Much Ado About…What?

Question for the day: What is causing the huge emotional reaction both on the right and the left? To the health bill the Senate passed on Christmas Eve, that is.

Strangely, the bill would not solve any of the problems that its proponents talked about. But it would do two very important things almost no one has talked about.

First, the talked-about goals. Would this bill lower health care costs? No. Would it improve the quality of care? No. Would it improve average access to care? Probably not. Would it make health insurance portable? No. What about insuring half the uninsured? Yes, but a large chunk of those were already eligible for Medicaid and S-CHIP and most of the rest would have obtained insurance anyway in a short period of time. Since there is no mechanism for dealing with short-term uninsurance and since there will be strong incentives for the healthy to drop out, the actual number may fall way short of the projection. What about eliminating pre-existing condition requirements? Yes, but in a way that harms more people than it helps. Following the Massachusetts experience of going bare—getting sick—getting insured—getting bills paid—and then dropping coverage again is nothing to cheer about. Is the bill even “progressive?” Surprisingly, the answer is probably not. (More about all this in a future Alert.)

So having failed at all these goals, why aren’t the reformers completely depressed? What is causing so much elation? Answer: the not-talked-about accomplishments:

  1. For the first time in U.S. history, we are about to nationalize the health insurance industry; and
  2. Going forward, no one will ever be able to pay a real price for health insurance again.

Don’t cry for me, Argentina 

Nationalizing health insurance. For the first time ever, the federal government will tell you what kind of insurance you must buy and (effectively) where you will buy it and what price you will pay. You will not be allowed to buy better, cheaper insurance that is more suitable for your and your family’s needs — even if an insurer is willing in principle to sell it to you.

Don’t underestimate the importance of this accomplishment. Nationalization is the abiding, overriding, everlasting, immutable, unending, permanent, unchanging goal of the political left. There is no other there, there. There is no other beef. All else is sound and fury signifying things that are way down the priority list.

So why should you care? Because (1) you will either be unfairly overcharged — paying much more than you should so that people who probably make a lot more than you do can pay less — or unfairly subsidized because people who make a lot less than you do are forced to pay more; (2) you will be permanently trapped in the same type of third-party payment system that has been causing all the problems of cost, quality and access all along; (3) insurers will be completely unable to solve these problems (for reasons given below); and (4) everyone (on both sides) understands that this is only a foot in the door. Precisely because no real problems have been solved, nationalization of health insurance is a prelude to nationalization of health care — ultimately leading to federal control of what every doctor does and what he or she gets paid.

Abolishing the possibility of a market for health care risks. Gone forever will be the ability of insurance companies to creatively and innovatively solve the core problems of cost, quality and access. John Cochrane’s idea of health status insurance will be completely illegal. My own proposal for making health insurance like casualty insurance will be out. Even more important, there will be no possibility of specialty health plans — plans that, say, cater to the needs of heart patients, cancer patients or diabetics.

Insurers will not be able to innovate in these ways because it will be illegal to charge patients or their employers a premium that reflects the value the innovation creates for the patients. Instead of a market for sick people, in which health plans compete to solve the problems of the seriously ill, health plans will do everything they can to avoid the sick (and when that doesn’t work, they will be tempted to undertreat them) — even worse than what we see under the current system.

Problems are not only not going to be solved. They almost certainly are going to get worse. That will create pressure for even more legislation and more government intervention. So Paul Krugman is correct to say that this health bill is only the beginning. There is much more to come.

Comments (25)

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  1. John R. Graham says:

    One little discussed element of the Senate bill is the risk-adjustment used to calculate the re-insurance assessments and payouts (Part 5). The Secretary is supposed to conjure up 50 to 100 risk-adjusters (which one reasonably assumes will be cannibalized from the HCC method used for Medicare Advantage), and assess insurers 36 months worth of claims. However, it looks like insurers who want payouts will be able to claim annually. When you combine this with the already well identified incentives for individuals to bail out and pay the “fine” until they get sick, you get a real mess of risk selection and gaming the system that I doubt we can really assess until we see it unspool around 2016-2017.

