Some Consequences of Government Rationing

In “Rationing Health Care” and “More on Rationing Health Care” I describe why employer provided health care how employer provided health care was created as a response to the price and wage controls imposed during WWII.  Employers could not raise wages but the government permitted them to offer health care benefits to employees in addition to wages.  New laws made health care expense deductible for the employers and did not count the health care benefits as taxable income for the employees.  Because health care payments paid with the employees wages were taxable, both the employer and the employee had a financial motive to push more medical employee paid health care expenses onto the group plan paid by the employer.

The law created a tragedy of the commons and the common resource was the group plan.  Health care is over consumed because the employees have no incentive to control expenditures but all pay for the increasing costs because the cost of the group plan has increased.  There are basically two ways to control rising costs.  Employees must be again be exposed to market prices or the employer through the group provider must ration health care.

Medicare and Medicaid have created similar tragedies of the commons.  The elderly and the poor get benefits paid for largely by taxpayers, and consequently have little incentive to control consumption.  President Obama’s health care reform would ration health care benefits through expert committees.  A couple of articles describe the impact of government rationing in the Tennessee and the United Kingdom (“Patients to wait longer for care under new health law, think tank says,” “Cataracts, hips, knees and tonsils: NHS begins rationing operations”).

In Tennessee, approximately 700,000 citizens will gain health coverage (demand expands from D0 to D1), most will be younger men with low incomes who will become eligible for Medicaid.  The remainder are people who qualify for subsidies to buy insurance though newly created state health exchanges.  As demand expands without a corresponding increase in health care providers, the price of health care increases as does the quantity of health care provided (the increase in demand has caused a change in quantity demanded along the original supply curve and equilibrium has shifted from A to B).  More health care will be demanded at a higher price.  Somebody has to pay.  Sources cited in the article suggest that taxpayers and healthy young adults that do not qualify for subsidies will subsidize the poor and infirm. 

The second article explains that the National Health Service will ration hip replacements, cataract surgery and tonsil removal as well as other operations to control burgeoning budgets. 

Society cannot afford to provide all the health care that people desire.  As health care becomes more effective and more expensive, people will not be able to afford all beneficial care.  Public payment for health care has or will hit the same ceiling.  We as individuals or collectively cannot afford everything we want.  Resources are scarce.  It seems cruel to force a dying person to examine their financial records to determine if they wish to spend their remaining wealth on a procedure that might be effective.  Many will not have the resources to pay.   It also seems cruel to tell a dying patient that she does not meet the cost benefit criteria for a procedure that might extend her life.

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More on “The Allegory of the Breast Pump”

In response to “The Allegory of the Breast Pump” anonymous wrote

The purpose of this legislation is to PROMOTE feeding of our future generation with breast milk. Not an easy task when women are often expected to return to work full-time within few weeks after giving birth.

If you are going to write about the economics of providing breast pumps, without out-of-pocket expenses to a woman, please consider all aspects of this topic. Few points you have not considered:

1. Breast milk is rich in antibodies that protect the baby from infections and are not found in commercial formulas. According to WebMD, "Except for wellness baby visits, ear infections are the most common reason for trips to the pediatrician, accounting for approximately 30 million doctor visits a year in the U.S. Today, almost half of all antibiotic prescriptions written for children are for ear infections, and the cost of treating middle ear infections in the U.S. has been estimated at $2 billion a year."

2. Breast milk has the right amount of fat, sugar, water, and protein to help the baby grow appropriately. Something to think about while our nation is struggling with morbid obesity and obesity related health care costs. For example, a bariatric surgery for weight loss, performed on adults and children, ranges from $6,000 to $8,000 per procedure.

3.  For most babies and especially premature babies, breast milk is easier to digest than commercial formula made with cow's milk. Take a look at rising incidences of child and adult allergies and gastrointestinal conditions, that may be prevented.

So, "How much better off are we as a country?" The benefits might take time, the time it takes for these breast-milk-fed children to grow up and become healthy, intelligent and productive members of our society.

I thank anonymous for the polite and informative information provided on breast feeding.  I do not wish to argue the value of breast milk to formula; I concede this point.

I explicitly assumed that Molly and other women were informed about the benefits of breast feeding.  I implicitly assumed that Molly and other women consider their welfare and that of their child as one.  Mothers want the best for their children.

I have two problems with the regulatory mandate.  First, I believe that the price elasticity of breast feeding is very inelastic meaning that a large reduction in price of breast feeding will have a small impact on the number of women who choose to breast feed.  Second, health care costs will explode because the price of the breast pump (health care) is separated from the benefit of breast feeding. 

My assumption that women are informed might be wrong.  If so, an educational campaign might be appropriate.  My assumption that women love their babies and care as much or at least almost as much about their baby’s welfare as their own might be wrong.  Heaven help us if they don’t.  Neither additional education nor small subsidies will have much impact on the number of babies who are breast fed.
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The Allegory of the Breast Pump

(HT Drudge Report)  Yesterday, Health and Human Services Secretary Kathleen Sebelius announced that beginning January 1, 2013, that insurance companies must cover women's preventive care without copays under the Affordable Care Act of 2009.  Tens of millions of women are initially expected to gain benefits and that number is expected to grow over time (“Federal health department approves free birth control”).  Included under the decision are breast pumps and here begins the allegory. 

In our fictitious economy, 1% of GDP is spent on breast pumps and 10% of pregnant women use them.  The government changes insurance laws so that all women have a zero copay.   Prior to the change in insurance law, on average, women paid $200 for a breast pump.  After the change in the law, doctors recommend pumps that cost 50% more than the average expenditure.

An informed pregnant woman, Molly, considers breast feeding her baby.  Given her schedule, she estimates that she will need to use a breast pump eight times per week or make small alterations to her schedule.  After talking to friends, she learns that pumps are a little uncomfortable and somewhat time consuming.  As part of her research she looks at the price of breast pumps.  Because Molly believes that there is a good chance that she will decide that it is easier to alter her schedule than use the pump, she tentatively decides to buy an inexpensive $100 pump.  If she does not like it, her loss would be small.

During her next checkup Molly asks her doctor, Dr. Who, about feeding options for her baby.  The conversation centers on breast feeding.  She describes her research.  Who realizes that she is unaware of the change in law and suggests that she try using a breast pump costing $300 because it causes less discomfort and because of the zero copay.  Molly agrees.  The order is processed through her insurance company adding an additional $100 to the cost. 

