OP-ED

What to Do on the Day After ObamaCare

Two weeks ago, the Supreme Court heard arguments on the constitutionality of the administration’s health law, aka ObamaCare. Opponents are giddy with the possibility that the law might be struck down.

But what then? Millions of uninsured, both those who choose not to purchase coverage and those who can’t due to pre-existing conditions, will still be with us. The rising costs and inefficient delivery of health care will still be with us.

The country can have a vibrant market for individual health insurance. Insurance proper is what pays for unplanned large expenses, not for regular, predictable expenses. Insurance policies should be “guaranteed renewable”: The policy should include a right to purchase insurance in the future, no matter if you get sick. And insurance should follow you from job to job, and if you move across state lines.

Why don’t we have such markets? Because the government has regulated them out of existence.

Most pathologies in the current system are creatures of previous laws and regulations. Solicitor General Donald Verrilli explained as much in his opening statement to the Supreme Court: “The individual market does not provide affordable health insurance,” he noted, “because the multibillion dollar subsidies that are available” for the “employer market are not available in the individual market.”

Start with the tax deduction employers can take for their contributions to group health-insurance policies—but which they cannot take for making contributions to employees for individual, portable insurance policies. This is why you have insurance only so long as you stay with one employer, and why you face pre-existing conditions exclusions if you change jobs.

Continue with the endless mandates (both state and federal) on insurance companies to provide all sorts of benefits people would otherwise not choose to buy. It sounds great to “make insurance companies pay” for acupuncture. But that raises the premiums, and then people choose not to buy the insurance. Instead of these mandates, at least allow people to buy insurance that only covers the big expenses.

What about Medicare and Medicaid? Two words: premium support. The underlying point of premium support is simple. If insurance costs $5,000 and the government gives an individual a $4,500 voucher, that individual will still feel the correct economic signal to shop for cost-efficient health insurance and health care.

The main argument for a mandate before the Supreme Court was that people of modest means can fail to buy insurance, and then rely on charity care in emergency rooms, shifting the cost to the rest of us. But the expenses of emergency room treatment for indigent uninsured people are not health-care’s central cost problem. Costs are rising because people who do have insurance, and their doctors, overuse health services and don’t shop on price, and because regulations have salted insurance with ever more coverage for them to overuse.

If we had a deregulated, competitive market in individual catastrophic insurance, that market would be so much cheaper than what’s offered today that we would likely not even need the mandate.

Meanwhile, staggeringly inefficient markets for health care itself need a thorough, competition-focused deregulation. Americans will know there’s a healthy market when hospitals post prices on their websites, and when new hospital and health-care businesses routinely enter to challenge the old ones. Here too regulations keep competition at bay.

The number of new doctors is still restricted, thanks to Congress and the American Medical Association. Congress caps the number of residencies, the AMA has fought the expansion of medical schools, state tests make it difficult for foreign doctors to work here, and on and on.

There are hundreds of government impediments to competition. New hospitals? In my home state of Illinois, every new hospital, expansion of an existing facility or major equipment purchase must obtain a “certificate of need” from the Illinois Health Facilities Planning Board. The board does a great job of insulating existing hospitals from competition if they are well connected politically. Imagine the joy United Airlines would feel if Southwest had to get a “certificate of need” before moving in to a new city—or the pleasure Sears would have if Wal-Mart had to do so—and all it took was a small contribution to a well-connected official.

The result is a monstrous system in which insurance patients are gouged to subsidize Medicare, and cash patients are gouged most of all. Here’s Mr. Verrilli again: “Insurance has become the predominant means of paying for health care in this country.” Yes, the cash market has been badly damaged. Whose fault is that? Shouldn’t we bring it back?

Group health plans in today’s system may appear reasonable enough—they seem to resemble “buyers’ clubs,” where people pool together to get good deals from providers. But in a real buyer’s club, each buyer still pays his own bill—you don’t go into a Sam’s Club and haul off whatever you can with only a fixed $20 copayment. And real buyer’s clubs don’t depend on where you work. Real buyers’ clubs for health services could be a useful way to get competition going and revive the cash-and-carry market for individuals.

A deregulated health-care and health-insurance market can work. We can at least start by removing the obvious elephants in the room: all the legislation, regulation and interventions that needlessly keep prices up, keep competition and innovation out, shelter people from the economic consequences of their decisions, and prevent the emergence of real insurance that follows you from job to job and from health to illness and back.

Mr. Cochrane is a professor of finance at the University of Chicago Booth School of Business and an adjunct scholar at the Cato Institute. He blogs at The Grumpy Economist. This post first appeared in the Wall Street Journal.

