Good article on health care costs in Washington Post

[Gone4Good]

An article in Reason makes the point: is "the bottom" such a bad place if state mandates are adding 30-50% to the price of health insurance?

It's strange how these articles never consider people who are sick or old. So they end up coming to conclusions like this:

Purchasers will avoid states whose regulations prove inadequate, and ultimately, so will insurers.

So we're to believe that healthy people aren't going to flock to the low cost policies of a state where insurers can cherry pick customers.

The reason state mandates cost so much is because insuring the sick and elderly is expensive. It's true that we can lower insurance costs by ignoring the needs of these people, which is what Cato implicitly suggests. But if that is the idea, why not say so explicitly?

Edit to add:
The reason I was required to submit 5 and 10 years of medical history to get an individual insurance policy isn't because of a lack of competition, but because I'm in a low regulation state where insurers are allowed to deny coverage to sick people.

 

[samclem]

The reason state mandates cost so much is because insuring the sick and elderly is expensive. It's true that we can lower insurance costs by ignoring the needs of these people, which is what Cato implicitly suggests. But if that is the idea, why not say so explicitly?

When 2014 rolls around and the "exchanges" are in place, private insurers will have to take all comers. But unless something changes, we still won't have the ability to buy insurance across state lines, leading to lots of inefficiencies. With the "what about the sick" problem gone, maybe we can start solving the rest of it.

 

[Gone4Good]

When 2014 rolls around and the "exchanges" are in place, private insurers will have to take all comers. But unless something changes, we still won't have the ability to buy insurance across state lines, leading to lots of inefficiencies. With the "what about the sick" problem gone, maybe we can start solving the rest of it.

That's a switch. I thought we were repealing ACA.

If Cato et. al. are now on board with mandatory issue of proscribed minimum coverage health insurance, I'm on board with a national health insurance market. But I strongly suspect that is not what they mean.

 

[samclem]

That's a switch. I thought we were repealing ACA.

We'll see. I'd like to make the best of whatever happens--repeal or not. How we respond to the enactment of ACA shouldn't have much to do with whether we favored it in the first place.

 

[Gone4Good]

We'll see. I'd like to make the best of whatever happens--repeal or not. How we respond to the enactment of ACA shouldn't have much to do with whether we favored it in the first place.

And yet we never get a straight answer on whether when we say "state competition" we're actually talking about undermining no-underwriting laws. It's really remarkable how well people have learned to dance around this issue.

 

[samclem]

And yet we never get a straight answer on whether when we say "state competition" we're actually talking about undermining no-underwriting laws. It's really remarkable how well people have learned to dance around this issue.

The ACA will establish minimum standards for coverage. Starting in 2014 insurers will no longer be able to set policy rates based on pre-existing conditions. Doesn't this vitiate any reasonable state "no underwriting" laws? After all this is in place, if a state (or county, or hamlet for that matter) wants to enact further new laws mandating coverage for breast augmentation, height enhancement, or any other such thing, I think they should be able to do that provided their residents can vote with their wallets (and federal vouchers) to get coverage that meets the federal standard from some vendor not headquartered in their state.

It's the best of all worlds: the politicians can continue to vote for laws requiring bread and circuses out of thin air, but no one will have to buy them.

I guess some folks want the states to continue to set coverage minimums, but now that the feds are in the game these folks want residents of Idaho to be forced to pay (through funding of subsidies) for coverages mandated by the legislature of New York. That doesn't sound like a good system. This federal "empowerment" comes with a price.

 

[marko]

TORT REFORM. Our malpractice insurance premiums have to be one of the highest in the world............

Now THERE is the reason for high health care costs!!

Is getting 2,3, and 4 extra tests/procedures/opinions a matter of the doctor's greed or is he just trying to keep himself out of court?

Let's see: our costs are 3 times higher....but we need three times more 'tests' before the Dr will do anything. It's not health care cost...it's CYA costs!

