2008 November 02 Sunday
How To Buy Health Care Insurance?

Had John McCain won the presidency he would have pushed a health care reform that probably would have reduced employer-provided medical insurance. That seems like a bad idea at this point.

The concept of letting people shop for insurance across state lines applies to the individual health insurance market, which now serves about 17 million people. The market consists largely of those without access to insurance through their employers, but it's a market McCain is trying to strengthen through changes in the tax code. Under his plan, people would get the same tax break a $2,500 credit for individuals or a $5,000 credit for families regardless of whether they got insurance coverage through work or purchased it directly.

Now, tax breaks primarily help those with employer-sponsored coverage. Employer and employee payments toward health insurance are excluded from income and payroll taxes. McCain would treat those payments as taxable wages and an income tax would be applied to them for the first time.

Polling conducted by the Kaiser Family Foundation suggests people feel a good deal of attachment to getting their insurance through employers. About 61 percent of those surveyed felt that shopping on their own would make it harder to find a plan that meets their needs; only 15 percent said it would be easier. In addition, 81 percent of respondents thought it would be harder to get a good price for their health insurance if they were to buy health insurance on their own.

Certainly it is unfair in the United States that employees can get health insurance in pre-tax dollars while the self-employed must pay for health insurance in post-tax dollars. But group purchasing of medical insurance by employers is more efficient and I do not think it should be discouraged. McCain's proposal would probably reduce the number of employers who provide medical insurance by making the benefit taxable. So this seems like a step in the wrong direction. Better to just make medical insurance costs tax-deductible for the self-employed.

Some see that tax deductibility as an interference in the free market. After all, why should a particular type of spending be favored by tax law? Well, I can think of a few reasons. Most obviously, if people do not buy medical insurance and they get seriously ill a large part of the electorate will favor taxing us to pay for the medical costs of the uninsured. That already happens today. Also, sick people are not productive people and so they earn less and pay less in taxes. This creates burdens for the rest of us. We are better off with a healthier population.

But even a change in the law to allow deductibility of health insurance would not cause most of the uninsured to become insured. There are a few reasons for that. First off, some people who can afford health insurance would rather spend their money on more immediately gratifying purchases. Second, some make so little money that they can't afford health insurance. This is, parenthetically, a really strong argument against letting in millions of low skilled Mexican and Central American immigrants. They just make our growing huge medical cost problem even bigger.

Third, one of the biggest problems with employer-provided health insurance is also a problem with self-purchased health insurance: Unemployed people can't afford it. Seems to me we need a way to pre-buy medical insurance. Either that or have a way to accumulate cash pre-tax to use to buy health insurance when not employed. Tax-advantaged Health Savings Accounts are a big step in that direction. But most people are getting whatever their employer provides and even HSAs still have a monthly premium for each current month's health insurance. The HSA cash is mostly for the costs not covered by the insurance.

The problem of unaffordable health care keeps getting bigger.

Oct. 23, 2008 -- Workers' health insurance premiums have shot up more than five times faster than their wages since 2000, adding to an increasingly tight squeeze on family budgets, according to a report released Thursday by a health care consumer group.

The report shows that the average cost of family coverage in the workplace went from $6,672 in 2000 to $12,078 in 2007. That's more than a 78% rise. But at the same time, average wages rose about 15%, according to Families USA, a left-leaning advocacy group.

"People who used to take health care coverage for granted no longer can do so, and they are at growing risk of joining the ranks of the uninsured or underinsured," says Ron Pollack, the group's president.

We need automation of health care delivery. What funding model would most accelerate that automation?

Share |      By Randall Parker at 2008 November 02 09:34 AM  Economics Health

kurt9 said at November 2, 2008 11:56 AM:

I'm self-employed and have an individual health policy for myself and my wife (we are both 45). We pay around $350 per month. Its a fairly high deductible policy ($1750 deductible) but actually has reasonable coverage. We have money saved up to cover the deductible in case of medical emergency. I think that either the self-employed should be able to get the same tax breaks on medical insurance as employees who have health insurance or the health insurance tax breaks should be eliminated for everyone. Either change is acceptable to me. What is not acceptable is employees getting any kind of tax breaks that self-employed people do not.

I think government mandates (e.g. mental health "parity", etc.) on group policies will continue to erode the cost advantages of group policies over individual policies in coming years.

