs at all.

    Health insurance really has nothing to do with health care spending. Health insurance is just a means some people use to pay for health care. You might as well reform health care by going after credit card companies or checking accounts.

    Also, I have no idea how you could spend less on health care but still expand supply. I would be interested in what technological innovations are involved; which, apparently, health care providers are refusing to use even though they would produce enormous profits.

  8. wj said,

    Jason, it isn’t the forcing of additional people to purchase insurance which will reduce costs. Obviously.

    The feature of the bill that is supposed to push to reduce costs is transparency: making the cost of health care visible to everybody. It does that by getting rid of the tax deduction for employer-provided health insurance, and moving most of the deductability to the individual. That way, you can see how much you are actually paying for health insurance — and if you have employer-provided health insurance, I will bet that you have no clue. I know I certainly didn’t.

    Once the individuals consuming health care can see what they are paying, they have some incentive to demand price reductions. And to consume only what is actually required. Whereas when, as now, it is an (apparently) free good to the consumer, there is little incentive to refrain from getting every possible test, every possible treatment, etc. — whether worthwhile or not.

  9. Maxwell said,

    Hi Jason,

    Nothing can stop the cost of healthcare from rising, especially in the aggregate – it will always go up with inflation and population growth at the very least, plus some drugs and technological innovations may also increase prices initially. But per capita health care costs have been rising way higher than inflation, at 9-10 percent per year, for basically the last four decades. That growth has to be slowed significantly even if it’s not stopped outright, and that means fixing some of the systemic distortions in the healthcare industry.

    W-B addresses some of these. First, it eliminates the gross imbalance between the employer-based market, which is heavily subsidized by a tax benefit, and the individual market, which is not. As a result of that, people insured by their employers are generally ignorant of how much is actually being spent in their name, as wj mentioned. And people in the individual market simply have to pay outrageous prices for health insurance, where the companies make up their margins.

    That’s one reason why I’m skeptical that there are a ton of healthy young Americans who simply don’t want to pay for health insurance. According to the chart Pat posted yesterday, there are at most 10-12 million people who have reasonably high incomes but elect not to have health insurance; that’s roughly 3-4% of the population. I suspect that the vast majority of those people are self-employed, which means that if they want health insurance they have to purchase it on the individual exchange. If that’s true and they’re given the opportunity to self-insure at the same cost as everybody else, I bet most will jump for it. As someone who has a good chance of being self-employed next year, I know I would.

    W-B also reforms the Medicare payment code to reward providers “for achieving quality and cost efficiency in prevention, early detection of disease, and chronic care management.” That’s a very important first step, as most insurance companies model their payment structure after Medicare’s. This is also why health insurance isn’t “just a means some people use to pay for health care” – it is the ultimate determinant of what health care gets provided to whom, and at what price.

    The single biggest driver of our healthcare costs is the structure of payment – because providers are paid by the service rather than by the hour, there is a built-in incentive to run up costs by providing services of questionable importance. Successful preventive care can prevent the use of much more expensive specialized services, and thereby decrease the costs for all of us. By reworking the incentives, W-B is a necessary first step – though hardly the last – in addressing this central problem.

    There’s a lot of other cost-saving elements, including incentives for the use of comparative effectiveness studies in drug development, and administrative efficiencies such as universal forms and electronic health records. You can read more about these from the paper or the Kaiser tool. The tax code changes also make W-B self-financing, something that cannot yet be said of the other bills on the table.

    * In response to your other question, increasing the supply of healthcare doesn’t decrease aggregate costs, but it does decrease prices, which in turn decrease per-capita costs. For instance: if there are more primary care physicians certified every year in this country, then there will be less queuing for primary care services, and more people will receive those services. As primary care is preventive in nature, this will reduce the use of more expensive services such as the emergency room and the ICU. Just one example – I’ll probably return to this topic this later on.

  10. Jason (the commenter) said,

    wj : The feature of the bill that is supposed to push to reduce costs is transparency: making the cost of health care visible to everybody.

    But the bill only makes the cost of health insurance transparent, not health care. One of my points was that these are two completely different things.

    It’s clear that health insurers will have more money and profits in this system, how this makes health care cheaper I don’t understand.

  11. Jason (the commenter) said,

    Maxwell : That growth has to be slowed significantly even if it’s not stopped outright

    But health care works. It lets people live longer with a better standard of living. Why wouldn’t we want people (or expect them) to put more and more of their income towards it each year? How is this even a problem?

    The single biggest driver of our healthcare costs is the structure of payment – because providers are paid by the service rather than by the hour, there is a built-in incentive to run up costs by providing services of questionable importance.

    I would say it’s lack of choice. I would love to be able to go to a Walmart or similar type establishment for less than cutting-edge health care, or be able to purchase cheap insurance from my Doctor; but the AMA and government have all sorts of regulations which make that impossible.

    It’s not like Doctors are allowed to experiment with payment plans.

  12. wj said,

    Jason: But the bill only makes the cost of health insurance transparent, not health care.

    Perhaps. But if the cost of health insurance is transparent, one of the ways for insurance plans to compete is to vary the balance between insurance premiums and co-pays. I.e. give you the option to buy just catastrophic insurance, vs. coverage for anything and everything.

    Now if you have just catastrophic insurance, you have a big incentive to just use what you need most of the time. Which is to say, you don’t demand every possible test, or treatment for every little nick and scratch. The cost of individual tests or treatments may not change, but the total cost of health care drops as unnecessary stuff gets reduced. At least, that is the theory.

    Certainly it may not work. But it looks to me like it has a better chance of reducing what we spend on health care than anything else I have seen.

  13. Jason (the commenter) said,

    wj : Certainly it may not work. But it looks to me like it has a better chance of reducing what we spend on health care than anything else I have seen.

    But the insurance companies will be sitting on the panels telling the government what sort of things have to be covered by the cheapest forms of insurance. They’ll game the system. Since people wont be able to not buy insurance the insurance companies will never ever have to improve anything and there will be no innovation, no experimentation.

    Maybe there isn’t anything better now, but people find new sorts of ways to solve problems all the time. Supermarkets, fast food chains, box stores, Walmart, etc. are all new ways of delivering products, cheaply, that no one had ever thought of or at least been capable of implementing for the entire history of mankind; and they all sprang up in the last hundred years.

    We have zero chance of anything like that happening in health care if the government takes over.

  14. PatHMV said,

    In fact, WalMart HAS started offering walk-in health clinics. They’re usually staffed by physicians assistants, who are one step short of doctors and can prescribe at least some drugs.The market is working hard to find ways to provide these services. If only we can get the government to stay out of the way long enough, it will succeed.

    As for improving quality by paying for results rather than procedures, that’s been the aim of health care reforms for 30 or 40 years now. Hasn’t succeeded yet, except perhaps in a few isolated areas. You know the HMO? The entire concept was basically created by federal legislation. The idea was that particular patients would be served by a fairly small coterie of doctors, and the doctors would be paid on a “capitation” basis… not fees for particular services, but a set amount per patient participating in the plan. Thus, the doctor and the organization would profit by reducing the cost of the services provided. The hope was that they would, for example, realize that they could make more money by hiring a nurse to call up all their diabetes patients to remind them to come in for regular (inexpensive) treatment, to keep from having to undergo emergency (expensive) procedures.

    That really hasn’t worked very well. HMOs found it was easier to cut costs just by denying services, rather than providing additional ones. Thank you, government, for THAT intervention.

    The concept is sound in theory, but hasn’t worked well in actual practice. Damn patients make all these health care providers’ lives difficult, by being ornery and contrary and private and uncooperative and all.

  15. amba12 said,

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