There are approximately 18 million Americans who purchase health insurance on the so called individual market, on and off the Obamacare exchanges. There are another 14 million or so who could be buying insurance on the individual market, but choose not to buy anything. This puts the total individual market at about 10% of Americans. Half of those are, or are eligible to be, heavily subsided through Obamacare (including those huge deductibles). The other 5% are facing the full brunt of health insurance price increases under Obamacare. Of those, 3% are paying for Obamacare health insurance and getting garbage in return for their money, while the remaining 2% are uninsured.
This is the magnitude of the primary problem we are supposedly trying to solve. The 17% of Americans on Medicare are not upset at Obamacare. The approximately 23% of Americans on, or eligible to be on, Medicaid are not angry at Obamacare either (although the 1% eligible for the Medicaid expansion in states that chose not to expand it, might be angry with their Governors). Some of the 50% or so, who are getting health insurance through their employer, and used to get rather flimsy insurance in the past, may be somewhat disgruntled because the Obamacare imposition of “essential benefits” caused their share of premiums and deductibles to rise, and their ability to choose their doctors to plummet.
This is the secondary problem we are supposedly trying to solve. The American Health Care Act (AHCA) addresses neither problem and exacerbates both.
Three Pronged Care
The proposed GOP solution is “three pronged”. Prong One repeals Obamacare (whatever that means) and replaces it with more widespread, but less generous, subsidies for the individual market and reduces funding for Medicaid, while also reducing Obamacare taxes on corporations and wealthy individuals, including taxes slated to increase the longevity of the Medicare trust fund. Prong Two is a flurry of yet to be determined regulatory relief that the Secretary of Health and Human Services will be supposedly providing at his discretion. Prong Three consists of new legislation, which will require the support of at least some Democrats in the Senate, to relax both the definition of Obamacare “essential benefits” and the regulations on health insurance corporations, so cheaper insurance plans can proliferate across the land (as they did before Obamacare).
The most important thing to understand about the Three Pronged Care proposal is that although the CBO can, and did, estimate the effects of the first Prong, nobody can estimate the cumulative results of all three Prongs, because nobody knows what the second Prong is and because it will take an act of God to make the third Prong materialize. Since we are talking about health care, think of this as some sort of orthopedic, cardiac or transplant surgery. First you cut the patient open, then you remove or adjust the offending parts, and then you put in something new and hopefully better. Coming in after a previous surgeon messed things up is obviously harder, but cutting the patient open and walking away until you figure out if you want or are able to do more, is hardly a viable option for the patient, and will likely result in a huge malpractice suit (plus a copious prison sentence) for you.
What if Prong One is as good as it gets?
Unfortunately, this is precisely what Paul Ryan and his ragtag coalition are proposing to do with Prong One, whose sole effect will be to add insult to the Obamacare injury. Once we accept the premise that the Federal government has an obligation to help people get health care, the remaining disagreements are just haggling over price. And once we dismiss highfalutin principled rhetoric, the problem with Prong One is that for most people, in absence of Prongs Two and Three, this is just a stingier version of Obamacare. The GOP argument that two imaginary birds in the bush are better than a real bird in hand flies in the face of millennia of human wisdom. On top of that, there is absolutely nothing in Prong One that even begins to address the fundamental problem in our health care system, which is the unit price of health care services. Therefore, premiums and deductibles will likely continue to rise unabated.
In all fairness though, there is a twisted argument to be made that if you cut subsidies and there is less money available, insurers will work hard to lower the price of their products to match what the “market” can bear. That may be true if the reduction in funds affected the entire market, instead of at most 10% (likely 5%) of it, and the least profitable 10% to boot. In “normal” markets, a non-participation rate of 10% percent is certainly sustainable and actually pretty good for the sellers. That said, smaller health insurance vendors currently specializing in Medicaid managed care could step into this niche and offer a commercial product through their existing underpaid networks. If you’re a physician, this prospect should set your hair on fire.
The Free Market Delusion
At some point we will need to collectively disabuse ourselves of the notion that a market in health care insurance could be created without abolishing the provision of health insurance benefits through employment. I know everybody is talking about Flo and the little lizard selling health insurance on TV as the ultimate solution to health care affordability, but that is nothing short of demagoguery. First, practically all auto insurance is business to consumer (B2C), while health insurance is overwhelmingly business to business (B2B). I suggest you try buying a cow from a feedlot and see for yourself how much negotiating power your consumer status bestows on you in a B2B market. If you want to try a free market solution for health insurance, you would need to do more than just kick a few poor people off their subsidies. You would need to kick 150 million people off their employer health insurance plans. Good luck with that.
I have to admit that there is something compelling about the conservative vision of a portable health insurance product that people buy and carry with them wherever they go. Obviously health insurance that is intended to serve people from cradle to grave cannot be a game of Russian roulette with covered benefits, or as Mr. Ryan refers to it, “patient-centered” insurance. Equally obvious is the fact that State and Federal governments will still have to honor their obligation to help those who can’t afford to purchase insurance for a predefined set of “essential benefits” on their own. Will such semi-free health insurance market deliver the health care affordability we seek? Not likely. The deceptively simple truth is that you cannot successfully tackle the pricing failure in the health insurance market without first taking an axe to our dysfunctional health care delivery system.
The Three Prong Shuffle
Obamacare not only failed to put a dent in health care delivery prices, but arguably made things worse by actively encouraging system consolidation. Under the best case scenario, a heavily modified GOP Prong One plan (e.g. higher tax credits, lower tax cuts for the rich, more money for Medicaid), will not change the Obamacare trajectory one bit and will not provide meaningful relief to people hurt by Obamacare. All this tinkering and re-tinkering with an insignificant portion of the health insurance market is like obsessively unclogging the kitchen sink on the Titanic. The sketchy descriptions of Prong Three, the free market prong, are just too ridiculous to consider at this point, but Prong Two, the regulatory prong, has great potential. After reading the manager’s amendment to the Ryan Make America Poor Again plan, I would like to offer my own citizen’s amendment.
New Prong One: Swallow hard and let the AHCA die a merciful death. Extend some temporary relief to the 5% hurt by Obamacare. Give Secretary Price a chance to affect regulatory changes first. Medicare is the de-facto price setter for health care services. The Secretary can affect changes to Medicare fee schedules and payment models that will quickly ripple through the commercial sector. I would start with the RUC and hike the relative value of comprehensive primary care. I would create a monthly CPT code that can accommodate subscription based primary care (not quite what the Direct Primary Care lobby wants, but darn close). And I would engage in a long string of multi-payer initiatives to accelerate dissemination of measures to control unit prices, while leaving behind the naïve and failed attempts to cut utilization.
New Prong Two: This is not a purely health care prong, but it is necessary because this is the only way to fix health care in America. Get those tax cuts done, renegotiate trade agreements, fix the education system, get infrastructure projects going, get manufacturing back, drain the swamp, and create lots of opportunities. Introduce specific pieces of legislation along the way to negotiate drug prices, break health system monopolies or at least encourage independent, small and more cost-effective practices to thrive. Keep up a brisk regulatory and deregulatory program to curtail the flow of billions of health care dollars to opportunistic corporations that do not provide care or any other benefits for patients. Think creatively about connecting health insurers’ participation in State/Federal programs to affordability in the individual market (at the very least make it count in Medicaid RFPs).
New Prong Three: If all goes well, we can finally do away with Obamacare, which should become automatically obsolete if Prongs One and Two are executed successfully (otherwise Obamacare will be the least of our problems). If the economy catches fire and more people have good paying jobs, and health care unit prices are at the very least contained, fewer people will need subsidies or Medicaid welfare. Make a note to schedule a symbolic full repeal and replace on January 21st 2020. I am certain it will pass with strong bi-partisan support.
Will Washington DC put the horses in front of the cart for a change? Not by choice. However, the good news is that all of a sudden Prong One seems to be on life-support in the House and dead on arrival in the Senate. The excellent news is that President Trump made another promise: “We will take care of our people or I’m not signing it” (it being Prong One, whatever it ends up being, if it ends up being). The disastrous news is that no self-respecting Democrat will engage in any effort to help the President help the American people. That would be too much to ask of our elected representatives.
Price control doesn’t work.
There is probably no moral hazard in sick non-ambulatory patients.
There is probably no shopping behavior possible in these patients.
Demand is probably inelastic in these patients.
Provider-induced demand does not exist if everyone is on a salary.
There is less chance for tyranny and government heavyhandedness and runaway socialism if things are run at a local level.
Conclusion: Try, somewhere, making hospital, non-ambulatory care a public good….as an experiment. No billing, no advertising, all clerical effort is clinical record keeping. Hospital controlled by state or county or hospital district.
Control costs by a global budget and taxpayer base as large as necessary.
A nice framing Margalit, but very light on the Prong 2. I have some experience with regulations and standards in healthcare before and during HITECH. You’re right that nobody can know the result of Trump administration policies on the regulations that would be required to undo the economically disastrous consolidation created by HITECH. Repealing the HITECH regulations is not enough to undo the market failure and regulatory capture they created. We need draconian patient-centered health IT and privacy regulations before practice innovation can be introduced into our system.
When it comes to health information, possession is 9/10 of the law and right now, that means neither the patients nor the doctors that write the orders have any market power to control patient information at all.
So yes, I tend to agree with you on shelving the repeal of Obamacare until Dr. Price shows us how the (de)regulations and patient-centered health IT will make a difference.
So, to be clear, Prong one is pay PCPs more, and control prices through Medicare. Expand on the price control bit. Medicare already controls its prices. Are you suggesting that they just pay less for everything? Methinks you are a bit vague here. Set the unit prices low enough, and you have just solved the entire cost problem, and everyone can afford health care, but that will mean pretty low salaries for everyone in health care.
Prong two- Really?
Prong three-If everyone has great jobs, the economy is growing at 5% a year and it isn’t all going to the wealthy and Medicare has cut fees like crazy, everyone can afford health care. I think you should look up the Spartans reply to Philip II.
I don’t think Medicare should cut fees like crazy, or at all. Medicare fees are reasonable although in my opinion a bit skewed towards specialty care and hospital owned facilities. What I think CMS can do is to design and run “initiatives”, demonstration programs, where multiple payers are involved (they have some now), but instead of concentrating on penalizing doctors, maybe concentrate on variability of hospital prices in commercial markets. The extreme case is what they do in Maryland, and I am not suggesting that this is necessarily the best solution. I am suggesting that the focus should be on cutting unit prices for almost everything, IF we really want to cut health care expenditures. Maybe we don’t… Maybe IF workers were paid fair wages and we had all those good jobs, Americans could easily pay 30% more for health care than say, Switzerland…. Maybe a combination of a little bit of both is more realistic.
( Spartans X 2 🙂 )
Hospital CEOs are saying they can’t afford cuts. (Surprised this didn’t get coverage here since there are some Mayo Clinic fans.)
Yes, but the problem is not Medicare rates. The problem is too many patients with Medicaid rates, which must be balanced with commercial insurance higher rates. So effectively, the high premiums, high deductibles in the private market are another layer of subsidy for Medicaid.
Instead of all these games, how about everybody pays Medicare rates and be done? Also saves some money on billing admin. I think hospitals, and most doctors, will be fine with that, although Mayo may have to give up its fun forays into all sorts of other for-profit business lines….
Margalit – One of the problems I’ve always had with Medicare rates is that its underpinning is to reimburse for costs assuming the provider is run reasonably efficiently. Even Maryland’s all payer system reimburses Johns Hopkins more for the same work than community hospitals in the Baltimore metro area. By the way, we probably couldn’t replicate MD’s all payer system today even if we wanted to because when it was implemented in the late 1970’s, both Medicare and Medicaid agreed to pay higher rates than they were paying at the time. I don’t think Medicare and Medicaid can be made to pay more than they do now so private insurers can pay less. It’s a non-starter for politicians especially given the budget constraints at the federal level that we’ve been living with for years now. The increase in state Medicaid payment obligations would also be a huge problem.
As for just paying everyone Medicare rates, a few years back here in NJ, legislation was passed to limit how much hospitals could charge uninsured patients with income below 500% of FPL income.. The original proposal was to limit hospitals to Medicare rates. When hospitals claimed that Medicare only reimburses them for about 91% of their costs on average, the compromise legislation set the reimbursement rate at 115% of Medicare which was enough to produce an operating margin of between 4% and 5% for the hospital sector.
I’m a fan of site neutral payment so that services, tests and procedures are reimbursed at the same rate whether done in a doctor’s office, a clinic or a hospital and whether the provider is owned by a hospital system or not. Procedures that can only be done safely in a hospital setting may need to be reimbursed at a higher rate than they are now. I don’t see why we can’t reimburse academic medical centers separately for the medical education and medical research missions based on their fully allocated costs instead of having to bundle them into payment rates for medical services.
Finally, while I’m all for paying primary care doctors more than they are paid now, the fact is that the RUC is dominated by specialists and that’s the political reality. Unless you form a separate committee to deal with primary care reimbursement or find some other way to override what the current RUC decides with respect to primary care payment rates, I don’t see how the status quo changes any time soon.
I think there is also considerable room to reduce utilization of healthcare services if we could ever get sensible tort reform. Sensible tort reform is NOT caps on non-economic damages though I don’t oppose such caps within reason. Medical tort reform cases need to be moved out of the hands of juries and into specialized health courts where judges with specialized knowledge can decide cases based on the facts and the law and hire neutral experts to sort through conflicting scientific claims. Juries are too often swayed by emotion and glib trial lawyers, especially when the plaintiff is viewed as sympathetic. There also needs to be safe harbor protection for doctors who follow evidence based guidelines and protocols where they exist but can still deviate from them when they think it’s appropriate to do so. This should be especially helpful with respect to the so-called failure to diagnose cases, especially cancer cases, which comprise roughly 20% of all medical malpractice suits.
Once such a system is in place for a few years and gains a reputation among doctors for credibility, objectivity, and consistency across jurisdictions then the specialty societies that develop the practice patterns that evolve into the standard of care can gradually become less testing-intensive. The people in other developed countries are not as litigious as we are which, I think, is one of the reasons why practice patterns are less testing-intensive in those countries.
It’s not just about saving money; it’s about applying common sense under the circumstances. Ideally, I want my doctors to use their best judgment in diagnosing and treating my complaint or issue but also think about what care they would want if they or a family member were the patient and they were paying the bill out of their own pocket. I, for one, care about costs even when insurers or taxpayers are paying though I may be an outlier in that regard. If we have to pay more for my health insurance because of excessive costs, it means we have less money for other important priorities, both public and private. I wish more people understood and appreciated that fact.
Cited you on my blog:
“…collectively disabuse ourselves of the notion that a market in health care insurance could be created without abolishing the provision of health insurance benefits through employment.” That proffer is not exactly news. See Elhauge, 1994, “Allocating Health Care Morally” (pdf, pp. 1453-1454).
“…The analysis of the moral paradigm offered here supports, when coupled with the strengths and weaknesses of the other paradigms, a health care system having the following elements.
(1) A politically set annual health care budget with an associated tax not linked to employment.
(2) Free access for all individuals to a care-allocating plan.
(3) Individual choice about which plan they wish to join for some significant period (I suggest three years).
(4) Competition among care-allocating plans that each receive a share of the government budget based on the number of individuals they enroll, adjusted for each person’s health risk, and that cannot retain profits from their budget (other than a possible bonus linked to total number of enrollees) but must instead spend it on those enrollees. Plans must accept all who wish to enroll.
(5) Management of those care-allocating plans by professionals who have the range of diagnostic expertise to evaluate the health care needs of plan enrollees, who have salaries unaffected by spending decisions (other than a possible bonus per enrollee), and who have a duty to decide how to allocate each plan’s budget to purchase those health services that maximize health benefits for the unit’s enrollees. Their sole incentive should thus be to do a good enough job at rationing to keep and attract enrollees.
(6) Maintenance of the vast majority of health care providers as private suppliers of procedures, tests, and technologies that compete with each other to sell to the care-allocating plans. This should create incentives for cost-effective innovation because suppliers will now face purchasers who have both the knowledge and incentives to trade off the costs and benefits of care.
(7) A politically appointed agency, the members of which are insulated from removal, that has only two tasks: setting risk adjustments and licensing care-allocating plans by verifying their diagnostic expertise and fiscal soundness. In particular, this agency would not dictate a uniform schedule of covered services because that would be up to each care-allocating plan.
(8) The individual right to purchase additional care outside these plans on the open market.”
Twenty three years later, we continue to endlessly debate this stuff.
“The Salesman in Chief Goes All In on Health Care
If there’s one thing the president relishes, it’s making life uncomfortable for anyone who thwarts his will.”
“It’s not exactly controversial to note that, when it comes to health-care policy, the president of the United States doesn’t know his ear from his elbow. His comment last month that “Nobody knew health care could be so complicated!” was, by Trumpian standards, an impressively frank admission of ignorance—not merely of the U.S. health care system itself, but of several decades of political attempts to tame the beast…”
Interesting…. Thanks, Bobby.
You’ve been thinking about this for a long time, congratulations. We may all have different views for change, but one attribute of reform should be a plan for a staged implementation process over time. From a realistic view-point, you bring a more sensible view for a step by step process. My only thought would be a more explicit comment on the governance/over-sight basis for managing the decision priorities of the HHS Secretary.
Thanks, Paul. I agree with the HHS oversight point. During the previous 8 years or so, a lot of damage has been done through the HHS regulatory mechanism. I am sure it was with good intentions, but boy, did it backfire….
Obamacare helped those getting subsidies that they did not have before. The deductibles and premiums (also going up in the employer market) represent the cost based on actuarial tables given that insurers have to spend 85% of premiums on care. The policies were good policies with good benefits – anyone can cut benefits and lower price but what will you be left with. I would make providing health care to employees mandatory for employers if that’s the system we seem to support. Then let market forces determine what that coverage really costs. Small employers could pool their pools.
Republicans are now realizing that the cost is the cost that can only be taken away with less coverage for less people.
The disastrous news already happened on November 9th. Why try to blame Democrats now for not working with the WH or Repugs when for the last eight years NO Repug worked with Obama for pure political reasons which did not include helping the American people. Repugs did not even work with Democrats on the ACA. No, this ones on them.
Solving this with a robust(er) economy only works until another recession – then people won’t have insurance coverage again – portable or not.
I’ll tell you why, Peter. Because we’re better than that…. Because someone must break this Sicilian cycle of stupidity that prevents our government from governing.
I’m watching the Rules Committee review of Ryancare, and I have to say, they get it…. They all get it…. on both sides of the isle. They disagree, but they get it, and I think they can be better together.
“Because we’re better than that….”
Apparently not. The “Sicillian cycle” began way back when the Republican Party set about purging moderates from it’s ranks. You see it at their primary elections – it’s a blood sport to see who can spread more hatred and ignorance. Add that to the competition for corporate lobbyist money/favors and you have a toxic poison.
Those who voted Trump may not have done so for hatred, but they were ignorant enough to turn a blind eye to the collateral damage just to get their one wish.
“Trump made another promise: “We will take care of our people or I’m not signing it””
Would this be a truthful statement or one of his not so truths? Lost count now to give him any credibility.