Matthew Holt

Health “reform”: Lest we forget…

6a00d8341c909d53ef0105371fd47b970b-320wi There’s been a lot of hand-wringing and b.s. discussed about the comparatively minor health reform that’s snaking its way through Congress. And when I say comparatively minor I mean it. Mostly because there’s lots this legislation doesn’t do.

1) There’s no significant reform of how we pay for health care—even though Orszag, Obama et al want it, and maybe Rockerfeller will inject the “MedPAC as Federal Health Board” into the end result….but I doubt it.

2) There’s no significant change in how we raise money for health care. Employment-based insurance stays as it is. Medicare and Medicaid basically stay as they are. Even if there are NO revenue sources for extending care to the uninsured, it’s still only a roughly a 5% increase in the cost of health care. If you hadn’t noticed we get that increase every year anyway! (By the way CBO actually scores the economics as being significantly better than that).

3) There’s no significant tax increase. Well the apologists say so, but the proposed tax increase on very high earners is trivial compared to how well they’ve done in the last twenty years. The chart below shows the share of overall earnings since the 1980s.

Note that those in the top 1% have done by far the best and it’s those in the top 0.1% responsible for most of that gain!(Note: I’ve lost the great blog post from which I stole this—can someone tell me where it comes from?) Margalit tells me it comes from here, but the exact chart I'm using comes from a different post by the same author at Afferent Input and the one I use is relative income distribution instead of absolute relative growth. But the message is the same.


Can anyone say with a straight face that there’s a) no money in that top 1% to pay for greater social equity, or b) that economic redistribution hasn’t gone the other way in the last thirty years? I will grant that the pay or play tax on employers may be a trifle more problematic, but I don’t hear much bleating about that. And anyway, it’s only a levelling of the playing field between businesses that provide health care now and those that don’t.

So what does this legislation do?

1) It basically reforms the individual and small group insurance “markets” so that the general dysfunction for the poor suckers forced to buy their care there and the abuses inflicted upon many of them will (I hope) be eradicated.

2) It gives subsidies so that the uninsured can potentially afford it when they are forced to buy in. (I view the public plan option fight as a big distraction and at least a couple of smart people agree with me)

Commonwealth reminds us this morning why that matters. 73% of people trying to buy an individual policy couldn’t or didn’t buy one. Longtime THCB readers won’t need a lecture from me about what’s wrong with the individual and small group market.  But the only really significant part of health reform so far for me is that AHIP has been pressured into agreeing to give up its current model for that market in exchange for getting tens of millions of more customers. And of course there need to be subsidies (that’s the $100 billion) so that people who don’t get health benefits from their employers, can afford it. And I worry greatly that those subsidies will not be enough. But for what is a minor reform of the health care system—and far less than we need—this is not a bad outcome.

Of course we’ll be back here in a few years because the fundamental problems of the health care system—employment-based insurance & fee-for-service medicine—will remain whatever happens this summer. And they continue to be a recipe for disaster. Although of course it’s a disaster that has lots of supporters.

17 replies »

  1. You can’t succeed when you turn commercial Health Insurance products into social tools. It just gridlocks trading of certain goods and services and ruins that economic sector which then trickles to the rest of the economy.
    If Obama wants to insure more people then put them on some kind of medicaid paid by other cuts or at worst case by increasing taxes. But forcing Insurance companies to accept preexisting conditions is nuts. It’s like forcing GM to give away every 10th car for free to someone who can’t afford it. Accepting preexisting conditions is not “Insurance”. Insurance is supposed to spread risk where many people pay for the few who happen to “get” sick. Forcing a healthy person to pay a sick persons health bills by forcing Ins. companies to accept them which in turn forces the Ins. company to raise premiums is sick economics.
    And by Obama trying to sell it as a health care overhaul is a lie. By Obama saying it will help the economy is a damn lie. By “showing” statistics are on his side that’s a scam.
    In the short term some people will be getting something for nothing and be happy. In the long term these same people will be losing the most. The same way the Soviet Union helped their needy. It was all about self serving lies.
    Everybody please post this and other good posts all over the internet to stop this health mess from hitting our shores.

  2. Margalit – Any comparison to other countries in terms of the relationships between healthcare systems and healthcare costs makes a huge leap. It assumes that the cultures and people are the same, which couldn’t be further from the truth. This country does not enjoy the high level of social responsibility that other countries do. From its very beginning, we have had an individualistic, “cowboy” culture. We are a patchwork of cultures and beliefs like no other.
    If you continue to hang your hat on the “comparison countries argument” read Culture Code by Clotaire Rapaille. It will put much of that tired, old argument to rest.

