A Health Care Bailout For the Middle Class

It's on. The president's assuming direct ownership of the health debate. Draft bills are beginning to circulate on the Hill. Dozens of policy details are being debated. Universal coverage is one way to describe the objective, but here's one that might be better: We need a health care bailout for the middle class.

High-income Americans will make out fine, and public programs will be strengthened for lower-income groups. But medical illness caused nearly two-thirds of all bankruptcies, and most of these bankrupt debtors had medical insurance. That raises two questions:

1. What's the value of "universal coverage" if "coverage" isn't providing the financial security people need?

2. If we can rescue troubled banks, what are we doing to rescue families whose "toxic assets" consist of unpaid medical bills for urgently needed care?

It's a mistake to assume that health reform will inevitably ease the financial burden for financially imperiled households. Medical problems caused 62.1% of all bankruptcies in 2007. Three quarters of these bankrupt debtors had health insurance. And 92% of them had medical bills of at least $5000, or 10% of pretax family income.

"10% of pretax family income" is also the figure many health policy analysts say families should be prepared to spend for health care under a mandate. But for many people that was a burdensome figure even before the financial crisis. We can't assume that a policy forcing them to spend that much will be either effective or politically popular. Nevertheless, AP reports House Dems are floating the idea of "slapping an unspecified financial penalty on anyone who refuses to purchase affordable health insurance." That's what is known as an "individual mandate."

Insurance was originally designed to eliminate financial ruin for individuals by distributing costs among many people. Does it make sense to insist that people buy coverage that won't necessarily protect them from disaster?

Feelings run high about this issue among us health policy wonks. Most Democratic/liberal analysts insist that reform can't succeed unless all individuals are first mandated to obtain coverage. The idea's based on sound economics: If some people can opt out, the healthiest are most likely to do so. Then the system will be burdened with sicker enrollees, driving up costs and making it harder to achieve universal coverage.

That's why smart and knowledgeable people like Jonathan Cohn can imply, as he does here, that individual mandates are indistinguishable from "good public policy."

I understand the economics, but here's the concern: The underlying concept of "shared responsibility" is sound, but in other countries -- and in Medicare -- that responsibility is mainly shared through the progressive mechanism of taxation. Unless carefully designed, individual mandates run the risk of being overly punitive and politically explosive among middle-income Americans.

Consider Sen. Kennedy's new draft proposal. It offers more generous subsidies than other proposals, with a sliding scale of assistance that goes up to $110,000 in income for a family of four. But a lot can happen beneath and near that $110,000 mark, especially in these perilous times. Yearly premiums for family coverage reached $12,680 in 2008 and continue to climb. That's one reason why families struggling to make ends meet sometimes 'bet' that they won't have catastrophic medical costs. That may be a bad bet, but using the levers of government to force them to pay $8,000 to $13,000 in premiums alone might not be the best solution.

And the assumption that mandates are more politically liberal is just that: an assumption. Mandates could, in fact, be economically regressive. They could also give the GOP a hot-button issue for 2010 and 2012. Proposals like Jacob Hacker's, which limit out-of-pocket premium costs to $2,500, go a long way toward addressing those concerns. But they're also costlier from the government side, so they don't seem to be on the table right now (even if those costs could ultimately be offset by improved compliance).

What's the solution? At least one proposal that has been anathema to Democrats might help. The Democrats campaigned against McCain's plan to tax health benefits. But a health tax, like any other, can be either progressive or regressive. (There's a good discussion of the topic here.)

It's true that a tax on all workers receiving health benefits could be disastrous. And nobody's receiving overly luxurious benefits, despite what some partisans claim. As Merrill Goozner observes, there are no "Cadillac health plans" for employees, though that phrase is has become a buzzword. (And Cadillacs are made by GM, where a little help was also needed.)

Here's one possibility: a health benefits tax that kicks in at high income levels. That could conceivably pay for some Hacker-like caps on premiums. It would also have the added benefit of sensitizing corporate decision-makers to the true cost of medical care in this country. It might even motivate more of them to take a proactive stand on health issues.

