Wednesday, September 23, 2015

After the ACA

After the ACA, a longish essay on what to do instead of Obamacare. Relative to the policy obsession with health insurance, it focuses more on the market for health care, and relative to the usual focus on demand -- people paying with other people's money -- it focuses on supply restrictions. Paying with your own money doesn't manifest a cab on a rainy Friday afternoon, if you face supply restrictions.

Long time blog readers saw the first drafts. Polished up, it is published at last in the volume  The Future of Healthcare Reform in the United States edited by Anup Malani and Michael H. Schill, just published by the University of Chicago Press.

The rest of the volume is interesting, and the conference was enlightening to me, a part-timer in the massive health-policy area. As the U of C press puts it with perhaps unintentional wry wit: "By turns thought-provoking, counterintuitive, and even contradictory, the essays together cover the landscape of positions on the PPACA's prospects."

PART 1. ACA and the Law

Chapter 1. Postmortem on NFIB v. Sebelius: Early Reflections on the Decision That Kept the ACA Alive. Carter G. Phillips and Stephanie P. Hales

Chapter 2. Federalism, Liberty, and Risk in NFIB v. Sebelius. Aziz Z. Huq

Chapter 3. The Future of Healthcare Reform Remains in Federal Court. Jonathan H. Adler

Chapter 4. Essential Health Benefits and the Affordable Care Act: Law and Process. Nicholas Bagley and Helen Levy

PART 2. ACA and the Federal Budget

Chapter 5. The Fiscal Consequences of the Affordable Care Act. Charles Blahous

Chapter 6. Estimating the Impact of the Demand for Consumer-Driven Health Plans Following the 2012 Supreme Court Decision of the Constitutionality of the Patient Protection and Affordable Care Act. Stephen T. Parente

 PART 3. ACA and Healthcare Delivery

Chapter 7. After the ACA: Freeing the Market for Healthcare.  John H. Cochrane

Chapter 8. Obamacare and the Theory of the Firm. Einer Elhauge

Chapter 9. Can Federal Provider Payment Reform Produce Better, More Affordable Healthcare Meredith B. Rosenthal

PART 4. Healthcare Costs, Innovation, and ACA

Chapter 10. The Role of Technology in Expenditure Growth in Healthcare. Amitabh Chandra and Jonathan Holmes

Chapter 11. Economic Issues Associated with Incorporating Cost- Effectiveness Analysis into Public Coverage Decisions in the United States. Anupam B. Jena and Tomas J. Philipson

Chapter 12. The Complex Relationship between Healthcare Reform and Innovation. Darius Lakdawalla, Anup Malani, and Julian Reif

PART 5. ACA and Health Insurance Markets

Chapter 13. The Affordable Care Act and Commercial Health Insurance Markets: Fixing What’s Broken?  James B. Rebitzer

Chapter 14. A Cautionary Warning on Healthcare Exchanges: A Plea for Deregulation.  Richard A. Epstein


  1. John, phenomenal essay. On should also read the DOJ's website about "Price Fixing, Bid Rigging, and Market Allocation Schemes".

    It reads like a how-to primer for the healthcare industry.

    Supposedly, most of these healthcare industry abuses are already illegal under the Sherman Act. How the medical industry can operate under such lawlessness is baffling. In a single stroke, competition could be introduced into the healthcare industry.

    Where, exactly is the DOJ?

  2. Lucky for you I have a plane to catch so this comment won't be longer than your paper.

    "Curiously, most of the current policy debate, and most of our regulation, focuses on health insurance"

    The Affordable Care Act was actually the Somewhat More Affordable Insurance Act. I was going to email you an article today about how deductibles have risen at 6x the rate of wages recently. High deductibles make health care unaffordable for most people and renders them functionally uninsured. If you earn $50,000/year, have a $5,000 deductible and need a $5,000 surgery you are out of luck. Raising the deductible allows the insurer to advertise lower rates. I have often joked to my colleagues about offering insurance for $10/month with a $100,000 deductible and getting rich off of people who didn't understand insurance.

