Employer Mandates, Individual Mandates and the Return of the Edsel.

The debate over health care reform is almost over. Other than a few minor modifications that will be needed to reconcile the House and Senate bills, the long battle is over. Although I’m reluctant to predict what the final product will look like, there are two reforms that will most likely survive the sausage-making process: employer mandates and individual mandates. As Charles and I suggested in our paper The Modern Health Care Maze, given the perverse systemic incentives present in our health care system, individual and employer mandates are unavoidable. Here’s what we can expect from these mandates.

EMPLOYER MANDATES: It’s not clear is how the government will be able to force small businesses to offer “quality health insurance” at a "reasonable cost," without incentivizing those employers to either: drastically reduce the wages of their employees, cut back the number of full-time employees, or filing for bankruptcy. The only way to prevent any of these adverse responses is for government to either subsidize health insurance for small businesses, redefine “quality insurance,” or both. Both strategies will be in the final bill. No one knows how much future small businesses will be willing or able to spend on employee health insurance. My best guess is that most small-business owners will need nearly a 100% subsidy in order to stay in business. And, let's not forget that the vast majority of small businesses will go bankrupt, regardless of health care reform. Government will try to control health insurance costs by redefining “quality insurance.” A 40% tax on “Cadillac Health Insurance Plans” offered by large employers will almost certainly be in the final bill. But I have very little faith in our legislators’ ability to distinguish between Cadillacs and Edsels. I do predict that Congress will end up with Cadillacs and most of the rest of us will have Edsels.

INDIVIDUAL MANDATES: No one knows how much young, healthy individuals will be willing or able to pay for mandatory health insurance, without defaulting on their student loans, defaulting on their car loans, or defaulting on their home mortgages. Without a 100% subsidy, my best guess is that we’ll see either a massive default rate on loans or a radical decline in college enrollment, new car or home purchases by young, healthy people. Therefore, if I’m right, government will be paying for most of the insurance that it mandates for young, healthy individuals.

So between employer and individual mandates government will be paying for a lot more or Edsel quality health care. And given that there is nothing in the health care reform bills that will force providers to compete based on quality and price, those subsidies will merely add to the inflationary spiral.

Why the American Hospital Association and the American Medical Association Oppose Lowering the Age Requirement for Medicare

As health care reform continues it's steady decent into oblivion under the watchful eye of a swarm of lobbyists, let me offer a few comments on a recent news article announcing that the American Medical Association and the American Hospital Association will oppose the expansion of Medicare as an alternative to the proposed “public option.” As reported by David Espo on December 11: "The American Hospital Association and American Medical Association have both criticized the proposed Medicare expansion since it was announced Tuesday night, saying the program pays health care providers less than private insurance companies, and warning against increasing the number of patients."

Although I personally stand to benefit from the proposed lowering of the program's age requirement from 65 to 55, I really can’t defend an expensive government program infested with fraud and grossly over-budget: even if it is popular among those who benefit from it. But I would like to point out that the opposition voiced by the AHA and AMA is exactly what you’d expect from any artificial monopoly.

Artificial monopolies thrive, not because they provide higher quality products and/or services at a lower price than their competitors, but because they convince government to disable competition. It’s a lot easier and less expensive to dispatch an army of well-paid lobbyists to Washington than it is to compete head-to-head. That’s also why the quality of health care in the United States has been in decline while the price continues to rise.

In the case of hospitals and physicians, competition has been long disabled by an extraordinarily convoluted and opaque pricing system. The cornerstone of this system is called price-discrimination, whereby sellers conveniently set their prices based on the buyers’ ability to pay. In the health care industry it’s based the size of the risk-pool. (Keep in mind that price-discrimination only works under conditions where buyers cannot simply refuse to buy these products and services: think cancer treatment!) Hence, under a price-discriminatory system, providers charge different prices to different buyers and buyer groups. If your private health insurance policy has a large enough risk pool, it can force the sellers to charge less. Of course, providers always prefer to negotiate with small risk-groups, and their lobbying efforts invariably reflect that preference. If you are not part of a group you’ll pay to the teeth!

