I have not read the Senate “health care” bill, but from the various summaries around the web, I am confident that Barack Obama is exactly correct in his pronouncement that this is not a health care bill. Republicans seem to be supporting the bill because it stems the tide of income redistribution and Democrats seem to be opposing it for the same reason.
But a health care bill that does nothing but change the distribution of income is (again in Obama’s words) not a health care bill. It’s an income redistribution bill, and a fairly stupid one at that. If you want either more or less redistribution, the way to do that is to adjust taxes on rich people and payments to poor people, not to muck around with the health care system.
On the other hand, if your goal is to make the health care system more efficient, then you’ll want a health care bill. What would it take to make the health care system more efficient? For one thing, it would require making people less reliant on insurance and more reliant on their own savings (probably in the form of Flexible Saving Accounts and Health Saving Accounts) so that their choices are constrained by an awareness of costs. This Senate bill, it seems, does absolutely nothing to address those issues. In fact, from what I’ve read, it leaves in place the tax deduction for employer-provided insurance (thereby continuing to incentivize people to buy too much insurance) and (at least according to some news articles) adds new taxes on Health Savings Accounts (thereby incentivizing people to rely even more on insurance). If we’re supposed to be marching toward more efficient health care, this sounds like a step backward, not forward.
Here’s what’s wrong with the health care system: A friend of mine recently fell, and had quite a bit of chest pain afterward. I took her to the emergency room where they examined her, declared that this was almost surely a bruise that would fade over time, and then suggested that she spend a couple of hours attached to a heart monitor “just to be sure”. We almost left, because we didn’t want to spend the couple of hours, which tells you that on balance (accounting for potential health benefits minus time) we considered the monitoring to be worth roughly zero. Nevertheless, with the encouragement of the staff, we sat there for two hours, hogging space, equipment and medical attention that would probably have been far better directed elsewhere. If we’d been asked to pay for that space, equipment and medical attention, we’d surely have done the socially responsible thing and left. Now multiply that by millions upon millions of patients demanding more and more care because their insurance is paying for it.
You can’t fix the health care system without fixing that. The Republicans control both houses of Congress, and we have a President who, for all his unpredictability, would probably sign anything he could sell as “repealing ObamaCare”. There are good detailed health care bills already written and ready to go. Here’s one for example. If we can’t get a bill like that through under these conditions, I expect we’ll never get one. In the eloquent words of the President who has done exactly nothing to prod the Congress toward true reform: “Sad!”.
“… with the encouragement of the staff, we sat there for two hours, hogging space, equipment and medical attention that would probably have been far better directed elsewhere. If we’d been asked to pay… we’d surely have done the socially responsible thing and left.”
I don’t work in medicine, but couldn’t one argue that a doctor/nurse would have more knowledge about the hospital’s situation and an incentive to free up equipment if it was needed? If they were short-staffed, or if the personnel/equipment could be better used elsewhere, they’d be less likely to insist that a patient stays for a precaution. Surely, they’re not going to create more work for themselves.
Doesn’t adverse selection mean people end up with too little insurance (or at least some uninsured people willing to pay more than their marginal cost)? Doesn’t a subsidy like the tax deduction on employer provided coverage help correct that problem?
Cassidy-Collins also would have moved us in the direction you’re talking about, while allowzing for a natural experiment between states to test which way is better. Cassidy, Collins and Dean Heller alone could have gotten together and forced the leadership to take a long hard look at the much better plan they proposed. SAD!
You might want to read this article:
https://www.theguardian.com/us-news/2017/jun/24/united-states-healthcare-britain-insurance-confusing
Yes, there are cases where the current American scheme encourages over-consumption. There are equally cases where it encourages under-consumption and needless stress (and extra stress is something one doesn’t need when sick).
[BTW: you should have tried to find out *in advance* the likely cost of the “unnecessary” treatment. I’m willing to bet that you wouldn’t have got an answer — so, how could you have made a rational decision about the value of staying?]
Doesn’t a subsidy like the tax deduction on employer provided coverage help correct that problem?
