Friday, June 19, 2015

Roy's plan

I found two novel (to me) and interesting points in the heath insurance reform plan  put forward by Avik Roy of the Manhattan Institute. (His Forbes articles here.)

First, the ACA establishes that it is ok to help people by subsidizing their purchase of private health insurance. It is not necessary to provide completely free insurance, medicaid, VA, medicare, and so on.

Yes, the health insurance you can buy has been salted up with extras, competition severely restricted, and large insurers so deeply in bed with their regulators that to call insurance "private" is a stretch and "competitive" a dream. But people do have to pay something, if they want better coverage they have to pay more, and the insurers are still nominally private companies.

Second, it is ok to ask people to contribute pretty substantial copayments.  That's a vital component to getting a functioning health care market.

Avik cleverly suggests to ACA opponents not try to throw the whole thing out. Instead, expand on these good parts.  Keep the exchanges, reform and open them up, reform the policy requirements, then slowly transition medicare, medicaid, and even veterans and government workers to exchange policies. Shh, don't call it a "voucher."

If King v. Burwell surrenders to simple logic, it's clear that there will be a quick renegotiation: what reforms do ACA opponents get in return for allowing federal subsidies.  These points offer an interesting direction for that negotiation.

It is sad that the ACA's legal problems are completely unrelated to its economic problems. Whether subsidies go through Federal or State exchanges is an economically irrelevant question. And the Federal Government has the constitutional power to pass all sorts of economically disastrous laws. This divergence is leading to particularly pointless arguments.


  1. The problem with these analyses is that they focus on how to set up payment systems and not on why, exactly, health care costs less in other countries. The ACA system isn't tremendously different from the Swiss system. They have an individual mandate, co-pays and deductibles, tiered benefits for certain drugs, and so on to encourage consumer discretion. In addition, the US system has single payer coverage for the aged (Medicare) and the poor (Medicaid).

    The difference isn't in the setup as much as it's in the details. Some examples:

    I frequently travel to Italy. A few years ago while in Italy I realized I had forgotten my blood pressure medication. I went to a pharmacy and since I didn't have a doctor's prescription I had to pay cash. It was 1/3 of the cash price in the U.S.

    Congress enacted Medicare Part D, aka "The Pharmaceutical Industry Gift Act", without placing any kind of controls on prices paid. A program as large as Medicare can easily negotiate discounts, and most countries don't hesitate to do so for their national health plans. Except the U.S.

    Last year an orthopedic group ran afoul of the government because they were importing Synvisc (injected in knees for arthritis) that had been exported to other countries. They did that because they could get a better price than in the U.S., where it is made. Well, that just ain't allowed. Witness the furor over Americans obtaining prescription drugs from Canadian pharmacies.

    Why is there such a large price differential for drugs? Is there anyone with more than a room temperature IQ who can't figure out how that happened?

    In 2003 I set up a procedure room in my office. I needed a table for fluoroscopy procedures. The cheapest "official" table from medical supply companies was about $1500. I had a carpenter custom build one to my specs for $500.

    The equivalent of a Sears Craftsmen cart that costs $100 will easily run several hundred dollars when purchased from a medical supply company.

    There are often significant differences in how care is provided. Once again, drawing on my experience in Italy speaking to both doctors and patients, I note that what would be handled by a pain specialist in the US is usually handled by a GP in Italy. In addition to improper and/or inadequate treatment (usually consisting of narcotics and back braces) I found that Italian GPs were surprised to learn that US pain specialists do procedures to treat pain. It's much cheaper to just throw drugs at the problem. If I were an Italian GP I probably wouldn't bother with a pain consult either. If you think paying doctors to do things is bad, wait until they're paid not to do things. This is what's coming in the U.S.

    How about our neighbor to the north? Canada publishes benchmarks for time to obtain care as well as the actual amount of time waited. The benchmark for elective joint replacement is to be seen by the surgeon within 3 months and have the surgery within 6 months. The Ontario web site shows that in Windsor they are pretty close to meeting this goal; 90% get their hip surgery within 6 months (it is silent regarding the other 10%). The wait for cardiac bypass averages 50 days. The wait time for getting tubes put in your child's ears for chronic infections is 104 days. That will certainly keep costs down as opposed to the US system. In the rural areas it's even worse. What US citizen will tolerate that kind of wait? (or pick any province you like - they all have these sites).

    In conclusion, the problem isn't so much in the way coverage is provided as in the implementation of the coverage and the government favors purchased by various industries. As they say in engineering "Speed, quality, price. Pick any two." I'm sure someone will chime in about our "terrible" quality statistics in the US. Go ahead. Make my day.

    1. I appreciate your thoughtful post, but per your challenge, I don't see how anyone can chime in about US waiting time statistics for elective procedures one way another - to my knowledge there aren't any, at least at a national level. I'd be happy to discover that I was wrong.

