Another Preview of Obamacare

Another excellent article on the health-care death spiral, this time in New York:

New York’s insurance system has been a working laboratory for the core provision of the new federal health care law — insurance even for those who are already sick and facing huge medical bills — and an expensive lesson in unplanned consequences. Premiums for individual and small group policies have risen so high that state officials and patients’ advocates say that New York’s extensive insurance safety net for people like Ms. Welles is falling apart. [...]

New York also became one of the few states that require insurers within each region of the state to charge the same rates for the same benefits, regardless of whether people are old or young, male or female, smokers or nonsmokers, high risk or low risk.

Healthy people, in effect, began to subsidize people who needed more health care. The healthier customers soon discovered that the high premiums were not worth it and dropped out of the plans. The pool of insured people shrank to the point where many of them had high health care needs. Without healthier people to spread the risk, their premiums skyrocketed, a phenomenon known in the trade as the “adverse selection death spiral.”

“You have a mandate that’s accessible in theory, but not in practice, because it’s too expensive,” said Mark P. Scherzer, a consumer lawyer and counsel to New Yorkers for Accessible Health Coverage, an advocacy group. “What you get left clinging to the life raft is the population that tends to have pretty high health needs.”

I'm Not Surprised

From the NYT:

In a new report, the Congressional Research Service says the [new health care law] may have significant unintended consequences for the “personal health insurance coverage” of senators, representatives and their staff members. [...]

The confusion raises the inevitable question: If they did not know exactly what they were doing to themselves, did lawmakers who wrote and passed the bill fully grasp the details of how it would influence the lives of other Americans?

A good question to ask after the bill has passed, no?

The Health-Care Death Spiral Realized

The Boston Globe reports on the shape of things to come:

Thousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state’s largest private insurer provided the Globe.

The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month. The previous year, the company’s data show it had even more high-spending, short-term members. Over those two years, the figures suggest the price tag ran into the millions.

Other insurers could not produce such detailed information for short-term customers but said they have witnessed a similar pattern. And, they said, the phenomenon is likely to be repeated on a grander scale when the new national health care law begins requiring most people to have insurance in 2014, unless federal regulators craft regulations to avoid the pitfall.

“These consumers come in and get their service, and then they leave because current regulations allow them to do it,’’ said Todd Bailey, vice president of underwriting at Fallon Community Health Plan, the state’s fourth-largest insurer.

The problem is, it is less expensive for consumers — especially young and healthy people — to pay the monthly penalty of as much as $93 imposed under the state law for not having insurance, than to buy the coverage year-round. This is also the case under the federal health care overhaul legislation signed by the president, insurers say.

Next Stop, Nationalization

I've been hearing advocates of the shiny new health-care legislation crow about the new America where (eventually) everyone will be covered. This is simply not true. Let's look at Obamacare's two central pillars for expanding coverage:

1. Banning insurance companies from rejecting risky individuals. (Thus guaranteeing adverse selection.)
2. Mandating that everyone buy insurance. (To combat adverse selection, and the dreaded death spiral.)

As Bryan Caplan notes here and here, intention and reality may not intersect:

If preliminary summaries of Obamacare are true, it looks like individual health insurance will soon be a better deal than employer-provided health insurance. In the individual market, you can now wait until you're really sick to buy insurance: "Heads I win, tails I break even." Firms won't have that gimme - and it seems more valuable than premiums' tax deductibility. Admittedly, Obamacare imposes a small penalty on individuals who don't buy insurance, and a moderate penalty on firms that don't provide it. But it still seems like it will be in the financial self-interest of many firms and their workers to get rid of insurance, and split the (cash savings minus penalties).

This means the result could be a full plunge into the death spiral. Rather than reducing health-care costs (something the law doesn't even attempt to do), they would skyrocket. For me, Obamacare is a boon. I could cancel my employer-provided policy, which I rarely use, and just opt-in when I need it. As Caplan says: "Heads I win, tails I break even." I would have to pay the penalty (which will be levied by the IRS), but that's still cheaper than my premiums and co-payments. In response, the government has three options:

1. Repeal the legislation. (Unlikely: just look at the twin financial catastrophes known as Social Security and Medicare.)
2. Dramatically increase the penalties for individuals and firms. (More likely, but politically unsavory.)
3. Nationalize the health-care system. (Depending on the political makeup of the government in 10 years, a real possibility.)

Given these possibilities, the third option seems the most likely. The cynic in me thinks this was the Dems' plan all along. They pass a bill that get's the camel's nose into the tent, only to get what they really want in a few years (also known as the Fabian model). Again, given the nature of the political process, it may very well work. Bad news for those of us who still value freedom, but by now, we're already used to bad news.

