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Thursday, October 8, 2009

Close but no cigar

I saw the article link on Greg Mankiw's Blog to Martin Feldstein's piece in the Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2009/10/07/AR2009100703048.html). It is an interesting idea which proposes to use a a government issued health insurance voucher to underwrite the private purchase of high deductible policies which feature a sliding scale deductible based upon a fixed percentage of gross income. He also advocates the voluntary use of a government issued credit card to cover the deductible if individuals or families do not have cash flow to cover expenses.

The upside is that this approach would create some pricing discipline in medicine, since people would be less insulated from the actual cost of much of medicine. It would be worth testing in a demonstration project. However, I see at least two major problems. First, I cannot see the Federal Government as an effective agent in terms of running a credit card company. How exactly would this work? Would this simply be farmed out to MasterCard of Discover? Would individual states handle this?

I have a hard time imagining Uncle Sam playing the role of loan collector. Granted, the Feds know a lot about our individual financial circumstances but I fear that political fallout would preclude aggressive collection of health care debts. A program like this would also be very prone to massive fraud.

It is great that the proposed program builds such an effective safety net. That is the very reason that I fear it has such a potential for similar or worse moral hazards than our present system. Ultimately, the only effective curb on ridiculous pricing of health care services is when the public in general feels their sting. Insurance insulates the public to a sufficient degree to insulate medical pricing from consistent downward pressures. This is not to say that lots of people don't get hurt by health care expenses. However, enough are protected to allow for the system to continue, for now.

This approach still does not explicitly address the problem with pricing in health care. Presumably since most of ambulatory care would occur below the deductible, how will prices for non-insured services be determined? While virtually all providers now participants in insurance plan, a move to high deductibles would prompt many to move to a non-insurance model. While I believe this would ultimately create a more rational pricing structure, the transition could be very disruptive. Would Medicare be part of this voucher program?

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