 

[Gone4Good]

The ACA will establish minimum standards for coverage. Starting in 2014 insurers will no longer be able to set policy rates based on pre-existing conditions. Doesn't this vitiate any reasonable state "no underwriting" laws? After all this is in place, if a state (or county, or hamlet for that matter) wants to enact further new laws mandating coverage for breast augmentation, height enhancement, or any other such thing, I think they should be able to do that provided their residents can vote with their wallets (and federal vouchers) to get coverage that meets the federal standard from some vendor not headquartered in their state.
It's the best of all worlds: the politicians can continue to vote for laws requiring bread and circuses out of thin air, but no one will have to buy them.

Dancing, dancing, dancing.

It's very easy for me to say that I'm in favor of interstate competition for health insurance provided the insurers in each state are required to issue policies with Federally mandated minimum coverages at non-discriminatory prices.

It's not so hard to be direct. It's easy enough to say you agree in full, or you agree with the interstate competition part but not with the rest. What you're doing instead, is relying on the protections of a law you don't agree with to advance the idea of "state competition" without saying whether you actually support the protections that make state competition workable.

It's a good dodge, but I'm not sure why it's necessary. You're not running for office, are you?

 

[samclem]

Now THERE is the reason for high health care costs!!

Tort reform would help, but it's fairly small potatoes in the big scheme of things. IIRC even the most wide-ranging reform of the medical tort system would only cut our costs a few percent.

 

[samclem]

It's very easy for me to say that I'm in favor of interstate competition for health insurance provided the insurers in each state are required to issue policies with Federally mandated minimum coverages at non-discriminatory prices.

It's not so hard to be direct.

I'm not following you. Isn't the situation you've described (set minimum coverage limits, no underwriting) exactly the situation that will be in place in 2014? If so, I think we'd both be in favor of cross-state insurance sales. That's not complicated or indirect.

 

[ziggy29]

There are significant differences in total earnings among the different specializations in the US. There is much less correlation to hours worked or years needed to specialize. Family doctors earn less than any other despite studying just as long and working as many hours, and the difference is often 3x. This implies that higher earning specializations earn more because they charge more and have greater leverage with insurance companies.

Not only that, but for regular "family practice" and general medicine, family doctors also tend to have "competition" (for lack of a better term) with NPs and PAs (nurse practitioners and physician assistants) that the specialists don't have. One might feel comfortable seeing an NP for routine medical issues, but not so much for unusual, life-threatening conditions that usually are in the hands of specialists.

 

[Gone4Good]

I'm not following you. Isn't the situation you've described (set minimum coverage limits, no underwriting) exactly the situation that will be in place in 2014? If so, I think we'd both be in favor of cross-state insurance sales. That's not complicated or indirect.

Yes, but one of us is in favor of repealing those protections. I happen to think those protections are a necessary prerequisite for interstate insurance competition. Do you?

We may very well be in agreement. But I'm not so sure.

 

[ziggy29]

Yes, but one of us is in favor of repealing those protections. I happen to think those protections are a necessary prerequisite for interstate insurance competition. Do you?

There are many other examples in our laws where the federal government sets some minimum standards and states are free to add tougher standards (but not reduce them). The minimum wage is an obvious example; the feds set a wage no state can go below, but states are free to adopt higher ones.

Maybe this would be another example? If so, any state could add a requirement that additional things be covered, that deductibles be lower, or whatever -- than the federal standards. Of course, these would come at an additional cost to policies sold in those states.

Frankly, though, I'd prefer to see a simplification of what is covered and to what degree. It just seems inefficient to have hundreds of different coverage levels, limits and lists of covered procedures. Anyone who wanted more than these "standards" would be free to purchase supplemental coverage much like an insurance "rider". That would make shopping across state lines even easier (or maybe even make it less relevant).

 

[Gone4Good]

Frankly, though, I'd prefer to see a simplification of what is covered and to what degree. It just seems inefficient to have hundreds of different coverage levels, limits and lists of covered procedures. Anyone who wanted more than these "standards" would be free to purchase supplemental coverage much like an insurance "rider". That would make shopping across state lines even easier (or maybe even make it less relevant).

Agreed.

My view is that the mandated minimum coverage should be true catastrophic coverage. Subsidies for the poor could include routine stuff, like normal doctor visits, that most everyone else can and should pay for on their own. Beyond the minimum catastrophic policy, let the market determine what supplemental insurance to offer, at what price in whatever state they want.