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civisisusBobbyGPeter1LouisdousDeterminedMD Recent comment authors
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DeterminedMD
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DeterminedMD

Here’s a theory that I think accounts for what we are stuck between dealing with the DC dichotomy: Democrats ruled the House, at least, for what, over 40 years until the Republicans took it over in 1994. At that same time, the ‘Cants had the Executive Branch to themselves for 20 of 24 years with Carter being the 4 year disruption. So, either side was outraged when they lost their branch of power come the 1990’s, first with Clinton’s election and then having Gingrich become Speaker. And like true narcissists and antisocial cretins, they did whatever had to be done… Read more »

BobbyG
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“and a voucher to purchase private insurance”

There’s the ugly hand of government again.
___

Well, maybe it’ll turn out to be “unconstitutional” for the government to effectively mandate that people buy private commercial insurance via voucher “premium support.”

DeterminedMD
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DeterminedMD

An interesting read I found at another site: http://american.com/archive/2012/april/why-obamacare-has-proved-a-hard-sell Again, every opinion on this matter does not seem very unobjective nor unbiased, but, when a matter divides the culture/society so evenly, shouldn’t the legislation be pulled and reformatted to try to find a common ground for more approval. Not if you are an extremist Democrat. Or, Republican. Why is America letting the 20% of either side to this war dictating what the majority 60% really want as moderation? Oh, I forgot, you’re either fully with one of them or against them. Remember the Star Trek episode with the two men… Read more »

John Ballard
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We seem to have forgotten, but in the Hillary Clinton vs Barack Obama pre-election contest the issue of health care was barely mentioned, by either party, or by either Democrat. For practical purposes the only difference between Hillary-Care and Obama-care was — guess what? The mandate. She was for it. He didn’t think it was necessary. (Remember all those “promises” he made about “if you like what you have…” etc.?) Post election the issue was tossed to Congress with very little input from the president. He had convened the big players in advance and outlined all the quid pro quos.… Read more »

Peter1
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Peter1

“and a voucher to purchase private insurance” There’s the ugly hand of government again. Dr. Mike, if you truly agree with John Cochrane then wouldn’t you want NO government in healthcare, after all, according to John the wild west of free enterprise will fix this for us – forever? Just think, new hospitals emerging then going broke under the weight of competition, the market flooded with doctors each scrambling to lower their fees to attract enough business to pay the rent, insurance companies rising and falling leaving their old clients uninsured, at least until another company eagerly snaps up their… Read more »

Louisdous
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Louisdous

John Ballard says: “Of course I’m guessing here, but if I have learned anything in life is that you don’t get something for nothing. That zero premium business is a real turn-off for me” But, when Obamacare actually promised something (30 million more people covered) for less than zero (a reduction in the deficit) did that give you a tingle up your leg? “Insurance is shared risk and as good citizens we all share all risks” A risk involves an unknown. Are your maintenance prescriptions and annual physical an unknown? If not, why should “good” citizen share in these non-… Read more »

Nate Ogden
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Nate Ogden

“Among them was a requirement that for every Medicare advantage member they enrolled, a non-Medicare private member must be enrolled.”

I remember running into this, forget the exact regs but they wouldl lose money on private insurance because they were making so much on Medicare.

Nothing like losing business subsidized by your own tax dollars. Throw in the requirement that groups had to offer HMOs if one was available in their market and they had a field day.

DeterminedMD
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DeterminedMD

“The result is a monstrous system in which insurance patients are gouged to subsidize Medicare, and cash patients are gouged most of all.” Not much of a fan of the post as a whole, but this sentence summed up much of what is concerning from those two groups. Again, social darwinist here to give what seems to be my weekly comment just reiterating what it is about: we can’t save or prolong everyone to have sustained quality of life, and yet no one wants to address that gorilla. See the M*A*S*H episode, season 2 or 3 I think, where after… Read more »

Nate Ogden
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Nate Ogden

WHAT IS A PREMIUM REIMBURSEMENT
ACCOUNT (PRA)?

A Premium Reimbursement Account, under Internal Revenue Code (IRC) Section 125, allows you to use “taxfree” dollars to pay for individually owned, qualified insurance policies for you, your spouse, and any tax dependents which are not sponsored by an employer.

Nate Ogden
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Nate Ogden

http://www.dol.gov/ebsa/faqs/faq_consumer_hipaa.html

HIPAA is a federal law that:

Limits the ability of a new employer plan to exclude coverage for preexisting conditions;

Provides additional opportunities to enroll in a group health plan if you lose other coverage or experience certain life events;

Prohibits discrimination against employees and their dependent family members based on any health factors they may have, including prior medical conditions, previous claims experience, and genetic information; and

Guarantees that certain individuals will have access to, and can renew, individual health insurance policies.

