Health-insurance deductibles and the average American’s assets — July 20, 2017

Health-insurance deductibles and the average American’s assets

Here‘s a little thing about health-insurance deductibles:

In short, the BCRA makes changes to regulations that will cause annual deductibles for individual market health plans to skyrocket — to $13,000. But other regulations set the legal limit on annual out-of-pocket spending to $10,900. This means the BCRA’s health plans could actually violate the law.

If you want to get a sense of how large a $13,000 deductible is, consider this, from the Federal Reserve:

respondents are asked how they would pay for a hypothetical emergency expense that would cost $400. Just over half (54 percent) report that they could fairly easily handle such an expense, paying for it entirely using cash, money currently in their checking/savings account, or on a credit card that they would pay in full at their next statement (collectively referred to here as “cash or its functional equivalent”). The remaining 46 percent indicate that such an expense would be more challenging to handle and that they either could not pay the expense or would borrow or sell something to do so.
[…]
among respondents who would not pay the expense in-full using cash or its functional equivalent, 38 percent would use a credit card that they pay off over time and 31 percent simply could not cover the expense.

So around 1 in 7 Americans couldn’t pay a $400 expense in any way.

(There’s a BankRate survey that seems to ask a similar question, but I couldn’t identify the exact question. The Fed’s question is precisely laid out. And of course it’s a more trustworthy source.)

When people talk about how insurance ought to be only for catastrophic expenses, I hope they realize what ‘catastrophe’ entails for a lot of Americans.

A couple conservative pieces on health insurance — July 8, 2017

A couple conservative pieces on health insurance

One from Philip Klein. And another from Peter Suderman.

Both pieces openly acknowledge what the liberal side has been saying for a long time — that Obamacare is a three-legged stool, and that you can’t keep the pre-existing-condition regulations (“guaranteed issue”) without keeping the rest. Klein and Suderman then, fascinatingly, land on conclusions exactly opposite to the ones that liberals would land on. Both Klein and Suderman would do away with guaranteed issue, community rating, and all the rest. They would then replace Obamacare with catastrophic insurance, health savings accounts, high-risk pools, and so forth. Fundamentally, they don’t view health care as a human right, and they don’t believe that government has any business getting involved in the insurance market. If you start from those premises, you’ll likely end up where they do.

You get this sort of clarity from op-ed writers, but not from elected officials. I would posit that that’s because the moral basis of Obamacare is in line with most Americans’ values: most Americans would, I think, agree that you shouldn’t be denied care just because you had a pre-existing condition. (A close friend’s son had open-heart surgery very early in life — I want to say before he turned 2 years old. Do we want him to be uninsurable for the rest of his days?) Having granted this premise, elected officials can either give Americans something in line with their moral values — that is, Obamacare or stronger — or can do what writers at Reason would find congenial, tear off the Band-Aid, and give them health care that’s stingy and (by most Americans’ lights) immoral. It’s no wonder that conservative politicians hesitate to take the orthodox-economist position; or, having taken it, refuse to admit that that’s the position they’ve taken. The BCRA can only pass most Americans’ moral muster under cover of darkness.

Parts of the orthodox-economist position are in line with wonky liberalism. Suderman, for instance, writes that the tax deduction for employer-sponsored health insurance “is the original sin of the United States health care system,” and is “[w]orth more than $250 billion annually.” Many liberals would love to get rid of it; I certainly would. There’s a liberal case against it: it’s regressive, and it makes a dollar of health insurance worth more than a dollar of salary, with the predictable effect that employers pay less in salary and more in health insurance. (I’ll look around for research on how much of Americans’ well-documented wage stagnation can be explained by this tax preference.)

The much-maligned “Cadillac tax” in Obamacare sought to do away with this regressive tax expenditure, albeit stealthily. High-value employer-based health-insurance plans would be taxed, and the definition of “high value” would not be adjusted for inflation. So over time, more and more health plans would be subject to the tax. The dream was that high-value health plans would slowly fade away and salaries would rise; we’d take away with one hand (the Cadillac tax) what we gave with another (the tax deduction).

