Public Citizen Health Letter
Last year the Health Letter (August 2007) published a glossary of health care terms that have come up in the Presidential debates. As the debate continues and the candidates’ vocabulary broadens, consumers need to keep up with the evolving terminology, which does not lend itself to quick sound bites. Here is Part II of What Are the Presidential Candidates (And Their Advisors) Talking About?
Adverse selection: is an insurance term referring to the tendency for an insurance plan to attract those at higher risk, who will have higher claims than the average. Those at lower risk may decide that the insurance is too expensive to be worth their while. When there is adverse selection, pegging premiums to the average will not suffice to cover the anticipated claims, because those who have bought the policy are at higher-than-average risk. And raising the premiums is not a solution, as insurance will then become even less attractive to those at lower risk, thereby exacerbating the problem of adverse selection. Making the purchase of insurance compulsory or, optimally, having government-funded insurance for all, reduces adverse selection because it pools all risks and does not allow those who are healthier and at lower risk to opt out.
Carve out: Used as both a noun and verb, this term describes the services that are excluded from any service package, or the process of exclusion.
Cherry picking/ Cream-skimming: refers to the process by which insurers try to cover only those who are “good risks.” This may occur when an insurer has more information about consumers’ expected costs than the consumers themselves, and designs a marketing strategy to primarily enroll those who are healthier. The strategy may also include explicitly excluding those who are unhealthy or at greater risk of becoming unhealthy (see adverse selection, above). Cherry picking is a way for insurers to cut their losses and bolster their profits.
Crowd out: is a phenomenon in which a new public program or the expansion of an existing public program prompts some privately-insured persons to drop their private coverage and benefit from the public subsidy. ‘Crowd out’ also occurs when public programs act as an incentive for employers to reduce their contributions to employees’ health care coverage.
External effects: are benefits or costs that accrue to a person because of someone else’s action. If your neighbor plants a beautiful garden that enhances the views from your house and increases the value of your property, you benefit from the external effects of his actions. The health care field is rife with examples of external effects. Immunizations provide external benefits, because they reduce the likelihood that others will get the disease, even if they are not immunized themselves. Some one who gains an external benefit, or benefits from a public good without paying for it, is sometimes pejoratively called a free rider (see below).
There are also many cases of external costs — e.g., air-pollution, second-hand smoking, contagious diseases — in which what others do (or refrain from doing) have a negative effect on our health and well-being. External costs often provide the justification for regulation or taxation. Foregoing health insurance has external effects, and imposes costs on others: when an uninsured person goes to an emergency room, or receives care that is uncompensated, other payers make up the difference in the long run. Hospitals and other health providers may therefore raise their fees to make up for those who fall into their “bad debt and charity pool” because of lack of coverage.
Free riders: are persons who consume more than their fair share of a resource, or shoulder less than a fair share of the costs of its production. In health care, ‘free riders’ are those who do not contribute to the total costs of the services but nevertheless receive the same benefits of those who, in effect, “pay their dues.” Mandates which require everyone to be covered reduce, if not eliminate, the number of free riders. The imposition of mandates therefore appeals to those who feel that mandatory coverage is fairer than asking everyone else to pick up the health care costs of those who choose not to buy it.
Guaranteed issue: is an insurance term that means that an insurer cannot exclude anyone from coverage because of past history or health status. When some plans are allowed to deny coverage and others are required to accept everyone, the latter are at a disadvantage because of adverse selection against them.
Hidden taxes: refer to external costs that are imposed on the population at large (see external effects above). In the health care arena, they refer to the costs that providers impose on covered patients in order to cover the expenses of providing care to the uninsured.
Market-based care: is based on a confluence of consumers and health care providers such that the purchasing power of the former will shape the scope, distribution, and price of the services provided by the former. Market-based care is touted by McCain, who argues that the system needs to be based on consumer choice, personal responsibility, and provider competition. There are good things to be said about each of these in some contexts such as lower and lower-priced computers, etc, but each runs into difficulties when the “goods” that are being marketed are health services: the public health goal is to prevent disease and avert the need to consume many of these “goods” altogether. Consumers facing a medical problem usually have limited choices, and these are framed and determined by their physician. Once a consumer chooses a provider, it most often is the provider who decides what services the patient needs, and when and where to obtain these. Moreover, choice is often limited by ability to pay, and only those with complete coverage and unlimited resources are in a position to “choose.” “Personal responsibility” is usually a way to blame-the-victim and eschew any control over services provided. And so-called provider competition is limited because consumers are unable to weigh their options and determine what is best for them.
Penalties/fines: are often imposed on those who opt not to buy health insurance in a health plan in which coverage is mandated. In some cases (e.g., Massachusetts), the initial penalty involves loss of a personal tax exemption; after that, those who do not have insurance face fines for every month that they are without health insurance. This penalty may increase over time, as a disincentive to those who do not buy coverage. During the 2008 presidential primary debate, candidates Clinton and Obama bickered about this. Because the Clinton plan includes an individual mandate and the Obama plan mandates coverage only for children, the former includes penalties and the latter doesn’t. Obama has accused Clinton of not having said what the penalties entail, suggesting that these would be an added burden on those who do not get coverage because they cannot afford it.
