Category: Medicine

Obviously we remain in a gridlocked political period, but if a new deal on health care reform could be cut, what would it look like?  What should it look like?  In my latest New York Times column I attempt to peer into that future.  Here is one excerpt:

One way forward would look like this: Federalize Medicaid, remove its obligations from state budgets altogether and gradually shift people from Medicaid into the health care exchanges and the network of federal insurance subsidies. One benefit would be that private insurance coverage brings better care access than Medicaid, which many doctors are reluctant to accept.

To help pay for such a major shift, the federal government would cut back on revenue sharing with the states and repeal the deductibility of state income taxes. The states should be able to afford these changes because a big financial obligation would be removed from their budgets.

By moving people from Medicaid to Obamacare, the Democrats could claim a major coverage expansion, an improvement in the quality of care and access for the poor, and a stabilization of President Obama’s legacy — even if the result isn’t exactly the Affordable Care Act as it was enacted. The Republicans could claim that they did away with Medicaid, expanded the private insurance market, and moved the nation closer to a flat-tax system by eliminating some deductions, namely those for state income taxes paid.

At the same time, I’d recommend narrowing the scope of required insurance to focus on catastrophic expenses. If insurance picks up too many small expenses, it encourages abuse and overuse of scarce resources.

The full column is here.  Please allow me to add a few remarks which did not fit into the column proper (which is strictly limited at 900 words):

1. My argument does presuppose that the exchanges can at the technical level, in some manner, end up working for enough states to carry this option forward.  I still think this is likely, but today it appears less likely than even a week ago when I drafted the column.  The biggest danger is that we enter an “adverse selection death spiral,” even if the technical problems eventually get fixed.  It has to be seen as easy for young, healthy people to buy health insurance on the exchanges, otherwise they probably will not work.

2. I view this reform as more likely to come through a Republican President than a Democrat.  A Republican has to do something which counts as “getting rid of Obamacare,” yet simply returning to the status quo ex ante would not be so popular with mainstream voters.  This is the most likely direction for such reforms.

3. I did not have enough space to talk about more immigration for physicians and nurses, liability reform, and other supply-side reforms.  They are very important.

4. I have been reading for years that ACA is just like the health care reform proposal from The Heritage Foundation from the early 1990s.  Well, sort of.  I view the proposal in my column as closer to the ideas many conservatives were pushing in the 1990s.  But if they are indeed “the same thing,” then fine, there should be no problem supporting one rather than the other!

5. I view my proposal as a third- or fourth-best exercise, it is neither first nor second best.  It may be the best we can do from where we stand, subject to the caveats in #1 however.

Here are some related remarks from Ross Douthat.  He argues that conservatives should be hoping that the exchanges succeed, because the relevant alternatives are worse and because the exchanges themselves can serve as a foundation for future reforms.

There is a new paper by Jeffrey Clemens and Joshua D. Gottlieb on this topic, the abstract is here:

We analyze Medicare’s influence on private payments for physicians’ services. Using a large administrative change in payments for surgical procedures relative to other medical services, we find that private payments follow Medicare’s lead. On average, a $1 change in Medicare’s relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians’ services. We show further that Medicare’s price transmission is strongest in markets with large numbers of physicians and low provider consolidation. Transaction and bargaining costs may lead the development of payment systems to suffer from a classic coordination problem. By extension, improvements in Medicare’s payment models may have the qualities of public goods.

This paper, which seems quite sound to me, has a few implications.

First, if you are unhappy with the American health care system, government is more at fault for the problems of the private sector than it may at first appear.  We have a much more governmental system than most of its critics care to admit and that goes even beyond government health care spending as a percentage of total health care spending.

Second, we could cut Medicare reimbursement rates, by limiting the doc fix, without old people all very rapidly going to the back of the health care queue.

Third, the authors find that the larger Medicare becomes, the stronger this “pass through” effect generally will be.  In other words, this result will be all the more true in our future.

Fourth, the cross-sectoral price transmission result implies that long-run supply elasticities in the sector are not large, which also does not bode well for the future of health care access in an aging society.

Overall this is a depressing paper, although it implies that successful Medicare cost control could have significant cross-sectoral benefits, beyond Medicare itself.

There is a recent paper (pdf) by Handel, Hendel, and Whinston, and it covers the issue of adverse selection through the new ACA exchanges.  The second paragraph of the abstract is this:

We find that market unravelling from adverse selection is substantial under the proposed pricing rules in the Affordable Care Act (ACA), implying limited coverage for individuals beyond the lowest coverage (Bronze) health plan permitted.  Although adverse selection can be attenuated by allowing (partial) pricing of health status, our estimated risk preferences imply that this would create a welfare loss from reclassification risk that is substantially larger than the gains from increasing within-year coverage, provided that consumers can borrow when young to smooth consumption or that age-based pricing is allowed.  We extend the analysis to investigate some related issues, including (i) age-based pricing regulation (ii) exchange participation if the individual mandate is unenforceable and (iii) insurer risk-adjustment transfers.

The core result here does not require individuals to violate the legal mandate, although the paper has a good and sobering discussion of that topic as well.  The adverse selection here is occurring across plans of differing quality.  On the positive side, having everyone enrolled in the “least comprehensive” plan can be a plus rather than a minus, depending on your point of view.  On the negative side, the paper does not consider how suppliers might respond by limiting the quality of their network and making the least comprehensive plan even less useful.

For the pointer I thank Dan in Euroland.