St. Paul’s medical debt plan makes sense, despite the tradeoffs – Twin Cities

In some cases, minor, short-term issues in themselves can reveal broader trade-offs and principles.

That also applies to the St. Paul Mayor and City Council choosing to spend $1.1 million to wipe out unpaid debts to city residents’ health care providers worth more than $100 million in nominal value.

This will benefit approximately 43,000 city residents, improving their creditworthiness and increasing their access to modern payment systems and necessary services.

This is being proposed as a one-time transaction intended to place no burden on city taxpayers. The money comes from the American Rescue Plan, a massive federal spending plan passed in the first weeks of the Biden administration during the coronavirus era. The move was aimed at minimizing the decline in the country’s output and household incomes due to the recession, as the epidemic slows the U.S. market economy.

St. Paul got $166 million but must spend a small portion of it that hasn’t been spent yet.

To put that into perspective, $1.1 million represents 0.6% of the funding St. Paul received through this legislation. This is equivalent to 0.14% of the city’s budget for next year. And from a federal budget perspective, multinational engine manufacturer Cummins would pay the federal government 0.06% for engines it manufactured in violation of pollution regulations. And that expense is roughly equal to the cost of producing corn in three of the 12,000 square miles of crops grown in Minnesota. In other words, whether the amount is small or large depends on the person’s mindset.

The main question isn’t just whether it’s a good idea. That’s how good an idea it is compared to how much of that money could have been used for other things. Estimating it is the messy heart of all finance.

However, it is helpful to start with some preliminary questions. Why does such debt exist, why does it matter, and to whom does it matter?

The answer to this question is that this debt is the result of the U.S. health care financing system, which is highly “inefficient” (as economists use the term, determining the benefits received relative to the resources used). At the same time, it is extremely inefficient. Unjust. We don’t want politically “socialized medicine.” This has resulted in a system in which most households have some form of public or private health insurance, with a significant minority having to pay out-of-pocket.

This is a complex system with perverse incentives that incur huge administrative costs. One is to use “price discrimination” to trade successfully. To economists, “price discrimination” means charging different prices to customers who differ in “elasticity of demand,” or the degree to which price affects the sale of a product. Essentials like healthcare are very inelastic. That is, people will continue to demand care even when prices become very high.

The majority of the population cannot purchase directly because they are covered by private insurance or public plans such as MinnesotaCare, Medicare, or in my case, the U.S. military’s Tricare. These plans negotiate deep discounts from artificially inflated nominal prices for treatments.

However, self-paying patients will be charged the full sticker price. Many people are unable to pay, resulting in billions of dollars in unpaid medical debt. Providers spend money on collection agencies, but many debts are eventually written off. All this is reflected in the nominal or list price, which then increases. But on the other hand, individuals and families with unpaid debts on someone’s books, whether it’s a health care provider or a debt collection agency, are left without home or car loans, or even credit cards that are essential to everyday transactions. It becomes difficult to enter. In modern economy. Therefore, unpaid debt trickles down to the larger economy.

Unpaid medical debt has thus become a major national problem that makes life even more difficult for people who are already living difficult lives. Programs have been launched to address the issue, and Minnesota is leading the way with an agreement among major health care providers not to report medical debt to credit scoring agencies. There are also NGOs such as RIP Medical Debt, a New York-based nonprofit that promotes local government efforts, including St. Paul’s. It would act as an intermediary between the city and health care providers to identify debts that would be most beneficial to eliminate.

Here are some standard financial questions.

Are there benefits that ripple through society as a whole beyond the direct value derived from benefiting households? Perhaps having better credit makes people more productive and improves their credit scores. It may be easier to get a job that you wouldn’t have been able to get, start a small business, or buy or rent a better home. This net benefit to the economy as a whole probably exists, but is very difficult to quantify.

Can or will this problem be solved by market forces without government action? The type of “mediated structures” described by sociologist Peter Berger and theologian Richard J. Neuhaus are emerging Even though they are, they probably aren’t, or haven’t yet. These include nonprofit organizations that St. Paul works with and special collaborations that secured a 2021 agreement for Minnesota’s major health care providers not to report bad medical debt.

Does this program create perverse incentives? Well-intentioned government policies like this often do. Rent control discourages investment in new affordable housing and discourages homeownership. Cash payments and tax incentives by cities encourage the migration of people and businesses from other cities. But in this case, it’s hard to imagine many people suddenly moving to St. Paul to have their debts canceled or receive more expensive medical procedures. This is because medical expenses will likely be delayed at some point in the future. Well, there may be an incentive to the contrary, but it doesn’t jump out at us.

Will the supposed one-time action create expectations for an ongoing program with ongoing city budget spending? This is a real phenomenon. The one-time extension of free lunch for all students became a permanent program with coronavirus funding, but the cost for Minnesota will be higher than expected. This is currently a hotly debated topic at the national budget level. (Despite cost overruns, I support a permanent lunch program). However, in cases of medical debt, this seems much less likely to occur, as a much smaller portion of the population may be involved.

If people who could potentially receive support are excluded, will beneficiaries be chosen fairly? Will the criteria be based on income need? This is an issue for many such programs. The free lunch program is open to everyone. St. Paul’s plan relies heavily on the competency and goodwill of RIP Medical Debt and participating providers.

Finally, do we know that spending $1.1 million to erase bad medical debt will help improve the well-being of more people overall than other uses of the money? How do you measure it? Even if it’s a small portion of the city budget, that was the concern of one St. Paul City Council member who voted against the plan.? It’s a problem that plagues all public spending. Also, the private sector, especially large corporations, spends a lot of money. Stock buybacks and capital investments? But also consider households. A $100 restaurant dinner for two people might be fun, but the same person costs a week’s worth of groceries for two people. Is the trade-off worth it?

The best bet, of course, would be to restructure national health financing to provide care for all without accumulating debt on the few. But that proved to be a bridge too far over the decades. That shouldn’t deter those at the top of the government from trying again or the city from acting now.