Friday, October 4, 2013

Some Thoughts on Obamacare

    As surely as the whole world must know by now Washington is currently roiled in controversy over President Obama's signature piece of legislation, the Affordable Care Act. A bill to fund the operations of the federal government is stalled in Congress as conservative Republicans seek to derail implementation of the act. As we write the federal government is partially shut down.
    For those who live elsewhere and have not experienced the American healthcare system firsthand, traditionally most Americans have received health coverage through their employers. The government provided tax incentives, and the employers would purchase coverage through private insurance companies, which would then pay claims on a fee for service basis.
    The system, however, had serious weaknesses. One of them is that it left some persons completely without health coverage, for not everyone worked for a company that provided health benefits. To remedy this hospitals were legally required to treat everyone regardless of ability to pay. The poor would show up in emergency with minor ailments because that was the only place where they could receive care. The hospitals, in turn, would engage in cost shifting, overcharging patients with insurance to cover the costs of treating those without it. But probably the worst feature of the system was its inability to control costs. The inflation rate in the health care field ran into double digits year after year, in good times and bad, for decades. Insurance companies tried every means possible to rein in costs, but to no avail. The health care industry simply had no incentive to economize.
    What is ironic about the current impasse is that the health care plan so detested by conservative Republicans originally began as a conservative alternative to socialized medicine. In 1989 the Heritage Foundation, a conservative think tank in Washington, produced a plan called A National Health System for America. In October of that year Dr. Stuart M. Butler gave a speech at a medical college in Tennessee explaining the plan. He reviewed the problems with the healthcare system at that time, dismissed several alternatives, including government-funded systems, and then outlined the Heritage Foundation's plan. Among other things he said that one of the aims of the plan was that "All citizens should be guaranteed universal access to affordable health care." In order to make it work the plan required an individual mandate to buy insurance. "Society does feel a moral obligation to insure that its citizens do not suffer from the unavailability of health care. But on the other hand, each household has the obligation, to the extent that is able, to avoid placing demands on society by protecting itself." ("Assuring Affordable Health Care for All Americans"). Four years later, in November, 1993, Republicans in Congress introduced two bills in Congress to reform the healthcare system along the lines suggested by the Heritage Foundation. Massachusetts finally enacted such a plan in 2006, signed into law by Gov. Mitt Romney, a Republican.
    Significantly, during the Democratic primaries in 2008 Barack Obama opposed the idea of an individual mandate. It was included in the federal law when it was finally enacted, however, and survived a Supreme Court challenge (on the lame pretense that the fine for not purchasing coverage was really a "tax").
    The plan is a bureaucratic monstrosity, and has several serious flaws. It attempts to add additional participants to the existing system, but it is hard to see how it will manage to finance this. It is also hard to see how it will hold down costs. In order to work it must have maximum participation from those who are young and healthy, but it is not at all certain that they will sign up. The plan as the potential to become a fiscal disaster.
    We think that it would have made more sense to have gone with a single-payer national health insurance plan. Coverage would be extended to everyone, and it could be financed through a combination payroll / self-employment tax, at a flat percentage of income. It would be simpler to administer, and have a more stable financial base. There would be no controversial "mandates," and yet everyone would pay into the system and everyone would be covered.
    Let's repeal "Obamacare" – replace it with a single-payer national health insurance plan!

Related blog posts:
The Social Agenda of the Tea Party 
Capitalism and Christianity - I 
Capitalism and Christianity - II 
Wealth Management 


  1. I'm not impressed with the one payer systems instituted by other counties, and I have no interest in seeing that here. Instead, let's build plenty of incentives into the tax code to encourage people to buy insurance and to give to medical institutions and hospitals. That way nobody feels coerced into doing anything, and we do not jeopardize the quality of our healthcare. We are America. Let's put our heads together and solve this without putting a gun to anybody's head so to speak.

  2. That's what's so ironic about all of this. The original idea behind the Heritage Foundation's proposal, which was incorporated in Obamacare, was that you want people to buy insurance coverage in the public market. Then presumably people would be more conscious of the cost of healthcare and competition in the marketplace would keep prices down. To make it work, however, you have to find a way to induce healthy people to buy the insurance. Hence the infamous "mandates." And for most people a fine sure looks like a form of coercion. (Keep in mind this was originally a Republican idea!). And it's not even certain that this is going to work. If you are young and healthy (presumably you and I are both beyond that point) and your choice is between paying several thousand dollars in insurance premiums or paying several hundred dollars in fines, which would you choose? How many will sign up? And if enough younger people don't sign up, the whole system will collapse financially. If, on the other hand, the government simply collected the money in taxes and then automatically covered everyone, it wouldn't be too terribly different from what most people are already used to -- money gets deducted from your paycheck and you get health coverage in return. The only difference is the path the money takes to the hospital.
    The really difficult question, however, is how to control costs. Any form of third party payer insurance, whether through private insurance or a government funded program, has the effect of shielded the consumer from the true cost of the care, and the provider from the scarcity of resources. It at all certain that in a consumer based system like the one originally advocated by the Heritage Foundation that the "consumers" (the patients) will do comparison shopping based on price and haggle with doctors over the most cost-effective treatment plan. The plain fact of the matter is that the patient has very little control over the cost of the treatment that he is receiving. In a government funded plan the government could use its power of the purse to hold down prices. But this raises the specter of price controls and healthcare rationing. Do you pay for expensive chemotherapy for a terminally ill cancer patient? Yet unless we are willing to commit unlimited amounts of money to health care we will eventually have to face this question.