Maybe if that were the only distortion. But the subsidy extends beyond insurance to “health care,” so it provides an incentive to cover even routine, predictable, and discretionary expenditures. The ACA also aggravates the adverse selection by penalizing the young and healthy by its “community pricing” requirements (though it tried unsuccessfully to counter that with the mandate).
The biggest problem with the Senate plan is that (as I understand it) it maintains the “no exclusion for pre-existing conditions” requirement. Health insurance can’t survive if people can wait till they’re sick to buy it. There has to be a separate pool.
My preference is for no Federal Government involvement in health insurance or delivering healthcare.
I would leave taking care of people who “can’t afford” healthcare to the States and private charity.
If you think think States and private charity will not provide enough help for people who “can’t afford” healthcare, my response is that, if so, that is the MESSAGE.
If I may presume to summarize: We sometimes need to say ‘No’, but telling voters that requires moral courage; the GOP is showing the same lack of moral courage in fixing Obamacare that the Democrats showed in passing it. Sad indeed.
@MWC 1
You need to consider the size of that incentive. I suggest it is very small. You need to consider other incentives at work. One simple one is social: some patients will take umbrage at being sent away. Another is financial. There are more.
But the main point is that the nurse still faces fewer of the costs and benefits the patient does. Two lost hours may matter a lot to Steve and his friend but not to me, or more to them on Tuesdays. The nurse knows none of this.
Robert (#6), you say
“I would leave taking care of people who “can’t afford” healthcare to the States and private charity.”
Why the states? If a larger government is worse at providing care, why not push for local governments to provide it? What makes the state so special to you as a health care provider?
My experience with GP’s leads me to believe that if the MD’s thought that you friend would pay directly they would recommend that you go home and not spend the money. Most MD’s are good people.
BTW I also think that most GP’s would shop around for their patents if if they knew you would pay and not an insurance company.
Regardless of how you’re incentivized, what was the your basis for making that decision?
At the time of your decision, you had only the information of the medical service provider to rely on.
Under a fee-for-service system, the medical service provider is incentivized to sell you as many services as possible and to justify that by giving you severely biased information.
You appear to think that this can be countered by financially incentivizing the patient to not listen to the service provider, but the problem is that the patient usually (as in this case) has no other solid information to rely upon for his decision than that provided by the obviously biased service provider.
This is not an efficient approach.
I mean – how do you know that staying and monitoring wasn’t the right thing to do?
Yes, the monitoring didn’t show anything. But how do you know that there wasn’t a 1:1000 chance of some terribly expensive or fatal complication that was eliminated?
You’re not a medical expert and if you’re financially forced (or incentivized) to make medical decisions AGAINST THE ADVICE OF YOUR DOCTOR that will, on average, produce less efficient results than a system where THE DOCTOR is appropriately incentivized to keep cost-efficiency in mind.
@ Josh #9
I believe for a program like Medicaid, many states implement the program. They get funding from the federal government.
Also, each state has its own insurance commissioner. Perhaps Robert #6 is suggesting that if you have a system where the states can make many rules for insurance, why not have the states fund those on their own.
Instead of a federal payroll deduction tax, you could have a state payroll deduction tax. Or a sales tax. Or a state could decide it doesn’t want to cover people who are poor to encourage them to move to a state that covers people who are poor.
Also, in regards to your question about what makes states so special, what makes them special is that the constitution makes them special and gives them powers that different folks interpret differently.
Cities and counties don’t have any powers under the Constitution.
I.e. people will argue what powers states should have under the constitution, but you don’t hear many people argue about what powers cities have under the Constitution.
I have to agree with what Steve is saying here. It’s a mess.
But, how can this mess realistically be dealt with? Citing to Representative Sessions’s bill doesn’t strike me as very practical because it involves a huge leap to a completely different system. That doesn’t seem politically possible; I don’t think we can get there from here. It also isn’t clear to me that there aren’t huge problems being glossed over by the proposal. In seems too theoretical to be trusted.
To my surprise, another approach is gaining traction that seems to be more reliable: look to the health insurance systems in other countries for guidance as to what is actually possible. I’ve seen Switzerland mentioned a few times as a useful way to think about thing. Here is one: http://www.nationalreview.com/article/448890/end-employer-based-health-plans.
