Healthcare Reform Even the Tea Party Could Support

flying cadeuciiThe Affordable Care Act (ACA) is the law of the land, and nothing the Tea Party does is likely to lead to its repeal.  But the ACA can be amended to make it less objectionable, and it wouldn’t be that hard.  We just need to modify it to allow Tea Partiers (and others) to form their own healthcare groups.

All insurance, including healthcare insurance, works by forming risk pools.  The members of the pool contribute to a pool of money which is then used to pay the claims by the members.  Most participants pay in more than they use.  In healthcare most people pay more money into the pool than the cost of the care they receive.  A few people receive far more care than they pay for.

For risk pools to work, boundaries have to be drawn around what is paid for by the risk pool.  As an example car insurance policies place a limit on how much they will pay for any one accident.  It’s nice to think that as a rich country we don’t have to draw boundaries around healthcare, that we should be able to pay for any possible medical treatment, but we can’t.  We already spend almost twice as much on healthcare as other nations and if costs keep increasing eventually it will bankrupt our country.

Many people blame private insurance companies for our expensive healthcare system, but insurers actually have very little to do with rising costs.  Instead advancing medical technology is the primary cause.  Our for-profit medical technology industry has made amazing advances in treatment and care that have allowed us to save people that used to die.  But its primary goal is still profit.  Every year the industry comes up with new procedures or refinements.  Most provide only incremental improvements in care but they all come with a higher price tag.  Every year the industry spends billions of dollars – yes, billions – successfully encouraging doctors to recommend the new procedures.  And it’s about to get much, much worse.  There is a flood of new treatments and targeted drugs getting ready to hit the market.  Some will undoubtedly be true advances, but all are likely to cost tens and even hundreds of thousands of dollars per treatment.

So like it or not, health insurance needs boundaries just like auto or homeowners’ insurance.  Who draws those boundaries, of course, is one of the most contentious questions in the U.S.  Part of our country doesn’t trust insurance companies to draw acceptable boundaries.  Part of our country, including the Tea Party, doesn’t think the government should be entrusted with this authority.

The Affordable Care Act greatly expands the federal government’s role in drawing these boundaries.  At the same time the ACA makes it much harder for insurance companies to control costs.  One of the tools insurance companies used to make sure private insurance remained affordable were annual and lifetime limits on payment for care, similar to the financial limits of auto or home insurance.  The ACA forced insurance companies to remove these financial limits.  Arguably the ACA has tilted the playing field, extending government involvement while at the same time making it much harder for private insurers to keep costs down.  It is this combination that caused many people to suspect that the real purpose of the ACA was to undermine our free-market healthcare system and lay the groundwork for an eventual government take-over of healthcare.

And so the conundrum facing our country – the ACA makes it very hard for insurers to draw reasonable boundaries around covered care, and much of our population doesn’t trust the government to draw the boundaries.

There is an alternative – we could let the group members themselves do so.  We could allow individuals to come together to form their own healthcare groups, and then decide democratically how to draw the boundaries around the coverage that their healthcare pool will pay for.

In some ways this would be a radical transformation – we would actually be trusting the people receiving the care to set the limits they are willing to live with.  But the beauty of this approach is it fits easily within our existing healthcare system.  We already have an infrastructure in place comprised of underwriters, brokers, consultants, claims processors and wellness companies that help employers shape and manage employer-funded health plans.  This same infrastructure could be used by self-created and managed groups to shape and manage their plans.  And we have the legal structure in place as well – every state has some version of a mutual benefit company that could be used for self-managed health plans started by neighborhoods, political organizations or even large extended families.

Letting individuals form self-managed healthcare plans won’t immediately bring down healthcare costs, and it won’t make the decisions on how to draw the boundaries any easier.  But at least it will be the people actually receiving the care deciding on the limits they can accept.  And these decisions will have a legitimacy that neither the government nor private insurers can match – they will have the legitimacy of democracy.

Our healthcare system is already moving in the direction of self-managed groups.  Large employers are implementing private exchanges that allow their employees to select from a range of group plans.  The ACA establishes exchanges for employees of small businesses.  It’s a short step from letting the members select from a limited number of groups to letting the group members decide what their group plan should cover.  Self-managed buying groups would offer a uniquely American approach to improving healthcare in the United States, an approach that even the Tea Party could support.  We need to amend the Affordable Care Act to allow self-managed healthcare groups.

Blake is the Chief Product Officer of HealthSight, LLC, a technology company that has developed an innovative approach to using social networking and group financial transparency to engage the members of a healthcare plan

56 replies »

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  3. “full chargemaster rates. I guess that’s a market too.”

    Yes, Barry, that is a market as well, but is limited.

    ” HSA’s don’t work as well for low income people as they are likely to avoid as much necessary care as unnecessary care because they can’t afford the high deductibles.”

    It will be easier for more affluent people to purchase an HSA, but an HSA will have a greater positive effect on the less affluent.

    If the individual truly can’t afford the high deductible he can’t afford the premium of the low deductible. They are actuarially matched, but the low deductible insurance actually costs more. A lot of money is lost in the low deductible because of administration costs and moral hazard.

    The problem for the less affluent HSA consumer generally occurs if they have to meet their deductible the first year or shortly thereafter. From then on there is generally money in the account to meet those needs.

