If Rafe Were In Charge: Major Medical Edition

Kevin started an interesting discussion that included a thoughtful proposal for the problem of major medical care costs risk mitigation.  You should read that here before reading my proposal below.

Part 1: Major Medical Annuities. Federally mandated/funded (similar to SSI/Medicare), with a specific initial lifetime value that is the same for everyone. The concept is that you pick a number slightly bigger than the average expected lifetime major medical bill and set aside that pot of money for everyone individually. At some point (e.g. 65) you can choose to start drawing down from your pot as taxable income. Prior to then, the only way the fund can be used is for major medical expenses not covered by other insurance you may have. Such payments go directly to providers and are tax-exempt. When you die, any leftover amount gets transferred to the MMA accounts of your heirs (per your desired breakdown, or according to probate law in the absence of a will).

Part 2: MMA Collectives. If you deplete your MMA (for whatever reason) and have a major medical expense that is uncovered, we need to address this ahead of time and responsibly. One idea is to allow people to voluntarily form collectives or trusted circles: family and close friends who share your lifestyle, risk profile and philosophy and are willing to act as a secondary insurance policy for each other by essentially pooling their MMA pots. Collectives would be legal entities with group voting/responsibility, and once formed, individuals cannot leave or be forced out except by unanimous consent.

Part 3: Extraordinary Circumstances Fund. Let’s say you are a loner, no close family and no Collective. Or that you have a small Collective but it’s about to be bankrupt. The government sets aside an FDIC-like insurance fund as a final safety net. However, you don’t want to get into this situation; it will have a negative impact on your life-expectancy, quality of care, financial health, etc. Essentially your health care future goes into a sort of receivership, and you and your Collective are financially on the hook to pay back 100% of the money over time. Your entire estate and those of your Collective members are considered collateral, so you cannot escape scott free by dying :-) And there is strong social pressure from your Collective to make lifestyle, medical care and general financial choices to not land yourself in a precarious situation where you’d end up needing this fail-safe.

Yes, there will still be those destitute and alone who end up a drain on the ECF, but it seems like a smaller and fairer price to pay as a society than what currently exists and what has been proposed. The proposal has a high degree of personal autonomy/responsibility while bringing to bear social pressures similar to those that have been proven effective in micro-lending collectives. Rich individuals/Collectives can effectively shield money from taxes and grow their major medical funds beyond the initial lifetime value guaranteed to everyone. Thus, if I have the money and and am in a situation where it’s a moral dilemma whether to go to extraordinary lengths to keep me alive (or to cryogenically freeze me), I have the option. And for the destitute person, even as a left-leaning person, I would feel like society has borne its part of the responsibility for your survival and quality of life vis-a-vis major medical risk mitigation.

  • kevindick

    I don’t see how this solves the problem of the uninsured or the overconsumption of care by the insured.

    In the link Schaef provided, they cite $30B as the cost for “uncompensated care” to hospitals due to uninsured patients. Moreover, they say 2/3 of the uninsured are poor. There is no way your plan will ever recover the cost of their care. This is the problem of the “implicit option” of free catastrophic care.

    Your plan also fails to solve the “deadweight loss” problem of overconsuming medical care. Schaef’s reference puts this at $125-$400B per year. I contend members of most well-funded “collectives” under your plan will exert social pressure to force other people to buy private insurance. But because your plan doesn’t change the structure of this insurance, you still get the overconsumption.

  • I don’t think you really understood the implications of the proposal…

    Uninsured: This acts as a mandated/entitled insurance policy for major medical (only). Every citizen pays into it as part of their taxes. You could even fund or supplement it by a sales tax on drugs and medical equipment.

    Overconsumption: Once you have drawn down past your initial lifetime value (let’s say it’s $500K per person), there are two paths: (1) if you have contributed more than your ILV (and there are incentives to do so vs. buying insurance) you are covered; (2) if you have have not yet reached your ILV in terms of contribution, only then does the ECF kick in. But you are on make-up for the rest of your life, as are your Collective members.

    I agree there will always be the free-rider problem, but my claim is that this plan, if the numbers are made right, is better than the current situation or and better than the alternatives that I have seen.

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