CNN reports on the way that my own Obamacare expenses (my premiums plus deductible for next year will be close to 40 percent of my 2015 adjusted gross income) are not unusual.
“These costs are largely a symptom of the fact that medical costs in this country are extraordinarily high,” said Kevin Counihan, CEO of the federal exchange, healthcare.gov. “We have an 800-lb gorilla here, which is exploding health care costs.”
1. Regardless of what economic theory suggests about health care policy, the political system is heavily biased toward stimulating demand while restricting supply. For example, Obamacare stimulated the demand for health insurance through a combination of mandates and subsidies, and yet it restricted supply in that it gave consumers fewer choices. Hence, the “exploding health care costs.”
However, this political bias has operated much more broadly and for much longer. Medicare and Medicaid stimulated demand, while supply has been tightened by restrictions on medical licensing, practice regulation, and regulatory limits on hospital construction.
The most economically beneficial reforms of health care would run counter to this political bias. That is, they would serve to increase supply and cut back on the stimulus to demand. Of course, such reforms are not going to be popular politically.
2. The hope that a single-payer system will reduce costs is misplaced. Compared to what many major industrial countries spend on health care, we spend a higher proportion of our GDP on Medicare alone. [UPDATE: a commenter pointed out that I need to include Medicaid. In fact, I also need to include government employee benefits. See the table from the OECD which is found in this piece by Megan McArdle. As I pointed out ten years ago in Crisis of Abundance, our high spending reflects a willingness to undertake a lot of medical procedures with high costs and low benefits.
3. As individuals, each of us would like unlimited access to medical services without having to pay for them. Collectively, we cannot afford this, because it leads to over-utilization and waste. As our rate of health care spending becomes unsustainable, we are going to get a combination of third-party rationing (denial of coverage for some medical services in some situations) and self-rationing (insured individuals facing higher deductibles and co-pays will choose not to obtain some medical services). If the left has political control over health care policy over the next ten years, I expect to see more third-party rationing. If the right has political control over health care policy over the next ten years, I expect to see more self-rationing.
4. A two-tier health care system is all but unavoidable. If the government provides basic health care for all, then the rich will go outside the system for expensive procedures. For example, Canadians can come to this country for treatments that they cannot obtain in Canada. If the government limits its involvement to providing health care vouchers to poor people, then they will not be able to afford the services that the rich are able to obtain.
5. New discoveries in health care tend to make existing programs and policies anachronistic. The FDA is often a roadblock to innovation. Medicare and Social Security have not adapted to greater longevity. Incentives for innovation are too dependent on the patent system, as opposed to prizes or other methods. New forms of health insurance, such as “insurance against becoming uninsurable,” need to be tested in the market.
So?
1) Should we have a national euthanasia program? Is that the ultimate self-ration program?
2) Should we allow our insurance companies to source drugs from other developed nations? That sounds like a competitive way to lower drug prices.
3) Should we allow more basic child birth procedures? At this point, our nation spends tons of money ($10 – $14K) for birth but infant morality is historically low. I would think if we had more basic birth procedures then we save a bunch of money but infant morality would have slight increases.
Are you honestly suggesting that government get out of the business of medical licensing? Likewise, while the FDA may often be a roadblock to innovation, are you suggesting that we would be better off without it? If I’m interpreting you correctly, I think extraneous points like these detract from the rest of your argument.
I completely agree that we will always have a two-tier healthcare system. What you don’t spell out is that the ultimate effect of Obamacare and whatever follows it will be to shift the bulk of the population from the (broadly defined) higher tier to the lower tier. This seems to be the effect of other leftist policies as well (e.g., in housing, immigration and education) – to implode the broad middle class, making the slope of the socioeconomic mountain much more steep. I suspect this is intentional.
Meanwhile, the Democrats campaign on how they will fight for the middle class, and Republicans respond either with ineffective bromides about free enterprise or with joke candidates like Trump. Nauseating.
Where is the Justice Department’s Anti-Trust division when it comes to the consolidation we’re seeing in the healthcare industry? Honest question. Seems weird how they’ll get all over Utz and Snyder’s of Hanover, two tiny snack food companies nobody outside of PA and MD have ever heard of, but, say, UPMC can take over virtually every hospital between Harrisburg and West Virginia panhandle and nobody has a thing to say about it.
In competitive markets, where entry and exit are relatively simple processes, you wouldn’t have to worry so much about this, but the way both states and the federal government seem intent on enforcing anti-competitive laws that make new firms’ entry difficult, it seems imperative that they also go out of their way to prevent consolidation. Too much political leverage on the part of large healthcare providers?
Just to further this point, here’s something a stumbled upon in a hospital’s financial statement’s this afternoon:
The assets of Newberry County Memorial Hospital (MCMH…increased by approximately $2,536,000 in 2014. This increase is due to the net income for the year, including capital grants and county appropriations. In fiscal year 2010, the NCMH Board negotiated a settlement of $6,250,000 with Palmetto Health to settle a Certificate of Need appeal. The settlement will allow Palmetto Health to construct a hospital 32 miles southeast of Newberry. NCMH received $1,250,000 in the fiscal year ended June 30, 2010 and $2,500,000 in the fiscal year ended June 30, 2012. The remaining $2.5 million was received in fiscal year 2014.
So they were able to finagle $6.5 million out of another healthcare provider that wanted to build a hospital 32 miles away. Yeesh.