  3. I'm not impressed with the one payer systems instituted by other counties...

    You should be.
    The American way of doing things stinks.
    It's a joke.
    Other industrialised countries do not gasp in awe and seek to imitate the American system.
    On the other hand, the Australian way of doing things (to name just one modest example) rocks. The middle class there don't fear going to the doctor. Stories of hard-working people losing their homes because some beloved member of their family became seriously ill for the long term are completely unknown. It doesn't happen.
    Americans pay far more and they get far less. Your insurance companies get to do exactly whatever the hell they want and people end up in the emergency room.
    Who pays for that?
    You do. Through the nose.

  4. I should point out, as someone who used to pay health and dental claims for an insurance company, that the insurance companies are not making out like bandits on this, and therein lies the problems with the free-market solutions proposed for this. (Obamacare, believe it or not, is a free-market solution). When the new healthcare law was being debated, Democrats said they wanted a "public option," and Republicans said they wanted the option of buying insurance across state lines. Both proposals were based on the assumption that the insurance companies were gouging the public, and if you injected more competition into the market place, they would bring prices down.
    I myself, however, have seen the hospital bills that came across my desk as a claims examiner, and I can tell you fees they charge are obscene. I have also seen doctors raise their fees year after year. The problem is that a third party payer has limited control over what the providers charge.

  5. I should also mention that the reason that Republicans like to push the idea of being able to buy insurance across state lines is precisely because insurance companies CANNOT do whatever they like. The industry is heavily regulated by the states. Being able to buy insurance across state lines would have the effect of weakening the regulatory power of the states. What the Republican argument boiled down to is that if you didn't regulate the insurance industry they would bring prices down.

  6. ...that the insurance companies are not making out like bandits on this...

    Fair point.

  7. Up until the present, the U.S. has had the best healthcare in the world for those who could afford it. (This means the ability to afford the insurance premiums.) That is why we need to encourage a truly market based solution which drives down costs for everyone without having to coerce the individual into buying something he or she doesn't think their needs or wants, and which puts pressure on providers to be competitive. I still maintain the poor and indigent can be best helped by using the tax code to super encourage charitable giving to that end. Instead of looking to government to be our ultimate provider, use less government to change the playing field so that the problem largely solves itself. Nobody is coerced into doing anything they are not comfortable with (e.g. paying for contraceptives which act as abortificants.) and the need for an expensive (read unaffordable) bureaucracy is virtually eliminated. What has the government ever done efficiently and without waste and corruption?

  8. Obamacare IS the market based solution -- hence the health insurance exchanges, as well as the existing employer provided health insurance, which remains unchanged. It remains to be seen whether or not this succeeds in driving down healthcare costs. Private insurance has not succeeded in doing it yet.
    The reason for the mandates is to avoid a problem known in the insurance industry as "adverse selection." To make any kind of health insurance scheme work, you have to have healthy people paying into the system. In effect, health people are paying the medical bills of people who are sick. If the system is strictly voluntary, however, people will have a tendency not to sign up for the coverage until they get sick, and this defeats the whole purpose of the insurance. You might just as well eliminate the insurance company and pay your medical bills out of pocket. You can't let people sign up for the plan while they're on their way to the hospital in the ambulance. The original Heritage Foundation lecture put it like this: "each household has the obligation, to the extent that it is able, to avoid placing demands on society by protecting itself." (Assuring Affordable Health Care, p. 6).

  9. That is why we need to encourage a truly market based solution...

    The markets are not magic.
    No country does this.
    Yet there are plenty of countries that have great healthcare- for all their citizens.
    None of them do what you claim somehow in a wishful thinking manner should be done.
    It just doesn't exist in the real world.

    Instead of looking to government to be our ultimate provider, use less government to change the playing field so that the problem largely solves itself.

    How? Via magic.
    Can you give a concrete example of any country ever that you would be comfortable using as a role model?

    ....the need for an expensive (read unaffordable) bureaucracy....

    Oooh, sounds spooky. And made up.

  10. Cedric, how can one point to an example that does not exist? No, the market is not magic. It is unbiased and efficient. I can look around the world and easily see that the more free and unregulated a country's markets are, the more prosperous the residents of that country.

  11. Cedric, how can one point to an example that does not exist?

    Market forces exist.
    A market-based fantasy solution that you wish for has never appeared anywhere.

    However, a wide variety of nations with excellent heathcare for all their citizens do exist.

    America should bite the bullet, admit that they are the dunce in the class room, and copy the best heathcare system out there from some friendly country.
    Lots of good, working examples to choose from.

    There's no need for oogity-boogity.