Nate Ogden
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Nate Ogden

“The individual market does not provide affordable health insurance,” he noted, “because the multibillion dollar subsidies that are available” for the “employer market are not available in the individual market.” This is missing a lot of gray area. Individual purchased premiums can be deducted pre-tax from payroll. And Individual employed can write off insurance premiums. The only people that can’t write off the cost of individual insurance under current tax law are those not working. A very small subset of the 17 million or so individually insured. “Start with the tax deduction employers can take for their contributions to group… Read more »

John Ballard
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Here’s another provocative idea — an economic informed consent for patients and their families.
Delightful conversation in the comments.

http://www.kevinmd.com/blog/2012/04/economic-informed-consent.html

Nate Ogden
Guest
Nate Ogden

this is actually an angle we are working now. If you read the consumer protection laws in most states the current business model of healthcare would be in violaiton of 3-4 of them. When we cut back a claim to a reasonable payment based on cost + or Medicare + we help the employee fight any balance billing. Legally violations of consumer protection law is a great defense. Consumer not aware of price at time of contract Consumer not in equal position to negiotate price Provider never have expectation of full payment Charges exceed what the person could get the… Read more »

Dr. Mike
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Dr. Mike

I really would like to see a well thought out rebuttal instead of flippant disrespect.
Why not let the Medicare patient choose between standard medicare +/- secondary (or medadvantage) and a voucher to purchase private insurance?
Why not allow employers to claim a tax deduction for supporting an employees individual policy?
Why not remove some of the coverage requirements so that I can find a policy that covers what I want it to cover instead of things I don’t need?
Why not make health insurance portable?

BobbyG
Guest

I guess you’re shooting at me. No? Not sure.

“a voucher to purchase private insurance?”
__

Again, who precisely is going to write that affordably for members of the aging, empirically high UTIL demographic? There’s no “market’ for it, actuarially speaking (well, except perhaps for Mitt, Newt, Ron, Rick, and Paul Ryan — the latter of whom has got His on your dime anyway).

Correct me if I’m wrong?

Also: See “The Moral Hazard Myth.”

Dr. Mike
Guest
Dr. Mike

I don’t see why Medicare part B could not be replaced by a private policy – as long as it was not required to be identical in coverage. I could imagine there might be some willing to pay higher radiology deductibles in exchange for dental coverage, just to give one example. Medicare part A would still be in place for the CABG.

BobbyG
Guest

Ok, I’ll buy that. Guardedly, but, point taken. You’re verging on Swiss Model there, to a great degree. AHIP won’t have it.

I’m now 66. Can’t afford Part B (which I would have to pay for on top of my employee coverage, $199/mo premium).

John Ballard
Guest

@Dr. Mike, I’m also guilty of flippant disrespect. I’ll respond to your questions one at a time. Why not let the Medicare patient choose between standard medicare +/- secondary (or medadvantage) and a voucher to purchase private insurance? I was surprised to learn lately that something like a third or more of Medicare beneficiaries are already using MA. In fact, my wife and I were part of that group the first year we became eligible. Why? Cuz the premium was ZERO, which compared with the monthly premium for one of the old supplemental policies was a no-brainer. Or so we… Read more »

Dr. Mike
Guest
Dr. Mike

Thanks for taking the time to respond. You make some good points but unfortunately sidestep the questions to some extent. I don’t see how the need for “shared risk” has anything to do with what is covered. Shared risk just means that the pot of money is big enough. What is covered only shifts around where money is spent. If I pay $600/mo in premiums and have a $1000 deductible for imaging, $250 for lab, $250 for each ER visit, and no coverage for office visits – how does that suddenly mean that my premium no longer contributes to the… Read more »

John Ballard
Guest

I suppose we should agree to disagree about a few things, Dr. Mike. You are looking at health care through a commercial insurance lens and I am seeing everyone in society including those without insurance. Two challenges stand in the way. 1. There is no clear understanding of what constitutes basic care and 2. the word “costs” regarding health care is essentially without meaning. In the same way that when you purchase an automobile the dealer starts with what is called a “basic model” and you pay extras for anything more, from fancy wheels to exotic whatever… all of which… Read more »

John Ballard
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civisisus
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civisisus

“When she had a week in the hospital we took a closer look at what would have happened had her medical problems been far worse. The limitations of the private MA plan would have cost us much more than traditional Medicare. ” I feel bad about your experience, John, but MA plans DO come in a variety of flavors, so it’s not automatic that anyone with MA coverage would have had the same result – even at the same hospital, for the same care. BTW, I share your curiosity about Cochrane’s stash….That the success of his “analysis” depends on the… Read more »

BobbyG
Guest

Sounds so wonderful.

Who is gonna write gramps a commercial policy for $5k/yr, “premium supports” or not?

Seriously?

You guys and your warm & fuzzy small numbers.

One CABG is gonna set gramps back $60k. I could go on with the list of geriatric pxs that the AHIPistanis would pass on underwriting “affordably.”

C’mon, man.

Mary
Guest
Mary

Right on!

John Ballard
Guest

Whatever you’re smoking must be some really good stuff. It’s been many years, but this makes me want to resume.