I have no problem granting that this is ugly: to correct one tax sin, we create another. It’s the embodiment of a libertarian parody of how government works. While granting this, I’m sympathetic: politics is the art of the possible. My liberal dream also collides with the art of the possible: I’d prefer something akin to the Canadian system or expanding Medicare to everyone, or expanding the VA hospital system to everyone, but those are also not yet possible. We take what we can get for now.

In any case, it doesn’t matter: the Cadillac tax was unpopular with everyone, including labor unions. Orthodox economics runs up against the art of the possible.

I’m happier with a discussion centered around the Philip Kleins and Peter Sudermans of the world than I am with one centered around Paul Ryan and Mitch McConnell; at least the former are more honest about what they want. Though this, from Suderman, is misleading:

Medicare, meanwhile, offers a huge system of federal benefits to older Americans that typically run far beyond what most have paid in. Its introduction was associated with explosive growth in hospital-costs inflation during the 1970s.

That was absolutely true about Medicare … in the 70s. It’s not true anymore. The keyword you want to Google for here is the “prospective payments system”. See this review from the Centers for Medicare and Medicaid Services, for instance. Suderman has better arguments than this; I wonder why he chose to use a poor argument there.

Obamacare featured lots of experiments to control costs, including the Independent Payment Advisory Board, which Sarah Palin famously derided as “death panels”. It’s somewhat isolated from the political process, presumably because politicians realize that doing what’s right will often be at odds with what voters want.

I don’t believe, though, that any number of experiments in cost control will sway those of a libertarian cast of mind, because I believe we’re fundamentally having a debate over values rather than one over implementation details. I’m happy that those values — the desire for universal coverage against the belief that health care should be treated like any other market good — are out in the open. Let’s argue it on those moral grounds.

Health-care-debate frustration of the day, Philip Klein-of-the-Washington Examiner edition — July 7, 2017

Health-care-debate frustration of the day, Philip Klein-of-the-Washington Examiner edition

And now, this podcast, namely The Gist with Mike Pesca. Three things Klein says frustrate me:

  1. Shelley Moore Capito was pro-Obamacare repeal when Obama was president and her opposition was all talk. Now that she’s got some power over the BCRA, she’s chafing at the reductions in Medicaid. Pesca raises the obvious point that Capito doesn’t want the residents of West Virginia to suffer, which is what you’d expect from their senator. Klein responds that maybe the citizens of West Virginia should pay higher taxes, then.

    I didn’t think this needed to be said, but that’s not how the United States works. Wealthy people subsidize poor people. Wealthy states subsidize poor states. Senators represent individual states, with actions that sometimes affect other states. The way deals work is that my state gets a little something, your state gets a little something, we each pay for the other, and that’s how we govern. Oppose that way of doing things if you like, but we’re a unified nation of 50 states. The Civil War resolved that question. I’m surprised to see Klein reaching for such a juvenile model of how our government works.

    You can also feel free to call her a hypocrite if you like. Me, I’m well and truly exhausted of the hypocrisy label being bandied about. Don’t get me wrong: when Republican politicians thunder on about homosexuality and the decline of the traditional family, then turn out to be philanderers or closeted, I smirk as much as the next smug liberal. But the real problem isn’t hypocrisy. The real problems are that these politicians are wrong in their evaluation of the country’s moral decline (I for one think that starting a war for no good reason in Iraq is a far graver sin than is falling in love with someone of your own gender), and are pushing policies that condemn a subset of their fellow-citizens to second-class status. Let’s stop talking about hypocrisy, and instead talk about whether the politicians are right or wrong.

  2. Klein returns to the old canard about how government involvement in health care leads to rationing. He neglects to mention that it’s already rationed; it’s just rationed by income. “If there’s only a finite amount of care to go around, the wealthy should get it rather than the poor” is a coherent worldview, which I think the bulk of Americans would reject as morally abhorrent (because it is). I would like Klein to come out and say that this is his principle. Everything else that he says hints that he doesn’t believe health care is a human right, and that he does believe it should be rationed by income. I’d like to see him be explicit about this principle.

