Questions for Healthcare “Reformers”
By WC Windbag
I have been a fan of John Stossel for a while. He is a libertarian in the truist sense – economic and social. We don’t see eye-to-eye on every issue, but the man is a true spokesman for libertarian economics. I’m just sayin’.
Any who… Stossel wrote an excellent column today, which I would recommend. His opening salvo:
As an American, I am embarrassed that the U.S. House of Representatives has 220 members who actually believe the government can successfully centrally plan the medical and insurance industries.
I’m embarrassed that my representatives think that government can subsidize the consumption of medical care without increasing the budget deficit or interfering with free choice.
It’s a triumph of mindless wishful thinking over logic and experience.
Within it, he provided some questions:
1) How can the government subsidize the purchase of medical services without driving up prices? Econ 101 teaches — without controversy — that when demand goes up, if other things remain equal, price goes up. The politicians want to have their cake and eat it, too.
2) How can the government promise lower medical costs without restricting choices? Medicare already does that. Once the planners’ mandatory insurance pushes prices to new heights, they must put even tougher limits on what we may buy — or their budget will be even deeper in the red than it already is. As economist Thomas Sowell points out, government cannot really reduce costs. All it can do is disguise and shift costs (through taxation) and refuse to pay for some services (rationing).
3) How does government “create choice” by imposing uniformity on insurers? Uniformity limits choice. Under House Speaker Nancy Pelosi’s bill and the Senate versions, government would dictate to all insurers what their “minimum” coverage policy must include. Truly basic high-deductible, low-cost catastrophic policies tailored to individual needs would be forbidden.
4) How does it “create choice” by making insurance companies compete against a privileged government-sponsored program? The so-called government option, let’s call it Fannie Med, would have implicit government backing and therefore little market discipline. The resulting environment of conformity and government power is not what I mean by choice and competition. Rep. Barney Frank is at least honest enough to say that the public option will bring us a government monopoly.
Read the column and comment below. Would love to hear the thoughts of our resident liberal commentator.
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I don’t have a lot of time this week, at least until Sunday or Monday, but I’ll provide a small thought on my opinion. My opinion, as usual, is based on my analysis of the facts. The facts, 30 or 40 years of actual data, contradict Jon Stossel’s assertions.
Rationing is already prevalent in the system today, so we’ll have to handle that later.
For the last 40 years or so, the mortgage market in America has been run as a sort of uniform mandate. Each home is special and costs vary, but several aspects of homes, mortgages, and lending are standard. Lenders can’t put hidden fees, you are able to compare two mortgages to determine the best price (the APY) and HUD-1 is a uniform form.
Instead of prices skyrocketing, the cost of mortgages is determined by a market that sets interest rates. It’s worked pretty well. Mortgages contradict Stossel.
So does Medicare. No one argues that medical costs are a result of the demand created by Medicare’s mass purchases.
The cost of Medicare tracks the cost of health care in America. Your health care costs have gone up a factor of 6 fold in the last 30 years, and so have the cost of Medicare. Your health care costs have doubled since 2002, and so has the cost of Medicare.
One could argue that there is another formula at play in health care costs. The cost of any product is the sum of the costs of production, delivery, and profit. The producer’s per unit cost always goes down when more units are produced (mass production). If everyone must get insurance, then the income to an insurance company increases dramatically. The cost of delivery is by definition smaller since their actual cost factors in their risk. The result is either significant profits or smaller growth of costs.
The public option would be a quasi public governmental corporation that would provide insurance for a fee. I am happy with the current Medicare fee system, but it probably makes more sense if they found another way to affix costs.
My ideal scenario is for Republicans to work with Democrats and get a package that works. Too bad Republicans went nutty on this one.
The rationing that we are talking about comes from reducing supply (number of doctors), increasing demand (number of patients) in a manner similar to the Canadian and English model. There are no argument that those systems are colossal failure, unless you are a member of the Administration.
Unless I am missing something, the mortgage business and the healthcare system are completely different. First, no one needs to buy a house, while everyone needs healthcare. Second, one needs to qualify their ability to pay for a mortgage. No one qualifies for healthcare. I can not walk into a mortgage office in the city and get a mortgage, but I can walk into a hospital in a city and get healthcare. Third, this is not about fees or required disclosures… it is about getting people “healthcare”. There is also a pretty solid argument that the mortgage business is overly complicated, with endless and countless forms that most people do not read. When I signed papers for a refinance, I had dozens of pages. The “Mortgage” paper itself was over 10 pages long. Disclosures were attached and all required signatures. If I had not worked in the mortgage business previously, I would have had no idea what I was signing, and would never had enough time during my closing to read it. I would argue that mortgages are more expensive today than they need to be because of the overt bureaucracy.
The fees for appraisal, title fees, survey, etc. have little impact from market forces. I did not have an option to locate my own people for these. The title company did, or the government. They passed these costs on to me. Some companies roll the costs in to hide them. True market forces do not apply to the mortgage business.