I believe the 2-tiered situation you described only exists in those national systems that are underfunded. Now America being what it is, I suppose we would inevitably end up being one of the latter, but that is not a reason for those who favor universal right to health care to stop fighting for it.
Personally I wouldn’t call denying insurance to people with pre-existing conditions “self-rationing.”
I believe that I recently saw it pointed out that getting rid of drug patents as a way to reduce cost, as has been suggested by many on the left, was suggested by Hayek, so I wonder why I haven’t seen you at least considered the idea (to my knowledge).
The vast majority of drug research is for “me-too” drugs. Very little that’s innovative and useful comes from drug company research. Part of this is because of FDA regulations, but… bleh, I can’t believe I’m commenting in a place where I feel it’s almost necessary to go into a long digression into why the idea of doing away with the FDA is obviously completely insane, but I won’t… scientists are perfectly capable of doing basic research with government money, and the private sector tends to underspend on it, because there’s no immediate profit. So get rid of patents and let government fund research.
Anyway thought just popped into my head: the flip side of Canadians coming to America for operations for which there’s a wait there is Americans going to Mexico for operations they can’t afford here. Make of that what you want.
Couple more things occurred to me: I don’t know what Arnold’s current income is, but I’m pretty sure he has massive wealth, so I can’t help wondering (assuming) that that 40% of income is from an expensive plan that he chose because he can afford it for that reason.
The other thing is occurred to me that I might have misremembered the thing about Hayek, but apparently not. Here’s the tweet.
https://twitter.com/FriedrichHayek/status/792147509183295488
I disagree there is an unlimited desire for heath care, but there is an unlimited desire to charge without having to deliver and this leads to the high costs and low utilization rates here. We do less but what we do do is much more expensive. Insurance being a fixed price banquet, rationing is highly ineffective as we have seen for a long time. Successful insurers will need to change this and focus on costs. They need to keep the healthy as happy and satisfied with it to keep it, while controlling the major costs of the ill. This means providing easy access to low cost retail medicine while directing usage of hospitalization and operations which are not only the most expensive portion but costs of which differ as much as factors of two or three within the same cities. Insurers most effective at attracting the healthy and directing the ill will prosper. It won’t be rationing but getting the best prices from the most efficient providers and directing usage through them. There has always been a two tier system, and there will be a set of premium providers for those whom cost is no object limited only by their ability to sell and the willingness of their customers to pay.
It isn’t that more market orient policies (reduce demand, increase supply) don’t exist, but that Republicans are even more opposed to them than Democrats, being large constituents for them.
I would avoid the term “two-tier” as the system you describe does not have two discrete, qualitatively different states. It conjures up concepts of have-and-have-not, in-group/out-group & us-and-them that I think are counter-productive and inaccurate. I do not think those are useful ways of describing a system with minimum utility provided for everyone, with some sub-populations having access to varying degrees of utility above that. I would not, for example, describe housing in America as “two-tier.” Everyone* has access to some base level of housing, some people can get a level marginally above that, some people get a level marginally above that, and so on. Even this assumes housing quality is a uni-dimensional variable, which I do not think it is.
* I don’t want to ignore the problem of homelessness, but I think it is more a matter of mental & behavioral health rather than a problem of providing physical infrastructure to live in.
What is your vision for emergency care? Should EMTALA be repealed? I find myself often struggling to reconcile the unambiguous personal duty to assist a person in need of immediate medical care with the plague of free ridership in our emergency departments.
It’s always tough to imagine what can evolve in a market if you let it.
I’d be interested to know how big of a problem people being turned away from emergency care was before EMTALA and how big of a problem it is after. Did the EMTALA create a bigger problem?
I’d also be interested to know how things are handled now. Do people who go to an emergency room w/o a means to pay get turned away if the need is determined to not immediate or, at least, could have been handle much cheaper at an urgent care or Minute Clinic?
How many times should people get to receive free “immediate” emergency care before they can be reasonably expected to make better arrangements?
“Did the EMTALA create a bigger problem?”
It’s a good question. I would like to think that very few emergency providers shirked their duty, but it only takes one really bad case to make the front page of the NYT. That’s why I think the existence of something like EMTALA is inevitable.
“Do people who go to an emergency room w/o a means to pay get turned away if the need is determined to not immediate or, at least, could have been handle much cheaper at an urgent care or Minute Clinic?”
In my experience, they receive treatment regardless of the presence of an emergency medical condition, and the hospital tries (often unsuccessfully) to collect after the fact. This exacerbates the free rider problem, but on the other hand, where are these folks gonna go if they don’t have any money?
“New forms of health insurance, such as “insurance against becoming uninsurable,” need to be tested in the market.”
Just a quick note, this has been tried and failed. The demand for it is obvious, but nobody can solve the underwriting problem.
Do you have a source for #2? It doesn’t seem right that the US spends that much on Medicare (or even Medicare & Medicaid). A quick good search seems like we spend 7% of GDP on Medicare/Medicaid, which is less than what many western countries spend on healthcare. But if you are thinking of a specific study I would like to see it. I imagine it depends on how you count up the money.
Thanks.
My bad. I should have included all forms of government spending on health care. I updated the post.
1) Yeah, exploding healthcare costs did not exist before the ACA, therefore the ACA is responsible for exploding healthcare costs.
2) Yeah, it is far cheaper to let people use emergency rooms with no insurance and no ability to pay cause everyone knows providers just write it off and there is no cost to anyone.
I could go up to 20 or so, but damn.