  3. Klein also mentions that he’d like a world where consumers shop for the best options. Everyone knows why this doesn’t work, so again I didn’t think it was necessary to go over it. First, someone like me — who visits the doctor a few times a year for routine checkups — is not responsible for the bulk of medical expenses. People in the final year of life, people with multiple chronic ailments, people whose illnesses require expensive treatments, etc. are responsible for the bulk of medical expenses. Klein is implicitly asking cancer patients to shop around for the cheapest chemotherapy. Which is absurd for reasons that I really do not intend to go into.

    Second, shouldn’t insurance companies already have an incentive to negotiate for the best prices? Why don’t they? Why would consumers — who certainly have less leverage than insurers — be expected to do a better job at negotiating or shopping around than the insurers do? And here’s a completely non-rhetorical question to which I don’t have an answer: I’ve wondered for a while why insurers don’t already tell their patients, “We’ll pay for your chemotherapy, but it’s half the price if you travel across the state to a cheaper hospital. We’ll even pay to drive you there and back, and for the hotel when you get there. Even after paying for all that travel, it’s still cheaper for us.”

    Third, I return always — practically every day — to Socialism: Converting Hysterical Misery into Ordinary Unhappiness for a Hundred Years. Who actually wants to spend his time on hold with insurance companies, trying to cajole them into paying for a coronary bypass? This is not the world I want to live in, and I doubt it’s the world you want to live in either. I have a hard time imagining that Philip Klein wants to live in that world, but maybe he expects that in Marketopia, concierge services will appear whose job it is to sit between you and the insurance company, negotiating on your behalf? Is adding another layer of rentiers really the dream end-state for conservatives? I honestly wonder what the goal here is.

Ezra Klein’s latest interview with Avik Roy is maddening — July 6, 2017

Ezra Klein’s latest interview with Avik Roy is maddening

The tl;dl to this episode is that Avik Roy believes some future hypothetical Republican health-insurance bill will be a significant improvement over the existing health-insurance market. It happens that the actually existing Better Care Reconciliation Act is not that bill, which Roy seems to have no problem conceding. It’s not clear at all from the interview which problems Roy actually thinks the BCRA solves, yet this is the bill about which Roy tweeted

There’s some hypothetical Republican Congress, says Roy, which will care about providing universal coverage for the poor, but it’s not this Republican Congress; there’s some hypothetical humanitarian Republican health-care bill which could hypothetically arise out of the ashes of the BCRA, but the BCRA is not that bill. Roy says we’re supposed to be happy with the BCRA because it’s the result of a debate between the hardcore “throw the poor out in the street” wing of the Republican Party and the “let’s give the poor some health insurance that they can’t afford” wing of the Republican Party. It’s a compromise, and at least they managed to get legislation out the door. The Democratic Party wants, as a core tenet of its platform, to provide health-insurance coverage to everyone, so the result of a Democratic compromise is something that’s at least ideologically coherent: we knew we couldn’t get single payer, and even the public option was too liberal for the likes of Joe Lieberman. It’s not at all clear what the result of this notional Republican compromise is supposed to accomplish.

I believe Roy is a person of conscience, and I take him at his word that he wants good coverage for everyone. Central to his belief system, though, seems to be a cramped view of government that is likely to make it work more poorly and get less public support. Health insurance, he says, is meant to prevent bankruptcy. If you believe that, you’re going to downplay the humdrum day-to-day use of health insurance — e.g., going in for a checkup, or getting a routine dental cleaning; those aren’t the sort of things that threaten people with medical bankruptcy. You’re also going to land, as Roy does, on a spare view of the government’s role in health insurance. The government, he says, should be subsidizing the poor more and the wealthy less. I agree with this, which is why I think it’d just be simpler to provide a service, pay for it with taxes, and make those taxes steeply progressive. Roy takes it in a different direction: if I understand him, he would have the government provide stingy care for catastrophic illnesses only, and only to the poor.

I have major concerns when we think about government like this. Universal programs get universal buy-in: if your wealthy grandfather gets Medicare, he’s going to fight like hell to keep it — even if, by Roy’s lights, he’s too wealthy to need it. In the world Roy envisions, only the poor, who don’t donate to political campaigns and often can’t afford to take time off from work to vote, have an incentive to fight for (Roy’s version of) Medicaid.

