Obamacare: where are we?

by on November 29, 2010 at 7:02 am in Economics, Law, Medicine | Permalink

I became so sick of blogging this topic, but it's time to revisit where matters stand:

1. The health care sector is becoming more concentrated, largely through mergers and acquisitions.  Some of this is long-term trend, and some of it is a direct response to a more regulated and rent-seeking-intensive sector.  By no means I am against corporate bigness per se, but this does not augur well for cost control and affordability.

2. It seems more obvious that requiring health insurance companies to limit their overhead costs is a mistake.  It is leading to more concentration in the sector and probably to more accounting chicanery as well.

3. Contrary to my earlier expectations, the legal issues are not going away.  They had seemed like non-starters to me, but I now could imagine that a few Federal judges rule against the mandate and there is a subsequent crisis of confidence as some major Democrats run for cover rather than defending the policy.  I now give this scenario 35-65 rather than 10-90.  The fact that mandate enforcement could be passed to the state level, without much affecting the operation of the plan, doesn't matter any more, given the spin such rulings of unconstitutionality would receive.

4. Negative trends in health care markets continue, and many of these will be blamed, by many people, on the new health care reform.  In fact Obamacare will make some of these trends worse (e.g., private insurance patients pushing out Medicaid patients), but Obamacare will be blamed for this problem before the extra negative effect starts operating.  I understand the political logic of how benefits programs became popular and then become locked into place, but I'm seeing more clearly now that the health care reform simply isn't well timed to be very popular.

5. The differential payment rates across Medicare, Medicaid, and private insurance are becoming unsustainable more quickly than I had anticipated; see for instance the link in #4.  Further reforms will be required more quickly than had been anticipated, but it's not obvious how such reforms should proceed.  It's hard to either upgrade the Medicaid (and Medicare) rates or to downgrade the private insurance rates.  Monitor this one closely, because it is likely to prove the breaking point of our health care status quo, with or without the Obama plan.  (This is our version of the ticking time bomb within the eurozone, namely that natural rates of growth split apart a distortion, increasingly, over time.)

6. I am less worried about mandate enforcement than I used to be; Austin Frakt has had good posts on this at TheIncidentalEconomist, see here.

7. I am more worried about employers shedding employees onto the subsidized exchanges than I used to be; Reihan Salam has had good posts on this topic and how it could prove to be a fiscal breaking point for the new law.  You can argue that this is the actual long-run restructuring plan, but unless we are willing to go the "Medicaid for all reimbursement rates" route, I don't see how we afford it.

8. I have the new worry of uncooperative state governors trying to shed their Medicaid loads onto the federally-subsidized health insurance exchanges.  Could one or two rogue states on this issue create a crisis in the system?  I find this one hard to judge, both politically and logistically, but six months ago I wasn't thinking about it at all.

9. The Republicans still don't have a good alternative plan or compromise to offer, should a chance for renegotiation arise.

Overall, the policy is shaping up to be a mess more quickly than I had thought, though not through the mechanisms I had been expecting.  It still seems to have too many jerry-rigged pressure points.

I'm all for a compromise allowing greater state-level experimentation with health care policy.

1 Andrew November 29, 2010 at 3:36 am

9. Dear Republicans,

HSA. High-deductible. You're welcome.

P.S. Can I have my Coverdell back?

2 Andrew November 29, 2010 at 3:40 am

Can you speak to this movement to eliminate the tax deductions? Seems misguided to me, but like most things misguided that gain momentum there's an air of truthiness to be debunked. For one, if you didn't force the money to be funneled into the hospital system it wouldn't have to be a force for price increases.

3 RR November 29, 2010 at 4:53 am

George

I hope this is not one of them:
http://voices.washingtonpost.com/ezra-klein/2009/
" CBO thrashes Republican Healthcare Plan"

4 Brian J November 29, 2010 at 5:12 am

From the article in The Washington Post in article four:

"Still, even if primary-care doctors had to rely exclusively on Medicare's lower payment rates their incomes would only drop about 9 percent, according to a recent study co-authored by Berenson, who is also a fellow at the non-partisan Urban Institute. "

That's not nothing, but it's not exactly the end of the world, particularly since it's not a cap on their salaries. (I wonder what the rate would be for specialists.) I wonder if there is some sort of deal that can be made to split the difference. Or maybe we can just pay doctors a flat fee. Or maybe, just maybe, we can make it so that doctors from other countries that want to come here can easily do so.

