it's not clear that they'll be particularly competitive if they're primarily serving a subsidized population.Imagine that my family makes $45,000 a year. That puts us at about 250 percent of the poverty line. In the Senate finance bill, our premium contribution is capped at $4,349. Surveying our options, I see a plan from Aetna that costs $10,000, a plan from Kaiser that costs $9,000 and a plan from Cigna that costs $11,000. All seem pretty similar, but then, I'm not an expert in these things. Which do I choose?
You might say I should choose the Kaiser plan. But why? It's cheaper, but it's not cheaper to me. After all, my contribution is capped at $4,349. Moreover, it's generally true that things that cost more are better. It stands to reason that Cigna is giving me something for the extra $2,000. Indeed, I'm being subsidized to the tune of $7,000, as opposed to $5,000. It's clearly a better deal.
Maybe there are elements in the plan that somehow protect against this, and I've just missed them. But I don't think so. And though this dynamic isn't terribly important in a world where the exchanges are large and lots of unsubsidized customers are creating competitive pressures, they might be very significant in a world where the exchanges are limited to people who need to be subsidized, and so are facing a different cost calculus.
Interestingly, this seems like a variation of my argument about tipping points in markets when governments start to dominate them. I was talking about this in the context of pharmaceuticals and medical devices, where I worried about ham-fisted price controls destroying much of the incentive for efficient innovation.
But both cases stem from the same problem: bad price signals. Prices really are pretty great, for all that we resent them when they signal variations in the demand for human labor. When you break the price signal, you get all manner of bad outcomes. Price signals are already pretty bad in the private insurance market, but at least they're set by negotiations between employees and employers, employers and insurers, insurers and providers . . . rather than by lobbying.
I'm not sure that Ezra's pessimism will play out the way he outlines: for one thing, there will be a substantial number of currently uninsurable middle class people on the exchanges (though of course, this will skew things in another direction--towards the kind of coverage that people with dangerous conditions want). For another, the prices may simply converge--in Massachussetts, most people take the cheapest "bronze" option, and I'm not sure how much room there will be for variation in providing the basic package.
Still, I think it's interesting that both Ezra and I want to preserve the price system (hell, even extend it) in substantial parts of the system.
This is why we need a public option. Subsidies are fine as a transition mechanism, but ultimately they'll cost the taxpayer more than simply having the government be the insurer.
(And yes, we could go the Wyden voucherizaton route, which would be fine with me if we had the votes. But we don't).
I am not a proponent of the public option, though I'm not foaming at the mouth in opposition to it either, as I don't think it matters all that much, at least in its current form. But your last comment about Wyden's amendment caught my attention. I agree entirely with your premise, i.e., that the Wyden approach would seem to make sense, but it lacks sufficient support on Capitol Hill. From a policy perspective, Wyden's ideas are appealing -- increase choice/competition, thereby lower costs, etc.
Politically, I understand why this is a heavy lift, and there are some strange bedfellows opposed to it -- both big labor and big business have weighed-in with concerns. But this opposition seems to me so plainly self-interested and entirely disconnected from good policy-making that I am surprised there has not been more of an outcry about it. Wyden's plan would appear to have broad appeal from an ideological perspective -- it has attractive aspects from both liberal and conservative viewpoints. And Wyden would surely be on a short list of the most studied and serious-minded legislators on the healthcare issue, so the fact that he can't get more traction depresses me and further reinforces my skepticism about the Legislative branch of our government.
when i see the government covering all healthcare, including experimental treatments for 50-100/month per person, then i'll consider the public option.
you can get something like that with a company that self-insures right now, for a population of a few thousand to tens of thousands.
now if self-insuring Evil Corporations can give their employees that kind of sweet deal, why have we seen nothing, including with the precious public option, indicating that we can all look forward to the low low premiums assured by a population of millions?
Good Lord, they've actually managed to reduce price sensitivity?
Only the legendary productivity of the government worker can save us now!
Attempts to fix the market by government usually just succeed in destroying price sensitivity.
The problem is, the public option works by . . . destroying the price system in favor of fiat
Actually, Ezra's a bit off in how the subsidies work.
You're eligible for subsidies worth the difference between the amount you're eligible to pay and a "reference premium" which is calculated off the average price of the three cheapest basic plans in the exchange. So, if the three lowest priced basic plans in the exchange were $9,000, $10,000 and $11,000, the reference premium would be $10,000. So, while you'd pay the exact same for the $10,000 or $9,000 plan, you would have to pay $1,000 over the premium contribution cap for the $11,000 plan.
