Tag: ACA

Finally (?): Healthcare Reform

What are the problems with our universal healthcare system (no one is denied the care they need “Health-care-plan-B”) that Congress is trying to fix? At the broadest level America’s health care costs much more than it should for the results it delivers and the distribution of its financing is neither efficient nor equitable. Six years ago Democrats made the mistake of sneaking through the Affordable Care Act without significant debate. This year Republicans committed the same error but failed to pass a law. This provides congress (thank you Senator McCain) with the opportunity to fashion a healthcare reform law the proper way (open committee hearings, etc.).

A new attempt to reform the system would no longer be restrained by the limitations of a budget law that limited what earlier attempts were able to do. In particular a new law should address the factors that drive up the cost of medical care in the U.S. These include relaxing legal limitations on who can provide what services and how they may be performed, requiring that the cost of services be transparent and requiring stronger incentives for customers (patients) to care about cost when choosing medical treatments. “Heath-care-reform-fatigue”

How medical services are paid for influences the incentives of both suppliers of these services as well as the users to seek and provide the most cost effective options. Medical services are paid for by patients (because they are uninsured, or pay deductibles or copays), insurance premiums, or taxpayers. Each provides its own set of incentives for choosing what is delivered. When patients pay for the services they have a financial incentive to choose the option with the highest benefit-cost ratio. When third parties pay for medical services, (insurance companies or government) they must impose choices that patients, in consultation with their doctors, would otherwise make.

Some commentators have complained that third party payers, whether a single payer (government) system or many insurance companies, introduce rationing. However, all scarce goods and services are necessarily rationed. The relevant issue is how they are rationed, whether on the basis of the preferences of patients or the judgment of the third party payer of what is reasonable.

To the extent that medical costs are paid for by taxpayers, the incidence of such financing depends on and is determined by the structure of the government systems of taxation. In the U.S. these are currently unfair and inefficient and in bad need of reform quite independently of the issues of healthcare delivery. Medical insurance financing is complicated by the ill advised post World War II tax incentive for employers to provide and help pay for medical insurance. This practice establishes insurance pools (the firms employees) that generally mix the number of healthy and sick policyholders in a representative way. The very purpose of insurance is for the healthy to share the costs of the sick and thus reduce the financial burden of medical surprises. Most Americans with health insurance buy it through their employers’ plans.

The most serious problem with the existing American health insurance system is for those not receiving insurance from an employer (or those changing employers and needing to establish new insurance policies). These people must use the so-called private market for which the Affordable Care Act established the insurance exchanges. The cost of insurance purchased in this private market depends on the mix of healthy and sick people that sign up. Employer provided plans are essentially mandatory for a firm’s employees (and enjoy a tax subsidy) and thus result in a well mixed (sick and healthy) risk pool. Private market plans were made mandatory by the ACA but with a penalty for remaining uninsured that was so low that large numbers of young healthy people choose not to join. Thus private market plans were increasingly populated by the sick (and those expecting that they were likely to become sick). This undermines the cost sharing the insurance exists to provide and thus drives up the premium cost. The simple cure for this problem is to make healthcare insurance mandatory as originally proposed by the Heritage Foundation.

Mandatory healthcare insurance should cover every health service for which society believes financial assistance should be given. It undermines the purpose of insurance to allow policy holders to pick and choose which services will be covered. Premiums might very with age, lifestyle choices that effect health (such as smoking or obesity) and the choice of the level of deductions and copays but policy holders should not be able to opt out of services society intends to provide and finance one way or another even if they never expect to need them. The issue of preexisting conditions would not arise when insurance is mandatory and policies are not linked to individual employers. “Health-care-in-America”

The individual policyholders’ choices of the level of deductions and copays (but not the scope of services covered) would determine the division of financing between patients and third party payers. In addition, government (the voting public) would choose the extent to which the cost of medical services would be taken over by taxpayers as a result of government financial assistance to the poor. A further policy option is whether the cost of catastrophic health care needs would be lifted from insurance premiums and paid for by taxpayers via a reinsurance plan. But the cost of medical services that must be paid over all (by patients, insurance premiums, or tax payers) can be greatly reduced by taking those measures that will lower the cost of these services in the first place.

Hopefully this time around congress will entertain open public discussion of all of these issues so that the public will understand the purposes and tradeoffs of the policies ultimately adopted.