Private insurance companies are currently regulated by state governments; which obviously limits the size of buyer groups. But under this bizarre pricing structure, no one really knows what that final price will be until long after the product or service has been provided. (Go ahead, call around town and ask how it costs to get an MRI!) Imagine going to your auto repair shop and asking how much a new muffler will cost, and the mechanic responds by saying: “Well the price depends on the size of the risk pool that backs up your auto insurance. We currently charge 37 different prices. We’ll replace your muffler and then figure out that price and send it to your insurance company, then they’ll decide how much they’ll pay, then you’ll get a bill for the difference.” After you get through laughing your ass off, you’d probably decide to fix that muffler yourself, or simply drive a noisy vehicle.

So what’s the story with Medicare? Well, it’s a single-payer system (and a so-called "public option") which means that it draws on a national market and has enough bargaining power to negotiate a lower price from providers. It also forces providers to charge a set fee that clearly reflects what Medicare will pay for that product of service. It’s a lot like going to your auto repair shop where the prices are posted on the wall and on their website, and everyone pays the same price. This kind of a pricing structure actually forces providers to compete based on quality and price. Of course, if you are a provider you’d prefer to be paid more per-buyer than less-per buyer, which is why many successful providers simply refuse to take on any Medicare patients. As the number of providers that refuse to participate in Medicare increases, it gets more difficult for elderly patients to find willing providers. When they do find one, they'll probably spend several hours in the waiting room! However, there is one class of providers that thrive on Medicare; that is, dishonest providers that charge the program for unnecessary products and services or for products and services that they never provided. And the government's inability to monitor the system, attracts dishonest providers.

So what’s the solution here? Well, I would argue that the health care industry ought to operate under the same legal pricing constraints as other industries. Most other countries have outlawed price-discrimination and therefore force providers to post their prices. Of course, that won’t happen in the United States because The American Hospital Association and the American Medical Association would descend on Washington like a swarm of locusts.

Group Bias in the Distribution of Health Care in the United States

As I suggested in an earlier blog entry governmentally subsidized health care in the United States is already being rationed. I think it is distributed based on an indefensible group bias; that is, politicians control access to subsidized health insurance based on arbitrary group association. Let's take a closer look at that.

Since the twentieth century, politicians have granted subsidized access to specific groups. In the 1940s, the first “group” to gain that access was comprised of individual white, male workers that worked for large unionized corporations. Later, politicians expanded access by including other groups including: the elderly, the poor, veterans, Native Americans, employees of government, and children. As a result of this irrational group-based allocation system, we now have a “maze” of health care tax-supported programs that provide various levels of health care coverage to most Americans. The current problem is that we now have a growing number of individuals that need access to health care but do not fall into any of these arbitrary groupings. Therefore, in order to gain access these “outsiders” have had to manufacture their own “group,” and lobby government for equal recognition. This new group is comprised of everyone that is not employed by a corporation that offers private health insurance, not elderly, not poor, not a veteran, not Native American, not employed by government, and/or not children.

Now any rational person that is against health care reform within its current framework must argue that these outsiders are not entitled to health coverage, even though these other groups already enjoy subsidized health insurance. Of course, no politician is going to take subsidized health care away from workers, the poor, elderly, soldiers, or children. But many politicians are opposed to adding “outsiders.” Interestingly the rest of us rarely demand that those politicians justify the inclusion of one group and the exclusion of another. Why?

The Non-Debate over Health Care Reform: Or, Why the Status Quo Will Prevail

Historically, health care in the United states has always been highly decentralized and forged on the basis of political action committees and paid lobbyists that represent specific groups: Medicare (the elderly), Medicaid (the poor, ) Children's Health Insurance Program (children), Veterans Health Administration (veterans), the Indian Health Service (native Americans), and Federal Employees Health Benefits Program (federal employees). Others are covered by employment-based private health insurance. All of these programs are tax-supported to various degrees. And all of them are either running deficits, infested with fraud, inefficiency, or a combination of all three. Despite shortcomings, these programs are also highly coveted by their respective constituencies, and therefore no one in Congress can reasonably propose replacing this patchwork with a single system. In other words, the health care reform movement in the United States is not about creating one single system, but rather adding other programs to that patchwork. The powerless constituencies that are currently left out this patchwork include: employees whose employers do not offer health insurance, patients with pre-existing medical conditions, employees that are under-insured (but don’t know it yet), and an undetermined number of young, healthy employees that choose to forego purchasing health insurance. Whatever happens under the guise of health care reform, I can promise you that none of the current programs will be eliminated. In other words, whatever it is that’s taking place in Washington under the guise of “Health Care Reform,” it is really about maintaining the status quo. At this point, there is no reason to debate the question of whether a centralized system is preferable to a decentralized one. That’s because no one in congress is really pushing for a centralized system. What's the problem? It's the way we go about forging public policy in the United States. Can we really afford to continue to allow Congress unlimited access to tax dollars and dole out political favors to powerful groups represented by well-paid lobbyists?

