Republicans’ “Market-Oriented” Health Care Reforms Won’t Work, Part 1
http://www.middleclasspoliticaleconomist.com/2013/08/republicans-market-oriented-health-care.html
Republicans’ “Market-Oriented” Health Care Reforms Won’t Work, Part 1
This has been a week of Republicans saying they have actual ideas for replacing Obamacare, rather than just repealing it. The centerpiece has been an article by Karl Rove in the Wall Street Journal (paywalled) detailing all the swell ideas Republicans have. In addition, a non-blogger friend points me to an earlier analysis based ultimately on a group called Docs 4 Patient Care that sounds essentially identical to Rove’s article.
Before I get back to Rove, let’s talk first about the earlier analysis, which highlights two supposed alternatives: selling alternatives across state lines, thereby increasing competition in the health insurance market; and tort reform. These sound like great ideas in theory, but in practice both are deeply flawed. Today I’ll take on selling insurance across state lines, while my next post will go on to tort reform and beyond.
Selling insurance across state lines: Aaron Carroll points out that this is a funny point for people so frequently protective of “states’ rights” to be making. That’s because the essence of this proposal is to end states’ current right to regulate their insurance market. He predicts, on the basis of what happened in the credit card industry, pointing to this piece at Salon, that insurance companies would only sell policies from states with the weakest consumer protections. This race-to-the-bottom dynamic is one we see in in my work on competition for investment, and I’m quite sure Carroll is right. Moreover, he points out that some insurance companies do sell policies in many states; they just have to make sure they comply with each state’s regulations.
But there’s another reason to doubt that increasing competition in the insurance industry will reduce health care spending. We have data! We live in the industrialized world’s biggest experiment in market-oriented health care and, rather than being cheaper, it’s the most expensive in the world by far. Here are the figures for per-capita health care expenditures from the Organization for Economic Cooperation and Development’s great online database, OECD StatExtracts (stats.oecd.org):
Top 5 Countries in Per-Capita Health Care Spending, 2011
United States 8174.9
Switzerland 5642.6
Norway 5458.0
Netherlands 4737.0
Germany 4346.2
Data are in U.S. dollars at purchasing power parity
Source: OECD StatExtracts, then select Data by Theme, then Health, then Health Expenditure and Financing, then Main Indicators, then Health Expenditure Since 2000, then in the table change the Unit to “PPPPER: /capita, US$ purchasing power parity.”
To top it all off, in a post yesterday, Aaron Carroll (h/t Paul Krugman) reports that Singapore has just reformed its health care system to look a whole lot like…Obamacare, individual mandate, no discrimination for pre-existing conditions, subsidies, and all.
The bottom line is that competition does not work in the health care area; simplistic economic models are not enough to understand the unique economics of health. America’s long experiment with a market model has been a stunning failure costing over $2500 per person per year more than the next most expensive country.
Next up: Tort reform.
Cross-posted at Middle Class Political Economist.
Funny how the “states rights” things only go so far.
In addition to the credit card mess we now have in this country(and the mess if we actually allowed insurance to be sold across state lines) the loss of states rights in bank regulation played a significant part in the housing crisis.
The decision in Watters v. Wachoiva by the Supreme Court was a disaster, as states lost their regulatory controls over national banks.
eh, really. I doubt state’s would have done much with the housing bubble. Capital inflight pretty much made it automatic.
While I agree that the market model has been a failure in the US, supporters of the market approach probably will just say it has been mis-applied.
John Cummings
Would not have stopped it, but many of the abuses would have been stopped cold. Many Attorney Generals were prohibited from enforcing the consumer protection laws or from forcing banks in cooperating with state investigations of their lending practices.
I’ll take this free market protection stuff seriously when they start letting me buy just as much military protection as I want. Maybe I can get a refund for all that tax money I paid to defend me from the moribund Soviet Union.
“supporters of the market approach probably will just say it has been mis-applied.”
No true Scotsman.
http://en.wikipedia.org/wiki/No_true_Scotsman
Hi Ken:
The issue as many of us who discuss Healthcare Reform is the cost model being used for healthcare (as opposed to healthcare insurance). The healthcare industry is in the business of selling services for fee rather than quality outcomes. What the PPACA attempts to do is change the cost model to one of selling services with better outcomes for patients.
If you have taken the time to read the SCOTUS decision MARQUETTE NAT. BANK v. FIRST OF OMAHA CORP, you would find it is written by the more liberal minded justices. Brennan who wrote for the majority felt Congress would always take action to correct their decision, well they didn’t.
“Brennan rejected Marquette National’s argument that just because First National was soliciting credit card customers in Minnesota, it was ‘located in that state for purposes of the credit card program. ‘Minnesota residents were always free to visit Nebraska and receive loans in that state.’ It hadn’t been suggested that Minnesota’s laws would apply in that instance, he added. Therefore, they shouldn’t be applied just because “the convenience of modern mail” allowed Minnesotans to get credit without having to visit Nebraska. He dismissed another of the plaintiffs’ arguments, that the National Banking Act had also intended to preserve ‘competitive equality’, between state and national banks by citing language from the original adoption of the statute and supporting documents to demonstrate that it was always Congress’s intent to create a national banking system. The Court itself had taken notice of interstate lending as early as 1839, and the 1863 Congress, Brennan said, was equally aware of such transactions and did not wish to discourage them.
