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Tag: Cato Institute

Misdiagnosis: Obamacare Tried to Fix the Wrong Things and Prescribed the Wrong Treatments

Today THCB is happy to publish a piece reflecting the learnings from Charles Silver and David Hyman’s forthcoming book Overcharged: Why Americans Pay Too Much For Health Care, shortly to be published by the libertarian leaning Cato Institute. In subsequent weeks we’ll feature commentary from the right radical libertarian zone on the political game board (Michael Cannon) and from the left (Andy Slavitt) about the book and its proposals. For now please give your views in the comments–Matthew Holt

There are many reasons why the United States is “the most expensive place in the world to get sick.” In Part 1 of Overcharged: Why Americans Pay Too Much For Health Care, we show that the main reason is that we pay for medical treatments the wrong way. Instead of having consumers purchase these treatments directly, we route trillions of dollars through third-parties payers – both government and private insurers.

Relying on third party payers has many consequences — few of them good. To start with, this arrangement removes the budgetary constraint that would otherwise cap the amount consumers are willing to spend. By minimizing the direct cost of treatments at the point of sale, third party payment arrangements alter everyone’s incentives fundamentally. Consumers no longer need worry about balancing marginal costs against marginal benefits; instead, they have an incentive to use all treatments that have any potential to help, regardless of their prices. When millions of consumers act on these incentives, total spending skyrockets and consumers collectively wind up worse off, because their fixed costs spiral upward too. Heavy reliance on third party payers creates a classic failure of collective action.

It isn’t just consumers. Providers love third party payment as well. And why not? Once providers have access to the enormous bank accounts of third party payers, the sky is the limit, at least until third party payers start setting limits on the amounts they will pay and saying no to unproven and/or cost-ineffective treatments that doctors want to provide and patients want to receive.

Not surprisingly, it has turned out to be extraordinarily difficult and politically unpopular for third party payers to set such limits. Obamacare’s appeal derives largely from two requirements: health insurance plans must accept all comers, including applicants with preexisting conditions that require expensive medical treatments; and health plans must provide unlimited benefits (i.e., no annual or lifetime spending caps). From an individual consumer’s perspective, what could be better than having access to unlimited amounts of money to spend on medical needs? From society’s point of view, though, this combination is a recipe for disaster.Continue reading…

Obamacare Is Still Vulnerable

President Obama has won reelection, and his administration has asked state officials to decide by Friday, November 16, whether their state will create one of Obamacare’s health-insurance “exchanges.” States also have to decide whether to implement the law’s massive expansion of Medicaid. The correct answer to both questions remains a resounding no.

State-created exchanges mean higher taxes, fewer jobs, and less protection of religious freedom. States are better off defaulting to a federal exchange. The Medicaid expansion is likewise too costly and risky a proposition. Republican Governors Association chairman Bob McDonnell (R.,Va.) agrees, and has announced that Virginia will implement neither provision.

There are many arguments against creating exchanges.

First, states are under no obligation to create one.

Second, operating an Obamacare exchange would be illegal in 14 states. Alabama, Arizona, Georgia, Idaho, Indiana, Kansas, Louisiana, Missouri, Montana, Ohio, Oklahoma, Tennessee, Utah, and Virginia have enacted either statutes or constitutional amendments (or both) forbidding state employees to participate in an essential exchange function: implementing Obamacare’s individual and employer mandates.

Third, each exchange would cost its state an estimated $10 million to $100 million per year, necessitating tax increases.

Fourth, the November 16 deadline is no more real than the “deadlines” for implementing REAL ID, which have been pushed back repeatedly since 2008.

Fifth, states can always create an exchange later if they choose.

Sixth, a state-created exchange is not a state-controlled exchange. All exchanges will be controlled by Washington.

Continue reading…

The Individual Mandate and Severability

THCB contributor and Cato Institute Director of Health Policy Studies Michael Cannon on the severability clause, which looms large after Tuesday’s Supreme Court hearing.

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