Access to Health Care

In the United States, the stated goal of health care reform debate has been to provide universal access to high quality health care at a reasonable cost. However, most of the rhetoric has focused myopically of universal access. Unfortunately, in the real world proponents of universal access must also take into account the quality and cost of that health care. After all, no one aspires to provide universal access to low quality health care or universal access to high quality health care that no one can afford. Unfortunately, any reasonable account of access, quality, and cost of health care generates mind-boggling complexity. Let’s start with access.

Today, about 55% of all Americans gain access to health care via private health insurance purchased through their employers, while 45% gain access to public insurance via Medicaid, Medicare, Veterans Medicine, and SCHIP. (poor, elderly, veterans, and children). In 2005, the Census Bureau reported that at least 44.8 million Americans were without either private or public health insurance coverage. By 2006, that number rose to 47 million: a 15% increase. Since, 2000 the number of uninsured Americans has grown by 8.6 million: an increase of about 22 percent. The largest segments of uninsured are employed young adults 19-29 and older adults 45-64. The uninsured rate among young adults, signals a corresponding rise in the number of uninsured young children; which has led to the recent reauthorization of SCHIP. Due to the ongoing economic recession the number of privately-insured Americans has decreased and the number of publically insured has increased. Although the public policy goal has been to increase the ranks of the insured, what is the precise relationship between “access to health insurance” and “access to health care? That answer is hardly straightforward.

When reformers call for universal access to health insurance, presumably they mean “good health insurance.” In an ideal world, “good insurance” is “comprehensive insurance” that covers every possible health care need (or want). Conversely, “bad insurance” covers nothing. So in the real world, the mere fact that you have health insurance does not necessarily guarantee that you have access to the health care products and services that you may need or want. Therefore, what most of us really want is universal access to comprehensive health insurance. But in the context of health care what does “comprehensive” mean? Does it include “all health care” or just “basic health care?”

Well, what precisely is this alleged distinction between “comprehensive” and “basic” health care and who decides? Does “basic” include access to all known preventive care, including: annual physicals, vitamins, and all known tests, imaging technologies (eye exams, hearing exams, MRIs, mammograms etc.), and vaccines? Does it include access to all known treatments, including: laser surgery, stem cell therapy, and genetic therapy? How about doctor’s office visits for minor illnesses such as colds and flu? Should everyone have equal access to: state-of-the-art trauma centers, organ transplants, hip replacement surgery, physical therapy, fertility treatment, psychiatric treatment, eye glasses, vision correction surgery and cosmetic surgery? Should all Americans have access to both new and old drugs, including: AIDS drugs, and diabetic drugs? How about access to weight loss therapy (including surgery), smoking cessation programs, and mental health treatment? Does basic insurance cover Tommy John’s surgery for 53 year old beer-league baseball pitchers, motorized scooters for the morbidly obese, or psychiatric drugs for children diagnosed with Attention Deficit Disorder or depression, erectile dysfunction drugs for old men, or chemo and radiation therapy for all cancer patients (including for ninety year-olds)? In Vitro Fertilization, abortions, or birth control pills for the poor? Does basic health insurance include unimpeded access to experimental, futile, and/or low-quality treatments (that are less-than safe, or less-than effective)?

Therefore, it seems obvious that the distinction between “basic” and “comprehensive” insurance is far from clear. Even if you are a member of congress that has the most comprehensive health insurance coverage in the world, there is still wide variability in access to specialists and state-of-the-art technology. That’s because access to health care products and services depends largely upon where you live. Our current health care system has evolved to serve major urban populations. Therefore, even insured congressmen from rural districts may not have access to the health care they need or want. Other rural patients have “access” to specialists and state-of-the-art technology, but only to the extent that they are willing (and/or able) to wait for an appointment and/or travel to a distant urban area. And, of course, rural patients that are uninsured (or under-insured) have access to health care to the extent that they are willing or able to pay for both the trip and the treatment. So one might argue that rural patients in the United States have “access” to a vast market of health care products and services, but only to the extent that they are willing (and/or able) to overcome geographical and financial barriers. Now is that really “universal access to health care?” If not, how would congress go about addressing this alleged injustice?