The government Roy envisions provides systematically poor service. It’s not just in health insurance; you see Roy-style government also in, say, mass transit. Hence the excellent Matt Yglesias Twitter thread ending here:

Here in the U.S. our mass transit is dirty, overcrowded, and unreliable, at least in part because of an Avik Roy-style ideology that thinks the government should be providing a “safety net”: if every other means of getting to work fails for you, at least you’ve got this one crappy option; if you’re poor, at least you won’t end up too far in debt trying to pay for your health care. So people come to think of government as the provider of crappy services. So they bail on those services and use the expensive private options. So the services become crappier and the cycle continues.

And in many cases what Roy envisions is just too complicated. Roy and Klein go back and forth about premiums, deductibles, cost-sharing, etc., as though we didn’t already have a government which is extremely good at collecting taxes. The Laniel Plan for government is: provide people an excellent service (subways, health care via the VA, health insurance via Medicare), then tax them for it, and make the tax code steeply progressive. (Roy and I would agree that removing the tax deduction for employer-sponsored health care is vital here. Doing so would be both good for the overall health system and very progressive.) No deductibles. No copays.

Scale out just the tiniest bit. The goal should be that the insurance you get via the government — whether it’s Medicare or Medicaid or the VA or the ACA exchanges — is as good as the best employer-provided health insurance. Why are we always settling for a “safety net”? We’re a wealthy country. We can afford to provide stellar coverage to everyone. Not only can we afford to provide excellent services; our habit of not providing them has led us to the state we’re in, where government services are near-universally perceived as … well, as the government cheese of whatever service they’re supposed to provide. We’re in a self-fulfilling vicious cycle now, where government services are perceived as poor, which makes cutting their funding politically easier, which leads to poor government services. I’d like to see us reverse that into a virtuous cycle.

It seems clear that Roy would disagree with all of this, and that Democrats would agree with most of it. To the extent that our laws look muddled — as, arguably, Obamacare did — it’s because we know that the thing we actually want (single-payer, basically) is not feasible, so we unfortunately compromise into something muddled. Whereas it’s not clear what Roy wants; and to the extent that it is clear what he wants, what he wants is something that would make the government work even less well. What’s truly terrifying is that Roy is the moderate in his party.

Behavioral economics and retirement savings — March 26, 2016

Behavioral economics and retirement savings

This NYT article about using behavioral nudges to get people to save more is fine, so far as it goes. But it’s another example of policies which go through an outrageous amount of complexity to encourage people to do the right thing, instead of doing the right thing for them.

There are a lot of potholes on the way to a happy retirement. First is to save enough. Second is to save in appropriately diversified vehicles (e.g., index funds). Third is to choose a mix of assets that’s appropriate for your particular stage of life — e.g., more stocks when you’re young, and more bonds when you near retirement. Fourth is to not outlive your savings; the way to do this would be to buy an annuity, but the annuity market (as I understand it) is not as well developed as the rest of the retirement-savings industry.

So then we (as a society) compile all of this knowledge about financial best practices, then try to convince people to use it, then outsource preparations for retirement to employers, then encourage employers to nudge their employees into doing the right thing. Not only is this ineffective; it’s infuriating and exhausting.

Until fairly recently, we tried another outsourcing approach: encourage employers to provide pensions (“defined-benefit retirement plans,” in the jargon, as opposed to “defined contribution” plans like 401(k)s). Pensions required employers to set aside money today for their employees’ retirement, but this of course presents a problem: what if the employer goes out of business before paying out those retirement benefits? To address this possibility, we built a regulatory infrastructure to try to regulate these pensions. If all else failed, we created a government agency as a backstop.

