I’m never sure whether to use a stock photo of medical stuff or a stock photo of money when I write these health care posts.
My old health care posts are suddenly relevant again. Seven years ago, on March 21, 2010, the House passed Obamacare. I had a post on the subject which reflected a number of my thoughts following the more or less year long debate that led up to the passage of that legislation. As I said at the time, I didn’t think Obamacare was well designed but I didn’t think a well-designed system could pass Congress. And the status quo was awful and getting worse.
We’ve, once again, been hearing about how everything would be cool with the health care system if only the free market was unshackled. Here is why I’m all but certain that won’t work:
To date, nobody has been able to direct my attention to an example of a successful market-based system of health care; leading me to be skeptical of whether such a thing can exist. One country that sometimes comes up in this context is Singapore. However, while its system makes use of private insurance, it also ensures affordability largely through compulsory savings and price controls.
Singapore’s system uses a combination of compulsory savings from payroll deductions (funded by both employers and workers) a nationalized catastrophic health insurance plan, and government subsidies, as well as “actively regulating the supply and prices of healthcare services in the country” to keep costs in check[.]
Markets are very good at allocating resources. However, to function properly, it seems to me that buyers need to have good information and the ability to walk away from a transaction. That’s a problem in health care negotiations. Health care decisions involve analysis of medical information that’s generally beyond the understanding of most people. And, even if you can rely on your doctor or otherwise master the medical end of the decision making process, medical pricing is often ridiculously opaque. Try calling up half a dozen hospitals and trying to get the actual price of a hip replacement. Even if they’re willing to tell you, there are likely to be an array of prices depending on who’s asking. And those will be qualified prices because any number of contingencies can affect the price, even in the middle of the surgery. Then you have the problem of getting an insurer to be clear, up front, about the terms of the insuring contract and then honoring those terms after the fact. The insurer operates from a position of strength, collecting premiums for years when there are no significant health issues, then being able to withhold a determination of whether it’s going to pay for a procedure until after the procedure is complete. Finally, any negotiating options you have in the ordinary situation pretty much go out the window once you’re in an emergency situation. It’s like negotiating with a gun to your head.
At the time, we were spending We were spending 16% of our considerable GDP on health care already. We were spending twice as much per person on health care as other countries. We were already paying for something like 45% of those costs from public funds. And costs were increasing. (And no, despite what you may have heard, medical malpractice lawsuits weren’t the prime or even substantial cause of these increases.) Despite spending half as much, those other countries had health care results that are comparable or, in some cases, superior to the U.S.
Can we do better? Sure, almost every other industrialized country is. But, for ideological and venal reasons, Congress is not looking to copy systems that are already working better than ours was in 2010 or in 2017.
“Seven years ago, on March 21, 2010, the House passed Obamacare”… and not one rational conversation with Republicans since.
Republicans have not offered even one constructive idea. Not one. Obstruct, obfuscate, and whine. That’s been it.
And look where it got them.
Economics is the study of the allocation of scarce resources. Healthcare economics is the study of the misallocation of scare resources. Putting the “patient” at the center of the transaction sounds good to Econ 101 students and Republican pollsters, but is about the most inefficient system that could devised. As Doug observed, the patient is informationally deficient, has no bargain powering, and is not as willing buyer in arms-lenth transactions. If you need surgery, you need surgery. In effect, the patient is not the buyer in the transaction. The patient is more like the widget.
Health savings accounts are offered up as the “market solution.” But they have very limited effectiveness. They do allow for price shopping for elective and cosemetic procedures. But they do not provde any negotiating power. The only was health savings accounts save money is by patients foregoing care.
What health savings accounts (HSAs) are is one more way for tax-free or tax-deffered savings. And they are something else that slipped by everyone. In the early 1990s, Clinton was proposing a a healthcare proposal that concentrated buying and negotiation power in a handful of large healthcare plans across the nation. Most healthcare insurers would be put out of business but the large ones that remained would have near monopsony buying power. It was a great solution at the time and would be a great one today. But because it would be effective at lowering costs and eliminating inefficent insurers, it did not pass.
HSAs, as I recall were an idea that came out in the early 1990s as an “alternative” to Clinton’s (Uwe Rheinhardt’s) Managed Competition. They were touted as a “market oriented” healthcare reform idea. They had a hearthside appeal to people with no understanding of healthcare economics. They should never have been heard of again. And perhaps they would not if it had not been for Pat Rooney, the president of Golden Rule Insurance Company in Indianapolis. Golden Rule was not a big market player, but was well known among state insurance comissioners for failing to pay legitimate claims. It had an outsized team of inhouse lawyers engaged in lawsuits everywhere. I remember the president of Anthem “admiring” Golden Rule’s business model back in 1995. He said they take in premiums and do not pay claims. How can you beat that.
Rooney was a Republican influence peddler. Through relentless lobbying and politicking, Rooney was able to get HSAs enacted, first on a state level, and then one a national level.
