Healthcare

Although I’m not a huge fan of Obamacare, I’m happy with the result of the Supreme Court’s decision in King v. Burwell. I’m a little less happy with how the Court reached that decision.

From what I’ve read, it seems the Democrats were in the middle of making some changes to the Affordable Care Act when the Senate approve it, and they were probably planning to fix the details during reconciliation, but they got stuck with that version of the Act when they lost control of the Senate and decided to pass the bill in the House without further cleanup because they didn’t trust the Republicans with the reconciliation rewrite. This is not how you get well-crafted laws.

One my concerns about the ACA from the beginning was that it was so contentious that Congress would screw it up. I thought the Republicans would force the Democrats into all kinds of strange compromises to pass it, and the resulting mess would be worse than what we had before, and worse than what the Democrats wanted.

It seems to have played out a little differently than I expected. The Democrats managed to pass the ACA without many compromises, but now that control of Congress has changed parties, they are afraid to change a word of it because they know the Republicans would insist on other changes as well. We saw the kinds of problems this can cause when ACA regulations led insurance companies to drop child-only health insurance, or when it looked like a change in the handling of Social Security could allow people with relatively high incomes to get free insurance, or when the ACA website was forced to follow the original roll-out schedule even though it wasn’t really ready.

King v. Burwell is another example of something that could have been fixed in an afternoon if the Democrats still controlled congress — or if they had a good working relationship with the Republicans when it comes to minor technical changes in already-passed law.

But that didn’t happen, so it ended up in the courts, and eventually made it to the Supreme Court, which basically had two options: Either they could decide that the law applied exactly as written, meaning that people using the federal exchanges could not get subsidies unless Congress did its job and fixed the law, or the Court could do what they just did, and interpret the law as if it had been written more sensibly, for uncertain values of “more sensibly.”

I’m not sure how common this is — the side that won says it’s all just routine interpretation of statutory language, nothing to see here, and the other side says OMG! Worst. Thing. Ever. — but like many other people, I wonder what other laws the courts could decide to “fix” this way. Can they close loopholes in the tax code? “Examined in it’s full context, the purpose of the tax code is to bring money into the government, and despite the plain language of the statute, it would be counter to that purpose to allow this revenue stream to remain untaxed…”

Or how about regulatory law? “Although the plain language of the statute explicitly permits discharge of this pollutant at higher levels than the EPA regulation allows, we’re going to let the EPA pick its own levels anyway, because that would be more in keeping with the overall goals…”

And then there’s criminal law…what happens when something is a little ambiguous there? “Although the alleged behavior doesn’t meet one of the elements of the definition of the crime, it’s clear from the preamble to the Crime Bill that Congress meant to outlaw this behavior…”

I would hope that the burdens typically required in criminal law would prevent this kind of thing, but our governments are pretty good at sneaking criminal punishments into the civil law through things like civil commitments, immigration proceedings, and asset forfeiture.

I realize I’m over-generalizing from a fairly specific ruling, but this seems like the kind of power that certain judges will love, and it’s not unheard of in law for exceptions to swallow rules. It’s not hard to imagine this becoming “Find some ambiguity, write your own law!”

Having said all that, I think the result of the Supreme Court’s King v. Burwell decision is probably for the best. Obamacare has enough problems without having the Court tear out a large and important chunk of it without careful coordination. That would have injected even more uncertainty into a healthcare system that is already going through a lot of changes. Insurance companies and customers would each have had to figure out how to respond without knowing what the other is going to do. And neither would have had a clue how (or if) a Republican-controlled Congress would try to fix the problem, or what concessions they would insist on from the Obama administration. This kind of uncertainty about the legal regime tends to kill off investment and jobs until it gets straightened out.

So, I’m not sure how I feel about how we got here, I think it’s probably for the best that we’re where we are, and I worry about where this will lead.

I used to work on healthcare insurance enrollment systems. This is a bad sign for the next Obamacare open enrollment period:

People will be renewing at the same time that others are enrolling for the first time, starting a week and a half before Thanksgiving, on Nov. 15. To ensure that they have a new plan by the beginning of the year, those who renew will have to sign up by Dec. 15. Exactly how the renewal process will work has not yet been determined.

“We’re still waiting on the details of the process,” said Paula Steiner, chief strategy officer for Health Care Service Corporation, which offers Blue Cross plans in five states. “We haven’t gone through any testing yet of any changes to the system for 2015.”

Not having plan details is normal — the insurance carriers might not provide that data until the last minute — but not having specifications for the process this close to opening for enrollment is going to be a real problem.

At the reliably hyper Addicting Info, Wendy Gittleson is excited over upcoming insurance refunds due to the Affordable Care Act:

In a story that’s bound to send Republicans straight into the spin cycle, it was announced on Thursday that insurance companies will be refunding Americans $332 million because they’ve been overcharging them for healthcare.

That’s about a buck per American. And it’s funny she should mention overcharging, for reasons I’ll get to in a minute.

A generally ignored by Fox News part of the Affordable Care Act (aka, Obamacare) mandates that insurance companies spend at least $.80 of every dollar on *gulp* healthcare. The other $.20 can go toward administrative costs and all the other perks that CEOs of giant insurance companies enjoy. The law is even stricter when the policy is sold to a large employer, with a full 85 percent needing to go to healthcare. In other words, anti-Obamacare people, your insurance company is not charging you more because of Obamacare.

Actually, the ACA tends to push health insurance premiums up for three reasons:

First, the ACA specifies minimum coverage for all health insurance plans that can be used to satisfy the requirements of the Act, and anyone with less inclusive plans will have to switch to a conforming plan. All other things being equal, better coverage costs more, so some people will be paying more for insurance.

Second, the ACA limits the ability of insurers to refuse to cover pre-existing conditions or to charge more for them. To compensate for the losses they take covering people with pre-existing conditions, insurers have to increase the premiums they charge everyone in the plan.

