Wednesday, May 8, 2019

Jenkins on ACA

Holman Jenkins "Obamacare is popular because it failed" from a week ago is worth savoring and has an interesting new idea.

On Obamacare's failure:
ObamaCare’s user cohort now consists almost entirely of willing “buyers” who receive their coverage entirely or largely at taxpayer expense. It also consists of certain users who take advantage of the coverage for pre-existing conditions and stop paying once their condition has been treated.... 
...For a family of four not benefiting from a subsidy, notes insurance industry veteran Bob Laszewski, a policy can cost $15,000 with a $7,000 deductible. In other words, “they have to pay $22,000 before they get anything.” 
In every larger aim, the Affordable Care Act has predictably failed. It was supposed to ramrod efficiency through the health-care marketplace. Instead, it has become just another inefficient program bringing subsidized medicine to one more arbitrarily defined subset of the population.
(On "stop paying," see the excellent paper by Rebecca Diamond, Michael J. Dickstein, Timothy McQuade and Petra Persson. They document that many people sign up for ACA insurance, get a flurry of health care, and then quit. Half of new ACA enrollees in California quit by the end of the year. This number includes everyone, even those getting subsidized premiums, so it is likely that people paying full premiums quit even sooner.

Jenkins links "predictably" to his excellent column from 2010. I also predicted ACA unraveling of spiraling premiums, for which I was excoriated on the left when it took a little longer than I thought.)

That isn't all bad. This segment of the population does need some form of subsidized medicine, at least while medical supply is so artificially constrained and the cash market regulated out of existence by hidden cross-subsidies.

But the cost has been enormous, and not even Jenkins pounds his fist hard enough on this. The ACA has destroyed the market for individual health insurance, for people making enough money not to qualify for medicaid or other extensive premium subsidies. If you make $100,000 per year (family of four), and not in a company that provides health insurance, $22,000 of pre-tax income is simply a non-starter. "there are some areas of the country where coverage can easily exceed 25 percent of household income for a family just a little above 400 percent of the poverty level."

My dreams of course are free market health care with lifetime, individual, portable, competitive, health-status insurance. I recognize it's not on the agenda. The left counters with "Medicare for all" and "single payer."  A single payer might make relative sense -- a one-stop system encompassing Obamacare, Medicare, Medicaid, VA, etc., to provide simple backstop health care to people with few financial resources, supported forthrightly by taxes rather than by mandated market-destroying cross-subsidies. But I think these proposals will fail once the electorate understands they mean the single payer, with no escape from the system for doctors or patients, not a single payer for the unfortunate, i.e. the other person, not me. Europe tried that and is backing away furiously.

Jenkins on the outcome on the current path:
Our destination is clear. In the future, there will be one gold-plated health-care system for the rich and workers in high tax brackets. There will be another system for those who depend on a proliferating array of government programs. They can read their future in the latest report of the Trustees of Social Security and Medicare, out this past week. These giant budget sucks are rapidly outrunning their dedicated funding sources. Soon they will be openly competing with every other federal priority for nonexistent tax dollars, including those that the Democratic presidential candidates would like to spend on free college and Medicare for all.
If you depend on government-provided health care, the upshot is inevitable: longer waiting lists, rising copays and steeper deductibles as Washington struggles to pay for the medical procedures it has promised you regardless of whether these procedures leave you better off.
But he closes with an interesting vision
... The saving grace of our funky system is the giant tax incentive it gives employers to preserve profits by figuring out which medical treatments actually keep their employees healthy and which don’t. This shouldn’t be corporate America’s job, but it is. It’s no joke to say many U.S. businesses have more to gain from controlling health-care costs than they do from running their own operations better.
Hence the vaunted new health-care alliance created by Amazon CEO Jeff Bezos, J.P. Morgan CEO Jamie Dimon and Berkshire Hathaway CEO Warren Buffett. It’s called “Haven.” If it succeeds, it will do so by figuring out which half (a plausible estimate) of America’s medical spending is a complete waste of money.
Yes, it should not be corporate America's business. Yes, you should buy health insurance on your own, not get it via your employer, as you buy home and car insurance. Yes, this health care system is one more reason the US is becoming more and more dominated by large companies, and why employment in smaller companies, or starting a business of your own, is becoming chancier and chancier. Yes, figuring out what health care is worth your money should be your job, not your employers, just as figuring out which kitchen counters you want is your job. But, as Tyler Cowen points out, large companies have innovated all sorts of benefits for the American workers and perhaps they will rise to this challenge as well.

