Health Care Fantasies

A couple of articles today outlining how far apart from reality are the pro and con arguments for different possible reforms. This is going to matter at some point soon, if not now.

Socialized Medicine Has Won the Health Care Debate

The first article, by Sarah Jaffe published in The New Republic, suggests that “socialized” healthcare has won the policy debate. Citing opinion polls (for which all questions display a certain bias), the author claims that the American public favors government-run socialized medicine. (Here’s a good example of survey bias: “Do you favor free healthcare for all?” – How many No’s do you think that question elicits?)

Ms. Jaffe explains away Obamacare’s unpopularity with this, “What people don’t like are the inequities that still prevail in our health care system, not the fact that “government is too involved. …The law didn’t go too far for Americans to get behind. It didn’t go far enough. And while single-payer opponents continue to evoke rationed care, long lines and wait times, and other problems that supposedly plague England or Canada, the public seems well aware that the reality for many Americans is far worse.”

Really?

What’s more, what makes her think that government control removes inequalities rather than make them worse according to different selection criteria?

Finally, she proclaims, “This is now an American consensus. And if socialism is the medicine our system needs, the country is ready to embrace it—even by name.”

At no point does Ms. Jaffe discuss the associated costs, who is going to pay them, and what kind of trade-offs this will impose on citizens and taxpayers. This is an argument motivated by political ideology, not reality.

***

This brings us to the second article, by Sally Pipes in Investor’s Business Daily (this should give us a clue that Pipes actually plans to address money issues).

Sanders’ Single-Payer Fairy Tale

Ms. Pipes first gives us an indication of polling bias: “The idea is … enchanting ordinary Americans. Fifty-three percent support single payer, according to a June 2017 poll from the Kaiser Family Foundation. But this supposed support is a mirage. According to the same Kaiser poll, 62% would oppose single-payer if it gave the government too much power over health care. Sixty percent would reject it if it increased taxes.”

Sen. Sanders estimates that “Medicare for all” would cost an extra $14 trillion over 10 years, while the Urban Institute’s analysis of the plan puts the figure at $32 trillion. Our current annual health spending is $3.2 trillion, so Medicare at minimum would double that spending level, with no viable way to pay for it, with taxes or otherwise.

Medicare for the 65+ crowd is already a deficit buster, so the nation will not be affording such care for the entire population and promises to do so are a dangerous fantasy. We do know what will happen – the “free” care we expect will never be delivered and the politicians who sell such snake oil will be long gone.

The real problem with our health care debates is that they focus solely on distribution and not on the real problem, which is adequate supply. If no one is producing health care goods, what is there to distribute?

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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.

A Medical Doctor Weighs in on Health Care

ACA

This is a good quote speaking to the rationality of good health care as being based on the relationship between doctor and patient. Mark Sklar writing in the WSJ:

The patient should be the arbiter of the physician’s quality of care. Contrary to what our government may believe, the average American has the intellectual capacity to judge. To give people more control of their medical choices, we should move away from third-party payment. It may be more prudent to offer the public a high-deductible insurance plan with a tax-deductible medical savings account that people could use until the insurance deductible is reached. Members of the public thus would be spending their own health-care dollars and have an incentive to shop around for better value. This would encourage competition among providers and ultimately lower health-care costs.

By contrast, the Affordable Care Act’s plans for establishing “medical homes”—a team-based health-care delivery model—and accountability-care organizations will only add more bureaucracy and enrich the consultants and companies organizing these entities.

To improve quality, we need to unchain health-care providers from the bureaucracies that are strangling them fiscally and temporally. We can better control medical costs if we strengthen physicians’ relationships with their patients rather than with their computers.

A True Healthcare Market?

FeaturedImage

There are many small fixes that can help repair the market for healthcare and health insurance – a market that has been seriously distorted for the past 30+ years. This article hits on the basic principle that catastrophes need a functioning insurance market based on actuarial probabilities, but healthcare maintenance is something we all need to SAVE for. Health savings accounts are a necessary component that the ACA attempts to excise. Why?