Third, the medical loss ratio requirements of the ACA encourage insurance companies to demand higher premium payments. This is relevant to Gittleson’s post, but it requires a little explanation.

Insurance plans under the ACA are required to pay out at least 80% of premiums as benefits paid for members’ healthcare costs, taking their overhead costs (including profits for investors) out of the remaining 20% of premium payments. If, after everything has settled, it turns out they’ve paid out less than 80% of premiums received, they have to refund enough of the premium to get back up to an 80% payout. (This is what Gittleson is talking about.)

So, for example, if an insurance company took in $1 billion in premiums, it would be required to spend at least $800 million on healthcare. If instead it paid out only $700 million in benefits, it would have to refund $125 million back to plan members to get the loss ratio back to 80%.

It doesn’t work the other way around, however. If the company pays out $900 million in healthcare costs, they don’t get to send plan members a bill for $125 million. They just have to eat the $100 million loss. This asymmetry has consequences.

Assume that a particular insurance plan’s actuaries predict that the company will have to pay out $800 million in claims, and that there’s a 50/50 chance the actual claims will be over or under that amount by $100 million. Before the ACA, the company would estimate its costs at $800 million for payouts and $200 million for overhead costs, which means they’d want to charge $1 billion in premiums. When the year is over, they find out how well they did. If payouts were $900 million, they lose $100 million, but if payouts were $700 million, they’d make an extra $100 million in profits. On average, their outcome would be to have neither extra profits nor extra losses.

(You might be asking why the insurance company wouldn’t just charge an extra $100 million in premiums so they don’t lose money even if claims are $100 million higher. The answer is that I’m assuming that they are setting premium prices as high as they can in a competitive market. Every other insurance company faces the same costs, and therefore can offer insurance at the same price — which, as I said, already includes profit. If any company tried to raise its prices over that of other companies, it would lose all its customers to them.)

Under the ACA, however, the situation is no longer symmetric. With $1 billion in premiums, if payouts were $900 million, they’d lose $100 million that year, but if payouts were $700 million, instead of making an extra $100 million, they’d have to refund $125 million in premiums for a net $25 million dollar loss. So on average, with an equal chance of claims being $100 over or under estimates, the company would lose the average of $100 and $25 million — a projected loss of $62.5 million.

An insurance plan that is designed to lose an average of $62.5 million every year is bad business. To avoid the loss, insurance companies are going to want to raise premiums to $1.125 billion. Then if they had a good year and only paid out $700 million in medical costs over and above their fixed $200 million in operating costs, they would have to refund $250 million, for a loss of $25 million, but if they had a bad year and paid out $900 million in medical costs and $200 million in operating costs, they would make $25 million in profit. Symmetry would have returned, and they would once again have neither extra profits nor extra losses.

(Raising prices because of the incentives in the ACA is not blocked by competitive pressure because every other insurance company is also governed by the ACA and faces the exact same incentives.)

Obviously, I’m greatly oversimplifying, but the basic principle remains: By letting insurance companies take unexpected losses but not allowing them to keep unexpected gains, the ACA is actually encouraging insurance companies to raise their premiums to create a reserve against claims losses.

Note that insurance companies don’t actually make more profits this way, and consumers don’t actually pay any more for healthcare, because the high premiums are eventually refunded to consumers. However, the refunds don’t represent a saving for consumers either: The refunds are coming out of elevated premiums that are caused by the ACA itself.  Obamacare is just forcing insurance companies to take more in premiums so they can give it back as refunds later.

Rebates are not the goal of the Affordable Care Act. In a perfect world, there would be no rebates at all. The idea is that insurance companies will charge the right amount off the bat. The goal is also for the companies to cut overhead.

Costs have been going on the right trajectory. In 2011, the year the law took effect, insurance companies owed their customers $1.1 billion. Last year, that number was cut by more than half, at $500 million. Overhead costs have gone down too – to just 11.5 percent.

That’s a good thing if insurance companies actually cut costs, but that may not be what happened. A lot of people think that insurance companies deliberately underbid their premiums this year in order to gain market share. This is suggested by the reports that a number of insurance companies didn’t participate in the ACA exchanges (presumably priced out of the market by the underbidders) and the expectation that premiums will be increasing next year.

And regardless of what happens over the short term, the ACA sets up some funny incentives over the long term. In my example above, you’ll note that when healthcare costs were high, the insurance companies made more profits, but when healthcare costs were low, the insurance companies lost money because of the way refunds are calculated. The limits on medical loss ratios mean the insurance companies essentially have to live on their 20% of the pie, so naturally they do better when the pie is bigger. In the short run, they still have to compete with each other for customers, so they will want to control increasing medical costs, but in the long run they will do better if medical spending increases.

Unfortunately, increased spending doesn’t necessarily translate to improved health, because the insurance companies will benefit as much from wasteful spending as they will from spending that produces real health benefits.

If cutting overhead to 15-20 percent seems like an unrealistic goal in the free market, perhaps they could learn a lesson or two from Medicare, which conservatively, has an overhead of just 6 percent.

That’s because Medicare recipients typically have higher healthcare costs than the younger people covered by private insurance. It’s easier to keep the overhead down when your non-overhead expenses are proportionately high.

 

Much Ado About $300

I think the reaction to the Hobby Lobby case is going to make me mental. Case in point:

Protesting the Hobby Lobby Decision

That’s from a Mother Jones article by Erika Eichelberger and Molly Redden titled “In Hobby Lobby Case, the Supreme Court Chooses Religion Over Science”. Does the young woman holding the sign realize that she’s saying it’s not her boss’s business that she wants him to pay for her contraception? This is as dumb as those right-wing protesters who want to “keep the government out of my Medicare.” If she doesn’t want her boss involved, she can buy the contraceptives herself. It’s her insistence that her employee health insurance should cover contraception that causes her employer to be involved.

