Sunday, March 9, 2014

Obamacare: The Good, the Bad and the Ugly

I do not like Obamacare AKA the Patient Protection and Affordable Care Act (ACA).

But before getting to the particular points of this blog post, let me say that if you think that Obamacare is 100% perfect, or if you think it is 100% evil, in both these cases you are displaying an impatience with thoughtfulness and detail.

So, let me now beg your patience for a while.

First, Obamacare is not so awful that, if it were totally repealed, it would not have to be replaced by something better, because it IS better than what we have had for the past 35 years.  And here is why:
  1. It aims at Universal Coverage (a worthy aim that it has failed utterly to achieve).
  2. It forces health insurance companies to ensure Americans with pre-existing conditions (a good thing unless you are someone who believes you will live forever in perfect health and you don’t want to pay higher rates because someone else might actually get sick).
  3. It forbids health insurance companies from placing a limit on their payments to an insured (another good thing, as it will keep folks from having to sell the house and empty their retirement savings in order to pay for life-saving medical care).
  4. It allows families to keep their unemployed children up to age 26 in their family policies (a good thing for families with kids in college).
  5. It lends a helping hand to people who would have difficulty paying retail for their heath insurance.
  6. And, once it gets over its considerable (and never ending!) birthing pains, its price increases will begin to slow down.
Those are Obamacare’s good parts.  Now for the not so good parts.
  1. The price of Obamacare MUST be higher than the price of what went before, if only because of the added benefits of the law.  Items 2 through 5 above must drive up the cost of health insurance, no matter what President Obama promised.   Someone has to pay for the extra expenses of the insurer.
  2. Whether the “individual mandate” is Constitutional (Chief Justice John Roberts and four other Supreme Court justices say it is – so it is) or not, it is clumsy and filled with problems, most especially failing to get people to sign up to accomplish universal coverage.
  3. The “religious freedom” mess (whose freedom: the employer or the employees?).
  4. The Small Business mess.
  5. It forces some businesses to pay to insure its employees, a mistake for so many reasons.
  6. It keeps the old model of health insurance – private insurance companies competing with each other on prices and benefits – and that has been tried and found wanting.  The "free market" always sounds good; but the history of free market health insurance in the United States is an abysmal failure, as there is no other sector in the economy whose prices have increased more – year after year, for decades – than private health insurance.  Competition in private health insurance just does not work its free market magic, for reasons that are beyond the scope of this blog post (I discuss them elsewhere, in my book).
  7. And the worst part is (even worse than President Obama selling it to us with lies): as long as a significant number of people do not sign up, the cost of Obamacare will continue to rise.

So, what should we do?  As Obamacare provides some real benefits, it is at least an improvement on what went before.  So, if we want to scrap Obamacare, we should have something to replace it with.  So, let’s talk about its replacement.

Some people – liberal Democrats and, honestly, many other Americans, too – want what is called “Single Payer” or “Medicare for All.”  That may be better than Obamacare, but it has its issues too, in particular doctors not liking its reimbursement schedule.  And, inevitably, some of the best doctors might not serve under a Single Payer system; they would take private patients only.  So we would have a two tier medical system, which may be inevitable anyway.  An unintended consequence of that might be people belittling doctors who serve the public system, and that might drive many doctors who want to serve the public into the private system.

The so-called “public option” that was talked about while Obamacare was still being cobbled together would have been competition for the private health insurance system, it would have created a hybrid public/private system.  And its critics were right – it might have undermined and destroyed the private health insurance system.  And left us with Single Payer.

