No Con Economics

We know that the Patient Protection and Affordable Care Act (aka Obamacare) cannot stand without change.  What we don’t know is what will replace or repair it.  Given the array of statements regarding values and principles, there is the potential for public policy that could largely deliver on a set of shared values (based on what has been posited by analysts at the Urban Institute’s (relatively liberal leaning) and the American Enterprise Institute’s (relatively conservative leaning) proposals.

Shared Values

 

What are these shared values?   Based on Speaker Ryan’s famous PowerPoint presentation (March 9, 2017), President Trump’s remarks on a number of occasions, and those of the aforementioned or organizations, I suggest the following:

• Insurance policies cannot exclude enrollees due to any pre-existing conditions.
• Parents will be able to include their children in family policies until they reach age 26.
• Medical care expenditure growth must be brought closer to the growth rate in the economy ( the $ value of the gross domestic product.)
• A competitive non-group health insurance market should be made viable.
• People should be able to choose a health plan that matches their preferences and budget given “appropriate” public funding support.
• People should have reasonable access to both affordable insurance and medical care.

Clearly, these desired objectives for public policy require more specifics to be informative.  Furthermore, many participants in the policy debate don’t accept all of these values but many do; so agreement in principle seems possible.

Agreement in Principle

 

Of course, agreement in principle won’t take us very far when interests and ideologies play a significant role in political decision-making.  In 2010, Democrats passed the ACA without Republican votes, and Republicans hope(d?) to reverse the favor in 2017.  Such competing interests ensure that the aforementioned set of principles will not be delivered upon.  One can characterize this split into two polarized, non-overlapping camps: one seeks delivery of a defined benefit based on public provision or organization (often the position associated with Democrats ) while the other seeks a defined contribution that limits the  role of government and invokes market forces as the primary vehicle for policy (a typical Republican position.)

Those who believe in a collectively set defined benefit that is largely government organized and funded base their views on beliefs such as the following:

• Medical care is a right.
• Health care system providers act to increase their incomes.
• Health care consumers can’t be informed enough to make good decisions so regulation should be set to ensure access to quality care.
• The more power the health care industry has the more costly medical care becomes; thus, governments must intervene.

Some pose a single payer (Medicare for all) as the ideal approach (as in Canada) or even a national health service such as exists in the United Kingdom or Sweden.

Critics of this top-down governmental approach argue that:

• The regulatory burden will increase cost and decrease individual choice and responsibility.
• In some cases, budgetary limits will starve the system of resources needed to deliver the desired level of care; furthermore, it will discourage innovation.
• Provision of medical care will be inefficient and not responsive to the needs and desires of the population.

In contrast, those who believe in a market driven system desire a structure that emphasizes individual responsibility with governmental involvement limited to a fixed amount of financial assistance (defined contribution) to discourage consumption. They hold views such as:

• Entitlements, even for desired services such as medical care, should be strictly limited (though perhaps increase with the age of the recipient.)
• Health care consumers use medical resources wastefully; to encourage more efficient use, consumers need to have some financial “skin in the game.”
• Individual choice is central as preferences differ markedly across patients & providers.
• Governments overregulate.
• Competition can yield efficient care.

Their ideal delivery system features market competition for both insurance and medical services with transparent prices and significant out-of-pocket costs.  Proponents view Lasik and plastic surgery markets as exemplary.

Critics of the market competition approach argue that:

• Market power and profit seeking by insurers and providers will result in costly care.
• The poor and those in ill-health will have very limited access to good quality care.
• The rich will benefit disproportionately.

In a November 2016 publication, the Congressional Budget Office (CBO) indicated that the exemption of employer sponsored health insurance from federal income taxes reduces revenue collection by over $260 billion per year.  They estimate that over the next 10 years, such foregone revenue will accumulate to over $3.6 trillion, well in excess of their calculations of the budgetary effects of the ACA.  Furthermore, based on the work of Kaestner and Lubotsky (Journal of Economic Perspectives, Spring 2016), I calculate that 56% of these benefits accrue to those in the highest 30 percentiles on the family income scale and that those in the lowest 30 percentiles receive only 6% of such benefits.   Most economists view this tax preference as both inefficient and inequitable.  This rich resource could be used to improve both the equity and the efficiency of the current health care system; however, those (interest) groups who would lose under such policy reform have lobbied long and hard to keep this treasure trove out of the policy debate zone.

Serious health policy reform needs to address five key questions:

• Who should pay for the predictably expensive (such as those with chronic disease)?
• Which benefits should be required as part of all health insurance plans and which optional (left to the states to add and fund)?
• What role should Medicaid have?
• What is the best way to reduce the cost and growth of medical care?
• Under what conditions is market competition efficient? Feasible? Desirable?

As noted previously, I agree with Gail Wilensky’s conclusion as posited in a recent Milbank Quarterly Op-Ed piece.  “The forces for ‘repeal and figure out next steps later’ may be too great for serious, bipartisan legislation – even if it complicates the ultimate goal of ‘repeal and replace.”  Put differently, sustainable, cost-effective, and equitable reforms won’t take place if partisan interests (whether Democratic or Republican) dictate reforms.

In addition, I believe that serious responses to the above questions should consider the savings, improved efficiency, and reduced inequities that can come from capping (reducing or eliminating) the aforementioned, huge commitment to income tax exclusion for employer sponsored insurance. Furthermore, the role of competition in clinical care delivery markets has been woefully neglected by all partisans. As noted in recent pieces by Martin Gaynor in both Health Affairs (blog March 2016) and JAMA (March 2, 2017), decreased competition in hospital and physician markets has affected, and will continue to, greatly  the prices of medical services provided (see figure below) and thus insurance premiums and growth rates.  For example, he and his JAMA co-authors note that “since 2010, there have been 561 hospital mergers, and nearly half of hospital markets are highly concentrated.”

Based on what I’ve argued above, I’m not optimistic about improvements in health care public policy at either national or state levels. I’m not total pessimistic, however;  there exists potential at local levels to craft multi-stakeholder initiatives that better allocate resources we presently devote to clinical care to those determinants of health that have the greatest effect on both spending and health. For those interested, check out the initiatives described at ReThink Health (www.rethinkhealth.org.)