As long as we have strong safeguards that correct the inherent market failures in health care delivery, I'm a proponent of letting market forces work where they can. I often have trouble, though, getting proponents of competition to admit that we need to correct any of these market failures in order to have a workable competitive, if not completely free, market. Mostly they just pretend the failures don't exist (see Cato link above).

 

[ziggy29]

My view is that the mandated minimum coverage should be true catastrophic coverage. Subsidies for the poor could include routine stuff, like normal doctor visits, that most everyone else can and should pay for on their own. Beyond the minimum catastrophic policy, let the market determine what supplemental insurance to offer, at what price in whatever state they want.

This would be pretty easy to do if the will was there, I think. Though I think the easiest way to do it is to have the subsidy in the form of variable deductibles based on ability to pay. A lower income household might have (say) A $500-$1,000 annual deductible and a high income household could have it at $5,000-$10,000. This would, for most purposes, effectively mean the wealthier people are paying for most routine care and prescriptions out of pocket since they wouldn't exceed the deductible.

Optionally, if it were feasible the higher income folks could purchase a lower deductible at their own expense (though if this were optional it would have "adverse selection" problems as the sicker "rich people" would opt for it and the healthier wouldn't).

There are certainly other ways to do it, but this would create standard coverages that are easier to administer -- and the insurers would be competing in a sphere where consumers could compare apples to apples. (I think this is one aspect of the Massachusetts model that works well -- people can specify the product they want and you get a list of insurers and the premiums for the exact same product.) As has been mentioned -- by folks on all sides of the debate -- lack of real consumer empowerment in the form of comparison shopping is a problem and increased transparency of costs would allow consumers to more simply compare competing products and not get bogged down in the fine print.

 

[samclem]

Yes, but one of us is in favor of repealing those protections. I happen to think those protections are a necessary prerequisite for interstate insurance competition. Do you?

Maybe this is nuanced enough to qualify as "dancing", but I think distinctions are important. If someone wants to oversimplify these distinctions to make a point, I guess I can't stop them.
- I do not believe the federal government should be forcing people to buy health insurance. I don't think health care is a "right" (like free speech, freedom of religion, etc). In the abstract, no one has a "right" to the labors or property of another person.
- But, several laws have been passed over the decades (the ACA is only the most recent) that have increased the role of the federal government in seizing the assets of citizens and redistributing these assets to other citizens to provide for health care. That's where we are. The public will vote for more of it if the situation worsens due to the ineffective implementation of what has been decided so far. Given this, I think we should make the best of whatever laws are on the books if they are upheld by the Supreme Court. That, to me, means in this case we should establish a national market for health insurance and the federal government should take steps to enhance the efficiency of this market. That would include mandating collection and dissemination of information consumers need in order to make informed decisions, standardizing the way the policies are described, etc.

How we got here and who favored what isn't pertinent. What's important is the way ahead now. Don't be uncomfortable joining with those who are making the same case you are.

 

[Gone4Good]

- I do not believe the federal government should be forcing people to buy health insurance. I don't think health care is a "right" (like free speech, freedom of religion, etc). In the abstract, no one has a "right" to the labors or property of another person.

I'm fine with that as long as you're willing to explicitly follow this to its natural conclusion:

1) Without an individual mandate there can be no guaranteed issue insurance.
2) Without guaranteed issue insurance, the sick and the old will be unable to get insurance at a price lower than their cost of care
3) Many, many, many of the sick and old will be unable to afford care.
4) At some point in our lives, we all become sick or old.

I'd love to hear the specifics of the system you prefer where this isn't true. But absent that, I take your position to be that because you don't think health care is a right, you're perfectly fine with a system that results in point 3 above.

 

[ziggy29]

I'm fine with that as long as you're willing to explicitly follow this to its natural conclusion:

1) Without an individual mandate there can be no guaranteed issue insurance.
2) Without guaranteed issue insurance, the sick and the old will be unable to get insurance at a price lower than their cost of care
3) Many, many, many of the sick and old will be unable to afford care.
4) At some point in our lives, we all become sick or old.