As for the Mother Jones article’s main point about science and religion,

According to the Food and Drug Administration, all four of the contraceptive methods Hobby Lobby objects to—Plan B, Ella, and two intrauterine devices—do not prevent the implantation of a fertilized egg into the uterus, which the owners of Hobby Lobby consider abortion. Instead, these methods prevent fertilization.

I’m not sure that’s a completely accurate description when it comes to some forms of IUD. My admittedly sketchy understanding is that if an egg does get fertilized, the IUD could interfere with implantation, which meets some religious people’s definitions of abortion, which they regard as the murder of babies. That may not actually be true, but it’s what a lot of people believe, which is pretty much the definition of religion.

However, it’s not the Supreme Court that is choosing religion over science. Congress did that when they passed the Religious Freedom Restoration Act (RFRA). When a later Congress passed the Affordable Care Act (ACA, also called Obamacare), they left the choice of required insurance coverage up to the regulatory bodies of the Executive branch. However, because they were either neglectful or cowardly, Congress failed to specify how to resolve conflicts between RFRA and ACA. The Obama administration chose to require contraception coverage, the folks at Hobby Lobby objected, and the whole mess dragged through the court system until it was finally resolved by the Supreme Court.

As I’ve said before, this is a stupid way to run a healthcare system. All of this fuss is about four items in the ACA required formulary. All of this fighting is about a benefit which Megan McArdle argues is worth about $300 per year to the fraction of the population that uses it. When you make the provision of healthcare a matter of public policy, you make every element of the healthcare system a matter of politics. There are going to be a lot more battles like this one.

I recently received an email pitch for a Change.org petition:

My name is “Sue,” and I work at Staples. I can’t tell you my full name because I’m afraid I’ll lose my job for what I’m about to tell you: Staples recently decided to cut part-time employees’ hours just so they won’t have to provide health care benefits under Obamacare.

Staples is taking advantage of a loophole in the health care law that says employers don’t have to provide coverage for employees who work less than 30 hours a week. Staples also told managers to hire more part time workers if they need people to cover the schedule.

[…]

I’ve worked as an Easy-Tech Representative for 9 years now, selling thousands of computers, protection plans, and services. I typically work 30-35 hours in a week, so when I was told that my hours would be cut, I was heartbroken. I recently got married and we have a baby on the way — 25 hours a week is not enough to make ends meet, let alone start a family.

I’m sorry to hear that Sue’s hours have been cut, especially with a child on the way, and especially if she’s a real person and not just some activist concocting a scenario to gain sympathy. She has my sympathies, and I hope she is successful at finding ways to improve her income. But I don’t much care for her letter.

It’s disingenuous to say “Staples is taking advantage of a loophole.” The cutoff for requiring coverage is not a loophole; it’s an intrinsic part of the design of the Affordable Care Act (ACA). The basic problem is that health insurance costs the same fixed amount of money per week regardless of how many hours you work.

For example, Glassdoor.com reports that Staples EasyTech employees like Sue earn as much as $14 per hour. If she worked a full 40-hour week, that would multiply out as a cost to Staples of $560 per week.

Assuming Sue started work at the age of 18, she’s about 27 years old right now. Making a few more guesses about her, I got a quote at ehealthinsurance.com for the cheapest coverage I could find, a Blue Cross Bronze PPO with a $6000 deductible for $122 dollars per month. If Staples paid for that coverage, it would work out to an extra $30.50 per week (using 4-week months to simplify the math). If she worked a full 40 hours per week, that would raise her hourly cost to Staples from $14 to $14.76, an increase of 76 cents an hour or about 5.5%. That’s fairly high for a non-merit raise these days, but it’s not too absurd, and it works out to a weekly cost for 40 hours of labor of about $590.50.

On the other hand, if Sue only worked 20 hours per week and the ACA still forced Staples to buy her health insurance, she would cost Staples $280/week in wages and $30.50 per week in insurance, for a total of $310.50, which works out to about $15.53/hr, equivalent to giving her an almost 11% raise. To get a full 40 hours worth of work done, Staples would also have to hire another 20-hour worker for another $310.50 a week, for a total cost of $621 (up from $560 for Sue without insurance).

Pushing the example to the limits of absurdity, consider what happens if Sue only works 1 hour a week. An entire week’s worth of health insurance would get charged to that hour, raising her effective wage to $44.50/hour, an almost 218% increase in costs. Getting 40 hours worth of work done with 40 employees working 1-hour each would cost a whopping $1780 per week. When you compare that to the $560 it costs to fill 40 hours without insurance, it’s clear that this would be unsustainable. No company could afford such a huge increase in labor costs. They’d have to lay people off or go out of business.

The point is that requiring an employer to provide health insurance is equivalent to giving that employee a raise, and since health insurance costs do not diminish with hours worked, the fewer hours an employee works, the greater the equivalent raise, and the greater the burden of providing health insurance, compared to hiring the same employee for the same amount of time without providing insurance.

So forcing a company to give health insurance to full-time 40 hour/week employees might be reasonable, but forcing them to give health insurance to 1 hour/week employees would be destructive. Consequently, if we’re designing a law requiring employers to provide health insurance, we have to pick a point somewhere in between 40 hours and 1 hour where we’ll stop requiring health insurance if we want to avoid causing too much unemployment.

(We probably also want to set the threshold fairly high to handle the situation of people with two jobs. There’s no need for someone receiving insurance from their 30-hour day job to also receive insurance from their 12-hour night job.)

In any case, for whatever reason, the folks designing the Affordable Care Act decided to put the cutoff at 30 hours per week. For my hypothetical Sue, this raises her employer’s cost by just over 1 dollar per hour, or 7.26%.

Apparently, Staples didn’t want to give Sue a other workers like her a raise that large, so they cut her hours to bring her under the cutoff for mandatory insurance.

Note that I chose the numbers for this estimate conservatively. For example, if I assumed Sue was 10 years older and earning minimum wage, the math would be even worse: Giving her coverage at 30 hours/week would increase costs by more than 16%, which would have an even more severe effect on Staples’ staffing decisions. Also, I’m neglecting taxes, unemployment, workers comp, and other payroll costs to keep the math simple, but the basic principle still applies.