This is on page 250-251 of H.R. 3962 (available at http://docs.house.gov/rules/health/111_ahcaa.pdf) if you want to check it out. The Finance and HELP bills use the same reference premium mechanism.
While the exchanges certainly will reduce price sensitivity somewhat, it's not quite as bad as you and Ezra think.
So the $9000 plan will still almost never be chosen, it's just that the $10000 plan will be the one picked instead.
They'll raise the price to 10,000 because no one will notice. And so the average will rise. . . .sounds like good reason for a vicious cycle there.
Price signals are already pretty bad in the private insurance market, but at least they're set by negotiations between employees and employers, employers and insurers, insurers and providers . . . rather than by lobbying.
Megan, I'd find your critiques of proposed reform more credible if you weren't constantly overselling the virtues of the status quo. What negotiations? I was the managing partner of a small law firm for several years -- we were (and are) basically at the mercy of the health insurance cartel -- they tell us how much they are going to raise our rates, and we can go with our hats in our hands to one of the other two insurers active in our state and hope they aren't going to hurt us quite as badly if we switch. The price signals are not just "pretty bad" under the current system -- they're totally fricking dysfunctional. The current system has absolutely nothing in common with a market-based system. Health insurers simply pass through to employers -- with their own hefty mark-up -- what the medical industry has decided it needs to charge in order to do business the way they think appropriate. Big employers have enough leverage to force insurers to pass some of those costs disproportionately onto small businesses and individual consumers. The idea that any of these costs are somehow constrained by market forces -- beyond the possibility that, if the medical industry gets too greedy, the whole employer-based system might collapse (as it seems to now be doing) -- is a joke.
As a follow-up to my previous post, I don't mean to suggest that I think doctors and hospitals are particularly greedy (although a few doctors are); as you have pointed out previously, hospitals don't necessarily set prices to maximize income. But nothing about the current system places any real price constraint on demand. Insured patients do not make decisions based on cost, and to the extent that doctors consider costs in prescribing treatments, there is evidence that those costs create a bias toward more expensive procedures. Some of your critiques of the proposed reforms are thoughtful and valid concerns, but I wish you would train as critical an eye on the way things work, or don't work, now.
The reason we don't see many market-based criticisms is that no market-based solutions have any chance of being passed by this Congress.
The choice is between the status quo or something even less market-like.
That may be true, although that may have something to do with the fact that no one has proposed one that would solve many of the market imbalance problems unique to health care (differential in expertise between doctor and patient; the fact that you can't shop for the best deal when you've just had a heart attack, etc.). A debate for another day. But the fact that Congress isn't considering a market-based approach doesn't excuse attacking particular aspects of proposed reform on the ground that they would undermine the market, when there is no functioning market. The phrase "something even less market-like" suggests that the features of the current system function in some meaningful way like a market. The current system is a product of pervasive government regulation (everything from licensing of doctors to state insurance regulation) and tax policy that produces a host of bad incentives. The fact that most of the actors are "private" doesn't make it a functioning market.
Wait - a difference in expertise between a guy who spent a decade in university studying in a field and a guy who didn't is unique to medicine? Yes, because no customer has ever caved to jargon they don't understand by that sounds impressive when it comes from the mouth of an auto mechanic, a computer repairman, a driveway paver, an environmental activist, or a politician.
And I don't think anyone with a clue has ever called the current system an example of a properly functioning market economy. But just because it's bad doesn't mean that you can't do worse.
that no one has proposed one that would solve many of the market imbalance problems unique to health care
Arnold Kling has. It's really pretty simple: get people to pay more of their own costs while covering catastrophic events. This can be accomplished by giving individuals the employer tax incentive and allowing interstate competition between insurers.
The expert problem is not unique, it arises in many markets. Health care isn't that special. You may be surprised to learn your health care professional isn't necessarily much more expert about your body than your mechanic is about your car. I've had to correct doctors on more than one occasion regarding drug side effects and incidence of disease, and dentists can be outright deceptive in what they try to sell you. Caveat emptor; you should ALWAYS perform due diligence.
The phrase "something even less market-like" suggests that the features of the current system function in some meaningful way like a market.
Insurance companies attempt to define what are reasonable costs in order to cost their premiums competitively. Not perfect, but much more of a market than gov't fiat.
I think the picture is worse than Klein is speculating. If that $2,000 extra really does pay for something more, then there's an incentive (with guaranteed issue, and no pre-existing condition ban) even for people who are unsubsidised to pay into the cheapest possible unsubsidised plan that gets them out of paying the penalty tax, and then jump into the most expensive plan as soon as anything goes wrong (and that's assuming that it even makes economic sense for them to go on a plan, rather than just pay whatever the penalty tax is).
