I’ve been collecting links for the past week or so to build out some background reading for tonight’s State of the Union address. There is going to be a lot of the typical pomp and circumstance that surrounds the address, including the staged touching moments and political pandering (Justice Alito, anyone?). The President faces a number of political challenges so, like the 2005 address where he unveiled his Social Security non-plan/idea, this year he looks to focus on ambitious domestic initiatives to take focus off his other failures. So, it will be tax cuts, energy policy, and a healthcare/health insurance initiative tonight.

The health insurance idea is going to be the interesting one. I suspect that it’s going to be ultimately unpopular because it has some obvious flaws.

The Plan (or fuzzy idea… will he provide details?)

From the AP article above:

The president wants to raise the dollar amount that can be allowed to accumulate in existing health savings accounts. In these accounts, people shoulder more of the responsibility for the costs of medical care. They deposit money tax-free into an account while buying a high-deductible policy to cover catastrophic expenses.

Health savings accounts helps control costs by letting businesses or workers buy low-cost insurance policies for catastrophic events and then save, tax-free, for routine medical expenses.

“This year, I will ask Congress to take steps to make these accounts more available, more affordable, and more portable,” Bush said. “Congress also needs to pass Association Health Plans, which allow small businesses across the country to join together and pool risk so they can buy insurance at the same discounts big companies get.”

Democrats say that giving tax breaks to individuals on health care costs draws the healthiest and wealthiest out of traditional employer-based insurance plans, leaving behind the less well-off in a system that is increasingly expensive.

It’s an interesting proposal and completely in line with the President’s ideological positions on the role of government. The Democrats counter to this policy, though, is valid but only touches the beginning of the problems here.

The problem

More fundamental is the question of how insurance should work. Insurance is about pooling risk. The bigger the pool, the better risk is spread out and the lower the cost gets for each patient. Even the President acknowledges this in his request for Association Health Plans. Advocates of national healthcare argue that the best way to pool universal risks is by creating a a single, national risk pool. The plan could be funded by the government and private industry (just like today).

A proposal that focuses on HSA/MSA’s will inevitably dilute the risk pool further, making health care more expensive for us as we get older and prohibitively expensive for the chronically ill or older Americans. It is fundamentally the opposite of what a health insurance system should be. The main benefit, from what I’ve been reading, is that employers would save on their healthcare spending by shifting costs to private individuals. From TAPPED:

But that’s not to say HSA’s are useless. They’re not. What they achieve is massive, large-scale cost-shifting, generally from employer to employee. Where businesses used to pay for insurance (and thus for treatment), now they’ll simply help employees found HSA’s and let them pay their own health costs. And that’s really what this push is about. Businesses don’t like paying for health care. The Bush administration, as always, heard and heeded the corporate complaints, and is set to propose a policy agenda that’ll help employers wiggle out of insurance costs. But someone, always, is left holding the bag, and if businesses let go of it, their employees will have to pick up the slack. For the lucky, healthy ones, the changeover won’t affect them much; it may even leave them better off, at least for awhile. But for the old or the ill (all of us, eventually), costs will skyrocket.

You might expect TAPPED and PNHP to dislike this proposal. After all, both groups/publications have argued for a national healthcare system for a long time. Which is why I feel compelled to share the article that prompted me to write this. From this week’s Economist:

In the longer term, America, like this adamantly pro-market newspaper, may have no choice other than to accept a more overtly European-style system. In such a scheme, the government would pay for a mandated insurance system, but leave the provision of care to a mix of public and private providers. Rather than copying Europe’s distorting payroll taxes, the basic insurance package would be paid for directly by government, though that cash might be raised by a “hypothecated” tax which would make the cost of health care more evident. The amount of cash given to insurers would take account of individual health risks, thus reducing insurers’ incentives to compete by taking only the healthiest patients.

Such a system would not be perfect but it could mitigate the worst inequities in America’s health-care system, while retaining its strengths. In practice, however, it will not happen soon. American politicians are still scarred by the failure of Hillary Clinton’s huge health-care plan (which tried in 1993 to force companies to insure workers). Incremental change, of the sort that Mr Bush is talking about, looks the only way forward.

…

But there is a flaw at the heart of his proposal. Mr Bush goes straight to one of the biggest distortions in American health care—the generous tax subsidies doled out to firms providing insurance. These help to promote a culture where costs do not matter. But his prescription is the wrong one. Rather than reducing this distortion, which would force firms and employees to be more cost-conscious and free up money to be spent on bringing more people into the system, the president wants to even things out by doling out yet more tax subsidies to others—for instance, letting individuals set more of their out-of-pocket medical expenses against taxes. Such hand-outs may have political appeal, but they will worsen the budget deficit and, most probably, drive up the pace of medical spending. America’s health-care system could be improved in small steps. But those steps need to be in the right direction.

Please read the entire article. I don’t understand why we don’t look at this the same way we do national defense. We all want to be safe from foreign threats whether they be terrorism or traditional foreign powers. We have, as a country, decide to pool our risk by paying into a combined national defense program. Healthcare offers the same risk pooling behavior. In fact, national health insurance would be better because the money is actually being spent by citizens and their doctors, not the government. The more I read about this, the stronger I feel about this.

As you watch the President’s State of the Union tonight (or, like me, read the transcript later), look for the specifics of this plan. See where the costs end up. That will be the measure of the President’s plan and of his commitment.

One final thought: I suspect that the plan bothers me at some instinctive level because it seems to assign blame to the patient for getting “too much” healthcare. From the Cato Institute:

Patients will curb their consumption and thus help contain medical inflation. Because consumers have built-in incentives to make wise choices, many of the restrictions that insurers have placed on patients will begin to disappear.

The implication is that a very large percentage of Americans get frivolous care. I don’t know how much less healthcare I could consume. I don’t know how much less my parents could consume (and they have pills they have to take regularly). I don’t know anyone that goes to the doctor “too much” or gets too much treatment. I’m sure that cases exist, and I’m sure that I could think of a hypochondriac acquaintance if I thought long and hard about it, but this is not the way I want healthcare to work. Patients should be healthy. That’s what it’s about.

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