Health Care Reform Economics and Forecasts
There has been some interesting analysis of the impacts on our health care system of the bill President Obama signed into law earlier today by libertarian economists Arnold Kling, Bryan Caplan, and Tyler Cowen. Many of the ideas have been floating around for a while (the bill’s been in development for more than a year and the Senate version upon which it’s based was passed in December) and we’ve discussed them quite a bit here on the blog and, especially, on OTB Radio but the aggregation is nonetheless interesting.
Kling calls the overall package “a clumsy way to redistribute wealth from the healthy to the sick.” Which, in many ways, it is. But while I’m generally not a fan of government-imposed redistribution schemes, the sick would seem to be an especially deserving charity case.
Less philosophically, there are either some rather serious unintended consequences or incredibly calculated pitfalls in the plan as passed — even presuming that the reconciliation fixes go through.
Free Rider Problem Increases
The near-immediate ban on denial for pre-existing conditions and the delayed-until-2014 individual mandate actually increases the free rider problem that the latter was supposed to fix.
As Kling puts it, “The anti-discrimination provision alone reduces the incentive for healthy people to obtain insurance. Instead, they may prefer to wait until they get sick. To the extent that they do so, premiums will rise to reflect the average cost of health care for a sick person.”
Caplan writes, “In practical terms, then, Heads I win, tails I break even remains the winning strategy. And as adverse selection drives up the drive of insurance, paying the uninsured penalty until you’re seriously ill gets smarter and smarter.”
Employer-Paid Insurance Going Away?
It was rather obvious that the combination of a public option and a low penalty for not covering employees was a backdoor way of shifting to a single payer system. But, of course, the public option died and we were left only with the penalty.
Caplan observes, “the penalty seems to asymptote to $2000/employee” annually. He observes “I have a feeling that post-recession jobs are going to be a lot less likely to offer health insurance.” While I agree — employer-provided insurance is a model based on an economy that started evaporating in the 1950s — we didn’t have any employee mandate at all previously. Presumably, though, the creation of the Exchanges provides a dumping ground for low value employees.
And most employers would be glad to give up the burden of insuring workers — especially blue collar workers — as it puts them at a competitive disadvantage versus overseas firms that have government provided systems.
Subsidy and Reimbursement Disparities Increase
While the main achievement of the bill is to cover more of the working poor, it nonetheless creates some strange inequities. As Cowen explains:
Many Americans will receive subsidies for insurance, from what I understand roughly in the range of 6k to 12k. Many other Americans — namely those who already have health insurance — will not receive direct subsidies of this nature. Yet the subsidy-receiving and non-subsidy-receiving Americans will very often belong to the same income classes.
This disparity does not bother me personally (I have other worries about the subsidies), but I believe it will be very unpopular once it is publicly understood. One way or another, the “firewall” between the exchanges and the employer-supplied system will break down. Some people will want to spread the subsidies, others will want to limit them. Yet the former is budgetarily problematic and the latter will be politically difficult.
A second and related issue is that the differences in reimbursement rates — across private insurance, Medicare and Medicaid (highest to lowest) — will become a more pressing issue. For one thing, Medicaid patients will be crowded out by those buying private insurance on the exchanges, plus they will be crowded out by the growing number of Medicaid (and Medicare) patients. There will be pressure to fix this problem and the difference in rates will lead to growing supplier gaming, queues, quality differentials, and so on.
Over time, reimbursement rates across programs (insurance subsidies, Medicare, Medicaid) will converge to an increasing degree. Subsidies will be increasingly determined by income class rather than previous insurance history.
In the limiting case (I’m not suggesting we will get there), everyone will receive means-tested subsidized vouchers for regulated private insurance. In this strange way, Medicare and Medicaid could end up partially privatized and Ezekiel Emanuel — a voucher advocate — will end up being more influential than his brother Rahm. We will have to live with the problems of means-testing to a higher degree than today, but we will have something closer to a unified system, as do most other countries with universal coverage. There will be political pressure for compulsory health care savings, as they have in Singapore, to lower costs of finance.
And this will all be much more transparent than current inequities, since more of it will be in the public sphere than is currently the case.