This conversation is repeated with all pregnant women. The 10% of women who originally decided to use breast do not alter their decision but they do decide to alter the breast pump models that the purchase so that the average cost is $300 per pump.  Women who had decided to use a less expensive pump decide to use the $300 model.  An additional 20% of women decide to try pumps.  Half find the pumps satisfactory and continue their use and half stop using the pumps after a brief time.  Another 10% of women are embarrassed that they do not want to breastfeed and agree to try the pumps with no intention of continuing their use.  All women who are persuaded to try a breast pump choose the $300 model.  

The change in the law chased an 800% increase in breast pump purchases.  Because women now on average buy $300 pumps rather than $200 pumps and four times as many women purchase them, breast pump purchase now represent 6% of GDP.  The cost of processing claims represents 2% of GDP.  Breast pump manufacturers wake up and smell the coffee.  There is no reason to specialize in producing inexpensive pumps.  The average price of pumps increases.  Doctors retain their practice of recommending breast pumps that costs 50% more than last year’s average.  Breast pump prices spiral upward.

How much better off are we as a country?  The original 10% of women using breast pumps are clearly better off.  They wanted to use breast pumps and they end up using a more expensive model at a cheaper price.  The next 10% of women who chose to try a breast pump and continue its use are $300 better off if they correctly measured their costs and benefits.  The remaining women are no better or worse off.  In total, pregnant women are gifted an additional 6% of GDP but their welfare gains total only 2% of GPD.  Insurance companies also gain 2% of GDP.

The same cannot be said of taxpayers.  They are clearly worse off.  They are paying an additional 7% of their income for breast pump purchases and insurance processing.  The lesson from this allegory is simple.  Markets produce a better allocation of resources that produces a higher level of well-being for society.
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Counterintuitive?

Josh Kraushaar writes (“Gallup: Seniors Most Favorable To Ryan Budget”)

A new Gallup/USA Today poll contains a counterintuitive finding: the age group most receptive to House Budget Chair Paul Ryan's plan to deal with the budget - seniors.

The poll finds 48 percent of seniors (those 65 and over) support Ryan's plan over President Obama's plan, while 42 percent back the president.

That's the highest total among the age groups tested - a 47 percent plurality between the ages of 50 and 64 backed Ryan, and a 45 percent plurality of those between 30-49 backed Ryan. But young voters overwhelmingly sided with Obama by a 23-point margin, 53 to 30 percent.

I do not think that the results are counterintuitive.  President Obama’s health care reform takes $57.5 per year over the next decade from Medicare to fund an expansion of Medicaid, harming those who are Seniors now and those who will soon be seniors.  The Ryan plan would maintain Medicare at current inflation adjusted levels for anyone currently under 55. 

Seniors are supporting their interests and there is nothing counterintuitive in that (See Betsy McCaughy, “Medicare As We've Known It Isn't an Option” for a good comparison of the impact of President Obama’s health care reform and Representative Ryan’s proposed changes).   Permanent Link
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McDonalds and Healthcare Waivers

Thirty companies and organizations including McDonald's were granted health care coverage waivers from the Department of Health and Human Resources allowing them to offer insurance plans that do not meet new health insurance guidelines of the new healthcare legislation to approximately one million workers.

The “mini-med” plans run afoul of the legislation for two reasons.  First, insurance plans must spend at least 85% of their revenue on medical care (David Leonhardt, “Health Care’s Uneven Road to a New Era”).  This is a big hurdle for insurance plans geared to young, healthy consumers.  After all, a $200 medical bill for a simple checkup is likely to have much the same administrative cost as $200,000 bill for bypass surgery.  Second, the new health care legislation requires that companies provide a minimum of $750,000 in coverage in 2011, increasing to $1.25 million in 2012, $2 million in 2013 and unlimited in 2014 (Drew Armstrong, “McDonald's, 29 other firms get health care coverage waivers”).  That amounts to a huge salary increase for low skilled workers.  The mandated increase in salary will result in less demand for low skilled workers and an increase in the price of goods and services that they produce.   Leonhardt gives a good positive description of mini-med plans and their limitations mixed with his normative views in the article linked above.  Three sentences exemplify many of my objections to healthcare reform.

…people will be required to buy insurance, to spread costs among the sick and the healthy. Second, insurers will be prohibited from cherry-picking only the healthiest customers, again to spread costs. Finally, the government will give subsidies to people, like McDonald’s workers, who can’t afford insurance on their own.

Leonhardt puts much less value on freedom and trust in markets than I do.  Words like “people will be required to buy” and “insurers will be prohibited from” make me cringe.  Who is the government to tell me what I need to buy or designing products for private companies?  Nor do I have a problem with cherry-picking of the healthiest consumers.  That leaves a market segment for insuring the chronically ill, a group more deserving of subsidies than workers who are generally young and healthy.  In fact, most analysis that I have read conclude that the young will subsidize the old and the ill.  Finally, the government may “give subsidies to people” but they do so with taxpayer money.

In regards to the reform in general, it weakens market incentives that would lead consumers to watch medical costs and providers from producing low cost products because taxpayers will subsidize insurance plans with unlimited costs.

Taxpayers and healthcare consumers would have been better served by legislation that increased market incentives.  See “More on Rationing Health Care” for a short explanation of how the tax code weakened market incentives for healthcare and a comparison of government rationing vs market rationing of healthcare. 
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Canada and Rising Healthcare Costs

Cost is an important part of the healthcare debate but it often ends by comparing healthcare expenditures as a percentage of GDP in the U.S. to other countries.  Economists are generally more interested in rate of change than the absolute level of an activity.  Claire Sibonney, a Reuters analyst, writes in "Soaring costs force Canada to reassess health model"

Pressured by an aging population and the need to rein in budget deficits, Canada's provinces are taking tough measures to curb healthcare costs, a trend that could erode the principles of the popular state-funded system.

Like the U.S., Canadians are debating how the government, using non-market mechanisms, should limit health care expenditures.

Ontario, Canada's most populous province, kicked off a fierce battle with drug companies and pharmacies when it said earlier this year it would halve generic drug prices and eliminate "incentive fees" to generic drug manufacturers.

British Columbia is replacing block grants to hospitals with fee-for-procedure payments and Quebec has a new flat health tax and a proposal for payments on each medical visit -- an idea that critics say is an illegal user fee.

