Worry About Costs, Not Mandates

October 11th, 2011 at 6:05 pm | 29 Comments |

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Revelatory Headline: “White House used Mitt Romney health-care law as blueprint for federal law.”

I am no fan of Obamacare. The notion that a top down system will control costs flies in the face of the fact that virtually every advanced country on earth that has a top-down scheme to manage its health care system has a rate of growth in costs that matches ours. The only difference is that we start at a much higher baseline, the result of high prices and high availability of services and technology.

Having said that, the oppositional focus on the dreaded mandate to buy insurance may be a really good issue to bring to the Supreme Court but that is about its only real attraction.

If Congress had the guts to call it a tax, as the White House legal team has lately been forced to claim, there would not be a Supreme Court issue to adjudicate. Congress has the power to tax (See Article I, section 8). However, if we are to have an insurance-based health care system, it really cannot work unless there is a large pool of healthy individuals who pay in to the system to support the smaller number who become ill. That is the way insurance works.

Romneycare in Massachusetts was a plan to cover the uninsured by requiring that every able-bodied person in the state have health insurance. It may be a lousy plan because it also has not controlled costs but it is not a lousy insurance plan because it has a large base of policy holders. That makes it a good insurance plan. For Gov. Romney to have had a hand in creating this insurance plan by requiring universal participation is nothing more than an acknowledgment that he understood how insurance works.

It is true that universal health insurance means that everyone pays into the system. But is that not a conservative goal for our tax system? We could have a universal insurance plan with tight cost controls generated by high deductible health savings accounts like Gov. Daniels instituted in Indiana? Combine that with universal participation and we are off to the races for cost control. The absence of such approaches is the real shame of Obamacare.

So if the Obama administration called in the technicians that put together the Massachusetts health insurance plan and it copied some aspects of having universal participation in the plan, that is not a revelation that should derail Romney’s campaign. To call it so is the height of cynicism by those who leaked (?) the information–likely a bit more of our President’s perpetual campaign–nor should it be the rallying cry of the self-righteous who deny the validity of universal coverage but are sure happy that they have their own insurance plan when the feel a funny lump in their neck.

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29 Comments so far ↓

  • ottovbvs

    Yeah right… costs are to controlled upwards. By whom? The providers (one of whom is Goldfarb btw) who are incentivised to actually increase costs. The fact of the matter is costs are controlled from the top in EVERY system of socialised medicine in the world. Ask Cameron or Sarkozy. The reason ours are twice those of everyone elses is because our costs are driven from below.

    • UncleLew

      A real study could be done on the number of unnecessary and expensive tests American doctors order that use the very labs that they own.

  • Oldskool

    The absence of such approaches is the real shame of Obamacare.

    Dont be so hard on Republicans, they’re only trying to regain power. If they were interested in making the country prosper, sure, they’d have done all those things you find great when they controlled every branch of government.

    But it’s always up to Dems, innit. Even when they copy ideas from Republicans they get no support. You’d think Republicans aren’t as patriotic as they’d like us to believe.

  • Frumplestiltskin

    The only difference is that we start at a much higher baseline, the result of high prices and high availability of services and technology.

    Wow, you just flat out lie as though Japan or France doesn’t have technology. In a number of areas Japan has better outcomes than the US and higher availabilty to life saving technology, but if you can just flat out lie, why not? What a hack.

    “We could have a universal insurance plan with tight cost controls generated by high deductible health savings accounts like Gov. Daniels instituted in Indiana?” Sure, in an age when real income is falling and millions are under water due to mortgages that are greater than the value of their homes I am sure all of them will line up to have health savings accounts, maybe they can just forgo electricity or eating to afford them. HSA’s are nothing more than a tax shelter for the well to do, no wonder that a wealthy person wants them and if the poor die because they can’t afford them, well them is the breaks, right. That will certainly drive down costs when millions of Americans die early deaths from preventable diseases.