There are a number of other possible ways to "bail out" the American middle class in health care, too:

1. Phase mandates in slowly, as overall health costs are reduced through other measures. (This one's unpopular with a number of analysts, but is still do-able.)

2. Emphasize the public plan option. (If you're going to lay a heavy cost burden on the middle class, it's a good idea to give them every choice you can.)

3. Develop innovative ways of helping consumers pay their health debts through easy-to-use financing tools at favorable interest rates.

4. Ensure than health benefits include appropriate caps on out-of-pocket costs.

Universal coverage without universal financial security would be a Pyrrhic victory. The President and Congress can ensure successful health reform by making sure that American families can receive the care they need at a price they can afford.

RJ Eskow blogs when he can at:

A Night Light
The Sentinel Effect: Healthcare Blog

Comments

[MSGH]

There are really only 2 viable solutions: put in universal national health care, or move to Canada where we already have it, like I did.

[HMINTON]

I am of the believe that I will take my chances with government insurance. We pay over $5500 as a family each year for $1500 in "up front coverage" from Blue Shield. After that is met, then we must pay out of pocket for any medical care up to $5000. So I pay $5500 for $1500 in coverage and if anything horrible happened I would pay $5000 and if that happened my out of pocket costs for a year would be over $10,000 for deductable and cost of insurance. WHAT A JOKE. We had a baby a year ago and we paid the $5500 for the year and still had to pay almost $3000 out of pocket AFTER the $1500 was met to the hospital, anesthesiologist, pediatrics, etc...That is NOT insurance. I will pay the government insurance and a tax increase if necessary in order to give everyone coverage and MUCH BETTER coverage for myself and my family. Government providing insurance does not interfere with doctor and patient care. These insurance companies have been draining us for years and its time for it to stop. I have family in England who cant believe how bad our system is here. Our current insurance is only for those who are well, not sick.

[masher]

We will get what Obama always gives us, lots of pretty talk but in the end he will sign exactly what industry wants. And he may even provide them with trillions of tax dollars.

So far that is the pattern with Obama and the Democrats, bail outs of the rich! So far Obama has signed off on $4 trillion in bailouts for banks and automakers. And the automakers are moving full speed to move jobs overseas using the bailout money. And the banks did the same thing because they used the money to bailout european and asian banks.

Obama = Bush lite.

[greybeardgray]

Here are some initial impressions on the President's: Children's Health Insurance Reauthorization Act of February 4, 2009. Mr. President, first of all I want to preface my comments with a bit of chagrin over the fact that a great deal of your support during the last election came from what I call: 'numerous 'fronts and "focus" groups'. I might add that these groups do nothing more than place a higher burden on the pockets of the poor you pretend to be aiding, they have to be salaried, of course. TITLE II: Section 201, there were 'fronts'. Then in Section 202, there was a make-up call, in the form of concessions for Native Americans. In Section 203, more 'fronts'. In TITLE III: Section 302, more 'fronts'. Furthermore there are questionable issues in: TITLE II: Section 211, regarding citizenship, I hope some of these provisions don't make it easier for questionable foreign nationals to gain access to resources to forward interior domestic unrest; TITLE III: Section 311, more on questionable applications, and possible payments, and stall-outs during review. I also found provisions in TITLE IV, regarding the various payment systems, Section 503; grace periods for insurer, I hope there are safeguards on what is, indeed, done with those funds during any interim period, the poor could use the returns from those funds; Section 506, creating yet another government commission, smaller goverment please Mr. President. GBG!!!

[marty135]

I call upon everyone to NOT allow the DISSENTERS of Universal Health Care to simply say NO and walk away. WE MUST insist that they submit alternative plans that prevent the poor and middle income ill from going bankrupt and/or dying needlessly. WE MUST insist that the naysayers be specific in their alternate plan since they always insist that we who support a Universal system do so. The price for a Universal plan will be high BUT, the TOTAL price for a cheaper alternative plan would be much higher. Let us be a living example of what we always espouse "We place a higher value on human life than any other people in the world".!!