And a few provinces are also experimenting with private funding for procedures such as hip, knee and cataract surgery.

To repeat oft made arguments ("Rationing Health Care," and "More on Rationing Health Care"), the best way to limit the growth in costs is to rely more heavily on market mechanisms.  Under the current system in the U.S., the insured have no incentive to limit expenditures in much the same way I have no incentive to limit auto pollution when I drive.  The amount of pollution I add or any one individual adds is so small as to be meaningless.  Summed across a large population area, the individual contributions produce a very visible problem.  If I stopped pollution there would be no measurable improvement in air quality.  The government has attempted to deal with auto pollution using command and control techniques like requiring catalytic converters or requiring auto producers to meet fleet fuel efficiency standards.  The command and control mechanisms are less efficient than market mechanisms.  A simple pollution tax (see Mankiw's "The Pigou Club Manifesto" for a full explanation.) added to every gallon of gasoline purchased would be more effective.

Why don't we through our government apply a gasoline tax rather than more expensive command and control regulation?  My guess is that voters could clearly link the tax to their wallets whereas that link is less visible with command and control regulation.  Voters as taxpayers want benefits paid for by others.  

Whereas the environment is a natural commons, healthcare markets are a government built commons, constructed because people want others to pay for their benefits.  If voters had to directly fund healthcare purchases, they would be more careful in ordering those services.  Healthcare providers who currently have little or no incentive to lower cost would find ways to offer better healthcare at a lower cost or lose customers to providers who could. 
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Doctor Shortage

HT Drudge Report)  Suzanne Sataline and Shirely S. Wang, Wall Street Journal writers report that recently passed healthcare reform legislation will result in a 150,000 doctor shortage by 2025 in "Medical Schools Can't Keep Up." 

The greatest demand will be for primary-care physicians. These general practitioners, internists, family physicians and pediatricians will have a larger role under the new law, coordinating care for each patient.

The U.S. has 352,908 primary-care doctors now, and the college association estimates that 45,000 more will be needed by 2020. But the number of medical-school students entering family medicine fell more than a quarter between 2002 and 2007.

A shortage of primary-care and other physicians could mean more-limited access to health care and longer wait times for patients.

Proponents of the new health-care law say it does attempt to address the physician shortage. The law offers sweeteners to encourage more people to enter medical professions, and a 10% Medicare pay boost for primary-care doctors.

The article states that the number of medical resident positions will be a bottleneck in minting new doctors but misses a major point.  Long term shortages in the production of any good or service is a sign of government regulation.  The government should not need to offer "sweeteners" to lure students into medical school.  Wages should be sufficient sweetener.  The shortage of doctors will result in non price rationing of healthcare.  One cost is that those who value the service the most are not necessarily those who end up with the rationed service.  Queuing will almost certainly be a rationing mechanism.  Waiting is time and time is money.  Healthcare reform will cost middle income households. 
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Shughart on Healthcare Reform

William Shughart of the Beacon has written a very good article titled "ObamaCare will Make Employees and Employers Worse Off" about the impact of recently enacted healthcare reform on low skilled workers and their employers.  The Beacon is the blog of the Independent Institute and students of economics, law should spend time at the site.  Shughart describes the reforms as a constraint on the wage and benefit negotiations between employer and employees.  This discussion should have a familiar ring to principles students who have studied price floors and ceilings; they too are constraints. 

The costs of the mandate will fall most heavily on employees now earning incomes at or near the minimum wage. Since their pay cannot be cut, some will be priced out of jobs altogether if their employer also is required to provide health insurance for them.

Employees – especially younger workers in good health – likewise will be prevented from choosing jobs that pay high wages but do not offer a health insurance benefit they often rationally do not value highly. And they will be forced to pay for coverages they do not need and for which they otherwise would not be willing to pay.

The compensation package heretofore determined in a competitive labor market has resulted from mutually agreeable bargains between employers and employees. Depending on worker preferences over wage and non-wage benefits, employers had incentive to offer mixes of the two that allowed them, at least cost, to attract and retain people in the numbers and skills of which maximized their profits.

At least one element of that package – health insurance – no longer will be subject to negotiation. Labor markets accordingly will be less able to match workers with jobs efficiently. Both therefore will be made worse off. We can thus expect permanently higher unemployment rates and an economy that is less able to adapt to the socialist policy initiatives that still loom on the Obama administration’s agenda.

I agree with his economic analysis but if I were to use a word to describe The Obama administration's healthcare policy it would be fascist rather than socialist.  Robert Higgs provides a useful definition of fascism in "Crisis and Leviathan."  I retain his italicization; the quotations in the paragraph are from Charlotte Twight, "America's Emerging Fascist Economy."

Alone among collectivist systems. fascism preserves private property, but "capitalism is turned inside out in this unlikely union."  Fascism recognizes people's desire to possess privated property and admires the strength of the profit motive, but it "uses these features of capitalism [only] insofar as they do not conflict with the national interest as formulated by fascism's political authorities."  Every part of economic life is ideologically, constitutionally, and legally vulnerable to governmental control.  Hence "fascism tolerates the form of private ownership at the government's pleasure, but it eliminates any meaningful right of private property."  It is "a bogus capitalism indeed, a sham deferral to individual economic rights readily nullified whenever political leaders deem it expedient."

Wether socialism or fascism best describe the policy, the policy is the abrogation of individual economic freedom in favor of state directed collectivist actions, and, in the words of Hayek, it is "The Road to Serfdom."
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PhRMA, Advertising and Competitive Free Speech

People often assume that business leaders support legislation that strengthens markets, but this assumption is usually false.  Business leaders support legislation that increases the profit of the firms they own and manage.  Given the assumption that drug companies Represented by the Pharmaceutical Research and Manufacturers of America (PhRMA) which represents the country’s leading pharmaceutical research and biotechnology companies, are self interested profit maximizers, Chris Frates of Politico provides evidence directly from PhRMA's advertising budgets that their profits will not be harmed by current reform legislation in his informative article ("PhRMA plans $6 million pro-reform ad buy in 38 House districts").

PhRMA agreed Tuesday to fund an initial $6 million ad buy in the districts of 38 wavering House Democrats. The pro-reform ads will come from the industry-funded coalition Americans for Stable Quality Care and could hit the airwaves as early as today, a top industry official said. The deep-pocketed trade group didn’t decide how much it would spend in total on the campaign; officials are waiting to review the bill first. The decision to flip the switch on five or six days worth of advertising will come when the industry is comfortable with the bill’s direction.

