Sarah Kliff and Ezra Klein and Ezra Klein of Vox have an interesting article on “The Lessons of Obamacare“. I list the lessons below from the article and discuss whether I agree or disagree with the statement and why.
Lesson 1: Everything in health care is a painful trade-off. Own it.
Agree. The authors provide a clear example of these tradeoffs.
Any government health coverage expansion involves a series of trade-offs, decisions that will inevitably anger one constituency or another. Provide robust health insurance plans, for example, and you need to spend more money — if you don’t, you must decide to cover fewer people. Provide skimpier coverage, and the price tag of a health insurance expansion goes down, but people get frustrated with their high deductibles and copays.
It should not be surprising, however, that an economist should agree with any statement that there are tradeoffs in life.
Lesson 2: Bipartisanship — can’t live with it, nearly impossible to do reform without it.
Sounds Reasonable. Politics is not my area of expertise. Clearly, having biparitsan support helps to have a bill pass, but creating a bill that actually would receive bi-partisan support, however, is not so easy.
Republicans…are trying to pass the entirety of the American Health Care Act through the filibuster-proof budget reconciliation process — a strategy that means they won’t need a single Democratic vote in the Senate, but that also means they are limited to policy changes that are directly budgetary in nature, so they can’t rewrite insurance regulations and reform the delivery system in ways that may be necessary to make their plan work.
Lesson 3: If you change the health care system, you own it
Agree. The health reform bill passed under Barack Obama was called the Affordable Care Act. Most people, however, know it simply as Obamacare
Lesson 4: Benefits might not get popular, but they are very hard to take away
Strongly agree. This fact is why some of the more conservative Republicans are against the American Health Care Act. Adding a new entitlement may benefit a number of people, but it is very difficult to take away (most people are loss averse in the technical, economic sense). Michael Cannon of the Cato Institute even wrote that he believes that the Republican plan to end the Medicaid expansion in 2020 is unlikely to ever happen because “constituency for preserving the Medicaid expansion would be much larger than it is now.”
Lesson 5: Partnering with the private sector, and private insurers, can be risky — in a way expanding government-run programs isn’t
Disagree. While technically I agree that the risk from the expansion of government run programs and those run by the private sector/private insurers differ, the Kliff and Klein article makes it seem as if the private sector is inherently fickle whereas the public sector is a modicum of stability. The authors compare the Medicaid expansion with those on Obamacare exchanges and mentions that ““many on the marketplaces would prefer to be on Medicaid. It was a pretty striking contrast.”
The reason that many people would prefer to be on Medicaid compared to private insurance is that Medicaid plans are much more highly subsidized. Most Medicaid programs have limited out-of-pocket cost and low if any premiums. Those on the Obamacare plans–although they receive a subsidy–have more cost sharing and higher premiums. However, the true cost of the Medicaid program is subsidized by the government. If the same subsidy levels were applied to the private market, likely more people would choose the Obamacare plans.
Consider the case of Medicare where 31% of people choose private health insurance (i.e., Medicare Advantage) despite the fact that standard Medicare fee-for-service benefits allow for 100% choice of any doctor.
It is true that creating markets from scratch is challenging. As the authors write, if insurers “…decide not to participate in an insurance expansion, there isn’t much the government can do except beg and plead.” Most insurers, however, will generally want to participate in profitable markets. The government can provide stability and coverage in the short run but in the long run coverage can decline as budgets decrease due to business cycles, due to overspending, and other risks. Medicare provides fairly good health insurance coverage to all elderly Americans only by running a large projected deficit.
Clearly, the private sector is not the solution for everything. The government should play a role in redistributing income to allow poor and sick individuals to afford insurance. However, I am very skeptical that having government-run health insurance would lead to significantly better outcomes than would be the case for private insurers.
Lesson 6: Affordability doesn’t mean what Washington thinks it means
Agree. Policymakers and politicians focus on reducing overall health care cost. This means the cost that patients and insurers pay. Patients themselves, however, only really care about out-of-pocket costs and premiums. They want affordable insurance, that provides good access to doctors with low copayments. The plans in the Obamacare exchanges are relatively low cost compared to the individual market, but high cost compared to employer provided plans, and have very high cost sharing.
The narrow networks and high deductibles are among Obamacare’s most-loathed features — a Kaiser Family Foundation poll found that 70 percent of Obamacare enrollees with high-deductible plans judged their insurance only a “fair” or “poor” value, while that number fell to 37 percent among enrollees with low-deductible plans.
More to the point:
When economists in Washington say they want to control health care costs, they mean something like this: People should buy less health care, or cheaper health care, so that total spending on health care falls.
When voters say they want to control health care costs, they mean something like this: Someone else should pay for my health care so I can purchase what I need without much financial strain.
Lesson 7: Prices are the fundamental challenge in American health care — and reform will remain an exasperating exercise until that changes
Disagree. I do agree that getting the right prices is vital to having a functioning health care market. Kliff and Klein’s proposal to “regulate American medical prices,” however, is not what I would call getting prices right.
Consider the case of regulated payments to physicians from Medicare. CMS enacted to Sustainable Growth Rate (SGR) to reduce Medicare payments to physicians over time. However, every year Congress would reverse the SGR in late December to move physician compensation back to standard levels for the upcoming year. By 2015, the SGR–if not repealed–would have cut physician payments by 25%. This is not a rational way of setting prices.
Medical cost in the U.S. are admittedly high relative to the rest of the world. Lowering prices coudl reduce premiums and reduce out-of-pocket costs in the short-run. However, these high prices do incentivize innovators to create new treatments and incentivize the brightest minds to choose a career in medicine. Further, there is some evidence to indicate that the U.S. is not so much a health care expenditure outlier as one might expect. Centralized control of prices almost always leads to either shortages and rationing when prices are too low and profiteering and rent collection when prices are two high.