Health Reform

Lessons from Obamacare: Comments on Vox’s article

Sarah Kliff and Ezra Klein and Ezra Klein of Vox have an interesting article on “The Lessons of Obamacare“.   I list the lessons below from the article and discuss whether I agree or disagree with the statement and why.
Lesson 1: Everything in health care is a painful trade-off. Own it.

Agree.  The authors provide a clear example of these tradeoffs.

Any government health coverage expansion involves a series of trade-offs, decisions that will inevitably anger one constituency or another. Provide robust health insurance plans, for example, and you need to spend more money — if you don’t, you must decide to cover fewer people. Provide skimpier coverage, and the price tag of a health insurance expansion goes down, but people get frustrated with their high deductibles and copays.

It should not be surprising, however, that an economist should agree with any statement that there are tradeoffs in life.
Lesson 2: Bipartisanship — can’t live with it, nearly impossible to do reform without it.
Sounds Reasonable
. Politics is not my area of expertise. Clearly, having biparitsan support helps to have a bill pass, but creating a bill that actually would receive bi-partisan support, however, is not so easy.

Republicans…are trying to pass the entirety of the American Health Care Act through the filibuster-proof budget reconciliation process — a strategy that means they won’t need a single Democratic vote in the Senate, but that also means they are limited to policy changes that are directly budgetary in nature, so they can’t rewrite insurance regulations and reform the delivery system in ways that may be necessary to make their plan work.

Lesson 3: If you change the health care system, you own it

Agree.  The health reform bill passed under Barack Obama was called the Affordable Care Act.  Most people, however, know it simply as Obamacare

Lesson 4: Benefits might not get popular, but they are very hard to take away

Strongly agree.  This fact is why some of the more conservative Republicans are against the American Health Care Act.  Adding a new entitlement may benefit a number of people, but it is very difficult to take away (most people are loss averse in the technical, economic sense).  Michael Cannon of the Cato Institute even wrote that he believes that the Republican plan to end the Medicaid expansion in 2020 is unlikely to ever happen because “constituency for preserving the Medicaid expansion would be much larger than it is now.”

Lesson 5: Partnering with the private sector, and private insurers, can be risky — in a way expanding government-run programs isn’t

Disagree.  While technically I agree that the risk from the expansion of government run programs and those run by the private sector/private insurers differ, the Kliff and Klein article makes it seem as if the private sector is inherently fickle whereas the public sector is a modicum of stability.  The authors compare the Medicaid expansion with those on Obamacare exchanges and mentions that ““many on the marketplaces would prefer to be on Medicaid. It was a pretty striking contrast.”

The reason that many people would prefer to be on Medicaid compared to private insurance is that Medicaid plans are much more highly subsidized.  Most Medicaid programs have limited out-of-pocket cost and low if any premiums.  Those on the Obamacare plans–although they receive a subsidy–have more cost sharing and higher premiums.  However, the true cost of the Medicaid program is subsidized by the government.  If the same subsidy levels were applied to the private market, likely more people would choose the Obamacare plans.

Consider the case of Medicare where 31% of people choose private health insurance (i.e., Medicare Advantage) despite the fact that standard Medicare fee-for-service benefits allow for 100% choice of any doctor.

It is true that creating markets from scratch is challenging.  As the authors write, if insurers “…decide not to participate in an insurance expansion, there isn’t much the government can do except beg and plead.”   Most insurers, however, will generally want to participate in profitable markets.  The government can provide stability and coverage in the short run but in the long run coverage can decline as budgets decrease due to business cycles, due to overspending, and other risks.  Medicare provides fairly good health insurance coverage to all elderly Americans only by running a large projected deficit.

Clearly, the private sector is not the solution for everything.  The government should play a role in redistributing income to allow poor and sick individuals to afford insurance.  However, I am very skeptical that having government-run health insurance would lead to significantly better outcomes than would be the case for private insurers.