For example, Stanford and me together pay $26,000 per year for health insurance, plus hefty deductibles and copays. Stanford runs the hospitals that this insurance pays for, which issue the same phone-baloney bills the rest of you get (immense list price, insurance pays about half of that, then some copay for me.) Like many big businesses, Stanford "self-insures," merely funneling payments through Blue Shield and other plans as administrators, but paying all the costs. I guess Stanford can afford to waste about $13,000 along the way, but surely bringing it all under one roof is an attractive option.

But really, this is a terrible idea, only potentially redeemed a bit by being a bit less terrible than the other terrible ideas. When it comes, ring a bell for the death of the price system and the market in health care. A corporate-run single provider system is in the end no better than a public one, and likely worse. The clash of incentives is worse. Once you get sick with something rare, expensive, and likely impacting your ability to work, the company's interest in you ends. And the company can dump you on the public system. The company can start paying a whole lot more attention to the health of those it hires. Yes, the company wants to attract good employees, but the details of its health plan rules for such diseases are buried in all the other benefits. A free espresso machine or daycare are a lot cheaper.

Well, enter the government. Already, companies offering such a system must abide by all the coverage mandates of health insurance -- they are not at all free to figure out which half of spending is a complete waste of money. That will get worse. Disgruntled employees will go to Congress, and it is a lot easier to pass regulations that corporations, those bottomless pits of money, must provide certain treatments than it is to pass regulations that tax-supported systems must do so. The regulatory wall is, I think, why we have heard so little of "haven" lately.

Maybe we shouldn't give up quite so quickly on free-market health care with lifetime, individual, portable, competitive, health-status insurance for the vast majority of Americans.


  1. If anything, you and Jenkins are underestimating the scale of the problem. In my area (rural Colorado), with an income of 80K (too high to qualify for any subsidies) a policy with a 6K excess runs $2200 a month for me and my wife. We're talking potentially a third of my post-tax income without receiving a cent in return.

  2. In 2017, there was this golden window of political opportunity for free market health care reform, or any alternative to ACA and single payer or Medicare for all. I had expected pundits like John H Cochrane to leap into action, shout it from the roof tops, publicly debate + advocate, and have clever rhetoric. Instead, they stayed silent. In 2013, Whole Foods CEO and Founder John Mackey called Obamacare "fascist" in a WSJ editorial, and had a broad passionate chorus of support. Even liberals love Whole Foods and can't demonize its founder. In 2017, he was quiet.

    The Democrats weren't quiet. They made the predictable charge that Republicans simply want to take away everyone's health care. They shouted it from the roof tops, over and over. And there were no serious attempt at countering that. I know middle-of-the-road Americans, who aren't at all politically active, who were convinced that the Republicans' only idea was to simply cut health coverage. When the politics heated up and there was an opening for change, pundits like Cochrane simply fled for the hills.

    John H Cochrane, If you truly believe in free market health care reform, then act like it. If these ideas are to have any political traction, they need credentialed pundits and activists and rhetoric. I presume Cochrane dislikes Trump but the Trump Administration is eager for this type of fresh thinking, and it would be a mistake to let that opportunity slip by.

    Gruber wrote a graphic novel Health Care Reform in 2011 to advocate ACA policy ideas. Where is Cochrane's graphic novel advocacy?