From Barron’s:

Unmanaged Competition

By THOMAS G. DONLAN

Making health care into a real economy

A reader recently asked, “If the Affordable Care Act isn’t the answer, what is?” Another asked, “Do you really want a health-insurance system without government regulation?” These are fair questions. We have found problems with the new health-care law—both operational and philosophical—to be so compelling that even the status quo ante seems preferable, but we also have a better vision.

Neither a benevolent dictator nor an army of bureaucrats can create an ideal system that serves all possible buyers of health care and properly rewards all who provide it. Only independent individuals can operate in a market, deciding what to buy and what to sell, finding prices that clear the market.

But a market cannot work when third parties stand over the supplier and the customer to fix prices or supplies. So the first element of a good U.S. health-care system must be that all Americans must purchase their own health-insurance policy.

Unlike Obamacare, this mandate should leave lots of room for competition and choice.

Limited Choice

Nearly all health care in the U.S. is paid for by third parties—government, employers, insurance companies—who have neither the provider’s nor the customer’s interests at heart. Individual choice is deliberately limited for the convenience of the real payers.

So the second element of a good U.S. health-care system must be that the citizens must make choices for themselves. Price and scope of coverage are the consumers’ business, not their government’s.

Health insurance is too complicated to be left to policy makers, and if we have a real market, the business will be even more complicated because every insurance company—and new ones—will create more policies tailored to the consumers’ various preferences. In a free market for health insurance, we will have at least as many different styles of health insurance as there are flavors and prices of canned soup in the supermarket.

Insurance, like banking and other potential Ponzi schemes, does need government auditing and supervision, to ensure soundness but not to limit variety.

The current U.S. health-care system is parsimonious. Americans are fearfully aware that their health-insurance coverage may have holes and that they won’t know where the holes are until it’s too late. Some procedures may be excluded from coverage; some health-care providers won’t accept certain types of insurance. Hospitals and doctors do not compete on price; many don’t disclose their inflated official prices, except on the bills; few if any disclose the discounts they offer to the real payers.

Many doctors refuse to accept patients covered by the two biggest government programs, Medicare and Medicaid, both of which have arcane systems for setting what they will pay, regardless of providers’ billed prices.

On the other hand, the U.S. health-care system is not just parsimonious; it is also notoriously wasteful. Insurers, including the government Medicare plan, carefully define what services they will pay for and arrange with providers how much they will pay, but they do almost nothing to limit the number of allowable services they will pay for. Providers living under price fixing make it up on volume.

Plentiful Funds

We often hear that the health-care industry constitutes one-sixth of the U.S. economy, heading for 25% of the economy as the population ages. Less frequently are we reminded that the federal government’s taxpayers and lenders are already paying for half of health-care expenditures. Almost never does anyone note that the federal government’s per capita expenditures on health care for about half its citizens are enough to run a universal health-care system like that in the United Kingdom.

We should not want a government care system filled with problems like the U.K. system; the point is that the current U.S. health-care system already has more than enough money sloshing around to provide excellent care for all Americans.

So the third element of a good U.S. health-care system is to subject health-care to the discipline of consumer discretion.

David Goldhill, CEO of GSN, the cable-TV-network company, is the author of a terrific recent book on the American system: Catastrophic Care: How American Health Care Killed My Father—And How We Can Fix It. Most of the book is devoted to the ills of the current system, which Goldhill sums up as, “All of us are spending insane amounts of money, yet the system makes us feel like paupers.” The health-care industry has hardly any accountability to the customer, and thus it offers terrible service, high prices, limitations on supply of doctors and hospitals, excessive errors, underinvestment in information technology, and lack of coordinated care.

Readers will be encouraged to jettison the current payment systems and the current payers, perhaps to take up these reforms:

Market Power
  1. Employers should not be allowed to provide health insurance, and the federal government should provide direct subsidies only for low-income consumers.
  2. High-deductible catastrophic insurance should be encouraged, not limited. That would lower premiums so that citizens could create Medical Savings Accounts for most of their routine care. Those too poor for this system should receive government subsidies for their insurance premiums and their savings deposits, putting them on the same footing as other citizens when they choose their providers of health care and health insurance.
  3. Medical underwriting should be encouraged, not outlawed, with those who are uninsurable participating in assigned-risk pools subsidized by the federal government.
  4. There could also be a direct subsidy to providers, by which the government would pay a percentage of every bill for every payer with income less than the median income. The share should be significant but not so large that patients would lose their price sensitivity and their incentive to shop.