[Wake-up]

NO!

Gov. is not the answer... look at the entitlements now like SS, Medicare, etc. all about to be insolvent! Put a cap of drugs and services drives people and businesses (competition is always best for the customer) out of the market and that's bad for all...

You want to get active on this issue, work to put an end to the ridiculous law suits that drive the costs up and then demand that everyone take the responsibility to get coverage which most of the uninsured can afford.

[marty135]

I sincerely urge Mr. Wakeup to check the past performance records of the Social Security and Medicare systems. SS has been in business since 1934 having served millions of our people where age AND/OR illness prevented them from obtaining the very basics of life.ie; FOOD, SHELTER, and CLOTHING. Medicare brought patient care of the elderly out of the caveman age into the light of where the fruits of modern research extended his life expectancy by at least TEN years. I ask you if you would like to substitute YOUR entitlement of SS and Medicare for something that you feel is better. If so , please make your government representatives aware of what it is so we could all benefit from it.

[ResistanceisFutile]

There has to be accountability in healthcare just as in any other endeavor. Unfortunately lawsuits and attorneys are the only way to get accountability.

[countthevote]

I look at health care as our most important infrastructure and 18,000 people die due to lack of health care each year.

Our manufacturing infrastructure is suffering because of our lack of health care infrastructure. We can't compete with countries who value their people's health care enough to make it a national priority.

Even our financial infrastructure is suffering from the weight of corporation run health care. Medical bills underlie 60% of bankruptcies.

Are we to just say that only the rich deserve to live and the rest of us peons can just shrivel up and die? If you're rich you get the best our collective society has to offer, but if you're a peon you leave nothing to your offspring because of your health care bankruptcy?

Scientific advancements made it necessary to pave roads and build bridges. It is a Federal responsibility written in the Constitution to build roads, to provide for defense and the general welfare of our citizens. The biggest terrorist we'll all face is disease. It is time to think of our health care as our national infrastructure and treat it with something besides counter-productive drug war prisons.

A public health insurance option is necessary infrastructure in our technological advancing world.

[Vcubed]

Mr. Eskow, you seem to have your heart in the right place but you want to make things more complex. Why can't we just pick what works in other countries instead of reinventing the wheel?

[Rhetticent]

Those of you who are slobbering for free, government provided universal health care: It will be administered by people like this, with the same compassion and common sense.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/04/MNJQ1807UK.DTL

[masher]

That's San Francisco. Its actually a very conservative city, at least half of it. They hate competition.

[MSGH]

As I keep writing on my students' essays when they make unsupported, unsupportable statements: Proof?

[Rhetticent]

It's so interesting how statistics get used. Having done bankruptcy law for 25 years, I can't recall a single client I didn't tell to blame their bankruptcy on "medical bills" because the credit reporting agencies and lenders would view that category more favorably. So, everybody who had an unpaid $20 copay listed on their schedules became a "medical bankruptcy". Yet another example of the law of unintended consequences.

[ResistanceisFutile]

Don't worry about the middleclass, there soon will not be one.

Healthcare reform as envisioned by the geniuses in Washington will drive healthcare workers out of the middleclass. The plan? Drive down healthcare workers's wages.

You don't think it will happen? Your elected leaders did it with other industries with NAFTA legislation.

Congress will demand cuts in costs. Corporations will demand the same or larger profits. Not only will the healtcare worked suffer but so will the patients.

[langej]

Caps on Insurance Premum Costs = unfunded mandate.
Funding any portion of premiums though tax revenues just says "let our children pay for it."

Any decent public health insurance scheme requires centrally negotiated annual cost caps on all medicines and all medical procedures, a cap on admin costs and actuarily-set premiums. Given these, a public insurance system can provide the competitive thrust to lower private insurance costs.

[jmpurser]

"It's on."

It's over.

