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.

The Road to Hell is Paved

road to hell

This is a good article explaining a basic economic concept without once mentioning the word economics…from the WSJ:

ObamaCare and the Good Intentions Paving Co.

Perhaps you’ve noticed that the great plans of politicians tend not to work out as promised.

By Joseph Epstein

I opened my mail recently to discover that my already expensive supplemental health-insurance policy—for which I pay nearly $12,000 a year—has gone up roughly another thousand dollars. “Ah,” I thought, “the Good Intentions Paving Co. has come to my door at last.”

I first heard the phrase “Good Intentions Paving Co.” from the lips of Saul Bellow, though I cannot recall to what exactly he applied it. I don’t know that Bellow invented the term, but since his death in 2005 I have taken it up and found nearly endless uses for it. The phrase derives of course from the proverb holding that the road to hell is paved with good intentions.

ObamaCare is a nearly perfect example of the Good Intentions Paving Co. at work. A president and the leadership of his party decide that it would be a fine thing to bring universal health insurance to the nation—what a sweet notion, really—except when they enact the law it turns out to bring in its trail confusion, anxiety, probable loss of employment, added personal and public expense, and aggravation all round.

One might think the board of directors of the Good Intentions Paving Co. are all liberals, but they are not. One of the firm’s most impressive undertakings was hatched in the Oval Office among George W. Bush, Dick Cheney and Donald Rumsfeld. Why not, they decided, knock off a wretched tyrant and bring democracy to a Middle Eastern country and thereby stabilize the region—all in one bold action? Tens of thousands of violent deaths and many billions of dollars later, with car bombs regularly exploding in downtown Baghdad, and with Sunni and Shiite hatred not in the least abated, the Good Intentions Paving Co. deserves to take another bow.

The Good Intentions Paving Co. has a highly efficient public-relations department, which is especially good at giving its projects promising titles. Consider affirmative action. The firm’s executives who put that intention into play thought that by lowering college-admission standards for members of minorities, injustices would be redressed and the climb to equality secured. How could the Good Intentions executives have known that colleges would in turn lower their academic standards?

Now the American university, at least on the humanities and social-sciences side, is mired in the deepening mediocrity brought on by the establishment of departments for African-American studies, women’s studies, “queer theory”—everything but a Department of Homelessness.

Leave a child behind? Perish the thought. Or so the folks in charge of education at the Good Intentions Paving Co. must have concluded when they instituted their No Child Left Behind program. The program would entail constant testing, would hold the feet of teachers to the fire of palpable achievement, would bring everyone through the primary-grades educational system up to the mark. How bad could that be?

Yet again, though, good intentions went askew. The children were educated chiefly to take tests, some school superintendents cheated in reporting their schools’ test scores, the teachers unions went ballistic over what they felt were the impossible demands made upon their members. The plan of the Good Intentions Paving Co. once more didn’t quite pan out.

The company’s activities are not restricted to America. Its first big project in the past century was the Russian Revolution. The Good Intentions Paving Co.’s prospectus promised freedom for all, economic equality that would allow each citizen fulfillment of his needs, the permanent shutting down of class conflict with the rise of the dictatorship of the proletariat. Didn’t, you will have noticed, quite work out. Instead, the Russian people endured an unrelieved seven-decade nightmare under a series of repressive, mass-murdering Communist regimes. None of this, though, caused the stock of the Good Intentions Paving Co. to lose a point.

Only because it encourages—one might even say incites—feelings of virtue in those who are swept up by its projects does the Good Intentions Paving Co. stay in business. Meaning well, after all, ought to count for something. Unfortunately, when it comes to public policy, good intentions are only slightly better than bad intentions, and not always even that. The reason is that the Good Intentions Paving Co. has never been greatly interested in side effects, in the collateral damage that good intentions so often bring with them. Nor has the firm’s record been notable for taking into account human nature, with its obstinate refusal to obey the dreams of politicians, however alluring they may seem.

The Good Intentions Paving Co. is unlikely ever to be put completely out of business, but one must do what one can to slow its progress. A good place to start may be when making a New Year’s resolution for 2014, vow to resist the firm’s newest projects and policies, however warm and fuzzy they might appear. For instance, President Obama seems to have his heart set on raising the minimum wage. Sounds nice. Surely a step in the right direction. The boys at the Good Intentions Paving Co. are behind it all the way, which is reason enough to believe that it will affect hiring practices in the most deleterious way and cause who knows what other damage.

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.”

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.

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.

The Punch and Judy Show

Punch

The recent default show-down was pure political theater. We take sides and condone this at our own peril, while serious issues loom over the long-term health of our society. This excerpt is from Thomas Donlan in this week’s Barrons:

If journalists can be the fourth estate of representative government by chattering about the official executive, legislative, and judicial estates, investors must be members of the fifth estate. Their opinions, expressed in bids to buy and offers to sell rather than in narrative, also send important information to the whole system about value and financial stability.

So what did the fifth estate say about the government’s financial crisis last week, and the week before, and the week before that? Not much.

They were right. The whole thing was a Punch-and-Judy show, making farce out of genuine political conflict. It was default theater, as meaningless as the security theater that’s on continuous display in our airports.

….

The important result of the two-week government shutdown has been to take away another bit of Americans’ confidence in government and respect for their leaders. Most Main Streeters were like Wall Streeters, going about their other business with barely a glance at the televised theatrics in Washington. To a large extent, this is healthy.

The people have come to believe, on evidence that is all too good and repeated all too often, that Punch and Judy are both operated by the same hidden puppeteer, who goes by the title professional politician. The politicians’ fights are not real; they are staged to shock and horrify a childish audience.

The October show was just an insignificant preliminary exhibition, anyway. The championship event will come when the entitlements go bust, maybe decades from now. When the people learn that the government has been kidding them about their rights to Social Security, health care, and other public benefits, they also will find that those programs are overstretching the resources of half the country to support the other half.

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.

Ain’t That the Truth?

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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.

Notable and Quotable

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Notable quote:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. . . . Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

-Senator Barack Obama, 2006.

Americans deserve better. I wholeheartedly agree.