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interviews

Insurance Coverage Design

by Naomi Zewde
September 24, 2020

This interview with Naomi Zewde, an Assistant Professor in the Graduate School of Public Health & Health Policy at the City University of New York, and a research fellow at the Roosevelt Institute, was conducted and condensed by franknews. 

Naomi | I focus on health insurance coverage and the economic and financial implications of insurance coverage design. I look at how these things affect household financial wellbeing.

franknews | We know that medical debt is rising. What is happening in the healthcare system that explains the increase? 

The issue of consumer debt in general in America is almost like a slow fire.

If people don't have the resources to meet their basic needs healthcare, education, housing — these fundamental things end up being sources of debt.

In healthcare, people’s deductibles are growing at incredibly fast rates; deductibles are growing much faster than premiums, and certainly much faster than wages over the past decade. People are left exposed to a greater share of their medical expenses, and exposed to huge medical bills — typically more than what most people have in their savings. That creates a lot of stress and fear, and often the threat of that financial burden deters people from seeking care.

What drives the prices of care up?

We don’t know.

The United States spends more on healthcare, both in dollars and in percent of GDP, than any other OECD country, but it is not clear exactly what we are spending that on.

We have a lower life expectancy. We have fewer physician visits per capita. We have a higher rate of chronic conditions. Those who provide healthcare - physicians, nurses - are not necessarily reaping the benefits either. We know that the utilization rate of the healthcare system is not unique to the United States. So why are the prices so high? That is up for debate.

We do know a few things. One, we know that a lot of this money goes towards the vast administrative bureaucracy — something that is unique to the United States. We also know that the government in other countries set prices: they either operate as the sole purchaser and thus dictate prices or they dictate prices through legislation. In the United States, Medicaid has price controls, but private insurers can charge whatever they want. There is no real way for anyone to fight back. There's no designated person to say no, you're charging too much. 

Based on your research, what effect does this have on households’ finances? 

I have done work around housing evictions and medical debt. We found that Medicaid expansion reduces the rate of home eviction. Going into the research it was not necessarily clear what relationship the two would have, if any. It sounded plausible — people with chronic conditions, for example, end up having to choose between rent and care. But it is astounding to think about the fact that the design of our healthcare system can have these ramifications. 

I also found, in a paper that came out last month, that for 25 percent of people who were uninsured before ACA, it's cheaper to file for bankruptcy than to reach a deductible of the subsidized ACA private insurance policy. 

Wow. 

It’s surprising right! But it makes sense and might explain why there is such low participation in ACA private insurance policies. The congressional budget office projected that 10 million more people would enroll in these plans than actually did; only 8 million people got these. They were way off. The paper investigates why.

And what did you find? 

I suspected from the beginning that it was because the deductibles are so high. The median deductible for the silver tier coverage is $4,000. There is a sweet spot in terms of the subsidies that substantially lower your deductible and premium. If you make between $12,000 and $18,000 a year, subsidies will bring down the deductible to around $200. But once you make $24,000 a year as a single adult, you're facing between a deductible between $3,000 and $4,000. So in designing the policy, it was kind of like, we will give extra subsidies to lower-income households, but not in a way that reflects what it is actually it's like to live with these medical bills. It feels divorced from reality. 

Our findings don’t necessarily mean the people have to declare bankruptcy. Bankruptcy sucks and hospitals also know that when you file for bankruptcy, they typically do not get anything out of it. So, they look to work with you. Neil Mahoney has a paper, Bankruptcy as Implicit Insurance, that essentially shows that hospitals tend to settle with consumers at their cost of filing for bankruptcy. Hospitals essentially say, whatever you were going to lose if you were to file for bankruptcy, just give that money to us instead. 

That reminds me of what Deborah Thorne said in our interview with her: "As Americans, we often rely on credit cards to be our social safety net. And when that falls apart, we are left with bankruptcy.” What is your understanding of how we got to this place? 

It's tied up with a social-political larger trend. I have been watching this show called the Black Journal from 1968 to 1977 with a bunch of progressive Black scholars.

I watched one that was right after Nixon got elected, and everyone was saying, "America is taking a turn towards facism. All of American’s white guilt money is gone.” I think that really well foretold this mass acculturation that happened under Nixon.

The United States is not unique in this march away from social egalitarianism over the last half of the 20th century, but we are living through the consequences. 

How do we return protections? 

There is this famous paper - It’s the Prices, Stupid. I think there needs to be some kind of direct effect on price.

You mentioned the government can do so by either acting as the sole buyer of care or passing legislation. What do you think is the best way to achieve fair prices?  

Right. One way of doing so is through a single-payer system. I am actually working on a study now that is going to be published to the Roosevelt Institute that compares single-payer with a public option.

There are two things to know about single-payer that are useful in this context. 

One, it would get rid of most of the bureaucracy involved in negotiating prices — the different insurance companies, the different kinds of billing, and different plans. Right now, every doctor's office has multiple people whose full-time job is to understand how to interact with every single different plan of every different insurance company. There are many people employed on the side of the insurance company as well. Under a single-payer system, that would be gone. There wouldn't be multiple different rules to understand, and that reduces the aggregate resource use that is allocated towards healthcare. 

Two, a single-payer system is tax-financed. That is important in terms of equity. You get to decide what percentage of household income should be allocated towards healthcare. Basically, the way our healthcare system is designed now means that the more money you make, the smaller percentage of it you have to put towards healthcare. 

It is regressive, and no one has a choice but to participate in it.

If we structure it as a tax-financed healthcare system, the way we fund most of our infrastructure, you just get to decide what percentage of household income you are going to take from each household along the income distribution.