The emphasis added is mine.  Presumably, "comfortable with the bill's direction" means that these firms will benefit from the reform legislation.

A recent Supreme Court decision allowed corporations to spend freely on elections.  Many speculated that the decision would allow corporations to buy elections (see "Justices, 5-4, Reject Corporate Spending Limit").  In a blog post, I noted that business interests were not monolithic and that elections would be competitive.  Frates provides evidence that special interest funding would indeed be competitive.

The drug industry is really the only pro-reform group able to match the millions being spent by opponents like the Chamber of Commerce.

Permanent Link
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Sebelius Plays Two Political Tricks

Last Friday in "A Health-Coverage Tax and Its Burden" I demonstrated that the burden of a tax placed on restaurant owners would be shared between patrons and the owners in the short-run, and exclusively by the patrons in the long-run.  I also claimed that politicians frequently claim that taxes placed on business will not affect employees or consumers.  Two days later Kathleen Sebelius, the Secretary of Health and Human Services, added evidence to my claim in an interview with David Gregory on Meet the Press in which she stated that it is insurance companies will pay the tax on "gold-plated or Cadillac plans."  To give context to her statement I have included the question by Gregory and her response with the pertinent statement highlighted.   

GREGORY: I want to go to just a couple of issues. One has to do with how this gets paid for. That is a tax, an excise tax on so called gold-plated or Cadillac plans. But in the Senate bill that's been put off until 2018.

And the reasonable question comes up which is, do you really think a future Congress which will be under a lot of pressure not to raise $1 trillion worth of taxes, is going to withstand that pressure, or are you going to be left where -- because this Congress won't raise the tax now, they're going to put it off to 2018 so you're going to have all of the spending and not get any of the savings until 2018. Isn't that unrealistic?

SEBELIUS: I think two things happen right away with the way this is designed. First of all, it puts insurance companies who pay the tax ultimately on notice that this is coming. And they can begin to change the kind of policies that are in the market.

But what we want to do is change insurance company behavior which hasn't been very strategic in terms of cutting costs. And in fact, as the Goldman analyst said they are driving up cost, they have a market strategy that they are willing to dump customers and continue to raise costs; so changing their behavior, putting them on notice that this is coming.

Besides claiming consumers and taxpayers will not share the burden of taxes on business, politicians also like to find enemies to justify actions.  Voters should not allow politicians to scapegoat insurance companies; they are no more or less moral than other businesses which also seek profits or consumers who attempt to get the most out of every dollar spent.  Creating enemies out of whole cloth increases tension between consumers and business and undermines business confidence.   

Three questions come to mind.  First, why do we need a complete overhaul of health care if a simple change in tax structure will alter incentives of insurance companies and consumer incentives as well?  While I don't support an overhaul of the health care system, I do support equal tax treatment of income used to purchase health care through employee provided plans and privately purchased plans as I wrote in the above linked post and here, but why limit taxes to these plans?  Wouldn't a broader based tax further alter insurance company and consumer behavior?  
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Fever on the Health Care Bureaucracy

A guest, Fever, wrote in a comment titled, "No new bureaucracy will be necessary"

I don't care which cost savings idea you decide to back, if you create a massive new entitlement there will be bureaucracy and the entitlement will come at an additional cost. Furthermore, the reason the Democrats won't support your tax plan is because the people that pay out-of-pocket for healthcare are rich.

I thank Fever at starvethemachine.net for the comment and acknowledge some common ground: we both want a smaller government.  He wants to starve the machine and I would like to see it at least skip a few meals. 
As in my previous post, I am attaching a proviso to remarks.  My information source is the governor of Indiana who instituted the plan and his presentation of the program may be biased, but if his information is approximately correct, I stick by my statement that no new bureaucracy will be necessary to offer health savings accounts to all workers as a optional replacement of traditional preferred provider plans, Medicare and Medicaid.  These bureaucracies already exist and Indiana's experience demonstrates that it is less expensive to provide health care and manage payments with health savings accounts than traditional preferred provider plans.  In 2010, the state will save $20,000 or about $950 per state worker enrolled in a health savings account (70% of 30,000).  Health care costs are growing faster than the rate of inflation elsewhere.

A health savings account gives the insured a financial interest in rationally reducing costs as demonstrated by the experiences of Indiana state workers.  Comparing the gradual replacement of Medicare and Medicaid with health savings accounts to current reforms before Congress is a no brainer.  I trust people to make better decisions about their health care than a government committee.  I also trust people to spend their money more carefully than the government would spend it for them.  The real beauty of markets is that health care providers will adapt products to price conscious consumers. 

Should the government expand health care insurance to cover every citizen?  Given the massive size of the deficit and national debt, and the projected increase in these accounts due to unfunded government liabilities, I believe this is an odd time to ask this question.  Let's try to control costs before we increase enrollment. 
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Indiana's Health Savings Accounts

I have often expressed the opinion that much of our nation's high cost for health care is the result of bad tax policy that allows taxpayers to make tax free payments for health care through an employer provided health care plan but forces them to pay taxes on out-of-pocket expenses for the same services(see here or here).  People rationally responded to incentives and made payments through their group plans.  As out-of-pocket expenses fell, consumers paid less attention to price. 

Employees also have little incentive to minimize health care payments made through their employers.  In essence, the group plan adds up all health care purchases made by members of the group, divides the sum by the number of members of the group, and charges each member the quotient.  The third party payment system through a group plan turns medical expenditures into a public good which theory tells us is overused and underfunded.  As an example, if 100 people belonged to a group that ran up an annual bill of $240,000, each member would be charged $2,400 ($240,000/100).  Suppose an average member of the group who ran up a medical tab of $2,400 this year were able to cut expenses in half the next, but everybody else maintained their original expenditures.  The frugal group member would decrease group expenditures by $1,200 or $12 per member per year.  Why would anyone cut their annual health care expenditures by $1,200 for a $12 savings?  
Mitch Daniels, the governor of Indiana, implemented health savings accounts that restore individual incentives to limit medical expenditures.  He describes the plan and its consequences in "Hoosiers and Health Savings Accounts," which was published in the Wall Street Journal. 