By signing my petition, you’ll be amplifying the voices of thousands of Staples employees across the country who are afraid to speak out and can’t afford to have their hours cut. Click here to sign my petition demanding Staples follow the law and provide health care instead of cutting part-time employees’ hours.

Staples is following the law. The relevant provisions of the Affordable Care Act are usually described as forcing employers to provide health insurance to employees working 30 or more hours, but there’s another equally valid way to describe it, and that’s to say that it prevents employers from letting uninsured employees work 30 or more hours per week. In other words, if you work more than 30 hours per week, and your employer doesn’t give you health insurance, the ACA makes your job illegal. Employers may choose to fix this by giving you healthcare, but they can also choose to fix this by eliminating your job or reducing your hours.

This is a common feature of many similar laws that require one group of people to provide benefits to another group of people. For example, the accessibility rules for wheelchair users in the Americans with Disabilities Act (ADA) are usually described as requiring places of public accommodation to be wheelchair accessible, but those rules can equally be described as preventing places that aren’t wheelchair accessible from being open to the public. When the ADA was passed, some businesses complied with it by remodeling, but other businesses complied with it by going out of business.

In the simplest terms, the ACA divides all employees into two classes: (A) Those who work less than 30 hours a week, and (B) those who work 30 or more hours per week. Then the ACA adds an insurance requirement for class B which makes employees in class B more expensive to hire. It’s a basic rule of economics that when the price of something goes up, the quantity purchased goes down, so it’s no surprise that making it more expensive to hire people for 30 or more hours per week will cause a reduction in the number of people who get hired for 30 or more hours per week.

This was a completely predictable consequence of the Affordable Care Act that critics (and honest proponents) have been predicting ever since the law was proposed.

Another way to look at it is that when the ACA forced Staples to provide health insurance to its employees, management had to figure out where to get the money to pay the premiums. They had only a few possible sources — stockholders, customers, suppliers, and other employees — and each of those groups is going to resist taking the loss, with various levels of success. Analyzing where exactly the burden will rest is a difficult economic problem, but clearly Staples has decided that at least some of the money used to provide health insurance to Sue’s coworkers will come from Sue.

How screwed-up is the economics of our healthcare system? So crazy that stuff like this happens all the time:

The proposal by Vista Health System to build a $131 million hospital in Lindenhurst would add more beds to an area that already has a substantial surplus, according to a report released today by the staff of the state health care facilities board.

The plan by Waukegan-based Vista to build a 132-bed facility 13 miles west of its existing facilities would increase the oversupply of hospital beds in Lake County, which already has 86 more beds than needed, according to a report by the staff of the Illinois Health Facilities and Services Review Board.

In other words, in an era of rising healthcare costs, the Illinois Health Facilities and Services Review Board (who can’t even keep a website running as I write this) is worried that people might have access to too much medical care, to the tune of 86 hospital beds in a county with a population of 700,000 people.

Supposedly, the purpose of the Illinois HFSRB is to lower healthcare costs by preventing “over-investment” in healthcare facilities, which would somehow drive up healthcare costs, despite the fact that increasing the supply makes the price drop for every other good and service in the world. It’s hard to see how this is anything other than the government protecting the interests of existing hospitals at the expense of new hospitals and of patients.

Well, it does serve one other purpose… It’s an opportunity for graft by the board members who get to control the permit process for billion-dollar corporations:

[The Illinois Health Facilities and Services Review Board] was embroiled in scandal when federal authorities in 2005 indicted Stuart Levine, a former board member who later pleaded guilty to using his position to squeeze hospitals for favors, kickbacks and contributions for his political friends. The same investigation led to the conviction of former Illinois Gov. Rod Blagojevich.

If the CEO’s of a bunch of hospitals got together and conspired to limit the number of hospital beds in the market, they could increase their profits tremendously by reducing price competition. However, that would be a cartel, which is a crime under U.S. anti-trust laws. They might still make some back-room deals — with promises and handshakes — but they couldn’t enforce those deals, and they couldn’t prevent outsiders from entering the market and driving prices down.

But if the hospital CEOs can get the state legislature to set up a regulatory board that is specifically allowed to limit the number and size of hospitals, that’s called a Certificate of Need, and it’s completely legal. It’s the state-wide cartelization of the hospital market, and it’s enforceable even against outsiders entering the market. It’s exactly what a bunch of greedy conspirators would want.

It’s also the law in 35 states.

Eliminating the Certificate of Need requirements is one of the most obvious steps to reduce healthcare costs, and not doing anything about it is one of the biggest failings of the Patient Protection and Affordable Care Act (Obamacare). How can you pass a law that’s supposed to give us easier access to healthcare while leaving in place a system specifically designed to limit the availability of healthcare?

I’ve held off writing anything about the whole contraceptives/Sandra Fluke/Rush Limbaugh mess because it’s a classic example of an important political debate turning trivial, stupid, and misogynistic. At the top level, we have the ongoing debate about how to reform the healthcare industry in this country. The current big and controversial plan is the Affordable Care Act, which is either going to save or destroy our medical industry, depending on what you believe.

The first step down toward stupidity is that under the Affordable Care Act every health insurance plan is supposed to include a lot of things that don’t belong under an insurance plan. As a general rule, it’s a bad idea to buy insurance that pays for things you can afford to pay for directly. Insurance is supposed to be a mechanism that protects you against disasters. This is why your car insurance protects you against the risk of major car repairs due to a crash, but not the risk of replacing worn-out tires or changing dirty oil. It’s also why it’s foolish to want health insurance to cover routine office visits and inexpensive medications. It’s cheaper to pay directly.