    I still link friends to this clever and catchy Cochrane health care interview from 2014:

    1. Politepete, I've known John for many years. He has always been a voice in the wilderness. Many weren't listening. Were you? I suspect many heard and ignored his message as his voice threatened their political biases.

  3. The logical endpoint is wage and price controls on health care. I was talking to a couple of Docs who were touting Medicare for all. I said: "You realize they are going to put wage and price controls on you." They got real quiet and changed the subject.

    " a policy can cost $15,000 with a $7,000 deductible. In other words, “they have to pay $22,000 before they get anything.”

    Not entirely true, they get the benefit of the discounts the insurers have negotiated with the providers. If you walk in with out an insaurance card, they will charge you "Charge Master" rates, i.e. rack rates. Which are 2 or 3 times as much as anybody ever really pays.

  4. Slightly off-topic but the marriage between Stanford and Blue Cross isnt necessarily what it seems. I doubt it's a conspiracy to jack up your costs or just plain old idemocracy.

    My guess is that Stanford is only pseudo self insured. It's a common scam used to hide behind ERISA and be immune to state regulation, among other legal protections.

    The institution self-insures and hires a 3rd party administrator such as Blue Cross to administer the program. It's now an ERISA program, and it is not subject to state regulation.

    But then Stanford re-insures with Blue Cross, so on the surface its an ERISA plan but in reality its a Blue Cross plan with a fake mustache and a wig. It doesn't really change your cost much but it strips both you and the State of California of a lot of legal power when the plan screws you (or your doctor, hospital, pharmacy, etc).

    Maybe Stanford isn't doing this but it's going on everywhere. There's a huge advantage to being a fake ERISA plan. For example, in Texas if an insurer gives authorization for a service it MUST pay for it. However, an ERISA plan is immune from this rule, allowing retrospective denials for which there is little recourse other than taking it to federal court.

  5. Sorry, I meant "idiocracy" not "idemocracy".

    A lot of times the 3rd party administrators give an impressive dog and pony show to HR people who don't understand some of the subtle ways the insurance company can screw them, like charging a fee that's percentage of the difference between what was billed and what was paid. So if the bill was $10,000 and the plan paid $2,000, the 3rd party administrator might get a $800 fee (10% of the savings). There are so-called insurance gurus who write for Forbes and other financial publications that don't know about all these nasty little ripoffs.

  6. "My dreams of course are free market health care with lifetime, individual, portable, competitive, health-status insurance."

    Can you elaborate on how that would work at all?

    "Yes, figuring out what health care is worth your money should be your job, not your employers, just as figuring out which kitchen counters you want is your job."

    Health care != widgets. Comparing the two is completely disingenuous.

  7. The barrier to voluntary choice in health insurance is that we don't let people die. The uninsured do get treated, paid for by the population of the ill. Given that we won't turn people away from the emergency room, forced insurance is the only solution. And yes, the indigent will be subsidized. Alas, how much is forced and how much is subsidized will be subject to the usual politics.

  8. I had stints put in that my insurance was charged $30,000 plus another $1000 co-pay. The hospital/doctor offered to do it for $15,000 if I paid cash. So why can't a single payer plan get rid of all their bureaucracy and just pay the $15,000?

    1. It ain't all bureaucracy, 96Trees: Your 30K pays for the uninsured being treated; your 15K does not.

  9. This may be a side issue, but university and school district health plans are always very pricey, and the real reason is tenure. The seniority protections invariably produce a work force that has a high average age. People in their 50's and early 60's are right at the age to get heart disease, cancer, MS, parkinson's, you name it.

    The ACA plans are no different. In my own state of MN, the average age of ACA plan applicants is close to 50! That is why rates are so high.

    1. Yes, younger, thus healthier, pools have lower rates. If one has a higher probability of being sick, one should try to get into a higher probability healthy pool: Let's all get younger, for example! :-)


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