I lament the death of the public option. Without it, the bill feels somewhat rudderless. Public subsidies to private industry are stupid and wasteful, and represent further rent-capture on the part of insurance companies. That having been said, I agree with Dave that momentum is not an inconsequential force in politics. I have no empirical basis from which to argue with the cost-projections made by the CBO, either, though it seems that it rests on more assumptions than hard evidence. If there was just some kind of sign that this process would continue to move forward, I would be a little more eager to pop the Moet. My feeling, however, is that the Democrats are completely platzed. It took everything they had to push this train wreck through and they didn’t start with much in the first place. Harry Reid, poor old sod, was in such a tizzy from exhaustion that at one point he even—if temporarily--voted against his own bill.
So I’ll come out and say it: I think that this bill is a mistake. I say that as a person for whom healthcare reform has an immediate and meaningful impact. My parents are in their 50’s and skirting the poverty line, so that healthcare is completely unavailable to them. I have no idea how generously they will be subsidized, but, at $13,000 for a family policy, it’d better be legendary or my family is gonna take a severe hit on this one.
After falling upon it with outrageous savagery, I’ve since warmed to the stance taken by This American Life in its pair of shows on reform. The problem in healthcare does not lie, I don’t think, in the structure of the insurance industry. The problem is in pricing, which means the problem is caused by doctors and hospitals. Case in point: the cost for a single scan by an MRI machine in Japan is US$98. In stark contrast, it's two grand a pop here in New York, as my mother was aghast to discover. This disparity is not due to the availability of MRI machines, though per capita Japan has slightly more MRIs than the US. It’s simply because per unit costs for MRIs are not as high in Japan as they are in the United States. Something in Japan curbs the Japanese healthcare industry’s rent-seeking and that is to the benefit of the consumer, and it isn't public insurance. The majority of healthcare spending is done by some 2,000 private entities, though there is a substantial contribution (31.7%) by the government--a share that is still far below the 42.9% of spending done by public agencies in the United States. Yet Japanese healthcare is cheaper.
The Netherlands is exceptional in that it has a completely privatized healthcare system, as I've mentioned before. Premiums average US$300 a month. Again, this could only be possible if the per unit cost of healthcare services was low, so that insurance companies would have no need to charge outlandish premiums. Once more, something exists there to curb the rent-seeking of healthcare providers, and it does so regardless of the for-profit structure of the Dutch insurance industry.
It’s no secret that I am not a fan of privatization. I would prefer public provision of insurance, if only because it would be responsive to legislative, rather than market, pressures. Public power has the ability to distribute losses and gains in a socially beneficial manner. A public institution can operate without making a profit, or even at a loss, and thus can ensure the wide and equitable availability of strictly economically inefficient public goods (such as health) to the greatest number of citizens. That, to me, seems more compatible with the stated aims of democracy than the shareholder-driven incentives of private limited-liability concerns.
That having been said, in the United States, where the public soil has been so irradiated by ignorance and meritriciousness, you have to be a pragmatist if you want anything of worth to grow. Maybe we do like the Dutch, and have a privatized healthcare system. As the Netherlands demonstrates, that’s not incompatible with the goals of universal provision and low costs. The key is to control prices. And that’s exactly why this bill is a wash: it does nothing to shift the power to set prices to the government.
Every single healthcare system worth a damn on this green earth has an agency that sets prices: every single one. Whether in systems with high participation by the private sector (Switzerland, the Netherlands, Japan), a balance between the two (Germany) or low to non-existent private competition (France, England), there is always a public price-setting authority. The extent to which each national regimen exercises this power varies. Drugs are almost always price-controlled, but services, such as MRIs, may be the prerogative of individual suppliers. Regardless of national idiosyncracies, rent-seeking behavior under all of these healthcare systems is severely circumscribed by the public power to fix prices. The government, in effect, sets the absolute limit on the profitability of healthcare providers, and they work within that range. They are subordinate to the legislature, and to public goals in healthcare provision.
And why should governments set prices? Isn’t price-fixing horrendously inefficient? What about lines at gas stations in the 70’s or queues at Soviet stores? The proper response to these oft-trotted out tropes is that price fixing only leads to deadweight loss (the difference between quantity supplied and quantity demanded) if the conditions of perfect competition hold: that is, if no provider has the power to influence the price of a good and if markets clear immediately i.e. prices and quantity supplied change based on exogenous and endogenous movements of supply and demand. Healthcare services, however, always and everywhere do not obey these rules (actually, you’d be hard pressed to find many industries that do, but that’s a whole different subject). The healthcare industry is, I would say, much more appropriately approximated by the model of monopolistic competition.
