Americans are really beginning to sour on Obamacare, misleadingly titled the Affordable Care Act. Every year premiums go up, out of pocket costs go up, and care is only marginally better and in some cases worse, due to the influx of the sickest people into the healthcare system seeking generous, subsidized insurance.
Obamacare hasn’t delivered, even on its own terms. The most productive and enterprising Americans—small business owners and independent contractors—must foot monthly premiums of $1,000 or more in order to have the privilege of shelling out even more thousands in the event they get seriously ill.
In light of this debacle, some have resorted to magical thinking. Our favorite magician, young congresswoman-elect Alexandria Ocasio-Cortez (D-N.Y.), tweeted the following in favor of “Medicare for All”:
People don’t want overly complicated choice between pricey, low-quality plans.
We want an affordable solution that covers our needs, like the rest of the modern world.
Medicare for All:
– Single-payer system
– Covers physical, mental, & dental care
– 0 due *at point of service*— Alexandria Ocasio-Cortez (@Ocasio2018) December 2, 2018
While conservatives have generally rejected solutions like this, the impulse that drives the desire is understandable. Medical inflation is enormous and grossly disproportionate to improved outcomes. Medicare is a generous and expensive program, but one that mostly serves its clients well. The elderly, who often need substantial medical care, are generally able to partake with minimal personal expense.
Medicare costs incurred by patients are certainly a fraction of what self-employed, the young, and others pay for healthcare. And medicare remains more or less solvent because lots of healthy and younger people are paying into the pool. In other words, there are multiple payers for each recipient. The same is true of Tricare, the medical insurance plan for military service members and their dependents.
These programs, however, only “work” in the sense that recipients, as well as providers, benefit greatly. At the same time, program expense has more or less doubled in the last 10 years, with these programs taking up to 25 percent of the federal budget. Programs like these could not work if they were provided to everyone, any more than an airline could survive by making the entire cabin first class while keeping prices the same. Medicare, Medicaid, and Tricare only survive because of massive infusions of outside money by nonrecipients, through deficit spending, and others forms of taxes and fees imposed on the rest of us.
Public-Private Waste
These government programs are inefficient and expensive relative to their outputs. The reason is simple: incentives. Each of these programs involves the marriage of mostly private sector profit-motivated doctors, hospitals, pharmaceutical and medical device manufacturers being paid through a seemingly blank check from the government. While conservatives, at least before Trump, were strong proponents of the private sector and free market capitalism, they never seemed to realize fully that “public private” partnerships, such as these, have the worst of both worlds. They combine the profit motives of business with the meager oversight skills of far-less-skilled and far-less-incentivized GS-12s. The payers (or rather payment managers) make a fraction of the income of those whom they oversee and have no “skin in the game” to police waste, excess, or merely the inefficient choices made by those whom they pay. Whenever these conditions prevail, we have seen similar cost spirals, such as in education and the privatization of core department of defense functions.
Obama’s critics from the Left implicitly recognized this problem, as they said Obamcare’s weakness was the lack of a “public option,” i.e., a government-provided insurance option that would create an alternative to private insurance and, in the process, a ceiling for healthcare premiums charged by private insurers and providers.
In the absence of this feature, the program really amounted to two things: an expansion of Medicaid (i.e., Medicare for the poor) and an increase of insurance rates for the healthy and the middle class in order to subsidize insurance for the poor and the unhealthy. The choice of winners and losers was deliberate, with Democrat-voting demographics (immigrants, students, welfare cases, and government workers) benefiting, while everyone else paid the bill.
As a consequence, the least productive cohorts of society would end up with top flight healthcare that cost very little to them out of pocket thanks to the Obamacare subsidies. Insurers also benefited, as they now had a larger, captive audience, obliged by law to purchase insurance. The “carrot” was mostly smoke and mirrors, including various services and benefits that payers often would not choose if they had a choice, since these costs are voidable through their own efforts, i.e., drug addiction and mental-health counseling, maternity coverage (even for single and older men) and the like.
In the end, Obamacare amounted to an expensive wealth-transfer scheme.
Why Does Everyone Get Gold-Plated Healthcare?
Republicans, in spite of years of complaining about Obamacare, lost their nerve when they had the power to do something about it.
As in any entitlement program, getting rid of it involves hard choices and would require picking some winners and losers. Thankfully, most of those most hurt by Obamacare are precisely the people already voting Republican, the struggling middle class and the employed, and any realistic devolution of the program must minimize pain to payers, preserve the good things about the existing healthcare system, and, as much as possible, restore markets for all but the dirt poor.
The start of such a plan must be a significant change: distinguishing between truly paying customers and the charity cases. Whether on Medicare, Tricare, Medicaid, private insurance, or just showing up an E.R., today everyone gets, more or less, the same “standard of care.” There is no differentiation of quality for the most part, and for reasons of liability, medical practice culture, and financial incentives, second-best—but adequate—choices are rarely deemed to be part of the solution to the medical cost spiral.