I expect that for serious stuff (like any kind of surgery) that my wife and I are likely to go oversees for medical treatment. Costs are far lower. Many things that would cost an arm and a leg in the U.S. are cheap enough to pay out of pocket for in other countries. For example, a bypass costs around USD12,000 in Singapore. This is expensive, but doable if I really had to do it. In the U.S., its around USD100,000. Of course, bypass is unnecessary if you use chelation instead, which costs around USD3,000 and does not cause brain damage like bypass does. I also think new therapies, such as regenerative medicine or gene therapy, are likely to become available in other countries before they do in the U.S. due to excessive regulation in the U.S. This is further reason why, if I have any kind of problem, I am likely to deal with it oversees rather than here. Getting medical treatment in Asia is an easy option for me because 1) I am self-employed and 2) I make business trips to Asia.

Thai said at November 2, 2008 8:24 PM:

Randall, the issue is very easy to solve. There are really 3 bottlenecks in the system: 1. Control with extreme limitations on medical education, 2. State licensing of medical practitioners, 3. Sub specialty control over medical and surgical procedures that are very 'routine' and do not require anything more than manual skills and little cognitive skills.

Right now the number of Medical Students is artificially controlled (can't get in even if you wanted to as opposed to 'getting in' and passing competency exams). Further, there is no alternative venues for students to acquire a medical education legally at a lower cost. Right now Medical schools claim that it costs $350-$500,000 over 4 years to educate a medical student (how is that for inefficiency?)- medical students are therefore forced to pay outrageous tuitions and in so doing have very definite ROI expectations on that money spent. But if one wants to set up a lower cost alternative, it is illegal. Even though it is highly likely that an online medical school would work fine for many students and could teach the first two years or 'pre-clinical' material at (say) $1500/year (and the students could negotiate with practicing physicians to see if they can learn their final 2 years of clinical material at a more reasonable tuition) we are not allowed to do this.

Further, the states practice of medicine statues are highly controlling on what exactly encompasses "practice of medicine". So in most states (as an example) it is forbidden to train what are known as 'midlevel providers' (nurse practitioners or physician assistants) to perform 'routine' procedures such as colonoscopies, angioplasties, etc... even though it is basically a manual (i.e. non-intellectual) skill. Similarly we are not allowed to train (say) art students to read CT scans, etc... even though it is the same thing (do you have the 'eye' skills to see a dark spot on a grey background).

Reform 1. medical education, 2. state licensing and 3. sub-specialty control of procedures you will solve the health cost issue overnight.

Jerry Martinson said at November 2, 2008 8:31 PM:

I'm not sure going overseas is always a bargain for major procedures.

First, you have to consider that many expensive procedures are also medically complicated and therefore could seriously screw you up to a point where you'd much rather be close to home. There are many complications that could cause you to be unable to fly back for a long time since a 12 hour flight has many medical restrictions. It would really suck to have to go into hospice or major recuperation in a country far from your relatives and friends.

Secondly, the larger salaries in the US for specialized physicians attract better doctors. I am not saying that many excellent doctors are not available in lower-cost countries (or that a doctor's salary wouldn't go much farther for services in a lower-cost country) but I think we can all understand the higher salaries and excellent professional opportunities in the US will tend to attract better doctors compared to most other lower-cost countries. Although I think nursing is probably short-staffed in some cases in the US due to shortage and serious - sometimes lethal - problems get overlooked when there aren't enough nurses. So your doctor may be better but the 24/7 care might not be better.

Last, regulation/malpractice litigation in the US protects you somewhat from fraud, gross negligence, or treatments with insufficient evidence of efficacy. The US way certainly isn't perfect or probably even the best on this but it basically has many institutional mechanisms that protect against this in a way that US citizens are familiar with. I'm not sure I'm comfortable shopping around in other countries on price for certain procedures as I have little time to try to understand if the institutional safeguards are equivalent to the US. There may be parts of the US regulatory system that are asleep at the wheel or are sluggish to allow certain kinds of procedures but since medicine is so complicated, I'm not sure that just because another country offers a trendy procedure that sounds promising and the US doesn't yet that this procedure is really good medicine.

I think some HMOs have made great strides in providing better care in certain areas at lower cost than other systems in the US. I'll admit that those same HMOs probably screw a lot of other things up. However, the systems that seem to work within these HMOs should be analyzed and replicated in other health plans. There's some pretty basic things that I see get screwed up more often than not on supposedly superior PPO schemes where older patients go for years and never get their blood pressure or cholesterol under control. This is just plain stupid and should not be allowed to happen. I'm in a HMO that has very cost-effective "nagging" systems (for both patient and physician) that would make it very difficult for this simple stuff to get overlooked.