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The end result of this dynamic would be to drive the price of any plan offering extra coverage up, and create -- to the extent market dynamics are in play at all -- a "market" incentive away from offering any kind of specialised or non-standard features. After all, the plan with the bare-minimum coverage for a qualified health insurance plan will get people paying in premiums, but won't have to pay for anything exotic, since as soon as a serious problem arises, customers can just switch to some other plan that has, e.g. a lower copay or broader coverage or whatever. Indeed, because of the limitations on loss ratio cooked into the bill (at least earlier versions of the House bill), the price of the barebones plan may drop even further.
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Wouldn't this destroy feature-competition in the health insurance market? Or did they build in a kludge designed to prevent this kind of thing?
Balfegor:
I think the picture is worse than Klein is speculating
If you click through to Klein's site (or see Tory's comment above), you'll learn he was failing to account for (or was unaware of) several features of the legislation that limit or eliminate the perverse incentives Klein feared. In short, apparently our congresscritters do have professional economists on their payroll.
then there's an incentive (with guaranteed issue, and no pre-existing condition ban) even for people who are unsubsidised to pay into the cheapest possible unsubsidised plan that gets them out of paying the penalty tax, and then jump into the most expensive plan as soon as anything goes wrong
It seems to me this could easily be sharply curtailed by simply putting waiting time requirements on plan switching -- much like is often the case with employer-provided group plans under the status quo. Moreover, the nationalization of standards should go a long way toward mitigating the effects you describe: if crappy insurance is basically rendered illegal, every available plan will provide more or less the same set of benefits when it comes to essentials. Differences will mainly be found in ancillary areas (private vs. non-private rooms, the ability to see a specialist without PCP recommendation, etc). It's not clear that there will be much of an incentive to switch after one becomes ill.
The end result of this dynamic would be to drive the price of any plan offering extra coverage up, and create -- to the extent market dynamics are in play at all -- a "market" incentive away from offering any kind of specialized or non-standard features.
I don't see why the market incentives you describe as threatened with extinction won't continue to operate in the group market -- where most Americans get their coverage. Offerings in the individual market that exceed national minimums could atrophy with time, but that could arguably be considered a feature rather than bug (cost curb bending). I mean, either we put some limits on what can be paid for, and cover everybody, or we continue to let millions of people remain uncovered (and thousands die annually as a result). Not being much of a believer in free ponies, I would gladly opt for the former. And all this is set against the backdrop of a country that will always, of course, allow the wealthy to spend whatever they want on the most lavish healthcare conceivable.
Wouldn't this destroy feature-competition in the health insurance market?
I doubt it, no. For the small segment of the market that's non-group, it will be tougher, sure. But not all features cost more money, or have to be pushed back on the premium payer when they do. (I mean, heaven forbid health insurance companies sometimes consider eating the costs of competing via lower profits!). And at any rate, as you will learn if you visit the comments on Ezra's post (or Tory's comment above), the legislation allows for subsidized insureds to pay out of pocket to foot the bill for extras, if they want more generous plans.
The exact same critique works for college tuition too, which is why you see colleges compete to see who has the highest tuition, not to offer the best value.
Ezra says what????
''And though this dynamic isn't terribly important in a world where the exchanges are large and lots of unsubsidized customers are creating competitive pressures''
But when you are creating a program that will substantially reduces the number of unsubsidized customers and increase the number of subsidized ones then the dynamic becomes terribly important.
Ezra has been saying for months that we need a government option to put competitive pressure on the private sector, and now he says that the private sector would put competitive pressure on the government option.
Ezra's research is unreliable. The subsidy in Section 1205 is linked to the second lowest available silver plan. You can buy a more expensive plan, but will have to pay the full incremental cost; the economizing incentives of prices are mostly intact.
Ezra's concern only works for the cheapest versus second cheapest plans in the exchange. You have no incentive to buy the cheapest plan because the government gets to pocket the difference between that plan and the second cheapest.
So if I have the cheapest plan, I need to raise my premiums to be between plans #2 and #3 - so it makes no sense to be cheaper than plan number #3 except minimally. What you should expect to see are not 9, 10 and 11K plans, but 3 11k plans and it would go something like this.
A-9k, B-10k and C-11k - B will get 90% and the C will get 10%, the A is pointless as the upgrade to B is free to consumers, so A moves up.
A-10.5k, B-10k, C-11k - A will get 80%, C will get 20% and B will get none.