Monopolistic competition is usually explained, and only briefly, in my experience, as its very existence makes many mainstream economists squirm, as occurring in sectors of the economy that are influenced by geography. The restaurant business is the example that was most often cited to me. Restaurants provide a broadly similar service—food—and there are many suppliers in any given market, but, in their pricing patterns, they do not obey the rules of perfect competition—prices do not trend towards equilibrium. The reason for that is that geography is an extremely important factor when one makes the decision of what restaurant to eat at. We don’t get a list of every pasta and burger joint in the metro area, compare prices, and then go with the one that’s cheapest. I’m not gonna take the 6 to Parkchester just because I know that gyros are a dollar less than they are around the corner from me. We accept to some degree price-setting behavior by suppliers because there’s a non-monetary residual in our choice-making: convenience.
Hospitals are like restaurants. I may know that a hospital in Trenton will charge $2100 to fix my broken army, as opposed to St. Vincent’s, across town, which will charge $2500. That will not affect my choice to go to St. Vincent’s in the slightest if it’s a block away from me when my bone snaps. Doctors and hospitals are naturally monopolistic because location is important to consumers of their services. This fact is only exacerbated in the United States where, through their aggressive rent-seeking behavior, they have gained even greater influence over prices. This American Life singled out hospital groups as being some of the most powerful actors in American healthcare, and they were right to do so. In effect, hospital groups combine many local monopolies into one gigantic regional monopoly. Knowing that demand for healthcare services is highly dependent on geography, and on trust (we like seeing the doctors we know), a hospital group has nearly free reign in choosing what to charge its customers for enormous swathes of America. It isn’t a stretch to think that insurance companies, wanting to retain their paying customer base, and knowing that their customers consistently demand services from certain hospitals, will cave into that hospital’s—or group of hospitals’—demands.
This systemic imbalance could easily be solved by a single-payer system, of course. No hospital would be powerful enough to argue with the federal government. But we’re nowhere near single-payer, and, if we really want to reform healthcare in a meaningful, i.e. cost-reducing way, we have to attack those who set prices first, and only then move on to the secondary industries that respond to those prices. I already said in my previous post on This American Life’s healthcare special that acknowledging the negative impact of doctor and hospitals on cost-control does not imply that the insurance industry is thereby excoriated. Private insurance companies are grossly inefficient: in effect, all they manage to do is pass on the effects of obese rent-capture by hospitals to consumers with a 5-10% mark-up for themselves. But by focusing solely on them, we constrain our ability to lower prices by a maximum of 10%. If we set our sights on the price setters, we could achieve real savings in healthcare, the kind of savings—say 30-50%--that could make healthcare work. And, by reducing the economic power of one sector of the economy, we’d correspondingly reduce its political power and therefore its future ability to alter the legislative status quo to protect its inequitable share of national rents.
I’m afraid that, in this bill, all I see is a lot more faucets for the bad guys to drink from. Ben, you did a commendable job in trolling through the CBO’s report and it’s clear from your post that there is some reason to think that prices will at the very least be stabilized, if not, for the large group market, decreased. The kind of savings that are being projected are such a drop in the bucket, though, that I just don’t feel any rush of enthusiasm. The fact remain that American healthcare is outlandishly expensive, and that cannot be solved by targeting the insurance industry. Do we content ourselves with plugging the hole with public subsidies for an indefinite period of time? Unless some meaningful reform comes out of this process it just, to my mind, will be a whole new headache down the road.
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There isn't anything in your post that I disagree with. There is no doubt that the bill doesn't go far enough.
ReplyDeleteMy initial concern with the bill however was not that it didn't do enough, but that it was headed in entirely the wrong direction. But assuming that the CBO has come to something reasonably close to the truth in its projection (and maybe that's an unreasonable assumption, but I'll leave that question to you if you'd like to pick it up), it does seem, as Dave pointed out in his post, that an America with the bill looks better than an America without the bill.
Maybe there's a political argument against the bill there: if this bill succeeds, the public will not have the appetite to readdress its failings and shortcomings subsequently. Maybe killing the bill and failing to reform healthcare for the next year or two or three or ten now will so heighten the contradictions, so to speak, that single payer will be the inevitable result. But that seems like a pretty big risk to take. Especially in light of the possibility that the momentum provided by a passed bill may very well transfer to the subsequent (and as you made the case) necessary reform of the reform effort.
But I don't think anyone would argue with your basic premise: the bill leaves a lot to be desired.
The public will not have the appetite to readdress its failings subsequently? Did they have the appetite to address its failings this time around?
ReplyDeleteFrom Nate Silver:
"In a typical year, a family of four making $50,000 will have to pay about $300 per month in premiums to cover the entire family. This compares with a retail cost, before subsidies, of about $1000 per month."
