Wednesday, June 17, 2009

MSLs in a Multidimensional World

There are many tests, vaccines and procedures that doctors, employers, government agencies or insurance companies want people to have that people would be hesitant to pay for out of cash.

For example, an employer, desiring a healthy work force, may want employees to get regular check ups. The employee might prefer letting this money build up in their savings account. The government might want everyone to get a vaccine to eradicate a disease. Doctors might want patients to take tests that provide information for the doctor's private research. Insurance agencies might want people to take additional tests because the extra tests reduce liability costs.

One can very easily accommodate these desires by subsidizing the procedures.

For that matter, if you pay attention, you will notice that a great deal of activity like this already takes place.

The medical savings and loan could become a conduit for formalizing such subsidies. For example, an employer could have payments to the employee's account set up so that it funds a yearly check up. The government already gives free vaccines in cases where they are trying to stop an epidemic. Pharmaceutical companies pay people to be test subjects, and foundations can subsidize procedures related to their given cause.

The heart of the free market is freedom. The free market enables individuals and groups to do what they want to do with their resources.

This observation on freedom leads into an observation about medical savings account.

When speaking of a medical savings account one imagines a system where a person suddenly needing care would draw down their savings for medical expenses first. If that is not enough, they take out a loan. Finally, if medical expenses veer too far off the norm, the funding for the care comes from insurance.

A truly robust medical savings and loan program would seek funding from multiple sources from the offset. A robust system would seek to prevent situations where a single medical problem exhausted the savings account. For example there might be a low deductible for certain accidents, or one might have a graduated deductible, for example a patient would pay 90% of the first $1000 in expenses, 80% of the second grand, 70% of the third grand, and so on.

The repayment of the loan would use a graduated approach as well. Our knee jerk reaction is that one should pay off loans first, then establish savings second; However, the MSL might be rigged so that half of future payments go to pay down the loan, and half goes into savings. This is just an accounting trick. But it has the positive effect of assuring the owner of an MSL account that they continue to have resources available for medical expenses even when they are in the red.

Once the basic structure of the MSLs is in place, I am sure that people will find all sorts of ways to make the system meet both the objectives of the individual and of the different players involved in health care.

The MSL structure does not deny the multidimensional nature of our world. What it does is give individuals direct equity in their health care.


Scott Hinrichs said...

One of the quickest ways to make something more expensive (in total) is to subsidize it.

Many (maybe most) people in the U.S. do not in reality trust freedom. Oh, it's alright for them to have a certain level of freedom. But they're worried about the next guy. And many are worried about having to take responsibility for their own choices as well.

"If people were so good at handling freedom" they opine, "why do so many people do so many stupid [or selfish or greedy] things?" They perceive that the negative choices of others affect them as well. "That guy over there smokes and that imposes a lot of costs on society," they think. "Therefore it would be better to use coercive measures to stop that guy from smoking."

When they perceive an injustice, such as a family going bankrupt because their newborn unexpectedly suffers from a condition that costs half a million dollars to deal with in the first six months of life, they clamor for safety nets. "There, but for the grace of [insert meaningful term] go I," they think.

One promoter of liberty recently recalled the snake emblemed Revolutionary "Don't Tread On Me" flag. He quipped that a more appropriate flag for many of today's Americans would be a bawling baby accompanies by the words, "Care for Me."

y-intercept said...

I hope the post did not come off as begging for subsidies. The goal of the post was to show that one could structure a MSL program to fit one's desires.

I don't think we can stop policy makers from wanting to subsidize things. For that matter there are some health matters (like vaccines) that have public implications.

A medical savings and loan is still a program premised on people saving for their own medical expenses. People would pay a premium so that they would have access to guaranteed loans. They would take out the loans when warranted. Most people would work to pay the loans back.

Scott Hinrichs said...

I agree. The current system, in attempting to level out what people have to pay out of pocket, ends up incentivizing less healthy behaviors than would the system you are proposing.

I think back to your various posts about the significance of the provider-patient relationship. David Miller has a post that boils this matter down quite succinctly to two questions: "For whom does your doctor work?" and "Do you pay for your health insurance directly?"

He includes this quote: "You’ll know health care has really been reformed when the following things are true…
-You and your doctor deal with your health insurance provider as rarely as you currently do with your car insurance company
-Doctors post their prices, and compete with each other based on price and quality"