What's That I Hear?

It's the health-care death rattle:

With no clear path forward on major health care legislation, Democratic leaders in Congress effectively slammed the brakes on President Obama’s top domestic priority on Tuesday, saying they no longer felt pressure to move quickly on a health bill after eight months of setting deadlines and missing them.

The Senate majority leader, Harry Reid, Democrat of Nevada, deflected questions about health care.

“We’re not on health care now,” Mr. Reid said. “We’ve talked a lot about it in the past.”

He added, “There is no rush,” and noted that Congress still had most of this year to work on the health bills passed in 2009 by the Senate and the House.

Democrats Poised to Pass Health Bill, Fall on Their Swords

So it looks like it's going to pass. Megan McArdle predicts political suicide:

So there's now about a 90% chance that the health care bill will pass.

At this point, the thing is more than a little inexplicable. Democrats are on a political suicide mission; I'm not a particularly accurate prognosticator, but I think this makes it very likely that in 2010 they will [lose] several seats in the Senate--enough to make it damn hard to pass any more of their signature legislation--and will lose the house outright. In the case of the House, you can attribute it to the fact that the leadership has safe seats. But three out of four of the Democrats on the podium today are in serious danger of losing their seats.

No bill this large has ever before passed on a straight party-line vote, or even anything close to a straight party-line vote. No bill this unpopular has ever before passed on a straight party-line vote. We're in a new political world. I'm not sure I understand it.

Health Care Shortages

This is why Greg Mankiw writes great economics textbooks: he's clear and concise. Here is his explanation of the economics of health-care socialization:

Let's review some basic principles of supply and demand: If a government policy increases the demand for a service, the price of that service tends to rise. If the government prevents prices from rising, shortages develop. The quantity provided is then determined by supply and not demand. In the presence of such excess demand, the result could be a two-tier market structure. Consumers who can somehow pay more than the government-mandated price will be able to purchase the service, while those paying the controlled price may be unable to find a willing supplier.

Or, if they currently live abroad, they travel to the U.S. to get procedures done.

Whole Foods, Revisited

What happened to the Whole Foods boycott? Reason was at a DC location to shoot some illuminating footage of clueless protesters. Watch the entire video to catch a priceless exchange.

Health-Care Cost Reduction, R.I.P.

While Congressional leaders say they want to curb the explosive growth of health costs, it is unclear whether the final bill will make a serious effort to do so. Every proposal meets resistance from health care providers who fear a loss of income, even as they stand to gain millions of paying customers if nearly everyone has insurance.

From the NYT.

Goldhill on Health Care

This month's Atlantic features an excellent article by David Goldhill (a democrat!?) on health care. It's long, but well worth the read. The bulk of the article is his diagnosis of the system, which is well-reasoned and convincing. His solutions are half-baked (but still far superior to what has been tossed around in Congress.)

Here's a key paragraph:

Indeed, I suspect that our collective search for villains—for someone to blame—has distracted us and our political leaders from addressing the fundamental causes of our nation’s health-care crisis. All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing. And that—most important—remove consumers from our irreplaceable role as the ultimate ensurer of value.

ObamaCare: Dead in the Water?

The Right was never going to agree with Obama's health care plans. Given Obama's recent hedging on the "public option," even the Left is beginning to turn on Obama.

Matt Taibbi:

[T]he public option was not a cure-all. In fact, the Democrats had in reality already managed to kill the public option by watering it down to the point of near-meaninglessness. But the notion that our president not only does not have any use anymore for a public option, but in fact “will be satisfied” if there is merely “choice and competition” in the market is, well, disgusting.

I’ll say this for George Bush: you’d never have caught him frantically negotiating against himself to take the meat out of a signature legislative initiative just because his approval ratings had a bad summer. Can you imagine Bush and Karl Rove allowing themselves to be paraded through Washington on a leash by some dimwit Republican Senator of a state with six people in it the way the Obama White House this summer is allowing Max Baucus (favorite son of the mighty state of Montana) to frog-march them to a one-term presidency?

This does not bode well. Worse, public opinion is generally negative, as well. A recent NBC/WSJ poll:

Obama’s overall approval rating in the poll is 51 percent, a two-point drop from last month and a 10-point decline since April.

Yet perhaps more troubling for the White House as it works to pass health care reform this year is that only 41 percent approve of his handling of health care. By comparison, 47 percent disapprove.

Moreover, just 36 percent believe that Obama’s efforts to reform the health system are a good idea, and only 24 percent think they will result in better quality of health care.