When I was elected governor of Indiana five years ago, I asked that a consumer-directed health insurance option, or Health Savings Account (HSA), be added to the conventional plans then available to state employees. I thought this additional choice might work well for at least a few of my co-workers, and in the first year some 4% of us signed up for it.

In Indiana's HSA, the state deposits $2,750 per year into an account controlled by the employee, out of which he pays all his health bills. Indiana covers the premium for the plan. The intent is that participants will become more cost-conscious and careful about overpayment or overutilization.

Unused funds in the account—to date some $30 million or about $2,000 per employee and growing fast—are the worker's permanent property. For the very small number of employees (about 6% last year) who use their entire account balance, the state shares further health costs up to an out-of-pocket maximum of $8,000, after which the employee is completely protected.

Because the plan is elective, it will only be chosen if it is better for state workers than alternatives.  Daniels writes

The HSA option has proven highly popular. This year, over 70% of our 30,000 Indiana state workers chose it, by far the highest in public-sector America. Due to the rejection of these plans by government unions, the average use of HSAs in the public sector across the country is just 2%...

State employees enrolled in the consumer-driven plan will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative. In the second straight year in which we've been forced to skip salary increases, workers switching to the HSA are adding thousands of dollars to their take-home pay. (Even if an employee had health issues and incurred the maximum out-of-pocket expenses, he would still be hundreds of dollars ahead.) HSA customers seem highly satisfied; only 3% have opted to switch back to the PPO.

The state is saving, too. In a time of severe budgetary stress, Indiana will save at least $20 million in 2010 because of our high HSA enrollment. Mercer [an independent health care consulting firm] calculates the state's total costs are being reduced by 11% solely due to the HSA option.

Costs were lowered because people responded to incentives by reducing expenditures with no adverse consequences to their health.

Most important, we are seeing significant changes in behavior, and consequently lower total costs. In 2009, for example, state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care. They were much more likely to use generic drugs than those enrolled in the conventional plan, resulting in an average lower cost per prescription of $18. They were admitted to hospitals less than half as frequently as their colleagues. Differences in health status between the groups account for part of this disparity, but consumer decision-making is, we've found, also a major factor.

Overall, participants in our new plan ran up only $65 in cost for every $100 incurred by their associates under the old coverage. Are HSA participants denying themselves needed care in order to save money? The answer, as far as the state of Indiana and Mercer Consulting can find, is no. There is no evidence HSA members are more likely to defer needed care or common-sense preventive measures such as routine physicals or mammograms.

Currently, I am nibbling at the bait that Daniels is offering, but I would need questions answered before I bought into this type of plan hook, line and sinker as a way to reform Medicare and Medicaid.  Is it actuarially sound?  Are the savings in Indiana due to young people signing into the plan who currently have low needs signing but who will eventually need to make health care expenditures that exceed their savings balances?  How would such a plan protect retirees and those near retirement?

With those provisos, such reform of Medicare and Medicaid, and altering the tax structure to treat out-of-pocket expenses the same as those made through a group plan should go a long way to ease future deficits and assure quality medical care. 

Eventually, health care providers will respond to frugal, price sensitive consumers and the real benefits of market driven reform will spontaneously materialize.  No new bureaucracy will be necessary.  Because the provision of good health will cost less, universal health care will be cheaper if majority of voters desire it. 
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Warren Buffett As General Bullmoose?

Li'l Abner was a comic strip that ran from 1934 through 1977.  One of the characters was General Bullmoose, the epitome of a greedy, ruthless businessman, based on Charles Wilson, a former head of General Motors and Secretary of Defense under President Eisenhower who quipped before the Senate, "What is good for the country is good for General Motors, and what's good for General Motors is good for the country."  General Bullmoose's tag line was, "What's good for General Bullmoose is good for the USA."

Warren Buffett, a very smart man and our country's most successful investor in the past 50 years, and comparing him to a cartoon character is not fair, but his recent statement on health care reform captures a Bullmoose like quality.  AP Business writer, Josh Funk, reports on Buffett's statement ("Buffett says health care costs hurt US economy").

OMAHA, Neb. (AP) -- Billionaire Warren Buffett says health care costs are a major drain on U.S. businesses and act like an "economic tape worm."

The head of the holding company Berkshire Hathaway Inc. said Monday on CNBC that America's health care system needs fundamental reform to attack costs because it's not practical to continue devoting roughly 17 percent of the nation's gross domestic product to health care.

Buffett says much of the rest of the world is paying about 9 percent of their GDP on health care and have more doctors and nurses per person.

He says he hopes Congress will develop a new health care reform proposal that will restrict costs more than any of the current plans would.

First and foremost, if markets are functioning well, it is none of his business, or the business of anyone in the government, how much of a worker's wage he or she chooses to devote to health care.  If markets are not functioning well, the government may have a role in improving market structure.  Given that one element of that structure, tax benefits for health care payments made through an employer, causes distortions and reduces consumer incentives to monitor costs, it seems straight forward where reform should begin.  The payments should lose their tax benefits or all health care payments should be granted the same advantage. 

Second, I would like to see evidence that the portion workers' wages are "an economic tapeworm" eating at our nation's competitiveness.  If the reference is to unionized rust belt manufacturers, the government again has some responsibility having granted unions cartel like privileges during the Great Depression.  Many American firms that pay high salaries are prospering, take Google or Microsoft as examples.  I would bet that these firms and most our successful firms pay high salaries with generous benefits. 

Finally, the health care reform before Congress does not cut costs, it reduces payments.  If the reform passes, and a committee is used to ration health care, it will still cost as much for a procedure but fewer people will meet the committee's guidelines.  If the government attempts to pay less for the procedure, the supply of doctors willing to provide the service at that price will decline and a shortage will ensue. 

Many people mistakenly believe that rich business executives must like markets, but this is only conditionally true.  They like whatever makes them richer; if that's bailouts, other types of corporate welfare, taxes on competitors, or markets, it's all good.  Buffett did tell us something important.  The health care reform is corporate welfare as well as consumer welfare.  Because there is no such thing as a free lunch, we have to ask, who will pick up the tab?
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A Canadian's Choice of U.S. Health Care

(HT Drudge Report) Often the Canadian single payer system enters our health care debate as an example of quality provision of health care at a low cost.  Tara Brautigam illustrates some of the problems with the system in "'My heart, my choice,' Williams says, defending decision for U.S. heart surgery," an article on Newfoundland and Labrador Premier Danny Williams' choice to seek heart surgery in the United States.

