Healthcare Mythologies

First, I will disclose I am no expert on the health care industry, but I am somewhat of an expert on finance theory applied to risk management and insurance pooling. The political healthcare debate is so disconcerting that it’s impossible to sit by and watch without trying to inject some reason. Sorry.

We need health care reform, we’ve needed it for about 20 years now, but it matters what kind of reform we get. Here are two excerpts from recent articles written by Stephen Moore of the Heritage Foundation and Holman Jenkins Jr. of the WSJ that illustrate some of the uncomfortable truths.

First, we need to deal with some reality concerning the Affordable Care Act, aka ObamaCare:

Almost every promise made eight years ago about ObamaCare turned out to be a falsehood. You couldn’t keep your insurance plan, doctor or provider in many cases. It didn’t save $2,500 per family (more like $2,500 more). It didn’t lead to expanded patient choice. And the tax increases badly hurt the economy and jobs market, and the insurance markets really have entered a death spiral that if left unfixed will blow-up the entire insurance market.

The fundamental lie of ObamaCare is revealed in the law’s very title: The Affordable Care Act. Democrats and Barack Obama can sing the praises of this law until the cows come home, but no one with a straight face can say that it has made healthcare more “affordable” — except the millions whom we gave coverage to for free.

So, unless one believes in the “economics of free,” we’ve got a problem here and it’s written into the faulty logic of the plan.

Second, the way out of this quagmire is not going to be led by Bernie Sanders doubling and quadrupling down on “free.” Mr. Jenkins speaks an inconvenient truth:

Down this road [of reform] lies hope that Americans will stop channeling extravagant gobs of their income to the medical-industrial complex. Down this road Medicare could be rethought, perhaps with rational Democrats lending a hand. We know these things will have to happen anyway. Otherwise the country is bankrupt.

P.S. Don’t kid yourself that Democrats have a plan other than blindly defending more and more subsidies for more and more health-care consumers. Single-payer is not a plan. It’s an invitation for the health-care industry—doctors, hospitals, the research establishment—simply to turn their full attention to serving the self-paying rich.

So, as far as I can see, the AHCA is not perfect, but it is a step in the right direction. Do I believe this because I’m partisan? No. A healthcare market can only function to deliver a high-quality, affordable product if there is an abundant supply to meet the desired need/demand. Only a functioning consumer-product market can provide that supply at an efficient price. Yes, we need a safety net for pre-existing conditions and we need to save more for future medical needs. We’ll only be able to do that if we give up the fantasy that health care is a right to be provided “free” from the government.

Lastly, in economics we learn that everything in life is a trade-off. We need to figure out what kinds of trade-offs we want to make, individually and as a society.

Fixing Healthcare Distortions

rube

The first step is, the American public must understand that there is an alternative. Stand up and demand it.

This quote is excerpted from a great article in the WSJ by economist John Chochrane explaining the health market problem. Just realize that any time someone tells you the open, competitive (free) market doesn’t work, they are blowing smoke out their %#$.

The U.S. health-care market is dysfunctional. Obscure prices and $500 Band-Aids are legendary. The reason is simple: Health care and health insurance are strongly protected from competition. There are explicit barriers to entry, for example the laws in many states that require a “certificate of need” before one can build a new hospital. Regulatory compliance costs, approvals, nonprofit status, restrictions on foreign doctors and nurses, limits on medical residencies, and many more barriers keep prices up and competitors out. Hospitals whose main clients are uncompetitive insurers and the government cannot innovate and provide efficient cash service.

We need to permit the Southwest Airlines, Wal-Mart, Amazon.com and Apples of the world to bring to health care the same dramatic improvements in price, quality, variety, technology and efficiency that they brought to air travel, retail and electronics. We’ll know we are there when prices are on hospital websites, cash customers get discounts, and new hospitals and insurers swamp your inbox with attractive offers and great service.

The Affordable Care Act bets instead that more regulation, price controls, effectiveness panels, and “accountable care” organizations will force efficiency, innovation, quality and service from the top down. Has this ever worked?

It is unfortunate to say, but my impression is that a functioning healthcare market is not really what our national politicians want, at least not the statists calling for government-controlled healthcare. Instead they focus on dominating national politics by obliterating the opposition party. They can accomplish this if they can bind voters to government entitlements through dependency: “Vote for us or lose your benefits!” Without a viable opposition, single party government can then do what it wants according to their own interests, but ostensibly for the “good” of the people.

This has actually worked for the politicians of many socialist societies, until economic reality blows up the machine. (For a good case of how this is working in capitalist America see Detroit and Chicago…) The only thing that stops this is a voting majority that realizes we never receive something from government (ourselves) for “free.”

Only The Tip of the Iceberg

ACA costs

It seems too easy to pick on Obamacare these days, but a careful review of the warnings by informed market analysts on what the ACA would mean for the healthcare system shows they were well articulated and the results are now coming to pass. This is an excerpt from an article today by economist Michael Boskin printed in the WSJ: ObamaCare’s Troubles Are Only Beginning.

BTW, this can be fixed by applying what we know about competitive private markets. It will not be fixed by trying to circumvent these markets with bureaucratic laws and technocratic engineering.

The repeated assertions by the law’s supporters that nobody but the rich would be worse off was based on a beyond-implausible claim that one could expand by millions the number of people with health insurance, lower health-care costs without rationing, and improve quality. [Blogger note: This was naive wishful thinking at best and otherwise deliberate deceit.] The reality is that any squeezing of insurance-company profits, or reduction in uncompensated emergency-room care amounts to a tiny fraction of the trillions of dollars extracted from those people overpaying for insurance, or redistributed from taxpayers.

