Taylor v. Feldstein: Comparing Catastrophic Plans

I have been blogging about the path to a health reform deal that I offer in my book: universal catastrophic coverage implemented via Medicare. Martin Feldstein, chair of the Council of Economic Advisors under President Reagan, offered a universal catastrophic coverage proposal in October, 2009, that would:

  • provide tax credits to purchase a catastrophic private health insurance policy, with catastrophic defined as costs above 15% of income (financed by ending the tax exclusion of employer paid insurance; people could purchase additional coverage with after tax dollars)
  • issue each person/family a “health care credit card” that could be used to purchase care in the deductible amount

A few quick comments about Prof. Feldstein’s proposal and how it compares to mine.

  • Defining catastrophic as a percentage of income makes conceptual sense, but introduces some technical challenges. All of the issues related to timing, what happens if your income changes, and perverse incentives related to loss of subsidy if your income increases that have been raised with respect to the income-based subsidies in the ACA apply to Prof. Feldstein’s proposal as well (and to just about any public policy that provides a differential government expenditure/subsidy based on income).
  • Prof. Feldstein’s proposal provides a guaranteed means of financing needed care if someone makes a bad choice in choosing catastrophic coverage only, while mine does not. A huge concern under my proposal is what will persons who choose to only have catastrophic insurance, but who get sick, actually do? Will some avoid the care they need? If so, this will likely increase the catastrophic costs that Medicare will incur down the road if they spend through the catastrophic coverage amount.

Which of these approaches is preferable? It depends upon what aspect of our current system bothers you the most. My plan could provide true universal coverage. Prof. Feldstein’s op-ed claims his plan would create universal coverage, but that is unlikely without a mandate or auto-enroll procedure of some sort that he does not mention, leaving us with the question of what happens to people who didn’t sign up? Aggressive auto-enroll could likely get close to universal coverage. Medicare is the largest risk pool around, so would be the most efficient means of providing catastrophic coverage and would therefore be my preference as the catastrophic insurance vehicle, but others will prefer using private insurance. His proposal is preferable if you most worry about people making a bad choice in level of insurance coverage and being unable to finance care.

Achieving catastrophic health insurance coverage will not fix all of the inter-related problems of coverage, cost and quality of care. However, if we could manage an agreement to provide a clear route to how all persons could be guaranteed at least basic coverage, we could remove one variable from the mix and focus on other aspects of the health care system. A step like this seems politically impossible given the nature of our nation’s discourse, but at some point we will have to return to serious public policy making to address our many problems, and it will take compromise. The recent news stories about the lack of a coherent and unified Republican “replace” strategy shows they very much need a health reform deal and are unlikely to drive toward a plan on their own. Health reform remains a key interest for Progressives.

I continue to think the route to the needed deal goes through universal, catastrophic insurance coverage of some sort. If we could agree on that as a goal, the details should be tractable.

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

7 thoughts on “Taylor v. Feldstein: Comparing Catastrophic Plans”

  1. Given that any policy acceptable to the corporate plutocracy will have to deliver beaucoup bucks to the insurance companies, and, for most people, over long periods of their lives, only theoretical benefits, I’m not I see any virtue, political or policy, in a “retail” policy, especially one involving the dreaded “means-testing”.

    If it were up to me, I think I would approach the problem, by creating a Federal re-insurer, which would sell reinsurance to insurance companies. In the event of a catastrophe, the reinsurance would kick in, relieving the insurance company of their outlier risk.

  2. Truly you need to meaningfully address some the criticisms in the previous threads concerning the impossibility of “negotiating” an agreement in a 2-party system when one of the parties has not only decided not to negotiate but has openly stated that it is the nation’s best interest to terminate existing programs and massively cut all government programs. It is fine to say “we have to negotiate a solution because otherwise there will be a crisis” but at some point you really have to acknowledge that one group holding 45-55% of the nation’s votes really _wants_ a crisis, thinks it would be healthy to have one, and wants the outcome of that crisis to be vastly less social insurance and vastly greater inequality than today.


    1. Fair enough. Just a few points. First, you can’t pick the other sides position. I agree that esp the debt ceiling debacle seemed to show a willingness of Rs for high stakes bargaining to get your way that was willing to risk the health of the entire economy. Second, there is a grain of truth in the other sides mantra of the system is unsustainable, etc. It is unsustainable. It is just that their preferred approach to dealing with it is not sound (make noise on small programs (relative to size of fed budget) while not addressing reality that sustainability will take tax increases and changes to large programs, namely Medicare, while never committing to a reform strategy. In short, all talk, little action to address true drivers of the problem (taxes too law for any plausible spending regime, and health costs long run). Third, the methaphor of the family dinner table is not apt when looking at a federal budget that should run deficit in dire times….but the methaphor reasonates with many in the middle. Only way to address is to educate on this. I believe we have to learn to argue for our priorities in the language of deficits, unsustainability, investment in key priorities, etc. I believe the best way to do so is to make clear plans which will raise taxes and identify a way to address health spending. Intuitively, many know taxes must go up and spending down….they want someone to show the way, paint the path to how to do it, etc. Because of the cultural power of rationing and fear of death, somehow health policy/reform has got to have a way to make both parties have responsibility for addressing costs. Seems impossible, but the Rs should be coming around to realizing they need a deal on health reform….they don’t seem to be able to come up with a plan. I don’t know how large the ‘middle’ is any more, but I think that truth telling of what it would mean to achieve a sustainable budget slowly so as not to harm fragile economic recovery could provide some political dividends, and is the best policy, in any event. So, that is why I am where I am. Of course I may be wrong, naive, etc…..but that is where I am.

  3. = = = Second, there is a grain of truth in the other sides mantra of the system is unsustainable, etc. It is unsustainable. = = =

    During World War II we set the top marginal income tax rate at 95%. I don’t remember offhand what the average tax rate was but it had to be over 50%. In 2003 the nation as a whole (and I’m not blaming only the Republicans for this; although they led the charge “the other side” followed along) undertook two wars costing $1.4 trillion to date and not only didn’t raise taxes to pay for them but /cut tax rates twice/. Before we talk about “unsustainable” how about we raise taxes to reasonable levels (say, where the rates were when Saint Ronald Reagan left office) to pay the war debt?

    Then perhaps we could take an open and honest look at the German system (or even the Swiss) and have one of those mythical national conversations about why the first world nation that is most similar to the US in economy and culture is able to provide 100% of its citizens excellent health care at 1/2 cost of what we spend.


    1. The unsustainability comes from the intersection of the tax code and spending. In the book (and I think in one of the posts) I say that addressing health care costs are a necessary but not sufficient condition for a sustainable fed budget…the other being an increase in taxes given any plausible level of spending. In book I suggest 21% of GDP, what Bowles-Simpson suggests; doable, but hard. Center for American Progress has a plan that aims for balance at ~23.5%. Spending in the 70s and 80s was routinely 23% of GDP and boomers working and paying taxes then….lower in the 90s and up again in the 00s due to wars and recession

      1. Someday someone will give me a convincing explanation of how two hard-right conservatives appointed to a deeply non-Constitutional and undemocratic non-binding commission were able to pluck a number out of the air (to use the more polite expression) and reset the entire US political commentariat, DC media Village, and the Serious People’s discourse around that number (23% in this case). Why are questions about raising taxes to pay for the already-incurred war costs and to repay the loan made to the Treasury by the SocSec Trust Fund now met with “23%!” as if that number has some intrinsic meaning?


        1. I think you mean 21%. It is near the 40 year historical avg of federal spending as percent of GDP.

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