  2. Vicki says:

    I like the music pairing. This really is fascism.

  3. Chris Ewin, MD says:

    #3. The positve effect of waking up the American public from all sides….They’re really engaged and this has been quite a civics lesson….

  4. Paul Nachtwey says:

    There is an endless pool of risk and tragedy in the world. Once they are done legislating away the tragedy of lack of total access for everyone to a particular financial product (health insurance), perhaps the democrats can craft a larger bill that once and for all legislates away, let’s see, how about stock market losses! After all the recent market meltdown cost many many people a significant amount of their savings, and that is clearly not right in their distorted view of how to make the world better. In fact, why not legislate away any form of risk and tragedy?

  5. Bob says:

    Here are my predictions for what the healthcare bill means. They are too long to post. May have to cut and paste in your browser.

  6. Bruce says:

    You know you can get youtube videos of Germans yelling Sieg Heil while Hitler speaks. I suppose that is a little too raw for your taste.

  7. Al Campbell says:

    We have been duped by a willing Congress and a willing Administration that understood, all along, precisely where they were taking us. We have been deceived by those whom we elected to represent us. If they claim they didn’t deceive us, then they are obviously not equipped to represent us since they cannot reason their way through this process and reach anything approaching the proper conclusion. The facts were there for the seeing; there was the example of the Massachusetts Connector and the mess that has already evolved in that state. There were the statements by those learned and honest critics that were willfully ignored since the statements didn’t fit the preconceived notion held by the majority in Congress. This was exacerbated by headlong rush to submit on the part of insurers and associations only to learn that they weren’t as bright as they thought. They worried that they would be on the menu if not at the table…and they were on the menu in spite of having rushed to the table. This Congress and this Administration are disingenuous and worry only about long pent-up demand on the part of their more vociferous liberal supporters at the expense of those of us who had no voice. I am reminded of the comment made by Hillary Clinton some 15 or 16 years earlier when she looked at a young female insurance agent and said, in effect, “you look like a bright lady; surely you’ll find some other way to make your living”. We are on the cusp of nationalized medicine and that will be good for neither the doctor nor the patient.

  8. russ says:

    HSA’s have a good five-year track record, more when you count the older MSA’s. I’ll consider just the HSA. Five years’ data showing they work. It infuriates me that I’ll lose them under the Obama plan. So much for “if you like your current insurance, you can keep it”. Of course, I knew it was a lie when he said it on the campaign trail.

  9. Karen says:

    This health care bill is the biggest hoax ever perpetrated on the American people, and it is the most alarmed I’ve been over our so-called leaders of both parties. Is there any way to extricate ourselves from this horrible piece of legislation once the bill is signed into law?

  10. Frank Timmins says:

    Well of course this is not about healthcare reform and it never has been. It is about Leftist federal control over the economy. It is about neutering the capitalistic system. “Healthcare reform” and the man-made global warming hoax is all about relieving the uneducated, inept Proletariat of the burden of thinking for itself and making financial decisions.

    Perhaps debating the negatives of this bill is a waste of time. Objections are merely countered by more lies. It doesn’t seem to matter at this point. Maybe the argument should be aimed at exposing the real goals of the Obama, Reid, Pelosi government.

  11. Marcy Zwelling says:

    There is one more thing… it really does move the power to the executive branch .. this IMAC thing is toxic… that is truly THE issue.

  12. John Garen says:

    With so much media coverage focusing on whether the reform bill is deficit neutral, has a public option, and on abortion coverage, this post is an excellent reminder of other issues that are incredibly important. No matter how the above three issues turn out, the points raised here remain . . . the proposed reforms are laden with price controls, quantity constraints, and other interventions that provide perverse incentives and lead to bad outcomes.