  3. Unfortunately, jd, providers make more money providing completely unnecessary care to healthy people (CT scans for headaches, angiograms w/o doing a stress test first, etc) than they do rendering “sick” care. Sick people have comorbidities and are more expensive to treat. Too many Americans are still stuck in a place where they’d rather “do something” than wait and watch (and suffer). They don’t get that most of their real problems are actually created by the health system’s solutions.
    A lot of the reason physicians provide unnecessary care is because patients demand it, and will sue them if they DON”T get it and something bad happens. They demand it because for the really expensive stuff, most of them pay VERY little. Consumers pay less than 3% of hospital services, where the real costs are. Most of those costs are paid by people with no insurance at all, something we started out to fix. . .

  4. Matt is of course right that this is minor reform, in that it only is likely to address 1 of the 3 major components in a serious way (access, cost, quality). Sadly, a few of us have been saying for a long time that this was inevitable. The forces arrayed against reforms to the delivery system to reduce costs, and significantly improve care coordination and use of best practices, are too strong. The public never got what real reform would look like–and without the public behind it, good luck reforming 18% of the American economy.
    The naivete, even sometimes on this blog, about what was politically possible could be breathtaking and depressing.
    The public needs to be sold on the real cost drivers of health care, and what the lost opportunities are for improved care. Aside from some great writing on this blog and others, and a few scattered stories here and there in the popular press, this has not been done.
    To give a sense of what is needed out of the public: Probably a clear majority of Americans when asked about health insurers can state some version of the line “they profit by denying care” and surveys have shown that the public believes that insurer admin and profit are multiples of what they really are, and are the primary contributers to excessive cost in the health care system. Never mind that all this rests on serious misunderstandings. It is what we had to work with on this round of reform, and it is why the “public plan” is still alive despite it being a direct threat to a multi-billion dollar industry and not necessary for reform!
    If we can go into the next round of reform with the public able to state similar pithy criticisms of the role of providers in our system, we may have a fighting chance to get somewhere. For example: “providers don’t provide health care, they provide sick care. They need you to be sick to make money, and the sicker you are the more money you make for them.” (I didn’t say the phrases had to be fair.)
    I also don’t think criticisms of providers will seep into the public consciousness unless we get universal coverage with this round of reforms. Only then will attention be able to shift from insurers as the main cause of excessive costs to providers as the largest cause of excessive costs.

  5. Take courage my friend….this reform is nothing more than a Trojan horse. The politicians know that this is just a layup for national health care. The public plan is so corrosive and will erode the number of folks those that are on private plans. There is one thing that the government can do that no insurance company can do and that is PRINT MONEY. A private insurer is required to have capital reserves to underwrite risk. The federal government just prints money, sells bonds, and runs up debt. There will be little to no competition and eventually the takeover that you desire.

  6. MG would it be my comment on the chart he included or my comment on the expected dissatisfaction with reform that was off topic? Sorry I will try to not comment over your comprehension ability in the future.
    Back to the chart, couple points to ponder;
    This came off tax returns, living in Vegas I have “become aware of” the difference between what people really make and what their tax return says. Half of this town makes under 30K a year and lives in 300K houses. Tax returns don’t even come close to showing the true financial picture of anyone in the service industry, your waitresses, bartenders, and anyone else making tips makes 2 times or more what their taxes claim.
    Again pointing to the fallacy of this comparison based upon tax returns there is an entire sub economy in poorer neighborhoods, from illicit drug trades to cash mom and pop businesses none of it shows up on tax returns. This underground economy grows substantially each year, hardly something you can ignore in any meaningful study.
    What should the ratio be? This chart is also misleading in that in tracks a fluctuating group of people but bases it’s conclusions as if those people don’t change. The top 5% of earners are only on the list something like 5-7 years. This is not a homogenous group. Some examples;
    Athletes who have great contracts for a 5 year career then can’t work in that field ever again.
    Family farmers that sell or anyone that sells a family business, one year in their life they are “wealthy” and you want to tax them to death
    Any high risk cyclical business owner, you can lose money or scrap by for decades then hit your stride and not make back enough for all those years of risk.
    This chart really says nothing and is worthless except to wire up lefties on perceived greed by the wealthy.
    Wow occasionally our government does put out some great work, to bad the left never reads any of it.…/incomemobilitystudy03-08revise.pdf
    Since my taxes paid for it I will quote liberally!
    “While many studies have documented the long-term trend of increasing income inequality in the U.S. economy, there has been less focus on the dynamism of the U.S. economy and the opportunity for upward mobility.”
    Sound familiar?????
    “There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period.”
    “Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.”
    “Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.”
    This one is important!
    “Comparisons of snapshots of the income distribution at points in time miss this important dimension and can sometimes be misleading. Research shows that the distribution of lifetime incomes is more equal than a one-time snapshot implies because a household’s relative position in the income distribution often changes over time.”