Medicare pays pennies on the dollar of the true costs. The evil insurance companies pay significantly more than Medicare. Those costs are made up by not only the insurers, but by John Q. Public in his walk in. There are many things about Medicare that do not work, including the fact that it is broke. I don’t want my health system turned into Medicare.
I have noted before that health “insurance” is not truly insurance. When you add 10, 20, 30 million people to the dole, there will be more demand for services, not pure profit. People will go to the doctors for the sniffles, when in a true insurance environment they would take care of that at home as it would be “under their deductible”. Without market forces acting on those in the market, moral and morale hazard occurs. It always does.
Republicans have different ideas from Democrats, and ideologically differ from them in this matter. Let’s just say that the Senate was 52-48 or maybe even tilted to the GOP, do you think the House would have passed such a partisan bill? Hardly. They passed a wish list knowing that their party is in control. They do NOT want GOP involvement unless it is an endorsement of their plan. They do not want any input, just a blessing.
Back to the four questions, it is hard to argue economics with Stossel and Sowell, in my opinion, because they are speaking in terms of basic, accepted market and economic principles. They are not some GOP conspiracy, but basic economics dating back hundreds of years.
How can the government subsidize the purchase of medical services without driving up prices? They cannot. You need to increase supply. How do you increase the supply of doctors when you decrease their incentive… their fees… to Medicare levels.
How can the government promise lower medical costs without restricting choices? You cannot do it without attacking the underlying reasons. Costs do not go up because of greed, but because the “free market” insurance is not in a free market at all. As Stossel pointed out:
Exactly!
How does government “create choice” by imposing uniformity on insurers? Good question. If you cause everyone to have the same product, you can not have the innovation. The mandates for sameness will force insurers to undercut each other which might be good in the short term, but price alone does not allow for successful futures.
How does it “create choice” by making insurance companies compete against a privileged government-sponsored program? I doubt I will ever see eye-to-eye on this with Liberals. I personally believe that government restricts choices, as it can not compete against those with a profit motive. Government sets up huge bureaucracies, which cost more and produce less. The government has no risk of going out of business and can set prices at artificially low levels. It will not be free, but will drive a lot of free people out of business. The costs will be hidden and either contribute to the deficit further, or cause taxes to go up more.
There are a number of misconceptions in your post.
One, the administration did not propose a Canadian and British system. Any discussion about health care that suggests this is so (as yours is) is misguided, uninformed, or is using fear.
Two, the government is not creating or delivering health care. It is merely paying for it. It is also not the only payer. If the rates the Fed govt pays are not suitable to a practice, they are free to charge a fee above the going rate. This is how medicare works now. It is also the way it works today when you want to see a specific high-end specialist.
Three, the health care needs of the US aren’t going up because everyone has health care insurance. Accident, cancer, and other health needs are predicable. There is no new rush of diseases because people can pay. If there is, then we have a significantly more complex problem in America. If as you suggest that demand will rise dreadfully and quickly as a result of insurance now, then you are suggesting that there are people who are suffering significantly in America. You are suggesting we are a third-world nation.
Four, the number of doctors won’t change because there is one extra payer. For the last 20 years practices have been moving to bill much lower but to see more patients. In an extremely simplistic model, you envision a doctor and a patient. In most cases, its a patient and a nurse practitioner. Huge model differences have been evolving. Cost cutting has been motivated by private health payers, medicare payers, and profits.
Five, Medicare is hardly broke. Medicare funding is set by taxes and the current rate sustains it through 2019. Your own private health care is not funded much past 2012. Costs for both programs will go up, so no benefit to either plan.
Six, you claim that people will go to the doctor for sniffles. The plan voted by the House and up for debate soon in the Senate calls for co-payments – exactly the same co-payments we all now have in our private insurance. I doubt we’ll have a flood of trivial cases pushing out real medicine. Your solution is that these people can’t get any health care, no matter how serious. Seems a little draconian to me.
My point about Republicans is that they could have helped craft a better bill working with Democrats. They could have worked to pull Democrats out of the “partisan” bill. The chose the draconian alternative to deny health care to anyone that currently doesn’t have any — and to the recently unemployed.
Your first misconception is that he Administration proposed anything at all. Instead, they have farmed it out to the Congress. Plenty of the members of Congress want the Canadian and British type of healthcare. Of course, no version will be exactly like any other system, but once on the path were are well on our way towards more government control.
I am not sure what you are talking about. I never said (at least I could not find where I did) that the government was going to deliver healthcare. Paying (or underpaying) is what they will do. They will reduce the supply of doctors by reducing the incentive for doctors to go into that field.
Needs will change when you change the way to pay. Go to a health insurance plan for your car. If I have free oil changes for my car, I am more likely to get them every three thousand miles. My dental plan covers a visit every 6 months. If I don’t have these coverages, I go when I am sick or in need of services. Moral and Morale Hazard occur.
Major services are not the concern.
I am suggested neither.
And I did say that is why doctors would be reduced. Reread what I wrote. That is not what I said.