A-10.5k, B-10.75K, C-11.25k - B will get 80%, C will get 20% and A will get none.
...
ad nauseum.
Perhaps it is just me, but Ezra just strikes me as so earnest . In a way that only a young, bright, well educated person could be. But someone who has never run a business, or run for office, or suffered any kind of major disappointment or been knocked around by the world much yet.
I mean, he actually takes this crap seriously.
Maybe I'm just in a bad mood tonight....
Prices are important, this is why the federal reserve fails as a way of creating money. It can't properly use the price system to gauge the desire for dollars and act accordingly.
Megan,
You don't accurately characterize Ezra's opinion. What he favors is a single payer system.
http://voices.washingtonpost.com/ezra-klein/2009/11/an_insurance_industry_ceo_expl.html
Creating a more competitive and effectively priced insurance market is a rational compromise with people like yourself, who oppose government provided insurance for ideological reasons despite the global evidence of its effectiveness. I guarantee you Ezra thinks that healthcare as an industry and market has fundamental flaws that make it impossible for it to work well without some level of government intervention.
But being pragmatic, and having seen the CBO score of the version of Wyden's bill before it was crippled, Ezra is willing to support less intrusive government interventions that maintain the illusion of a competitive market, if it will stop conservatives from being completely irresponsible and uncooperative.
there is no global evidence of its effectiveness. nearly all life expectancy differences can be explained by the vastly different dietary choices of americans compared to other nations (and those dietary choices were heavily influenced by, well, government interventions and price supports).
much of what remains in terms of discrepancy can be explained by heterogeneity in the us population compared to the other nations we keep getting misleadingly compared to.
wibbles: Of course there is. Every other rich country healthcare system is both universal and wildly cheaper than America's. Price is obviously one measure of effectiveness (it's not the only one, mind you, nor is price alone sufficient; but yes, price most certainly is one, very important, consideration).
To put it another way, a visitor from another planet might study the various rich world healthcare systems and conclude "Aha! America has to spend a lot more to get the same health outcomes because it's population is a lot fatter and more violence and accident-prone."
But of course, such a conclusion would be wrong: America does spend a lot more, but it does not get the same health outcomes (and it certainly doesn't get better outcomes). It gets worse outcomes, even taking into consideration higher levels of obesity, violence, and accidents:
http://www.pnhp.org/news/2008/january/united_states_has_wo.php
So, yes, there most certainly does exist evidence that at least some of the rich world's universal healthcare systems are more effective than the US status quo. In fact, that evidence is ample, striking, and persuasive.
Now, you may not be persuaded by this evidence. And even if you are, you might conclude that the advantages of shifting to, say, a more Australian or Dutch or French-style model don't overcome your ideological concerns. But just vapidly claiming there's "no evidence" for the superiority of other models makes you look foolish, and frankly undermines your side's case, to the point of bringing the country closer than ever before to the passage of comprehensive reform.
In fact, at this point, realistically, the question isn't whether ObamaCare is enacted; the only question is whether or not ObamaCare will allow people to buy insurance directly from the government.
as i already said, hospital and doctor access do not explain the differences in life expectancy-- dietary and lifestyle differences do, with actual numbers and stuff.
that other systems are cheaper is actually orthogonal to better outcomes if they are only defined as 'life expectancy'. people just didn't and don't want to believe dietary differences really make that much of a difference. but we actually have the trackable historical changes regarding dietary changes and their effects on life expectancy. diet differences (and noise pollution in urban environments) even explain the low birth weights and higher infant mortality in the USA, which do the most dinging of our life expectancy.
honest healthcare reform would, oh, i dunno, do some honest basic research or at least accurately report the results of current basic nutrition research. it really does no good to change who writes the checks for doctor and hospital visits when what people eat every day is directly responsible for them living less long and having weaker, more likely to be premature babies than, say, canadians.
remove the Big Ag price supports, clean up the food supply in america and you'll have fewer sick people and people could go to the doctor less, and thus afford the cheapest catastrophic plans and pay for that very rare doctor visit out of pocket.
it even has the benefit of taking billions of dollars out of the hands of rich people! and it would actually get demonstrable results, unlike the current healthcare farces.
i do wonder why pro-single-payer types want everyone always at the doctor's or always visiting a hospital. healthy people don't have to use healthcare, which is why so many people living in those (smaller, healthier) countries 'love their system'. most of them aren't busy maxing it out. as we have seen on many of these threads, those people have varying experiences and do not all love their systems. easy to avoid the queue when you don't ever need medical help.