  13. Bob Geist says:

    Nor will we pay a real price for a medical service–it will be “covered”. Bob

  14. Don Levit says:

    I am curious how the insurers reacted to the passage by the Senate.
    It seems to me that they are in the driver’s seat.
    If claims get too high, they will simply increase premiums, just like before.
    Don Levit

  15. artk says:

    So, what is the “real” price of health insurance. As an example, if you work for a large company, in general, some fraction of your health care is paid for by the company and you pay some fraction. There are different rates for individuals and families. A family with 2 children pays the same as a family with 6 children. Is that family with children 6 stealing from that family with 2 children. Older and younger, sicker and healthier employees all pay the same.

    The point is that there is no “real” price for health insurance, all health insurance involves subsidies.

  16. Dr. Francis Kendrick says:

    Emphasis in the health care debate has been on more insurance for more people. Big mistake!

    Ronald Reagan said “In this present crisis, government is not the solution to our problem; government is the problem.” (First Inaugural Address). Recently, John Stossel of Fox News, stated that insurance is the problem with current health care.

    Reduction in the cost of health care requires reduction in the involvement of a third party payer. There is no reason why every visit to a doctor should generate an insurance claim. No thinking person would give another person $125 to pay their $100 utility bill. That is what happens with traditional health care insurance. Contrast that with other types of insurance, in which the insured rarely if ever files a claim.

    The cost of processing a claim is relatively independent of the size of the claim. High deductibles would reduce the number of small claims and reduce the amount of the insurance premium.

    Many primary care physicians claim that approximately thirty percent of their patient visits do not require professional attention. This degree of overutilization occurs largely because it is being reimbursed by insurance and is reflected in higher insurance premiums. High deductibles would reduce the level of overutilization because patients would be using their own funds for fees within the deductible amount.

    Fraud detection and its penalties require costly efforts at protection. Fraud is most likely to occur when there is a third party payer. Fraud is unlikely when a transaction involves only a physician and a patient. Fraud reduction also allows reduction in the amount of the insurance premium.

    Overhead incurred by the physician is increased when a third party payer is involved and must be reflected in the fee schedule, another reason for high cost of insurance premiums.

    When a third party payer assumes the risk of a need for health care, incentive is lacking for the insured to remain healthy and avoid the need for care, leading once more to increased insurance premiums.

    Another reason for excessive cost of health care is defensive medicine, prescription of additional procedures employed to guard against frivolous malpractice claims.

  17. Ken says:

    Artk view on insurance needs correcting. A real price (a competive market price) for insurance would equal the expected cost the newly insured person adds to the insurance pool. Only if people face real prices for risk can they make rational decisions about when to insure, for what events and for how much.

    If prices and not accurate, the underchaged will overinsure, the overcharged will overinsure and if people can game the system they will go bare — paying no premium whatsoever — until they get sick.

  18. eppie w. says:

    I agree with this post. Also, this bill does nothing to address quality of care. If they are able to indeed to resurrect the dinosaur of socialized medicine that has failed in so many countries, first of all there will be an even greater shortage of doctors, because many doctors are saving up their cash and plan to either bail out or go to a cash only practice. Then I wonder how people are use to getting hip replacements and heart surgery within days of injury or illness will like being told they have to wait six months to see a specialist. I can see that going over really well with middle class to upper middle class baby boomers.

    Do people from Canada keep coming over to this country for medical care because they like the view?

    In that huge monster of a bill it talks somewhere about giving extra money to primary care physicians to motivate them and help them phase into the new health care systems.

    First of all many of those primary care guys will be gone because of the huge doctor shortage brought on by being forced to practice socialized medicine. Secondly, there is no provision for specialists such as neurologists, cardiologists, etc. who do a lion’s share of the business in treating people with chronic conditions like diabetes, heart disease, etc.

    Maybe they will manage to get that mess of a bill passed but when things get personal and affect people’s lives, I think Americans will stand up and vote all of those congressmen who have their heads in the clouds out of office.

  19. Joanna M. Robbins says:

    I am a 61 year old grandmother and this health care debate has enlightened me so much this year. I have never paid very much attention to politics, I’m sad to say. Meanwhile, our constitutional republic has been slipping away, year after year, and it makes no difference which party was in power. This is our last chance to save our country from the abyss of fascism. This truly is a bill that makes no logical sense except to gain control – complete control – over people by the elitists in government. We The People must remind them they work for us in the only way we can. Insist on term limits once we kick every single one out who is in Washington right now. No more careers and gold plated retirements and health care for these phonies.