    Tell me Dr. how is it the Middle class are going to come up with the money for the HSAs? And the Dr. is completely ignoring the problem with high deductibles is that millions of poor and middle class people will pay and pay and never once get a penny from the insurance company if they are (lucky) enough not to get serious illnesses, of course what might happen is that they forgo treatment until that minor chest pain becomes a full blown heart attack, but I am sure the Dr. is willing to take the increased mortality provided the insurance companies stay fat and profitable and HE HAS no deductable himself with his gold plated insurance company.

    I see absolutely no benefit whatsoever from his plan above except that a dead populace won’t collect social security or medicare and will therefore keep the richs taxes down, but you know, if your whole life is shilling for the rich I guess you can see how one can imagine that is the only people who should benefit for anything.

  • baw1064

    OK, since David Frum is from Canada and obviously has many contacts there from different walks of life, how about a column from a doctor in Canada giving the plusses and minuses of that system vs. the U.S. one?

  • Graychin

    There is much wrong with this analysis, but let’s just start here.

    “…we start at a much higher baseline, the result of high prices and high availability of services and technology.”

    High availability leads to higher costs? Really? Would short supply lead to lower costs? How would that work?

    For economists, you guys don’t seem to understand poop about economics. I seem to remember something called “supply and demand.”

  • booch221

    It is true that universal health insurance means that everyone pays into the system. But is that not a conservative goal for our tax system? We could have a universal insurance plan with tight cost controls generated by high deductible health savings accounts like Gov. Daniels instituted in Indiana? Combine that with universal participation and we are off to the races for cost control. The absence of such approaches is the real shame of Obamacare.

    Th real shame is that the GOP put forth no plan for health care in 2009. They just offered bromides like tort reform, or buying policies across state lines. Nothing that would extend coverage to the uninsured, or bring down costs.

    Of course, they weren’t into solving problems, they were into taking control of Congress. They half succeeded.

  • valkayec

    Mr. Golfarb, explain to me how high deductible HSA’s will bring down costs?

    As someone who participates in the health care industry as a customer, I don’t see your idea as a workable solution. Here are my reasons:

    - High deductible HSAs – An HSA is a savings plan for medical expenses. If the health plan requires a high deductible then people have to save more via their HSA to afford the costs of medical care which obviously reduces wages. The more money put into an HSA means less money spent in the rest of the economy. So, you set up a medical plan that requires high contributions to an HSA to afford the high deductible expenses, but you’ve not dealt with the opacity of medical costs or the doctor who requires you takes X number of tests or procedures before he’ll renew you you RX. In other words, you have no idea how much you’re spending until you get the bill.

    - A high deductible HSA is no panacea for high medical delivery system costs – An HSA does not bring transparency pre-billing. From experience, it’s not much different than the current employer based system. Once the money is put into an HSA, it’s spent liberally until the money runs out. However, for those who simply cannot afford high HSA deductions, the result becomes less medical care which creates an exponentially large drag on the national economy over the long term. When thinking about these “cost” issues, try to think in terms of a family of four earning a median gross working income of $48k/yr…and remember that not everyone lives in LA, KY or Ohio. Remember that a gross income of $48k/yr doesn’t go that far in CA, MA, NY, NJ, OR, or WA mostly because of housing costs.

    - As someone who has worked in finance as a buyer of goods and services and who has had to buy health insurance on the open market as a self-employed person with preconditions, I’ve learned that the larger the number of participants the lower the costs. For example, if the participants include sick and health, young and old, and the pool is huge (hundreds of thousand or even better millions), the cost to each member for insurance is relatively low. The smaller the pool – as now exists in the individual market – the higher the cost – often too high to be affordable. I don’t know about anyone else, but when I was put into a situation of either paying for health insurance or paying the rent, I chose the rent and forego health insurance. As a matter of ethics and national values, no one should ever be put into that situation as a result of the high cost of insurance or medical care.

    - Actual medical care costs – As we know, the rest of the industrial world pays less, uses their systems just as much if not more, and has equal if not better outcomes. Consequently, our challenge is to determine how to best reduce the overall costs within the medical care delivery system. Part of the answer may be a result of our opaque billing/cost system. As a patient, how are you to determine the most cost-effective vendor when you cannot learn the price before the purchasing the service? How can you competitively shop when you are not allowed to know the price until you receive the bill?