    I've heard the Southwest Airlines analogy before. What you might be unaware of is that the medical profession has made huge changes that have cut costs.

    When I was 26 I had minor surgery. I was admitted to the hospital the night before, had a full battery of lab tests, chest xray, EKG, etc. I stayed in the hospital for 2 days afterwards. Then doctors started doing studies as to how likely an EKG would reveal pathology in an otherwise asymptomatic person of a given age. Ditto for all the lab work, chest xrays, etc. That dramatically reduced the amount of preop testing.

    Secondly, doctors developed ambulatory surgery and same day admissions. Today a patient might show up in the morning for open heart surgery.

    That 26 year old having minor surgery today would undergo NO preop tests and go home after the procedure.

    The incidence of tonsillectomies has also gone down, once again due to doctors doing the research and determining the criteria for a tonsillectomy. Remember the Obama idiocy regarding tonsillectomies? “You come in and you’ve got a bad sore throat, or your child has a bad sore throat or has repeated sore throats. The doctor may look at the reimbursement system and say to himself, ‘You know what? I make a lot more money if I take this kid’s tonsils out.’”

    Except you go to your family doctor or the pediatrician, who is NOT the person who does the operation. That would be a referral to an ENT, who will not operate unless the patient meets criteria.

    Note that the changes doctors introduced were based on research, whereas changes government and insurers introduce are not. Bureaucrats can come up with any damn fool idea that merely sounds good and severely disrupt the health care system. It if flops, they don't get fired; they get a bigger budget. How many bureaucrats lost their jobs after the ObamaCare portal debacle?

    In the private sector you'd lose your job for a screw-up like that. In medicine, you'd be sued and get a good work-over by the medical board.

    1. I agree that the ACA is the "somewhat more affordable care act" for some. I disagree regarding your example of a $10 policy and $100,000 deductible. You need to look at a catastrophic situation, such as cancer. The costs could be in the millions. An out of pocket of $10K is 10 times better than an out of pocket of $100K.

  3. I didn't have time to read the whole essay, but it doesn't look like it addresses my question so I'll just ask... Why the US don't move to an European health care system? Even with our older population and other issues, the data look like we get comparable health care at half the cost per capita (70% if you look at GDP percentages). So after some transition costs US should be able to save more or less the same amount. Maybe other policy choices could save more, but it's up to debate, along with possible the social effects. Do you think America is fundamentally different from Europe in this? I don't want to believe it's a purely ideological point, but I don't understand.

    1. Jacopo - let me attempt an answer.
      The reason why many in the US do not want a "European" health care system (and with "European" I am assuming you mean more government driven, centralized, socialized system) is because there is stuff that Europeans cannot do, but here in American you can, simple as that. If a pregnant woman needs a highly technical precise surgery on the baby in the womb, in general, the Europeans cannot do it, they have to come to the United States to do it. You never see Americans go to Europe to have procedures done.
      A second reason, in my humble opinion, is pharmaceutical drugs. The vast majority of research and development of pharma drugs is done in the United States. Yes, the Europeans have some pharma companies like Glaxo or the Swiss, but, by and large, the whole drug R&D is done in America. Europeans (and the rest of the world for that matter) just free ride on American pharma research. And many Americans understand that. If the American health care system becomes more European (as it will, under the Affordable Care Act or "Obamacare"), this will slowly disappear - and the whole world will be poorer for it.

    2. Manfred, I don't see how European countries get a free ride on drugs. Do they ignore patents? Do Europeans really come here for special procedures? How can they afford to pay? Is it covered by their insurance? If so, wouldn't it then be captured in their cost of insurance? Wouldn't they still be somewhere near half our cost with better results?

