Health care in Age-divided government: universal for young, rationed for old

In an earlier post, I argued that government spending for health care expenses should be completely balanced with same year revenues.  In general health-care expenses are not investments that will result in future return.  Even when health care restores health for a taxpayer, the economy has few positions of non-expendable people.  If a position is vacated due to health, the position can be quickly filled with someone new.  For the rare non-expendable cases, the extreme value of the worker will justify independent financing of health care either through corporate expense or through public crowd-funding efforts.  The point is that I find the case of health care as investment to be very weak.

I am not convinced government spending should be involved at all in health care but I accept that our democracy supports government spending for general health care.   I am not objecting to the spending, but I do object to borrowing money to fund that spending.   Health care costs should be distinct from the general budget and it should be fully funded with specific sources of revenue.   This is (or was) the model for private health insurance.   In its pure form without government interference, health insurance collected premiums from a large pool of people in order to pay health expenses for the few whose needs qualified for coverage.   The health insurance model strives to match current revenue in premiums for current obligations for covered expenses.   Certainly some years the insurance will over-estimate the required premiums and end in a surplus.  But just as certainly, other years will under-estimate required expenses and thus end in a deficit.   Left on their own, the insurance companies will use the surplus years to finance their deficit years.  Over reasonable time spans of a few years, the budgets balance with a reasonable profit for the insurance companies acceptance of risk.

Our democracy has determined that we want a goal of universal coverage for health care.   The way to meet this goal without deficit spending is to require everyone have health insurance.  Everyone must pay into annual premiums.  The premiums may go to private insurance firms or they may go to a public insurance program.   It doesn’t really matter as long as the program works as an insurance where premiums fully pay for the covered expenses.  This goal may require a budget window of 2-3 years to allow for increasing premiums to pay for unexpectedly bad prior years for covered expenses.

The Affordable Care Act (ACA) is an attempt at universal coverage through a individual mandate to have insurance.  This is just one of many ways we could have implemented the universal coverage.   To avoid deficit spending, there is a need for current revenues to fund the health care expenses.   That revenue is best obtained from a revenue stream that is separate from the taxes funding the general budget.   Insurance premiums is an obvious way to implement this funding.

The problem with ACA is that it introduced various government subsidies to keep premiums low.  The government offers tax credits to qualifying individuals to offset the cost of premiums.   The government also offers subsidies to insurers when specific procedures are excessively expensive or the insurer’s risk pool ends up costing far more than the money available from their premiums.   This subsidization comes from general funds and thus ends up adding to the debt.   The ACA passed with the democratic acceptance that this was good debt.

I object to the notion that this is good debt.  Health care must be funded on current year (or funded over a 2-3 year moving interval).  This funding much come from the general population through a distinct mechanism to separate it from the taxes that pay for the general budget.   The obvious revenue mechanism is using insurance premiums exclusively to fund the health care.   The reason why ACA augmented the premiums with general funds is because the required premiums are no affordable to a large portion of the population especially when there is a mandate for an annual open-enrollment period that can not deny new subscribers based on pre-existing conditions.  Even when insurers had pre-existing exclusions to keep costs down, the premiums still were too high for many people.

ACA’s solution to high premiums is to commit general budget funds to subsidize the insurance and use various new taxes to at least partially offer this new general budget obligation.  The problem is that these new taxes are not specifically tied to the ACA program.   The new tax revenues join existing taxes as part of the general budget.  Subsequent legislation can repeal the taxes or reinterpret the funds as justification for some new spending program.  In its original form, ACA added to the debt but subsequent erosion of offsetting revenues result in even more debt.

ACA presents a perpetual annual net deficit to the budget.   This deficit only increases in the future.   There is no means to recover current health care expenses because ACA is not designed to be self-funding by premiums.

This will become more of a political problem in the future when we realize that we are servicing debts for historic health care expenses of patients who are no longer living or contributing to the economy.   This expense for paying for old health care is on top of attempting to pay for current health care.   At some point, the current health care costs will need to be restricted in order to pay down the debt of prior (and long ago) health expenses.

I do not think we should have a mandate for universal health care coverage.  People should be allowed to accept risk that any health conditions will need to be paid out of pocket or through personal debt.  I do agree that we should encourage participation in health insurance.  One way to do that is to make any debt due to uninsured medical costs should not be dismissed through bankruptcy.   Individuals should be responsible for their health care costs over their lifetimes: either through paying insurance premiums in advance of uncertain need, or after paying off actual expenses after they have been incurred.  Individuals have two choices: a community insurance or self insurance.   There should be no third government financed option.