More on the Whole Foods Boycott

Megan McArdle:

Here's why boycotts don't work: the vast majority of customers don't care. And yes, that includes the vast majority of Whole Foods customers, a surprising number of whom drive SUVs and even--I swear!--occasionally vote Republican. Now consider the demographic that cares enough about health care to actually boycott a company over it. Most of them are a) wonks or b) political activists. The latter group is disproportionately young and does not spend a great deal of money on groceries. The former group is tiny.

You may get a large number of people who say they'll boycott Whole Foods. But then when they're out of extra-virgin olive oil and the Safeway doesn't have organic, and the nearest Trader Joes is a twenty-five minute drive away through traffic--they'll shop at Whole Foods. Three weeks later, they'll have managed to forget that they ever intended to stop shopping at Whole Foods. The stores are successful because they dominate their market niche, putting together a collection of things in one store that you would ordinarily have to go to several stores for. Shopping in multiple places is a big pain in the butt.

Jonathan Zasloff:

Here's something for those of us stuck in Deep Blue states to do: not only boycott Whole Foods, but start picketing the stores to reduce purchasing.

Like Mark, I've stopped shopping at Whole Foods given its CEO's "astonishingly disingenuous" WSJ op-ed last week, and his seeming desire to be part of the anti-health insurance reform movement. But this is still inside-the-blogosphere stuff. At a Quaker meeting I attend every Sunday -- a meeting filled with well-informed progressive folks -- most people had not heard about the boycott when I talked about it during announcements. Pickets would get the news out faster.

Unintentionally Funny Paragraph

On a recently-passed smoking ban in Iraq, from this week's Economist:

As soon as parliament ratifies the cabinet-imposed ban, Iraqi smokers will be forced to loiter on street corners exposed to car bombs and 45-degree [113-degree Fahrenheit] heat in the summer. But according to a recent study, smoking kills an average of 55 Iraqis a day, compared to a current average of ten deaths daily from terrorist shootings or bombings. So the government argues that it is perfectly reasonable to outlaw smoking on public-health grounds.

It's official: smoking is worse than terrorism (and heatstroke).

"It's a Business, People"

My friend Ray comments on my previous post:

Recently, I've been getting my gluten-free bread at Penn Dutch [a local market that specializes in meats]. I do so, not because of any political ideology involved in the management, but convenience and distance. Why would someone mistake a supermarket chain for co-op or local farmer's market to begin with anyway? Business is business, people.

He raises an important point: "progressive-minded customers" already have options that align with their ideology. Co-ops and farmer's markets tend to have explicit populist and, yes, progressive core values. These institutions are geared at persons who share their common (leftist) values. (Though anyone is free to patronize, for whatever or no reason.) Some fashion chains also have explicitly liberal core values (Benetton, Kenneth Cole, American Apparel, and even the Gap). If it's important that you buy a politically correct t-shirt, you have your options.

Whole Foods doesn't hide its core values; they're right there on its website:

• Selling the highest quality natural and organic products available
• Satisfying and delighting our customers
• Supporting team member happiness and excellence
• Creating wealth through profits & growth
• Caring about our communities & our environment
• Creating ongoing win-win partnerships with our suppliers
• Promoting the health of our stakeholders through healthy eating education

Note: none of the above is contradicted by Mackey's WSJ op-ed. Point four even iterates that Whole Foods is committed to "creating wealth through profits & growth." To paraphrase Ray: it's a business, people.

Good Sentence

About the Left's response to the Town Hall protesters:

What's depressing is to see the people who piously defended the right to dissent suddenly writing off public protest as a subversive conspiracy.

That's Jesse Walker.

Unnecessary Procedures

[Reason]

"Free" Heath Care = Long Lines

There has to be some way to allocate scarce resources (medical services) when the consumer of those resources does not have to pay for them. From the NYT:

They came for new teeth mostly, but also for blood pressure checks, mammograms, immunizations and acupuncture for pain. Neighboring South Los Angeles is a place where health care is scarce, and so when it was offered nearby, word got around.

For the second day in a row, thousands of people lined up on Wednesday — starting after midnight and snaking into the early hours — for free dental, medical and vision services, courtesy of a nonprofit group that more typically provides mobile health care for the rural poor.

Free health care? Not really.

When Remote Area Medical, the Tennessee-based organization running the event, decided to try its hand at large urban medical services, its principals thought Los Angeles would be a good place to start. But they were far from prepared for the outpouring of need. Set up for eight days of care, the group was already overwhelmed on the first day after allowing 1,500 people through the door, nearly 500 of whom had still not been served by day’s end and had to return in the wee hours Wednesday morning.

