DeLong Care

By way of this post, Matt Yglesias explains why he likes Brad DeLong’s “totally unrealistic health care plan.”  First, to boil down DeLong’s rather long post on the subject, let me lift this excellent summation from Yglesias:

— 1. Taxes on public health hazards (booze, sweeteners, etc.)

— 2. An army of publicly employed doctors and nurses working in clinics and vans and such roaming the country dispensing preventive care and lifestyle advice to all and sundry.

— 3. 15 percent of your income is automatically plunked into a Health Savings Account.

— 4. When you want health care services that aren’t covered by the clinics, you pay out of your HSA.

— 5. If there’s money left in your HSA at the end of the year, it gets plunked into your IRA unless you specifically fill in an opt-out form.

— 6. If you run out of money in your HSA and need more health care, the government pays for it.

— 7. On top of the 15 percent HSA deduction, there’s a 5 percent tax to pay for 6.

I actually think this is a pretty good idea.  I’ve mentioned before I think flat-out single payer might actually be more efficient than the mess we have now, but adding health savings accounts (and thus direct, personal involvement) into the mix is a really good idea at containing costs.  Personal choice also helps avoid some of the problems I’ve bemoaned in regards to monopolization.  I may have not made this clear enough, but I really do think monopoly (not “government”) is at the heart of many economic and social problems.

Consumers responsible for their own health care purchases makes a lot of sense because they have incentive to exercise restraint and because they have options on where that money is spent.  Having insurance (whether single payer or otherwise) for costs above and beyond what goes in their savings account also makes sense.

I might have to think about this more, but it makes sense to me not to simply funnel HSA funds not spent at the end of the year into a savings account (with the option of taking them as part of a tax return).  It might make more sense to have part of whatever is left roll over into the HSA the next year – maybe even as a tax-deductible sum? – as the older you get the likelier you are to need these funds.  That would provide a larger pillow between your spending and the need for the government to kick in anything.  Obviously if you had an ongoing, long-term illness a lot more of your income would end up going to that over the years, but at least you wouldn’t be ruined by it.

I also like the idea of personal savings accounts for left-over funds.  Maybe down the line when social security reform is on the table, we could use these same accounts to transform that program into one of personal savings rather than ponzi-savings.

In a lot of ways this combines many of the good things about more conservative approaches to health reform – personal accountability and decision making over health care spending (not insurance, as insurance at this point is out entirely) with  a lot of things progressives like, too.  As Yglesias explains:

Then note that the 15 percent health withholding is not a 15 percent tax. Most people will spend less than 15 percent of their income on health care in most years. If so, your money will be returned to you. Because there’s reason to believe that Americans save too little for retirement and also reason to believe that default rules matter a lot, the default rule would be for the money to be returned to your and placed in a retirement account. But if you need or want the money, you’d fill out form 1346-FGH or whatever and get the cash.

In addition, note that people’s cash income would be a lot higher in a universe without health insurance plans and Medicare taxes. That’s a hefty chunk of your compensation.

Last, this plan is a lot more progressive in its distributive implications than the flat tax rates involved imply. Consider two guys who both contract the same illness. It winds up requiring $20,000 in treatment. A person who only earns $30,000 a year is going to find himself paying $4,500 out of pocket whereas someone who makes $100,000 will pay $15,000 out of pocket. The taxpayers will cover his last $5,000 in expenses, but he’ll also be paying $5,000 in taxes. Conversely, the $30,000/year guy is getting $15,500 in government benefits and paying only $1,500 in taxes. In other words, the tax structure is pretty flat but the benefit structure is highly progressive so the net impact is very progressive.

Now there are elements of actual socialization in this.  The clinics and traveling government-paid doctors and “barefoot nurses” and so forth, as well as the single-payer.  I think we could probably tinker with this, reduce regulations that lead to medical cartelization and create very efficient, affordable private “barefoot clinics” as well.  The market would respond to these HSA’s, I think, if we were to let nurses do a lot more of the heavy lifting that doctors do these days.  (Though, honestly, when you go to the “doctor” how much time do you spend with the doctor and how much with the nurse already?)  Yes, a single-payer would be a big expense, but if we could ax both Medicare and Medicaid, that would be a good thing in and of itself.

I also like the idea that most health costs will be restrained by the natural desire for individuals to economize, while at the same time real catastrophic expenses will be covered.  Those barefoot clinics might go a long way to minimizing the distorting effects of emergency rooms as primary care facilities as well.

Oh, and I’d add one more caveat – lets stop protecting Big Pharma.  No way we can ever control costs while we let protectionist policies set prices on our drugs.

Anyways, just stumbled on this, and I think it has merit.  I’d be interested to hear others’ thoughts.