Most countries actually have health care systems with moderate to strong market elements in them. Only the UK and Canada have single payer systems. Both these systems seem to exchange somewhat better life expectancy and lower costs for poor metrics in other areas, such as cancer survival and chronic waiting lists for non-emergency procedures. So there is not strong evidence that single-payer is better than the US system if that's what you meant by "government provided insurance". BTW, a lot of health care reform advocates revealing their desire for single payer systems tends to make the opposition more uncooperative, not less. Its a fairly simple principle that if you believe your opposition is trying to get you on a slippery slope, you can reasonably believe that any compromise is really just an attempt remove barriers to moving toward the opposition's desired position. This is not the only political battle that suffers from this dynamic.
I generally agree, although you are wrong to call the UK system single payer. These two systems are completely different. Canada has government run health insurance(single payer). The UK has government run hospitals and doctors(not single payer).
But my point is this. Single payer is off the table, regardless of its merits. Even if it were on the table, I acknowledge that there are strong arguments in favor of mixed market alternatives.
Many countries have mixed public/private systems that work. These are NOT run like the US system. The public portion in these reasonably effective systems is larger, and pricing is controlled by the government. This happens because there are fundamental market failures when it comes to health care.
The most free market health care system that is also reasonably successful is the Swiss model. Given the political dispositions of Americans, this is probably the most politically palatable goal for reform.
http://en.wikipedia.org/wiki/Healthcare_in_Switzerland
What does it include? Individual mandate, subsidies, insurance regulations including price caps and the requirement that basic insurance be run on a non-profit basis. The option to choose your provider and to purchase additional insurance about the basic requirement. The available providers include public, semi-private(subsidized), and private.
That doesn't sound much like the current system we have, but it does sound like a slightly stronger version of what is being proposed. Going less than this is a compromise, but if this is the pound of flesh we need to pay, so be it.
Actually I agree the Swiss system is probably the best one for the US to adopt features from. At least keeping or increasing competition(buying across state lines anyone), and using government subsidies/regulation to fill in gaps while keeping a strong private market is where we need to go. Your post wasn't terribly clear, it looked like you were saying most countries had single payer. BTW, it seems like the difference between single payer and the British NHS is a distinction without a difference economically. They both are systems where the government funds most of the health care, so their likely to have similar strengths and problems because the incentives are similar. I just wish many reform advocates would actually acknowledge their are many different systems and consider that each has strengths and weaknesses. Instead I hear a lot of gushing about single payer, without much acknowledgment that it might not be the best system from a purely economic standpoint, not just a political one.
Why are you so surprised Ezra Klein wants to preserve the price system? That doesn't seem surprising to me at all.
You walk around with this caricature of people who disagree with you, Megan. You're not the only one that understands the power and importance of markets.
Suggesting people might switch plans when something goes wrong seriously underestimates the hassle of switching plans IMO. Because most plans are preferred-provider or similar, you lose access to at least some of your doctors when you switch. For example, I am switching this year, finally, because of some very significant price savings. I resisted for several years because we will lose access to some of our doctors by switching. I predict a fair amount of hassle trying to find a new pediatrician/primary care provider/gyn in January in the middle of a flu pandemic, getting med records to the new docs, etc. The only reason I even considered switching is that there were enough of the doctors on the new plan to ensure those of us with health conditions some sort of continuity.
Meanwhile, Ezra truly hates that the REpublican plan-previewed in the WSJ:
"A House Republican health-care bill wouldn't seek to prevent health-insurance companies from denying sick people insurance," the first paragraph of the Wall Street Journal's preview of the latest Republican health-care reform alternative says. "Republicans also wouldn't prevent insurers from ending policies once an individual becomes seriously ill," reads the fifth. On the bright side, the Republican bill would allow insurers to base themselves in whichever state has the weakest regulatory standards and then sell policies built around those rules nationwide. If you've ever thought that your insurance was too comprehensive, too straightforward, and contained too few loopholes that you didn't learn about until you feel terribly ill, then this is the plan for you!
http://voices.washingtonpost.com/ezra-klein/2009/11/republicans_want_to_make_the_i.html
We will see how the people react to the Republican alternative. I can't wait to see conservatives try to defend it!
Sounds great to me. I get to choose whichever company I want, so if I perform minimal DD I'll get a company that gives me excellent coverage at the best possible price. Ezra seems to think either denying reasonable coverage is great PR or people are idiots.
And just think, I could buy a policy that doesn't cover breast implants or chiropractors, no matter how much lobbyists bribe my state officials!
If even Ezra Klein can't make this sound bad...