Wednesday, September 09, 2009

Some Thoughts on Obama's Health Care Speech

I just got done watching Obama's speech on health care. Here are two of my biggest concerns about what he had to say:

1) INCREASING COSTS TO DECREASE COSTS? Most of the changes Obama said he wants to make to health insurance would be almost certain to increase insurance costs, rather than decrease them. Here are a few examples of what I mean:
  • Mandating that companies cannot deny coverage for pre-existing health problems. This increases the risk to insurance companies bear for each person they insure and therefore increase their expected costs. This also incentivizes people to get minimal insurance until they have a serious problem.
  • Insurance companies cannot drop a patient or deny coverage. While this resonates well with nearly everyone, it has the same problems as in the point above. It increases the expected costs of providing insurance which would then either have to be passed on to the consumer of insurance or the taxpayer.
  • Forcing insurance companies to cover routine, preventative health care may or may not save lives, but it almost certainly will not reduce costs. Mandating insurance companies cover even more treatments than they already do will also increase their costs.
So far, I count three cost-increasing proposals, but no cost-decreasing ones.

2) WHAT HAPPENED TO LIBERTY? "Consumers do better when there's choice and competition." Agreed. The problem is, Obama doesn't seem to want to give people the choice of not buying insurance. He's trying to compare it to requiring people to buy auto insurance, but that's not a fair analogy. People have the option of not buying auto insurance. They simply choose not to drive. How do you opt out of health insurance under this analogy?

I'm highly alarmed when I see a President of this country advocating a policy that interferes with the liberty of our citizens. Freedom includes having the ability to make choices other people think are dumb. If you don't want to pay for people who chose not to have health insurance, don't design a system that forces you to.

More thoughts:

Everyone can agree, all else being equal, we'd like to see healthcare costs come down. We'd all agree we don't like it when insurance companies deny coverage, cap expenses, or refuse to cover people due to pre-existing conditions.

I did volunteer work for years with terminally ill kids and the last thing anybody wants to see is for a family going through this kind of suffering to have to face denied treatments or financial ruin because of these diseases.

With that being said, shouldn't the emphasis be on increasing competition, reducing costs, and emphasizing health care rather than health insurance. Instead, the focus tonight seemed to be on increasing government control, reducing liberty, and emphasizing health insurance rather than health care.

Here are a few ideas for changes that might reduce healthcare costs and/or increase the number of people covered:

1) Fight against regulations restricting the sale of health insurance across state lines. As Obama said tonight, "consumers do better when there is choice and competition". This would be one of the cheapest ways to immediately introduce new competition into the insurance business.

2) Address issues of medical malpractice. Ideas might include increasing the standards of evidence required in malpractice suits, setting up some type of professional juries/courts who are familiar with healthcare issues (and statistics), and imposing fines for people bringing up frivolous suits.

3) Addressing some of the problems Obama brought up about insurance companies such as:
  • Denying coverage for pre-existing conditions.
  • Lifetime caps on spending per individual.
  • Dropping people's coverage based on technicalities.
The difficulties in addressing each of these issues include moral hazard and adverse selection problems. If you mandate insurance companies have to cover everyone, then people will get minimal coverage until they have a serious problem and then increase coverage. If you force companies to offer the same price to everyone, those in the highest-risk categories (either due to genetics or from behavioral reasons (such as smoking, obesity, etc.)) benefit the most. The more coverage you force insurance companies to provide, the more you may incentivize harmful behavior. (Why worry about negatively impacting your health when you know your doctor can treat it?) These perverse incentives create tricky problems for creating policies that address these insurance issues.

4) Tax breaks for the self-insured. All health insurance and any medical expenses exceeding 10% of gross income should be made tax deductible. There is no logic in giving company-provided health insurance different tax treatment than health insurance that is bought by an individual.

5) Making health insurance more portable. Insurance should be portable and be connected to individuals rather than to employers. Just as retirement plans are now largely portable thanks to 401ks, there is no reason a similar mechanism couldn't be developed with health insurance.

6) Government backed loans for health insurance. This could be a system similar to federal student loans. If someone gets into a bind due to unemployment or low income, the government could provide subsidized loans to help ensure no lapses in coverage. If you made it non-dischargeable debt (like student loans), this would also dis-incentivize people from accruing too much of this type of debt unnecessarily but still provide for it when a person (or family) got into bad financial shape.

7) Greater transparency of health insurance policies. Just like food requires a nutritional information, basic insurance should be required to certain information in a clear manner. This should include statistics on percentage of claims denied or some other metric that helps indicate the extent of coverage the policy provides.

8) Direct payment by patients to medical providers. Right now, no one ever asks how much a medical treatment costs. I believe this is part of whey health care is so expensive. Because insurance typically pays for treatments, patients (and doctors) have no incentive to try to keep costs down. Combine that with medical malpractice fears which incentivize doctors to perform more tests than is often necessary, and you get a system that systematically over-spends. I remember the last time I went to the dentist, it took more than a month before I found out how much my visit was going to cost me. That's ridiculous. Find a way to more accurately communicate prices and I believe you will fix many of the problems in health care.

CLOSING QUESTION: Is health care in America really that bad?

I'm unconvinced. Currently, 83% of Americans rate the healthcare they receive as "excellent or good". Only 15% rate their healthcare as poor. Yes there are many uninsured people in the US, but not all of them are getting denied health care. Many of the rich self-insure. Many of the young go without insurance and are not the worse for it. Many of the poor get treatment they never have to pay for at emergency rooms. The costs of these visits then get passed on to taxpayers and/or other patients in the form of higher prices. In the current system, many of those who can't afford insurance have their expenses covered by those who can afford it. Are we really that far off from where many of the proposed policies coming out of DC want us to be?

The real question is how many people need medical treatment who do not get it and what can we do to improve this? This is a very different question than asking who is insured and who is not. It is also the more important question and the one I wish more people were focused on.


scripto said...

The government by law is on the hook for the elderly and chronically ill and private insurers get to insure the young and the healthy. This is fundamentally unfair to the taypayer and unsustainable for Medicare and Medicaid in the long run. It amounts to a government subsidy of the health insurance industry. The answer (I think) is to widen the risk pool in Medicare by covering every citizen under Medicare. Single payer is the only reasonable solution to covering everyone at lower cost. Portablility and competition in the health care insurance industry is a myth. It would evolve into national conglomerates much like what we have on the state level. I'll take my chances with a government run plan.

thinking said...

First, I will say it's nice to come across a counter argument to the President's plan that is calm and reasoned and not part of the lunacy that's infected the far right wing on this issue.

Cost reduction under the Obama plan would come about through increased competition, as well as the mandate that everyone be covered.

That last point is a key; the whole concept of insurance is to spread risk and pool cost; covering everyone increases the insurance pool.

As for tax deductions for medical expenses, current tax law already provides for that if medical expenses exceed 7.5% of AGI.

As for portability, that exists in part through HIPAA regulations...but the cost is often prohibitive for many. There's a difference between portability of 401k and health insurance, and that is the fact that health insurance has a huge cost whereas rolling over a 401k to an IRA or another 401k does not.

As for allowing the sale of health insurance across state lines, one problem is that insurers would choose to operate out of those states with the regulations most favorable to them, and not necessarily to consumers.

As for loans to the disadvantaged for health care coverage, that is no real only saddles those individuals with potentially enormous debt. Admittedly, many get in huge debt for health care costs now, but that is part of the problem. All this would do is transfer the debt to another holder.

As for the poor getting treatment in the ER, that is perhaps the least cost effective way, not to mention not always achieving the best outcome. Again, insure them through a more deliberate plan, and costs for their care will decrease.

As for perverse incentives, right now we have a system whereby insurance companies are incented to find any and every way to deny coverage. That's just plain wrong.

I agree with Scripto. As many economists have pointed out, including Nobel Laureate Ken Arrow, the normal market mechanisms don't work for health care.

And there's no doubt that if we were starting from scratch, single payer would be the way to go.

Objectively, our health outcomes in this country are not great; we spend far more than any other country per person, and get mediocre results. With what we spend we should have the healthiest, longest living population on earth by a wide margin.

Our current system is morally and economically unsustainable.

Fundamentally, this is more than just an economic question, it is a moral one. Quite frankly, I'm willing to pay more if we get better results and cover more people. I don't believe that economically people should just always act selfishly.

But I don't believe these reforms will be any more expensive than the trajectory we are on now.

spragus said...

As noted by others, a single payor system is the way to go just to shave 4-6 GDP % points off the cost, Looks like not this year or next, so the whole debate is meaningless. The US$ can do nothing but decline till this issue is resolved.

spragus said...

As noted by others, a single payor system is the way to go just to shave 4-6 GDP % points off the cost, Looks like not this year or next, so the whole debate is meaningless. The US$ can do nothing but decline till this issue is resolved.

spragus said...

As noted by others, a single payor system is the way to go just to shave 4-6 GDP % points off the cost, Looks like not this year or next, so the whole debate is meaningless. The US$ can do nothing but decline till this issue is resolved.