In the closing paragraph, he conceded one of the plaintiffs’ arguments, that a ruling in First of Omaha’s favor would make it difficult or impossible for states to enforce their anti-usury laws. But, he said, that had been the case since the National Banking Act was passed. ‘This impairment may in fact be accentuated by the ease with which interstate credit is available by mail through the use of modern credit cards,’ he allowed. ‘But the protection of state usury laws is an issue of legislative policy, and any plea to alter [the law] to further that end is better addressed to the wisdom of Congress than to the judgment of this Court.’
Aaron would be correct in believing insurance companies would incorporate in one or more states which have the least or lowest qualifying parameters for healthcare insurance the same at banks which issue credit cards. Competition does not work in the healthcare industry or healthcare insurance industry because thre is no need for it to work in such a manner. It is all about the selling of services, the most chrome, the most horsepower, etc. instead of the best quality and return for the amount of money spent. Cnage the paradigm in healthcare or the cost model and you wil have better outcomes for less cost.
http://bruceweb.blogspot.com/2012/06/oboehner-care-mydd-diary-from-2009.html
My take on cross state insurance from 2009. This was an actual proposal by Boehner that would have literally allowed all health care insurance standards to be set by the lowest common denominator of State/Trust Territory Insurance Commissioners. Including that of the then probably non-existent Health Insurance Commissioner of the Trust Territories of the Northern Marianas, home of America’s own Bangladesh style apparel sweatshops. The original MyDD piece seems lost in the mist of 404 world but the reprint on my blog is intact. Enjoy.
Sweatshop Insurance: O’Boehner Care & the Northern Marianas
Did I say cross state border health insurance as the Golden Bullet? Maybe I meant tort reform. Or not. Here is CBO’s score of Hatch’s proposal also from 2009 (when I was kind of on fire about ACA here at AB but once again archived at my blog)
http://bruceweb.blogspot.com/2009/10/cbo-scores-tort-reform.html
And yes a quick Google search shows that I am indeed the original coiner of “O’Boehner Care”. Almost four years and counting and the Republicans STILL don’t have an alternative to what they attempted to derisively stamp as “Obamacare”. Only to find that about to blow back in their face. After all those of us in the know can associate Social Security with FDR and Frances Perkins and Medicare with LBJ but only Republicans found the genius to credit near universal health care for Americans for all time with some President named ‘Obama’. Which of course is deeply ironic for those of us of the Social Democratic persuasion who have been screaming out about how the President sold us out on TRUE Single Payer. But Baby Steps are still Steps and I don’t begrudge this President his due.
But my oh my ‘Obamacare’ has turned out to be a classic case of Rubber and Glue: “Bounces off me and sticks to you”. R’s were so smugly gleeful to ‘stick’ this one to Obama. We’ll just see how that bounce ultimately plays out. When I was a kid a common chant from the Left was “Hey, hey LBJ! How many kids did you kill today?” But I suspect that a generation hence and maybe even now a hell of a lot more people will associate Johnson with the Civil Rights Acts of 1957, 1964, and 1965 and the whole panoply of the Great Society (Medicare/Medicaid etc) than his disasterous escalation in Vietnam.
It seems that some Good Deeds DO Go Unpunished. And Obama may well take his place among the pantheon of Deeply Flawed Social Democrats that includes FDR and LBJ. As drone warfare fades into the mists of time like Central American Banana Wars and Vietnam where otherwise liberal heroes showed their willingness to rain down death on assorted brown and yellow people. But Dad Gum It I am STILL an FDR New Dealer. And a Great Society Guy. Even though fully aware of those Presidents’ feet of clay. And Shoot, who knows, I may be an Obot some day. (Not today mind you)
Bruce:
“Boehner Doesn’t Care Healthcare” is about the outcome of the PPACA and what could replace it over the next decade or two. He really does not have a plan to replace it which would enhance the country beyond what the PPACA has in place today. It is troubling many of our compatriots in arguing in favor of liberal issues have taken a stance which is anti-PPACA. In their stance, they point out the many problems coming to light and needing adjustment or redesign as the PPACA moves forward. Of course there are to be issues which will need adjustment before the PPACA is finally installed. Even then, I do not see the PPACA to be finished and see a progressive migration into something different. Do we really need commercial healthcare insurance? And should Medicare be turned loose to negotiate more (something the Repubs helped to block) with the healthcare industry.
Obama did dare to cross the line of taking on the impossible and got Congress to write it.
Run not exactly.
In July 2009 the three House Committees with jurisdiction over ACA passed out a single bill largely written by John Dingell and known informally as the Tri-Committee Bill. A week later Senate HELP passed out a very similar piece of legislation known as Kennedy-Dodd (because lead author Kennedy was sick and indeed dying at that point). Both the Tri-Committee Bill and Kennedy-Dodd went through the regular committee process and were voted on under Regular Order with strong Democratic majorities. So far so good.
