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Medicare For All … and Tax Hikes, Long Waits, Inferior Care

23 Thursday Jun 2022

Posted by pnoetx in Health Care, Health Insurance

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Avik Roy, Bernie Sanders, Elizabeth Warren, Health Care Monopolies, Hospital Insurance Trust Fund, Insolvency, J.D. Tuccille, Jacqueline Pohida, John C. Goodman, Medicaid, Medicare Advantage, Medicare Buy-Ins, Medicare For All, Medicare Supplements, Michael F. Cannon, Obamacare, P.J. O'Rourke, Phillip L. Swagel, Public Option, Quality of Care, Reimbursement Rates, Spending Caps. Affordable Care Act, Stephen Green

Political humorist P.J. O’Rourke once quipped that if you think health care is expensive now, wait till it’s free! A Stephen Green post reminded me of the source of that wisdom. But there are many who say they don’t understand why we simply don’t offer the Medicare program to everyone … free! Well, the reasons are quite simple: we can’t afford it, and it would be bad policy. In fact, it’s too costly and bad policy even if it isn’t free! Medicare is technically insolvent as it is — broke, in plain language. According to the Medicare Trustees 2022 Report linked above, the Hospital Insurance Trust Fund will be depleted by 2028. That only means the Medicare system has authority to take funds the Treasury borrows to pay ongoing benefits through 2028, so the remaining trust fund balance is little consolation. The long-term actuarial deficit is $700 billion, but it’s possibly as high as $1.5 trillion under an alternative, high-cost scenario shown in the Trustee’s report.

Single Payer Medicare?

Extending free Medicare to the entire population would cost over $30 trillion in the first 10 years, and that’s a conservative estimate. And be forewarned: single-payer health care is government health care, which invariably leads to rationed access and protracted waiting times, poor quality, and escalating costs. For a detailed look at many of the quality problems suffered by Medicare patients, see this paper by Michael Cannon and Jacqueline Pohida. Don’t be deceived by claims that Medicare’s administrative costs are lower than private insurance: The real cost of Medicare is largely hidden through the imposition of low reimbursement rates to providers, while taxpayers get stuck with a significant bill.

Avik Roy has discussed variations on “Medicare For All” (M4A), most of which share very little with today’s Medicare. Not only would they fail to address its shortcomings; they would be much worse. Some do not include the range of private plans currently offered through Medicare Advantage. In fact, under the plans offered by Bernie Sanders and Elizabeth Warren, Medicare Advantage would be terminated, as would all other private insurance for the working-age population. Medicaid would also be eliminated. “Medicare”, in its surviving form, would be the single-payer system, “free” at the point of care and without premiums. Again, a free health care buffet would unleash gluttonous demand, so certain restrictions must be in place to limit pricing and access to care. Think rationing, which should sound ominous to those whose health is failing.

Physician reimbursement rates under traditional Medicare are now only about 60% of private reimbursements, and that filters down to the wages earned by other workers in the health care sector. Naturally, broadening Medicare’s reach will cause providers and their employees to drop-out or cut back. And again, services will be subject to various other forms of rationing. These are unavoidable failings of free or heavily-subsidized health care systems, not to mention the massive burden on taxpayers. And by the way, the “rich” are nowhere near rich enough to pay for all of it.

As to the overall effects, here’s what CBO Director Phillip L. Swagel told the Senate Budget Committee recently, as quoted in Reason by JD Tuccille:

“The increase in demand for personal health care would exceed the increase in supply, resulting in greater unmet demand than the amount under current law. The increase in unmet demand would correspond to increased congestion in the health care system, including delays and forgone care.”

The “increase in supply” mentioned by Swagel is something of a pipe dream.

Buy-Ins and Public Option

There are less drastic proposals than full-blown M4A, such as so-called Medicare buy-ins. For example, those age 50 – 64 might be given the option to “buy-in” to Medicare coverage. It’s not clear whether that would include a choice of Medicare Advantage plans. Many would find the coverage available through traditional Medicare and Medicare Advantage to be inadequate. It is often inferior to private plans, including the lack of dependent coverage and no out-of-pocket maximum for traditional Medicare. Supplemental coverage would be necessary for many individuals choosing the latter.

Another question is how employers would adjust to a segment of their work force in the 50-64 age group opting-out of sponsored coverage. Would the company be required to pick-up the Medicare tab? Would there be compensatory adjustments in wages? Fully compensatory changes are unlikely. Even with partial adjustments, how would an employer adjust company-wide wage scales for younger workers who perform the same or similar duties as those opting into Medicare. And what of the tax-free benefit for workers on employer-paid premiums? Medicare premiums are not tax deductible… at least not yet!

All of the other concerns about low provider reimbursement rates would apply to a Medicare buy-in. The supply of medical care, particularly to the segment buying in, might prove thin. The buy-in option would have very little impact on the number of uninsured individuals. However, several studies have found that the buy-in option would increase premiums for private plans on the individual market (see the last link). That’s largely because providers will try to stick private insurers and patients with the burden of cross-subsidizing Medicare buy-ins.

Another proposal is for a Medicare plan or similar public option to be made available to all in the exchange marketplace. This would take a more massive toll on taxpayers and health care access and quality than the buy-in approach. Moreover, because of pressure for cross-subsidies, private plans will struggle to stay in business. The destruction would be gradual, but the public option would slowly eliminate choice from the marketplace. Cannon and Pohida believe that offering a public option could lead to improvements if the private and public plans are allowed to compete on a level playing field, largely in terms of subsidies and regulatory hurdles, but that is highly unlikely.

Cuts Ahead?

A lesser known issue is the impact of spending caps put in place under the Affordable Care Act. These apply to Medicare and Medicaid as well as federal subsidies on policies purchased on the Obamacare exchanges. When those caps are exceeded, access becomes temporarily restricted, with some practices actually closing their doors for a period of days or weeks. Health economist John Goodman notes that seniors tend to eat into the allowable spending amounts much faster than younger cohorts. That means seniors might be denied costlier forms of care. To the extent that any variation on M4A covers a broader age range, there might be more pressure to curtail certain forms of care for seniors, which would be a most unfortunate case of policy-induced age discrimination.

As for Medicare as it stands now, Goodman describes the potential cuts that are coming. These include the possibility of reduced amenities (e.g., hospital wards with more patients per room and lower-cost meals), and as already mentioned, longer waits and restricted availability of costlier treatments. Goodman states that the necessary cuts to make Medicare whole would be equivalent to the loss of three years of coverage for a 65-year old, and the cuts will affect both traditional Medicare and privately-issued (but publicly subsidized) Advantage plans.

Conclusion

There’s no chance any form of M4A would reduce the cost of care or improve access to care. An expanded Medicare would bear the hallmarks of central planning that have accelerated the monopolization of health care under Obamacare. And like Obamacare, the final form of any M4A plan will be the product of negotiations between self-interested politicians, corporatists and regulators. Big pharmaceutical companies, insurers, large hospital systems, and other interest groups will wrangle for the rents that “reform” legislation might bring. Costs will rise and access to care will be restricted. Taxpayers will be saddled with a large chunk of the cost.

In the end it’s likely to be a mess. Far better to adopt reforms that would bring more innovation, choice, and competition to the markets for health insurance and health care. That includes expanding the range of options available under private Medicare (Advantage). At the same time, Obamacare should be scrapped in favor of a range of a greater range of private options with income-dependent subsidies, including catastrophic coverage only, as well as reduced regulation of insurers and providers.

Hillary’s “Fix”: Obamacare Squared

26 Wednesday Oct 2016

Posted by pnoetx in Obamacare

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Avik Roy, Bill Clinton, Block Grants, Christopher Jacobs, competition, Health Insurer Bailouts, Hillary Clinton, John C. Goodman, Marketplace Regulation, Medicaid, monopoly, Obamacare Exchanges, Obamacare Fixes, Pharmaceutical Patents, Public Option, Reimbursement Rates, Risk corridors, Sally Pipes, Single-Payer System, Wikileaks

hillarys-health-problem

One of Hillary Clinton’s “public positions” is that Obamacare needs a few “fixes”, a considerable understatement. Meanwhile, Wikileaks has revealed that she has “privately” rooted for the failure of Obamacare. For that reason, Bill Clinton’s recent slip-up, in which he portrayed Obamacare as a “crazy” system, had a certain Freudian quality. Indeed, Obamacare looks crazier every year, especially in the middle of premium-hike season.

One of Hillary’s so-called “fixes” is the creation of a “public option”, or health insurance offered by the government to compete on exchanges with private insurance. Private health insurers, with the expiration of the so-called “risk corridors”, do not have continuing access to the public purse to cover their losses; going forward, they must price coverage at rates covering the cost of their respective risk pools. The government, on the other hand, is likely to have pricing flexibility. If exercised, there will be little hope for private insurers to “compete” without bailout money. Health insurance coverage, then, is likely to devolve into a single-payer monopoly, and control over health care delivery will be increasingly monopolized as well.

Sally Pipes says the “public option” is a politically attractive way to make a single-payer system inevitable:

“But progressives face the same problem pushing single-payer they always have — the public won’t stand for it. So they’re dusting off an old idea that will get them to single-payer without using those words.“

So the path from Obamacare to a single-payer system is likely to involve a public option in one form or another. John C. Goodman points out that expanding Medicaid is one way to create a broad public option. Medicaid reimbursement rates are low, however, which is why many doctors refuse to accept patients with Medicaid coverage. Such might be the quality of future coverage under an “affordable” public option. And if Medicaid is enhanced so as to appeal to middle class families, it will be correspondingly more expensive. But for whom? More than likely, the tab will be paid by a combination of insureds and taxpayers. And more than likely, the number of competing Medicaid plans (most of which are now privately offered and managed (e.g., Centene Corporation)) will dwindle.

Christopher Jacobs says that when Obamacare became law, health insurers had every expectation that they’d be bailed out by the government indefinitely. Continuing reimbursement for losses was never guaranteed, however. The pressure to backstop the insurers’ profitability will be stronger as the debate over “fixing” Obamacare advances. But as Jacobs warns, ongoing bailouts mean that these insurers are essentially controlled by the government. The private insurers would essentially become heavily-regulated entities managing the operational details of a de facto single-payer system.

So, there are three distinct possibilities under a Hillary Clinton presidency, assuming she can get any of them though Congress: 1) a public option with no private bailouts; 2) a public option with ongoing bailouts; and 3) no public option with ongoing bailouts. Ultimately, all of these scenarios are likely to devolve toward a de facto single-payer system. So we will have monopoly, central control of health care, and/or bailouts. Who was it that said government is the way we wreck things together?

Hillary has some other “fixes” in mind. Some of these involve more regulation of coverage and pricing, such as mandatory provision of three free “sick” visits with a provider each year and in-network pricing for emergency procedures. These steps will add to the cost burden on private insurers.

Regulating drug companies more heavily is another favorite Hillary Clinton theme, but regulation is perhaps the primary reason why the drug development process is so lengthy and costly. The theory that government will be more effective at negotiating drug prices than insurers is suspect. Outright price regulation is likely to mean reduced availability of various medicines. Patent reform and an expedited drug approval process would be a more effective approach to reducing drug prices.

Clinton has also proposed a tax credit for out-of-pocket health care costs exceeding 5% of income. We’ll need higher tax rates, lower deductions and credits elsewhere, or higher deficits to pay for this one.

Finally, Hillary wants to expand eligibility for Medicare to anyone 55 and older, but as Goodman explains, the kind of Medicare Advantage plans that would be made available to “near seniors” under this proposal are similar to those already offered by private insurers, and at lower cost, and premia for these plans are often payable with pre-tax dollars, or the buyers may be eligible for tax subsidies. This proposal might sound appealing, but it is unlikely to accomplish anything except to create more administrative overhead, regulation and diminish existing offerings.

Obamacare has injected a high degree of central planning into the health care system with disastrous results. It has fallen far short of its own objectives for reducing the number of uninsured, “bending the cost curve” downward, and avoiding disruptions to existing coverage and patient-doctor relationships. Choices have narrowed in terms of coverage options and within networks. Obamacare has imposed unnecessary costs on providers and encouraged a monopolization of health care delivery, hardly a prescription for affordability. And Obamacare has proven to be a budget buster, contrary to the advance hype from its proponents.

I remember standing in a pharmacy shortly after Obamacare was enacted, and I heard a sharp-voiced leftist telling a clerk that Obamacare was just a bridge to single-payer health care. I tried to mind my own business, thinking it unproductive to engage such an individual in public. This fellow was quite pleased with the clever deception that was Obamacare. It was never a secret that the progressive left hoped single-payer would be the ultimate outcome, but it’s interesting to witness their discomfort with the way things are unfolding. Surely they must have known that if “fixes” were necessary, something would have to be broken. Perhaps they thought the politics would get simpler, but the shortcomings of the health care law have inflicted too much pain and shame.

I’m tempted to say that the health care system can be improved only by doing precisely the opposite of everything Clinton has proposed. There’s some truth in that, but it’s not quite that simple. The path to better and more affordable health care is to end the dominant role of third-party payers, placing responsibility on price-sensitive consumers, allowing a variety of choices in coverage, ending tax preferences, reducing regulation and encouraging real competition in the markets for coverage and medical care. Reform of the patent system could introduce more competition to markets for pharmaceuticals. The Medicaid system will have to be relied upon to cover those who otherwise can’t be insured at affordable rates. Proposals for federal funding of Medicaid through block grants to the states is an avenue for achieving greater efficiency and better health care outcomes.

Hillary Clinton’s “fixes” are all likely to exacerbate the worst failings of Obamacare for consumer-patients and taxpayers. More federal spending commitments will not solve the structural problems embedded in the health care law. It will magnify them. The hope among the progressive left remains that single-payer health care will evolve out of the Obamacare system once it is “fixed”. And what will we get? More complete monopolies in coverage and care, higher prices, central regulation, narrowed choice, waiting lists, denial of care, and some combination of higher taxes and deficits. In other words, a more radical version of Obamacare.

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