Purchasing pool: is a device that facilitates more than one employer or group of individuals coming together to collectively purchase health insurance. The assumption is that, by aggregating a large number of smaller purchasers, pools can achieve economies of scale and exert greater leverage in negotiating lower premiums with health plans. The experience with purchasing pools has not been very promising, however. Indeed, pools face a “Catch-22” situation: they need to be large and cohesive in order to be successful in negotiating prices, but they do not become large and cohesive without a good track record insuring at lower prices.
Queueing: results when the demand for a given good or service exceeds its supply, and some customers have to wait to acquire it. In practically all countries including the U.S. (although this is more acute in some than others), transplant patients are placed on waiting lists to obtain scarce organs. In health care,queueing often takes more “subtle” forms. Thus, for example, you may be sick and need to see a physician today, but you may not be able to get an appointment for another three weeks.
Rationing: is a process by which scarce resources are distributed. Who gets what depends on the system and how it operates. When it comes to health care, few countries can afford do to as much for their populations as is technically feasible. Some services may therefore be rationed because they are considered less necessary than others. Others may be restricted according to medical need, age, or likelihood of success. In cases in which services are sold on the market, services are in effect rationed by price: those who are not able to pay a given price must therefore do without. We therefore have implicit rationing at present.
Much more explicit rationing, unique to the United States — although we spend well in excess of $2.2 trillion a year on health and can hardly be described as having “scarce resources” — takes the form of the 47 million and counting people who are uninsured.
At least one state has embraced the “luck of the draw” to decide who gets care. The Oregon Health plan, intended for those whose incomes are too high to qualify for Medicaid but too low to afford private health insurance, is using a lottery to decide who is covered. With a few thousand slots available and more than 80,000 registered for the lottery, rationing in this case is simply a matter of chance.
Although food rations mean that everyone gets what he/she needs, “rationing” health care is interpreted as some being deprived of care and is therefore politically toxic. Candidates favoring extending coverage have therefore done careful acrobatics to make the case that their policies would not entail any sacrifices. Instead, they repeatedly state that repealing the Bush tax cuts would provide the revenues needed to expand coverage, and that a more efficient system (e.g., avoiding unnecessary care, greater emphasis on prevention, control of chronic diseases) would reduce costs in the long run.
“Skin in the game”: sounds like sports jargon, but the phrase has made numerous appearances in the language of health care. The phrase comes from the financial world, where having ‘skin in the game’ means taking an active interest in an undertaking by making a significant investment or financial commitment in it. In the current electoral campaign, Mike Huckabee attributed the health care crisis in the U.S. to the fact that “consumers don’t have much skin in the game” and are therefore not prudent in their decisions. To this, journalist Ezra Klein has replied that “In health care, all your skin is in the game” (emphasis added). Like Huckabee, McCain would like health consumers to be more involved by having more of their own resources at stake. He therefore favors tax breaks as incentives to get consumers to open health savings accounts and save for a sickly day. While it is true that Americans now pay a lower share of health expenses than they used to (average out-of-pocket expenses fell from 40 to 15 percent between 1970 and 2005), there is little evidence that greater cost-sharing or having greater “skin in the game” would solve the current problems. Indeed, cost-sharing has been shown to result in the postponement of needed care, especially for those of lower socio-economic means.
Socialized medicine: in its strict definition, this refers to a health care system in which the government funds and manages health care directly, employing providers and owning hospitals and other facilities. At least parts of the British National Health Service (NHS) and the health care systems of Spain and Finland can be called “socialized medicine.” Even in the NHS, which is often seen as the prototypical example of socialized medicine, general practitioners are independent contractors rather than government employees. In the United States, “socialized medicine” is often used by those enamored of market medicine as a “boo word” or bogeyman, and is part of the inflammatory rhetoric seeking to scare constituents and predispose voters against many types of health care reforms. This election year, Giuliani was particularly quick to brand many proposed changes as “socialized medicine.”
The term is often used incorrectly to describe all publicly-funded health care with universal coverage. Most systems that meet these two criteria do not have socialized medicine, as defined above; instead, the government pays, regulates, and monitors health services but does not operate the production of health care. Medicare is a single-payer system that provides care to part of the population, but it is not socialized medicine: practitioners are not government employees, and hospitals are not publicly owned. The systems of the Veterans Health Administration and of the Department of Defense, however,
are examples of socialized medicine, albeit for only a narrow segment of the population.
Because of politicians’ inaccurate or willful misuse of the term in speeches and debates over many years, some people are unsure as to what socialized medicine is. Still, the phrase has lost much of its pejorative connotation. Indeed, a recent (February 2008) national poll conducted by the Harvard Opinion Research Program found that, among those who said they understood the term, 45 percent said that the health care system would be better if the U.S. had socialized medicine; 39 percent said it would be worse.