  20. artk says:

    eppie w, I know you’re repeating what I’ve often seen, how “socialized medicine” has caused a shortage of doctors in other countries. I would argue the opposite, our health care system is the one with a shortage of doctors.

    The US has 2.4 physicians per thousand, growing at a rate of 1% a year. You may be correct in stating that we have more then Canada, which has 2.2/1000 but a much lower growth rate at .2% a year. If you look in the European countries that have universal health care, pretty much all them have more physicians. A few examples: Switzerland 3.9/1000 growing at 1.5%; Sweden 3.6/1000 growing 1.4%; Germany 3.5/1000 growing 1.5%; even the UK has more doctors 2.5/1000 growing at 2.5% a year.

  21. John Goodman says:

    Artk is right about the physicians. We have fewer per capita than the European average. We also have fewer nurses, hospital beds, admissions and just about everything other than technology. Which means that we are producing the same or better outcomes with fewer resouces! As inefficent as our system looks to us, it is actually more efficient than the average European country.

    None of this has anything to do with rationing however. Rationing problems arise when prices are suppressed. And since they tend to be slightly more suppressed in other countries (and especially where the supply of technology is tightly controlled)the rationing problems are much greater.

  22. artk says:

    First, I’m glad you’ve conceded that the European health care system outcomes are pretty much comparable to ours. It’s really quite tiresome to hear the constant commentary about being in Europe is a death sentence. As you’re well aware, we do better then other countries in some outcomes, worse in others. I would, however, challenge you on some of your statistics.

    We also throw people out of the hospital pretty fast, the average acute stay is 5.5 days, much shorter the Germany, Canada, Switzerland, and the UK; but longer then France or Sweden. Is that rationing from not enough hospital beds, or better care, or unnecessary admissions?

    Nurses per capita: we have 10.6 nurses per 1000, more then the UK with 10/1000 or Germany with 9.9/1000, or France with 7.7/1000. By your productivity metric, then France, Germany and the UK is more productive.

    You seem to have limited your definition of productivity to output relative to just direct labor. Of course, most other people define productivity as output relative to total cost. Without getting into the issue of equality of access to health care which our system fails at miserably, our costs are 50% more as a percentage of GDP then the next most expensive system in Switzerland. By that metric, we have the least productive health care system.

  23. Josephine Legno says:

    Not EVERYBODY in America will have the same health care- CONGRESS WILL NOT. They will still have the best health care in the world at our expense.

  24. Christina Jeffrey says:

    Most of the people around here are not that worried about the health care bill, but you guys are. Me too. I have followed and been influenced by Goodman for a long time. Read my take, published Wednesday in the Greenville News (SC) if you will- I compare Harry to the Wizard of OZ (OZ = Opportunists and Zanies). An issue not covered in my article, but aluded to concerns Europe and Canada. Doesn’t everyone know that they could not enjoy the high standard of care at the price they pay without the United States’ free market as an outlet for the rich and a source of subsidized drugs?

    Christina Jeffrey (congressional candidate, SC-4)

  25. Christina Warren says:

    So most of us agree that this health care “reform” bill is Not something that will benefit the individual American citizen in any way. In fact, it will incur more harm for the individual, for the doctors, for businesses, for our future generations to come. I cannot understand Congress’ motivation for bulldozing this bill through?? What is the real, underlying motivation for creating financial burden, a malfunctioning health care system, and historically unprecedented government control over the individual American citizen? Is this democracy in action….or is it something much more sinister with darker intent? How has our beloved America, the leader of the free world for whom so many have given their very lives, fallen to such depths? This was not the intent of our founding fathers and the Constitution! WE the People seem to have no say in the eroding of our traditional democratic rights and way of life –and moreover, this is happening in the name of “free choice,” “justice,” and the right to liberty. America wake up!