Somehow the straightforward approach of just providing strong retirement benefits to all Americans, then paying for those benefits with progressive taxes, hasn’t yet taken hold. In the U.S., “inflation-protected retirement annuity with survivor benefits, paid for through taxes” is pronounced “Social Security.” Social Security is expected to be part of a three-legged stool, the other two legs of which are pensions (nowadays IRAs and 401(k)s) and private savings. Those other two legs are increasingly weak: the overall national private saving rate has been declining for decades, and briefly went negative in 2005. That savings rate already includes 401(k) and IRA contributions, so one of the legs of that stool is practically nonexistent. As for the 401(k) leg: only 66% of private employers even offer retirement benefits, and only about 3/4 of the people who have access to them use them. I can’t find statistics on how much people contribute to such plans, but the amount must be less than the low overall savings rate. [1]

In this light, behavioral workplace nudges to get people to save more seem like a last-gasp rearguard effort. If we, as a society, believe that saving for retirement is important, why don’t we, as a society, reflect this belief in our policies? The standard nudgey answer is “libertarian paternalism”: set appropriate defaults on retirement savings, and allow people to override those defaults if they wish. It seems pretty clear that libertarian paternalism doesn’t work. Libertarian paternalism seems like nothing so much as resignation in the face of a hostile political climate; it resembles the early Obama administration, hoping against all evidence that the GOP would take half a loaf. “Conservatives and liberals disagree on a lot of things,” I imagine libertarian paternalists saying, “but surely they’ll agree on market-friendly solutions like behavioral nudges.”

Even if these nudges worked, Social Security would still be better. First, there are enormous economies of scale from administering Social Security centrally rather than outsourcing pension management to millions of employers. Second, those employers can’t be expected to be any good at choosing retirement options for their employees. My employer makes software; it doesn’t make retirement funds. Why would we expect my employer to be any good at offering 401(k)s? Why would it want to offer 401(k)s? It wants to make software and it wants to lure talented employees with high salaries; all else is noise.

Social Security isn’t perfect. It’s not progressively taxed, for one thing: it’s a flat tax, and you don’t contribute on any dollars you earn above $118,500. It’s regressive on what’s paid in, but progressive in what’s paid out: higher earners can expect to get back a smaller fraction of what they paid into Social Security than lower earners do. And it only pays out $1,335 per month on average, which still amounts to 39% of elderly people’s income. So it needs to be more generous and more progressive. But it’s a start, and the infrastructure is already in place. Removing the taxable maximum would be a hard-fought battle, but would be comparatively easy to implement once we’d made the decision to do so.

I like to imagine a thought experiment. Back in 1970, I imagine someone told my parents (who weren’t yet parents) that in 50 years they would be nearly four times as wealthy as they were back then. My imaginary interlocutor would then ask my parents what to do with that windfall. They might have felt perfectly well off with the income they were earning back then, so the thought of quadrupling it might have seemed outrageous. Maybe they should set some of it aside for retirement? Set aside even more of it and allow themselves to retire early? How about setting aside some of it to provide the world’s best universities, for free? There’d be a long list of choices they could make. They could choose to buy a larger house, though maybe they’d look around at the house they have and think, “No, this is a fine size house; we’ll choose to spend our money on other things” (unlike Americans as a whole, whose homes are 42% larger at the median than they were in 1973).

Like Odysseus tied to the mast, every decision that my parents made in their mid-twenties would bind them in their working years and on into retirement, and the binding would be handled through the tax code. Would they lament the money that never made it to their wallets, but rather was spent on social goods? Rather than after-tax paychecks that were on their way to quadrupling, they’d get free university educations for their children, and they’d have enough money to retire comfortably. A lot of the arms races that we fight with our neighbors would never have been fought: rather than build a larger house simply because that’s what everyone around us does, and because we must keep up with the Joneses, the tax code would disarm everyone at once. To the extent that we build larger homes out of an arms-race mentality, rather than because any individual person wants a larger home, this multilateral disarmament would help everyone.

Of course this story isn’t complete. For one thing, real per-capita disposable personal income doesn’t capture the story of rising income inequality over the last 30-40 years; the story of American growth hasn’t been a story of rising tides lifting all boats. A more accurate measure might be median household income, which has barely budged since the early 80s. This may, in fact, strengthen my story. Which do we prefer, as a society: quadrupling our income, but putting most of that extra income into a few hands, or sharing it more broadly and investing in our future through strong public universities, public-health spending, and basic research that helps everyone?