But, as good an idea as Single Payer may be – and all of Europe likes it – I think there is a better way to go, and it is the consequence of thinking without preconception or ideology.
  1. There is one sure way to achieve universal coverage: pay for it out of taxes collected and just plain cover everybody!  Whether it would be a special tax like Medicare or folded into the over-all tax structure is a matter for debate, but not so important an issue.  This is the ONLY clean way to cover everyone.
  2. There is one sure way to contain – and even reduce! – prices of health care: subject them to the law of Supply and Demand.  “But you just said that that experiment did not work!”  No, I said that the prices of health insurance do not follow the law of Supply and Demand.  Ask Americans to pay for all their health care out of their own pocket books, and you will see the price of every medical good and service take a slow but steady nose-dive into middle-class affordability.  If you and I have to pay out of pocket for a routine doctor visit, we will find the best local physician who will take what we can afford, and doctors will sprout up all over who will charge what we can afford.  The same goes for prices of prescription drugs.  A drug that now costs $160 / month MUST drop its price.  Why?  Because very few people will be willing and able to pay its out of pocket price.
  3. “Yeah, OK, but what if I get seriously sick; what if I need a heart operation?”  At some point – before you are made destitute from catastrophic health care costs – an insurer must help out.  Here is a sample of how things might work: You should pay 100% out of pocket until you have spent 10% of your “real income”* in health care costs; then you should pay 50% of the extra cost for the next 10% of your “real income”, with insurance paying the rest; then you should pay 25% of the extra cost for the next 10% of your “real income”; then you should pay 10% of the extra cost for the next 20% of your “real income”; then your insurance takes over and pays 100% of the rest.  This re-sets every year.  In this example, someone with a “real income” of $50,000 might have to pay as much as $9,750 out of pocket in a very bad year.  This plan is an update on what used to be called a Major Medical plan, and what is now sometimes called a Catastrophic plan (a Republican idea).  The high out of pocket expenses do two things: 1) they keep the cost of health care goods and services provided by doctors, hospitals and drug companies as low as Supply and Demand can drive them; and 2) they keep the cost of insurance low because insurance will not kick in until after you have paid a significant sum out of pocket (in a healthy year, insurance will not reimburse you a penny).  BUT, and this is VERY IMPORTANT, this “catastrophic” plan cannot compete with non-catastrophic plans, as all its benefits (see #1 and #2 a few lines up) will disappear as a result of everyone wanting something that looks good for them individually but in the end is a bad deal for everyone (because it returns us to the pre-Obamacare days of unstoppable health care price increases).
  4. The remaining issues include: who underwrites the insurance, private companies or the government or both?  And do they bill according to a “fee for service” model or a per patient model?  I don’t know.  I am neither an insurance expert nor a health care expert.  These are a few basic ideas for you to improve upon.  Take over!

Addendum: Wednesday, 08/15/2016
This just in: a new cholesterol drug call Praluent.  $14,000 / year!!!  What a great argument for my health insurance plan.  My insurance plan that has all of us self-insuring until it gets really painful!
"Why is that so great an idea with a new $14,000 drug that will bankrupt me?"
Let them charge $20,000 / year, $50,000 / year, who cares?  Who will buy the drug at that price?   A few damn fools!  No one except a very few will be able to afford it!  And, yes, that is good!  Because the drug manufacturer will be forced by the deadly forces of Supply and Demand to drop his price into reasonability, otherwise no one is buying it.
"But insurance should cover it."
Nonsense, it would explode the price of insurance.  Insurance is not free, even if the government is the insurer.  My way is the way to go!  Forcing you to pay for the drug out of pocket forces the drug manufacturer to price his miracle drug low enough for enough folks to be able to afford it.  The "free market" really does work its own miracles sometimes.

Addendum: Sunday, 12/04/2016
My notion of how to do health-care has some history.  What I am advocating used to be called a "Major Medical" health insurance policy, where the deductible was pretty high, typically several thousand dollars.  You needed to have substantial out-of-pocket costs before the insurance began to cover your medical expenses.  These days, some call it "disaster insurance" but the idea is the same.  It seems to me that it ought to be a Republican idea for health care, but so far Republicans have not put their cards on the table.
I would also modify the details of my plan.
  1. It should be government that insures us all (after the deductibles), not private insurers.  
  2. I would allow a free (paid for by government funds) annual check-up for everyone.  
  3. I may want to base the deductible on wealth not income.  
  4. There are ways to game the system: a) some wealthy people can "prove" their poverty by clever accounting and b) some folks may want to use the most expensive doctors once the government is paying the lion's share of a medical cost.  Gaming the system needs to be prevented.
Finally, some people just love to have FREE health-care (where the government pays), and the idea of having out-of-pocket costs disturbs them, even if the out-of-pocket costs are far less than the taxes that would have to be levied to pay for that same care.  And they will vote this way too, even at the cost of huge annual deficits and an exploding National Debt.  We need to do what is rational, not what the people want when they are not able to understand what works (to get the job done at the least possible total cost).

* Some very wealthy Americans declare no taxable income and pay no income taxes; they live off their wealth.  “Real Income” would take that fact into account.  Indeed, all income tax policy should do that.  Perhaps 5% of everyone's Net Worth (assets minus liabilities) ought to be added to each tax payer's "taxable income."  Yeah, I know, this sounds really awful because you are probably thinking: "what will that do to MY tax burden?"  And for most of you the answer is: not much.  In the tax overhaul that I would recommend, middle tax brackets would be taxed at lower rates than they are now,  A home-owner with a $400,000 home (mortgage all paid up) would see his taxable income increase by $20,000, and that extra income might be subjected to a tax rate of 30% for additional taxes of $6,000.  But the lower rates that he would be paying over-all would result in less taxes than he pays now.  Taxing wealth as income really matters when the wealth is really significant.

Addendum: Thursday, 12/15/2016
Implementing a national Major Medical Plan (you like that name?  No?  OK, send me a better name), would also eliminate the need for Medicare and Medicaid, saving the Fed an extra $1.2 trillion every year!  Both programs would end, their being no need for them.  So much for Medicare going insolvent!  The idea behind Medicare was that retired or disabled folks would need some help paying for health insurance.  OK, that is built into my plan.  The idea behind Medicaid was that poor folks would need some help paying for health insurance.  OK, that is built into my plan.  My plan covers everyone, and it begins to help everyone just when they begin to need help.  And because it relies heavily on out of pocket expenditures, the cost to the government is minimized.  And because it relies heavily on out of pocket expenditures, its cost to consumers will be as low as supply and demand can make it.  The cost to the Treasury of free annual check-ups would in all likelihood be less than $50 billion.

