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Hard Truths about Health Care

Wednesday, April 5, 2017 6:50
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(Before It's News)

Michael D. Tanner

Republicans have vowed to go back to the drawing board to draft a new Obamacare repeal-and-replacement bill. Meanwhile President Trump is threatening to work with Democrats to come up with a health-care plan — or maybe to simply let Obamacare crash and burn.

But whoever eventually comes up with a replacement for the Affordable Care Act should keep a few hard truths in mind.

1. Health care is neither a right nor a privilege; it’s a commodity. Worse, it’s a finite commodity. There are only so many doctors, so many hospitals, and so much money, and there are limits to how much these things can be expanded. That’s why no health-care system, outside Bernie Sanders’s fantasies, provides unlimited care to everyone.

Every health-care system in the world rations care in some way, either through bureaucratic fiat (Scandinavia, the U.K.), waiting lists (Canada), or price (that’s us). One can argue about which of these rationing mechanisms is fairest or most efficient, but let’s not pretend that it won’t occur.

Republicans would be well advised to stop trying to win a popularity contest and simply do what’s right.

2. Coverage is not access. Democrats like to pretend that giving everyone a piece of paper called insurance guarantees them access to the care they need. It’s sort of like magic. Say the right words, and poof, medical care appears. But in the real world it doesn’t work that way.

For example, take Medicaid, which is responsible for more than half the increase in coverage under Obamacare. Nearly a third of primary-care physicians won’t accept Medicaid patients. And when doctors do see Medicaid patients, they tend to be slower in granting appointments. Moreover, for the working poor, seeing doctors during normal office hours can be problematic. Perhaps that’s why Medicaid patients continue to use emergency rooms for routine care at a disproportionate rate. Numerous studies show that health outcomes for Medicaid patients are little better than those for the uninsured. In fact, some studies show patients faring worse under Medicaid than if they had no insurance at all.

Similarly, if Obamacare forced your insurance carrier to cut back its provider network, your shiny new coverage may no longer include the physician of your choice. And the incentive structure of Obamacare, notably its pre-existing-condition rules, encourage insurers to drop coverage for top doctors and hospital centers of excellence.

3. The uninsurable are uninsurable. Let us remember that the definition of “pre-existing condition” is: someone who is already sick. It’s a little like driving your car into a tree and then trying to retroactively buy auto insurance. It won’t work. Insurance is the business of spreading risk. But for someone who, say, has cancer, there’s no risk to spread, just cost. That’s not insurance, it’s paying for health care.

Obamacare tried to square this circle by mandating that young and healthy people buy insurance to offset the cost of providing care to those already sick. It turns out that didn’t work. Not enough healthy people signed up to pay for the influx of sick people. Insurance companies either dropped out of the market, cut back on high-quality providers, or raised premiums. All of this forced more healthy people out of the insurance pool and threatened an adverse-selection death spiral.

Republican proposals to keep the popular pre-existing-condition protections while jettisoning the mandate for coverage is only going to make the adverse-selection problem worse. It may have sounded like a moderate compromise, but it is like trying to be a little bit pregnant. It’s not going to work. The only realistic approach to dealing with pre-existing conditions is to take those people out of the insurance pool altogether and somehow pay for their care directly. There are several options for doing so, from state insurance pools to a revamped Medicaid program.

4. Medicare is not a success. Faced with the wreckage of Obamacare, Democrats are increasingly embracing the once controversial idea of “Medicare for all.” Most of them would start slowly, with a Trojan-horse “public option,” a taxpayer-subsidized plan that would undercut private insurance, but the result would still be a government-run national health-care plan based on Medicare.

Medicare is undoubtedly popular, especially with its beneficiaries. It should be. The average two-earner couple pays about $150,000 over their lifetime in Medicare taxes and premiums, while collecting almost $450,000 in benefits. Jackpot! But that disparity is one of the reasons why Medicare is running some $58 trillion in the red, after totaling all projected future liabilities. A program facing more long-term debt than most countries probably isn’t begging to be expanded.

Moreover, almost everything that people complain about with our health-care system is even more evident in Medicare. Medicare is inefficient, spending lots of money without evidence of better results. According to the landmark Dartmouth Atlas study, the counties with the highest per-patient Medicare costs showed no better outcomes than low-spending areas. Medicare over-covers routine care but stops covering you if you get really sick. It is based on an old-fashioned “fee for service” payment protocol that rewards inputs, not quality. And, its bureaucratic price controls under-reimburse doctors, shifting costs to private insurance plans, or discouraging doctors from seeing Medicare patients. About 15 percent of doctors don’t accept Medicare, and as many as a third limit the number of Medicare patients that they will treat.

5. No, we didn’t have a “free market” health-care system before Obamacare. Suggest free-market reforms to our health-care system and critics will inevitably suggest that you want to go back to the flawed system we had before Obamacare. But that system had little to do with a free market. Nearly all health care was subsidized in some way, either directly or indirectly. Actual health-care consumers paid barely 13 cents out of each dollar spent on health care, while the government directly paid for more than half of all health-care spending. This third-party and even fourth-party payment mechanism insulated consumers from the cost of their health-care choices and drove up both spending and prices.

At the same time, provider cartels, both insurers and medical professionals, used regulatory and licensing barriers to protect themselves from competition and inflate prices. Other markets in goods and services routinely produce lower prices and better quality. Health care has always been different precisely because free-market competition and consumer choice have been missing.

6. You are never going to make everyone happy. Obamacare is unpopular. The GOP replacement was unpopular. Single-payer in unpopular. In fact, one searches in vain for a health-care reform that voters will love.

Americans want widely contradictory things from health-care reform. They want the highest-quality care for everyone, with no wait, from the doctor of their choice. And they want it as cheap as possible, preferably for free. At the same time doctors, trial lawyers, hospitals, insurers, pharmaceutical companies, and government bureaucrats are all trying to protect their fiefdoms, hold onto their gains, and shift costs to others. There is simply no way to satisfy all these special interests and produce a health-care plan that will be hugely popular.

Given this reality, Republicans would be well advised to stop trying to win a popularity contest and simply do what’s right. They need to repeal Obamacare down to the last comma and semicolon, then replace it with true market-based reforms. Those plans are out there. All it would take is for them to face up to a few hard truths.

Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis.


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