Although most patients with health insurance believe that they have access to health care, most policies cover much less than they think. That’s because, “good insurance,” which is comprehensive is very expensive and difficult to sell employers, especially to small businesses. Therefore insurance companies adapted by devising innovative marketing strategies that help them sell that “bad health insurance.” Their solution: disguise the quality of their insurance policies behind a veil of complex, obscure jargon that only insurance adjusters can decipher. Systemic obscurantism has no doubt contributed to the growing number of uninsured and under-insured patients. Why buy expensive health insurance, if you don’t know what it will cover? Therefore, one area more than ripe for reform is the restoration of transparency in health insurance.

In conclusion the single-minded pursuit of universal access to health insurance is really an overly-simplistic basis for health care reform. We must also take into account quality and cost of that insurance and the actual health care covered by those policies.

HEALTH CARE REFORM: IDEALISM V. REALISM

In light of President Obama’s efforts to reform health care in the United States, and given the fact that I’m teaching a graduate course on Health Care Policy this summer, I decided to dedicate the next four blogs to health care reform.

This initial installment will suggest that the conceptual framework underlying much of the health care reform debate is based on discourse that is overly-idealistic and incompatible with health care as it currently exists in the United States. I shall, therefore, propose an alternative model of discourse: Health Care Realism, or the Real Model. Although the Real Model has already begun to take root (whether we like it or not) the lingering remnants of the Ideal Model continue to cloud our thinking.

The long-prevailing Ideal Model is rooted in the ethereal belief that health care is a moral system rooted in the Judeo-Christian and Hippocratic virtue of “care.” Historically, this model implied on systemic paternalism, which has been long embedded in doctor-patient discourse. Paternalism generally posits a rights-based moral relationship between “fatherly” physicians and “childlike” patients. Within this ideology, physicians are represented as self-sacrificing, duty-bound moral agents dedicated to healing their patients. In other words, patients have an inviolable, “right” to health care and physicians have a corresponding “duty” to provide it.

One of the corollaries of many duty-based (or rights-based) moral arguments is the underlying assumption that moral imperatives always trump economic imperatives. In other words, if it’s the right thing to do, then we are morally required to do it, regardless of how much it costs. This web of discourse is usually anchored by the Judeo-Christian and Kantian belief human life is of infinite value and that the cost of preserving it is morally irrelevant. Once it is established that a patient “needs” medical treatment moral discourse ends and the cost of filling that need becomes morally irrelevant. Throughout most of the twentieth century, this complex equation based on interlocking rights and duties contributed to spiraling health care costs, as physicians liberally prescribed non-competitively priced products and services (owned by other providers) to their needy, price-insensitive patients. This meant more tests, more drugs, and more hospitalization and a feeding frenzy for providers.

As long as health care providers were able to earn a comfortable living by charging non-competitive prices to price-insensitive payers, and as long as patients were insulated from those prices, the Ideal Model appeared to be a “win-win” arrangement. The Ideal Model began to erode in the 1990s when government programs (Medicare and Medicaid) and quasi-private insurance companies (Blue Cross and Blue Shield) became increasingly price-sensitive. That’s when physicians were first saddled with the added responsibility of serving as duty-bound “gatekeepers.” So while patients expected paternalistic physicians to selflessly, provide health care; public and private payers expected them to reel in costs. This steadily eroded public trust in physicians and the gradual collapse of the Ideal Model.

Although many physicians and other health care professionals and institutions still attempt to live up to the Ideal Model, the real world always has a way of undermining all otherworldly ideologies. After all, in the real world, health care providers are just as “worldly” as the rest of us. They must earn a living to support themselves and their families. Most must pay back enormous college loans, malpractice insurance and other business expenses (not to mention local, state, and federal taxes!) They also have personal mortgages, car payments, and also hope to save a few bucks for their children’s college education. Health care institutions are equally worldly. Hospitals, research laboratories, and colleges and universities still have to pay their employees, stockholders, suppliers, insurance companies, and lawyers.

