Category Archives: Government vs Markets
Part 1: Even a Blind Pig Finds an Occasional Truffle
I’ve made no secret of my disdain for the Patient Protection and Affordable Care Act (ACA), the new health reform law. It is a bad bill that focuses the wrong “solutions” on the wrong problems and promises to visit unnecessary economic distress and destruction on America’s providers, consumers, taxpayers, and insurers. Even the IRS is protesting.
Yet, rather than continue to bash it, I’ve taken my summer hiatus from writing this blog to focus on a more constructive approach. The law is a fact we have to deal with, and despite a lot of talk about a subsequent Congress overturning it, I’ve concluded such an action to be both unlikely and unwise. The opposition has nothing better on the table and the ACA situation is actually far from hopeless. The focus needs to be on repairing, not revoking it.
As the Democrats and GOP leaders prepare to meet with the President at the February 25 health summit, the Republicans have a big problem. They don’t have a plan. While demanding a clean-slate do-over from the Democrats, all they have to offer in return is a grab-bag of simplistic, ineffective remedies that won’t fix the problems of our unsustainable health care system. They lack the vision thing. They need to recognize the market failure at the root of the system’s dysfunction and to propose the following actions to fix it. (Note: Hyperlinks provide additional discussion for those wanting to delve further.)
First, let’s agree on our ultimate goals. Neither party has done this. Here they are:
1. Access to affordable health insurance for all Americans
2. Sustainable medical care affordability and value
3. Free-rider prevention that allows universally available insurance to work
4. Voluntary participation with no individual or employer mandates
5. Financial protection against unaffordable, medically necessary care
6. Individual choice of insurers, providers, and treatments
7. Portability of coverage regardless of employment or government assistance
8. Effective prevention of chronic diseases that now consume 75% of total medical costs
Scott Brown won the Massachusetts senate race by promising to derail the Democrats’ congressional health reform locomotive, a victory that has also thrust his biggest supporter, Mitt Romney, back into the national spotlight. The irony is that, as state senator, Brown helped pass then-Governor Romney’s remarkably similar 2006 state health overhaul. Despite Mr. Romney’s statement at the time that “Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced,” his RomneyCare milestone threatens to become a politically costly millstone for his 2012 presidential prospects—or so says Kimberley Strassel of the Wall Street Journal.
The Massachusetts program has used the carrot of generous premium subsidies and the stick of mandated individual coverage to reduce its uninsured population from about 10% pre-reform to 5.1% (Census Bureau estimate) or 2.6% (Massachusetts estimate) last year. Unfortunately, it has failed to contain costs, with insurance premiums continuing to increase considerably faster than the CPI.
Cable news is jammed with horrific stories of widespread destruction and disarray caused by an unpredictable calamity that struck with sudden, unstoppable force, thrusting many who were already sorely beleaguered into chaos and desperate disarray. Hurried rescue missions failed to prevent widespread pain and suffering. Such is life for the Democrats following the Massachusetts special election. Tip O’Neill was misquoted. All politics is loco. The big question now is whether the Mass. disaster presages a mass disaster for the Dems come November.
Health-reform bookmakers currently favor the Senate bill over the House version as bicameral, unipartisan, unconference-committee participants conspire in a C-Span-free White House to extrude their secret sausage. One of many unfortunate consequences of the Senate bill—according to a new report from the government’s own Center for Medicare and Medicaid Services (CMS)—is likely to be a significant shrinkage in the ranks of medical providers willing or able to treat Medicare patients. The Senate’s proposal to insure the uninsured would require Medicare benefit cuts of $541 billion to pay the lion’s share of health reform’s $882 billion ten-year cost. CMS projects that fully 20% of doctors and hospitals participating in Medicare’s Part A inpatient benefit program will become unprofitable as a result. According to CMS’ chief actuary Richard Foster, “Providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries).”
Death is an unavoidable theme this time of year. Having just celebrated a great religious martyr, we move on to witness last January’s swaddled babe transformed into an ancient, arthritic geezer doomed to die at Thursday’s midnight toll. We ponder the lives of those who’ve passed this past twelvemonth—whether near, dear, or merely famous. And stories like the New York Times’ “Hard Choice for a Comfortable Death: Sedation” challenge us to ponder the process of dying itself. Such is the end of the year and a troubled decade.
Hence comes to mind “Life-Line,” the great Robert A. Heinlein’s first published science-fiction story (1939). In it, the ingenious Professor Pinero invented an apparatus that accurately predicted the exact moment of any person’s death. Although many of Heinlein’s speculative musings later came to pass (waterbeds, rail guns, travel to the moon), this one, thankfully, did not. Such a device (doubtless following a hideously expensive and lengthy FDA-approval process) would cause no end of mischief, including cutting billions from medical costs by simply denying care to people about to die.
WE DON’T NEED AN INDIVIDUAL MANDATE TO BUY HEALTH INSURANCE: PART 2 – WHAT THE SENATE AND HOUSE BILLS MISS
People will game any economic system for their own benefit—whether medical care or anything else. It is this characteristic human behavior that makes markets thrive while assuring that no alternative, centrally-controlled mechanism will ever match markets’ ability to optimize the creation and distribution of economic goods. The necessary rules and top-down decisions that govern centralized systems can never be sufficiently detailed or flexible to match markets’ indescribably complex and dynamic interactions among millions of consumers, producers, and intermediaries—each gaming the system for his own advantage. No one really understands why this emergent property of human behavior works, but it does.
Thus, we should always seek minimally regulated market solutions for creating and distributing economic goods, even—or especially—in the presence of market failure. Accordingly, enacting health reform to correct the health insurance market failure requires setting up a new regulatory and safety-net framework that reforms the system to allow everyone to purchase (or not) affordable individual insurance while preventing people from killing the market with free-riding adverse selection.
A key requirement of the House and Senate health reform bills is that all Americans without employer or government coverage must purchase health coverage through a new insurance exchange. The reason is to avoid the ravages of “adverse selection” by “free-riders” who wait until they get sick to buy insurance and thereby bankrupt the system. This free-rider problem is at the heart of the market failure I’ve written about that prevents universal access to necessary, affordable health insurance.
In effect, insurance mandates are a required license to breathe. The often heard argument-by-analogy is that it’s no big deal, because we already require drivers to buy auto liability insurance. But driving is a privilege subject to reasonable public safety regulation and comes with the right to abstain—as 100,000,000 non-driving Americans do. Everyone breathes. Also, mandatory auto insurance is to protect the victims of drivers’ mistakes, not the drivers themselves. Car insurance mandates aren’t just irrelevant but also ineffective—14.6% of drivers still don’t buy it (similar to the 15.3% who lack health insurance).
The raging health reform debate on the public option has sucked all the air out of the room on the central question that we should be addressing: How can we fix the insurance market failure that prevents everyone from buying affordable health insurance that covers all medically necessary, otherwise unaffordable care?
The current House and Senate health reform bills try to accomplish something like this by creating an insurance exchange that allows the uninsured to buy coverage (and by expanding Medicaid). But they do nothing to correct the overwhelmingly dominant employer- and government-based programs that constitute the real looming train wreck.
In theory, an exchange or similar mechanism that allows universal insurance access is not just a good idea, but an essential one. But it must be open to everyone, regardless of employment status or eligibility for government coverage. Properly structured, it can be the critical component for achieving an effective, sustainable health insurance and medical care delivery system. Neither of the shortsighted, overreaching congressional bills will yield this result.
THE PROPER ROLE OF GOVERNMENT IN HEALTH CARE REFORM – PART 3: HOW REGULATED CONSUMER MARKETS WILL SUCCEED
In Part 1, I describe the market failure that has caused all the major problems in our dysfunctional health care system. Part 2 recommends straightforward government regulatory reforms that will correct this failure. Now, Part 3 describes how these market reforms will allow all Americans—finally and sustainably—to get their necessary health insurance and high-quality medical care at less than half of today’s cost. This is not deregulation of health care, but enlightened re-regulation to correct a fundamental market failure that the government and economists have ignored for decades.
The key action is to place America’s consumers firmly in charge with the money and the authority to make their own purchase decisions from insurers and medical providers that will be forced to actively compete with better value—higher quality, better customer service, and lower cost. This also makes consumers responsible for living healthy lives or else paying higher premiums if they don’t.