The restoration of market forces to healthcare would likely be a good thing, but it would require more comfort with a range of healthcare options, including average, good, better, and best. People show a willingness to make those choices for themselves, when given a choice. If this is not adopted now under conditions of relative plenty, it may be imposed suddenly and in draconian fashion under conditions of necessity.
While health care is different from other services (insofar as it has a pretty inelastic demand), in those areas of healthcare governed by free market principles—such as fee-for-service Lasik and cosmetic procedures—prices have gone down and quality has gone up, just as we see with electronics and other non-medical devices. Of course, even here, there are ranges of choice (with corresponding prices).
Market forces should be reintroduced for the 75 percent or so people who are paying for their own care. This would require an important change: increasing price transparency for healthcare costs through something analogous to the Truth in Lending Act. Currently prices are opaque and vary by insurer. The prices should be listed online (along with the copay depending on the insurance plan) so people can check out-of-pocket expense and shop around. The present-day regime of hidden, negotiated, and opaque pricing hinders competition massively; it’s very hard to figure out what you’re going to pay, even if you take the time to ask.
With half of every health care dollar spent by government, a tax code that encourages the provision of benefits over income, and many decades of a bias towards the most expensive types of care, we have at the moment a recipe not for bad healthcare, but rather for misallocated and very expensive healthcare—more than people would choose to pay if they were actually paying for more of it out of their own pocket.
For the government side of the house, some forced austerity is called for.
Obama originally sold his plan by saying efficiencies in record-keeping, negotiated prices, and reductions in “waste and inefficiency” would reduce overall healthcare expenditures. This turned out to be the equivalent of proposing “flying cars,” and now we have very expensive premiums, a convoluted and even more regulated system, and life expectancies going down due to the explosion of drug abuse, suicide, and other conditions arising from the general malaise of American life.
Doctors, hospitals, health plans, and government clinics should be permitted to provide minimal care with strict price limits in order to cut price and costs. We can much more cheaply deliver yesterday’s state-of-the-art, which was hardly a time of “no healthcare.” While this would be a change, if people saw real benefits in their pocketbooks, it would be palatable. A simple solution on letting this fiscal medicine go down more softly would be to provide cash rebates to providers and patients, who deliver the minimal level of services below the “par” cost.
Different Costs, Different Benefits
A range of healthcare quality and prices is not “inhumane,” but rather the norm in every other thing in life, including necessities like food, housing, clothing, education, automobiles, and neighborhoods. If we are to have “free” healthcare—i.e., healthcare for those who cannot afford their own, nor fully afford their own insurance—there is no obvious reason the charity cases need to have the best any more than they do in government-subsidized housing or food.
Part of the reason I am sanguine that a change like this is not only necessary, but also not a big problem, is that there is much evidence to suggest the outcomes would not be very different.
Expensive new drugs are often only marginally better than their predecessors, with much greater expense for payers, whether patients or otherwise. In addition, a lot of healthcare dollars are spent at the end of life, engaging in heroic efforts to add a few more pitiful and painful months of life to those who are already very sick. In any case, if people are willing to pay for it, they should be able to get it, but the choices people would make with their own dollars for their own lives are likely to be very different from those of third-party-payer model of Medicare and Medicaid. There’s no need for “death panels” when people are mostly paying for themselves. They can blow their own money, leave it to their kids as an inheritance, and make choices as best they can. For the nonpaying customers, what they get should not bankrupt the nation, as it is doing at present.
For those of working age who are totally broke or improvident, we should channel funds and provision of care to government-run and charitable clinics, but make these sources suitably unpleasant with long waits, generic drugs, and mandatory community service in case of nonpayment. This should be done not to destroy care and quality for paying customers, but in order to encourage people to get themselves work and buy their own insurance. We should end mandatory emergency room care for all but public hospitals and instead require the swift transport of uninsured patients to this regime.
As a civilized society, we should not let people die of easily treated illnesses, but we should make public care costly in other ways so that recipients know they’re on welfare and will want to get off of it quickly and so the taxpayers footing the bill are hurt as little as possible. Such a system of “C-quality care” should completely replace the current regime of doctors submitting their bills for top-of-the-line care to Medicaid.
Republicans need to think about what they’re willing to pursue, whom they will reward and what political cost they can bear, in order to stop the parasitical Medicare and Medicaid regimes from transferring even more of our national wealth to a single sector of the economy that has proven to have diminishing marginal returns. While not a perfect approach, something like this is a hell of a lot more freedom-oriented and reasonable than Obamacare.
And it’s a lot more responsible and realistic than “Medicare for all,” “single payer” or whatever snake oil is fashionable. It would preserve the high quality and freedom associated with the American system, while addressing the genuine problem of skyrocketing costs, middle class anxiety over losing coverage, opaque pricing, and the burden on the system and the public from the spread-out costs of the uninsured.
Finally, it would provide a framework for Republicans not to be merely against “Obamacare” but rather for an important principle missing from the debate: there ain’t no such thing as a free lunch.
Photo Credit: Bill Clark/CQ Roll Call