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Thread: Flawed Insurance model.....

  1. #1
    Senior Member TXduckdog's Avatar
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    Default Flawed Insurance model.....

    I know this is lengthy, but read carefully....it's an outstanding analysis and Yardley...feel free to state your case by line item.



    "What this plan will do is make the insurance you have work better for you. . . . And here's what you need to know, I will not sign a plan that adds one dime to our deficits—either now or in the future. Period."

    So spoke President Barack Obama in his address to Congress earlier this month, for the first time laying out more specific goals for health-care reform. To persuade the American people to support his health reform agenda, the president has made two simple promises. First, his plan will benefit everyone who already has health insurance. Second, his plan will not add to the nation's yawning budget deficit. Both claims are essentially false, and examining them offers economic lessons for reform.

    The administration's plan will impose mandates that employers provide coverage, mandates that individuals obtain coverage, and mandates about the form this coverage will have to take. These will remove the freedom to choose one's health-insurance plan, because government, in its effort to correct perceived inequities, will dictate which health-care services must be covered and which health-care providers must be used.

    The proposed unprecedented intrusion of government into private markets will have adverse effects on people with insurance in both the short and the long run.

    The mandates will lead to large increases in the cost of health insurance for everyone. Research studies have shown that as people become insured, especially under a health plan that offers broad coverage and low copayments, they consume more health-care services. The best estimates indicate that each newly insured person will approximately double his or her health spending.


    With 30 million to 40 million newly insured persons under the administration's plan, aggregate health-care demand will increase significantly. But when demand expands prices increase. We estimate that the higher demand will increase health insurance premiums for the typical family plan by about 10%. Because an employer-sponsored family insurance plan cost $12,680 in 2008, this translates into an increase of about $1,200 in the typical annual premium.

    The mandates will also have adverse additional longer-run consequences. According to provisions in both House and Senate bills, mandated plans must have low copayments and provide coverage of health-care services that is at least equal in scope to a typical, current employer-sponsored plan. But these are the very flaws that are responsible for high and rising health-care costs, flaws that stem directly from the misguided tax exclusion for and the extensive state regulation of health insurance. By locking in these flaws, the mandates will inhibit precisely the innovation needed to reform U.S. health care. Ultimately, as government seeks to rein in costs, it will curtail access to health-care services by erecting barriers between patient and health-care provider.

    The current House and Senate bills will also break the president's second promise—not to add to the deficit. In part because the health insurance that the administration's plan forces people to buy is expensive, the plan proposes to give individuals large financial subsidies to partially offset the cost. The entitlement-based subsidy, combined with the proposed Medicaid expansion, would add between $700 billon and $1.2 trillion to federal spending over the next decade, according to the Congressional Budget Office. The new entitlements would come on top of existing federal health-care entitlements that the government has been neither able to control nor finance.

    A portion of the additional spending is to be financed by savings from the existing federal health-care programs. But, thus far, the alleged savings come mainly from cutting future Medicare payment rates. If history is any guide, the savings won't materialize.

    For the past 25 years, Congress has repeatedly "cut" payment rates. Yet Medicare's expenditures have continued to outstrip its dedicated revenues. New taxes have been required but revenues still can't keep up with expenses. Recall that in the early 1990s Congress removed the cap on Medicare's taxable wage base. Today, the Medicare Board of Trustees projects that the Hospital Insurance Trust Fund will be bankrupt in eight years.

    More important, cutting payment rates is not reform. Ultimately, such price controls will lower the quality of health care and reduce the supply of health services, just as price controls have in every market where they've been tried. Congress's near-exclusive reliance on such cuts is revealing. It is a clear demonstration that the federal government has no idea how to reform its current insolvent health-care programs, much less how to properly design a new one.

    Reform will be partly financed by higher taxes. The House bill proposes to raise the highest personal income tax rate by 5.4 percentage points. This is on top of the Obama administration's plan to raise the top rate by another 4.6 percentage points next year. The combined 10-percentage-point increase raises the top income tax rate to 45%—an economic growth-destroying level not seen since the early 1980s. Sen. Max Baucus (D., Mont.) proposes, instead, to tax some health insurance premiums.
    In neither bill do higher taxes finance the proposed additional spending. Should the Medicare savings fail to materialize, as we believe they will, the spending in either bill will add more than $100 billion per year in perpetuity to the already soaring national debt.