5 Ram November 29, 2010 at 5:36 am

Intrade says the probability of the mandate being ruled unconstitutional by the Supreme Court before 2012 is .04:
http://www.intrade.com/jsp/intrade/contractSearch

Of course that may mean it's unlikely to ever be ruled unconstitutional, or it may mean that it's likely to be ruled unconstitutional after 2012.

6 Ironman November 29, 2010 at 5:45 am

Tyler's #9:

The Republicans still don't have a good alternative plan or compromise to offer, should a chance for renegotiation arise.

There are benefits that might be realized from simply having an effective check placed upon the government's overreach into the economy – it's possible that a pre-defined plan or compromise might not be needed if the risk associated with that overreach is simply reduced.

7 Dennis November 29, 2010 at 6:23 am

It's "JURY" rigged

8 Andrew November 29, 2010 at 7:21 am

Ralph/Steve,

"There is evidence in the literature that people will skip some care and rugs when they are on high deductible plans."

Well, yeah. That's the plan. The evidence as I recall is that people skip about half un-necessary and half 'necessary.' I'd bet it's unknown how necessary the necessary is. And of course since consumers have no idea that's why they don't know what to skip…yet. That is to say, it still works even though it's a very small part of the overall market and the system has not accommodated it by providing the consumers with better information.

Your pooh-poohing about selection bias sounds probably like handwaving to me.

9 Tim November 29, 2010 at 7:22 am

"HSA"

You should check the market. I'm thinking about going back to a PPO. HSA rates have become almost exactly the same monthly cost as a PPO with the addition of paying for everything out of pocket and (if you're responsible) requiring a massive deposit into the savings account each month to cover the potential max out of pocket.

I don't see anything resembling a feasible free market solution. Currently I see socialism with institutionalized profiteering.

10 Ken November 29, 2010 at 7:49 am

"4. …a few Federal judges rule against the mandate …"

…and the insurers and their lobbyists light up the Congressional switchboard. Without the mandates, but with the parts that everyone likes (especially those dealing with pre-existing conditions), the for-profit insurance industry dies messily within a few years. Perhaps that is the sinister master plan to get to single-payer.

11 Daniel Schwarcz November 29, 2010 at 8:13 am

The worry over employers shedding employees onto the exchange is exactly right, but in a different way than almost everyone seems to think. The real risk is NOT that employers will completely drop coverage, leaving their employees to purchase coverage on the exchange. Instead, it is that employers will offer all employees revised plans that are specifically designed to induce ONLY THE LEAST HEALTHY employees to opt for coverage on the exchange. Most seem to ignore this risk because such employees would not be eligible for subsidies. But employers would nonetheless find this an extremely desirable strategy because (i) they would avoid any penalty under the "employer mandate," (ii) their health care costs would decrease substantially by virtue of reducing coverage and shedding high-cost employees, (iii) high-cost employees would not be much worse off, as they could acquire coverage on the exchange with no medical underwriting or preexisting conditions. While coverage for high risk employees would cost more on the exchange than employer coverage, the employer could defray this cost by putting it's normal contribution into a tax free HRA Account, which could be used for coverage. The employer and its employees would be better off, and exchanges would be subjected to the risk of adverse selection from a disproportionately risky pool of policyholders. For much more on this, see: http://ssrn.com/abstract=1651308.

12 Bill November 29, 2010 at 8:33 am

I always question a post that includes a headline with the word Obamacare.

Doesn't anyone use the language of a statute in discussing it. This is all subliminal politics.

Like if I used the word PalinCare, McConnellCare, DeLayCare (actually, this one is quite good for Tom DeLay's plan).

13 ambrosebierce November 29, 2010 at 9:21 am

'jury-rigged'; 'jerry built'. Separate phrases; slight distinction in meaning.