Lesson 6: Affordability doesn’t mean what Washington thinks it means

Agree.  Policymakers and politicians focus on reducing overall health care cost.  This means the cost that patients and insurers pay.  Patients themselves, however, only really care about out-of-pocket costs and premiums.  They want affordable insurance, that provides good access to doctors with low copayments.  The plans in the Obamacare exchanges are relatively low cost compared to the individual market, but high cost compared to employer provided plans, and have very high cost sharing.

The narrow networks and high deductibles are among Obamacare’s most-loathed features — a Kaiser Family Foundation poll found that 70 percent of Obamacare enrollees with high-deductible plans judged their insurance only a “fair” or “poor” value, while that number fell to 37 percent among enrollees with low-deductible plans.

More to the point:

When economists in Washington say they want to control health care costs, they mean something like this: People should buy less health care, or cheaper health care, so that total spending on health care falls.

When voters say they want to control health care costs, they mean something like this: Someone else should pay for my health care so I can purchase what I need without much financial strain.

Lesson 7: Prices are the fundamental challenge in American health care — and reform will remain an exasperating exercise until that changes

Disagree.  I do agree that getting the right prices is vital to having a functioning health care market.  Kliff and Klein’s proposal to “regulate American medical prices,” however, is not what I would call getting prices right.

Consider the case of regulated payments to physicians from Medicare.  CMS enacted to Sustainable Growth Rate (SGR) to reduce Medicare payments to physicians over time.  However, every year Congress would reverse the SGR in late December to move physician compensation back to standard levels for the upcoming year.  By 2015, the SGR–if not repealed–would have cut physician payments by 25%.  This is not a rational way of setting prices.

Medical cost in the U.S. are admittedly high relative to the rest of the world.  Lowering prices coudl reduce premiums and reduce out-of-pocket costs in the short-run.  However, these high prices do incentivize innovators to create new treatments and incentivize the brightest minds to choose a career in medicine.  Further, there is some evidence to indicate that the U.S. is not so much a health care expenditure outlier as one might expect.  Centralized control of prices almost always leads to either shortages and rationing when prices are too low and profiteering and rent collection when prices are two high.