Randall Parker said at November 2, 2008 8:58 PM:


You make an important point on medical education. It reminds me of a point I've made here repeatedly: Education should be automated. It costs too much and that is because it is too labor intensive. Take anatomy for example. Why is a human needed to stand in front of a class of medical students to lecture them? Why wouldn't pre-recorded lectures and interactive learning software work just as well?

We need to lower the cost of education. We can cut costs and accelerate education at the same time.

One problem with medical costs though: The states that have more doctors have more medicine getting practiced. They have the capacity to create work. Choose diagnoses and treatments that are more lucrative.

We also need to automate the actual work of providing medical diagnoses. Expert system software can diagnose many diseases better than all but the best practitioners in a field. I'd rather have all my symptoms and test results fed into expert systems at least in parallel with seeing a doctor so at least he's got the expert system output to consider.

Jerry Martinson said at November 2, 2008 8:59 PM:


I agree that 99.5% of the time many procedures would not really require an overeducated doctor and that much of the restriction of people with lower skills has a lot to due with keeping the doctors rich.

But say you're doing colonoscopies (I'm not a doctor): Perhaps .5% of the time you could get a serious complication that a simple practitioner couldn't handle but might require emergency evaluation or treatment. What's the appropriate level of backup, supervision, and response time from the specialist doctor and does this reservation of this specialists' time cost about as much money as you'd save having a practitioner do it?

Radiologic interpretation is quite complex and I think beyond the capabilities of someone without a significant biological background (i.e. at least a 4 year degree in life sciences plus a couple years of specialist training). There are some states that are recently allowing a new designation called 'radiology assistant' that essentially covers this although it is likely to only be helping out in some procedures where the radiologist used to have to be present rather than actually interpreting complicated scans. Specifically you need to get people who simultaneously are:
1. smart enough to understand material like this (http://www.e-mri.org/index.html) at detail for several different processes. It is essential to grasp the stuff at this level of detail to be able to hone your intuition when looking at thousands of images during your training. This spoon-fed material is still challenging even for an engineer to understand, probably very difficult for most doctors, and some 'art' people may not be able to grasp it with almost any effort (I'm not ripping on artists - I can't draw much beyond the stick-figure level even with great effort).
2. having a solid knowledge of anatomy and thousands of different disease processes.

The intersection between these two skill sets (and the motivation to learn these skill sets) is quite rare. Currently US radiologists are making like $300k a year or sometimes much more because there is a shortage. A non-trivial portion of this work is interactive and interventional so it is difficult to off-shore anything but off-hours image interpretation.

Stephen said at November 2, 2008 10:31 PM:

The education bottleneck isn't related to classroom teaching. The big problem comes later in the training course when book-learning needs to be translated into real experience in diagnosing the right condition and then cutting the right bit off of real living people. Effectively, this means that the student needs to be found a position at a hospital that has a wide and varied practice and which can also provide the student with a supervising surgeon with equally wide and varied experience. Both of these are rare commodities.

Also if you think about it, why is it economically sensible for a surgeon to assist a new competitor to enter the market? Not only that, but why would it be economically rational to assist the new guy if by providing that assistance the surgeon could be sued for negligence if the new guy stuffs up while under the surgeon's supervision?

Thai said at November 2, 2008 10:50 PM:

I am a physician (an emergency physician FWIW- I see everyone else's complications). If the guy doing a colonoscopy has a complication and the proceedure is being done in an outpatient surgery center (which is where most of them are done), the patient gets sent to the ED for me to check and if I am worried I will call a surgeon to see the patient.

As for radiologist "interpreting" films, this happens a lot less than you might imagine. Usually the radiologist's reading of a film is something like "infiltrate in right lower lobe- clinical correlation is advised" ("clinical correlation is advised" is radiologist speak for- you need to figure out what it all means yourself). I remember the time my wife had an MRI of her ankle- It was read as normal by BOTH her radiologist AND her orthopedic surgeon. She had never seen an MRI in her life and yet she looked at it for 5 minutes and spotted a bone fragment neither had seen in the joint.

But FYI I am not saying radiologists are unnecessary (actually far from it- they can be VERY useful) but the are not used wisely. It is like looking a crowd of people with brown hair and then spotting the blonde. Do you really need a specialist for that? Or do you need someone with "the eye"? Once the blond has been spotted, the study can be 'kicked up' to a radiologist. The real thing the person needs is an understanding of anatomy- if they see a yellow spot that is enough- I do not need them to interpret what the yellow spot is- just that it is or is not there. Right now the problem is we do not have the ability to chose when we need them. And as long as someone else is paying for their read, and liability means I lose if I miss something, I will always ask the specialist to look at the film. Change the incentives and the specialist will get used more judiciously.