14 Lord November 29, 2010 at 10:09 am

You forgot one. Healthcare has been one of the fastest growing employers due in large part to government largess. By threating that growth unemployment will stay high.

15 Vehicle Driver November 29, 2010 at 10:45 am

Does the reform plan include outcome-based rationing? No? Then it's doomed to failure. Unless something is done to rein in last-30-days spending, health care costs are going to keep rising and rising until they bankrupt the entire nation. Guaranteed.

Because our "healthcare crisis" has been sold to the public as an issue of "evil insurance companies denying people last-30-days-spending". People are being sold on single-payer healthcare by horror stories that their insurance company is going to let them die. Virtually no-one actually pays for healthcare directly, they don't really give a crap if their insurance company pays $10,000 or $100,000 to treat their heart disease… they are worried that they won't get the heart disease treatment.

If you tell the American people the truth, that the "evil insurance companies" provide far more treatment for life-threatening disease than managed single-payer socialist systems, and that one of the reasons that socialized medicine systems have better outcomes is because they don't waste money on expensive treatments for dying people (and instead, put that money into family planning and pre-natal care which produces the highest returns from a public health standpoint), Americans would have zero interest.

Americans don't care that you can raise the average lifespan by cutting funding at the end of life, and re-allocating those resources to family planning and pre-natal care. Americans aren't worried about the average lifespan, except as it might exist as a metric for the healthcare they receive in general. The AARP crowd, who decide the elections, definitely aren't willing to have their treatment options cut, to pay for the healthcare of a bunch of poor people and kids… they support socialized medicine to the extent that they believe it will provide more expensive advanced treatments for what are essentially the symptoms of old-age.

Thus, if you support a single-payer healthcare system for the U.S., you either need to:

1. Be prepared to lie to voters, and pay the consequences later.

or

2. Be prepared for healthcare costs to skyrocket.

16 Ralph November 29, 2010 at 12:51 pm

"That is to say, it still works even though it's a very small part of the overall market and the system has not accommodated it by providing the consumers with better information.

Your pooh-poohing about selection bias sounds probably like handwaving to me."

I prefer evidence, which is why I worry about selection bias. I think it best not to assume something works just because it agrees with my own bias. I think that HSAs might work. I can also see reasons why they might not. It's really not hard to see how that could happen. Therefore, I would prefer evidence.

Steve

17 mulp November 29, 2010 at 1:51 pm

"The health care sector is becoming more concentrated,… but this does not augur well for cost control and affordability."

Retail is becoming more concentrated, so this means Wal-Mart and Target are going end up letting their costs go out of control and prices and goods are going to become completely unaffordable.

The computer industry has consolidated from hundreds of computer makers down to less than a half dozen, so costs must be spiraling out of control, and computers becoming totally unaffordable.

18 mulp November 29, 2010 at 2:17 pm

"I am more worried about employers shedding employees onto the subsidized exchanges than I used to be;"

Somehow you seem to believe that firms will eat the costs of higher insurance premiums or force employees to pay the added costs no matter how much they rise, unless the health reform provides a higher cost way for managers and owners to buy their insurance.

The reform does not make health insurance deductible for individuals, and in fact makes it worse by raising the threshold for health care costs above 15% of income, while continuing the deduction or adding subsidies for employer health benefits.

Perhaps you are seeing that the current US health care system makes US manufacturers uncompetitive in the global market against Japan, Germany, France, UK, Taiwan, et al which socialized the cost of health care just like the roads and power grids?

19 astonerii November 29, 2010 at 4:38 pm

Republicans do not have a plan? I guess you must be a complete liberal fantasist, because there are plans, and good plans.

20 Google November 29, 2010 at 4:44 pm

Free market says "Jerry-rigged" is more effective way to convey the same meaning. Jerry-rigged = 488,000 hits. Jury-rigged = 144,000 hits.

21 J Thomas November 29, 2010 at 5:54 pm

"The AARP crowd, who decide the elections, definitely aren't willing to have their treatment options cut, to pay for the healthcare of a bunch of poor people and kids… they support socialized medicine to the extent that they believe it will provide more expensive advanced treatments for what are essentially the symptoms of old-age."