The story of increasing wealth may also be missing a key component: health care. Maybe our parents would have loved to have set aside money to build for the future, but they didn’t have that choice: much of what would have gone into their pockets as increased wages went, instead, into health-care costs borne by their employers. First, I have my doubts that this was actually a problem: the real disposable personal income number already factors in the health-care CPI. And second, the fact of rising health-care costs in the U.S. results, at least in part, from our fragmented system of care. That is, rising health-care costs have been very much a social choice. Imagine again that our parents, bound like Ulysses, were asked in the early 70s to make a choice: organize medical spending in a deliberate way (à la the VA medical system, or à la Medicare), or continue with the chaotic and spectacularly inefficient way we’ve organized it.

Barney Frank is supposed to have said that “government…is simply the name we give to the things we choose to do together.” Let’s get back to thinking of things we can do better together, as a society. Social Security is a good start, but it’s just a start.

[1] – I don’t know whether home equity is counted in the NIPA definition of savings. Even if it is, I’m a little confused about how owners’ equity is counted. How could equity be cut in half and then return to trend? In any case, equity per capita only hit a peak of about $45,000, so it alone won’t rescue Americans’ savings rates. And we can’t compare savings rates to equity amounts; that’s comparing a flow to a stock. The relevant comparison would be either the rate of change in equity to the rate of change in savings, or the total amount of savings to the total amount of equity. I can’t figure out a quick way to do the former; the latter doesn’t seem particularly valuable.

I appreciate the sentiment, but this is basically false — July 8, 2014

I appreciate the sentiment, but this is basically false

> Your health care decisions are not your bosss business, said Senator Patty Murray, Democrat of Washington
–[newspaper: New York Times] story about a Democratic bill to override the Supreme Court’s Hobby Lobby decision

I’m as unhappy about the Hobby Lobby decision as anyone else, especially since the U.S. Conference of Catholic Bishops say they don’t object to insurance covering Viagra. There’s an obvious double standard, and I hate it.

But really. Here’s reality:

1. By ‘Your health care decisions’, what Murray means is ‘what your insurer is required to pay for.’ Let’s be clear on that, because you can still go ahead and pay for contraception on your own. Again, I’d like to see insurance plans pay for contraception, but let’s be clear on what “Your health care decisions” means.
2. Your health-care decisions, by that standard, are never entirely up to you. Insurance pays for some things and not for others.
3. This would still be true even if — as I would prefer — we had a single-payer health system. The government would still pay for some things and not pay for other things.

I think it’s hopelessly muddled to frame this in the language of “your health-care decisions”. What the big debate is about is simply this: what do we believe that the our insurers — whether it’s the government or a private insurer — should be required to pay for? That’s an ethical and economic decision. And our insurers will sometimes make decisions at variance with our own ethics. And that sucks. Those on the other side would, presumably, say that it sucks when they need to go against *their* ethics to pay for something that they consider objectionable. My response to that would be: how far are you willing to take that? If my religion forbids male doctors from palpating naked female patients unless the doctor is married to the patient, are you willing to deny coverage in that case? Are you willing to make female patients seek out female doctors if they want the insurer to pay for it?

Indeed, I think I need to read more on the Religious Freedom Restoration Act and the Hobby Lobby decision, because I’m confused why religion here doesn’t excuse just about everything. SCOTUS describes the RFRA as follows:

> The [RFRA –SRL] prohibits the Government [from] substantially burden[ing] a persons exercise of religion even if the burden results from a rule of general applicability unless the Government demonstrates that application of the burden to the person(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest. 42 U. S. C. 2000bb1(a), (b). As amended by the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA), RFRA covers any exercise of religion, whether or not compelled by, or central to, a system of religious belief. 2000cc5(7)(A).

I’m tempted to find some excellent regulatory arbitrage out of this, whereby I can make a lot of money by hiding fraud under cover of religion. More than that, though, I find it offensive that I have to pay, through my taxes, for wars that I don’t agree with. Did the government use the least restrictive means of furthering its compelling government interest in destabilizing Iraq when it taxed me? Okay, arguably yes. Was the government’s decision to require coverage of contraception 1) not in furtherance of a compelling governmental interest? Or was it 2) not the least restrictive means of furthering that interest? I guess I need to read the decision.

So anyway: yes, this sucks, and it conflicts with my ethics. Let’s be clear that this is an ethical objection, not an objection — as Murray would have it — about someone interfering in your health decisions. Someone’s always going to interfere in your health decisions.