    Returning to President Obama's address: "We did not come to fear the future. We came here to shape it." But shaping needs a well-thought-out plan. To move forward, the country must begin to have two separate debates. The first debate centers on how to improve current health insurance arrangements in order to rein in the epidemic of health spending that too often fails to provide good value for money.

    The second debate should center on additional steps to improve access to health care for those who cannot afford it. However, this debate must be separated from the issue of insurance coverage. Many currently insured Americans, no doubt, would be willing to pay some additional amount if extending health insurance coverage actually improved the health of the uninsured.

    The hard reality is that there exists little evidence that it does. Helen Levy and David Meltzer, in a 2008 review of research in the Annual Review of Public Health, summarize the overwhelming conclusion of academic research by concluding: "The central question of how health insurance affects health, for whom it matters, and how much, remains largely unanswered at the level of detail needed to inform policy decisions." We must experiment with alternatives, such as further expansions of community health clinics, special assistance for the chronically ill, and other programs that might not supply traditional services but could have a big impact on people's health.

    Comprehensive, low-deductible, low-copayment insurance has brought us to where we are today. The administration's plan to expand and lock-in this flawed paradigm will ultimately defeat the goal of making health services more affordable for everyone. Fortunately, there are other options, many of which have appeared on these pages. These include policies that encourage more cost-conscious health-care choices, greater competition among health insurers, and reduce the practice of defensive medicine.

    President Obama claims to support these ideas, but the plan he outlined is not consistent with these claims, and neither is the Senate Finance Committee bill. The American people should ask for a second opinion.
    Train the dog, the ribbons will take care of themselves.

  2. #2
    Senior Member YardleyLabs's Avatar
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    Unlike most, this article, written by Cogan, Kessler and Hubbard and published in the WSJ, does not simply use lies and exaggerations to bolster its arguments. It raises valid points with which I generally disagree, but the arguments are fair.

    "To persuade the American people to support his health reform agenda, the president has made two simple promises. First, his plan will benefit everyone who already has health insurance. Second, his plan will not add to the nation's yawning budget deficit. Both claims are essentially false, and examining them offers economic lessons for reform."

    This overstates Obama's claim. He never said hs plan would benefit everyone who has insurance.

    "The administration's plan will impose mandates ...These will remove the freedom to choose"

    This is not related to the opening argument. It is also somewhat misleading. There are two types of freedom that are limited by the types of plans the administration is seeking:
    • the right of individuals to bet that they will not need medical care knowing that if there is a medical disaster they will be covered by public plans or that they will be treated even if they cannot pay. It will still allow people to make that decision, but will fine them for the choice they made.
    • the right of insurance companies to market products that provide grossly inadequate coverage knowing that their target customers do not understand the fine print anyway and will be attracted by the low premiums combined with puffed up claims of protection.
    "[I]n its effort to correct perceived inequities, [the plans] will dictate which health-care services must be covered and which health-care providers must be used."

    The first point is correct. I have not seen anything dictating health care providers beyond the standard sort of restrictions applied to all insurance such as using licensed providers rather than your cousin's friend who says he can heal by touch.

    "The proposed unprecedented intrusion of government into private markets will have adverse effects on people with insurance in both the short and the long run."

    There is nothing unprecedented about this intrusion. It was done with respect to health care with the implementation of Medicaid and Medicare. It is done in every state in the country with auto insurance. Beyond that, the intrusions, for those receiving insurance through employers, are into relationships between employers and insurance companies, not into relationships between consumers and providers. Consumers and providers are now arguably victims of the current insurance model for reimbursement with little real ability to influence the decisions of either the employers or the insurance companies involved. The statement that the intrusion will have long term negative consequences, is a conclusion, not an argument.

    "The mandates will lead to large increases in the cost of health insurance for everyone. Research studies have shown that as people become insured, especially under a health plan that offers broad coverage and low copayments, they consume more health-care services. The best estimates indicate that each newly insured person will approximately double his or her health spending."

    The expectation is that people who are currently uninsured will begin to seek medical care that they need but are unable to buy. It is not clear that this will actually increase costs. It will definitely lead to some increased demand for primary care services, but it should also result in some reduced demand for higher cost services for diseases/conditions that might have been prevented with earlier intervention. No studies are cited for the claim on costs. The studies that I have seen refer to pent up demand and the surge in costs is temporary. Nothing about the plans mandates "low copayments" and I suspect that there will be some experimentation in that area.