We’ll All be Driving Cadillacs in the Future
Most of us have noticed this already but it’s worth pointing out again: The tax on “Cadillac” insurance plans will kick in in 2018, by which time quite a few people will suddenly finding themselves driving “Cadillacs,” since health insurance costs are skyrocketing while the brackets are only indexed to inflation. Over time, most middle class folks will be taxed on what they now consider ordinary plans.
Indeed, Ezra Klein has contended all along that this is precisely the point: It’s a means of forcing costs down. But, since insurance companies are private, for-profit businesses (although ones on the verge of being public utilities under the new system) lower cost plans will inevitably be lower benefit plans.
Backdoor Single Payer?
My suspicion all along is that these problems were obvious to the bill’s framers but that they were kicking the can down the road. Higher penalties, of course, would solve some of the above problems but they weren’t politically possible in the current environment. Ultimately, though, they serve as a backdoor path to a single payer system, which most Democrats want but for which the votes aren’t yet there.
The current health care delivery system (by which I mean the one that existed when we woke up this morning, not ObamaCare as it’s being gradually phased in) is unsustainable. And while the new system will solve parts of the problem, especially access for the working poor and the permanently non-emergent sick, it does little to contain the exploding growth in costs and nothing to defuse the ticking demographic bomb.
And, if it ultimately undermines the employer-provided insurance model, which has most Americans very comfortable with their own medical situation, some sort of government-run system will look awfully good.
It’s what Bill Clinton wanted in 1993 but couldn’t get. And what Obama wanted in 2010 but was smart enough not to try. But by expanding on the already high proportion of the population getting their health coverage through the government and weakening the incentives for companies to insure their own employees, the leap will be smaller next time.
I’m not scaremongering here, just looking down the road to what seems like an inevitable junction. And it’s where most of the developed world wound up decades ago. If our goal is to cover everyone, regardless of ability to pay or preexisting condition, then we’re not talking about insurance but a social welfare system. And it would be cheaper and more efficient to centralize it than to piecemeal it.
Philosophically, I’m not sure I wouldn’t be happier with something closer to a European system than the public-private patchwork monstrosity we’ve now got. We’re much more likely to wind up with a French- or German-style system than a bureaucratic British National Health Service. My guess is that it’d be something akin to Medicaid for everyone with optional private supplemental insurance, with high value workers getting the latter from their employers.
Scaremongering…I don’t remember the President saying anything about single-payer…or a high ranking member of congress suggesting the exact same thing you are…if they didn’t openly present that consequence that would be disingenuous.
I think Kling has a point that the free rider problem will probably be worse than it would have been had the mandate and premium increases been coordinated closer together. The bigger issue is that many don’t think the mandate taxes will actually be enacted, so all of the premium-spreading benefits of the mandates will never occur.
OTOH, it’s hard to game one’s uninsured status and protect one’s property from an unexpected accident or ailment. I would expect middle class compliance to still be high, as long as the payments don’t jeopardize their class.
The CBO reported that mandates generally reach a 60% to 90% compliance rate. We are currently about 85% insured without a mandate, so the value of the mandate is probably more in preventing back-sliding. The effectiveness of the mandate will more depend upon the appeal of the subsidies, personal financial condition and personal values/social norms. I think the delay of the mandate, and increasing perception that it’s just a tax, will severely undercut the social norm of compliance.
To make any “free rider” difference, in real numbers, you’d have to get people to cancel their insurance. Changing behavior in the small number of “new seekers” is not going to make a huge difference.
I don’t see the insured canceling because they don’t insurance it again until they get sick or 2014, whichever comes first. I’m not, any of you that crazy?
Mr. Joyner,
You write, “I’m not sure I wouldn’t be happier with something closer to a European system than the public-private patchwork monstrosity we’ve now got. We’re much more likely to wind up with a French- or German-style system….”
Speaking of Euro models, I always wondered why the Swiss system of public-private coverage wasn’t talked about more by conservatives as a viable compromise to the left/right extremists on this issue.
It seems the Swiss model combines the left’s desire for universal coverage with the right’s desire that private sector market efficiency be freed from government control and in Switzerland, individual’s make their policy choices, not government or employers.
I think if conservatives would have championed a clear alternative to “Obamacare” based on more progressive Euro style private/public cooperation, they could have contributed mightily to an intelligent civil discourse on a hugely important issue.