Why doesn’t Blue Cross fly me to Nebraska? — April 9, 2014

Why doesn’t Blue Cross fly me to Nebraska?

This paragraph in a Vox post about Vermont’s single-payer plan pokes at a question I’ve had for a long time:

> American doctors spend lots of money dealing with insurers because there are thousands of them, each negotiating their own rate with every hospital and doctor. An appendectomy, for example, can cost anywhere from $1,529 to $186,955, depending on how good of a deal an insurer can get from a hospital.

My mental model of this part of health care is that there are four players: the patient, the insurer, the employer, and the provider. The insurer negotiates a price with the provider for a given procedure. The employer picks an insurer, based on price and various other things. (I’m ignoring the VA Medical System, which is like the UK’s National Health System; I’m ignoring Medicare, which is like Canadian single-payer; I’m ignoring the individual market; etc.) I … well, I just work where I work, and in practice I’m not going to pick my employer based on how cheap a deal they get on appendectomies.

Now then. Who has the incentive to keep things cheap? Well, I do, I guess, inasmuch as I have some “skin in the game”, which is why the terrible state of the art in health insurance is that I pay more and more and have a very large deductible. (Hey, at least I won’t go bankrupt! I mean that half-seriously.) My employer does, to some extent. For one thing, they pay the majority of my health-insurance premium; they’d like to pay less of that. For another, every dollar they pay toward health insurance is a dollar they can’t pay toward salaries, and every dollar they take away from salaries decreases their odds of getting good candidates.

Where the rubber really hits the road on prices is the insurer. The less the insurer can pay for appendectomies, the more profit they make. To the extent that the insurer can just pass costs along to the patient, the insurer doesn’t really care what it’s paying for appendectomies. The more urgent the care, the more the insurer can pass it along to the customer, maybe. (I’ll gladly bankrupt myself to pay for an emergency appendectomy.)

Let’s assume that the insurer can’t just pass costs directly along to the patient. And let’s assume that neither the insurer nor the provider has unlimited bargaining power: the insurer can’t pay $0.01 for an appendectomy, and the provider can’t charge $1 million for it.

If the insurer negotiates a rate of $100,000 with one provider for a given procedure, and negotiates a rate of $1500 with another … why not pay me to fly to the cheap hospital? Suppose it’s in North Dakota while I’m in Boston. Why not pay for the plane ticket, pay for the airfare, and — hell — compensate my employer for the value they lost while I was gone. If I estimated that all of that together, plus the cost of the procedure at the cheap hospital, would cost the insurer $10,000, I think I’d be radically overestimating it. But that’s $90,000 less than they were going to have to pay. So: good for them!

Maybe emergency procedures are a bad example: if you need them now, you need them *now*. Even there, though, I wonder whether it would be medically justified to stick me in a chartered flight to North Dakota. Maybe there’d be a whole fleet of medical airplanes run by the insurance companies. Just spitballing here!

Two other notes:

1. All of the above, I think, shows that “consumer-directed health care” is nonsense. The insurer is still going to be the locus of the cost savings, under any system (and whether that insurer is the U.S. government or a private company). There’s just no reason to expect that the consumer can do anything here. Maybe consumer-directed health care means that I’ll go to my podiatrist a little less often. If I need that appendectomy, though, I need that appendectomy.

2. Somehow that Vox piece goes through 3,000-plus words, by my count, without once explaining what *has to* be the most interesting question about single payer in Vermont: how did they bring the insurers and the hospitals on board? How did they get around the hospitals? There are vague nods in the direction of Vermont being liberal, and the movement being grassroots. And they mention that the hospitals aren’t happy with this. (*Really?*) But how did they neuter the hospitals here? How did they neuter the private insurers? Or did they? I’m worried that skipping this part of the story is an occupational hazard at Vox. They’re trying very hard to explain “just the facts”, and there are only so many words they can pack in. If we get to the level of What Is The World Wide Web? it’s going to take us a while to get up to “how did Vermont and Canada claim victory over the pre-existing health-industry power structure?” I’ll wait patiently, but that kind of depth seems a ways off.