This approach makes the issues much more concrete, at least for me, and it has the advantage that I don’t have to continuously ask myself “but would this actually work in the real world”. We know the Swiss system works (at least in the Swiss world, but our mileage may vary.
Republicans never wanted to truly repeal the Affordable Care Act.
Yes, they voted for it several times, but they did it, *knowing* it would not go anywhere.
They CAMPAIGNED on “repeal & replace”, but really and truly, they are wedded to big government solutions.
Why? Because the majority of voters want it. The majority of voters want freebees. The majority of voters want free stuff.
Voters want the stuff provided by the government, and somebody else pay for it. Democrats are on board, their ultimate goal is Canadian style single payer system (California may introduce one soon).
Republicans are on board as well, only, they don’t say so loudly.
It’s worth remembering that they are working within the rules of budget reconciliation — would the other bills being mentioned here (Sessions, Cassady-something) be passable under this process? If not we’re tilting at windmills.
I’m no expert on this stuff, but as I recall the House “longball” plan consisted of 3 rounds: reconciliation, deregulation, and I think a round that did include things like expanding HSAs. I agree it would be a big shame if the latter isn’t a feature of this overall process in some way.
However we describe these bills, they do at least represent a grown-up response to the mathematical fact that Medicaid cannot grow faster than GDP forever (Larry Lindsey recently wrote about this). And if nothing else, if the ACA was a large redistributive tax increase under the guise of a health care bill (how did it address either cost or quality issues again?), then what’s so illogical about undoing that as a starting point?
The problem is that the GOP has absolutely no mandate for doing that. GOP voters want more affordable healthcare for themselves, they don’t want to have higher healthcare costs/less coverage in order to fund someone else’s tax cuts.
Even among GOP voters, a majority wants HIGHER taxes on the wealthy, not lower taxes, and certainly not at their own expense.
Many people complain about unnecessary care, but a test or treatment which ends up being unnecessary in 999 patients might be lifesaving in one. It’s not that the test or treatment is worthless, it’s that we can’t tell who will benefit from it until after it’s performed.
Patients may blame information asymmetry and assume ulterior motives in their physicians, but in many cases, physicians can’t predict who will be helped by the tests or treatments either. If we have to spend two hours monitoring a thousand patients each with chest pain after a fall in order to save one, is that worth it?
What if it’s a treatment that can save two in ten, but can also cause uncomfortable side effects for one in ten? Are you willing to be one of the eight who takes the medication for the rest of your life, only to find out it never benefited you? That’s the type of limitation we’re working with in medicine, and these are the types of question we need to answer as a society before we can fix health care.
18: “Many people complain about unnecessary care, but a test or treatment which ends up being unnecessary in 999 patients might be lifesaving in one. It’s not that the test or treatment is worthless, it’s that we can’t tell who will benefit from it until after it’s performed.”
There are several problems here.
1. The test is suing up resources thus preventing other tests.
2. The money spent on the test might have been better spent on a brake check on Steve’s friends car. Might stave off a fatal collision.
3. Say, why don’t we check everyone’s brakes every day? Or twice a day to be safer.
4. Maybe that medical test should be repeated, right away. Tests DO give false positives, and sometimes are flawed. Can’t be too careful. Sure but a third retest that might be useless in 999999999 cases could prove vital in 1. If we can just ignore costs after all …
As an aside, you are wrong that we can’t predict, and you admit it when you predict a treatment will cure 20%. What you mean is that we cannot tell if a patient will be one of the lucky ones in advance. Indeed, and that is why we need a cost benefit analysis. There might be a pill to render me safe from spontaneous human combustion for the next 5 years, and I really have no desire to burst into flame, but I still want to know the price before I take it. But my blood pressure meds I take.