    You might have a point with those that have chronic diseases AND meet the deductible every year, but if that individual was applied to a global setting of HSA’s he would still be better off because premiums would fall. There is ample proof that this would be true. There are ways to ameliorate the problem of those with a major illness such as only one deductible per 36 months.

    Total hospital costs could fall if government were willing to let OP centers thrive, but they don’t even though for a colonoscopy Medicare pays almost double to a hospital than an outpatient clinic. There are many additions to you list to answer why hospital care in the US is so expensive, but when you list the reasons you should also include ppp.

  4. Peter1, get over the idea that everything is pure. Why would the Canadian system take you and bump one of their own citizens? Do you pay Canadian taxes that helps fund the system? Medical tourism brings in money to the system. That is part of a market place. I’m not sure what you were charged, but surely you understand that Canadians pay taxes that help support their system and its infrastructure that you utilized. Thus you, in some people’s thinking, exploited the Canadians though their price was much higher than prices in the third world.

    I am not saying Americans should work for the low wages of other countries, but like it or not we live in a global world where what a man earns is based upon his or the groups productivity. Productivity is what keeps salaries high. As government enters with more rules and regulations productivity falls and eventually one sees a falling wage scale.

  5. Conversely, Arab Sheiks and other wealthy foreigners can and do come to the U.S. for medical treatment and willingly pay our famous academic medical centers their full chargemaster rates. I guess that’s a market too.

    Even Peter’s willingness to fly to India for his hip surgery would probably be unaffordable for the majority of Americans who lack health insurance and need to self-pay. This is why people need insurance especially for hospital based care. Primary care is a different story. I don’t expect my car insurance to pay for oil changes and HSA’s are fine to help the upper half of the income distribution pay for low cost routine services. HSA’s don’t work as well for low income people as they are likely to avoid as much necessary care as unnecessary care because they can’t afford the high deductibles.

    The real cost problem in U.S. healthcare relates mainly to hospital based services and brand name prescription drugs, especially newer specialty drugs. People need to be aware of the cost at contract rates for hospital based care before services are rendered. They also need to be subject to differential coinsurance requirements if they want to go to a more expensive facility for care that any community hospital could competently provide. The incremental cost of going to the more expensive hospital needs to be enough to get their attention but they don’t need to control all of the dollars in my opinion.

    Hospital care in the U.S. is more expensive than in other countries for a number of reasons. One is that doctors, nurses, executives and other management types make more money than their foreign counterparts. Another is that most U.S. hospitals have more amenities from single rooms to flat screen televisions and people like amenities. If you can go to a Four Seasons for the same out-of-pocket cost as a Holiday Inn, most people will choose the Four Seasons. The litigation system is another factor that probably forces more testing “just to be sure” than would take place elsewhere. There is more administrative complexity around billing as well but I don’t think that’s a big factor driving hospital costs. It’s a more important issue for primary care.

    I think allan and I will also have to continue to disagree about the virtue of his concept of markets as it relates to healthcare.

  6. “You received care in Canada, not because of socialism, but because of a market place for healthcare tourism that adds greatly needed dollars to the system.”

    allan, you don’t know what you’re talking about. My PRICE in Canada was due, to a large part, on their government control of health care. I had my cataract surgery in a hospital and was charged according to their price controls. The surgeon was private, as all docs in Canada are, but his charges were also reduced because of controls and low overhead of hospital facilities. All due to government controls.

    If you want the same prices here you’re going to have to accept the low wages and prices in India and/or the government controls of most other industrialized countries.

    You might want to ask American workers if they want to make the same money and work under the working conditions as the Chinese or Indians.

  7. “We’re just going to have to continue to disagree.”

    Peter1, all the examples are examples of the marketplace making things better. You received care in Canada, not because of socialism, but because of a market place for healthcare tourism that adds greatly needed dollars to the system. You might be against the ‘rich’ getting privileges here in the US, but you weren’t against it when you sought out a capitalistic marketplace solution in Canada. You were given someone else’s slot and moved up to the front of the line.

    Same thing in India. In the past India felt as if the west was exploiting them with low wages. Their GDP was terrible. Then some started to realize that it wasn’t exploitation rather a time to let the marketplace function and they did. The weaver that sold his goods for $5 per day would still be earning the same amount today, but for the so called exploitation (It isn’t.). Today they earn many multiples of that amount and are far better off with many moving into the middle class and even into the class of the rich. India is recognizing that the low salaries benefit the nation because it brings in more money. That is why India is a hotspot for medical tourism. There too you were involved in India’s marketplace.

    To summarize: India and China in many segments of their economies have moved towards the marketplace. The rate of growth of their GDP’s is astounding and multiples of ours. The US is moving away from a free marketplace and its GDP rate of growth is falling. That is solid proof of the benefits of a marketplace over socialism.

  8. @ allan,

    “but at least in this case the government has leveled the playing field a bit. What do you find wrong with leveling the playing field?”

    I don’t find anything wrong with government getting involved in leveling the playing field – in fact in health care it’s necessary. If you’re going to participate in Medicare (I assume you will) that would be the government “leveling the playing field”. Exactly what the Germans are doing, the French are doing, the Canadians are doing and what the ACA is attempting to do – even though poorly. I think health care should not be left to the benevolence of a few employers (like you) but should be made available universally to everyone and taken out of the employee responsibility or mandated as Germany does.

    By the way I also went to Canada (those socialist hordes to the north) for my cataract surgery – for about 20% of what it would have cost me here. Certainly the Canadian “marketplace” relies less on “free market” than India.