Heath Care Reform Fatigue

On average, Americans spend about twice as much on medical care as do Europeans and with poorer results. About half of that cost is paid for by government. If we could get the cost of medical care down to European levels either the government (i.e., tax payers) could stop paying for any of it with no change in the cost to patients, or patients could stop paying anything with no change in the cost to government. Of course it wouldn’t work like that and is much more complicated but it does focus the mind about the issues concerned.

Both the Affordable Care Act of Obama and the current drafts of its replacement by the Republicans are limited to what can be considered budget authorizations so that they can be passed with simple majorities. In June 2015, when the Supreme Court rejected challenges to the constitutionality of parts of the ACA (the insurance mandate), Chief Justice Roberts complained that: “Congress wrote key parts of the Act behind closed doors. . . . Congress passed much of the Act using a complicated budgetary procedure known as ‘reconciliation,’ which limited opportunities for debate and amendment, and bypassed the Senate’s normal 60-vote filibuster requirement. . . . As a result, the Act does not reflect the type of care and deliberation that one might expect of such significant legislation.” Now the Republicans are doing the same thing. Once again George Will is right on target: Why-repeal-and-replace-will-become-tweak-and-move-on/2017/06/27/

This means that the most important elements of health care reform in America—reducing supply side costs—must await other legislation. However, limited market forces are already eating away slowly at the American Medical Association’s (the doctors’ union) self protective strangle hold on the delivery of medical services. The information technology now exists to dramatically improve the quality of service while lowering its cost. Nurse practitioners have already taken over some routine functions previously preserved for MDs. With a growing shortage of doctors, more restrictive practices are likely to be relaxed such as phone consultations, etc.

The focus of the ACA and the current Republic efforts to “repeal and replace” it, has been how best to finance these costs for those financially unable to pay them. The two overriding challenges for this effort should be to adequately target those who need such assistance and in the process to avoid undermining to the extent possible the incentives for both doctors and their patients to provide and to seek the most cost effective care.

There are many small and large details in ACA and proposed Republican replacements that could be changed to improve targeting of financial assistance and the incentives for seeking and delivery cost effective care. See my earlier discussion: A-mistitled-tax-proposal. The largest issues are how best to remove the unfair tax treatment of employer provided health insurance vs. the “private” market and how to insure that the risk pools in the private insurance market include both healthy and sick premium payers.

The point of insurance is to pool the cost of the risk of bad things happening, like breaking a leg or getting sick. Thus the lucky (healthy) share the costs of the unlucky (sick or injured). The group as a whole must pay the total medical costs of all members of the group. It follows that health insurance should be mandatory for every one in a properly defined group. The risk pool of employer provided health insurance consists of the company’s employees, and premiums are set on the basis of the average medical costs of that group. There is no such predefined risk pool for those who buy insurance in the “private” market. The logic of insurance suggests that everyone within each age group should be required to buy insurance at a cost to each that reflects the total medical costs of the full group. The-individual-health-insurance-mandate.

The simplest, cleanest, and most comprehensive way to insure that those unable to pay for whatever medical care they need can do so is to require that all people in their group buy insurance so that those who later don’t need it finance those who do. I have earlier advocated that this approach be integrated as part of a guaranteed minimum income (GMI). A GMI would provide the basis for eliminating most government welfare programs from Social Security and food stamps, to disability and unemployment insurance. But first a brief word about minimum wage laws.

Charles Lane has proposed a sensible approach to balancing the political attraction for legal minimum wages with the economic case against them. He proposes that the issue be removed from the political arena by legislating an automatically adjusting formula for a legal minimum wage that closely matches actual historical wage experience so as to minimize the harm to low skilled and inexperienced (teenagers) workers that would be hurt by higher minimum wages. Forget the $15 minimum wage–here’s what a sensible compromise would look like/2017/06/28

A legal minimum wage does not help the unemployed. A Guaranteed Minimum Income would. It should be paid to every man, woman, and child but the amount might vary with age (but not with income). It could be administered by the Social Security Administration, which it would replace. Saving-social-security. Fixed shares of the GMI would be placed in an individual health insurance account, a pension account, and an education account (school tuition or college fund). The amount deposited to the health savings account would be required to be used to purchase general health insurance and would be sufficient to do so.

The GMI would be paid for from general tax revenue. Clearly our existing, hole riddled income tax laws (both personal and business) are a mess and need to be cleaned up. As I have argued earlier the fairest, least distorting and easiest to administer tax is a consumption tax. I should replace all income taxes, wage taxes and existing sales taxes with one uniform Value Added Tax (VAT). My-political-platform-for-the-nation-2017.

