5 ducats

On Brill's Bitter Healthcare

There is a lot of discussion on Steven Brill's lengthy health care article in Time. I wish an editor had tightened up the writing, and I'm dubious of some conclusions. Nevertheless, the ancedotes that he tells are anguishing. The best comment is in Interfluidity.

Two policy ideas struck me:

• Non-profit health care providers should publish their price list of procedures and products on-line, with the corresponding Medicare codes and reimbursement amounts. If an organization isn't built for profit and isn't paying taxes, then they should disclose their fee schedules. Public prices would drive out price gouging and gaming.

• Non-profit employee compensation of individuals should be capped, at say ten times the family median income. It is repulsive that executives of non-profit hospitals, museums, and charities robe themselves in benevolence while they are paid millions a year.

If non-profits don't want to do these things, then they can start paying taxes. Hypocrisy has its limits. But these suggestions only go so far. Steve Waldman's remarks in Interfluidity are right, we need outrage and shame to pierce the bureaucracy and ideology that shields predation.

How to Balance the Budget

First, we shouldn't balance the budget most years. During recessions we almost have to run a deficit due to higher unemployment benefits and lower income taxes, plus we need someone to borrow the money that households and businesses save (otherwise the economy continues to shrink). In the boom times the government should run a surplus in order to pay down the debt from earlier recessions, slow down an overheating economy, and reduce competition with private investors for savings.

Our long term average deficit should be less than or equal to our economic growth rate, which includes increases in population, productivity, and inflation (though inflation growth is often consumed by higher interest rates on the debt). As long as our future tax base increases by as much as our deficit, we can pay off that deficit without raising tax rates. Ideally, our deficits are spent on investments that increase productivity (infrastructure, education, research) that make it easy to repay. 

As US economic growth rate accelerates towards normal levels (3%?), the deficit will naturally shrink due to higher tax revenues and lower spending on unemployment benefits and SNAPS (food stamps). But there are two long term fiscal problems that won't easily be fixed with economic growth.

1. Top tax rates on ordinary, capital gains, dividend, estate, and business income are all near post-WWII lows.
2. Medicare and Medicaid spending is increasing much faster than reasonable economic growth.

We need to raise taxes back to something around what they were during the Clinton administration (when we ran a surplus, but before so many boomers retired). Everyone hates to pay higher taxes, and the ones with the most money are invariably the ones going to be tapped, yet they have the most lobbying power. Here are tit-for-tat tax ideas that may be more palatable:

• Tax capital gains as ordinary income, but allow capital gains to be reduced by an inflation index and eliminate the AMT.
• Tax dividends as ordinary income, but allow corporations to deduct dividend payments to US taxpayers as a business expense.
• Tax inheritance over 10 times the median income as ordinary income, but eliminate the estate tax.
• Implement a carbon tax and eliminate alternative energy credits, but reduce top corporate tax rate to 28% and make R&D tax credits permanent.
• Eliminate most itemized personal deductions, but replace them with non-refundable tax credits @ 15% of expense (regardless of tax bracket).

As for slowing the growth of medical expenses, maybe Obamacare will help. So much of health care spending is for insurance overhead (10%), insurance profits (10%), and provider billing (at least 15%). The size of these expenses don't make any sense. I don't have a solution of how to reduce them, but it would be easier to cut these than healthcare itself.

Texas Healthcare Tort Reform

In 2003 a bill was passed that capped non-economic damages at $250k. I don't know the devil in the details, but that sounds reasonable to me. I often hear people claim that outrageous lawsuits are a big part of rising health care costs. But I read experts who claim that lawsuits only effect total costs on the margin. This topic will heat up with Gov. Perrry's presidential candidacy.

Here's what I found, from Health & Human Service's Medical Expenditure Panel Survey.

Texas health care premiums aren't lower than the national average, or than many neighboring states. Tort reform doesn't look like a silver bullet to our health care costs. If tort reform is enacted nationally, I'm not expecting my insurance premiums to be materially different.

Maybe insurance companies allow states to cross-subsidize each other, and Texas is a victim of that - but I doubt it. Much more likely is that the cost of Texas' large percentage of uninsured's emergency procedures is borne by those who do have medical insurance.

Insurance Theory

Consumers need a better understanding of insurance, particularly for healthcare.  Insurance transfers the loss that occurs in an uncertain event from one party to another.  And because insurance premiums contain a component for the insurance company's profit and administrative costs, policy holders should only buy insurance for large, uncertain claims that they couldn't afford (at least easily) to pay otherwise.

Health Care Expenses & Medicare

I've been writing about thinking of taxes for education, retirement, and retirement medical expenses as generational transfers.  Thought I'd show some numbers on health care expenses.

Remember that the graph below is for 2004, and the cumulative inflation rate for medical care since then has increased by 26%!  Needless to say, getting old is expensive.  Back in 2004 the government paid almost $10,000 per year for healthcare on someone 65+ years old.  And over $17k for someone 85+ years old.  In case you are wondering, 17.5% of the 20+ age population is now 65+ years old.