(Bloomberg View) — "Deplorable, deeply regressive, a sign of the corporatization of the university." That's what Harvard Classics professor Richard F. Thomas calls the changes in Harvard's health plan, which have a large number of the faculty up in arms.
Are Harvard professors being forced onto Medicaid? Has their employer denied coverage for cancer treatment? Do they need to sign a corporate loyalty oath in order to access health insurance? Not exactly. But copayments are being raised and deductibles altered, making their plan … well, actually, their plan is still extraordinarily generous by any standard:
The university is adopting standard features of most employer-sponsored health plans: Employees will now pay deductibles and a share of the costs, known as coinsurance, for hospitalization, surgery and certain advanced diagnostic tests. The plan has an annual deductible of $250 per individual and $750 for a family. For a doctor's office visit, the charge is $20. For most other services, patients will pay 10 percent of the cost until they reach the out-of-pocket limit of $1,500 for an individual and $4,500 for a family.
The deepest irony is, of course, that Harvard professors helped to design the Patient Protection and Affordable Care Act (PPACA) — Obamacare. And Obamacare is the reason that these changes are probably necessary.
The culprit is the "Cadillac Tax," the hefty excise tax on high-cost plans. The purpose of that tax is to hold down health-care costs, by making it much more expensive for employers to offer the kind of gold-plated benefit plans that shield consumers from virtually all the costs of their health-care decisions.
The economic logic is impeccable. Milton Friedman famously divided spending into four kinds, which P.J. O'Rourke once summarized as follows:
- You spend your money on yourself. You're motivated to get the thing you want most at the best price. This is the way middle-aged men haggle with Porsche dealers.
- You spend your money on other people. You still want a bargain, but you're less interested in pleasing the recipient of your largesse. This is why children get underwear at Christmas.
- You spend other people's money on yourself. You get what you want but price no longer matters. The second wives who ride around with the middle-aged men in the Porsches do this kind of spending at Neiman Marcus.
- You spend other people's money on other people. And in this case, who gives a [damn]?
Most health-care spending in the U.S. falls into category three. In theory, the people who are funding our expenses–the proverbial middle-aged men in Porsches, except that they're actually insurance executives and government bureaucrats–have every incentive to step in, cut up the charge cards, and substitute a gift-wrapped box of Hanes briefs with the comfort-soft waistband. In practice, legislators frequently intervene to stop them from exercising much cost-control.
The managed care revolution of the 1990s died when patients complained to their representatives, and the representatives ran down to their offices to pass laws making it very hard to deny coverage for anything anyone wanted. Medicare cost-controls, such as the famed Sustainable Growth Rate, fell prey to similar maneuvers. The only system that exhibits sustained cost control is Medicaid, because poor people don't vote, or exit the system for better insurance.