But they will accept it during wartime. A real war.

During a world war people won't complain that they aren't getting their share. And if they do they can safely be ignored, because there's a war on.

Great big wars are our way of getting out of deadlocks. We had the Civil War, and WWI, particularly. WWII also, it turned the economy completely upside down.

22 astonerii November 29, 2010 at 8:15 pm

"And they say intelligent discussion is dead."

Another Liberal Fantasist. You live in a fantasy world where only your fantasy facts are real, and things that are contrary to your preconceived notions of liberal "progressive" absolutism do not exist and have never existed. If you have followed the Health Care debate at all, the biggest and most widely dispersed part of that debate was when Obama and Paul Ryan where Paul Ryan completely destroyed the entire Democratic proposal, which forced the Democrats into back room dealings and payoffs for votes to get the current dysfunctional law passed. His positions were so completely on solid ground and so completely unrefutable that Obama's only response was, I will get back with you later and then never did, as in never.

Fantasist liberal brains waking up to reality yet?

You see, I tended to figure some of the people here were smart enough that once they were pushed to wake up that they would remember reality, but people like the OP and basballhead are too far down the path of stuck on stupid to wake up.

Want a good way to fix health care. Think of it as a service and commodity, one for which you trade something of value to the other party for something you find valuable, health care. Instead, you let feelings get in the way of facts and believe the liberal "progressive" lie that health care is a "right". Tell me, if I have a "right" to health care, do I have the right to your personal bank account to obtain it, do I have the right to enslave another person to provide it to me, as it is a "right"? Socialism is a good form of government, until you run out of other people's money. In a society you probably envision as a utopia, I would invert from being a major producer into a major sponge. I work hard (as hard as you can behind a desk anyways), I work many hours, far more than the average workweek, and the time I spend working is very productive, such that I produce twice what the average person in my position produces, there are many like me who, if the country becomes more socialistic as you desire would drop off the radar of productivity and live my life living off the work of others. I would do it as protest, many others for other reasons, for "from each according… and to each according…" is a recipe for each to do as little productive as possible for greatest gain, to feign as much hardship as possible for greatest gain. You want to see someone become the lowliest of pond scum humanity has to offer, tell them that if their life sucks and they can prove they are worthless that you will provide for them. If you want to see the best of what humanity can be, put anyone in the position of swim or drown, and they will rise to the top and overcome even if weighted down slightly.

Socialism = octomom.
Capitalism = Henry Ford.
I for one chose the world where Henry Ford's are heroes and octomoms are people to be shunned and persecuted. Which one do you chose as your hero?

23 Scott November 29, 2010 at 11:51 pm

#9: Wow, Tyler, really? None of the alternatives offered by Republicans during the initial debate over Obamacare count? You just accept Obama's pronouncement (which was wrong when he made it) that they've offered no alternatives, and ignored all that have been offered since then?

I like you, Tyler, I really do. But when you say things like #9, it just makes it sound like you've never read a single thing that any Republican has written about Obamacare; you've only read Democrat rebuttals, and assumed that what they said about Republicans was true.

24 John F. Opie November 30, 2010 at 5:33 am

As long as there is no tort reform that reduces liability insurance – and don't believe for a second that this isn't a major cost driver – then all is moot, or rather is frosting to cover the fecal matter. Tort reform: get the lawyers out of the business of making sure health care is so expensive…

25 Andrew M November 30, 2010 at 5:52 am

The simple truth is that any reform of health care in the U.S. will mean that everyone working in the health industry will have to make less money than they do today. From insurance execs to hospital janitors, and everyone in between: doctors, nurses, staff, administrators, drug makers, pharmacists, you name it.

Unfair? Not really— the simple fact is that people working in medicine have been making too much… if not from a moral standpoint, then certainly from an economic standpoint. We can pin it all on insurance companies, but whose fees are they paying?

26 J Thomas November 30, 2010 at 8:15 am

"The simple truth is that any reform of health care in the U.S. will mean that everyone working in the health industry will have to make less money than they do today."