There are many reasons costs would go up or down. But each factor causes an up or down on their own. A cost cutting measure in one aspect may offset the cost hiking cause on the other hand, but that does not mean that the thing that raises costs is harmless… it just is hidden.
Call it what you want, but Medicare is on a path to insolvency. Saying I am on a path to being broke in 2019 does not mean that everything is OK today.
You made that up out of whole cloth. I never said that they are not entitled to any medical care… I just said that health insurance causes moral and morale hazard because people are not involved in the costs themselves. That is a fact.
That kind of thought process would have made the social security personal accounts debate a lot easier. Too bad you were not typing responses back in 2005 when W needed you to tell Democrats stop saying “no” only and work with the GOP majority. Oh wait, that was different, right? The GOP has their own proposals which have been rejected. The Left has no desire to see any conservative ideas in the bill. They want the GOP to shut up and do what they want… that’s it.
Your entire post is how we will have rationing because the number of doctors will be reduced through disincentive and the demand will go up because of “sniffles.” Therefore, because of this “rationing,” no one should be added to the health care rolls.
You claim that because I have a copay, I can now go every time I get a “sniffle,” and so will the 20 or 30 million new Americans on health care.
That argument, which I am sure you borrowed from talk radio or a blog somewhere, is comical as it is farce. There are currently 120 million Americans adults on some form of health care program and they all behave semi-rationally. Most don’t go to get a diabetes check when they should, and few go when they get a “sniffle.” So why on earth would you believe, postulate, and rest your case on the irrational behavior of 20 to 30 million new entrants is beyond me.
What you can predict is that new members will behave as rationally as the rest of us.
As for your doctor-shortage theory, you missed an essential point. Revenues that doctors have been getting, per patient has been dropping for the last 20 years. It has nothing to do with public health – it has everything to do with private health care.
When BCBS renegotiates a contract, it offers various doctor groups a reimbursement rate. Doctors have only one choice: accept or reject. Those rates have been going down, dramatically since 1990. Doctors have not dropped out.
You postulate one notion that Medicare pays pennies. It does not. In some markets it pays the standard physician billing fees. I’ll post a link with the explanation. Generally, there is a Medicare reimbursement. Physician rates are 1.5x to 3.0x that rate. They rarely get that rate. Most collect somewhere between 50%-80% of that rate, either because of private insurance agreements, or as a result of non-payment.
BCBS is the biggest payer in some markets. Their rates are fixed and usually only pays 60-70% of the physician rate. That places Medicare rate and BCBS rate very close together.
When you take the 2.2x the Medicare rate and apply a 70% factor, you get the Medicare rate.
Another misconception that you push is Medicare is broke. Medicare is “broke” only in the sense that heavy taxes can not fund it past 2030. The fund’s inherent value begins to drop off after 2019. To fix this a rate increase will be required.
To compare apples to apples, you are willing to accept rate increases with your own private health care and therefore you should at least be willing to understand rate increases with Medicare. Apples to apples.
Most people want to fix Medicare for a completely different reason, one which in my opinion you do not get. We don’t want to burden workers to pay for those retired. There are several answers: one is to take profits from insurance premiums to fund Medicare. That is somewhat the idea that McCain/Palin had. Others are to reduce costs, which is what Obama wants to accomplish.
The real answer may lie somewhere in the middle since not all of the rosy tax and spend McCain, or save and fund Obama projects will work out. One factor is to reign in medical costs. That will be a big plus.
I’ll point out later why the “economic” theory put forth on Govt spending is quite wrong, for an absolutely obvious reason (just don’t have time now).
Really, then why are more doctors electing to opt out of the system? Even if the reimbursements were close to insurance companies (and my many physician friends would disagree with you on that point) the time it takes to get the meager amount along with the paperwork incurred makes it barely worth the effort.
http://www.nytimes.com/2009/04/02/business/retirementspecial/02health.html
I know several doctors even going as far as opting out of any type of insurance altogether, government and private, to get rid of the hassle of the bureaucracy.
Madman,
The NY Times article that you source does not support several of your assertions: that pennies on the dollar and paperwork incurred. In 2007, Congress passed a law reducing Medicare reimbursement rates. The article points reflects the effects the dropped rate is having on seniors.
Medicare has long been known as a quick payer and minimal paperwork. That doesn’t mean that there is absolutely no paperwork. One part I wish someone would fix relatively soon is to have a consistent paperwork and reporting system – saves lots of time (and costs) in billing.
If anything the article reflects my point that just another competing payer, in this case the public option, will not kill private insurance. You may choose to pay pay more to get the doctor or practice that you want.
This is a good example of the competition aspect of the proposed new legislation. Doctors vote by taking (or refusing to take) patients. Insurance companies will vote by providing different levels of insurance at a slightly higher than public insurance prices. It will sort itself out.
Some people have very little choice, they simply don’t make enough money, but they still need medical care. Instead of no choice whatsoever there should be a low cost of entry choice.
We may be able to agree on at least a market approach where the different entities compete. That is a far cry from no insurance at any price stance.
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