    -Medical care cost increases across the industrial world – As I’m sure you’re aware, much of these increases are a result of increased, expensive technology. However, as some of India’s technology innovations have shown, when the goal is to reduce costs while increasing or maintaining usage, technological innovation can occur through crowd sourcing that reduces costs significantly, from thousands of dollars to hundreds or less. However, to accomplish this goal we need to stop protecting, through legislation and tax policies, those companies that seek to shut out disruptive innovation.

  • mikewaz

    Worry about costs? Okay. Let’s worry about costs. Every single other developed country on the planet spends a minimum of 6% of GDP less than America does on health care. If we would just adopt the health care and insurance system of any one of these developed countries, we’d start controlling our health care costs overnight. And as a bonus, we would almost certainly improve the quality of our health care dramatically.

    • valkayec

      To follow up on your comment, I’d ask why don’t we learn from what other countries have done or are doing which has reduced their costs. Why do we have this ridiculous belief that we cannot or should not learn from what other countries have done? Certainly Jefferson, Madison, Adams, Hamilton, et al learned from other countries…and what they created via the Declaration of Independence and Constitution (as well as state Constitutions) worked out pretty well. So why not choose to learn from other countries now?

      • mikewaz

        The reason we used to learn lessons from other countries and apply them here, even as recently as the 1950′s with the Interstate that was inspired by the Autobahn (built by the Nazis for Christ’s sake), is the absolutist view of American exceptionalism that has taken hold in the last thirty years.

  • malvern41

    “virtually every advanced country on earth that has a top-down scheme to manage its health care system has a rate of growth in costs that matches ours”. The data published in a recent OECD report, summarized by the Kaiser Foundation, show that over the period 1970 to 2008, in terms of health expenditure per capita, the United States increased its spending faster than 15 other OECD (top-down) countries. In terms of growth rates, the United States still matched or exceeded the growth rate of more than half of the fifteen countries analyzed. The late 1980s and 2000s were defined by an accelerated growth rate in the USA.
    See http://www.kff.org/insurance/snapshot/OECD042111.cfm

  • Bingham

    I worry about not having had a full time job. in. two. god. damned. years. Everything else is secondary.

  • BenMcT

    “The notion that a top down system will control costs flies in the face of the fact that virtually every advanced country on earth that has a top-down scheme to manage its health care system has a rate of growth in costs that matches ours. The only difference is that we start at a much higher baseline, the result of high prices and high availability of services and technology.”

    Leaving aside the questionable veracity of the claim made in the first sentence, is that really the ONLY difference? How about the fact that those top-down systems provide universal coverage? That seems like a pretty significant difference to me, and by your own logic, providing universal coverage won’t increase costs any faster than leaving the current inadequate system in place. So, what is the downside exactly?

  • Bulldoglover100

    The notion that a top down system will control costs flies in the face of the fact that virtually every advanced country on earth that has a top-down scheme to manage its health care system has a rate of growth in costs that matches ours. The only difference is that we start at a much higher baseline, the result of high prices and high availability of services and technology.

    So your saying that Obamacare will cost just as much as other countries, about what we have been paying out for the uninsured for the past 60 years anyway, yet you fail to mention that by streamlining those same costs we insure 30 freaking million more people in this country?
    Thats what the tin foil hat wearers avoid at all costs. The comparisons between what the US is paying yearly ALREADY for the uninsured and the ability to cover 30 million more for the same dollars. Did ya bother to check what Dallas Texas hospitals charged and the US paid for the uninsured alone in 2009? Try 9 billion. Either through Titles like Title 19 and others or through Govt. programs we are already paying out the wazoo. Like it or not we needed to start somewhere and while I may not like everything about Obamacare? As the only industrial nation on earth that does not have a plan, this is at least a start.

  • armstp

    Aren’t all systems in the world top down? Don’t they all start with healthcare government budgets? With a budget system you automatically have some control on how much you spend. Also, aren’t many of the, at least procedure costs, negotiated ahead of time by governments and the service provider (Doctors, labs, etc.). Doesn’t that top down approach work.