I think a politically acceptable system can be set up to have exclusively individual responsibility for health expenses through community-pooled insurance or through self-insurance where healthcare debts are not dischargeable in bankruptcy.  This system would involve dividing the insurance into different pools.   The pools can be divided four ways.  There would still be a mandate for insurance premiums (or accept total risk of choosing to self-insure) but the division will allow for optimization of costs so that the premiums are acceptable.

First, we should separate insurance programs for infectious and chronic diseases.

One insurance policy would cover infectious diseases where treatment involves managing the progress of the disease while eradicating the pathogen.  This policy would have no deductible and will cover specific prescribed procedures.  Expenses would be itemized for each specific procedure such as prescription for antibiotics, or intravenous treatments such as hydration.  For infectious diseases the costs of treatment is naturally constrained by the progression of the disease.   The biggest financial risk for this insurance is the appearance of a large scale epidemic.  Separately insuring infectious diseases allows for the specialization of health facilities and clinics for the specific and exclusive purposes of treating acute conditions where each administration of care or service will be reimbursed.

The other insurance policy would be for chronic non-infectious diseases.  Diseases in this category include cancers or organ failure (such a heart diseases).   These diseases are closely associated with hospital or specialist care.  Insurance for this kind of care will include some deductible.  The deductible helps to define this as a chronic condition.  This reimbursement model will be more focused on outcomes instead of reimbursing specific procedures.   Certainly, the reimbursement model will consider typical combinations of procedures and their costs, but the reimbursement will include consideration of customary costs for the specific disease instead of the specific actual cost.   The insurance will also explicitly consider the outcome with higher reimbursement for successful care.

The distinction between infectious and chronic care coverage is that reimbursement for infectious diseases does not depend on outcome.   For each specific stage of an infectious disease, there is a recommended treatment. The cost of the treatment is fully justified by the stage at it which it was administered.   The value of that cost does not depend on whether the patient eventually recovers or how well that recovery becomes.  There is a community value of controlling an infectious disease to minimize its risk of spreading.  The justification for the treatment cost is that we are able to manage the spread of the disease even when the individual patient may not recover.

In contrast, the individual treatments for chronic non-infectious diseases can be valued in terms of the patient’s eventual recovery.   For chronic diseases, the patient and doctor have more control over choices to attempt specific procedures.  As a result of that choice, the compensation should consider the outcomes.

To get four different insurance policies, this pair of policies (for infectious and for chronic care) should be replicated to different age groups.  I propose dividing the insurance market based on age of 55 years old.  People over 55 would belong to one pool.  People under 55 would belong to another.

We can provide high quality affordable health insurance to young people if we can exclude from their risk pool the more expensive care of managing diseases of aging.   I argued in the earlier post that we should strive to provide a healthy life for people through young adulthood goals of establishing careers and family.  If we can get people to enter old age as healthy adults, their subsequent health care needs will be lower or postponed.   The insurance premiums for young adults should pay exclusively for the health care needs of younger people.  These premiums should not fund care for older people.   Even though there are health risks of severe trauma or early-onset chronic diseases for young people, these are rare relative to the large pool of young people paying insurance.   I believe that ACA provisions would work great if the benefits were restricted to young adults under 55.   If everything but maximum age of coverage remained the same, the required young adult premiums could easily be very low and affordable.   What makes ACA too expensive to young people  (and thus requiring general-fund subsidies) is the fact that their premiums are paying for healthcare expenses for older people.

The other concern about health care is the prospect of rationing health care in order to control costs.   Dividing health care coverage into two distinct age groups can help resolve this debate because there will be little need to ration health care expenses for young adults.  The large population of healthy premium payers will provide sufficient funds to cover nearly all health expenses experienced by any of its members.   Certainly there will be one or two notable cases where a cost-based decision to decline care may occur, but I think this will be rare and ultimately acceptable.

The real problem for rationing health care comes with providing care to older adults.  The older adults encounter costly health conditions at higher frequencies.   If we do a good job in providing excellent health maintenance to young adults, we have a chance to reduce this frequency or postpone these costs.   We can not eliminate the fact that older people will eventually die and the cause of their death will likely involve some condition that is expensive to treat.   Dividing the risk pool so that older population premiums fully fund all older population care makes the problem of rationing worse because there is inherently less money available to pay for the care.   Despite this fact, I think that dividing the risk population by age groups helps resolve the health care debate about rationing because rationing is exclusively a problem of providing care to the older population.

Rationing will apply primarily to patients over 55 who presumably have had their opportunities for careers and families supported by excellent health care.   Certainly there will be sympathetic cases where the rationing will be unpopular.  But the solution to that sympathy is for older people to pay more in premiums or to participate in fundraising for specific sympathetic cases.   Directly tying rationing of care for older patients to the premium costs of older adults will make the debate about rationing more tractable.   Currently the debate about rationing is compounded by the generally unaccepted notion that young patients will experience this rationing.  For example, we object to the notion of denying treatment a young-adult cancer because it has lower prospects than funding for health-maintenance prescription drugs for older adults.

Dividing the risk pools by age groups fundamentally changes this debate.  The economics of health insurance exclusively to young adults affords universal care with very rare need for rationing.   Conversely, the economics are more challenging for older adults but they will have to debate the compromise of rationing and affordable premiums using examples of their own experience.   The debate is helped by excluding the cases of rationing of health care to young people.

The challenges for affordable health insurance are for the older population.  Having a risk pool with a maximum age of 55 will permit very affordable insurance for the younger population because the insurance has no expenses for the older population.   People at the upper end of the age range who do encounter expensive chronic conditions will transfer out of the younger cohort plan once they reach the age of 55 and in many cases this will put the cost burdens on the older cohort plans.   The older age group will need to confront the higher costs of health insurance through compromise of using their collective wealth and making rationing choices.

The age of 55 matches the age I used in my discussions of parallel governments where a government of debt service has a minimum voting age of 55 and this government has jurisdiction over that age group.   If such a parallel age-distinctive government existed already, it would be natural to have it also maintain a separate health policy for the older age group.   The older population is the population most in need of government subsidies for health insurance as evidenced by the current Medicare policies.  This proposal effectively replaces Medicare with a policy governing some type of health insurance policy (public or private) that mandates coverage for all adults over 55.

As I mentioned in the discussion of dividing the constituencies by minimum voting age, the age of 55 is useful because there is a significant population size to operate a government.   For managing expenses of obligated spending, the age of 55 is useful also because about half of the population will still be working in some form and thus have taxable income.  Similarly, the 55 age limit is useful in the context of health insurance because it should provide a reasonable healthy pool whose premiums can pay for the remaining who need the care.

The parallel government approach includes the costs of health care as part of the broader package of all entitlements and debts that the government must service.  In my scheme, the government responsible for managing all of these debt obligations is the voters with minimum voting age of 55.   This government will not only confront the compromise of premium cost and rationing of health care, but also compromise obligated spending to devote to health care as opposed to other priorities such as retirement, pension benefits, and debt service.   This will be huge problem, but I believe it is more manageable when all obligations are handled in a separate government from the government responsible for operating government.

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One thought on “Health care in Age-divided government: universal for young, rationed for old

  1. This opinion piece argues that current ACA system is already in a death spiral of reduced participation of healthy resulting in higher premiums that discourages further reduction in participation.

    The death spiral isn’t just a theory. Eight states learned this the hard way in the 1990s when they enacted two policies known as “community rating” and “guaranteed issue,” requiring health insurers to sell coverage to anyone who wanted it at the same price.

    The ACA includes both community rating and guaranteed issue with an individual mandate to encourage universal participation. The opinion piece asserts in sub-title:

    Premiums are rising rapidly and the young and healthy are bailing out

    But this not substantiated in the body of the piece. From personal experience participating in the individual market since 2011, there was a huge increase to transition to community rating and guaranteed issue system. If cost discouraged new subscribers before ACA, then that problem was much worse after ACA. However, the article suggests people in ACA are bailing out because premiums are continuing to rise.

    From my experience there was a price increase from 2014 and 2015 but this modest in comparison to the initial big jump. The moderate price increase was comparable to similar price changes I observed during 2014 so it was not alarming. Nonetheless, the increase did at least provoke a thought of leaving the system entirely.

    I am not sure if early subscribers are bailing out of ACA, but if they are, it is a concern that these are mostly younger people. The article states that ACA needs young people to finance the system:

    Originally it was estimated that around 40 percent of enrollees had to be in the relatively healthy 18 to 34-year-old age segment, so their premiums could be used to pay for the health expenses of older, less-healthy enrollees. So far it appears only some 28 percent of enrollees are in that coveted age group, which also comprises around half of the uninsured.

    My concern is more about society’s need to provide protective coverage to young people so that they may enjoy healthy youth to maximize their pursuit of career and families. We need to keep younger people healthy to give them better health prospects as they enter old age.

    In my article above, I suggest we address this problem by dividing the market into two groups: one for older people and the other for younger people. Both groups would use community rating and guaranteed issue, but the premium calculations are kept separate. The insurance for young should cover only the young and this will keep their costs down while still enjoying a fair system. The insurance for old will operate with similarly fair rules but the premiums will be higher because community will be more expensive to insure.

    The way to combat the death spiral is to assure its affects are only on the population closer to death. Real prospects of declining health and advancing age will provide the incentive to continue to participate in order to preserve the system for their use later.

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