As health care reform unfolds over the next year, lingering remnants of the Ideal Model will continue to obfuscate health care discourse as Idealists focus debate on providing “universal access to high quality health care at a reasonable cost.” My next three blog entries will discuss access, quality, and cost from the standpoint of idealism and realism.

WARNING: OUR HEALTH CARE SYSTEM CAN BE HAZARDOUS TO YOUR HEALTH

Last January I finally got around to getting my annual physical. Same story…in terms of overall health, I’m among the top 5% of all men my age. Other than an occasional bout of labile, stress-related blood pressure, I am in great shape. That was good news, until I checked the mail in February and found a bill for $500 from the lab that processed the blood test that confirmed my excellent health. I immediately called Employee Benefits at my college to make sure that our new health insurance covers “blood tests.” She confirmed that lab tests are covered, and explained that there is often lag time in communication between the insurance companies and providers. In short: "not to worry!"So I ignored the bill. But I kept getting more of them. So I called our family doctor’s office and asked the receptionist what she thought had happened. She had no idea. But she was sure that she had forwarded my insurance information to the laboratory. Then a few days later, I received an automated phone message from a collection agency in regard to an overdue account that belonged to “Ronald Wade.” Of course, I am “Ronald White,” so I hung up. Then it called again, and, again, etc. So I called my insurance company to check up on the status of that mysterious bill. After waiting on hold for 10 minutes, I spoke to an agent that determined that the laboratory never submitted a $500 claim, but that my physician’s bill had already been paid-in-full. Then, I decided that I’d better contact the laboratory. The bill stated that I should use the company website. I quickly confirmed that I owed $500, and I was urged to pay off the account by credit card. After about 30 minutes of searching the website, I found a phone number. I called it and I was immediately captured by one of those endless option loops. Finally, after optioning for 20 minutes, I stumbled upon the option that I wanted: “speak to a customer service representative.” Elated, I pressed option #4 and hit the “pound key.” “We’re sorry, but all of our representatives are busy assisting other customers. Please wait for the next available representative.” Then I was treated to 30 minutes of soft rock, interrupted every 2 minutes by an automated female voice urging me to remain on the line. Finally, a company representative with an Indian accent asked me how he could assist me. I read off my 14 digit patient code and he pulled up my file. Sure enough, I owed $500 to the laboratory. I explained that I had health insurance and that the insurance company had no record of the lab submitting a claim and that my physician had forwarded the insurance information to the lab. Perplexed, he read off a 17 digit insurance number and asked me if it corresponded to the one on my insurance card. It didn’t match! It had two wrong digits. He immediately corrected the typos and told me that he would resubmit the claim with the correct number. Then I politely asked him why the laboratory didn’t contact the insurance company, or the doctor's office; and how the lab could reasonably expect me to figure out that someone at the lab miscopied a 17 digit insurance number? He couldn’t answer! Then, I respectfully complained to him about the endless loops on the website and phone system. He responded: “We’ve had many complaints about our website and phone systems.” So what’s wrong with our health care system? Well, we have a four-party system: first party patients, second party providers (physicians, labs, drug companies etc.), third party payers (private insurance companies, Medicare, Medicaid etc), and fourth party insurance payers (employers that purchase health insurance for their employees.) Can you imagine a more convoluted way to provide an annual physical? Wait a minute, I have to answer the phone…I’m back! That was that pesky collection agency again. Let’s make that a five-party system. Whew! I’m sure glad I’m healthy: even if my blood pressure is now 150/90. Check out my forthcoming essay (co-authored by Charles Kroncke) on our four-party health care system system. It will appear in the summer issue of the Independent Review.