Single payer health insurance run by the government and providing universal coverage was the ONLY solution on the table. Everything else is either nothing or makes the problem worse. We have apparently decided to go with a plan to siphon off the sick and poor into a "public option" that will make the expenses of the system public while the rest of the nation is driven onto the shoals of the private insurers so the profits will be private.

We're pouring gas on the fire.

As Bush and Iraq destroyed the GOP so Obama and Health Care are about to destroy the Democratic party.

[Aaror]

You know what I would like out of this?
An increase in the medicare/medicaid tax of about 1% (which wouldn't cost people much, it would reduce our wages by 1%, and increase cost to employers by 1%, which could hurt our next raise, but it would be painless in the long run). This would pay for:
1 free annual checkup per year for every American
3 free doctors visits for every adult, 6 visits per year for children (so that little problems get checked out before they become huge problems).
Catastrophic insurance.
What do I mean by catastrophic insurance? Well, the reason people with huge medical bills go bankrupt is that their insurance refuses to pay, or bumps premiums into the high 3 figures per month to retain coverage. At that point the only way for people to get medical care is to become broke enough to qualify for medicaid. Catastrophic insurance would charge a percentage of income (say 10%) and provide full medical coverage (maybe with a $25 per visit cost) for people who could not afford standard health care.

Impletment this and you have solved half the problems with our system, at low cost. Granted, these are the "low hanging fruit," and solving the other half of our problems will be much tougher, but it is something that Obama could point to and say "see, I made it better."

[schatsie]

and a 5% tax on unearned income, you know bonuses and capital gains and such..... and no longer allow business deductions for the UBER OLIGARCHY.....like jets and pilots and insurance and maintenance....Let them pay for it themselves, just like we do....

[Wooty]

This is the stupidest discussion ever. I agree with other commenters, a "bailout" for the middle class is just a roundabout way to funnel middle class paychecks into insurance company pockets. Health care reform is meaningless without controlling health care costs.

[ThePeoplesKey]

Too many of the American public are using the word "Free" to describe the results of universal health care. Universal health care doesn't mean "Free" health care for all. It's been known for decades that a preventative system is far more cost effective then the current system. For a generation we've known what "preventative" should consist of. At least one complete physical exam per year, good nutrition, adequate physical activity and sleep. Seems to me that a viable plan would work to ensure that these bare necessities would be available and affordable and everything else could be had with a reasonable co-pay except for catastrophic disease which would be covered at no cost by everyone lucky enough not to get a catastrophic disease or have a medical emergency. That's the way it should work. Everyone in the same risk pool. We all pay a little to cover the necessities and a little more to cover the individual "catastrophic" emergencies most of us (hopefully) won't experience. IOW's if you're the type that thinks a visit to the emergency room is required for each hang-nail and blister you get, you're on your own as far as payment is required above what we know is necessary. To pay for it I suggest taxing the things that don't promote a healthy lifestyle and things that cause catastrophic injury most. Highly processed foods, snack foods, sugary drinks, guns and ammunition, etc.

[Realization]

I would add transfats, foods high in salt and the like. To cut health care costs, Americans will have to eat better and get in shape.

Personally, I don't think guns and ammunition belong there. Used to go hunting quite a bit. Very healthy lifestyle. Of course, it depends how you do it.

[Anne Dunev - Huffpost Blogger]

True prevention is nutrition and life-style, not medical tests. By the time something shows up on medical tests, the condition has progressed too far. We are eating ourselves into obesity, Type II Diabetes, smoking ourselves into cancer, and generally living in a toxic environment that creates many chronic conditions and eventual disease that cause people to seek care. I think it is unfair to ask people who make healthy choices to bear the same burden as people who take no responsibility for their health, so perhaps taxation is part of the answer. How about taxing the companies that create the frankenstein foods and market them to us? Some cookies have 6 different chemicals to stimulate the appetite. Have you ever eaten home-made cookies? Who needs chemical additives to make you want to eat more? I am disgusted when I see that McDonalds markets absolute crap to kids and then funds children's hospitals. It is obscene. No matter how it is paid for, we need to lower our health care costs.