An unapologetic Danny Williams says he was aware his trip to the United States for heart surgery earlier this month would spark outcry, but he concluded his personal health trumped any public fallout over the controversial decision.

In an interview with The Canadian Press, Williams said he went to Miami to have a "minimally invasive" surgery for an ailment first detected nearly a year ago, based on the advice of his doctors.

"This was my heart, my choice and my health," Williams said late Monday from his condominium in Sarasota, Fla.

"I did not sign away my right to get the best possible health care for myself when I entered politics."

What was better about treatment in Miami?  It was done with more advanced technology by a more experienced surgeon and required less recovery time.  Well, I am assuming that patients recover more quickly from minimally invasive surgery than surgery that requires the breaking of bones. 

His doctors in Canada presented him with two options - a full or partial sternotomy, both of which would've required breaking bones, he said.

He said he spoke with and provided his medical information to a leading cardiac surgeon in New Jersey who is also from Newfoundland and Labrador. He advised him to seek treatment at the Mount Sinai Medical Center in Miami.

That's where he was treated by Dr. Joseph Lamelas, a cardiac surgeon who has performed more than 8,000 open-heart surgeries.

Williams said Lamelas made an incision under his arm that didn't require any bone breakage.

As we reform our health care system, we should protect and perhaps enhance the elements of the current system that allow the introduction of new technologies. One such element is profit.

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End of Life Health Care

One issue in the health care debate has focused on end of life expenditures.  Some argue that too much money is spent to extend lives short periods of time.  Philip Moeller of U.S. News and World Report describes research that gives a counter argument in "End-of-Life Medical Spending Not So Wasteful." 

However, new research from four economists challenges conventional thinking. I don't pretend to be able to follow the math in their arguments but if it supports their logic, then perhaps we ought to re-evaluate the way we look at end-of-life healthcare spending. The economists are Tomas J. Philipson, Gary S, Becker, Dana Goldman, and Kevin M. Murphy. Goldman teaches at the University of Southern California and is a senior economist at the RAND Corp. The other three are at the University of Chicago. All of them have impressive backgrounds, including a Nobel Prize won by Becker, and a John Bates Clark Medal, awarded to Murphy in 1997 as the nation's most outstanding young economist. Their paper was published by the National Bureau of Economic Research.

Up to a quarter of all healthcare spending occurs at the end of life, they note by way of introducing the topic. "However, though many observers have claimed that such spending is often irrational and wasteful," their paper says, "little explicit analysis exists on the incentives that determine end of life healthcare spending."

In providing such analysis, they conclude, among other things, that each year of life is not worth the same. Later years are actually more valuable. "A substantial amount of spending on futile care is rational when there is little-to-no value of leaving wealth behind," they say, and this is in fact how people behave near the ends of their lives. Thus, the value of an additional year of life rises substantially as people get older. People's perception that wealth has no use to them after they die makes them willing to spend much if not all of their wealth to extend their lives. "The value of a life year equals total wealth when the alternative is death and decreases as you get further from there," the economists write. "By contrast, traditional valuations typically assume that the value of a life-year is constant."

I don't have a problem with people sending their money on themselves.  I doubt anybody does.  Should we care if people near death spend taxpayer money to extend their lives?
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More on Rationing Health Care

Economics is the study of how individuals through markets or acting collectively through government ration resources.  Everybody cannot have as much as they want, a point that is often missed in the health care debate and the main point of this post.  Before proceeding, I will review a critical moment in government regulation of health insurance.  The demand for health care can be divided into two components: the demand for routine, relatively low cost health maintenance and for extreme, low probability, high cost events such as care for heart surgery.  The two demand components are similar to other goods we insure like our homes or cars.  Consumers generally opt to pay for routine costs out of pocket and insure the high cost, low probability events.  Over time and largely because of government tax policy, the purchase of health care maintenance has been conflated with the purchase of insurance for extreme health care events.  The result has been a quirky, expensive health care system inherently subject to rising cost because it is not subject to market discipline.

As part of its effort to manage the economy during World War II the government passed the Stabilization Act of 1942 that imposed price and wage controls but authorized employers to offer health insurance as a fringe benefit exempt from wage controls.  Employee provided health insurance was granted tax preferences in 1943 by an administrative tax court ruling, and in 1954 by changes to the Internal Revenue Code; health insurance payments were made tax deductible for the employer and tax exempt for the employee.  Copayments remained fully taxable creating an economic incentive to have as many dollars of health care services paid through the employer provided plan.  To avoid taxes, routine health payments and insurance against catastrophic health events were covered by the same policy.  Health care users no longer observed nor cared to observe the full cost of medical treatment because that cost was largely independent of their out of pocket cost or insurance cost.  Payment to providers is made by the insurance company.  Economists frequently refer to this arrangement as third party payment.  The price of group insurance was based on the medical cost of the group, and because one employee's efforts to limit health care expenditures had virtually no impact on the overall medical care purchased by the group, no employee had incentive to economize.  Because they would be paid by the group, health care providers had incentive to provide the best quality care regardless of price.  Price became less important as a rationing mechanism and the health care more subject to rising cost.1,2


Abstracting away from problems caused by government tax policy, and with due apologies for goofy numbers, a well functioning market for health care would look something like Figure 1.  The demand curve shows the amount of health care that consumers are willing to purchase at each price, and the supply curve shows the amount of health care that providers are willing to sell at eat price.  The point at which the curves cross (E) is call equilibrium and it occurs at the price which the quantity that buyers wish to purchase is exactly equal to the amount producers are willing to sell.  There is no waste.  In this market, the equilibrium in which the equilibrium price is $48 per unit of health care and the equilibrium quantity of health care is 24 units.  Total medical expenditures are $1,152 ($48*24) and are depicted as the yellow area in the graph.



For the purpose of this analysis, I divided the market evenly into two types of households, low income and high income.  I have assumed that the only difference in demand between the two is income and that given the same level of income, demand would be identical.  This results in demand curves that converge at a zero price per unit.  Neither household is completely priced out of the market, but the market price of $48 per unit results in a much lower demand by low income households (6 units) than my high income households (18 units).  Low income households spent $288 for health care and high income families, $864.  Although the low income families buy health care at the margin, they may be priced out of some procedures or insurance markets or may believe that they can force others to pay for their healthcare (see "Democrats Ask, Can Health Care Bill Be Saved?" and "She Chose"). 


One proposal that is often mentioned is to allow people to buy health care regardless of the cost.  This proposal is untenable.  Again, the numbers are fanciful, but the direction of their movement is not.  At a zero price (point A on the Demand curve), 48 units of health care are demanded, more than 2.67 times more than upper income households would but for themselves if confronted directly by price.  At a zero price, no health care would be provided.  The price needed to induce health care providers to produce 48 units of health care is $96 per unit (point B on the Supply curve).  Taxpayers from both low and high income households would be obligated to pay $4,608, 4 times the bill that households paid under market conditions. 



The market uses prices to ration goods.  Some have suggested that government established committees could better allocate health care resources.  One solution might be to provide low income households with the amount of health care they would have purchased under market conditions if they had the same income as high income households.  This changes the shape of the demand curve causing more health care to be purchased at each price.  At eqhe Health care providers must be paid $2,048 to produce that level of care.  Assuming that low income households pay only $288, their original expenditure for health care, the remainder must come from high income families who are clearly much worse off.  Under market conditions, they paid $864, under government provision, they must pay $1,760.  The increase in their tax obligation is the same as a reduction in income.  Under market conditions, high income families would respond to the reduction of income by lowering health care purchases, but they are forced to buy more health care for themselves than they would freely choose.

Alternatively, the government could choose to provide the market quantity of 24 units of health care and divide it evenly between low and high income households with both receiving 12 units of health care.  The total health care bill would remain at $1,152 and might be divided as it was under market conditions with low income households paying $288 and high income households, $864.  Again, high income households are worse off.  Their health care expenditures are the same but they can only use 12 units of health care as opposed to 18. 

An easier and simpler approach would be to eliminate the tax advantage of employer provided plans.3  The government would be better off receiving more in taxes.  If health care providers do not respond to changing market incentives, low income families would be no worse off but high income families would be worse off due to the higher tax bill.  But people respond to incentives, even health care providers.  Under existing incentives, they provide high quality care regardless of cost, but under the new incentives, they would provide the highest quality care per dollar of consumer expenditure.  The quality of care would continue to improve but, with health care providers and consumers both more concerned about costs, at a much less explosive rate of cost growth.  It is the only scenario in which the government, health care providers, and all consumers could be made better off. 

1.  The high intensity use of labor is a second reason for the rising cost of health care.  See "Baumol, Cost Disease, and Health Care."

2.  See "Rationing Health Care" for a more descriptive analysis of how the third party payment system distorts market incentives.

3.  Alternatively, the government could extend the same tax benefits to private purchasers of health care that are now enjoyed by those who are covered through employer provided plans.  The improved incentives would be the same for buyers and sellers of health care but government deficits would grow.
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Baumol, Cost Disease, and Health Care

Greg Mankiw (Baumol's Cost Disease) links to a New York Times interview of William Baumol by David Herszenhorn and calls it a "nice discussion."   I agree.  Even the title is a good and provides an accurate synopsis: "For Ailing Health System, a Diagnosis but No Cure," (January 17, 2010).  Baumol delivers his prior beliefs.

Let me say first of all that I am a strong supporter of the general notion of the president’s health care proposals.

Baumol is concerned that political supporters of reform have exaggerated its benefits and explains why "cost disease" will cause health care costs to rise faster than the rate of inflation.  Baumol speaks through Herszenhorn. 

Dr. Baumol and a colleague, William G. Bowen, described the cost disease in a 1966 book on the economics of the performing arts. Their point was that some sectors of the economy are burdened by an inexorable rise in labor costs because they tend not to benefit from increased efficiency. As an example, they used a Mozart string quintet composed in 1787: 223 years later, it still requires five musicians and the same amount of time to play.

Despite all sorts of technological advances, health care, like the performing arts, suffers from the cost disease. So do other public services like education, police work and garbage collection. While some industries enjoy sharp increases in productivity (cars can be built faster than ever, retail inventory can be managed better), endeavors like health care are as labor-intensive as ever.

And yet, wages in health care grow to match wage increases in the broader economy. (Imagine trying to pay today’s violinist the same as a counterpart in 1787.)

All of this happens invisibly, but the proof is in the budget ledgers of local, state and federal governments. Cost disease helps explain why low-income Americans can now afford flat-screen televisions that were out of reach a decade ago, but health insurance that was unaffordable in January 2000 remains unaffordable in January 2010.

I am not sure that I like the example of hiring string quintet now as compared to hiring them in 1787 compared to today.  Sure in would cost more to hire live performers today, but I could also purchase a CD produced by the best quintet in the world and for a small price. 
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The Mayo Clinic and Medicare

(HT Drudge Report)  It is hard to reconcile the news that the Mayo Family Clinic in Glendale, Arizona will stop accepting Medicare patients with President Obama's reform goals of extending care, improving medical care and lowering the cost of care to Americans.  David Olmos, writing for Bloomberg ("Mayo Clinic in Arizona to Stop Treating Some Medicare Patients," Dec. 31, 2009) describes Mayo's action and some reaction to it.

Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little.

More than 3,000 patients eligible for Medicare, the government’s largest health-insurance program, will be forced to pay cash if they want to continue seeing their doctors at a Mayo family clinic in Glendale, northwest of Phoenix, said Michael Yardley, a Mayo spokesman. The decision, which Yardley called a two-year pilot project, won’t affect other Mayo facilities in Arizona, Florida and Minnesota.

Obama in June cited the nonprofit Rochester, Minnesota-based Mayo Clinic and the Cleveland Clinic in Ohio for offering “the highest quality care at costs well below the national norm.” Mayo’s move to drop Medicare patients may be copied by family doctors, some of whom have stopped accepting new patients from the program, said Lori Heim, president of the American Academy of Family Physicians, in a telephone interview yesterday.

The Mayo organization had 3,700 staff physicians and scientists and treated 526,000 patients in 2008. It lost $840 million last year on Medicare, the government’s health program for the disabled and those 65 and older, Mayo spokeswoman Lynn Closway said.

Other health care providers may follow the Mayo's lead...

Mayo’s decision may herald similar moves by other Phoenix- area doctors who cite inadequate Medicare fees as a reason to curtail treatment of the elderly, said John Rivers, chief executive of the Phoenix-based Arizona Hospital and Healthcare Association.