But, alas, they settled for the strategy of “baby killer”, “Marxist takeover” “death panels” etc.
Hence, my utter disdain for their infantile behaviour and vacuous policy alternatives.
My suspicion all along is that these problems were obvious to the bill’s framers but that they were kicking the can down the road.
I have little doubt that a lot of it is can-kicking. A lot of it, too, is that legislation is usually messy as attempts are made to please multiple constituencies.
It may well be that this is all going to radically alter the way in which insurance is provided, although I can equally see that what has happened is that insurance (and insurance companies) have become even MORE entrenched and institutionalized in our health care system making dislodging them and moving to a single payer system all the more difficult.
There is never going to be a British system here. Indeed, people who use that as the comparison are simply incorrect. The models you note (such as Germany or France) are probably better ones to emulate. At a minimum there really has not been a serious debate about alternative models and most American has a general sense that all universal health care is just like the British model (and that Canada has the same system as the British). Certainly columns and such constantly conflate those two and ignore all the other options.
I think most conservatives are genuinely ideologically opposed. Perhaps, having grown up in around the military’s socialized medicine, I’m not deathly afraid of it. Although, frankly, the military’s model is worst than most.
I think that’s right. Almost everyone seems to think NHS is THE model for socialized medicine. It’s almost assuredly the worst of the major countries’ systems.
I think you err in your assumption about single payer. What is important is to try to get everyone into a single system. Ideally we would do away with Medicare and have everyone in the same system. It could be a market based system, a Singapore type approach or a German/French system or single payer. Our patchwork system is designed to create inefficiencies and interest groups. It makes it hard to achieve any workable solution.
Steve
Tyler Cowen thinks we are going to vouchers, which is a little bit weird for me because it felt like I was the only one saying vouchers there for a while.
Maybe there enough moderate Republicans who, like James, are willing to work toward something ‘less bad’ at this point.
After all, holding the line on what we’ve got could never have been the long term solution. It was always a holding strategy, until the Republicans could get back in.
Perhaps you have been “inside the beltway” too long. My wife and I have health insurance that most people would envy. But good times don’t last forever, and today’s comfortable white collar couple can easily see those benefits vanish due to layoffs. It’s happened to me before, and being a top performer at that job did not save me when head count cuts came around.
So while I am very thankful for our hight quality & affordable insurance, I am far from comfortable. Maybe you need to get out more.
Again, you need to get out more. No one I know thinks this.
Because they were simply not interested in a policy debate whatsoever. If I were a conservative I would be pissed that they essentially locked themselves out of the debate in favor of a scorched earth strategy to “get” Obama the way they “derailed” Clinton’s presidency (and all that got them was a 2nd Clinton term). Conservatives could have gotten many concessions such as tort reform, increased market reforms (I’m often bewildered that the AMA, which is essentially a labor union gets such a free pass from conservatives since they are a big reason the competition for medical ides is stifled in favor of an over reliance on pharmacology treatment). Instead they played politics and got their ass handed to them.
Honestly, I think what congress just created is going to make things worse rather than better. It is almost like they wrote a bill that is likely going to make healthcare more expensive rather than more affordable, and access is still going to be a problem (just because a person has insurance, that doesn’t mean they are going to be able to find a doctor).
I think at some point we are going to end up with some kind of government funded and run system from cradle to grave, but I doubt it is going to look like the UK’s or Canada’s system-although these are the two systems most Americans think of when the issue is brought up.
I also think part of the problem is we can’t even define what should and shouldn’t be covered as basic healthcare.
Most people don’t spend a lot of time contemplating What if? scenarios. If they’ve been insured for years, they tend not to be particularly worried about being uninsured absent some specific layoff concern.
Just look at the debate on the issue. Almost everyone compares our system with a British-style, state-run system rather than a Continental model.
I’m afraid that was effective politics by the right. They wanted people to think there were two choices: our current system or a British/Canadian Bogey Man.
When you look at the sausage you will find some ugly ingredients necessary to make the sausage. Without them, there is no sausage. We can nitpick amd I agree that some of the provisons are far from ideal but the real comaprison is- this bill as opposed to none. Its too bad pubbies picked up the marbles and went home.