The essence of our health-care system has been to confuse everyone into thinking they have control without paying for it. In health care as in other things, if we pay for what we get, we may get what we pay for.

Ain’t That the Truth?

ACA

Pursuing the follies of social insurance.

Full article here.

The complexities of ObamaCare make it less likely to achieve its goals, but the broader point is that health-care reform didn’t have to be this morass. Liberals and conservatives agree on the two big problems in health care, an industry that accounts for 18% of GDP: that almost 50 million Americans don’t have health insurance, and that employer-provided coverage gives patients little incentive to monitor spending. Even if Americans want to control costs, they have almost no information to let them compare prices.

Both problems grew out of World War II wage and price controls. Companies got around wage controls by providing health insurance, which Washington has treated as an untaxable benefit ever since.

The result is that employees have been largely insulated from the costs of health care, most of which have been paid by employers. That means there is no functioning market. There is little transparency of pricing for medical services, devices or drugs. Pricing fluctuates wildly depending on whether the patient has insurance or what deal the insurer happened to cut with the provider.

Have you ever seen a price list in your doctor’s office or at a hospital? Probably not, except for services like laser eye surgery and elective plastic surgery, which aren’t covered by insurance. In these rare cases, there is price transparency and open competition.

As hospitals have merged to cope with the costs of increasingly complex regulation, competition has further diminished. This is a reminder of the truism that monopolies can only be sustained when government policy supports them.

Simpler reform would provide subsidies for the uninsured while encouraging transparency in health-care costs so that Americans can become better-informed consumers. That simpler approach, alas, is for a future government.

The Case for Obamacare

train wreckI couldn’t resist. The irony is just too rich. From the WSJ’s “Best of the Web” column:

Meet Brendan Mahoney, the young man who is saving ObamaCare. He’s 30 years old, a third-year law student at the University of Connecticut. He’s actually been insured for the past three years–in 2011 and 2012 through a $2,400-a-year school-sponsored health plan, and this year through “a high-deductible, low-premium plan that cost about $39 a month through a UnitedHealthcare subsidiary.” But he wanted to see what ObamaCare had to offer.

He tried logging in to the exchange’s website at 8:45 a.m. yesterday, which is impressive in itself. Most young people don’t get up that early. “He said the system could not verify his identity.” So he called the toll-free help line, whose operator also encountered computer trouble. “But then he logged on a second time, he said, and the system worked.”

“Once it got running, it was fast,” Mahoney tells the Courant. “It really made my day. It’s a lot like TurboTax.” He obtained insurance through ObamaCare. Now, he says, “if I get sick, I’ll definitely go to the doctor.” Even better, if he stays healthy, he won’t need to go to a doctor, and his premiums will support chronically ill policyholders on the wrong side of 40.

So, how much of a premium is strapping young Brendan Mahoney paying to help make ObamaCare work? Oops. The Courant reports that Mahoney “said that by filling out the application online, he discovered he was eligible for Medicaid. So, beginning next year, he won’t pay any premium at all.”

So the great success story of ObamaCare’s first day is the transformation of a future lawyer who was already paying for insurance into a welfare case.

Oh, this is not going to end well for us.

Good Quote

Holman Jenkins on health-care reform, from the WSJ:

ObamaCare, to be sure, was not reform—it was a piling on of subsidies that can only throw fuel on the fire of health-care inflation. Not even the usual mouthpieces pretend otherwise anymore.

But a society can’t give a subsidy to everybody for the same reason you can’t give a subsidy to yourself—you end up paying for your own subsidy and aren’t better off. In fact, you are worse off thanks to the administrative overhead involved in taking money away from you and giving it back to you.

You are also worse off because of the perverse incentives engendered by diverting yours and everyone’s health-care spending through a common pot.

These pathologies have undermined U.S. health care for two generations, and nothing has been solved, nothing has been fixed, due to ObamaCare.

It should be noted, finally, who is really rooting for the Affordable Care Act to be a train wreck: It’s people on the left, like L.A. Times columnist Michael Hiltzik, who anticipates that “glitches, loopholes and shortcomings” will lead to a single-payer system. It’s people like Sen. Harry Reid, whom Mr. Hiltzik quotes telling voters back in Nevada that ObamaCare is “far from having something that’s going to work forever.”

Our health-care wars still have a long way to run.

BTW, we still need reform…

Breaking News: Man Bites Dog!

Not really. But this incident got my attention as an even rarer occurrence. Witness rationality and reason applied to taxes and healthcare. Read on. And watch the video of the speech.

Ben Carson for President

The Johns Hopkins neurosurgeon has two big ideas for America.

Whether this weekend finds you blowing two feet of snow off the driveway or counting the hours until “Downton Abbey,” make time to watch the video of Dr. Ben Carson speaking to the White House prayer breakfast this week.

Seated in view to his right are Senator Jeff Sessions and President Obama. One doesn’t look happy. You know something’s coming when Dr. Carson says, “It’s not my intention to offend anyone. But it’s hard not to. The PC police are out in force everywhere.”

Dr. Carson tossed over the PC police years ago. Raised by a single mother in inner-city Detroit, he was as he tells it “a horrible student with a horrible temper.” Today he’s director of pediatric neurosurgery at Johns Hopkins and probably the most renowned specialist in his field.

Late in his talk he dropped two very un-PC ideas. The first is an unusual case for a flat tax: “What we need to do is come up with something simple. And when I pick up my Bible, you know what I see? I see the fairest individual in the universe, God, and he’s given us a system. It’s called a tithe.

“We don’t necessarily have to do 10% but it’s the principle. He didn’t say if your crops fail, don’t give me any tithe or if you have a bumper crop, give me triple tithe. So there must be something inherently fair about proportionality. You make $10 billion, you put in a billion. You make $10 you put in one. Of course you’ve got to get rid of the loopholes. Some people say, ‘Well that’s not fair because it doesn’t hurt the guy who made $10 billion as much as the guy who made 10.’ Where does it say you’ve got to hurt the guy? He just put a billion dollars in the pot. We don’t need to hurt him. It’s that kind of thinking that has resulted in 602 banks in the Cayman Islands. That money needs to be back here building our infrastructure and creating jobs.”

Not surprisingly, a practicing physician has un-PC thoughts on health care:

“Here’s my solution: When a person is born, give him a birth certificate, an electronic medical record, and a health savings account to which money can be contributed—pretax—from the time you’re born ’til the time you die. If you die, you can pass it on to your family members, and there’s nobody talking about death panels. We can make contributions for people who are indigent. Instead of sending all this money to some bureaucracy, let’s put it in their HSAs. Now they have some control over their own health care. And very quickly they’re going to learn how to be responsible.” [Editor’s Note: there is absolutely only one way we can fulfill our demands for healthcare over the full course of our lives – by saving for it. HSAs and the correct tax treatment can help us do this. It isn’t rocket science, folks. 85-90% of our healthcare needs can be met this way. Insurance and public subsidies can then manage the remaining unpredictable contingencies, like pre-existing conditions. BTW, death is not a pre-existing condition, it’s more certain than the ACA tax!]

The Johns Hopkins neurosurgeon may not be politically correct, but he’s closer to correct than we’ve heard in years.

The Lessons of Universal Healthcare in America

The unfolding legacy of RomneyCare. Evidence from the state of Massachusetts:

Health care was 23% of the state fisc in 2000, and 25% in 2006, but it has climbed to 41% for 2013. On current trend it will roll past 50% around 2020—and that best case scenario assumes [Governor] Patrick’s price controls work as planned. (They won’t.) In real terms the state’s annual health-care budget is 15% larger than it was in 2007, while transportation has plunged by 22%, public safety by 17% and education by 7%. Today Massachusetts spends less on roads, police and schools after adjusting for inflation than it did in 2007.

The Unforeseen Entitlement Crisis

The alternative is not a pretty future. It’s a future in which older people receive Social Security checks but still go hungry, in which Medicare is a paper entitlement because doctors and hospitals can’t be found to provide services for what Medicare is willing to pay.

We’ve explained before on these pages how the crucial issue in healthcare is not only making it affordable, it’s making it available. In economic terms it means we have not only the effective demand issue of paying for it, but a supply challenge of producing the goods and services demanded. Thus, healthcare can only be provided where supply intersects demand at the right price. Accurate price signals are the only way to coordinate this market process – there is no other proven method in the history of civilization. Unfortunately, the ACA disregards this simple truth. So, are you voting for solutions, or for more of the same failed promises?