What HSAs were really good at, however, was excellent in combating adverse selection. The individual and very small groups insurers are especially burdened by adverse selection. Adverse selection is when an insurance pool has a very high “selection” by older, sicker people that are buying benefits because of an immediate or near term need. If an insurance company only has people that are in need of benefits, premiums will be unaffordable or the company will soon fail. (Adverse selection is the reason there must be the individual mandate or some other way to enforce universal coverage.)
HSAs are a great way to do two things. Sell individual, high deductible policies where are the typical individual market policy. Team up a high-deductibe individual policy with a tax-free savings account that can be used to pay for healthcare services on a tax-free basis and save unused money tax free, and you have a much more attractive package to sell.
HSAs are also an effective way to attract insureds that are lower than average risks, because they will be buying the policy because they are healthy, will not use the benefits, and bank the money on a tax-free basis.
At those two things, and reviving the failing individual market and in particular Golden Rule, sat on a silver platter.
The latest proposal for the republican healthcare “plan” involves elimination of the essential benefits requirement. This requirement makes health insurance plan cover necessary services such as hospitalitization, prescription drugs, mental health and maternity care. (Cheap individual market plans were made this way. I refer to them as illusory coverage.)
http://www.slate.com/blogs/moneybox/2017/03/23/republicans_may_eliminate_obamacare_s_essential_health_benefits.html
“Remember, the GOP plan offers Americans who make less than $75,000 flat tax credits to help buy insurance, and these credits go up as you age. If you’re under 30, you get $2,000 toward your premiums; if you’re between 30 and 40, you get $2,500, and so on. If there are no rules about what insurers have to cover, companies will design extremely pared down health plans that cost exactly as much (or maybe just below) what the tax credit is worth. Sure, they won’t really provide much in the way of actual help if someone gets sick, but to insurance buyers they’ll be free.
It doesn’t take a lot of imagination to see how this leads to companies hawking lots of dubious insurance products at unsuspecting customers.”
And since these cheap policies will be free to young people, insurers will sell millions of them and the taxpayers will get stuck paying for nothing but insurer profits.
Only a republican could waste more money in a draconian attempt to save a little.
An article at the Incidental Economist had has the headline: The ACA Won. http://theincidentaleconomist.com/wordpress/the-aca-won/
The article makes the point that the media narrative is that it was a collossal failure for Trump and Ryan. It was for Ryan, although it was a bridge to far manned and defended by tea partanistas. For Trump, it was absolute confirmation of his ignorance, laziness and caprice. Another read is that the “freedom caucus,'” through incalcitrance and the safety of their districts, control the nation.
My take is that there were two battles raised by the republicans against the ACA. One was the conservative doctrinaire refrain that “healthcare is a responsibilty not a right,” “the free market will fix anything.” This appears sound to wealthy donors, upper-middle class suburbanites, frat boys at keggers that cannot score chicks , and right-wing news macaws.
But to the rank and file, the prototypical trump six-packer, the grandmother in Holton, Kansas attending church twice a week and watching gays marry, the fight against the ACA was a fight against a word. “Obama”care. If’un he’s afore it, I’m again’ it. But when presented with the real probability of loss of coverage for themselves and their friends, they finally figured it out. This it not much of a lesson, but one that usually works.
I’d say it wasn’t simply being contrary to Obama — though that was certainly a healthy part of it. It’s also because, as most Obamacare supporters will admit, it’s got a lot of problems. But, opponents – in addition to being predisposed to dislike anything Obama did – don’t have a nuanced understanding of why it doesn’t work well or what sorts of things might fix it. They just know they don’t like it and were trusting that a Republican Congress would design something better.
I have never heard anyone except healthcare wonkerds like me that had a good understanding of the bill, the weaknesses of the bill, the basic insurance principle of adverse selection and moral hazard, and why the bill was Rube Goldbergian(demands of the insurance industry). But that might reflect the people I hang with. But you are right that an effective comprehension of the law and healthcare policy and economics eludes most people.
It is clear that low information voters did believe Trump when he lied about his better, cheaper, double coupon plan that never existed.
I teach healthcare law and ethics to nurses and healthcare management students. Many of them lack any meaningful understanding of these financing issues. Their approach to lack of coverage is to give everyone straightforward and low, or no, cost benefits. Can’t disagree. So the nuanced issues have not even gotten through to them yet.
I hope they do understand when I make the case that as healthcare costs continue to rise and benefits availability falls, providers look to cut costs. And the biggest source of cost cutting in healthcare delivery is a load of pink slips.
Oops. Dog, you and your readers have fingertip knowledge of the ACA because of your dedicated and insightful blogging.
I saw this article on Huffington post today. It addresses and refutes an ongoing republican meme that, sure, these other countries all have healthcare systems that have far lower costs, provide universal coverage and have generally better outcomes than the US, but people have to wait weeks for butt lifts, tummy tucks and minor hernia repairs. And besides, they are dirty socialist furner’s and the US is best.
This article details the general satisfaction with the NHS in Britain across idealogical lines, right to left. And reminds us again that the “horror stories” about Canadian Medicare are written for American political purposes, not internal Canadian debate.
It seems beyond ken that the majority party would choose to deny affordable and quality healthcare to tens of millions of Americans. And run on it. And regrettably, win on it.