First of all, I would agree that if there is going to be a system that eliminates underwriting, it *must* come with a universal mandate (i.e. point #1 above). The type of subsidies for the poor (and the amount of subsidy) can be debated, but at minimum I think that much is true. Also, any "universal mandate" must also come with noncompliance penalties equal to at least the cost of the cheapest "qualifying" policy. So if the cheapest one would cost $5000 a year and you don't purchase coverage, the fine is at least $5000. Thus there is *zero* incentive to "go naked," which is a problem Massachusetts is having -- some younger and healthier folks are choosing to eat the fines and penalties rather than buy even the cheapest "bronze" level coverage.

Having said that, when you *mandate* that people buy a private product, that is in itself a market distortion. Seems a little odd to use a market distortion to "correct a market failure", especially when to some degree, market distortions contribute to the mess we're in. We can't say the market has failed, IMO, because there are already so many distortions in place that we can't always say that the "free market" caused the failure. A perfect case in point is the distortion that occurred when government froze wages to the point where employers decided "fringe benefits" like health insurance could get around that frozen wage problem. Tying health insurance to employment is perhaps the worst market distortion of them all. And it didn't come about because of the free market, it came about because of government meddling in the free market.

Another distortion is that employers can provide health insurance tax-free, but if they gave the equivalent cash value to employees as cash compensation it would be taxed. So the tax code distorts the market by providing incentives to give "non-cash compensation." (Of course, to some degree these employees could get some tax relief when they buy their own health insurance, but only the amount that exceeds 7.5% of their AGI).

So I don't think it's clear that "the market isn't working." Having said that, I'm not convinced going to a "free market" with no government intervention is a great idea (it's sure as hell not going to happen anyway so it's moot). I don't disagree with the concept of a universal mandate per se (philosophically, though I have constitutionality questions about it). But arguing for it as a way to correct "market failure" is a little off the mark, I think -- because what we have today does not at all resemble a real free, competitive and transparent marketplace.

 

[samclem]

Having said that, I'm not convinced going to a "free market" with no government intervention is a great idea (it's sure as hell not going to happen anyway so it's moot).

Emphasis added. Absolutely. We've got a particular situation, it seems best to make the best of it. Or we can keep looking in the rearview mirror.

 

[Gone4Good]

So I don't think it's clear that "the market isn't working."

I think you and I are in near complete agreement.

My position isn't so much that we have a free market and it's not working. It's that we know there are certain things that will not work if companies are allowed to do whatever they want.

We know companies won't willingly offer insurance to people at a price lower than those folks expected cost of care. That is Microeconomics 101.

I guess the question, then, would a truly free market deliver prices for things like heart attack care that everyone could afford? But then we get to market failure number 2. Nobody bargains or comparison shops for heart attack care. So what, exactly, are the market forces we can bring to bear on emergent, life saving, proceedures?

And what about cancer treatment and things that aren't so time sensitive? Well, we've granted monopolies to the producers of new drugs and proceedures, so unless we're going to revoke those patent protections, the newest and best treatments are not subject to competition either.

And these are just the tip of the iceberg as to why healthcare delivery is not the same as pizza delivery. We know there are unique factors in the health care market that free market forces won't address.

 

[Gone4Good]

Emphasis added. We've got a particular situation, it seems best to make the best of it. Or we can keep looking in the rearview mirror.

Mostly I'm trying to understand your preferred alternative.

My guess is that intellectually you understand what is required but are philosophically against that outcome.

 

[ziggy29]

I guess the question, then, would a truly free market deliver prices for things like heart attack care that everyone could afford?

Of course not. The poor, the indigent, they can't afford the treatment or the insurance in a completely "free" market with zero government intervention. They never will. I don't think anyone is suggesting this will happen, though, so it seems a bit of a red herring to me.

But then we get to market failure number 2. Nobody bargains or comparison shops for heart attack care. So what, exactly, are the market forces we can bring to bear on emergent, life saving, proceedures.

And what about cancer treatment and things that aren't so time sensitive? Well, we've granted monopolies to the producers of new drugs and proceedures, so unless we're going to revoke those patent protections, the newest and best treatments are not subject to competition either.