1 Comment

  1. Not approving Ryan Care was a narrow escape from an increasingly intrusive government that seems bent on controlling every aspect of American lives.
    Most people would prefer to see a doctor when they have an illness or physical complaint. They would not willingly take a sick child to an insurance outlet or government building unless they have no choice. (Imagine taking a feverish baby to the DMV for treatment). Yet when you enter the doctor’s office and notice all the busy people that greet you from behind a desk – what do you think they are doing? They are filling out forms and documenting your access to insurance companies and government agencies who dictate the cost of your visit and the care you are entitled to receive.
    Countries having high levels of subsidized health care, France and Italy are good examples; require that everyone pay into the government health fund. In America we all pay 1.45% of income, (hiked by an employer tax of an additional 1.45%), into our Medicare system but only people getting Social Security get the benefits. In 2015 the American Hospital Insurance Trust Fund garnered 275 Billion in taxes and spent 646 billion in services for only 15% of the population, (according to AARP).
    So the illustration here is that we already have a universal insurance system that is paid into by every worker but the benefits are only distributed to retired people and the outlays for this insurance scheme exceed the inputs by about 371 billion dollars a year. The numbers get MUCH worse as they are analyzed to include every citizen.
    Consider, for a moment, what insurance is supposed to provide. Health insurance is supposed to pay for the professional services, equipment, and drugs provided by licensed physicians and hospitals. In order to Control prices and services the government and insurance companies create rules, regulations, and make an effort at price fixing procedures. They require immense databases to achieve these goals and you can appreciate the health code designation of being bitten by a duck as just another line item under their scrutiny. If you think that is a bit complicated, there is another entry for walking into a lamp post. Too much? How about the designation of having walked into a lamp post for the second time?
    Clearly we have too many ducks, lamp posts, and regulatory constrictions that are meant to control costs but inadvertently end up controlling lives and behavior.
    Since the insurance is supposed to pay for professionals – take a look at what we could do with the 275 billion collected every year:
    Give every licensed physician $100,000 …. .90 billion per year.
    Give every registered nurse $30,000 ……… 90 billion per year.
    Give every hospital $17 million………….…95 billion per year.
    I just ran out of Medicare funds at 275 billion but our government spends over 646 billion on Medicare and adds another 546 billion with Medicaid, (2015 numbers). Where does this money come from? The general fund supplies the extra largess – – in case anyone is noticing our country currently has 20 Trillion in debt.
    Well what if we doubled the tax rate for Medicare and now garnered an extra 275 billion for:
    $75,000 for every licensed Nurse Practitioner…..…..8.3 billion per year.
    $45,000 for every Physician Assistant………………3.2 billion per year.
    Drug subsidies………………………………….….263 billion per year.
    There – everyone in the USA would now be covered to some extent and to receive the subsidies all the accepting parties would have to do is not turn away any citizen from medical services. The government would no longer be in an insurance business where they have proven to be incredibly inept. The Government involvement would be relegated to a disbursement of collected funds to health professionals. The savings in paperwork, regulating, and oversight would actually save about 30% over current medical costs dictated by insurance. If the extra taxes are too big a burden consider paying the extra 275 billion from the general fund while still reducing the overhead by over half a trillion dollars per year.
    Nothing is free, however, and the amounts mentioned will still not cover the total expenses. An average doctor’s earnings are about 160,000 per year and how will they make an income – not to mention the pay of specialists who spent years in getting certified?
    Let doctors, hospitals, drug venders, and specialists charge whatever they desire in the form of co-pays. Some doctors in Kansas are charging $50.00 per month for adults and $10.00 a month for children to cover all medical services and they negotiate a discount of over 80% for drugs used by members who pay the monthly service fee. (Only 100 patients would be needed to add 60,000 per year but facilities and staff are still an expense that requires income). Catastrophic insurance can be purchased to cover the large co-pays that may be demanded for major medical services like cancer treatments, transplants, significant surgeries, expensive drugs, or continuing services like dialysis.
    In the future, one might see catastrophic health insurance ‘bundled’ with car and home insurance plans. Medicare, Medicaid, and Obamacare would be gone. Only the Medicare tax would remain. Paperwork would be addition to the IRS tax form.
    There is more the government could do of course – Allow health employees, doctors, assistants, etc. to pay minimal or no taxes for example. Tax free health saving accounts and catastrophic insurance sales across state lines could be allowed and perhaps, someday, be offered by employers that allow employees to carry the account privately or onward to new employers.
    And what about the poor people who get sick but have no job, pay no taxes, and have no catastrophic health insurance? The poor will always be with us – that is why we paid the doctors up front. No citizen will be denied service by those who promise first to do no harm.
    This style of funding should also spur an interest in more people willing to become doctors which are currently predicted to be 90,000 short by 2025.
    Concrete and predictable medical costs have proven to be elusive when payments are made by governments and insurance companies. If someone else is paying – the billing is of little consequence to the patient. In this subsidized system, transparent costs would allow patients to seek the best service at the lowest co-pay. No two hospitals charge alike and most patients only get solid costs after services have been rendered.
    No one would like to take a car to a mechanic, who never provides an accurate estimate of charges unless they knew someone else was paying, (insurance company). Fortunately, mechanic mistakes can be expensive but are not usually life threatening. Medical services, conversely, are given very little latitude where judgments fail to achieve desired results. Complex problems are weighed in terms of outcome and risks to the patient vs. costs, profits and risks to the insurance providers. Health providers do make mistakes but such errors are often the product of being human where, in the end, we all return to the manufacturer.

    Mark Poyhonen

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