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Resist the Evil Fiction That Is Health Insurance

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It has come to pass. President Donald J. Trump. Are you scared? Are you planning to “resist” the policies you imagine President Trump will pursue by tweeting furiously with clever hashtags galore? Would you prefer to move my fastidious quotation marks from “resist” to “President”? This is after all, the first President in a very long time to take office without the blessings and financial support of established “world order” leaders. It must be rather disconcerting to proceed without clear guidance from our betters, especially seeing how well they served us over the last decades, and particularly when it comes to affordability of health care in America.

Are you binge-watching the Obamacare drama playing on America’s center stage these days? Are you tweeting and retweeting every shred of information that proves Obamacare is a huge success, and its repeal will mean certain death for millions? Or are you busy proclaiming your faith in free markets, the (undemocratic) government of Singapore, or the charitable nature of Americans in general and doctors in particular?  Is President Obama your tragic hero, or your shifty villain? Is President Trump your great liberator (although he promised not to do anything you really want), or the Grinch who will steal health care (although he promised to preserve everything you really like)? Are you not entertained? Pass the bread, please.

Jimmy Kimmel Left Out Some Important Stuff About Obamacare

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Late-night comedian Jimmy Kimmel, in a recent opening monologue, spoke tearfully of his newborn son Billy, born with a serious congenital heart defect.  Heart defects in newborns, while uncommon, occur in 1 in 100 births.  The more serious ones, meaning those needing surgery in the first year, represent about a quarter of all congenital heart defects.

Jimmy’s son fell into the latter category, with Tetralogy of Fallot, bad plumbing in the heart, causing oxygen-poor blood to circulate out into the body without picking up a fresh supply of oxygen from the lungs.  Hence the newborn baby turning blue.

I have firsthand experience with this, as my youngest son was born with the same heart defect.  He needed surgery as an infant and then two additional open heart procedures before reaching adulthood.  I have walked in Jimmy Kimmel’s shoes and understand exactly what he is feeling – terror, anguish, guilt, helplessness, and hopelessness.

Mylan Fiasco May Be “The Shot Heard Round the World”

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The Mylan EpiPen debacle may have inadvertently weakened the grip Big Pharma on U.S. lawmakers.  Last week, a bill proposed by Senator Bernie Sanders was narrowly rejected by a vote of 52-46.  Unexpectedly, 12 Republicans and 1 Independent voted with Senator Sanders in favor of allowing pharmacists and distributors to import cheaper prescription drugs from Canada and other foreign countries (something typically favored by Democrats.)  The winds of change are starting to blow in the bipartisan direction when it comes to the pharmaceutical industry.    

U.S. Healthcare needs a revolution ; ‘the shot heard round the world’ often refers to the opening shots of the American Revolution in 1775.  The Big Pharma lobby is holding the American people hostage with their exorbitant ransom demands.  Last summer, Mylan Pharmaceuticals, led by CEO Heather Bresch, overplayed their hand.  Mylan came under fire for a 400% price increase in the EpiPen two-pack.  This device is considered life-saving for children and adults with anaphylactic reactions to various food, insect, or environmental insults.  Ms. Bresch insisted the significant price increase ($600-$700 for a medication which costs pennies) was justified due to the more ergonomic appearance of the delivery device and improved safety profile.  Her miscalculation seems to have indirectly incited the war on Big Pharma by angering the public, the media, and the government simultaneously. 

Pig in a Poke Health Reform

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Uwe ReinhardtFrom a political perspective, House Speaker Paul Ryan’s trashing of ObamaCare (a.k.a. the Affordable Care Act or ACC) during CNN’s recent town hall meeting probably was quite effective. One would, of course, not expect a staunch political opponent of ObamaCare to render a “fair and balanced” picture of the program, to plagiarize a Fox News mantra. Not surprisingly, the Speaker dwelt solely on some serious shortcomings of ObamaCare that are by now well known among the cognoscenti.

The question now is precisely what would replace ObamaCare, as Republicans fall over one another in their haste to repeal it. Enumerating principles, as has been done in sundry tracts in recent years and is done once again in the House of Representatives’  “A Better Way”, is no longer enough. Yet even at this time of imminent repeal of ObamaCare, the crucial details of any replacement plan remain a mystery. Surely the time has come to let the cat out of the bag.

During the town hall meeting, for example, Speaker Ryan proposed the general outline of a system that would rely on high risk pools for Americans with pre-existing medical conditions, coupled with a market for individually purchased insurance policies whose modus operandi was largely unspecified. What would be the parameters of the high risk pools? Granted, it would have been difficult to be much more specific on this point than the Speaker was in a town hall meeting. But it would certainly have been helpful had there been a website to which he could have directed his audience for the specifics of a replacement plan built on a Republican consensus.  To my knowledge, there is no such website.

Risk pools have long been the workhorse of Republican rhetoric on health reform. One can think of such a pool as just another health insurance company selling insurance in the individual market for such policies to relatively sick applicants for insurance. To assess the merits of the coverage it sells, one surely would want to know: 

American Healthcare Rackets: Monopolies, Oligopolies, Cartels and Kindred Plunderbunds

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The Healthcare Dollar, the Healthcare Industry and the Healthcare System are shibboleths. All are parlance. All render terms such as Healthcare Profession, Service Profession, and Healthcare Professionals quaint. All drive linguistic determinism: if it’s labeled so, it must be so. Furthermore, all have become jingoistic. This is our dollar, our industry, our system and don’t dare tread on us.