So why do health insurance plans cover these things? Two reasons, one good, the other bad. The good reason is that some of these things actually reduce your overall healthcare costs, so it’s to your insurance company’s advantage to cover you completely. This is efficient and good for everybody. The bad reason is that your medical expenses are not deductible from your taxes (unless they’re huge) but your employers are allowed to deduct the cost of buying you medical insurance from their taxes. Essentially, you are funnelling payments for your routine medical care through your employer to avoid paying income tax. It’s a complicated and wasteful response to tax policy.

The first step down toward trivia is the discussion over the requirement that all health insurance plans should provide contraceptive pills for women. If this was any other medication, it would hardly be worth discussing. In any serious attempt to reform healthcare, the criteria by which drugs are included in the formulary requirements for the standard insurance plans should be spelled out and applied to all medications. There shouldn’t be any need for Congress to decide these things on a pill-by-pill basis.

That’s where the Catholic Church enters the fray with their insistence that contraception is immoral, and that they shouldn’t have to pay for something they consider immoral. I don’t understand the Chuch’s position on contraception. I’ve heard explanations, but they always make it sound like the Catholic Church thinks that (1) people shouldn’t have sex for any reason other than to have a child, and (2) the way to stop them from doing that is to force them to have unwanted children if they do. Both of those points sound stupid to me, but I was raised as a Protestant, so I might be biased.

This all leads to a confrontation over whether or not religious freedom means the Church should receive special accomodations as a religious institution so that it can sidestep the requirement to fund contraception. Given that I’ve heard that contraception is one of those things which insurance companies like to include for free because it reduces their long-term costs, the Church may actually be paying more for the privilege of refusing to provided birth control to women, which seems stupid and more than a little misogynistic.

Then we get Sandra Fluke’s testimony before congress. It was largely a typical and unremarkable litany of the the difficulties women face from having to pay for birth control. I don’t think there’s any doubt that women’s lives would be better if they received free birth control, just as their lives would also be better if they received free iPads. But the money for either of those things has to come from someone, and I’m sure those other people’s lives would be better if they were allowed to keep the money. There’s an argument to be made here, but Fluke’s testimony was little more than a plea to be given someone else’s money. There was nothing unusual about this, as asking to be given someone else’s money accounts for a large fraction of the reasons people talk to members of Congress.

Then, for some reason. Rush Limbaugh got involved, which did nothing to reduce the stupidity of the discussion and really cranked up the meanness. He did some radio bits where he tried to portray Sandra Fluke as a “slut” and a “prostitute” who wanted to be “paid to have sex.”

For some reason I don’t quite understand, out of all the outrageous things that Limbaugh says, this one really upset people, to the point that they are organizing boycotts against his sponsors. My co-blogger Ken tells me it’s because Limbaugh didn’t just call her names, he really laid into her during a lengthy series of degrading tirades.

Maybe. I haven’t heard Rush Limbaugh’s show for any length of time since 1994, but I distinctly remember he used to go into a lengthy series of tirades about everything — although mostly, it seemed, about what other people were saying about him — and I somehow doubt this was any different. Just bad luck on Rush’s part, I guess.

Some of Rush’s defenders responded by reminding everyone the Bill Maher called Sarah Palin some bad words. And thus the debate on national healthcare has degenerated into an argument over which side has meaner talk show personalities.

And then, as I was writing this, I found out that Gloria Allred is trying to encourage a Florida State Attorney to press criminal defamation charges against Rush Limbaugh for “falsely and maliciously imputing to her a want of chastity” because “his reference to Ms. Fluke as a ‘slut’ and ‘prostitute’ were baseless and false.” I think somebody needs to explain to Ms. Allred that there is a hell of a lot of territory between “slut” and “chaste.”

Everybody knows at least one line from Shakespeare’s Henry VI: “The first thing we do, let’s kill all the lawyers.”

But really, that line is hundreds of years old. Anybody writing today wouldn’t put lawyers first on the list. Not while there are still people alive in medical billing departments.

My God, this is a stupid business.

My wife had surgery a few months ago, and I’m in the process of cleaning up the last of the bills. As near as I can tell, there are seven different entities sending us bills:

  • My wife’s regular doctor who took the initial complaint and helped us decide what to do about it.
  • The surgeon who went in and fixed the problem.
  • The anesthesiologist who knocked my wife out and brought her back.
  • The hospital where the procedure was performed.
  • The completely different hospital that did the lab tests.
  • The radiologists who analyzed images of the problem.
  • The pathologist who evaluated tissues that had been removed.

We got some of these bills relatively quickly, but others took weeks to get here, and I have no way of knowing if there are any more bills still to come. (When I had very minor surgery last summer, the surgeon’s bill took months to arrive, and it arrived in the form of a collection notice for non-payment.)

By comparison, around the same time, my car had an unfortunate encounter with some suicidal geese. It took about four days to repair the car, but unlike with my wife’s surgery, the entire bill was available immediately, and more importantly, the entire bill was payable to the bodyshop. I didn’t have to pay the paint supplier or the Toyota parts supplier or the specialty shop that reclaimed the coolant from the air conditioner and refilled it. Even the insurance company had already promised to pay their share. It was a single, consolidated bill.

That’s pretty much how everybody else handles billing. If you hire a photographer for your wedding, you don’t have to pay his assistant or the lab that makes the prints. If you add a room to your house, you pay the general contractor, and he pays all his suppliers and subcontractors. Consolidating the bill is a very common service.

So, the first question is: Why can’t medical billing be this simple? Why couldn’t I pay for my wife’s surgery with a single payment? It wouldn’t necessarily have to be a single payment to the surgeon or the general practitioner. In fact, given the unpredictability of medical costs, it would probably have to be an intermediary with reasonably deep pockets. The hospital or the insurance company are both obvious candidates.

Or, given that there’s money involved, perhaps it should be a new niche for the banks. It all went on my American Express card, so maybe they’d like more of the action. After all, if they can offer Travel Services, why not a new Medical Services division?