      It's natural to look to north for comparisons, but at least a little misleading - Canada has the most socialized system in the OECD (if the NHS had a monopoly in the UK, they would be number one, of course), and whether for that reason or not, Canadaa rates very poorly on elective procedure waiting times - for comparison purposes, it makes more sense to look at the mixed European systems like the Netherlands and Denmark, where median wait times, at least, are less than half of Canada's,

      I wonder if Canada shouldn't consider the route being increasing explored by American insurers to bypass domestic waiting lists - going abroad. According to ABC news, a million Americans went abroad for medical procedures in 2012:

      Of course, there are other considerations: how do you suppose waiting times for Medicaid patients compare to OECD averages? And given that waiting times are measured from decision to treat, how do we handle the cohort with no access to primary care? Do we assume their decisions to treat are made in a timely manner?

    2. To clarify, my "challenge" referred to the usual response about infant mortality rates and other metrics as compared with other countries.

      Americans who want to save money will engage in medical tourism. Whether or not that turns out to be a good choice is impossible to say since hospital statistical reporting in most countries is far less rigorous. After care is certainly an issue, as is pursuing a malpractice claim. Wealthy non-Americans for whom money is no object often come to America. When I was a resident at Mass General there was a whole wing just for them - the Warren Building, which is where John Kerry stayed while being pampered for his broken leg. Why didn't he just go to Cuba and get it set for $5? Michael Moore says the care is just as good.

      I have no objection to looking at mixed systems since, as I have stated, there is no optimal solution, just a spectrum of imperfect solutions.

      Interesting that you mention Medicaid wait times. Medicaid patients are notorious for abusing the ER for primary care problems. If you have private insurance you won't do that because ER co-pays are too high. Implications about incentives and disincentives will be left as an exercise for the reader.

      If there is any take home message from my first post it's that we are focusing on how to pay for a system that's hideously distorted by favors purchased from the government instead of addressing the cost of the corruption. Price discovery is almost completely suppressed.

  2. "Second, it is ok to ask people to contribute pretty substantial copayments. That's a vital component to getting a functioning health care market."

    This is the core of the problem. Without "skin in the game" there is no market discipline. OTOH, we as a society don't want anyone to have financial barriers to needed care. Maybe there are some die-hard libertarians who figure if you can't afford care you should just die in the street, but that dog won't hunt among the vast majority of Americans, many of whom would probably die in the street under those circumstances.

    I submit that there is no solution to this problem. Financial disincentives and no financial barriers to access are mutually exclusive.

    The argument is really over how much the disincentive should be. I think the goal is "uncomfortable but not impossible" and all of these arguments hinge on where that line is drawn. Where along the spectrum do you want your system to sit between a completely free market with its price discipline at one end and the social principle that no one should lack health care because of cost?

  3. "it's clear that there will be a quick renegotiation"

    If King v. Burwell goes against the Administration (which I think would be a terrible result for several reasons) then it seems to me that the Democrats should say the Republicans have a choice:
    1) there can be a quick, temporary fix in place until December 31, 2015 by which time the Republicans must put forward their comprehensive proposal to replace ObamaCare (this should not be a hardship for the Republicans since they have been promising such a plan for several years now so the Republican plan must be in an advanced stage of preparation by now. ;-) ) OR
    2) a permanent, unconditional, fix to the King v. Burwell issue.

  4. I don't know why you think the Republicans should come up with a plan. If the ACA doesn't survive this challenge you can ask the Republicans to submit their proposal but like the ACA it will be written on K Street and will not address any of the important issues. Anyone who tries to tackle the real problems will not survive the next election.

    Medicare Part D won't be fixed, insurers will still control access to care, people will still be financially destroyed by the ChargeMaster fee schedule, and it will still cost 6x more for a Medicare patient to have a spine injection at the hospital as opposed to the office setting.

  5. "a permanent, unconditional, fix to the King v. Burwell issue"

    An unconditional fix? In D.C.? We'd be lucky to keep it under 300 pages. There are too many votes to buy.

    1. By "unconditional fix", I'm pretty sure Absolon means a one-pager: either a clarification of Section 1321 (one sentence will do), or a global search and replace - from "Exchange established by the State" to "Exchange established in the State".

      I don't see any reason for the President to sign anything else - either the Republicans wait until they have the Presidency, or they muster veto-proof majorities. If they can't pass something the President can sign, or something that doesn't need his signature then the 34 States with Federally-run Exchanges may get exactly what some of them claim they expected to get in the first place: ACA market regulations with no subsidies.

    2. I understand that Absalon was referring to a very brief bill. What I'm saying is that too many people would put a price on their vote and the bill would be packed with the results of those deals.

    3. What I meant by "conditional" was that the Democrats should say that they would refuse to buy votes by making concessions.

  6. The following video criticizes Canadian health care. Canada saves money by making patients wait and sometimes die before they can be treated. Sally Pipes understands and lived under Canada's national health care system. She gives some personal stories and other facts.

