Monday, November 25, 2013

The Power of Ideology: A Conservative “Alternative” to Obamacare

Republicans hate Obamacare and mostly go around threatening to repeal or defund it. Every so often, somebody attracts their attention with the complaint that they have never said just what their preferred alternative would be. So they worry a little bit and play around and then trot out a half-hearted proposal, which would strike most sensible people as a woeful joke of an effort actually to reform what needs reforming in U.S. health care. They look at their proposal for a while, then say, “Naaah,” and go back to denouncing Obamacare.

Princeton health economist Uwe Reinhardt caught the conservatives in the midst of one of these periodic pauses, and analyzed for the “Economix” blog of the New York Times one of the “alternative” plans:

Based on Reinhardt’s previous writings, I rather doubt he’d give such a plan the time of day, but he’s commendably even-handed, and willing to give the conservatives credit for at least offering something to talk about.
The specific plan is alluded to in general terms in a recent piece in the Wall Street Journal, but according to Reinhardt is most fully fleshed out in a report commissioned by the American Enterprise Institute, optimistically entitled “Best of Both Worlds”:

Reinhardt insists that there is enough major stuff in the details to make it mandatory to read the entire report, but then proceeds to offer a brief summary/overview. Being lazy, I will address only his summary.
Reinhardt begins by saying that the AEI authors want to get away from the redistribution of income that accompanies the Affordable Care Act, aka Obamacare, taking money from the healthy to pay for the sick, regardless of their income level.  I find this puzzling. Fire insurance redistributes income from those whose houses don’t catch fire to those whose houses do catch fire, and becomes affordable precisely to the degree that most of our houses don’t catch fire most of the time. (This is what current critics of the individual market in Obamacare call “being forced to buy coverage you’ll never use.”) Now, I would have thought that this is a basic feature of any actuarially sound insurance plan, and it seems odd that this would be the first thing people want to eliminate, especially if they want the private insurance market to be their savior.

But wait, there’s more. The authors don’t want to get rid of redistribution, and indeed apparently agree with the feature of Obamacare that most sticks in conservative craws—the redistribution of wealth from the rich to the poor.  They are okay with that redistribution, they just want it to be outside of the insurance market. So the plan calls for a combination of individual plans closely tailored to each individual’s supposed risk of having various diseases in the future, with a series of federal premium supports to help anyone who cannot afford the resulting coverage to obtain insurance.
I’m sure there’s more, but let me cut to the chase. As I read the summary version, what we have here is a strange mix of things that actually are already part of Obamacare but have been rearranged, and other things that don’t make very much sense but are made necessary to keep the jury-rigged plan held together with duct tape.  I would assert that what seems to be at the root of all this is not a desire, on the part of a set of smart economists, to build a sensible health plan from the ground up, and to put in the right mix of market measures and government regulations needed to accomplish that basic goal. Rather what seems to be going on is an overriding need to create a plan that can be called “free market” or “private enterprise,” regardless of whether it makes any sense or even whether it is all that different from Obamacare in ways that matter.

I assert that economism is characterized by just this sort of love affair with ideology over practical results.

Sunday, November 10, 2013

What Part of “Market Failure” Don’t You Understand? Health Costs As Seen through the Blinders of Economism

In the process of trying to keep up with my continuing medical education, courtesy Primary Care Medical Abstracts as provided by Drs. Rick Bukata and Jerry Hoffman, I had my attention called to this article which seemed instructive in illustrating how economism has succeeded in distorting the everyday perceptions of Americans in most every field.

A group based at the University of Iowa (subscription needed to access article) decided to try to find out what it cost to have a common elective surgical procedure, hip replacement with an artificial joint. They called two sets of hospitals, large community hospitals in all 50 states, and top-ranked orthopedic hospitals according to the infamous scorecards in US News and World Report magazine.  They asked for the hospital costs of the procedure and the cost for the physician’s services.

The first thing they found was that it was like pulling teeth to get any cost figures at all. A handful of hospitals in each category right away provided them with bundled costs for the entire package. To get some of the remaining hospitals to cough up any cost figures required numerous repeated phone calls. The questions were never answered for almost half of the hospitals.

The next thing that they found was that (no surprise if you’ve been following media stories on hospital charges this past year) the charges quoted them were all over the map. They were told that the operation could be as cheap as $11,000 or as expensive as $125,000.

So what do we have here? This seems as stark as you can get in terms of evidence for a broken system. If you had ever heard of economist Kenneth Arrow’s classic theory, that health care represents an example of market failure, you’d nod and say “yup.”

So what do these medical authors conclude? They admit that to some extent they are looking at the data through rose-colored glasses. But they twist themselves into knots to try to make this out to be good news for those patients who are willing to be smart shoppers. Just look how much you can save, they say, if you end up having your new hip at one of the cheaper hospitals vs. one of the ritzy ones.
So what do they have to ignore to come up with this Pollyanna prediction? They have to assume that the average patient is going to be as diligent and as smart in extracting price data from unwilling hospitals as they were. They have to assume that the prices actually quoted have some relation to reality. They have to assume that having learned the range of prices, the average patient is then going to have the means and interest to relocate to a strange city or state to take advantage of the best price. Finally they have to assume that the patient won’t just say, “Oh, heck, I have some health insurance, let them pay for it and I’ll deal with whatever is left over later on.”

In short, being faced with a ton of evidence that the marketplace is currently doing a lousy job of addressing out-of-sight health care costs, those who willingly put on the blinders of economism assume there is one and only one right answer to any problem whatsoever—invoke the powers of the marketplace.

Rosenthal JA, Lu X, Cram P. “Availability of Consumer Prices from US Hospitals for a Common Surgical Procedure.” JAMA Internal Medicine 173:427-432, March 25, 2013.