I agree with you to a point on expert systems but I think you are missing the fact that the information still needs to be interpreted before it can even be put into the expert system. Does the patient have guarding and rebound or don't they? Abdominal tenderness to one examiner is not necessarily abdominal tenderness to another. This is the main reason ESs have not taken off in medicine. Nuance and context are still incredibly important.

The issue of states with most doctors get the most medicine is also a lot more complicated than you suggest.

Jerry Martinson said at November 2, 2008 11:53 PM:

Maybe someday the cost of imaging technology will be brought down to the point where people could get periodic full-body scans with various kinds of contrast. When they get sick with something odd a new set of scans could be compared with the normal baseline scans for that person and you could potentially have a lot more information that doesn't require as much interactive prodding and judgement.

I think I saw on some PBS show about how in Japan, they have some MRI equipment that costs less than $100k. I'm sure it's low-res and can't find a bunch of things but it can probably rule in/out some things a little earlier in the diagnostic process.

Unfortunately, I doubt this would help much since most odd diseases probably don't produce much that you can see with images anyway - but at least you'd be able to eliminate actionable findings such as tumors, cysts, infarcts, etc....

Jerry Martinson said at November 3, 2008 12:26 AM:


In theory, the big HMOs, if interested in cutting costs, would be trying to lobby the states to allow non-doctors to do more work that doesn't need to be done by a doctor. However, I wonder how much more money HMOs would really make if they cut costs since in a competitive market, everyone (including their competitors) would benefit from the regulatory change so they wouldn't really make any more profit. Groups representing doctors have an interest to restrict entry to maintain artificial scarcity so they'd lobby the states to go the other way and probably have a more direct financial interest in doing so. As a non-doctor I can say if I was in a state legislature and I heard scary things from the doctor group's lobbyists and nothing from the HMOs' lobbyists about whether to allow non-MD's to do a particular task - then I'd be foolish to want to change the system. I can't really see who with money and clout would actually benefit from finding a cheaper way to do these things. So this is the classic "iron triangle" of "regulatory capture".

The only real way around this I could see is if a medical college could come up with an elaborate training and certification program for the non-MDs to do a particular procedure and lobby to get state certification for this particular program and no other one so that you could have a monopoly for a while. Of course now the non-MDs would cost a lot more as a result.

I guess I don't have a good feel for how much of image interpretation is a "where's waldo" exercise versus a complicated judgement. Perhaps 3 "radiologist assistants" making $100k looking at an image would be superior to having 1 "radiologist" making $350k looking at an image. I wonder how much this is studied. I've heard of mamogram interpretation and pap smear interpretation getting serious study especially with respect to machine interpretation versus expert versus combined.

Thai said at November 3, 2008 7:16 AM:

total body scans are exploding costs- too many false positives.

And you can't do the study using radiology extenders.

You are correct- just like generic drugs, no one makes money on them so no one is promoting- same with physician alternatives. And the regulators absolutely respond to the scare tactics and stop any attempts to build safe but less costly alternatives- and no one makes decisions on data.

Bob Badour said at November 3, 2008 8:46 AM:

Responding to something that was written several posts ago: While the high pay scales in the US attract the best doctors, they also attract the worst doctors. Incompetent doctors are just as drawn to those high pay scales as any other doctor.

averros said at November 8, 2008 4:04 PM:

You forgot the major contributor to the medical care costs - the cartel of big pharmas and FDA which don't do anything meaningful to protect patients (I know that pretty much first hand - my G/F is a medical trial coordinator - the whole system designed to protect pharmas from persecution if they do all proper ritual moves and pay off the FDA).

The existence of this cartel, of course, requires the patent regime enforcing "first to the pole gets all the prizes" while, in reality, most discoveries are done independently by multiple people. Getting rid of patents on drugs would cause parmas to compete on price (who manages to produce cheaper version of the same drug, gets the sales), with manufacturing techniques being their trade secrets, and remove conficicts of interests for researchers doing drug discovery. (And, contrary to the pharma bullshit, the actual drug discovery is not that expensive... most of the expense of "drug development" goes towards bribing the FDA and medical establisment (aka "marketing")).

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