Wednesday, March 09, 2011

Obamacare Could Have Been A Contender

Warren Meyer in Forbes magazine on the free-market road Obamacare didn't follow:
Its amazing to me how many ways supporters of government health care can find to rationalize the bad incentives of third-party payers systems. Take, for example, the prevalence today of numerous, costly tests that appear to be unnecessary. Obamacare supporters would say that this is the profit motive of doctors trying to get extra income, and therefore a free market failure. I would point the finger at other causes (e.g. defensive medicine), but the motivation does not matter. Let’s suppose the volume of tests is truly due to doctors looking for extra revenue, like an expensive restaurant that always is pushing their desserts. In a free economy, most of us just say no to the expensive dessert. But the medical field is like a big prix fixe menu -- the dessert is already paid for, so sure, we will got ahead and take it whether we are hungry or not.

It should be no surprise that while US consumer prices have risen 53% since 1992, health care prices have risen at nearly double that rate, by 98%. Recognize that this is not inevitable. This inflation is not something unique to medical care -- it is something unique to how we pay for medical care.

Contrast this inflation rate for health care with price increases in cosmetic surgery, which unlike other care is typically paid out of pocket and is not covered by third party payer systems. Over the same period, prices for cosmetic surgery rose just 21%, half the general rate of inflation and just over one fifth the overall health care rate of inflation.

This is why I call free market health care the road not traveled. There are many ways we could have helped the poor secure basic health coverage (e.g. through vouchers) without destroying the entire industry with third-party payer systems.
Agreed--give consumers control of costs and healthcare spending will moderate.


MaxedOutMama said...

That's a point very well taken.

For a fraction of the cost of Obamacare, we could provide HSAs to the lower-income folks which would genuinely increase their access to care, would provide an incentive to them to not spend wastefully (the money builds up over time), and would buy more medical care for the money than equal funds paid directly to insurance companies.

We went down this stupid road when HMOs took over. They were popular in the free-market system, but major medical is the way to go. It is far more efficient.

Mark said...


Being a provider, the HMO world was awful. Folks would show up for the slightest injury, sniffle, pimple because it was 'free'. The patients who really required care were stuck waiting for available appointment slots or going to the Emergency Room - a much more costly choice.

Co-pays help alleviate some of this. The real answer is to let the market work. Let individuals decide how they want to spend their health care dollars, and allow interstate purchase of policies. Your HSA plan is exactly right.

Health insurance should be for catastrophic injuries, not everyday sneezes. Premiums would be much lower, along with other benefits too numerous to mention.

suek said...

ObamaCare was intended to fail from the first. I believe it was intended to first, destroy the insurance companies, then make it impossible for anything but a single payer government run program. Doctors would be paid what the government decided to pay them.

The real fly in the ointment, I think, is the problem with lawyers. I believe a _large_ part of medical costs today are due to frivolous law suits. Lawyers make a killing on them, but there were no restrictions. The lawyers make up a large part of Congress, and are powerful lobbyists - however...what happens when the end result comes into effect? Do you think that the lawyers will be able to sue the government for medical damages due to incompetency? I doubt it. My guess is that the lawyer problem will be taken by simply making it illegal to sue the government - the provider of the health care. Medical care will then be cheaper.

Personally, I think we should double our medical school enrollment, and if a doctor is truly guilty of medical malpractice, take his/her license to practice away.

Carl said...

I agree with M_O_M and Mark--the real problem is that consumers pay under 12 percent of healthcare costs--and so have little incentive to save.

Although medical malpractice liability is a problem, I don't agree with Sue that it's the problem. And that's not because I'm a lawyer--it's because the direct and indirect costs of tort liability probably amount to about 10 percent of total healthcare costs. Ten percent isn't trivial, and I do favor tort reform. Still, tort reform alone wouldn't fix the flaws in American healthcare--that requires severing the link between employment and insurance and allowing interstate insurance competition.

suek said...

I suspect the contribution of legal costs is higher than that, but have no proof. Insurance itself is a contributor.

I remember my FIL's office. Himself, a nurse, and a receptionist, who also kept the records. Must have been a bookkeeper somewhere - but I don't know about MIL might even have done it.

How many people in a doctor's office today? how many does it take to keep track of the billing to various insurance companies? I took my young friend - not quite a daughter - to a dermatologist, and offering to pay cash, they gave me a 30% discount. That's pretty significant, in my book.

I certainly agree that people _should_ be paying _something_ for their health care. The whole thing is pretty messy. In other words - I don't disagree with you or the others...but lawyers need to take their share as well.

Texas has limited awards - there should be some effect on medical costs, if that's part of the problem.

Carl said...

Sue: I also favor tort reform--including the Texas damage caps. Those caps have kept doctors from fleeing the state. I haven't seen a state-wide study of the results but, notoriously, McAllen, Texas, has the fourth most expensive healthcare in the nation.

suek said...

Some of what you come down to is that if you don't have a system that pays for health care, that is, if you put it into the hands of the individual, then you _will_ have some people who choose not to act responsibly. When those irresponsible people suffer health problems, our society has shown itself unwilling to allow them to suffer the results of those decisions... so we all end up paying for them anyway.

I have the same problem with drugs and alcohol abuse. Ideally, I think anybody should be able to abuse themselves as they wish. And suffer the consequences. Our society has reached the point where it will not allow them to suffer the consequences - "we" have to save/treat them all, even if their condition is their own fault. Given that societal attitude, I think the goal is to minimize the cost to us all, so we make drugs and certain alcohol abuse illegal, and punish it when we find it.

Demanding responsibility for self can require a certain heartlessness. Our society at present doesn't have the inclination to actually follow a policy of survival of the fittest. Even as more people tend to believe in evolution. Which is a different issue - but imo, somewhat related.

You know..."define 'fittest'"...!

Carl said...

Sue: You raise a good point. I think America sufficiently wealthy to erect a safety net. However, it's a tough balance with the need to provide market-oriented, efficiency-enhancing incentives.

suek said...

Here's an add-on: