Friday, October 28, 2016

Why No "Market-Based" Health Care Reform Can Succeed


The cost of health care vs. the consumer price index for the last ten years (source; click to enlarge). Note especially 2009 and 2010, recession years for the CPI. If you do click through to the source, note that its author apparently doesn't understand the relationship between monopolies and pricing power.

by Gaius Publius

A little while ago I speculated on the future of the ACA given its recent problems and said I wasn't sure whether it would survive or not. Meanwhile, others are predicting its demise.

It's certainly true that the ACA attempts to be a so-called "free market" solution to providing health insurance and health care. And it's also true that the ACA does not have within it mechanisms to restrain the cost of either the insurance itself or the health care that citizens are buying the insurance for.

In the light of those facts, let's look again at the questions I asked earlier:
  • Is the ACA poised to collapse?
  • Will the ACA be fixed? (Or even, can the ACA be fixed?)
Benjamin Day writing at Jacobin would answer Yes to the first question and No to either of the second. His reason: No "free market" solution to providing health care can work without price controls. Is he right? Let's take a look.

(By the way, the reason I put "free market" in quotes above is that the health insurance market is actually highly consolidated and monopolistic, and no monopoly-controlled market — think Standard Oil and the petroleum market at the turn of the 20th century, or Comcast today — is in any sense "free." If you need it, you pay what the only supplier will charge you.)

Day's analysis starts with this (emphasis mine):
Why Obamacare Didn’t Work

Obamacare has failed, and so will other market-based plans. We need a socialized system.

News broke late last month that yet another of the nation’s largest health insurers, Aetna, is pulling out of state health exchanges in 2017. The company’s action marks the failure of every market-based reform included in the Affordable Care Act (ACA).

The insurers that remain in the exchanges find themselves with unprecedented leverage to demand double-digit premium increases next year, which will leave eleven million patients with few options. The collapse of policies designed to increase competition between health insurers should serve as a lesson in an election year when both candidates, Donald Trump and Hillary Clinton, have been running on the promise of even more such reforms.
He then expands his theme of the failure of "market-based reform":
The first market-based reform to collapse was the introduction of CO-OPs, new consumer-owned health insurers designed to compete with large commercial plans. Of the twenty-three CO-OPs launched for 2014, sixteen have already closed their doors or been shut down by state regulators. The CO-OPs failed in part because they expected government subsidies that never arrived, but more importantly they didn’t have the size or leverage to negotiate rates with large hospital and physician groups, paying more for the same patient care than the dominant insurers they were competing with.
Not having market pricing leverage matters, obviously. In other countries, "market-based" solutions work because of decidedly non market-based practices, like government-mandated price-setting. Day again:
Most countries put hospitals on fixed budgets under a universal health-care system, but the few with private health insurers set uniform rates so market power doesn’t matter for the price of care. The Wild West capitalism that characterizes health care in the United States actually works against competition, rewarding mergers and consolidation by both insurers and providers, and undermines competition-based policy initiatives like the CO-OPs.
Any solution that places pricing power in the hands of monopolies and near-monopolies will always fail to deliver an affordable product, whether that market is cable TV or health insurance. Monopolies inevitably lead to high prices.

Day then looks at both the Clinton and Trump proposals for reform. After dismissing Trump's proposal, he says this about Clinton's proposal, the public option:
Clinton has promised to revive the Democratic campaign for a “public option,” a publicly administered health insurance plan that would compete with private insurers on the exchanges. If a new public insurance plan must negotiate with providers while trying to attract new enrollees, it’s likely to meet the same fate as the CO-OPs.

If allowed to use Medicare’s provider network and Medicare’s payment rates, a public option would have a tremendous advantage over private insurers since Medicare pays lower rates and few providers can afford to opt out of accepting Medicare patients. A weak public option that has to negotiate health-care costs as a small startup plan will fail, while a strong public option allowed to pay Medicare’s low rates is more likely to replace private insurers than compete with them.
Again, a "weak public option" will fail and a "strong public option" will replace private insurers, not compete with them. The second, replacing private insurers, is obviously a problem for the program's designers, since the ACA was created to prop up private insurers, not undermine their profitability. Day:
The last gasp of the ACA’s market-based reforms reveals an uncomfortable truth about our health-care system: we cannot afford to expand or even maintain our current access to care without cost controls, and health-care costs cannot be controlled with competition or markets.

The only cost control that works without undermining access to care is also the kind that Republican and Democratic leadership have foresworn this election: public budgeting and rate-setting through a single-payer system, or regulations that force nonprofit insurers to act like a single-payer.
And there you have it. American elite policymakers, from Clinton to Trump, from mainstream Democrats to any kind of Republican, are hell-bent on a "market" solution to health care reform, and Day is certain no market-based reform can succeed. I think he's right.