We have to always keep in mind, time is a cost. Waiting in line all day for a teeth cleaning is the actual cost of "free."

More here.

Is Health Care Different?

In a way, proponents of socialized medicine are right: the market for health care is different from, say, the market for bread. But the source of this difference is not intrinsic to health care; it is the result of our legal and regulatory system. In other words, it's not a market failure, but a government failure.

Whole Foods CEO John Mackey advocates eight reforms to fix these legal and regulatory distortions, in a surprisingly astute WSJ op-ed:

1. Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs).
2. Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits.
3. Repeal all state laws which prevent insurance companies from competing across state lines.
4. Repeal government mandates regarding what insurance companies must cover.
5.  Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year.
6. Make costs transparent so that consumers understand what health-care treatments cost.
7. Enact Medicare reform.
8. Finally, revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren't covered by Medicare, Medicaid or the State Children's Health Insurance Program.

Let's look at how these reforms would improve the health-care system, point by point.

1. High deductibles encourage thrift. When you pay out of pocket for a portion of health care services, you're more likely to eschew costly solutions (like visiting the ER for minor maladies). This forces individuals to weigh the costs and benefits of their health-care consumption.
2. The current tax structure favors employer-provided health insurance over individually-owned insurance. Employer-provided insurance shelters employees from the full cost of health-care consumption, discouraging thrift and encouraging over-consumption.
3. Competition lowers cost and increases choice.
   
4. This encourages purchasers of insurance to buy a plan that applies to them. A 20-year-old male does not need his insurance plan to cover yearly mammograms.
5. I agree with Don Boudreaux on this one; I don't want legislators setting limits on courtroom payouts. But, if a patient brings a suit and loses, he should pay the cost.
6. This point feeds into point one. People need to know the price of procedures to encourage thrift and wise decision making.
7. Medicare is a time bomb. It will have to be dealt with sooner or later.
8. This point addresses the main moral argument liberals make for socialized medicine: giving the poor access to health insurance. This charity should be voluntary.
   

This last point is Makey's key argument:

Many promoters of health-care reform believe that people have an intrinsic ethical right to health care—to equal access to doctors, medicines and hospitals. While all of us empathize with those who are sick, how can we say that all people have more of an intrinsic right to health care than they have to food or shelter?

Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That's because there isn't any. This "right" has never existed in America

Even in countries like Canada and the U.K., there is no intrinsic right to health care. Rather, citizens in these countries are told by government bureaucrats what health-care treatments they are eligible to receive and when they can receive them. All countries with socialized medicine ration health care by forcing their citizens to wait in lines to receive scarce treatments.

Although Canada has a population smaller than California, 830,000 Canadians are currently waiting to be admitted to a hospital or to get treatment, according to a report last month in Investor's Business Daily. In England, the waiting list is 1.8 million.

Makey isn't the only one advocating these reforms, but alternative arguments have been drowned out in the current debate. The Left portrays opponents of socialized medicine as right-wing nuts, or puppets of the insurance industry. The Republicans, true to form, are merely intent on watering down the Democrats' bill. What we need is reform that addresses the root causes of the health-care breakdown, while protecting our basic individual rights.

We need to make health care look more like bread.

More Health-Care Reform Ambivalence

Johnathan Cohn of the New Republic describes an "enthusiasm gap" with the Left and health-care reform:

The news about health care is a little confusing these days. While polls show that Americans still support the key elements of health care reform that President Obama and his allies are trying to enact, there have been numerous reports of conservative activists showing up at congressional town halls across the country, protesting those same plans with an energy not matched by the other side.

The imbalance may simply reflect the media's preoccupation with conflict and confrontation. Liberal rallies in favor of reform have garnered no similar attention, although they've attracted hundreds, and in some cases thousands, of people. But I suspect the enthusiasm gap is at least partly real--that the hate for the plans moving through Congress runs much stronger than the love, that the people fighting to stop these bills feel more intensely, and have more determination, than those fighting to pass them.

Currently, all the passion is on the Right. Can the Left provide a countervailing force?

If the possibility of lesser reform doesn't motivate liberals, then maybe something else will: the possibility of no reform. Twice in the last few decades, once during the Nixon era and then again during the Clinton years, liberals largely shunned compromise efforts at universal coverage because they didn't live up to progressive ideals. But holding out didn't lead to better legislation. It led to twenty years of trying to rebuild the momentum for reform, followed by a debate over proposals that are, if anything, less sweeping than their predecessors.

Will the possibility of no reform ignite the Left? Or, is the greatest check on the Left the Left itself?