Let’s try for better health care that costs less for both patients and tax payers.

The Individual Health Insurance Mandate

Legislation to replace and/or reform Obamacare (the Patient Protection and Affordable Care Act—ACA) was passed by the U.S. House of Representatives last week. Despite President Trump’s premature celebration the process of fashioning a new health care law is just getting underway as the Senate begins the rewriting of the House bill. One of the important issues dividing Democrats from most Republicans, and Republicans from each other, concerns whether everyone should be required to buy health insurance and if so what that insurance must minimally cover. “Health Care Plan B”

The fundamental purpose of insurance is to provide the broadest possible sharing of unpredictable costs. Thus it was not surprising that the Heritage Foundation published a report by Stuart M Butler recommending mandatory health care insurance on October 1, 1989: “Assuring Affordable Health Care for All Americans”. Dr. Butler elaborated his health care insurance mandate in a March 5, 1992 Heritage Foundation report: “Policy Maker’s Guide to the Health Care Crisis”

Robert E. Moffitt elaborated the public policy case for the insurance mandate as follows: “Absent a specific mandate for at least catastrophic health insurance coverage, some persons, even with the availability of tax credits to offset their costs, will deliberately take advantage of their fellow citizens by not protecting themselves or their families, with the full knowledge that if they do incur a catastrophic illness that financially devastates them, we will, after all is said and done, take care of them and pay all of the bills. They will be correct in this assessment…

“An individual mandate for insurance, then, is not simply to assure other people protection from the ravages of a serious illness, however socially desirable that may be; it is also to protect ourselves. Such self protection is justified within the context of individual freedom; the precedent for this view can be traced to none other than John Stuart Mill.” Health Affairs, January 1994.

Two bills offered in the U.S. Senate in 1994, the Consumer Choice Health Security Act sponsored by 25 Republican Senators and the bipartisan Health Equity and Access Reform Today Act sponsored by 19 Republican and 2 Democratic Senators included health insurance mandates.

When Mitt Romney was the governor of Massachusetts signed that state’s “An Act Providing Access to Affordable, Quality, Accountable Health Care,” adopted in 2006 with broad bipartisan support. It required all Massachusetts residents to buy health insurance. Surprisingly in 2008 presidential candidate Barack Obama opposed an individual mandate (but apparently supported the existing employer health insurance mandate for their employees). But only two years later in 2010 then President Obama signed into law the ACA, which included a weak individual insurance mandate.

Conservatives turned against the individual mandate, I assume, because it seemed to exceed the constitutional authority of the federal government under the enumerated powers of the U.S. constitution (remember them). In a very controversial 5-4 Supreme Court decision written by Chief Justice Roberts, the court ruled on June 28, 2012 in National Federation of Independent Business v. Sebelius that although the individual mandate was not constitutional under the commerce clause (already stretched beyond recognition), it could be construed as a tax and was therefore valid under the constitutional authority for congress to “lay and collect taxes.” While I favor a health insurance mandate, I also favor preserving the constitutional limitations on the powers of the federal government, which leave the establishment of such mandates to the individual states.

States have generally been more successful at addressing the financing of its citizens’ health care needs. They also have the advantage of learning from each others experiences. Consider the issues of catastrophic health care costs and those of preexisting conditions. Preexisting conditions are not appropriate for insurance coverage (insurance is meant to share the cost of “future and unexpected losses”), but they must, nonetheless, be paid for by someone. In the past, the financing of these known and/or unusually large expenses have been provided through risk pools. “Before Obamacare, 35 states had risk pools – available to people in the individual market who had been turned down for private insurance because of a health condition…. These arrangements were not perfect,” but worked better than the approach taken in Obamacare and should be restored and improved. “High risk pools worked just fine before obamacare”

So where are we? Republicans and Democrats want generally the same outcome–cheaper but better healthcare for all.  Democrats want that administered by the government and Republicans want to rely more on the private sector. I favor the latter.  Hopefully as the Senate writes their own health care reform bill they will provide the federal government’s financial support (tax subsidies) for those unable to afford their medical care costs (whether directly or via insurance) in such a way that states are incentivized to require individual mandates for adequate health insurance and that health care providers are not rewarded for unnecessary procedures. This is one important and complex piece of the overall adjustments needed to lower the cost of providing good care to everyone while allocating its cost fairly (a whole other debate).