Day's piece is called "Why Obamacare Didn't Work." But it hasn't failed ... yet. In my present view, though, that's just a matter of time. What's next? This brings us back to the clash between the Sanders wing and the neoliberal (republican-aligned) wing of the Democratic Party. Until that's resolved, perhaps nothing is next but the shambles of what we have now.


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At 10:58 AM, Anonymous Anonymous said...

Home rum again Gaius! I love your blogs. Very factually based and insightful. You always hit the nail on its head.

And what are the chances that we will have a good single payer option? Not with this Congress. Our "democracy" will keep dragging its feet into the future. Common sense and what's best for the American people are never the name of the game, unfortunately.

At 11:10 AM, Anonymous Anonymous said...

Quote: "Again, a 'weak public option' will fail and a 'strong public option' will replace private insurers, not compete with them. The second, replacing private insurers, is obviously a problem for the program's designers, since the ACA was created to prop up private insurers, not undermine their profitability."

The public option question is less a problem of the intent of ACA, but, rather, the extent to which private health care insurers have donated to HRC, the presumed next president.

I have not checked her FEC filings but I assume the private insurers have given HRC's campaign quite enough to "ensure" that, if there is any public option at all, it will be the version that minimally justifies the name "public option" but is otherwise very, very weak.

John Puma

At 11:54 AM, Blogger Cugel said...

Private insurance works fine in lots of countries, but only because of the following:
1. All insurers are required to provide similar insurance packages and rates set with the government for standardized services. In short, the government regulates the hell out of the insurance industry.
2. The individual mandate is a lot tougher, literally forcing people to buy health insurance.

In Switzerland for instance, the insurers are forced through heavy regulation to offer affordable care, standardized rates and access for everybody. At the same time if you fail to obtain insurance within a reasonable period, the government can garnish your wages to pay for it, even through you in jail for the truly recalcitrant.

You can imagine that Americans would dislike both parts of that program. However, single payer would destroy major parts of the insurance industry. I wouldn't weep crocodile tears about that, but Dems in Congress are not ever going to vote for that.

In short, there doesn't appear to be any kind of solution. Various states like CO are experimenting with single payer at the state level, but it's probably unworkable, because of the literally huge tax hit it would cause, plus other problems. VT really, really wanted single payer to work, but it failed because it would add too much to state taxes to pay for it.

No state is really big enough to control costs either. For instance, CO has about 5million people. That sounds like a lot, but is a small part of the entire national insurance pool. And there's really no way to force out of state agents to deal with Colorado at a reasonable rate. They even have an incentive not to cooperate so as to discourage other states from trying single payer.

At 7:40 AM, Anonymous Anonymous said...

Good piece. Good augmentation by Cugel.

As of now, medicaid is on its way out. The reason is that, rather than encourage socialized medicine for the truly destitute, they allow the capitalists to out-compete with the throttled payment structure. Nearly 85% of the nation has no availability to providers willing to take medicaid's paltry payments.

medicare is looking like it was set up to eventually be out-competed by the same "markets".

When you put corporations in charge of human health, you'll inevitably end up with mass gouging (from both insurors and providers) and refusal to reimburse (denial of coverage for actual, you know, health CARE).
When the gummint is in it with the corporations (accepting bribes), you have no recourse. call and write all you want... the congress and white house just don't give a flying fuck. They're cashing 8 and 9-figure checks to keep it that way.

And capitalism, in its american (pure) form, is wholly anathema to competition. When market share is not an issue, the big will always kill the small. When market share is important, as with insurance, the big will eat the small.

And finally, anyone who actually believes that either monster running for the money party will get in the way of capitalist rape of the masses is a fool. One monster just couldn't be bothered and the other one has taken millions in personal enrichment to ignore it.

Only one of them even bothers to lie about it... but it's still a lie.

I already voted for Stein. I encourage all to do the same.

At 11:59 AM, Blogger Gaius Publius said...

As of now, medicaid is on its way out. The reason is that, rather than encourage socialized medicine for the truly destitute, they allow the capitalists to out-compete with the throttled payment structure. Nearly 85% of the nation has no availability to providers willing to take medicaid's paltry payments.

medicare is looking like it was set up to eventually be out-competed by the same "markets".

Exactly right. For Medicare to really work well, it also has to be better funded. It, like the SSA and the PO, seems underfunded by design — to make it fail or to look like a failure.

Good points!


At 9:32 PM, Anonymous Anonymous said...

thanks. I know because I have kin on medicaid. any other city in this state or almost any other state and she'd be dead for lack of any docs willing to take that crap reimbursement. Only foreign docs and they only do it for a time until their practice becomes solid.

A note about SSA. Ironically, it was reagan who "saved" it from the designed demise working with Tip O'Neal I think. Of course, there are trillions there to be "capitalized" which might be why the money is willing to wait (for privatization).

If medicare goes poof, how long before the VA drops medical? And in the 2000s, there were 45K deaths per year due to lack of health care. WHEN medicaid and medicare are strangled for good, that number will be orders of magnitude higher.

Will american voters react then? My guess is they won't.


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