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Thursday, May 19, 2011

Reverse Deductible

A problematic byproduct of the American approach to health care has been the divorcing of a substantial number of patients from health care costs. Patients with low deductibles and extensive coverage have little incentive to moderate use of health care; many economists believe that this contributes to medical inflation. Policy analysts from across the political spectrum have recommended higher deductibles as a antidote.

Yesterday during a talk at the University of Washington, Kaiser Permanente CEO George Halvorson turned this argument on its head. Deductibles, he argued, should reflect the French approach and come only after payment had been exhausted. It works like this: Insurers cover a given procedure up to a standard amount. The patient pays anything in excess of that. Halvorson believes that this sets up a a situation in which doctors will compete to design procedures that charge the standard amount. Nothing prevents anyone from charging more for a blue-ribbon approach, but in that case the only people paying more would be those who chose to.

This one is new on me, and I don't know what the arguments against it would be. However, there are definite holes in the idea of charging higher deductibles. For one, companies that offer insurance with low deductibles and extensive coverage are unlikely to change this practice even though it would mean lower costs for them.

Businesses don't offer gold-plated benefits packages out of altruism: They offer such benefits because they are competing for employees. They're unlikely to adopt an approach that would put them at a competitive disadvantage; it would be penny-wise and pound-foolish for Google to lower benefits if that reduced their intellectual capital by putting them at a recruiting disadvantage with Microsoft. Thus, the very people who overuse the health care system would be unaffected by the high-deductible policy meant to curb their enthusiasm...

Halvorson, a Norwegian-American, favored the audience with a Norwegian joke: "Then there was the husband who loved his wife so much that he almost told her"...

2 comments:

  1. "...it would be penny-wise and pound-foolish for Google to lower benefits if that reduced their intellectual capital by putting them at a recruiting disadvantage with Microsoft. Thus, the very people who overuse the health care system would be unaffected by the high-deductible policy meant to curb their enthusiasm..."

    The total number of people who work for either of those companies is what? Less than 30K?

    What percentage of the American people have gold-plated health insurance from their employers? 10%% 20%?

    Be careful making policy on the grounds of a small minority of people.

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  2. Barry: Apologies for any absence of clarity. I'm certainly not suggesting that Google or Microsoft drive health care policy.

    The point I was trying to make was partly one of equity: The employees who bear the brunt of high deductibles will be those with the lowest-paying jobs, whereas employees who can most afford high deductibles won't have to pay them because their employers are unlikely to require such coverage.

    Moreover, health macroeconomists have concluded that employees with extensive benefits and low deductibles are the most likely to overuse the system. These employees are unlikely to ever face a high deductible/low coverage situation, so the people who most overuse will continue to overuse. People with lesser benefits indulge in less overuse in the first place, so the effect on them of higher deductibles will be limited.

    BTW, Microsoft has over 89K employees worldwide, with most in the US. Other high tech employers:

    Apple - 49K
    Cisco - 71K
    Google - 26K
    Dell - 103K
    Hewlett-Packard - 325K
    IBM - 427K

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