These can be tougher. Yes, when someone is having a heart attack, they or their loved ones are just going to call 911 -- they aren't going to call a number of hospitals to shop on price and tell the ambulance driver which one to go to. That much, at least, should be obvious to anyone. Plus, in that situation quality of care is seen as more important than price, again for understandable reasons. Patients having a heart attack aren't going to want to be sent to the medical equivalent of Wal-Mart when they can be sent to Nordstrom. They'll worry about the price later.

In some ways, insurance companies "regulate" the prices of procedures even if the sticker price varies from provider to provider. For example, Hospital A may charge $3000 and Hospital B may charge $5000 -- but if both are in network and the negotiated rate is $2200, that's what the insurance company and/or the patient pay whether they choose A or B. I don't think it's possible to have an insistence on an "efficient market" here -- in a crisis where minutes can mean life or death, one can't comparison shop. We have to pick and choose our battles here, and I think it's reasonable to expect consumers to comparison shop on non-emergency procedures -- but that requires more transparency and published pricing than we have today.

When we have a third-payer system, the regulation on pricing generally needs to be enforced by the third party. But this also has an undesirable side effect: cash customers may be asked to pay $5000 from Hospital B for their treatment (using the example above) whereas an insured would pay only $2200. This is an example of a third party payer "regulating" the rates it would pay, but it also fails a fundamental fairness test. I suppose a single-payer system with universal mandate would eliminate this (as everyone would pay the same "regulated" insurance rate) -- but it has its own problems, not only ideological and philosophical but also economic. If Medicare reimbursement rates are an example of what is mostly a "single payer" system for folks 65 and over, these rates are too low as many providers won't take new Medicare patients. If everyone paid Medicare rates, for example, would there be a sufficient supply of doctors and facilities?

 

[Gone4Good]

I don't think anyone is suggesting this will happen, though, so it seems a bit of a red herring to me.

Not really a red herring when you have people throwing up the idea of competition as a solution without ever walking through the specifics of how it is supposed to work. Only by looking at the specifics do we see that these proposed solutions are really nothing of the kind.

 

[samclem]

Mostly I'm trying to understand your preferred alternative.

My preferred alternative is to keep this discussion focused on pragmatic steps to improve our health care system given the existing situation.

We've got lots of other threads on the proper role of government, and the pig consistently rides into town to shut them down.

But, specifically regarding your "point 1" ("Without an individual mandate there can be no guaranteed issue insurance")--if the SCOTUS finds the mandate unconstitutional, I believe there are other effective ways to encourage people to buy "guaranteed issue" insurance. I've mentioned these before (here and here ) , but we disagree on whether they would be effective. Okay, so it goes.

Given the situation as it is going to be, I think we'll have a manageable compliance problem even without any carrots and sticks:
- The Poor (sick and healthy): Expect high compliance. They will get subsidies that cover 100% of their medical needs (or be in the newly expanded Medicaid system).
- The rich healthy/young: High compliance. They can afford the coverage without a subsidy. If they choose not to . . .
- The rich sick: High compliance. The flat-rated policies will be a bargain
- The middle-class sick: High compliance. They'll clearly see the value fromt he flat-rated policies, and the subsidies will still be assisting those at the lower end of the income scale (family incomes up to approx $80K IIRC)
- The middle-class healthy: This is the area with lowest probable compliance if there's no mandate. People with jobs, who are buying things and participating in the economy. Many will get insurance through their employers (because the law punishes larger employers who don't provide insurance). Eventually I think employers will just pay the fines and these people will get their own insurance in the exchanges, some with subsidies from the government. This group is the one that might be most effectively influenced using the tools I suggested in the above links.

 

[M Paquette]

Meh. M... E... H...

I'm still budgeting for an average annual 12% hike in insurance premiums for our high deductible coverage. I currently have no confidence that any currently planned or proposed legislation or regulation will have any staying power, or resistance to being gutted. Yes, this means that I fully expect to be paying $31,000 annually for insurance at age 65. I'm also not counting on being eligible for Medicare in its current form, as there are a number of exciting proposals to adjust eligibility and payment criteria.

Right now medical insurance is our largest budget item. I fully expect that to continue.