    I found this “success” about Indian health care:

    “India might be the last place on earth where you’d expect to find health care innovation. Government programs have finally brought some infectious diseases under control, but the nation’s ability to meet the basic medical needs of its citizens remains abysmal. Despite robust economic growth over the past two decades, the infant mortality rate is three times higher than China’s and seven times greater than that of the U.S. Of the 2 million Indians in need of heart surgery, fewer than 5% get it. The majority of the country’s estimated 63 million diabetics and 2.5 million cancer sufferers haven’t been diagnosed, let alone treated. Seventy percent of India’s 12 million blind people could be cured by a simple surgery—if it were available to them.

    Although India boasts 750,000 doctors and 1.1 million nurses, practitioner density is about one-fourth what it is in the U.S. and less than half that of China. Hospital beds are in short supply, and most medical facilities are dated, cramped, and often unhygienic. In a country where the nominal per capita income is only $1,500 a year, patients typically have to pay 60% of health care expenses from their own pockets. Still, Indians believe that good medical treatment is something everyone should have access to regardless of their ability to pay….How are some Indian hospitals able to provide such high-quality health care at ultra low prices? The obvious answer—the differential in the cost of labor—does play a role…..


    We’re just going to have to continue to disagree.

  9. Re HSA’s: “Certainly the 100% tax deductibility makes them attractive – sounds like a government program to me.”

    Peter1, Think about it for a moment. Low deductibles mean higher premiums that are excluded from the tax deduction. The person with the high deductible loses out on the tax deduction so the HSA gives it to him. There is still too much government intrusion, but at least in this case the government has leveled the playing field a bit.

    What do you find wrong with leveling the playing field?

    What do you find wrong with the individual saving on premiums that would have gone to big insurance companies?

    What do you find wrong with that person’s bank account that might in the future prevent him from sucking off the taxpayer’s largesse?

  10. @ allan,

    “There are other reasons and they make the cost saving far greater than many expected.”

    Certainly the 100% tax deductibility makes them attractive – sounds like a government program to me.

  11. @Ashby

    How does your thinking re consumer operated and oriented health plans , the coops that were allowed by the ACA for the individual and small group plans… how do these jibe with your own ideas above? As of Feb, 2014, there were 400,000 folks signed up in these non-profit plans, but the going is tough because the HHS won’t allow them to use seed money–the ACA gave them some–for advertising and marketing.

    I think that groups can begin insurance plans. The Alameda Contra Costa Medical Association created its own physician malpractice insurance plan. It took extreme work to do this. A doc friend of mine had to go to Lloyd’s in London several times to arrange for re-insurance. We had to hire actuaries. Committees and meetings galore for a few years took place.

    Let the pros do it, but tell them exactly what you want in benefits. This will be nearly impossible. See Oregon’s now defunct health plan effort. The problem humans have is that we cannot imagine and foresee accurately enough. Even Obama punted in trying to describe essential benefits for the ACA. They had to simply copy those benefits in a mid-sized commercial plan. ACA watchers could not believe this amazing withdrawal of government responsibility.

    Theoretically and philosophically and economically, your idea is pleasing. Practically it sound like a version of community organizing hell on wheels. But don’t be discouraged. Old retired docs do not know better!

  12. Perhaps there is a lack of understanding on your part. India is by no ways near the development of the US, but as it has moved towards the marketplace it has become more successful as noted by its much higher GDP than the US and the fact that you had your hip replaced in India. It is remarkable how the shift in medical tourism has shifted from the US to other places and now simply includes the US. You are living proof of how a market system helps the world progress.

    “Your personal coverage in this discussion is very much everyones business – it gives context to your point of view.”

    My words speak for themselves. Your words betray you. Your admission that your hip replacement was done in India contrasts your statements about marketplaces and healthcare.

    You are wrong about HSA’s. They help both the rich and many in the middle class. In fact one could argue they help the lesser income folk more since the savings for the rich is just a drop in the bucket while the savings for the middle class are meaningful. Additionally it is not just the high deductible that causes savings in an HSA. There are other reasons and they make the cost saving far greater than many expected.

    Employee coverage: You are wrong again. I covered all my employees even covering their salaries outside of contract while they couldn’t work and sometimes paying their deductibles. That’s my choice as an employer and you and the government shouldn’t be involved in that. My employees were loyal to me so I was loyal to them. Government programs don’t instill the virtue of loyalty. They instill envy, greed, slovenliness, waste, non productivity and all sorts of negative incentives. Perhaps that is why you sounded unconcerned with your remark about the world not being sustainable.

  13. @ allan,

    “rather it demonstrates a success in their system”

    You have a perverted sense of success if India is held up as an example of one. I happen to have be able to take advantage of their present system to get a great price – talk to the millions of poor in India about what they think success looks like.

    Your personal coverage in this discussion is very much everyones business – it gives context to your point of view.

    HSA’s help upper earners, not low paid workers – glad to see you had enough to purchase. I assume you did not buy insurance for your employees? Could they also afford private coverage HSA?

  14. Peter, I am not saying that the Indian’s use of the marketplace demonstrates a success in our system rather it demonstrates a success in their system and highlights the former success of our own. Even you entered into the competitive marketplace to have your hip surgery. That tells us a lot. Individuals that think the marketplace is a failure in healthcare can and will utilize it for themselves. You are living proof.

    You point to the German system as one you would like to emulate, but when told that the German system was unsustainable you essentially said ‘so what’ in your remark “the planet is unsustainable.” You seem to accept failure as the mechanism of choice.

    The marketplace is not a system of failure. It beats every other system out there by wide margins. Where the marketplace is used economies are growing and where the marketplace is being put into disuse economies are shrinking. Use of the marketplace takes people from subsistence living and brings them to the middle class. It can even make them filthy rich.

    My personal coverage is no one else’s business. But for you, my friend, I will answer. For most of my life even though I had employees I carried my own high deductible insurance for my family. The savings I had before MSA’s and HSA’s was extraordinary even though there were high medical bills to be paid. Over the years I saved mega bucks and got the best care available. Yes, I did negotiate prices when it came to expensive testing. Yes, I made sure that the provision of medical care was not abused.

    Gradually with the onslaught of unnecessary regulation I was forced into coverage through my business to meet regulatory needs (not personal costs). The costs were much higher and my options greatly restricted. Before moving on from that business I once again got private coverage. It was difficult to do so because government regulation caused further erosion of the private market. Today in similar circumstances I would get an HSA and never spend a dime of the HSA unless it was absolutely necessary. People are supposed to save for retirement and appropriate HSA use can help them do so even if they have middle class incomes.

  15. @allan,

    Their marketplace, not ours.

    Germans going out of country for health care is a failure of their system, but U.S. patients doing same is a success??

    Out of interest, how is your health care paid for?

  16. Peter1, there is no doubt that one day the earth earth will become uninhabitable either because of global warming or global cooling or some other catastrophe. Maybe the earth will crash into the sun.

    The idea is to handle the manageable problems that occur long before the others. It seems in your case you went to India for your hip just like many Germans. It looks like our systems are more similar than we might realize.

    I guess you might be one of the uninsured. Healthcare abroad is a good option because of the market forces you don’t seem to like yet utilize very well even though you might not have been trained to do so. India after a long time being socialized has suddenly found the marketplace and their economy is growing fast and many formerly in severe poverty will soon enter the middle class.

    Your healthcare success in India is due to a marketplace. Thank you for making my point.

  17. allan, the planet is unsustainable.

    If you’re asking me if I’d rather put up with the deficiencies of other systems over this one – you’d be right.

    I found the cost of a new hip here uneconomical – I went to india, like many Americans.

  18. I will admit Peter1 that the German system is one of the better systems, but even their own leaders recognize the system is unsustainable.

    Are you willing to wait on line for your wife’s or children’s healthcare? …And longer if the quarterly medical budget is exceeded? …And have limited choice as to the specialist you can see?

    Is it OK with you to wait while private rich patients get to the head of the line for appointments and the leading specialists? That was something you didn’t like in the American system where most are treated in a more similar fashion to the rich Germans.

    Are you happy that 80% of civil servants are treated in the private system and have the benefits of the rich paid for by you the taxpayer and is an advantage you don’t have?

    Did the Germans solve the problem of multiple payers with different quarterly budgets for all different aspects of medical care?

    Would you be willing to delay your wife or daughter’s cancer treatments because at that moment there was a budgetary problem and therefore you had to take substantial additional risk? If you found that the wait was unacceptable would you be willing to go to another country for care like many Germans do?

    Are Germans aware when a cancer or other time sensitive treatments are delayed because of budgetary problems?

  19. “Many buyers/many sellers” what does this mean re numbers of bits in the system?

  20. “Now you live with queues”

    What you mean is everyone has the same chance to queue except just the ones who can’t afford coverage. The trick is to triage the most pressing.

    Canada’s wait times due to an aging population were put to the test and with more money, targets and resources were improved.

    “most of the systems’ information is gone”

    ????? Where does it go – a black hole? Maybe you should visit CIHI to see how much information is just on that site.


    I’d take the German system.

  21. @ Peter 1
    Demand is still there. Now you live with queues, plus you don’t know what to produce and how much because most of the systems’ information is gone.
    Come on. Japan and Germany have many payers.

  22. “However the patient participates we don’t want her to avoid necessary care and we don’t want her to be intimidated by the priesthood.
    Surely there are bright world class solutions to this failing market.”

    True single pay – even with all its own problems.

  23. If we took anything that man liked and felt he needed and made it tax deductible, what would happen to the demand for this thing?

    Now, if some of us can’t deduct this because we are in the wrong set of people–say we are too old and are not working–and we were able to get government to buy this for us, what would happen to the demand for this thing?

    What difference would it make if these things were, say, for automobiles or homes or hairdos or vanity surgery or cosmetic dentistry? We would still see almost unlimited demand. And the instruments we use to fulfill this demand–insurers, government agencies, bureaucrats, administrators, providers and salesmen, legislative committees, hospitals, surgicenters, professional schools, on and on, these too would be delighted to grow bigger and to thrive forever and ever. You can’t say that an insurer, eg, is not driving costs, if he loves growing larger and larger. Ditto for hospitals and independent practice associations. Growing bigger and more important is very nice.

    We have set up a machine without a governor. There is nothing in it that restrains how much fuel it uses or how fast it runs. Where is the little voice that says “I can’t get this because I’ll run out of money and this will keep me from saving for my kids’ school”?

    Our only governors are a diffuse sea of harried and distracted taxpayers who want their share of health care as much as the rest of us.

    Until we bring someone into this game that doesn’t want to grow larger, how can we put the brakes on?

    I think that person has to be the patient. He can be brought in altruistically by only a few means: he can shop a little for safe front end ambulatory care services (a doc to follow my blood pressure or my uterine myomata), he can pay a little for deductibles and co’s,, he can join coop groups and/ or own part of the provider system, he can stop receiving enormous tax incentives, he can have insurance money pass through him, as in indemnity type insurance, so that he sees prices and costs and can argue with his providers.

    However the patient participates we don’t want her to avoid necessary care and we don’t want her to be intimidated by the priesthood.

    Surely there are bright world class solutions to this failing market.

  24. To paraphrase Jaime EscaLante, patients will rise to the level of expectations. Also. Folks can use HSA to purchase insurance

  25. Saurabh the election of Obama had to do with a lot of things. I did a quick search on Rasmussen and this is the first direct answer I found to what I think is your basic contention.

    Nov 12 2013.

    35% believe the law is good for America
    55% favor repeal of obamacare

    We are seeing Democrats shying away from Obama and from the ACA. Though the mainstream news media says there is no Republican (impure marketplace) plan many plans have been promoted. Most of the impure market plans that I have seen want to solve the problem of pre-existing along with the cost problem without lowering standards or decreasing necessary access. Some even want to give poor people an easier way to get off Medicaid if they desire.

    There will be no pure healthcare marketplace which is what I think your dare is all about and no one has even suggested a plan in such pure form nor am I suggesting such a plan. I can’t tell for sure what you think a marketplace solution would look like, but it would likely have more people covered than will be covered under the ACA with lower cost and higher quality. Perhaps you ought to state your objections to an impure marketplace in healthcare so I can better understand what you are talking about.

    The subject is extremely complex so the normal individual is lacking in an in depth understanding of healthcare, insurance, quality etc. Thus I believe the news media plays a big part in molding their readers opinions.

  26. Well there is another chance to verify your premise in 2016. 2012 didn’t inspire much in the way of confidence that the majority of the country were looking for a market solution to HC,

    I’d like to see GOP run on a “repeal and replace” platform for ACA that relies extensively on the marketplace, and win.

    Seriously. I dare them!

  27. Saurabh, you are right even some of the Tea Party group didn’t want their Medicare touched. That is the problem with socialism. It creeps into the fabric of a nation and then everyone is on the dole and no one wants to give up anything they have until they are forced to by a severe economic downswing, stagnation or a political revolution.

    I believe popular will in America is for a marketplace where people have certain protections. Remember healthcare in the U.S. has not truly been in the marketplace since WW2.

    A marketplace solution could almost immediately reduce total cost by 30-50% without sacrificing quality.

  28. “If you are Indian by birth then look at the important sectors of your own country and take note of what is generating a rise in the standard of living and thus a rise in health and lifespan.”

    I’m not alien to the benefits of the market. But it doesn’t matter what you or I think should happen. It matters what is.

    I don’t believe that this degree of government involvement is possible without popular will, even if implicit.

    Paul Starr in “Remedy and Reaction” made a very good point. The biggest opponents of ACA was not the “live free or die” brigade. But Medicare recipients.

    Was not there that famous Tea Party Placard “Government, hands off my Medicare?”

    Yes, that’s one way of objecting to big government!

  29. Barry, First don’t go year by year, but go by the trend. Based upon your profession you should already recognize that. Secondly take note and compare with the GDP NOT CBO estimates. If you want to look at the CBO look at its latest report which if you are able to read into will find frightening.

    Once the government has to let interest rates rise and other countries start to seriously devalue our currency you will note us being forced to act, but having our own eyes covered we will not see what is coming so there will be a delay and that delay will be paid for by a very significant drop in the standard of living of our offspring. You have the freedom to gamble and make all sorts of comments because you are in the age group that likely will not pay for the catastrophe you are leaving to your children and children’s children.

    Note: bea.gov. “In the second estimate, real GDP was estimated to have decreased. -1.0 percent.” Q1 2014

  30. Peter1 “you’re the one who wants to transfer risk that you don’t want to share to the government.”

    You don’t get it! Insurance companies exist to make money not to benefit society though they do greatly benefit society in the process of making a profit. Thus they are willing to take on risk as long as at the end of the day the risk leads to a satisfactory chance of profit. As individuals we want to get rid of risk because high risks can lead to bankruptcy.

    The insurers recognize that most of the individual risks will not happen. You personally can’t take that chance, but they can because they expect a few failures along with successes that at the end of the year lead to profits that pay for the cost of business including the costs involved in profit and determining and allocating risk.

    Thus they accept all risk. But, in the process they charge a premium based upon risk. That premium will rise as the risk rises. They also have to spread their risks. By spreading risk a single catastrophe can be prevented from causing company bankruptcy. That is why in Florida one sees shifts in insurance policies on a regular basis as the companies drop good clients solely to spread the risk caused by hurricanes.

    Presently the government is determining the terms of of the premium and the limits of the coverage without permitting the insurers to adequately adjust for risk. Thus under the ACA the insurer’s are forced to raise costs while reducing access and quality. To alleviate that problem the government reduced their outside risks by creating a band. If the insurer loses more than a certain amount of money the taxpayer funds a good portion of the losses. In that way the insurer is becoming an intermediary and the taxpayer the insurer. But if that progresses to its logical conclusion then all the risk will be transferred to the taxpayer and there will be no reason for insurers to contain costs.

    As far as targeted subsidies go, they do not have to have a significant effect on the marketplace (which is the place that keeps prices down and quality and access up). Thus the government can provide subsidies alongside a marketplace. If it enters the marketplace by creating things like community rating then the benefits of the marketplace begin to disappear.

    I don’t want to comment on the rest of your arguments because you are so far off base. Take note almost all the players were strong-armed and/or bribed to get the ACA passed. In part the insurers figured they could make up the money lost by government regulation by having the total population insured. Amongst a host of other things they also counted on the law to prevent certain types of competition that would erode their profits.

  31. Saurabh, that is your political opinion. Based upon the studies I have read the mood of the public is center right though the media leans towards the left. You can draw your own conclusions with regard to what the public will tolerate in healthcare.

    If you are Indian by birth then look at the important sectors of your own country and take note of what is generating a rise in the standard of living and thus a rise in health and lifespan. Look back to the 50’s (?) when India received food and medical support from the U.S. without attention to the marketplace. Which worked better.

    Even Hayek stated that there could be a role for government in the healthcare sector as long as the impact was minimal. That means regulation and help with funding, but not in the fashion the left is pushing.

  32. “Today Medicare is increasing faster than the GDP. If one draws the two lines eventually Medicare surpasses the GDP so the program as we know it is in great jeopardy.”

    That’s not accurate. This year is the fifth in a row of Medicare costs coming in below initial government (CBO) estimates. For the first nine months of fiscal 2014, total Medicare spending is up only 1.2% according to the most recently Monthly Budget Review from the CBO and that’s with 3% enrollment growth now that the baby boomers are becoming Medicare eligible in significant numbers.

    Medicare Part B premiums are set since 1996 to cover 25% of Part B costs. The current premium is $104.90 per month which is up only 8.8% since 2008 when it was $96.40 and there is a good chance that it will decline slightly in 2015.

    Nobody knows why Medicare cost growth has slowed considerably in the last five years or so. In the commercially insured population, millions of people lost employer provided coverage during the recession and spending growth slowed among that group as they avoided going to the doctor as much as possible. The same dynamic did not affect Medicare (or Medicaid) patients. Maybe the fact that a growing percentage of Medicare beneficiaries are choosing Medicare Advantage plans is a factor contributing to slower cost growth. Maybe it’s due to more capitated and shared risk contracts. I don’t know. It appears, though, in the words of the late 1960’s rock band, Buffalo Springfield, that there’s something happening here; what it is ain’t exactly clear.

  33. @ allan,

    Allan, you’re the one who wants to transfer risk that you don’t want to share to the government. The “government” legislated inclusion of all risk in the risk pool under the ACA – yes that made coverage more expensive for those with no subsidy or employer coverage.

    One major weakness of the ACA is the assumption that subsidies are not needed above about $63K for a single person (higher for families), and that if one family member has access to employer coverage the other is also not eligible for a subsidy. But it seems your fix would be to involve government in a subsidy those people as well.

    I agree that those not covered by subsidy are paying more, but those in the subsidy range are paying less – especially the pre-exist group.

    “We will also have higher levels of uninsured and people that had good insurance will be forced onto Medicaid.”

    Theres’s no basis for that argument. There are strict income and asset requirements for Medicaid. If peoples’ incomes drop then they would be eligible for coverage subsidy or Medicaid, which is for the poorest of the poor.

    I’m not a fan of the ACA, but it was supported by the insurance industry and it was not intended to lower prices, especially in the beginning.

  34. My simple point is that the popular mood in your country will not accept the consequences of a free market in healthcare. And when that happens the government will legislate & regulate.

    This is notwithstanding the known advantages of a market on the growth of the economy, or the known burden of the state on small businesses.

    And a mixed economy in healthcare, with the pretense of a market & a pretense of government ownership, will produce the expensive, inefficient behemoth you have today.

  35. “Not sure you can rationally make people pay the marginal costs for the marginal benefits. This is essentially how a rational insurer would work.”

    Why would one want to incentivize people to pay for marginal benefits?

    “Not sure you can stop diffusion of costs.”

    Which specific costs are you referring to?

    Re India: Is India better off or worse off in accepting the marketplace and moving away from socialism? It’s economy is growing much faster now. Same with China except China is ahead because it moved toward a market system earlier than India.

    Anderson-Cooper isn’t paying the bill and has little understanding of economics. The limit of one’s spending is one’s income. The limit of government’s spending is a bit less clear. Government can keep printing money until other nations recognize the dollar has no value.

  36. “Private insurance could not offer health insurance that the vast majority of the elderly could afford prior to 1965″

    Barry, in 1965 health insurance was in its infancy and growing. The senior population was also obtaining private insurance and the numbers were likewise growing. The passage of Medicare prevented continued growth in this sector and guaranteed tremendous fiscal problems in the future. Medicare has been trying to control costs almost from the very beginning of the program and has totally failed.

    To say that there was a need is not in question. Your conclusion of a market failure is strange. Perhaps you would be better off with a different term since the markets were responding to demand just like all other growing markets.

    Some were worried about those seniors that under no circumstances could enter the healthcare marketplace and legislative proposals that were more fiscally responsible were suggested, but Medicare prevailed. Today Medicare is increasing faster than the GDP. If one draws the two lines eventually Medicare surpasses the GDP so the program as we know it is in great jeopardy.

    You do say one thing that I agree with ” to cover the cost of catastrophic events from trauma to cancer treatment.” There are many ways of managing that problem and if costs matched risk and the insured’s needs most would want insurance to protect them. However, these catastrophic costs if not controlled from the onset can go out of control in future years.

  37. Private insurance could not offer health insurance that the vast majority of the elderly could afford prior to 1965 and that was at a time when medicine could do far less for us than it can today. Medicare was passed largely in response to a market failure. So was Medicaid for that matter. Even today, the vast majority of people buying health insurance on one of the exchanges qualify for a subsidy to help them pay the premium. Before the availability of subsidies, they couldn’t afford it.

    By contrast, car insurance is comparatively inexpensive in most markets and those with few or no assets often choose to go without it because they are effectively judgment proof if they cause an accident and are sued. Renter insurance is also cheap and most low income people go without that too. People need health insurance, especially to cover the cost of catastrophic events from trauma to cancer treatment. They can get by without those other policies.

  38. Peter1, you really have to distinguish what is caused by government micromanagement and what is caused by the insurer. I will repeat what was stated to you in another thread as well as this one. The idea behind traditional insurance is the ***transfer of risk.*** Government is the entity that causes “Pre-exist exclusion” and higher prices along with a host of other undesirable things. In fact under the ACA those in the middle class not getting subsidies and not on Medicaid will be paying a higher price than before. We will also have higher levels of uninsured and people that had good insurance will be forced onto Medicaid.

    Market forces do not reduce coverage and in general don’t make transportation unprofitable. Check with your insurance broker. He wants to sell you as much as he can and likely he hates HSA’s because they decrease the premium and thus decrease his income.

  39. For the first 10-12 years I worked for my last employer, our health insurance had a $1 million lifetime limit which is not hard to exceed in the NYC metro area. This caused some anxiety among our NYC based employees. Eventually, the company raised the lifetime limit to $5 million. For employer plans, the most expensive cases tend to be treating low birthweight premature babies, especially multiple births. The medical bills for these cases can and often to run into seven figures and no family can forecast in advance that they will have to deal with such cases. I support the elimination of lifetime coverage limits.

    I would like to see confidentiality agreements between insurers and providers outlawed so both patients and referring doctors can easily find out in advance what care will cost, at least for specific procedures like imaging, lab tests, surgeries and hospital outpatient procedures. We need the same price (and quality) transparency that exists in every other industry.

    We also need to do a better job of educating the public that more care doesn’t always mean better care and more expensive care doesn’t always mean better care either. If you want to go to the expensive academic medical center for routine care, be prepared to pay a higher copay than you will pay for the same treatment at your nearby community hospital where the care is likely to be just as good.

    Let’s give doctors safe harbor protection from failure to diagnose lawsuits if they follow evidence based guidelines and protocols where they exist to reduce defensive medicine and let’s have a more sensible approach to end of life care including getting the elderly to execute living wills and advance directives and to sign POLST forms so providers and family members know what care these people want and don’t want in an end of life situation.

    HSA’s are fine for the upper half of the income distribution but they don’t work nearly as well for the lower half and they’re not relevant to the biggest drivers of cost in any case. I also don’t think most people are good judges about what care they need at any given time. I tell my doctor I want him to recommend the same care he would want for himself or a family member if faced with my issue. Either I trust him or I don’t.

  40. @Balboa,

    The reason they “dance” is because of contract privacy. – a vary “market force” component.

  41. Agree about bureaucrats and their own biases.

    Not sure you can rationally make people pay the marginal costs for the marginal benefits. This is essentially how a rational insurer would work.

    Not sure you can stop diffusion of costs.

    In little regulated markets such as India, which is nearly entirely cash payment from patients, the market is segmented. That means there are people who literally die because they can’t cough up the money.

    If that happened here Anderson-Cooper would be all over it and before long you’d have a legislation. This is a democracy, after all, and a socially aware one.

  42. @Peter1: Insurance hasn’t been subject to the market because they opperate in a bubble. Ask your provider how much it cost for an MRI and they’ll dance around the question. Ask your insurance company how much the benefit is for the same service and they’ll dance around the question. Everywhere else if I ask how much something costs I get an answer, except healthcare.

    The market force your citing is the actions of 3-5 major health plans and not those of the possible 300 million.

  43. “If market forces prevail then insurers will create an insurance system that meets the needs of the insured”

    Pre-exist exclusion – market forces, high deductibles – market forces, co-pays – market forces, the uninsured – market forces, reduced coverage – market forces, narrow networks – market forces.

    Market forces made private public transportation unprofitable, yet without it our large cities would be unmanageable. Health care is not “market forces”.

  44. Balboa, I agree with your comments about the ACA and I also agree with HSA’s. If market forces prevail then insurers will create an insurance system that meets the needs of the insured rather than the political needs we see today.

  45. The trouble with the ACA is that we needed less insurance not more. Right now our system shouldn’t even be considered insurance since it really is just a prepaid health plan.

    Instead of insurance companies our premiums should go into an account that accumulates value and all services paid out of pocket through this account, like an HSA. Let market forces control costs. Let people be accountable for the services they purchase and have providers honor their charge masters as the true price. Singapore has a system built like this and I think it would be a great idea. David Goldhill also has some good ideas in his book “Catastrophic Care: How American Health Care Killed My Father”

  46. Expand and raise the cap on HSA’s. Transfer the employer deduction to the individual. Allow groups of disparate individuals to come together to form purchasing groups, getting the same preferred pricing as employers get. Allow all healthcare related expenses to count to the deductible. I’m sure there’s more you can think up.