The Concept of Health Care

What is health care? Well, let’s start with the basics. First, it involves the exchange of a products and services between buyers and sellers. Second, the health care industry employs an imponderable number of sellers including research scientists, physicians, insurance professionals, malpractice lawyers, allied health professionals, product manufacturers, educational institutions, hospitals etc. For those that are willing (or able) to invest in the requisite education, these are all good paying jobs. Third, our understanding of health care has been masked by a longstanding cultural tradition that obscures its economic basis. Much of the obfuscation takes place within our language: "buyers" become "patients," "sellers" become "providers," and "health care" becomes "whatever health care providers are willing to sell you." Thus, most of us believe that “health” is something that is provided by others and that we cannot be healthy apart from a "health care system." Similarly, the concept of “disease” has become synonymous with “needing” the products and services offered by the health care industry. So a state of disease is anything that attracts buyers to sellers. Modern medicine is based upon the ever-increasing malleability of the concepts of health and disease. Even if you believe that you are presently “healthy” you still might have an undiagnosed disease, a predisposition for a disease, an early stage of a disease, or a previously “cured” disease might be coming back. Therefore, in order to remain healthy you must maintain an ongoing relationship with a health care system and its legion of well-paid providers. One of the more striking features of the American health care has been the exponential expansion in the number of actual and potential “diseases” and “providers.” Today we routinely consult with “licensed” health care providers to lose weight, fight depression, quit smoking, break an addiction (drug, alcohol or gambling), have a child, not have a child, eliminate a potential child, or die peacefully. Critics of the American health care system argue that it provides too much and that it must be refocused on providing “basic health care,” which is even more malleable than the concept of “health care.” Basic health care is whatever politicians say it is. This means that in order to keep their good-paying jobs, providers must lobby congress and persuade legislators to officially decree that their products and services are “basic.” Fortunately, if we wait long enough, every health care product and service currently on the market will eventually become “basic.” But in a free market, the concept of “basic health care” is vacuous. It is a blunt political instrument that governments use to deny some individuals direct access to specific products and services. So what can we conclude about the concepts of “health” and “disease?” Libertarians prefer to let the free market sort that all that out. The first thing that the free market will do is help us sort out what actually works and how much we’ll have to pay for it. Viva Viagra!

Health Care Reform

In the United States, there is a growing consensus that our health care system is in dire need of reform. How should we proceed? Well, most critics agree that reform must address three key issues: access (Who can access the products and services they want or need?), quality (How good are the products and services that can be accessed?), and cost (What is the cost of providing these products and services, who pays that cost, and how?). As in the case of education, the provision health care in the United States involves both public and private payment systems. “Public systems” (Medicare, Medicaid, Veteran’s Administration, and Social Security) are financed by tax revenue and private systems are financed by non-governmental payers (patients, insurance companies, charitable organizations). Where does this money go? Well, it goes directly or indirectly into the pockets of a staggering number of health care providers. Hence, these “providers” are really “sellers” of health care products and services. They include: doctors, nurses, allied health professionals, research scientists, malpractice lawyers, hospitals, research laboratories, medical schools, private health insurance companies, financial institutions (banks), credit card companies (Visa and MasterCard), public and private research laboratories, technology corporations (General Electric), drug companies, and the lobbying firms that represent all of the above. For a libertarian, the first step to health care reform is to openly acknowledge and embrace the obvious, inescapable reality that health care is about buying and selling. Because the frontline sellers (doctors, nurses, allied health professionals, researchers, etc.) are highly educated and therefore have substantial college loans to pay back, they expect to earn a substantial return on their investment of time, energy, and resources. If you are a retiree, you probably hold stock investments in corporations that sell health care products and/or services. If so, you certainly expect a healthy return on your investment. Traditionally, pharmaceutical stocks have been a staple of the most lucrative mutual funds. If you own stock in a corporation that provides health insurance to its employees you are probably concerned with the rising cost of providing that benefit. If you are an employee of a corporation that provides your health insurance you are probably dissatisfied with the access, quality, and cost of the health care you receive. So as we explore access, quality, and cost of health care, the basic problem is that it will be prohibitively costly to provide Americans with universal access to high quality health care. Therefore, in the real world, there are three possible rationing strategies: 1.) provide less-than-universal access, 2.) provide less-than-high quality products and services, or 3.) reduce unnecessary costs by increasing the efficiency of the system and/or shell out a lot more money. When health care reformers suggest any combination of these strategies, they invariably alienate stakeholder groups, which contributes to high-stakes lobbying activity. Therefore, given the current political structure in the United States, health care reform will be shaped by access, quality, and cost of hiring lobbying firms that can persuade (or bribe) government officials to ration health care in their favor. Now, what does all of this suggest about the prospects of meaningful health care reform?