New proposal:
Universal insurance vouchers that autoenroll you in insurance policies that set a deductible equal to a certain percentage (5%-10% for example) of your lasts years income (which will be deducted in the year prior and returned to you at the end of the year if you don’t use it). The insurance could be administered by private companies or the government but heavily regulated. Everyone has skin in the game, we could eliminate Medicare and Medicaid, and there should be no disincentives to work since it is basically like a flat tax that gets returned to you if you don’t use it. Obviously to pay for the overages we’d need to raise taxes but wages should rise since no longer ties to employer.
Simple, fair, based on market principles. What do you guys think?
The problem with that approach is that private insurance is much more expensive than Medicare and Medicaid. The reason why Obamacare relied so heavily on the Medicaid expansion in the first place is that it’s so cost-efficient.
Advo,
Private insurance isn’t much more expensive than Medicare per service. I think Landburg is right in part that many private insurance policies written by employers over subsidize expenses. There might be other reasons Healthcare is so expensive (many forms of healthcare may be very inelastic such as cancer treatments). We also don’t have to do it through private insurers, but I think Republicans would be more likely to pass this universal healthcare system if private insurers were involved somehow. If the right regulations are in place on the industry (see switzerland) then it doesn’t have to be much more expensive than single payer smorgasbord healthcare, where probably too much is spent on very elestic treatments and too little on very inelestic treatments. I realize that we don’t achieve better health outcomes then the countries that do this but they also free ride off our innovation.
Advo 17 – they do have a mandate to help a lot of people lower their costs directly by removing the mandate penalty and not requiring them to purchase more insurance than they “need”. Lots of ‘hidden taxes’ in the ACA
Daniel 22 – thanks for making the point in comparing to other countries’ systems that they have the luxury of letting the US do much of the innovation heavy lifting. Huge free ride
Daniel 20 – I certainly like the disconnecting of insurance from employers, and a “refundable” deductible would seem to offer some of the benefits of HSAs. Not sure everyone would view basing the deductible on one’s income as “fair” (as opposed to factors actually related to resource cost). But I’m open to different ideas b/c the basic problem is at the end of the day, whatever ideologically pure system we might wish for we need some imperfect mechanism to deal with the incentive to wait until you’re sick – which destroys the concept of “insurance” — since we’re not really willing to let people bear the full consequences of such system gaming (or other behavioral choices, understanding that bad luck happens too). So maybe in the grand scheme of “eliminating Medicare and Medicaid” your plan would be an improvement.
Ken B 19 – the single best service this blog provides is the consistent reminder that resources are finite and every $1 spent one way is $1 less to be spent on something else of potentially greater value. This is a day one Econ 101 insight that seems to be easily forgotten but Steve manages continually to present it in original ways, like with his point a few posts back about how “asymmetric information” cuts in both directions in healthcare decisions.
No offense iceman, but that’s just nonsensical GOP talking points.
If you want to keep the pre-existing condition prohibition, you MUST have a mandate and you MUST have comprehensive coverage requirements (Obamacare’s “essential health benefits”).
Without a mandate, people will go without insurance – until they need it.
Without the comprehensive coverage requirements they’ll do the same.
For example – if mental health coverage is not mandatory, then only people wanting to buy insurance for mental health issues will be the mentally ill. Which will render mental health coverage unaffordable.
If the GOP indeed allows waivers for the ACA’s essential health benefits, then the result will be that coverage for most of these conditions will simply cease being availabe at any price.
If you want to go that way, it would be better to eliminate the pre-existing condition prohibition and go back to the pre-ACA days where many people were simply uninsurable.
The way the GOP wants to do it now is going to create an even worse situation.
I’ve been following the GOP healthcare debate very closely, and it’s just comical. The people writing these bills appear to know about as much about basic healthcare economics as Trump knows about trade.
I frankly hope they pass the bill.
It’ll be hilarious.
Iceman:
I think the problem is that Steve doesn’t really understand just how much out of his depth he and the rest of the population is with regard to DIY medicine.
He’s probably never experienced being dangerously wrong with a semi-educated DIY-medical self-assessment.
I have, and let me tell you, it’s a humbling experience.
A little knowledge is truly a dangerous thing.
The idea that the way to achieve efficiency in the healthcare system is to incentivize people who have know clue what they’re doing to
a) not seek medical advice, and
b) disregard medical advice
is not self-evidently correct (to put it mildly).
