The Emergent Fool

Fixing Health Care I: The Uninsured

Posted by kevindick in Economics, Government, Health, Poverty on September 8th, 2009 | View Comments

Yes, I’ve decided to wade into the health care waters again. One of the problems with the current debate is that it confounds several distinct problems. So I’m planning to briefly address each one individually in the hopes of achieving some clarity. First up, the uninsured.

Most of us don’t want people to die simply because they can’t afford basic health care. So I ran the numbers on what it would cost to solve just this problem. The most cost effective approach I know of is a major medical plan plus a health savings account (HSA). According to this Forrester analysis of eHealthInsurance data, the average annual cost of an individual major medical plan in 2007 was $1896.

Premiums have obviously gone up since 2007. However, let’s be optimistic and assume two points of cost savings: having a very large group and following my recommendation of not using insurance for primary care. Let’s put the optimistic annual premium estimate at $1500. Of course, we’re talking about poor people so a no-primary-care major medical plan isn’t enough. We’ll also give them a $300 per year HSA allowance, enough to cover a couple of office visits and some generic drugs plus save up some to pay for a hospital stay. Not that generous, but I’m trying to figure out the minimum cost. Total cost per person: $1800/year.

So how many uninsured are there? Well, estimates vary. But the Census Bureau released a pretty detailed report in 2007. Looking at Table 6 on page 22, we see that there were just over 28,000 uninsured with household incomes below $50K. Now, if we offered a government program means tested to $50K, we’d probably get some people dropping their private insurance for the government insurance. I think only a 25% cross-over would be optimistic. So we have to cover a minimum of 35,000 people at $1800/year. Total cost: $63B/year.

Call it an even $100B due to my optimistic estimates. It will probably add close to $1000/year to my tax bill. I’m willing to pay that. So let’s just do it and then move on to the next problem.

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Marissa

Huh? So what is the tax distribution of the rest of the 111B (126B-15B)?
kevindick

You have to remember that the rich pay most of the income taxes in the US. I was using these sources:

http://www.swivel.com/graphs/show/22213369

http://www.swivel.com/graphs/show/13403634

You can do the calculation. The important thing to see is that 85% of all tax dollars come from the top 25% in income. Now, those numbers are a couple years out of date, from tax year 2004. The latest numbers I could find are from tax year 2007:

http://www.ntu.org/main/page.php?PageID=6

Note that the situation has become slightly more skewed towards the rich paying taxes: 87% of all tax dollars came from the top 25%. And 71% come from the top 10%--people making at least $113.0K.

So according to these most recent numbers, about $90B of the total cost would come from these relatively wealthy households making well over $100K.
Marissa

You are willing to pay an extra 2k/yr to have universal coverage as a top 5% wage earner. But let's normalize the equation. I'm saying that it's going to cost an extra 2k per average family of 4 people. The median wage is about 60k if you were eliminate the bottom 50MM people. That represents about 3.3% of the average family's income.

So the real question is are you willing to pay an extra 3-4% of your income for universal health care? I don't think it would be fair to have a family making 40k/yr paying the same extra 2k/yr for universal coverage as someone making 200k/yr
kevindick

I think you've done your math wrong. People making between $30K and $60K (25% of the households) only pay about 12% of the taxes. Doubling my estimate to match your estimate requires total payments of 126B/yr. So this segment would pay $15B/yr. There are about 110M households in the US, so about 27.5M are in this segment. $15B/27.5M = ~$550. Given the midpoint of the income range is $45K, that's slightly more than 1% of their income.

Which is just about what I'm willing to pay too.
Marissa

i meant an extra 7500-10k/yr for universal health care at a 250k level of income.
Marissa

If you're going to give "poor" people the money to spend until they get to the major medical portion of the insurance, then I don't think $300/pp is enough. A lot of these people who don't have health insurance have chronic illnesses like diabetes, hbp, etc. i also think the 35MM people or so in your example are not random. I think they will be skewed at the least intiially towards not being healthy.

