Wednesday, October 31, 2012

ObamaCare and Healthcare Costs: Revisited

A classical economics truism is that in an efficient market there is no way to make one person better off without making another person worse off. This is often used as an excuse not to make any changes. This could also be why the study of economics often seems to attract people who are invested in maintaining the status quo. This argument's weaker form is something that many people would agree with even though it tends to be associated with right-wing libertarians. This idea, famously made popular by libertarian speculative fiction author Robert Heinlein is TANSTAAFL (There Ain't No Such Thing As A Free Lunch). This means that every decision we make has costs and consequences. We need to account for these when we make policy choices. Again, someone who likes the status quo will piously invoke this saying and then refuse further investigation to see what the actual costs are. That's wrong.

But it's also wrong for someone who wants to change the status quo to ignore the unpleasant fact that there usually are costs. We have to at least review the costs to see if they're worth the change. This ultimately slides into a bit of utilitarian type of thinking, which is ok if you're trying to decide what a taxicab badge should cost or how much your property tax should be, but may not be the correct frame to use in questions of justice. For example no one, well few people anyway, will question the cost of liberating slaves or giving women the right to vote or stopping the arrest of homosexuals for being homosexual. If those things are right, then costs simply don't matter and you're probably a pretty cold heartless SOB for even bringing that question up.

So then if you want to change something but don't want people to think about costs you definitely need to frame the change as a question of justice. If you don't want change and wish to avoid arguments about justice you need to focus on costs and unintended and unforeseen consequences. We saw some of this play out in the arguments over ObamaCare. However as it turned out both sides (pro and con) strongly believed they had an excellent argument about justice (the individual mandate vs. the numbers of uninsured or the importance of universal birth control coverage) and as a result the popular discussions over the PPACA didn't really focus on costs. Rather cannily the Obama Administration and Congress set up the legislation so that most of the more unpleasant changes would arrive AFTER the 2012 election. Well that election will shortly be completed and absent an extremely unlikely sequence of events the PPACA is here to stay. As a result companies and organizations have begun to adapt to the law's less pleasant incentives. It's important to realize that these things aren't bugs. They're features.
Over the next 18 months, between one quarter and one half of Americans who get insurance coverage through their employers will pay more of their doctor bills themselves as companies roll out health care plans with higher deductibles, benefits consultants say. The result: sticker shock.
"They have huge out-of-pocket costs before they get any insurance coverage, it's a real slap in the face," said Ron Pollack, the executive director of Families USA, a health care advocacy group. High-deductible plans set a threshold for medical expenses that an individual must pay for, often in the thousands of dollars, before insurance kicks in. Studies show people on these plans are three times more likely to delay or skip care than people on traditional plans, where doctor or emergency room visits are covered by a relatively low co-payment.
These plans have been around for years, pushed by employers, insurers and industry experts who believe that consumers with "skin in the game" will drive demand for better quality care at a lower cost. It is a rationale also backed by President Barack Obama's Republican challenger Mitt Romney.
But now corporate America's adoption of high-deductible plans is accelerating, partly because of Obama's health care reform, which requires insurance plans to provide more expansive coverage such as preventive care.Several industry surveys forecast a two-percentage-point increase in the number of companies offering only high-deductible plans in 2013 to about 19 percent, and a larger jump of anywhere from 5 to 25 percentage points in 2014.
This is a really important concept. Because insurance companies are being forced to provide more expansive coverage, can no longer correctly and routinely rate coverage differently by gender and age and must include people on their parents' coverage until age 26, their costs will increase. In order to mitigate some of that cost increase the insurance companies intend to share this cost with the sucker insuree. As the article briefly references there is also a philosophical belief among the people who brought you "health care reform" that a big reason behind health care cost rises is that people just demand and consume too damn much health care. And how better to cut down that demand than to raise the price, hence the increase in high deductible plans. See how well this works out for everyone? Well maybe not you but heck at least more people will have health care coverage and everyone gets free birth control!! YAY!!!!

The problem with this line of thinking is of course that with few exceptions no one just runs down to his or her doctor and starts requesting hysterectomies, colonoscopies or angioplasties just for the heck of it. No one looks at their health care coverage plan, sees that he only has a $250 co-pay for major procedures and promptly books himself into the hospital for a weekend dialysis session. I mean for just $250, how could you pass up that deal?
People go to the doctor or hospital when they're sick, when a loved one urges it, when an insurer or employer demands it, or for a regular check up (yearly, quarterly, monthly, etc). Price isn't really a consideration. The demand for doctors is not very elastic. I will switch car washes if the new car wash costs $1 less and has the same quality. The same is not true of doctors. Trust is a huge element here. When I "shop around" for doctors I am more concerned with trust, experience and expertise than with cost. Lower cost doctors might actually give me a BAD feeling. Money matters but doctor and patient do not share the same level of knowledge. If my doctor tells me I need to undergo this procedure or take this medicine, generally speaking I am not qualified to question his decision or try to jaw him down about costs. At best I can go with a gut feeling or maybe get different opinions but if every doctor I see says "Yes you need to take this medicine and/or have this procedure done or you will die/be crippled/live in horrible pain for the rest of your life" then that's what I'm probably going to do. No one who is having a heart attack demands to be taken to Dr. X instead of Dr. Y because he has a 10% off coupon from Dr. X. Very few of us could afford to pay the true cost of a required procedure. That's why we have insurance. Delaying your car's scheduled oil change until next month's paycheck is one thing. Ignoring that new spot on your body or that cough that won't go away involves an entirely different set of consequences.

As the higher deductible plans roll out employed people will pay more out of pocket for health care coverage. This contradicts the President's breezy assertion that "If you like your health care plan you'll be able to keep your health care plan, period. No one will take it away no matter what." I guess strictly speaking it's still your health care plan but the price will have gone up and the coverage may have shrunken. So it really won't be what you had before the PPACA. This makes employed people unambiguously worse off.

This really stinks because as an employed person I lacked real complaints about my health care coverage. And for those who didn't have health care coverage because they weren't employed or their employer refused to offer the benefit, I would have supported opening up Medicare/Medicaid for them. That would have made more sense than the PPACA but because the Administration was determined to keep the private health care industry happy it made the decision not to go down that path. So if you're employed you get to enjoy higher deductible plans and most likely higher premiums as well. Let the good times roll!!

Time will tell if PPACA was a good idea. I think not. Others may think differently. But at the very least we should all realize that it was not cost-free. There really ain't no such thing as a free lunch.

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