From the WSJ:

Robots to the Rescue?

The flip side of an entitlements crisis is a labor shortage.

By HOLMAN W. JENKINS, JR.

In 1999, a golfer named Payne Stewart and crew were rendered unconscious by a loss of cabin pressure and their private jet crashed when it ran out of fuel. What does this have to do with the fiscal cliff? Read on.

Even in 1999, one could puzzle over why controllers on the ground couldn’t take command of a plane and bring it down safely. Technology certainly existed to make such a thing possible. Yet today we’re skipping right past pilotless airliners in anticipation of self-driving cars.

Why? Because we’re old. Technological innovation is less miraculous than it seems: It responds to need, and we’re an aging country with more people who need help and fewer people to do the helping, including driving us around.

All this was once foreseen by Alan Greenspan, the Federal Reserve chairman in the 1990s, who pointed out a corollary to the giant unfunded long-term liabilities of Social Security and Medicare. Not only does an aging population mean fewer workers to pay for the oldsters’ benefits. It means fewer workers to actually produce the goods and services that idle oldsters will want to consume. The corollary to an entitlement-spending crisis is, by definition, a labor shortage.

Robots are coming because robots are needed. In 2013, we can already see the appetite in the transportation sector. Aviation analyst Kit Darby figures the industry will need 65,000 new pilots in the next eight years to cover expected retirements. One reason for the millions Google has been spending to develop a driverless car is to meet anticipated market demand from America’s growing elderly population.

Or take another example, arising in Baltimore, where a local entrepreneur, following the logic of need, invested seven years and $30 million developing a robotic system for packaging prescription drugs for long-term patients in nursing homes and hospitals.

In a conversation last year, inventor Michael Bronfein told me if he’d known what it would cost him in time and money, he might never have started. How many entrepreneurs say the same? Probably all of them. But Mr. Bronfein saw a need and the power of technology to meet it, and the result was the Paxit automated medication dispensing system.

He saw workers spending hours under the old system sticking pills in monthly blister packs known as “bingo cards,” a process expensive and error-prone. He saw nurses on the receiving end then spending time to pluck the pills out of blister packs and into paper cups, to create the proper daily drug regimen for each patient. (By one study, the 40 million Americans over 65 take an average of eight drugs a day.)

He saw that the bingo-card system was not just wasteful of labor. When a patient died or was moved to a new facility or had his prescription changed, a month’s worth of drugs might have to be thrown out too.

He followed the economic logic that indicated that all the people involved in the old system were becoming too valuable to have their time wasted by the old system. Backed by his company, Remedi SeniorCare, Paxit—in which a robot packages, labels and dispatches a daily round of medicines for each patient—is spreading across the mid-Atlantic and Midwest and winning plaudits from medical-care providers.

Writ small here is an answer to our entitlement morass, when more of us will be living off our savings (or transfers) and fewer of us will be contributing our labor to society. Robots aren’t the only solution. We will still need better incentives for younger baby boomers to save for their own retirement and depend less on Uncle Sam. We still need better incentives for Americans of all ages to supply labor rather than leaving it to someone else to be productive (which means revisiting our massive expansion of unemployment and disability subsidies over the past four years).

We need to preserve the incentive for investors to bring us the robots that will make the future bearable, rather than burying entrepreneurs in taxes in a vain attempt to seize the returns of investments before those investments are made.

None of these matters, of course, has been allowed to intrude in the empty theatrics that President Obama, primarily responsible, has ordained should be the substance of the fiscal-cliff war. But even from the perspective of the fiscal cliff, let’s welcome the new year by envisioning a future that won’t be so bad, where modest entitlement reform and proper incentives for robot builders will save us from the Soylent Green solution to an aging society.

Make no mistake: The alternative is not a pretty future. It’s a future in which older people receive Social Security checks but still go hungry, in which Medicare is a paper entitlement because doctors and hospitals can’t be found to provide services for what Medicare is willing to pay. If we weren’t still in a New Year’s mood, we’d say the latter future is the more likely one.