    3. Jacopo, Are you envisaging Spain, Portugal, Italy and Greece in your Euro-health system? Or are you cherry picking?

      The Europeans largely funded their social spending by getting rid of their military spending. Perhaps the US has that option, perhaps not. Europeans could free-ride off of the US military and expand the welfare state, but even this window is closing: Eurozone countries are in frighteningly fiscal state outside of Germany. The UK was just able to slide by on north sea oil, but this is diminishing.

      As John points out, competition tends to raise quality and lower prices: exactly why is the health industry legally exempt from competition? You consume medical services -- and the vast bulk of your consumption is not immediate life-or-death price-inflexible demand.

  4. -- people paying with other people's money --

    Isn't insurance, by definition, paying with other people's money?

  5. The Kindle Edition of the book is $48. My guess is nobody will pay that to read it. I certainly won't.

  6. Countries with centralized health systems can negotiate lower prices. They control most of the market (there are often parallel private systems for the affluent but that's a small fraction). Americans subsidize those discounts with the high prices they pay in the US.

    Synvisc is a treatment for arthritis of the knee. It's made in the U.S. An orthopedic group found they could buy Synvisc overseas cheaper and started buying it. They were slapped hard with $1.87 million in fines by the feds for re-importing drugs.

    Here us how the DOJ spins it: “This scheme is yet another example of illegal actions by health care providers to profit from drugs imported into the United States,” said U.S. Attorney for the Eastern District of Tennessee William C. Killian.

    I guess the fight against lower drug prices requires constant vigilance.

    An Epi Pen costs several hundred dollars in the US. In Canada it's less than $100. Same manufacturer.

    Now, some readers might be thinking "Isn't Medicare a big market? Why don't they negotiate lower prices?" Because Medicare Part D should have been called the Gift to Pharmaceutical Manufacturers Act. **It is illegal for Medicare to negotiate drug prices.** That was written into the law.

    During the enrolment period they can change the price every 2 weeks, which enables an incredible bait and switch. You sign up with a plan because the drugs you take are at a good price and 2 weeks later they're higher. Google "Medicare Part D ripoffs" to read stories about seniors screwed by Part D.

    Furthermore, if you don't enroll in Part D when you first sign up for Medicare you will permanently pay a higher premium if you enroll later. In many cases the deductible is so high that seniors are better off not having Part D and paying cash.

    The best government money can buy.

  7. Professor,

    You know I LOVE this essay. One of the many reasons I respect you as much as I do. I still wonder why you pitch it as "after the ACA" when many of the major changes (supply side market liberalization) would be wonderful despite / within the ACA. Don't get me wrong, we can have a different essay on why the ACA is brutally poor policy (implicit tax rates, gov picking and choosing what's in a plan, mandated corporate income statements to start), I don't love the false dichotomy of we can only make common sense adjustments if we tear up the ACA.


    1. Yeah, the title is so 2012. Fixing the ACA is a better title for current legislative realities.

  8. The VA runs a communist healthcare plan with about 8 million enrollees. The VA operates federally owned medical facilities staffed by federal employees for the benefit of former federal employees. This system, which serves one half the population that Obamacare does, seems to work, or is above reproach.

    Could the VA be expanded to serve a much larger population?

    1. Benjamin, the VA is so corrupt that it is being investigated by the FBI. (Apologies if you meant this as satire.)

    2. Anon: I am sure that every federal department could be investigated for fraud and that fraud would be found.

      My question is, why do Dr. Cochrane and others focus on the ACA and not the VA? Is a communist healthcare system better than a socialist healthcare system?

    3. I worked at two VA hospitals during my training. You do NOT want to be a patient in one.

    4. I don't know, JB. It sounds pretty good to me.

  9. Essay writing was never my forte as English isn’t my first language but because I was good at math so they put me into Honors English. I really couldn’t be assed with reading King Lear and then writing a 5,000 word paper on it so I looked up essay services and WritePaper.Info was the first link to come up. I was kind of shocked with the quality of the paper they gave me. I received a very articulate and well-written piece of writing for like $20. Recommended it to a bunch of my foreign friends and now they use it too.


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