Quoting statistics from memory, that might have been wrong all along or misremembered, I've heard that 40% of our health costs go to spending done by insurance companies. Each of them must maintain a database of procedures to disallow etc, which vary some by individual policy type, and they have to review charges to decide what to do about them. Etc. Tremendous duplication of effort. There's a lot of room for cost-cutting there — and it would result in loss of health insurance jobs rather than lower pay.

As for the actual health industry, we have a massive misallocation of skills. MDs are required to do a lot of routine work that could be better done by nurses. Nurses do routine work that could better be done by less-skilled people. As a result we do not have enough MDs or enough nurses, and the ones we do have are overworked and don't get enough sleep — which increases burnout. Then when they face nonroutine problems they're tired and sleepy and likely don't recall the particular details they spent so much money to learn when they were in school.

If we only allocated the work better we could handle larger numbers of patients without additional expensively-trained people.

Now, consider the amount of work done on computer programs that play chess. Would it be harder to develop computer programs to diagnose disease? No, it would be far easier. MDs don't need to do millions of routine diagnoses by hand. They should be hard at work improving the algorithms, not applying them by rote. And consider that insurance companies have online medical records for essentially the whole population. They automatically share them with each other, and grudgingly share them with medical researchers. If you personally could enter your known symptoms into an online medical-database-player and get a list of what happened in years past to people who had those symptoms, and how many people share them now…. It's cheap to run searches, the expense is maintaining the database and the database-player. If you had a sense of which rarer diseases might be worth testing for, and how rarely they cause major problems, you might be far less a problem for your physician — who would usually run the same program and carry out its recommendations.

We hope that physicians will use their intuition and their imagination etc to discover things that nobody knew to look for. Like the MD who discovered AIDS, years after it started to spread widely and years before it might otherwise have been discovered. But they have too much routine work and too little sleep. Get them out of that squirrel wheel. Put them to work running experimental treatments. Our clinical trials for new procedures are outmoded, they're like things from the 60's. Take that work away from the corporations who need positive results so they can recoup their massive investment. Give them to groups of MDs. Particularly fund research that might lead to cheaper procedures that are as good as the current ones.

Arrange for blood samples, spinal taps, etc to be done at varied locations, perhaps including some patients' homes. Hospitals are places people go to catch each other's diseases. So minimise the number of people who show up there.

There are lots of simple things like these which could reduce healthcare costs. But right now such things are not rewarded by anybody.

27 Vehicle Driver November 30, 2010 at 10:55 am

Now, consider the amount of work done on computer programs that play chess. Would it be harder to develop computer programs to diagnose disease? No, it would be far easier. MDs don't need to do millions of routine diagnoses by hand. They should be hard at work improving the algorithms, not applying them by rote.

A bit off topic:

My comp-science professor was an MD before getting his PHD in mathematics. Anyway, he claimed that he was part of a project in the 70s where they did just what you said… and even with the technology at the time, the expert system did a better job at diagnosis than most family doctors.

28 Greg M November 30, 2010 at 1:37 pm

One unintended consequence of "Obamacare" that I have yet to hear anyone mention is that paying cash for a physician's services are not prohibited, nor is it illegal for a doctor to opt out of accepting patients on medicare, medicaid, or any other government-run plan. America may end up getting a Libertarian system where people with the cash will get premium care, and everyone else will get waiting lines, rationing, and a commensurate level of attention.

This "problem" will never be fixed, there isn't enough money anywhere to satiate the needs of the people. But there is enough for a select few…

29 Bill December 1, 2010 at 5:36 am

Scott, Buying healt insurance across state lines is not a good idea because state regulation of the carrier does not carry over into the other state. Imagine if you bought a Texas policy and you lived in Washington state. First, the Texas policy would have to conform to Washington state policies. Second, Texas insurance commission would not likely be a strong advocate for you as a Washington citizen in a dispute with the carrier.

The one program that could work for interstate insurance: a federal charter, with minimum benefits and regulation done by the national government. That probably is not in the future, and the carriers would oppose it (at least the state chartered Blues) or some national carriers would actually like it.

Comments on this entry are closed.

Previous post:

Next post: