Friday, March 24, 2017

Thoughts on the failure of Obamacare reform

I don't buy the conventional wisdom that says that this is a failure of leadership. Leadership alone cannot fix Obamacare. A solution to the problem of Obamacare is going to be extremely difficult, and it can't and shouldn't be done overnight. Obamacare was doomed to fail, as I pointed out many times over the years, because it attempted to rejigger a huge fraction of the U.S. economy, and that is something that is virtually impossible to accomplish in a successful fashion by government diktat. Only a freely functioning market economy can make something so huge and so complex work in an efficient manner. (Friedric Hayek, who died 25 years ago, explained why in this post from Mark Perry)

Thank goodness the Republicans didn't end up succumbing to the hubris that energized the Democrats under Nancy Pelosi's leadership, when they passed a bill so huge and so complex that she was forced to exhort its passage in order that they could find out what was in it. Thank goodness the Republicans didn't ram through a bill that had zero support from the opposition party (as Pelosi did), let alone strong support from their own party; that is not the way to accomplish major legislation.

Obamacare is imploding because it attempted to substitute government decree for market forces. So a fix to Obamacare is only going to work if it unburdens the healthcare market from government  influence. Ryan's proposed solution went a long way towards doing that, but it still relied on too much government interference in the healthcare market. Here's my recommendation: Let's put this intractable problem on the back burner; let's let Obamacare continue to fester; and let's wait until the Democrats beg for a solution and join in supporting new and better legislation.

Meanwhile, let's hope the Republicans can regroup and move on to tackle a big problem that should be a lot easier to solve, and which could end up delivering positive results for everyone in relatively short order: tax reform.

Successful tax reform should involve a few simple ingredients: tax rates should be lower and flatter than they are now, and deductions and subsidies should be far fewer. (Please, Republicans, please don't attempt to impose a Border Tax system on the U.S. economy, since that is very complex and it will have many unforeseen consequences, some good and some very bad. Please don't listen to Trump and his economically illiterate trade advisor Peter Navarro.) Lower and flatter tax rates coupled with fewer subsidies and deductions should boost the economy because they will reduce the amount by which the government interferes in private markets, and they will increase the incentives for the private sector to work, invest, and innovate.

Tax reform can deliver a stronger economy, and a stronger economy ought to make it much easier to reform Obamacare.

24 comments:

John A said...

"Here's my recommendation: Let's put this intractable problem on the back burner; let's let Obamacare continue to fester; and let's wait until the Democrats beg for a solution and join in supporting new and better legislation."

Ain't gonna happen.

randy said...

Entitlements are given, not taken away. Health care has been made available to those that can't afford it, and that's here to stay. The only practical path to reduce costs is... the cost. Beneficiaries that don't pay are not going to follow market forces to reduced cost. Fee for services is the problem to solve.

steve said...

The first two comments were SPOT ON, especially that you can NEVER take away an entitlement once given so riddle me this; how the HELL do you deal with the "guarantee issue", that is the mandate of forcing insurance companies to sell low cost coverage to preexisting conditions? Answer; you can't. It's tantamount to being 80 yrs old with terminal cancer and being sold low cost life insurance! The rest of the insurance pool pays for it.

Of course the left knows this and Ocare was a step towards single payer government health care. I see no answer to this quagmire short of reneging on the guarantee.

randy said...

Side note - I recently went to orthopedic doctor for counsel on basically tendonitis. He asks to run a routine blood panel to which I ask why but agree. The bill came, over $8000. The provider knocked it down to $3000 of which insurance paid $2500 (against my objection) and I refused to pay my copay. For a completely unnecessary test.

Unknown said...

Reforming medical malpractice law might reduce numerous tests done simply out of an "abundance of caution" would also reduce malpractice premiums.
A search engine that allows doctors and patients price transparency on routine tests like MRI's CAT scans, you name it.
Giving insurers a financial incentive to arrange cost savings , remember they are dis-incentivized to make costs go down as their earnings are currently tied to gross premiums which are tied to medical costs. If they could be paid for savings or cost data ...

Scott Grannis said...

I think it's time to revisit one of the main reasons why the healthcare market is so screwed up. I first mentioned this years ago, here: http://scottgrannis.blogspot.com/2010/11/problem-with-healthcare-cont.html

The problem is that the vast majority of healthcare expenditures are paid for by third parties. The latest data reveal that a mere 10.5% of healthcare expenditures are paid for out of consumers' pockets: almost 90% of all spending on healthcare is paid for by third parties (insurance companies, medicare, medicaid). There is no market for healthcare, because almost all of what is spent on healthcare is not spent by the person receiving the service.

And this all started back in the 1940s, as I mention in the above post.

Until consumers pay for most of their healthcare out of their own pockets, the healthcare industry will be terribly inefficient and healthcare will be therefore unreasonably expensive.

Unknown said...

You need to find a new doctor.

Scott Grannis said...

Here's another post of mine that covers both the third-party payer problem and how it is that the government decides how much to pay doctors for various services:

http://scottgrannis.blogspot.com/2010/03/npr-reveals-roots-of-our-healthcare.html

Highly recommended

randy said...

There is another angle to the price interference argument that explains my experience (above), but that I don't fully understand. The tests were supposed to be "trivial" costs because it was in-network. But, in the few days between ordered and executed, the third party lab became out of network. Since my insurance plan had no contractual agreement for prices for services, the lab charges some exorbitant sum that no one is expected to pay. I'm told that fee is some benchmark that Health and Human Services (or similar) requires to be established by providers, before setting contractual rates. The point - price interference by HHS rule making is a problem too.

So, in addition to having consumers directly pay so they are aware of the costs, there needs to be providers that are free to price with out interference so consumers can shop comparing quality and price.

randy said...

BTW thanks for the 3/2010 link, that was interesting and informative.

Unknown said...

Scott, Your article highlights perverse tax incentives and gets no argument from me. My comments are toward the only segment of the economy in which there is no price discovery or competition available.
A system of price competition/discovery will be required should we ever rid ourselves of third party payer.
Medical insurance is the only area I am aware of that a claimant cannot check the cost of repair before the repair; by design.

Shane said...

Obamacare is not failing because gov't is involved. It is failing because Capitalism is not designed to work for something like healthcare where life and death choices (not profit choices) must be made. Open your mind (and heart) and read this: http://www.pragcap.com/why-capitalism-cant-fix-healthcare/

Scott Grannis said...

Shane: I would argue that capitalism has never had a chance to work in the healthcare market, not that it is not designed to work. Unfettered, capitalism and free markets are capable of coming up with lots of innovative (and as yet even unheard of) solutions to the most intractable of healthcare problems. In short, show me a "failure" of free markets and I will show you a market that has been disrupted or distorted by government intervention, mandates, etc. And don't overlook the ability of charity to solve many of the alleged "problems" of healthcare.

Benjamin Cole said...

The voting public and our elected officials appear to like the VA, which is third-party pay. Complete healthcare is provided by the federal government in federal hospitals staffed by federal doctors and nurses, for former federal employees.

There is much less free enterprise in the VA than in the Medicare system. 19 million vets out there, 345,000 VA employees.

Maybe we need VA for everybody. Might be cheaper. We do need to get comfortable with euthanasia, a touchy subject.

Intellectual thought question: if you had to choose only one tax for America, would you tax labor or imports?

I think imports.

Scott Grannis said...

Benjamin: I suspect you haven't been following the numerous scandals surrounding the VA medical system. I shudder to think of the consequences if VA care/single payer were applied to all. Monopolies never work. Free markets always work, if allowed to operate freely. I want my doctor to take care of me as best he can, and I can only trust that he will if he has skin in the game: if he wants my repeat business, and if he wants other patient's business. If my doctor only cares about getting his paycheck from the government he becomes just another bureaucrat.

The best tax system, I think, is a consumption tax. At the end of the year you file a form saying how much you earned and how much you saved; the difference is what you consumed, and on that you pay a tax. Obviously there would need to be a minimum amount of consumption that is not taxed in deference to those at the bottom of the pay scale.

randy said...

Scott I'd imagine you are familiar with the Fair Tax plan. Basically a sales tax with a substantial "pre-bate" to everyone to make it progressive. No forms to fill out, just pay sales tax when purchasing. A shortcoming I see is that at some point, those with large incomes simply don't spend all their income. For that reason, I think it would need to be accompanied by a "simple" income tax for those with over, say, 1 million in income. It's scary to think about the unknown side effects of such a massive change in tax policy, but IMO the simplicity and influence on behavior is hard to beat.. I had the luck to be working for a financial services firm back in 1987, and was sitting in a taxi in Los Angeles with a board member who was one of the originators. I remember his excitement even now. He has since died, with considerable disappointment that it never got traction.

Benjamin... regarding VA for all. Considering the majority of consumers cannot afford health care, or the insurance for health care, and since that means someone else pays for their coverage, I'm struggling to see how market forces could be effective. I also wonder if public facilities is where all this is headed. Probably staffed, ironically, by immigrant doctors that don't have $250k in medical school loans.