If your goal is to lower healthcare costs, then getting people with no clue what they’re doing to forego medical advice is not an altogether bad idea because these people will either eventually get well again on their own or else die horribly and prematurely. In either case they will no longer be a burden on the healthcare system.
No Advo, this isn’t about DIY medicine. You are assuming that Steve would ignore medical advice, and that is just wrong. He would get in fact MORE and better advice from the doctor.
Doc: Maybe we should test you for risk of spontaneous combustion.
s: How much will that cost?
D: 80 bucks
S: that’s a lot. What do you think my real risk is?
D: about one in seven trillion.
S: Thanks, I’ll pass.
But if the doc says, you might have a concussion, maybe a 20% chance, the decision might be different.
And in each of those cases Steve has received MORE medical advice than if the doc just said “take this test”.
Advo 25 – Yet you seem to have no qualms about making a DIY diagnosis of the whole system :)
And the alternative is to trust bureaucrats (when they’re inevitably called in to “cap costs”) who have *no* natural incentive to decide wisely based on your best (medical/economic) interests. We should have ample evidence on that proposition to be properly humbled. Good old rule in debating these things is you’re not allowed to compare “real-world” market outcomes with utopian visions of government.
Advo 24 – slight offense taken. In my experience “talking points” tends to be just a more genteel version of ad hominem (often to short-circuit a conversation). BTW I didn’t vote last fall and don’t even know what channel Fox News is on, but I do try to follow some thoughtful and serious economists – and plenty of them think there’s merit to many of the changes being considered.
I said any approach faces the problem of free riding (because we’re not willing to go “full Galt”). IMO what’s nonsensical are statements that suggest these are binary issues, no one voluntarily purchases insurance, the number who don’t isn’t a direct function of the “essential benefits” selected, all mandated care is necessary for all people, there aren’t innumerable other “spectrum” design issues (how much to let states reflect local demographics, what’s the magic cost ratio for older people etc.). It’s not even clear exactly what “keep the pre-existing condition prohibition” means — do we ‘encourage’ people to not let policies lapse, for what period of time, with what kind of surcharge? Note the current mandate penalty has not been terribly effective in this regard.
Your go-to example of mental care is a tricky one. It may not actually be very insurable if people tend to think they’re not “one of those” who will ever need it. (And how many who become mentally ill seek treatment?) As awareness spreads that may change. In the meantime maybe another good case for a public pool for those of high risk and low means. Something we could probably all agree on.
P.S. not sure how closely you’ve looked at the proposed federal waivers but there are layers of backstop involved.
Floccina (#10):
My experience with GP’s leads me to believe that if the MD’s thought that you friend would pay directly they would recommend that you go home and not spend the money. Most MD’s are good people.
I do not understand why a “good person” would be unwilling to rip off a patient, but perfectly willing to rip off a third party.
KenB 27:
Apparently Steve did not receive that information in the case at hand; at least he does not indicate that he had any information on which to base some kind of cost/benefit analysis.
The problem with your argument is twofold:
1. Under a fee for service model, the doctor is your only source of information and he is strongly incentivized to provide you with biased information.
2. Under the HSA DIY healthcare approach, the primary decision is whether to go to the doctor at all. Once the emergency room has you in its clutches, the battle for cost control is largely lost.
And that decision is one you have to make for yourself, on the basis of no other information than gut feeling and Google.
It is true that usually, not seeking medical care/disregading your doctor’s advice will not have terrible consequences.
The problem is that if you forego medical treatment and save 500 dollars 999 times and then you have some kind of severe cardiac event just once, that will be incredibly cost-inefficient overall.
And the patient generally has no way of making any kind of rational cost/benefit analysis in those kinds of cases.
Iceman:
Yes, I’m terribly arrogant.
Where what how? Could you provide me with some details on that? I haven’t been able to find anything (through a quick search).
Feel free to add any links you find interesting.
That differes a lot depending on the kind of illness. Schizophrenics are a problem, but people with depression do seek medical help.
Narcissists generally don’t.