  7. Deron, are there any studies showing that folks in other developed countries where everybody is “shielded” from the real costs of medicine, are over utilizing the system, thus driving costs through the roof? Or is this presumed behavior limited to the US? Or maybe that’s not the problem at all?

  8. Matthew – I agree that real reform does not appear to be on the table and it will have to be revisited. I’m just not sure I would list employer-based insurance among the top cost drivers. Sure, it exacerbates the issue of insurance shielding patients from the real cost of medicine, but any insurance plan with little or no deductible/copays does that anyway, as does Medicare and Medicaid.
    The unfortunate reality is, we don’t spend someone else’s money the same way we spend our own. Premiums that fund private insurance or taxes that fund single-payer both amount to the same thing, someone else’s money. There is no incentive to spend it wisely, hence the benefits of competition that every other industry enjoys are lost.

  9. Not only is Zeke Emanuel missing in action, but Peter Orzag is being forced to defend the indefensible—those of us who seek a health care financing system modeled on transparency were hoping he would speak Truth to Power but that is not the case. You can be sure that when Bob Woodward publishes his insider account of the Obama health care reform fiasco, we will learn that Orzag is pulling his hair out right now, wondering how why he allowed him to get entangled in this mess.

  10. The best you can do to support your argument for “sharing the wealth” (a la Karl Marx) is a blurry, unreadable, unattributed graph?
    Furthermore, depending on a surtax on the wealthy to fund the nation’s health program is the height of folly. Just look at California and New York. One of the major reasons they are in a deep hole is their highly progressive tax structure. No doubt justified by comments like “the proposed tax increase on very high earners is trivial compared to how well they’ve done in the last twenty years.”

  11. Nate – Do you rant endlessly and mindlessly like this during the day in actual conversations bringing up points/issues that are completely irrelevant to the conversation at hand?

  12. I don’t disagree with your point about the capacity of the wealthy to pay more income taxes, believe it or not. To me, the destructive part of what’s on the table now is the employer mandate part- a more than fifty percent increase in the federal payroll tax for mostly small employers (where all the job creation comes from) OR a largely open ended insurance bill supervised by a feckless Congress. Nothing I’ve seen so far makes business’s cost burden for health benefits any lighter, for those who are presently paying to insure their workers.
    We shouldn’t continue the employer based system, and had a bipartisan start toward a new system in Wyden Bennett which hasn’t even been considered so far. Interesting that the administration hired an eloquent critic of the employer based system into OMB (Zeke Emanuel) and we haven’t heard a peep from him in this depressing slog toward a mediocre and expensive solution to our nation’s health financing problem.

  13. “that economic redistribution hasn’t gone the other way in the last thirty years?”
    Mr. Holt, if the stupid and lazy won’t even show up to collect their check how much effort do you expect from those of us that work to redistribute our labor to them? I find these charts very misleading and this entire argument disingenuous. We have the wealthiest poor in the world, our poor live better then most countries middle class.
    For example lets take 15-20 million uninsured already eligible for free coverage that don’t bother to sign up. How many billions do you want the actual workers in this country to spend trying to force people to sign up for free coverage?
    What are the current HS graduation rates? At least in the city I live it gets worse and worse every year and is a fraction of what it was 30 years ago.
    How has illegal immigration changed in 30 years? Again seems to have been a pretty significant change in the past 30 years.
    It would seem pretty logical that if you add 12 million illegal immigrants who have limited ability to own assets or gain job skills, add that to a poor class who is less likely to graduate, has fewer job or trade skills, and less desirable to employ that they would make less money. Why would I pay a HS dropout more then I would pay someone who graduated HS 30 years ago adjusted for inflation of course.
    It’s a pointless chart that only states the obvious. People that know less, work less, and are worth less are being paid less. Well I would sure hope so.
    If you’re disappointed with reform now just wait till you see what it results in. Having worked through 20 years of reform you will get about 10% of what it promised and a huge increase to cost making it all more unaffordable and thus needing more reform shortly. The exchange will destroy small group and individual insurance, see CalChoice and MA for starters. This will of course destroy small business opportunities for years to come and drag down the entire economy. Can you name two worse places to be a small business owner now then CA and MA?
    The fundamental problems our regulation and failed public plans. FFS and employment based insurance can function fine if it wasn’t being suffocated by the government.