  47. @Balboa: ” Democratic groups will shun…”

    Risk rating. Classical insurance depends upon the transfer of risk.

    The ACA already is in trouble:
    1) the deductibles for the mid to low income groups is very high and the copays high as well for such incomes.
    2) insurance companies have already decreased the panels so that one might sign up and find their doctor on the panel, but not the specialist or the hospital
    3) many people didn’t feel insurance was worth it before the ACA and that number will dramatically increase
    4) the mandate might disappear. The mandate was used to get insurance companies involved in the ACA in the first place.
    5) the ACA makes care more expensive
    6) the ACA creates monopolies or near monopolies.

  48. Sorry to burst your bubble but this won’t work. The majority of healthcare dollars are spent on the few minority. 5% of Americans spend almost 50% of healthcare dollars. Democratic groups will shun the most sick individuals from joining their plans.

    They’ll also try to avoid coverage for the rarest and typically most expensive conditions. Problem is that health is unpredictable and someone in that group is going to contract that rare disease and go bankrupt at some point.

    Insurance companies have already tried to reduce benefits to contain costs and have offered a variety of plans in the past. Many people found themselves underinsured because “they thought they didnt need so and so coverage”. Obamacare tries so solve that problem with a baseline of essential benefits, which under your suggest we would do away with and we’ll be right back where we started.

  49. Saurabh, ambulance service is very much determined by the states and their localities. We need to move all of healthcare in that direction.

    Insurers make money by insuring rationally. Most people act rationally. Put the two together and let them decided the terms. Government can help as a regulator and even in providing targeted resources. In that fashion normal intelligent people will decide what is best for them and those requiring a bit of assistance will get it.

    Remember, those bureaucrats that decide our fate come from the same gene pool as the rest of the population. Thus if as bureaucrats they are able to decide our fate, we should be able to do it as well.

  50. “but insurers actually have very little to do with rising costs”

    They also have very little to do with controlling costs. They’re a big part of the problem.

    “But at least it will be the people actually receiving the care deciding on the limits they can accept. ”

    No, the limits will be what they can afford. The poorer will have lower limits the rich higher.

    “…they will have the legitimacy of democracy.

    So how do you think this democracy is working now?

    I want to form a private risk pool of just men, between 20 – 45 years , no pre-exist, no fat people, no fast food eaters, must exercise and have no family history of serious disease. Think that’ll fly?

    As usual the insurance industry wants to cut benefits to control costs – very innovative (not). We’ll just get more tribalism.

  51. It’s the biggest generator of jobs. I think we’d be more screwed without out national obsession with HC, at this stage

  52. Allan is fundamentally correct. If we were really smart (and patient and diligent and willing to endure some discomfort), we would indeed go all the way back to the post-WW II era and tell employers, “Gey, folks, might not be such a good idea to create a health insurance benefit.”

    But, once benefits take shape, are codified, and create profits for lots of people and organizations, it’s nearly impossible to get rid of them. There is value, however, in asking the question of why is that of all the forms of insurance I purchase (long-term care, personal and professional liability, life, home, and auto), the only one that comes through an employer is health. Health insurance is “special” only because having it be so enriches and benefits lots of people and industries.

    That, plus that the fact that we are impatient, indolent, and unwilling to endure discomfort, is why we can’t hope for the kind of change that we really need to see.

  53. Co-ops won’t work in healthcare simply because people don’t stick to the co-ops when ill; it is not easy to partition what one has paid for.

    In this system will ambulance services be provided by the market or the government?

    Let’s assume people get what they pay for, and some choose to pay for less and accept getting less.

    If I suddenly collapsed in a shopping mall how will the passerby know whether to call Ambulance Caviar for the Hot Heart Institute with a door to balloon time of 15 minutes, or Ambulance Good Enough for the Oliver Twist Institute for the Destitute with a door to balloon time of eternity?

    Healthcare is a wicked problem. Social planners call intractable problems with no solutions, just trade offs, wicked problems.

    Your system, just like the “value not volume” meme is easy to talk about over cocktails.

    The devil is even before the details.

  54. You seem to be trying to take something that is permanently broken and fix it using the same broken logic.

    Along your lines of thinking is a simple solution. Start by going back to before ObamaCare and get rid of third party payer by changing the tax law so it is equal for both the employee and the employer. This would “allow individuals to come together to form their own healthcare groups, and then decide democratically how to draw the boundaries around the coverage that their healthcare pool will pay for.”

  55. What a great idea to allow self-managed healthcare groups to form — maybe we can let the IRS approve them using the same great approval process used for the conservative groups seeking non-profit status. I hear that the Tea Party groups really liked that process.

    As to the ACA as the “law of the land”, well, the nice thing about laws are that they can be changed, and the ACA has been changed so much by Presidential Executive Orders, Exemptions, Waivers, and Delays that the CBO can no longer score the costs associated with the ACA. So, I find it very hard to amend a “moving target” when you speak of the ACA.

    Given the current political environment and the lack of responsiveness by federal agencies, I do not believe that there will be any amending of the ACA any time soon for anything, though I do expect a few more Executive Orders.