Who loses?  First, private health insurance goes away; an industry vanishes, and yes, many folks will be out of work.  Maybe there is a way to phase in the Plan, or just delay its implementation.  Next, drug companies that have charged what the traffic will bear will discover that consumers cannot bear the same burden as private insurers could bear; so drug manufacturers lose, too.  Finally, doctors and hospitals that have charged what the traffic will bear will discover the same thing that drug manufacturers discovered (don't get me wrong, not all doctors and hospitals will lose, only those who have been raking it in will find that their days of glory are behind them).  And, yes, the best doctors and the best hospitals will still be able to charge more than the competition.  But the big winners will be American consumers of health care, and ain't that the real goal anyway?

Addendum: Thursday, 12/29/2016
This plan is not an easy sell as folks will discover that health care will now cost them real money out of pocket; the government is not making health care look free, nor are insurance companies making doctor and hospital visits appear free, either.

"If we have to pay for it, why can't we just let health insurance companies compete for our health care dollars?"  The direct answer to that question is: that is what we did before Obamacare, and for the last 50+ years the cost of private health care has exploded like no other sector in our economy.  Sometimes, competition among private corporations does not provide the benefits of the free market; this is one of those times.  See my book's Capitalism & Health Insurance (pp.33-36) and The Health Care Industry (pp.119-121).

Out of pocket payments for most of our health care will force the magic of Supply and Demand to take over and deliver the lowest possible costs to consumers.  It may take a few years to settle, but it is an inevitable consequence of having YOU pay for your own health care.  (If I am wrong, we can abandon the experiment.  I am sure that most economists will agree that Supply and Demand is the best way to contain, and lower, the cost of health care.)

A phenomenal benefit of this program is how much the fed will not have to tax us for.  It will cost the fed a nation's worth of annual check-ups (a tiny $30 - $100 billion) plus an unknown amount to cover some people's really really bad years.  The cost of health care for most folks most years will be 100% out of pocket.  But that out of pocket expense will be way less than the cost of private health insurance plus co-pays plus the taxes that used to be raised to pay for Medicare and Medicaid.

Folks whose health insurance costs were previously a benefit of employment will pay more than they used to, unless their employer remits to them what it used to cost them to provide free health insurance to their employees.  This plan should not be a bonanza for private employers and a large cut in pay for their employees, so corporate savings should go into employee pay checks to be fair, at no loss to the employer.

What have I missed?  Let me know.

Addendum: Saturday, 12/31/2016
  • The elimination of private health care insurance as a component cost of health care would be the direct cause of a huge savings (10% - 30% of the total cost of health care) to everyone (except private health care insurers).
  • The only people who will ever have the government pay 100% of the cost of a medical service, even after all deductibles, will be people who are truly indigent, like homeless people.
  • Whenever the government begins to share costs for a health service, it will payback (reimburse) based on “typical” (local) costs for that service.  As long as a person remains within the deductible and pays 100% out of pocket for a health expense, he can choose any provider he wants, even the most expensive, even if he could not afford that provider otherwise.   However, once the government begins to share costs for a service, it will limit how much it will reimburse the patient based on typical (local) costs for that service.  E.G., if a homeless person needs a triple bypass, whose typical cost would be $20,000 and whose cost with the best specialist in town would be $50,000, if the government share is 100%, it will pay 100% based on $20,000, not a penny based on $50,000.  Our poor patient may insist on the best doctor in town, but the government will only reimburse based on the typical cost for a service.  For the sake of health care, there will always be greater benefits to be rich than to be poor.
  • There are some health conditions that are partially bad health by choice.  Examples include obesity, nicotine addiction, alcohol addiction, illicit drug addiction.  Medical services to remedy or mitigate health conditions that result from these kinds of personal choices will be reimbursed at less than the regular rates as discussed above.  These exclusions will be phased in over time as some people are already addicted to their condition.
  • Bonuses will be paid out every year to every person who uses the system conscientiously (never forgets an annual check-up) and whose health remains as good or better than can be expected.  Not huge amounts, more like a gift of $50.
  • Last of all, there is another idea out there that could be looked at to solve our health care needs (entirely distinct from and independent of what you have already read in this blog).  It would use private health care insurance, but it would mandate that every health care policy be sold with a life policy attached, with a huge death benefit.  This would have the effect of making huge multi-national corporations co-equal partners in everyone’s continual good health.  However, it has an immediate down-side: it would be very expensive, the consequence of which would be that a huge part (20% - 80%) of the population would have no health care insurance whatever.