Benjamin Cole said...

Scott Grannis: I am all in for a consumption tax, or a national sales tax. I would add in a gasoline tax, and (with less resolve) Pigou taxes. Yes, eliminate all income taxes, and get federal outlays down to 15% of GDP. Well, I can say these things, but the public has shown no inclination.

Friends of mine have used the VA and been satisfied, certainly with the price, ha-ha. Any organization with 345,000 people will have some screw-ups. US soldiers are all public employees now too. Do we suspect them of shirking at every opportunity?

My point is not really that I think a national VA for everybody is the solution, but that politics makes for strange bedfellows. Here you have Speaker Ryan devoted to spending more money on the VA, the most communist health care system in the US or maybe anywhere outside China. So the GOP-right-wing loves a communist healthcare program.

It is worth noting that other nations have universal single-payor and about half the healthcare bill of the US. I am not sure that would work in the US, but the present US system is very expensive.

Free markets in healthcare is perhaps the best solution, but I do not see Americans ready for that. Get rid of Medicare? There are some other issues, such as nobody chooses to get cancer.

I do wonder if in a perfectly free market whether insurers would routinely drop expensive customers, and they would be unable to buy more insurance.

I would not continue to serve customers on whom I lost money, whether in restaurants, freelance writing or healthcare. If I am a smart insurer, I am constantly culling out expensive customers, losers. Insurers that do not suffer from "adverse selection."

Tough nut to crack.









Benjamin Cole said...

OT fun fact:

Quick, which company has a bigger market cap: Ford, which has radically improved the engineering of its vehicles in the last 15 years and makes terrific pick-up trucks, or Tesla, which is largely yet unproven?

Well, yes, Ford has a bigger market cap, but by a smidge.

Interesting times!

Scott Grannis said...

It's refreshing to see that the market is already moving to replace Obamacare with private sector solutions based on cash, out-of-pocket payments. See this great post on the subject by Mark Perry:

http://www.aei.org/publication/an-antidote-for-obamacare-cash-only-medicine-with-transparent-pricing-and-no-insurance-the-future-of-medicine/

It's hard to over-estimate the power of the free market to deliver cost effective solutions to apparently intractable problems.

Richard O'Neill said...

Obamacare; Once given, never to be taken away. Free market healthcare may be the most dollar efficient but demographics and the less self reliant lower middle class( who, it seems, are alert enough to their own needs to vote) are now on the and tit will not let it go.

Richard O'Neill said...

Border Tax ? Guaranteed disaster that hobbles the US and allows the command economies and their oligarchic kelptocrats to dominate the global playing space.

Frozen in the North said...

Scott
Honestly, the GOP's healthcare reform was not about healthcare reform, it was about a giant tax cut. It was doom to fail from the very beginning, none of the interested parties were included in its drafting. At any rate, it doesn't matter, healthcare (aside from the basic services) is almost certainly too complicated for the market where the interests of the participants are different.

Patients are looking for (a) not to die, (b) cannot understand what is being sold. Seriously, having a conversation about "your cancer" is very difficult. What the US needs is small insurance market for ordinary stuff -- from broken bones to the flu, and catastrophic coverage for the rest. That could work...maybe. The Singapore model is very good this way! But the catastrophic stuff (and end of life stuff) is taken charge by the government, not individuals

Anyway, the Freedom Caucus will make sure that such sensible change occurs. From the very first day the proposed law was put forward it was hard to see how this could even work out. The crazies (sorry of you feel included) want a free market for everything, as if getting healthcare was the same as doing a oil change on your car!

The real issue is that 1/6th of America's economy could not be "fixed" with such a summary document.

Finally, Trump's agenda is gone and done, because changing the tax system is ALL about money -- the issues are complicated and there will be winners and losers...don't think for one minute the losers are going to go quietly. I applaud the idea of reducing corporate taxes from 40% to 15% only if the loopholes are also removed.

Your president doesn't have the attention span -- and congress is gone fishing!


Unknown said...

My monthly premium is $1,100 and my deductible is $12,000. That means I must first spend $25,200 (per year!) before the insurance company kicks in the first dime. Waiting for Obamacare to collapse is a noble goal, but I am wondering if my family finances might very well collapse first.

NormanB said...

Health Care reform, Pharmaceuticals: Pass a one page law stating that a drug company cannot charge any more for their products than the weighted average of what they charge the top ten countries. (PS did you know there is a law on the books prohibiting the US government from negotiating drug costs.)