It seems like everybody from the doctors to the hospitals to the patients — heck, maybe even the insurance companies — would benefit from making this process more efficient. And they ought to be willing to pay someone to do it. So why isn’t it happening?

I don’t know. If I had to guess, I’d say that this is the sort of customer-be-damned inefficency that is at the heart of any monopoly. Since there’s no obvious monopoly player, I’m guessing that it’s actually a cartel of medical service providers, probably enforced by the government. This is not entirely just libertarian suspicion of government: The hospital cartel is right out in the open in many states, enforced by Certificate Of Need requirements before any hospital can open or expand. The ban on interstate sale of health insurance also serves to cartelize the insurance companies of each state, protecting them against competition in a national market.

Now we come to the second and more important question: What else in healthcare is this inefficient? I can recognize the inefficiency of the billing process because it is a relatively simple non-medical matter. I don’t have to know a lot about medicine or hospital management or actuarial science to see the problem.

So if the small part I can see and understand is so absurdly inefficient, what else is screwed up just as badly, except that I don’t know enough to spot it? Operating room scheduling? Radiology equipment maintenance? Laboratory workflow? Ten other things that I don’t even know exist? If the problem with billing is systemic (as I suspect) there’s nothing to stop it from affecting every part of healthcare.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

— F.A. Hayek, The Fatal Conceit

An AP story by Ricardo Alonso-Zaldivar explains a glitch in the Patient Protection and Affordable Care Act (PPACA):

WASHINGTON – President Barack Obama’s health care law would let several million middle-class people get nearly free insurance meant for the poor, a twist government number crunchers say they discovered only after the complex bill was signed.

The change would affect early retirees: A married couple could have an annual income of about $64,000 and still get Medicaid, said officials who make long-range cost estimates for the Health and Human Services department.

Up to 3 million more people could qualify for Medicaid in 2014 as a result of the anomaly. That’s because, in a major change from today, most of their Social Security benefits would no longer be counted as income for determining eligibility. It might be compared to allowing middle-class people to qualify for food stamps.

Medicare chief actuary Richard Foster says the situation keeps him up at night.

This is the sort of thing that happens when you try to restructure a huge chunk of the American economy by quickly passing a giant bill that nobody understands.

And this sort of thing isn’t really what Hayek was talking about. This is a problem with the way various provisions of the bill interact with themselves and other law. Hayek was talking about the kinds of problems that will arise when this complex piece of legislation collides with the thousands of companies and millions of American’s it’s going to affect. People will respond in ways that are hard to predict. There will be unintended consequences.

Of course, some problems have already popped up that seem likely to cause a lot of trouble in the future. The worst thing I’ve heard of so far is the PPACA’s attempt to regulate medical loss ratios, which has a pretty good chance of making a lot of health insurance companies — especially the smaller ones, which would have to manage more volatility in their MLRs — decide to go into some other business. On the other hand, having insurance companies stop insuring children because of onerous regulations is also pretty bad.

I guess it’s change of a sort.

Obama’s healtcare reform started as a beautiful vision of low-cost healthcare for everyone. I thought that was highly unrealistic, but at least it was clear and straightforward.

I guess the Democrats thought it was unrealistic too, because the Democrats soon made a series of compromises and turned it into a plan that purporte to give us all healthcare through the dubious method of requiring all of us to buy health insurance. Worse, it required us all to buy the same kind of health insurance. Those who preferred high-deductible health insurance were out of luck.

Of course, since it makes little sense to require poor people to buy health insurance they can’t afford, they were to be provided with subsidies. Given the other elements of the healthcare reform bill, this was a fairly sensible thing to do. Then, for some reason—I can only guess class hatred—it was decided that people who already had very good health insurance plans were going to be taxed extra. But, in a craven political move to buy support from unions, their members were given a break on the tax for their healthcare plans.

That’s about as far as it got by the end of last year, when the healthcare reform mess seemed to fall through…until now. This time, Obama’s putting forward the worst idea yet: Price fixing.

Making a last-ditch effort to save his health care overhaul, President Barack Obama on Monday put forward a nearly $1 trillion, 10-year compromise that would allow the government to deny or roll back egregious insurance premium increases that infuriate consumers.

The Whitehouse website has more information at Policies to Improve Affordability and Accountability:

Both the House and Senate bills include significant reforms to make insurance fair, accessible, and affordable to all people, regardless of pre-existing conditions.  One essential policy is “rate review” meaning that health insurers must submit their proposed premium increases to the State authority or Secretary for review.  The President’s Proposal strengthens this policy by ensuring that, if a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable.  A new Health Insurance Rate Authority will be created to provide needed oversight at the Federal level and help States determine how rate review will be enforced and monitor insurance market behavior.

Having to submit a pricing scheme to a government-run rate review board is an old idea that has been discredited over and over. It’s pretty much the same sort of price control regime that held back the airline, trucking, and rail freight industries for decades until the deregulation of the Carter-Reagan era. I’m sure it will hold back healthcare.

Putting a public option in the comprehensive healthcare reform bill is a stupid idea.

Note that I’m not saying that the public option is a stupid idea, nor am I saying that comprehensive reform is a stupid idea. Either or both of those things could be stupid, but that’s not what I’m talking about. I’m saying it’s stupid to have a comprehensive reform bill and a public option.

Here’s why: The stated purpose of the public option is to ensure that insurance companies offer quality healthcare by providing a competing option. If employees don’t like any of their private choices, they can take the public option. Because of this, a public option is a complete solution to the healthcare insurance problem. No other significant tinkering is needed.

A healthcare reform bill with a public option needs only to spell out the terms of the public option to guarantee that every American can receive that level of healthcare. It doesn’t matter what other healthcare plans are offered by employers, because if they are inadequate, the employee can always avoid them and choose the public option. And if the private plan is better than the public option, then the employee is better off by choosing it. Thus, no private plan can make an employee worse off, so there’s no need for additional regulation.