Also, ehealthinsurance is an individual health insurance broker. Again, the data is kinda skewed because you have to be healthy enough to pay just the $1896/yr. Based upon my experience and my opinion, only, it's probably more on the order of $3000/yr for guaranteed issue major medical. Then you are going to have to layer on probably closer to $600/pp/yr to cover their primary needs thru the HSA.

Realistically, it's probably more like 126B/yr or about 1.26T over 10 years which correlates to the 900B that the Obama plan will cost when you factor in the 300B in rich person taxes that Obama wants to enact.

This extra 126B spread out over the remaining 250MM or so that has health insurance means an extra $500/yr for every man woman and child. So about an extra $2000 per family of four every year.

Assuming the average remaining family makes 50k/yr, would you be willing to pay an extra 3-4% of your income for universal care? So if you're in the top 5% making 250k/yr, would you be willing to pay an extra $12.5k for universal health care?
kevindick

A couple of points:

- Recall that my Major Medical plan is substantially more frugal than a typical commercial policy. No primary care at all is covered (it appears many commercial ones do cover some for ordinary doctor visits). Moreover, all the "major" coverage is for what I would term a very generic standard of care. It's supposed to be less attractive than private insurance. I'm reasonably confident we could get the cost down to $1500.

- Do you have any evidence on the incidence of chronic illness among the poor and uninsured?

- My goal is not to cover all the poor's primary needs. People making $25-50K a year can afford some. $300/yr is an average figure.

- I already said I was willing to pay $2K/yr. So over your 10 year timeframe, I would be willing to pay $20K. That's _twice_ my estimate of the cost. So even if it costs $3K a year for insurance and $600/yr for HSA per person, I'm down.
Todd White

I'd add an incentive piece/pieces above a low baseline amount to the tax funded contribution to the HSA to encourage healthy behavior. It'd have to be measurable behavior, but you might want to include things like not smoking (self reported unfortunately), maintaining a healthy weight, utilizing appropriate preventative care, etc. If I'm paying for your medical coverage, I'd like you to be encouraged to make an effort to minimize that cost.

BTW, it's Physician Assistants (no apostrophe s).
Rafe Furst

I think we should be taxing poor nutrition.
Josh Paley

Assuming that Kevin's analysis is reasonable, there is still the question of whether there are enough health care providers (i.e., doctors, nurses, and others who actually care for people) out there. Having had four trips to the ER in three years, I can tell you that Kaiser in Redwood City, CA is understaffed to the point where each wait I had was measured in hours. The facility was understaffed (in my painful opinion) each time. I have read stories of similar or worse staffing issues at other hospitals.

So what happens when even more patients enter the system? How do we make sure that there is sufficient staffing to handle the increased demand?

Incidentally, I agree with Rafe that this is a "moral no-brainer" but there are some real underlying resource issues that require proper attention.
kevindick

In the long term, the market will provide the necessary resources. In the medium term, we can increase resources by making better use of Physician's Assistants and Nurse Practioners as I plan to describe in a future post. In the short term, there will probably be some issues.

It is a big mistake to think of this as a problem where we have to solve everything top down.
Rafe Furst

I have to say, I like where you are going with this!

And I like that you are willing to pay $1000 more per year to make sure everyone is covered. I personally think it's a moral no-brainer, but I suspect there is a significant portion of the population who make more than $50K/year who wouldn't.

I'm curious though, what's the maximum you'd pay (assuming everyone else was paying their fair share too) to assure that the uncovered become covered?
kevindick

That's an interesting question. First, let's assume that I think the coverage plan is appropriately frugal. I wouldn't be willing to pay any more for a luxurious plan.

I'd probably be willing to go to $2K. Beyond that, I strongly suspect the marginal value of my tax/charity dollar is better spent on something else.

BTW, that $1K is based on my current fraction of taxes paid. I'm in about the top 5th percentile, which pays about 50% of all tax dollars. There are about 5M such households. I wouldn't expect someone in the 50th or 75th percentile to pay the same amount.