Why, they’re the most awesome people in the world. They’re the best at everything. Why would they need any help.
We’re all living through a case study.
Well, what results do you get if you compare international healthcare systems?
Why do you suppose the healthcare system has been taken over by the government in all those countries?
Wasn’t there a reasonably free healthcare market ANYWHERE prior to that government takeover? Why didn’t it work?
The story of your friend is one good and useful story, but it’s just one story illustrating one model of one problem. “Here’s a big piece of what’s wrong with the health care system” would have made more sense to me. There’s are lots and lots of problems: it’s a huge system saddled with all sorts of regulations and barriers to entry and wacky incentives. And it’s a weird product in general, especially when the question involves how much people value their long-term health (a problem that reminds me fondly of your “locking the refrigerator” column in Slate).
These are of course, incredibly important debates. And unfortunately, virtually nobody with any power to make decisions is particularly interested in them. I see a lot more that’s instructive about the makeup of the current political fight by looking at the history of Medicare, and which groups benefitted over time, and which other groups resented that, than I feel I do trying to figure out what economic theory anyone in politics subscribes to.
The case described in the OP is well-suited as an example to illustrate the HSA DIY approach.
A man suffers a fall. His chest hurts quite a lot and he has some difficulty breathing. He has a middle class income and 15k in his healthcare savings account.
Should he go to the ER? On what basis should he make that decision?
Put simply, two factors must be considered:
1. The cost of going to the ER
2. The risk-adjusted cost of NOT going to the ER
How expensive will it be to go to the ER and run various tests?
Could be anywhere between $1000 and $10k (or more).
What’s the risk-adjusted cost of not going to the ER, assuming the man values his life at 5 million USD?
Maybe the risk is very low, and the risk-adjusted cost is just $100.
Or maybe that sharp pain in his chest means that his small intestine has been driven into his chest cavity, has looped around his aorta, and is now slowly choking off his heart’s blood supply and the risk-adjusted cost is $500k.
Is such a thing even medically possible? How would you know?
How do you make efficient decisions when your estimation of the risks and costs involved has uncertainty bands several magnitudes wide?
SL:
“Most MD’s are good people.
I do not understand why a “good person” would be unwilling to
rip off a patient, but perfectly willing to rip off a third party.”
In many cities here in the Land of the Formerly Free, auto insurance cos. have red-lined certain jurisdictions, wherein
they will settle any lawsuit, rather than fight, as jurors are known to be, um, ‘compassionate’ toward plaintiffs.
Similarly disturbing is the polemic of ‘representation’ during hearings of Supreme Court nominees… “Does this future justice sympathize with the little guy?”
The judges aren’t supposed to sympathize or side with anyone, they are to impartially apply the Constitution to precedent-setting cases. This ‘representation’ attitude is revealing – the speaker sees gov’t and politics as a pure power game, where each faction pushes to impose its agenda, and every program, agency, and office is a tool to that effect. No notion of separation of powers, or limits on Leviathan.
SL: “I have not read the Senate “health care” bill, but from the various summaries around the web, I am confident that Barack Obama is exactly correct in his pronouncement that this is not a health care bill… a bill that does nothing but change the distribution of income is (again in Obama’s words) not a health care bill. It’s an income redistribution bill”
hmmm….. I do not recall the emperor emeritus remarking thus in 2010, when ObamarxistCare was enacted.
In my glossary of political economy, any program of subsidies to favored constituencies is an income redistribution bill –
A friend of mine went to the ER because he had chest pains. His wife is an MD so I assume going to the ER was the right thing to do.
His bill was a little over $17,000. He paid $250 copay and the insurance company paid $714. I am a baseball fan. So the emergency room did all that work for $964.
If an uninsured patient had gone to the ER then they would have been on the hook for $17k+.
Now, if the guy had called 911 and had the ambulance pick him up, should he have argued with the driver to wait until he checked which ER would charge $1,000 and which would charge $17,000?
I would love to get an insurance policy with a $25k deductible if, AND ONLY IF, I could pay what my insurance company pays. However, I would still be scared about being taken to the wrong ER.