Regulation of the healthcare insurance business and a public option for healthcare insurance are two solutions to the same problem. One of them is unnecessary.

I really don’t understand healthcare reform.

People keep saying that one of the biggest problems with our current system is that about 45 million people don’t have health insurance. There are reasons why that number doesn’t tell the whole story, but I can understand why people are concerned. What I don’t understand is how any of the reform plans would fix the problem.

I’ve been meaning to blog about it, but I wasn’t sure where to start. Thankfully, Jennifer Abel has come to my rescue with her op-ed in the Guardian:

Before I say anything about America’s healthcare reform boondoggle, I’d like you to behold my brilliant plan to end hunger once and for all (and then, after you behold it, go and kick yourself for not thinking of it first).

Providing food to those without is simple, really: we’ll just pass a strict law requiring all hungry people to buy some, and if they don’t, fine them harshly enough to persuade even the most recalcitrant ones it’s in their best interest to eat something once in a while.

Now change “food” to “health insurance,” and behold: you have what Congress and President Obama want to inflict upon hapless constituents like me.

Yes, the healthcare plan includes mandatory health insurance for everyone. So the plan for making sure everyone is insured is…to require everyone to buy insurance.

Understand that this isn’t going to make much difference to the 85% of us that have health insurance already. We won’t have to pay a dime under this new plan. The only people who will have to come up with money are the people who are uninsured now. I have trouble seeing how this will help them.

In fact, if we remember Watergate and “follow the money,” the most obvious beneficiary is the insurance industry. How great would it be to work in a business where people are forced to buy your product?

I’ve been skeptical of healthcare reform from the start, but for those of you in favor of it, is enriching the insurance industry what you had in mind?

In response to my earlier post of a couple of thoughts on healthcare, a reader called “bunkerbuster” throws a few interesting questions my way:

What’s your view on demand for health care?

The market model would have it increase to infinity if it becomes zero cost to the consumer.

Generally, that is the rule, but I think “bunkerbuster” is right to be skeptical for three reasons. First of all, the market model is a model, and nobody seriously expects models to work at the extremes. Having an infinity turn up in the middle of your model is usually a sign that you’ve gone too far.

Second, healthcare has non-financial costs—such as the time it takes from a busy day and the fact that it’s often very uncomfortable—that prevent the true cost to the consumer from ever dropping away to zero.

Third, like everything else, healthcare has diminishing returns. The most important bits of medical care are extremely important to your health, but additional care is less and less valuable. These returns likely diminish all the way to zero—or at least below the costs mentioned in the previous item. Once you’ve fixed everything that’s wrong with you, why would you buy more healthcare, even if it’s free?

(Of course, health problems can be defined down. Back when most children never made it to adulthood, nobody worried about allergies. Nowadays, people take pills to get rid of toenail fungus, and some plastic surgeons have lobbied to have small breasts classified as a disorder.)

But in reality, the non-union pipefitter who can now afford to have regular check ups may well have significantly lower long-term demand for medical services.

So here’s a point to ponder: If preventive care reduces long-term costs, shouldn’t we expect uninsured people to consume a lot of preventive care, since they are more directly exposed to the costs? That’s apparently not what happens, however, because our healthcare system already includes a distortion in healthcare pricing, as illustrated by the last part of the comment:

And there’s always the classic emergency room scenario in which demand for those ER resources balloons because the poor have nowhere else to go and because minor problems go untreated until they are emergencies…

This happens because hospital emergency rooms aren’t allowed to turn people away, even if they can’t pay. For poor people, this artificially lowers the price of emergency care with respect to non-emergency care, which distorts the healthcare decision-making process. From the indigent patient’s point of view, emergency care is cheaper than non-emergency care. And when something has a low price, people buy more of it.

Since non-emergency situations can progress into emergencies if untreated, this creates some perverse financial incentives for poor people to avoid preventive medical care. But what are the alternatives? Refusing emergency care to people who can’t pay? Paying for every doctor’s visit, no matter how unnecessary? There are no easy answers.

(And, just to mix things up a bit, some statistical evidence suggests that the benefits of preventive care aren’t as clear-cut as we might suppose.)

Back on my latest I’m-going-to-be-blogging-about-healthcare post, reader Seth makes a few points in the comments. Here’s the first one:

Making healthcare cheaper by saving money on billing data, etc. is saving money on clerks and bookkeepers. Whether the amount is large or small, it has no effect on the amount of healthcare provided (except perhaps by doctors who do their own billing, of which I know of none).

At first I thought Seth was simply wrong, but when I thought about it some more, I realized the reason he’s wrong is more complex, and to the extent that he’s throwing my own words back at me, I’m wrong too. Seth is referring to the third item I listed:

The reason some people can’t get healthcare is because it’s a scarce commodity: There aren’t enough doctors, hospitals, nurses, drugs, and medical equipment to give everyone the care they want.  That some people can’t afford healthcare is merely a symptom of its scarcity.

I overstated my case in the last sentence. I was thinking of pricing in the very short term.

For example, when a hurricane does unexpected amounts of damage, there’s often a sudden spike in the price of building materials, especially wood for boarding up windows. This is often denounced as price-gouging, but the economic reason for the high prices is that wood has suddenly become scarce relative to the demand, and buyers bid the prices way up.

Legislatures can pass anti-gouging laws, and politicians can crack down on suppliers, but none of those things can increase the amount of wood. If wood prices are held low, it changes who gets the wood—it now goes to the people who get there first, rather than the people with lots of money—but there still isn’t any more wood to go around.

A similar problem would arise from any attempt to hold down healthcare costs through price controls or through single-payer bargaining power: Healthcare won’t be just for the wealthy anymore, but there still won’t be any more of it.

(Actually, history suggests that the wealthy will somehow find a way to prevail, but that’s another story.)

In the longer term, however, the supply of healthcare is not fixed. People involved in the prodution of healthcare—from doctors to hospitals to pharmaceutical companies—will provide more healthcare if it becomes more profitable for them to do so.