    The Difference Between Canada and the U.S. Health Care Systems (video 7:34) Through the Cato Institute.

    The British National Health Service (NHS) is skimping on maternity care, but reports great statistics. This puzzles me.

    Bed shortage forces 4,000 mothers to give birth in lifts, offices, and hospital toilets
    08/26/09 - Daily Mail UK OnLine. (Via Don Surber)
    === ===
    [edited] Surber: Here is how free, socialist health care works in England. I thought their infant mortality rate was so much better. I mean, they would not lie about something like that. They spend half what the United States spends.
    == ===

    I am puzzled by multiple reports that the US spends much more than Europe on health care and gets much worse results. But, the above instances give me doubts. Supposedly, Europe spends less for better results, but how is this done? I never see details. Their bureaucrats have solved the problem, but won't tell us how? Are they fudging their numbers like the US Veterans Administration was lying about waiting times?

    If Europe spends less by delivering less, then that is not remarkable. If the US spends more because of runaway medical litigation and defensive medicine, then that is a legal problem, not a healthcare extravagance.

    The current ObamaCare plan is to reduce health care costs by just spending less. Just like people could reduce their food costs by eating less. It seems that the dedicated experts in the government have not discovered the underlying reasons which could be addressed. Reducing health care costs by delivering less healthcare is not what I think people want of the evolving US "health care system".

  7. I share John Cochrane’s skepticism about subsidised private health insurance. But strangely enough, in socialist France (the last place you’d expect to find state assisted private health insurance), private health insurance firms play a big role. I’m baffled, but presumably that system has something going for it. See:

  8. I think the Democrats should press Republicans for a plan. The Republicans have been opposing ObamaCare and saying they will come up with a better plan. I personally do not believe that the Republicans, as an organization, are capable of coming up with a better alternative. It is long past time for the Republicans to stop with all the nihilism and put forward a definite plan or admit that they can't. In public life you need to lead, follow or get out of the way.

    1. This is unfair. Republicans have come up with about 10 plans, many quite detailed, Roy's being one of them.

    2. Getting either party to seriously change how medical care is provided is like trying to pick up a turd by the clean end.

    3. That there are 10 different plans,with different levels of detail, is really my point. By that standard, the ACA itself was a Republican plan. The Republicans ran in 2010, 2012 and 2014 on a platform that they would replace the ACA. It is long past time for the Republican Party collectively to say "here is our one official proposal, we take responsibility for this proposal and we will put it before the people in the election and accept the people's democratic choice."

      I personally believe that the Republicans, as an organization, are incapable of putting forward a fully worked out plan that would be acceptable to their own base of core supporters and to the voters.

  9. Go to a universal draft.
    VA then covers everybody.
    Problem solved---yes the VA is communism...but the GOP loves it!

  10. As Kevin Murphy pointed out in an interview once, the biggest problem in the U.S. health care system is that there is no automatic way to screen out treatments and procedures whose benefits are less than their costs. Hence, innovation is a double-edged sword--sometimes it produces socially beneficial things and sometimes it produces socially wasteful things but unlike in, say, the television-set market there is no willingness-to-pay check on this distinction. If someone invented a $10,000 average cost TV that improved picture quality by 10%, no one would buy it and probably no one would try to launch it. But if TVs were third-party paid and the payer had to overcome a strong presumption that what the customer wanted was legitimate, then there would be a lot of stupidly expensive TVs being produced (as well as complex games played by payers to avoid having this happen to them, many of which would make life difficult and expensive for people making perfectly reasonable purchases of $200 TVs). And it isn't just innovations that are the problem--plenty of things that have been around for a while are likely to be cost > benefit as well.

    The problem is then, that the mechanism for trading off medical goods against all other goods in the economy is not functioning very well. Ignoring the theory of the second best, we probably have a pretty good ratio of videogame production and consumption to soup production and consumption, because user willingness to pay for videogames and soup is automatically incorporated into the market processes that determine their quantity and quality. As noted by Mr. McMunn above, "I submit that there is no solution to this problem. Financial disincentives and no financial barriers to access are mutually exclusive."

    Actually, there may be a partial solution that could be implemented in either private or public insurance programs. I call it a "negative co-payment" and others have called it "split gain sharing." The idea is that when a third-party payer has reason to believe that a given treatment X in a given situation is not cost justified that it offer a cash payment to the patient (and possibly also to the physician, although I'm not crazy about that) if he or she forgoes it and instead accepts a cheaper alternative. In cases of massively inefficient treatments, this payment could be quite large and still save the system lots of money. It is not denying anyone anything to which they were previously entitled--it simply allows a crude form of discovery about willingness to pay. Obviously this could not be applied to emergency procedures, but it could work for the vast bulk of chronic and elective treatments that constitute so much of total costs. Obviously also, there would have to be great care taken to prevent fraud--giving people cash for not getting treated is the sort of thing that attracts scammers in bulk.


Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.