Avikcare: my evaluation

Avikcare: my evaluation August 15, 2014

Yesterday I wrote up a summary of Avik Roy’s proposal to reform the exchanges but wasn’t very organized with my commentary, so now I’ll try to pull together some more organized commentary.

I’ve long had the pet idea of what I call “VoucherCare” — it was, in fact, my second post on this blog, though, if I were to rewrite that post now I’d modify the idea, but, at the same time, shortly thereafter I wrote about my doubts about catastrophic health insurance.

So why am I not falling all over Roy’s plan?  In some respects the plan is too timid, but in others, it’s too radical.  (Though, fair warning, I read this late at night — I may be misreading some aspects of the plan.)

As a side note, before I start with the meat of his plan, he didn’t do his homework (or is intentionally misleading) with respect to his international comparisons.  He cites Switzerland and Singapore as examples of his central principle that a market-based system can provide universal coverage — but in his graphic showing that these two countries have low healthcare costs presents only the public cost.  When considering total cost, Switzerland’s is second only to the U.S., with local concern about cost increases, so not a great model.  I don’t know about Singapore’s cost, but they’re not a magical land — employer-sponsored healthcare is the norm there, just as here, and that, not the magical impact of their healthcare savings accounts, is what fills in the gaps from the low state provision of healthcare.

Let’s start with his big idea:  put simply (perhaps too simply), it’s to move everyone, or at least a large portion of the population currently receiving government-funded healthcare, onto catastrophic plans.  Is this the right thing?

For educated middle-class Americans, catastrophic plans offer a certain amount of promise — if the insurers can price-shopping tools up and running and provide their customers with the information they need to chose the most cost-efficient option, and, let’s face it, there’s still a long way to go before we reach this point.  If you find a hospital that advertises a price-match guarantee on its delivery rooms, I’m all ears.  (See this instapundit-linked piece in which the author describes his family’s inability to choose in-network doctors because the in-network hospital is indifferent to whether its doctors are in the patient’s insurer’s network.)  And even in a perfectly  built-out system, much of the time Americans would be unable to act as consumers, when they need serious medical treatment, without delay or second-guessing.

For the poor, it’s really hard to imagine then being sophisticated consumers.  Yes, moving them to high-deductible plans might eliminate the horror stories in which a young woman goes to the ER for a pregnancy test, and, when she doesn’t get it, claims an illness requiring pregnancy testing among several thousand dollars’ worth of other treatments — or maybe not, if this is all “they have to treat you in an emergency” care and she has no intention of actually paying the bills.  But will we hear more of the “simple illness made worse because, for fear of the out-of-pocket cost, the doctor’s visit was deferred” stories?

And for the elderly:  not everyone ages at the same rate.  Some people could do just fine with a high-deductible plan, but I suspect that most people, as they age, would find it increasingly difficult to accomplish the tasks that high-deductible plans are supposed to push us to do, such as asking doctors whether there’s a cheaper treatment, or whether the test is really necessary and, if so, where the cheapest place is to get it done. On top of which, I’m not keen on means-testing old-age benefits based on lifetime savings; unless it’s done very carefully, it’s an incentive not to save.

The level of deductible he proposes is also much higher than I’m accustomed to seeing ($7,000), and he really seems to presuppose that an individual has the opportunity to “save up” for the deductible before any health crisis hits, so that they use their savings but don’t take a direct financial hit.  I’m all for high-ish deductibles, but does this level really make sense?

Of course, the “consumer-driven” approach is simple in design, but most people would be better off with integrated healthcare systems in which the doctors, hospitals, and other providers are watching out for patients in a coordinated way, to provide the best healthcare in a cost-efficient way, rather than expecting patients to make medical decisions beyond most people’s capacity.  Philip Bredesen outlines such a system in Fresh Medicine, which dates to 2010 but I thought at the time was quite compelling.

What about his other proposals?

With respect to the exchanges themselves, his changes are modest.  He would preserve nearly the whole of the modified community rating, only allowing a greater price differential between old and young (why not allow full underwriting by age, at least?).  He would solve the anti-selection issue by limiting open enrollment to 6 weeks every two years (doable, as long as there are no loopholes around status changes, such as entering or leaving employment with employer-provided healthcare, but I’m not sure if that’s enough of a stick).  He proposes, somewhat vaguely, that the range of required benefits be narrowed to incorporate cost-effectiveness considerations, especially for drugs.  He suggests that states not create their own exchanges but funnel benefits to individuals through existing private “exchanges” (e.g., online insurance agents).

He doesn’t really solve the issue of employer-sponsored healthcare.  So far as I could tell, he envisions the employer-sponsored system remaining pretty much unchanged and running parallel to the exchange system.  If he has a reform in mind for the tax inequities between individual and employer-purchased coverage, or for the unfairness issue that individuals receiving exchange subsidies come out ahead over those who get employer-sponsored insurance at a cost of lower wages, I’ve missed it.

And we’re supposed to take on faith his statement that his way of delivering premium supports would be fairer and without the existing penalties as people’s income grows.

Some of his proposals are rather disconnected to the question of how our healthcare system should be organized:  improving the FDA’s drug approval process, reducing Medicare fraud, moving long-term care for the poor to the states with block grants, breaking hospital monopolies by reducing barriers to new hospitals.
So that’s it.  I don’t really care about the arguments about whether Roy fails the ideological test of dismantling Obamacare sufficiently, but I don’t think these proposals get us where we need to go, for other reasons.

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