So, for example, reducing the clerical costs of operating a doctor’s office increases the efficiency with which patients’ money ends up in doctors’ bank accounts. The medical professions become more profitable, and more doctors enter the field, providing more healthcare.

(Other outcomes are possible. Instead of more people becoming doctors, it’s possible that doctors will start working longer hours, which still leads to more healthcare. Alternatively, maybe instead of the saved clerical money going to doctors, it could end up in the hands of the patients in the form of reduced fees. This would not lead directly to an increase in healthcare, but presumably the patients would spend it on something that improves their lives, so it’s still a good thing. Technically, they could even spend the extra money on more healthcare.)

Seth’s other point is this:

A problem with your solution to the problem of pre-existing conditions is that it isn’t clear how to attribute costs with multiple causes (e.g. osteoporosis found during coverage by one company, person falls off a ladder while covered by another, and gets a lot more bones broken than someone without osteoporosis would). But I suspect the companies would come up with some way to handle that, mostly because they’ll be on both sides equally so won’t really care.

Yeah, that’s just an idea I tossed out, and it needs a lot of fleshing out. I’m sort of assuming it’s not that hard because insurance companies already make these kinds of decisions about pre-existing conditions. It’s just that now there’d be two companies arguing about it. If insurance laws required that one of them has to pay, they’d probably work out a solution.

I imagine a system similar to no-fault auto insurance: Your current company pays for your treatment, and then they try to collect from previous companies for pre-existing conditions. I think companies on the hook for pre-existing conditions would probably try to unload them on the new insurance companies. For example, the company on the hook for the osteoporosis might pay the new company $20,000 to take responsibility for the condition. It’s sort of like having people with pre-existing conditions come with a signing bonus for their new insurance company. As the system matured, the companies would probably create a clearinghouse to make these transactions more efficient.

Last August, I boldly announced that I would begin blogging more about healthcare.  Like most such announcements here, it didn’t work out. I had figured the big story for the next administration would be healthcare, but just days later the economy blew up.

The story of the Obama administration is turning back toward healthcare now, and I’d still like to learn about healthcare issues, so I’m finally getting around to starting some research.  (My recent experiences with the healthcare system probably have something to do with it.)

Before I actually learn anything, I thought I’d document some of my thoughts and intuitions about healthcare and ideas for reform, so that I can compare my current biases with my more informed opinions in the future.

So, in no particular order, here’s what I believe or suspect right now:

  • I’m not entirely convinced we have skyrocketing out-of-control healthcare costs.  Our total healthcare expenditures are rising, but that’s because (1) our population is getting older on average so we need more healthcare, and (2) healthcare technology is getting better, so there’s greater value in buying it (kind of like the reason most households have higher computer expenses today than they did 25 years ago). This is normal.
  • The only healthcare externalities are infectious diseases.
  • The reason some people can’t get healthcare is because it’s a scarce commodity: There aren’t enough doctors, hospitals, nurses, drugs, and medical equipment to give everyone the care they want.  That some people can’t afford healthcare is merely a symptom of its scarcity.
  • Any healthcare reform plan that does not increase the supply of healthcare—more doctors, hospitals, nurses, drugs, and medical equipment—cannot possibly provide more care.  It can only change who gets the care.
  • Lots of people say you can make healthcare cheaper with more efficient handling of medical and billing data.  I believe this is true, but that the overall saving will be small compared to the total for healthcare.
  • Some of the cost is due to protective barriers to entry in the medical profession.  Many routine tasks performed by doctors could be performed by less skilled people.  The emergence of low-cost clinics staffed by nurse practitioners is a step in the right direction.  If more efficient data processing is going to have a serious effect on medical costs, it will be by enabling more care to be provided by less-expensive labor.
  • As long as healthcare remains scarce, we will have to ration it somehow, either by price or by insurance claims processing or by government rules.  There will always be people who can’t get what they want.
  • The diseases you get are somewhat random, the accuracy with which you’re diagnosed is somewhat random, and the outcome of your treatment is somewhat random.
  • All that randomness amounts to risk, and the presence of risk means that insurance—private or public—will be an unavoidable part of healthcare for the foreseeable future.
  • The health insurance market is perverse in that the assymetry of knowledge runs opposite to the usual direction of most markets:  The person buying health insurance almost always knows more about their health than the seller of insurance.
  • Under the wrong conditions, that can cause massive adverse selection—where only those most at risk bother to buy insurance.
  • Medical care is very complicated, so healthcare buyers—patients—don’t usually know much about what they’re buying.
  • Much of what we call health insurance—especially coverage for routine medical procedures that people can pay for themselves—is really a legal way to dodge taxes:  Our employers pay for medical insurance with pre-tax dollars, but if we had to pay those fees ourselves, we’d pay with post-tax dollars.  This distorts and obscures the insurance market.
  • If not for the tax advantages, most people wouldn’t buy non-catastrophic health insurance.
  • The problem of pre-existing conditions is a particularly ugly feature.  If you have a chronic $25,000/year disease, nobody will want to insure you for less than $25,000/year.
  • One solution to the problem of pre-existing conditions is to make health insurance companies responsible for the lifetime costs of any condition discovered during the period of coverage.  This is like medical malpractice insurance, where a lawsuit many years later will still be covered by the company that held the policy at the time of the doctor’s mistake.
  • A robust system of post-discovery specialized re-insurance may make the process more efficient.  For example, if a covered person is diagnosed with lung cancer, their insurance company could pay a lump-sum premium to a company that specializes in lung cancer to cover all future treatment.  These companies would have strong incentives to improve patient care in order to cut costs.
  • Private insurance should probably be backed up by the government so that failed insurance companies do not leave people uncovered—perhaps policy blocks could be bid out to other companies.
  • Any government insurance should be at least partially re-insured on the private market to establish realistic pricing.

Some of this must be wrong, much of it could be wrong, but I doubt it’s all wrong. We’ll see.