And then things went off the rails. While Senate HELP had jurisdiction over most aspects of health care as such they didn’t have such jurisdiction over Medicare or Taxation and so (unlike the House which had cooperation of all three Committees involved) had to leave critical parts to Senate Finance to write.
At which time Finance Chairman Baucus appointed himself Health Care President and insisted on re-writing the whole bill and in the process kicking the life work of John Dingell and a dying Ted Kennedy (the lead authors of the competing bills) to the curb. What is worse Baucus decided to by-pass his own Committee and notably its Health Care Sub-Committee Chairman Jay Rockefeller and instead form what became the very first of the ‘Gangs’, this one originally a ‘Gang of Seven’ which unaccountably originally had a composition of four Republicans to three Democrats only to have Hatch drop out to form the Gang of Six comprised of Baucus, (fellow Conservadem) Conrad, and (relative non-entity Bingaman) representing Dems and Enzi, Snowe and I believe Grassley representing the Repubs. This apparent attempt to go right to some sort of End Game Grand Bargain midwived by Baucus and which from its outset marginalized ALL progressives ended up a total (and what would by now be totally predictable) failure. In fact Senate Finance never did pass out anything under Regular Order or otherwise and instead collapsed only having produced Baucus’s Chairman’s Mark. Which ultimately was scrapped by Reid in favor of a Leader’s Mark which served as the basis for the final legislation.
The Senate Finance Gang of Six dragged out this process right from late July to November when Enzi bailed. Oh and during this summer and fall of futility a dying Senator Kennedy oddly enough actually died and was replaced by Republican Brown and so losing the Democrats their filibuster proof 60 vote majority.
Now this is history and one I covered exhaustively in real time at AB that whole summer and fall, squealing and screaming all along.
There was exactly nothing in the political dynamic that allowed or forced Baucus to shitcan the House Bill and the partial bill out of Senate HELP and even less to cause him to just ignore Regular Order and the strong liberal majority he had on Senate Finance and go right to a final deal with the Right. Reid could have stepped in and insisted that Baucus keep to his own knitting and write just the Medicare and Tax piece or even just taken up the House Tri-Committee Bill (and as a revenue bill ACA Constitutionally had to originate in the House anyway). Instead Reid did NOTHING. Apparently with the full acquiesence of the White House which on this key piece of Obama’s campaign did exactly NOTHING to move the process along. Instead Obama seemed to signal his undying committment to Bi-Partisan Grand Bargains even if it meant every week be Kick a Progressive (and Kennedy and Dingell) Week. The result was a totally rushed process in December and January that not only scrapped any semblence of such things as either the Strong or Weak Public Option but ended up drawing ZERO Republican votes. And allowed R’s to demonize Obamacare with the result that they made HUGE gains in the following elections.
There is exactly no way of reconciling the total screw-up here with any claim of Obama’s ‘dare to cross the line’ and ‘got Congress to write it’. Because the Tri-Committee and Senate HELP did ALL THAT on THEIR OWN using REGULAR ORDER before the end of July. And all Obama would have had to do was to get Reid to take the bill out of Baucus’s hands (which he had to do in the end anyway) and pass a perfectly reconcilable Tri-Committee/Senate HELP bill in time for a August Rose Garden signing. Which BTW a certain Senator Kennedy could and would have attended-from a hospital gurney if necessary.
Instead Obama decided to be all post-partisany and turned over ACA to co-Presidents Baucus and Snowe. With predictable (because I predicted it right here at AB in real time) results. Considering all PPACA is not actually terrible and I have spent a lot of time defending it. But the end product was way shittier than what was achievable in August 2009. None of that had to happen. And on balance Obama only deserves a Gentleman’s C on Health Care. The Second Coming of FDR he ain’t. (Then again even FDR wasn’t the First Coming of FDR when you examine the historical details of Social Security).
Obama. Dared to compromise his signature campaign issue. Not exactly Profiles in Courage material.
Bruce:
You are not the only one who has defended the PPACA for what it is and what it isn’t and what it could have been. It is good to be on the same side as you.
Professor Thoma(s), fails to explain the title of his narrative
“Republicans’ “Market-Oriented” Health Care Reforms Won’t Work”, just like he does not allow for any new comments on his website…
Hans:
Mr. Thomas makes a sound analogy the intra-state offering of credit cards and the intra-state offering of healthcare insurance. There are no nation-wide set standards for interest rates on credit cards and neither would there be for healthcare insurance today. There is no incentive to set such standards in Congress today. Congress’s reaction to the SCOTUS decision MARQUETTE NAT. BANK v. FIRST OF OMAHA CORP (which was nothing) is certainly indicative of what we might expect today for healthcare. Literally, it would be a race to the bottom of minimalist offerings in healthcare insurance for the State Exchanges which would defeat the purpose of healthcare insurance for those who can not afford today’s expensive alternatives.
Hans, what comment did I not allow at Middle Class Political Economist?
And note that I just approved your comment here personally.