Should the question whose answer determines whether or not this bill is good be: does this help Americans afford healthcare? Everything I've read says that yes, it does. And in most cases, substantially so.
Am I wrong, or am I, like Walter, just an asshole?
Yes, but subsidies are not free money. They have to come from somewhere and they have to do so not just for the short-term but for years to come. At the same time, we have to operate on the premise that this will, for some time, be the status quo on healthcare reform. That means that it will be the government's job to make up the 'difference', so to speak, between affordability and unaffordability in healthcare. Yet there's no indication that this bill will cap the rise of healthcare costs, which is the point of my post. There is nothing here to prevent, over the long-term, a continuing and dramatic rise in the price per unit of healthcare in the United States, because this bill only focuses on insurance companies. They are not, in fact, the reason that healthcare is expensive. If we want to cap costs, we can only achieve that goal by attacking the mechanism that sets prices, which is currently in the hands of hospital monopolies.
ReplyDeleteMy concern is that there will be no follow-up to this bill. Like I said in my post, I have no objections to this being the first shot in a war for real healthcare reform. But if we're looking at D-Day, we ain't come anywhere near Berlin, boys. And since Obama and the Democrats have fumbled on nearly every progressive count--financial reform being only the most prominent example--and since getting the healthcare bill passed was so unbelievably excruciating for the Democrats, I have serious doubts that there will be any second wave. This bill might be it. If it is, it quite simply does not fix the underlying problem in American healthcare, and will end up, I think, being a well-intentioned but costly failure in the long-term.
Sol, I think you may be an asshole like Walter, but I also think you're right. I was writing "maybe," but I was thinking "maybe not."
ReplyDeleteOn the issue of subsidies, as I mentioned in my post, most projections that I've seen still put total premium costs either equal to or slightly below the status quo. Meaning that while yes, subsidies do come from somewhere, the sum of the government's involvement, the premium paid by the policy holder, and any costs that might be forced back upon the health insurance company under the new law still aren't expected to exceed what policy holders are paying for now. And given the projected deficit impact of the bill overall (negative), it seems the subsidies are fully paid for and then some.
As for the overall affect of the bill, I'm really sympathetic to your argument because I was initially making the same one. A lack of progress is one thing to complain about in a bill, but a policy that actually pushes the cost curve the wrong way would obviously be unacceptable. But then I looked at the numbers provided by the CBO and then reinterpreted by Nate Silver and then thrown up in my red face by Dave. So I'm not sure why you write "there's no indication that this bill will cap the rise of healthcare costs..." I think there's a pretty big indication in the CBO projection. Again, maybe you have reason to distrust those projections or the Office itself, but if so, I'd like to hear about it.
And if you look at the bill itself, or at least glance at its table of contents, not everything is all about the insurance companies. There is funding for community non-profit provider centers geared towards preventative care, there is increased funding for medical school based providers, there are big improvements in chronic care treatment funding and reimbursement practices, the way in which federal programs compensate providers for care is either directly changed or slated for future review, there is funding and regulation that should push providers into a relatively standardized national information technology system, there are new subsidies for medical students particularly those who decided become non-specialists and/or nurses, and there is the establishment of a medical advisory board which would research "centers of excellence" like the Mayo and Cleveland clinics and to establish a list of national best practices which other providers could receive funding for emulating. All of these things will/should decrease medical costs and some of them address the issue of provider market concentration, an issue which, while I think is important, is also not the sole cause of healthcare cost inflation.
Also, if that all still doesn't convince you, Uwe Reinhardt, the man whose take on this whole mess seems to be informing your own, seems to have tacitly supported the bill.
And even after all that, even if the bill does nothing to decrease costs or curb their growth, unless you think the opposite is going to happen, that the bill will endow providers with even more power to skim off the top, this bill still strikes me as better than nothing.
Well, to Lion... This is difficult to say. Everyone here would love it if Obama'd managed to pass a real true-blue public healthcare bill. That goes without saying. He couldn't, though, and that also goes without saying. We can argue about whether he could have or should have pushed for something more, sure. But this is what got passed. If voters decide that they like where this is going, then maybe the Democrats won't lose all their senators next year. We would all love to be Liberal Fascists but that doesn't really happen.
ReplyDeleteAnd I will readily admit I'm arguing uphill here, because everyone here knows where the shit more about this than I do.
Everyone here knows WAY the shit more, not where the shit. The shit is, last time I checked, still in my butt.
ReplyDeleteSHITT IS IN UR BUT NOTFOR LON!G!!!
ReplyDeleteI'm impressed that this comment thread made it to five entries before the topic reverted to our butts and the things inside them.
ReplyDelete