“We’ve got doctors who are saying we are not going to deal with Medicare patients in the hospital” because they consider the fees too low, Rivers said. “Or they are saying we are not going to take new ones in our practice.”

Olmos interviews Robert Berenson, who is an M.D.  He provides a justification for the government's actions. 

Robert Berenson, a fellow at the Urban Institute’s Health Policy Center in Washington, D.C., said physicians’ claims of inadequate reimbursement are overstated. Rather, the program faces a lack of medical providers because not enough new doctors are becoming family doctors, internists and pediatricians who oversee patients’ primary care.

“Some primary care doctors don’t have to see Medicare patients because there is an unlimited demand for their services,” Berenson said. When patients with private insurance can be treated at 50 percent to 100 percent higher fees, “then Medicare does indeed look like a poor payer,” he said.

Dr. Berenson's explanation and the model that he uses do not explain why a firm should accept losses from an insurer.  Before I proceed, I confess that I do not like the idea of the policy makers using market power to shove markets in a direction that they think is superior.  Experience has taught that they simply cannot organize knowledge and make decisions from it as effectively as individuals acting within a market.  Perhaps more importantly, market participants are more adaptive and innovative than government policy makers.  But if I did believe that the government should exercise market power, and policy makers thought that there was a shortage of primary care physicians relative to specialists, it seems that their strategy should be to meet the market price for primary care physicians' services and bid down the price for specialists' services, thus lowering the wage differential between the two groups.  This policy would provide an incentive to existing medical students to go into primary care rather than some other specialization but might have the unintended consequence of deterring students from entering medical schools.

In the second paragraph, Dr. Berenson describes a competitive industry; no other has the perfectly elastic demand he describes.  This would imply that the Mayo Clinic could only charge a competitive price.  No government selected price could provide a better outcome to insurers or patients than this price.  Altering his model to one in which medical suppliers collude to set a monopoly price might create a justification for government intervention and price regulation but still does not explain why a firm should accept a price that results in losses from any insurer.  Furthermore, the evidence suggests that firms do not effectively collude.  Some have exited the market for Medicare patients while others have remained.  It is more likely that the government has used its special role as lawmaker to bully health care providers into pushing their losses onto other insured patients. 

Health care reform should start with tax reform.  Those who have their insurance premiums paid by their employer should not have a tax advantage over those who buy insurance individually.  This tax advantage has distorted markets by creating a "tragedy of the health care commons" in which the employer based group insurance patients over consume health care services.  See "Rationing Health Care" for a more detailed explanation of how tax subsidies of employee provided health plans have distorted markets.  Once a more vigorous market has lowered cost, policy makers could more cheaply provide universal coverage. 

Taking the President's view that the Mayo Clinic is a "national model for efficient health care," what can be inferred about the quality of medicine from health care from policy makers' actions regarding Medicare?  Perhaps policy makers are more concerned about providing universal coverage and lowering government expenditures than providing high quality, low cost care.   
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The Health Care Sausage Factory

Despite very good economic advisors, the Obama administration seems enmeshed in 1960's economics that assumes that markets fail and the a benevolent government is needed to act in the public interest to set things straight. This system of beliefs cannot be based on an empirical investigation. Much of what critics claim as a market failure, increasing cost of medical care, can be attributed to government tax policy, and as always passing new legislation includeds a grabbag of favors. An article titled, "ObamaCare's Longshoremen Rules," in the Wall Street Journal's Review and Outlook section describes a few of the concessions made to special interest groups.

President Obama praised the Senate yesterday for clearing a 60-40 procedural vote on his health plan in the dead of night and "standing up to the special interests who've prevented reform for decades and who are furiously lobbying against it now." They're furiously lobbying all right—not against ObamaCare but for the sundry preferences in the Senate bill.

Start with the special tax carve-outs included in the "manager's amendment" that Harry Reid dropped Saturday morning. White House budget director Peter Orszag has claimed that the bill's 40% excise tax on high-cost insurance plans is key to reducing health costs. Yet the Senate Majority Leader's new version specifically exempts "individuals whose primary work is longshore work." That would be the longshoremen's union, which has negotiated very costly insurance benefits. The well-connected dock workers join other union interests such as miners, electrical linemen, EMTs, construction workers, some farmers, fishermen, foresters, early retirees and others who are absolved from this tax...

The Reid bill also gives a pass on the excise tax to the 17 states with the highest health costs. This provision applied to only 10 states in a prior version, but other Senators made a fuss. So controlling health costs is enormously important, except in the places where health costs need the most control.

Naturally, the Secretary of Health and Human Services will decide how to measure "costs" and therefore which 17 states qualify. (Prediction: Swing states that voted for Mr. Obama in 2008 or have powerful Democratic Senators.)

These 11th-hour indulgences make a hash of Mr. Orszag's cost-control theories and Mr. Obama's cost-control claims. Their spin has been that wise men would convene and make benevolent decisions about everyone's health care based only on evidence and the public good. But as the Reid bill shows, politics will always dominate when Washington is directing a U.S. health industry that is larger than the economy of France...

The press corps is passing this favoritism off as sausage-making necessary to "make history," but that's an insult to sausages. What this special-interest discrimination illustrates in how all health-care choices will soon be made as Washington expands its political control over one-seventh of the U.S. economy.

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The Medical Care Reform Glass is Broken

Janet Hook and Noam N. Levey (Los Angeles Times, "Senate Democrats get 60 votes to move healthcare bill along," December 21, 2009) describe Harry Reid's monumental accomplishment of guiding massive health care reform to the point of passage in the face of declining public support.  Apparently, elected officials supporting the legislation believe that the falling support comes from the left, people who believe that the legislation does not go far enough, or from independents, people who do not see the benefits that they will receive.   

...Democrats and the White House are intensifying efforts to reshape public perception of the bill as a glass half full, not half empty.

There is an alternative, that the medical care reform glass is broken.  David Brady of Stanford was interviewed by Russ Roberts on EconTalk ("Brady on Health Care Reform, Public Opinion, and Party Politics," August 24, 2009).  Brady gave two reasons why health care reform failed in the past based on research conducted with Daniel Kessler and published in the Health Affairs, August 18, 2009.  First, 83% of the population are satisfied with their own insurance.  Second, using contingent valuation, a type of survey that measures willingness to pay, they found that people are not willing to pay for providing universal coverage. 
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