    Don’t forget that the major difference in the U.S. is that you have to add a hefty pretty profit margin on top of any costs, so that will always make the U.S. system much more costly.

  • armstp

    “Romneycare in Massachusetts was a plan to cover the uninsured by requiring that every able-bodied person in the state have health insurance. It may be a lousy plan because it also has not controlled costs…”

    The MASS plan was never designed to deal with costs per se. It was only mean to deal with coverage. The state is now in the process of tackling costs. By the way to get all those additional people insured and to get the plan going it only added about 1% to the MASS budget. The MASS plan is a good start and a platform from which to work with to move toward reducing or tackling costs. About 75% of people in MASS like the plan, so it cannot be that lousy.

  • armstp

    Lets not fool ourselves. Republicans are only against the mandate, which was invented by Dole, for purely political and partisan reasons. They have made it a wedge issue, even though most conservatives should actually agree with the concept.

    The ACA could not be a more Republican or conservative reform. It relies entirely on the private sector, adds competition through exchanges and is in fact based on the Republican Romney’s plan. It is certainly not a liberal reform, which would be single-payer or at minimum provide a public option.

  • jamesj

    I’ve been explaining this to everyone I know for a couple years now. As it dawns on people how obvious the benefits of a “mandate” are, how Conservative it is to prohibit free riders, and how Republican and Conservative economists invented the notion of a mandate a while back, you can see the look of confusion come over their faces.

  • jamesj

    “The notion that a top down system will control costs flies in the face of the fact that virtually every advanced country on earth that has a top-down scheme to manage its health care system has a rate of growth in costs that matches ours. The only difference is that we start at a much higher baseline, the result of high prices and high availability of services and technology.”

    I am not sure where to start. The two quoted sentences first present a complete falsehood and second miss the essential point.

    Firstly, every analysis of health care spending across countries done in the last decade shows US health spending growth rates that exceed most other industrialized countries. Correct? I have read literally 10-12 different large macro studies with good methodology that come to this conclusion, from the WHO down to small Conservative think tanks. I have seen zero studies showing the opposite. And I’ve looked hard since this happens to be an area of great interest and study for me. So your statement that growth rates are the same between modernized industrial countries is flat out incorrect. It “flies in the face” of the collective knowledge of mankind on this subject. And we’re left to wonder whether you’ve bothered to do any research into the subject (in which case you are misinforming your readers on purpose) or whether you are genuinely misinformed on the subject yourself. Here’s an example of how the results come out, time and time again:
    http://content.healthaffairs.org/content/26/1/154.full

    The accelerated growth in US spending when compared to other industrialized nations is actually speeding up in recent decades.

    Secondly, you miss the point. Even if growth rates were roughly equal across western civilization (which they are not) it has still been shown in many studies and from many perspectives that our absolute costs are much higher per capita and our outcomes are quite a bit lower than other industrialized countries. Now, you can make excuses for this all you want. You can say the multitude of evaluations showing we have poor outcomes are flawed. You can say the American lifestyle leads to uniquely poor health. You can say we simply “start at a much higher baseline”. But the fact remains that most reasonable methodologies show our outcomes to be relatively poor and our costs to be relatively high in absolute terms per capita. You mention “high availability of services” even though most studies declare the US system to have uniquely poor access to care for its citizenry (due to lack of insurance mostly) and especially poor delivery of preventative care.

    I hope you don’t take this bundle of cold, hard, unadulterated fact as a personal insult. It is not meant to be. But the stakes are high in this debate and I just can’t let you vaguely imply things that are flatly contradicted by empirical evidence and virtually every professional study done by economists and/or doctors worldwide.

    • Traveler

      jamesj,

      As a CEO of a midcap company, your qualifications to obliterate this drivel are matched only by your politeness. This is the second post on FF in two days that was such utter and complete BS. (See Eli re regulations- I can’t wait to see your take on that pile of excrement.) It don’t hurt to call out supposed experts for the charlatans they are. And this is about as bad as the kool-aid gets. FF columnists are really going downhill.

  • bc68251

    “every advanced country on earth that has a top-down scheme to manage its health care system has a rate of growth in costs that matches ours”

    Except that 100% of their citizens receive health care.