These are shibboleths that engender considerable cognitive dissonance. If healthcare is no longer a service profession but an industry that transfers wealth in a systematic fashion, shouldn’t it comply with the legal constraints that tightly govern other industries including others that serve essential needs of the population?

The Fairy Tale of a Non-Profit Hospital

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Nonprofit hospitals have higher profit margins than most for-profit hospitals after accounting for their tax obligations.  3900 (62%) of U.S. Hospitals are non-profit and therefore tax-exempt: they pay no property tax, no federal or state income tax, and no sales tax.  An article published in Health Affairs found seven of the nation’s 10 most profitable hospitals were of the non-profit variety, each earning more than $163 million from patient care services. Revoking their property tax-exempt status for not functioning as a charitable entity could return billions in healthcare dollars to local government, communities, and citizens, struggling to afford quality health care.

The idea of exempting nonprofits from paying taxes in the first place is based on the belief these entities provide charity for the underserved and underinsured who would otherwise require the government to lend a helping hand.  As the percentage of uninsured declines as a result of the ACA, the justification for tax exempt status is being called into question.

A Modest Health Care Economics Experiment to Fight Rising Costs

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Healthcare providers, medical institutions, local pharmacies and pharmaceutical companies generally set the price of their products/services well above the payment they expect to receive from all insurers. These healthcare vendors set their fee schedule at 150%, 200% or 1,000% of the maximum payment they expect to receive from their most generous payor.

Here in Massachusetts, when a healthcare product or service is consumed and the patient has health insurance, the vendor submits a bill to the insurance company who specifies the “allowed fee,” which is considerably less than the “billed fee,” and the vendor “writes off” the balance of the  “billed fee” from their books.

For example, I recently had some blood tests done at Quest Diagnostics. Quest Diagnostics sent a bill to my insurance company for $660. The “allowed payment” was $110, so Quest wrote-off $550 and the “allowed payment” of $110 was divided between me and my insurance company.

Failure to Translate: Why Have Evidence-Based EHR Interventions Not Generalized?

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The adoption of electronic health records (EHRs) has increased substantially in hospitals and clinician offices in large part due to the “meaningful use” program of the Health Information Technology for Clinical and Economic Health (HITECH) Act. The motivation for increasing EHR use in the HITECH Act was supported by evidence-based interventions for known significant problems in healthcare.

In spite of widespread adoption, EHRs have become a significant burden to physicians in terms of time and dissatisfaction with practice. This raises a question as to why EHR interventions have been difficult to generalize across the health care system, despite evidence that they contribute to addressing major challenges in health care.

A Dishonest Conversation on Healthcare

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The conversation our country is having about healthcare right now is not honest. It’s not just the Republicans, the Democrats are just as dishonest, in a different way. Republicans talk about government death panels denying care. Democrats talk about insurance company death panels. Both positions are intellectually dishonest. Both Republicans and Democrats know that a part of insurance is drawing boundaries around the care that would be paid for by the group.  Any care outside that boundary doesn’t get paid for.  You can frame it any way you want, but this is a critical part of any insurance. 

Insurance, whether healthcare or auto, is a risk pool.  A group of people pay into the pool and hope they don’t have to use it – hope they don’t have a wreck on their car, don’t have to go into the hospital.  Those few that do have to use it consume most of the money in the pool – the risk pool spends tens of thousands on the people that have serious car accidents, or hundreds of thousands of dollars on someone that has cancer.  That means that everybody else in the pool helps pay for the costs of the unlucky few.  Healthy me pays for the costs of tripped and broke his leg Bob.

The worst part of the Affordable Care Act that nobody talks about is its removal of caps on annual and lifetime awards.  There is no limit to the risk that the risk pool assumes.  Before the ACA, an annual cap for an insurance plan might be $500,000, with a lifetime cap of $2 million to $5 million.  Now those caps are gone – there is no limit to the amount of money a risk pool has to pay to keep someone alive.

Purging Healthcare of Unnatural Acts

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Everyone knows (or should know) that forcing a commercial health insurer to write for an individual a health insurance policy at a premium that falls short of the insurer’s best ex ante estimate of the cost of health care that individual will require is to force that insurer into what economists might call an unnatural act.

Remarkably, countries that rely on competing private health insurers to operate their universal, national health insurance systems all do just that. They allow each insurer to set the premium for a government-mandated , comprehensive benefit package, but require that each insurer “community-rate” that premium by charging the company’s individual customers that same premium, regardless of their health status and even age (with the exception of children).

American economists wonder why these countries do that, given that in the economist’s eyes community-rated health insurance premiums are “inefficient,” as economists define that term in their intra-professional dictionary. 

The Affordable Care Act of 2010 (ACA, otherwise known as “ObamaCare”) also mandates private insurers to quote community-rated premiums on the electronic market places created by the ACA, allowing adjustments only for age and whether or not an applicant smokes. But within age bands and smoker-status, insurers must charge the same premium to individual applicants regardless of their health status.

As fellow economist Mark V. Pauly points out in an illuminating two-part interview with Saurabh Jha, M.D., published earlier on this blog, aside from the “inefficiency” of that policy, it has some untoward but eminently predictable consequences. It happens when healthier people disobey the mandate to purchase insurance, leaving the risk pools of those insured in the ACA market places with sicker and sicker individuals, thus driving up the community-rated premiums. As Pauly points out at length, a weakly enforced mandate on individuals to be insured can become the Achilles heel of community rating.