    "With 30 million to 40 million newly insured persons under the administration's plan, aggregate health-care demand will increase significantly. ... We estimate that ...will increase health insurance premiums ...by about 10%."

    This estimate is provided without substantiation. I suspect that there will be some increase in short-term demand and that there will be a permanent increase for primary care and for certain ancillary maintenance services such as drug consumption. Whether or not this will result in price increases depends on the elasticity of supply (an economic term). In the case of drugs, x-rays, MRI's, etc., which are a major percentage of total medical costs, there is unlikely to be any such increase and there may be a decrease. The reason is simple. The marginal costs of producing more pills or shooting another x-ray is small and higher volume sales permit the high fixed costs (drug development and testing, equipment purchase) to be spread across a greater volume of consumers. Tertiary care services such as hospitals and emergency rooms may actually see a long term reduction in demand but, as a minimum, are unlikely to see any long term growth associated with universal coverage. To help address the issue of increased demand for primary care services, the bills have included a variety of provisions. However, primary care costs are a small fraction of total health care costs and price increases for these are unlikely to have any significant impact on total costs. For these reasons, I do not believe that the argument for higher prices is justified.

    The mandates will also have adverse additional longer-run consequences."

    This paragraph makes a number of assertions that are not supported by any evidence referenced or provided by the authors. Fundamentally they appear to argue that low copayments in existing plans are contributing directly to over consumption and that the bills lock in this approach. I do not see any lock in. I also agree that increases in copayments generally would probably reduce over consumption but see nothing in the bills that would prevent that. Finally, the bill would have no real affect for the 85% of the population now covered by private and public plans.

    "The current House and Senate bills will also break the president's second promise-not to add to the deficit."

    This is the crux of the argument. There is no question that any form of universal or near universal coverage will increase Federal expenditures. The authors conclude, therefore, that this adds to the deficit. However, if the costs are covered through other spending reductions and through revenue increases, there is no increase to the deficit. The real issue is only whether or not you believe the increased costs are worth doing what must be done to implement the proposed revenue increases and/or spending cuts. What Obama promised was that any plan adopted would have to conform to pay as you go rules. These are the rules that were put into place under Clinton and thrown away under Bush.

    "A portion of the additional spending is to be financed by savings from the existing federal health-care programs. But, thus far, the alleged savings come mainly from cutting future Medicare payment rates. If history is any guide, the savings won't materialize."

    There is actually a difference. In 1996, Congress enacted a provision in the Medicare law that said that if Medicare costs grew faster than inflation, the increased costs would be offset by reducing payment rates -- primarily to physicians. Every year since then, Congress has voted to defer these cuts. There are actually good reasons for doing this, te most important being that physician costs have had almost nothing to do with increases in Medicare costs. Physician incomes have actually been declining as their rates have remained virtually flat. The increases have come from drugs, medical appliances, the inclusion of new services, etc., etc. The savings projected in the bills have actually addressed much more concrete areas of activity including, for example, eliminating $13 billion/year in cost subsidies provided to insurance companies simply to increase profits, eliminating the restriction on Medicare preventing the negotiation of lower costs for pharmaceuticals which added billions per year to drug company profits, etc. The savings proposals were very specific since otherwise the Congressional Budget Office refused to consider them in its evaluation of costs just as it refused to consider all arguments about possible savings through better preventative care.

    "The first debate centers on how to improve current health insurance arrangements in order to rein in the epidemic of health spending that too often fails to provide good value for money.

    The second debate should center on additional steps to improve access to health care for those who cannot afford it. However, this debate must be separated from the issue of insurance coverage. "

    In fact, I do not believe there is any way to address the first issue without also addressing issues of universal access. Too many of the problems in our current insurance market are driven by efforts by insurance companies to avoid begin stuck with the costs of people who only elect to buy insurance when they have medical problems.

    The article then goes on to question whether improving access will improve health care. What it does not address is the evidence that America's current approach provides great medical service for those that are covered but at a very high cost relative to other countries, while limitations on access result in overall medical care for the population that is worse than in most other developed nations because of those who do not have coverage.

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