The Affordable Care Act’s disastrous debut sent the president’s approval ratings into a tailspin and congressional Democrats in competitive districts fleeing for cover. If the law’s continuing unpopularity enables Republicans to regain the Senate in 2014, the president will be forced to veto repeated attempts to repeal the law or to negotiate major changes.

The risk of a complete repeal if a Republican takes the White House in 2016 will put enormous pressure on Democratic candidates—and on Republicans—to articulate a compelling alternative to the cost and coverage problems that beset health care. A good start would be sliding-scale subsidies to help people buy a low-cost catastrophic plan, purchasable across state lines, equalized tax treatment of those buying insurance on their own with those on employer plans, and expanded high-risk pools.

Rube Goldberg Rides Again

rube

We don’t need to malign the good intentions of those who delivered the ACA to us as we’ve needed serious, honest healthcare reform for at least a generation. But it’s our sad fate to cobble together a system that tries to re-engineer human behavior by creating a better “exchange market” for the production and distribution of an essential good. This is akin to trying to improve on Mother Nature, an experiment that has been tried and failed on a much more catastrophic scale than national healthcare. The sadness relates to the fact that none of this is or was necessary, but it does reflect the incredible hubris of the technocratic mindset. It seems we always choose to learn these simple truths the hard way and being able to say “I told you so,” will offer little consolation to anyone.

From the WSJ:

1-800-ObamaCare-Denial

Website problems don’t matter when your intentions are good.

‘More than a website” is the latest defense of the Affordable Care Act’s painful rollout, and liberals are partly right. ObamaCare has larger ambitions than the basket case called Healthcare.gov and the 36 federally run insurance exchanges.But building the website was supposed to be the easy part. The health law’s fiasco of a debut doesn’t inspire confidence in those other ambitions, such as re-engineering how U.S. medicine is provided, but it does help explain the modern liberal project.

The White House pitched President Obama’s Rose Garden event on Monday as a new transparency, but the event amounted to an infomercial, complete with a 1-800 number. Operators are standing by and “the product is good,” the President said. He even encouraged Americans to bypass the website and apply for benefits over the phone or by mail.

Too bad this infomercial lacked tangible information. Mr. Obama might have explained what went wrong, and why, and where the buck stops, or if there is even a provisional timetable for when the exchanges will function properly. Instead he minimized the severity of the problems, perhaps for political reasons. Or maybe he didn’t say because the defects are so deep that no one can identify the specific solutions.

By the way, we called the hotline on Monday and the automated menu redirected us to Healthcare.gov, which in turn told us to get in touch with someone at the call center.

In an era where Google is making self-driving cars and Amazon offers next-day delivery for just about anything, the White House plunged ahead with a system it knew to be defective and is relying on the technology of the 19th century as the fall-back. Five days before the exchanges launched, the Health and Human Services Department increased the Virginia information technology company Serco’s $114 million contract by $87 million—to help process paper applications. Are contingency plans in place to sign up via telegraph?

The consequences of this mismanagement go beyond the technical. Mr. Obama bragged that millions of people are using the website and many (he didn’t say how many) are signing up for coverage. But this overlooks that no one knows what the risk profiles on the exchanges will look like.

The danger is that those who manage to enroll will mainly be the most expensive patients. Younger and healthier patients who don’t need ObamaCare will have to cross-subsidize the sick and old or else the premiums won’t cover the cost of claims. So the 36 malfunctioning exchanges could take an entire market down with them.

Insurance companies are also already sending out notices to millions of consumers cancelling individual policies because they are non-compliant with ObamaCare’s new mandates. Kaiser Health News, usually a cheerleader for the law, reports that “Florida Blue, for example, is terminating about 300,000 policies, about 80 percent of its individual policies in the state.” Kaiser Permanente in California has sent notices to 160,000 people, Highmark in Pittsburgh is dropping about 20% of its individual market customers, and Independence Blue Cross of Philadelphia is dropping about 45%.

Remember when Mr. Obama said you could keep your policy if you liked it?

The White House could have asked Congress for a delay to get the exchanges right and avoid this debacle. Liberals claim to be in favor of “what works and what doesn’t,” as Mr. Obama likes to say, and the exchanges clearly belong to the latter category.

But the exchanges fiasco is revealing the larger truth that ObamaCare’s claim to technocratic expertise was always a political con. It won over the New Yorker and made ObamaCare designer Peter Orszag a celebrity. But it was all a veneer for ObamaCare’s real goal, which is to centralize political control over health care.

That false front is clear now as we are told to ignore the faulty rollout because it will get fixed, eventually, and in any case the law is really about reducing inequality. At least now Democrats are being honest. The actual results will always matter less to liberals than their good intentions and expanding the reach of government.

In a blog post over the weekend, the Health and Human Services Department sought to assure Americans that “Our team is bringing in some of the best and brightest from both inside and outside government to scrub in with the team and help improve HealthCare.gov.” HHS won’t even disclose who these ringers are. Just wait until the Independent Payment Advisory Board gets up and running and starts to review individual medical treatments without explaining its data or the reasons for its decisions.

Mr. Obama did identify one culprit on Monday—naturally, the Republicans who he claimed somehow sabotaged Healthcare.gov despite having nothing to do with its development. “I just want to remind everybody, we did not wage this long and contentious battle just around a website,” he said. Yes, and that’s what should really scare the public.