Sunday, March 11, 2012

Health Care Tithing

As Mr. Romney continues his uninspiring march toward the Republican Presidential nod in Tampa, voters will have a chance to familiarize themselves with the practice of religious "tithing."  

If giving up 10% seems like a lot, the Disease Management Care Blog says think again. The concept may not be all that foreign after all, because Americans practically (if unknowingly) already "tithe" to health care.

The amateur economist Disease Management Care Blog cannot resist and naively explores the implications of tithing, beginning with a "thought experiment."

Imagine two neighboring towns. One is populated with persons who earn $50,000 a year. The other has richer persons who earn $100,000 a year.  Assume that, for both towns, voluntarily buying comprehensive health insurance costs $10,000 a year (according to the White House, an average premium is $12,680 a year).

Smart DMCB readers know that $50,000 isn't necessarily a lot of money. Persons in that lower income town won't have much left over after they pay for clothing, food, housing, transportation and energy (and in the case of the DMCB spawn, internet access, gaming consoles, tatoos, cable TV and consumer electronics).

Persons in the higher income $100,000 town can afford the basic necessities and more.  That means once income passes a certain threshold, the top margin is comparatively more disposable. That makes makes the option of buying expensive health insurance bearable.

In other words, the richer town can effectively "tithe" by devoting a big percent off the top to health insurance and health care.  While the cost of clothing, food and housing are elastic, those necessities come first.  Health insurance has to wait its turn.

With that in mind, check out the following infamous, public domain and very downloadable graph.  No PowerPoint on health care costs is complete without it.  While this one is from 2002, the 2006 data can also be easily accessed and aren't much different. While the U.S. is wealthier on a per individual ("capita") GDP ("gross domestic product") basis than the rest of the developed world, it spends far more per individual than would be expected:

Most economists explain that big the gap between the U.S and the other countries represents "waste" from the economic drag of evil insurer-driven administrative costs, unnecessary care in an economically  misaligned non-system, an overindulgence in specialists, our love for the latest technology, a widespread belief in taking drugs for every ailment and time wasted reading the DMCB.

All that (except for the DMCB reading) may be true, but the DMCB also wonders if the graph above is a display of a world filled with $50,000 towns and one $100,000 town. The DMCB thinks it's only natural to for a uniquely wealthy country to be willing to spend much of its excess "top" income on health insurance and health care. When that happens, spending will mathematically jump and the U.S. will appear to be a "nonlinear" outlier.

Functionally, that's tithing.  The DMCB doesn't think that's unexpected.

Of course, the economics of wealth and health care is more complicated.  Wealth not only results in "parallel" increases in spending (allowing the purchase of dried cranberries for tonight's salad or outfitting that man-cave with miniature gargoyle statuary) but "serial" increases that also lead to the purchase of new goods and services like health care. It may not mathematically equate to 10%, but it is still a fraction that is taken off the top. 

The U.S. can afford to commit the top margins of its excess income toward health insurance and health care. It's also "all or none," which may also explain some of the non-linear and disproportionate non-linear compared to other countries.

Contrarian economists have been arguing this for years, but the DMCB never heard it described as "tithing."  While health insurance has "stolen" income from U.S. employees' paychecks and employers' profits, what's also happened is that that economic damage is partially limited to top "excess" levels (or brackets) of our nation's business and personal income.

You heard the concept of health care tithing here first.  That being said, the DMCB can think of some wrinkles:

1. The Fat Lady teaches that humbly religious tithing takes the first 10%, even if there are other necessities. The political version of that in the U.S. is "entitlements."

2. The other "$50,000"countries devote a percent of their budget to health care, but the DMCB thinks that they're buying "preference insensitive" care at the lowest level of service.  Thanks to our wealth, the U.S. can technically afford to indulge in preference sensitive care services - and the variation that comes with it.

3. Many persons in the U.S. are very low income and can't afford any care.  That's true, but thanks to our GDP, they get the worst of both worlds: they have the appearance of a higher than average income compared to the world without the ability to pay the tithe.

4. Just because we're willing to "tithe" doesn't mean we're getting our money's worth and that there isn't diminishing marginal utility.  We aren't and there is.

5. If inflation and stagnant wages are eating away our ability to pay for the more basic necessities, it's easier to stop tithing and jettison health insurance altogether. That means we're less able to cut health care by 10% to make up for a 10% increase in the cost of other goods and services. This may partially explain ....

1) why persons are willing to completely "drop" their health insurance and use 100% of the top marginal money for life's more basic necessities;

2) why employers would be willing to drop health insurance altogether as a benefit.  We may be underestimating the likelihood of a flood of persons being pushed into the individual market when the ACA kicks in.

6. Tithing is an expensive proposition.  No wonder Professor Fuchs is proposing a simple solution: pay for it all with a VAT.

7.  Think the cavernous edifices, expansive lobbies and pricy stonework of premier health care institutions sometimes make them resemble cathedrals? Now you know why.

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