Friday, March 19, 2010

Incredible claims of a misled public on healthcare

When I say "incredible", I don't mean "the synonym of amazing", I mean "not credible".
One of the major factoids Krugman and other liberals in support of the healthcare bill have been pulling out has been the idea that "Republicans have skillfully used message to make people believe that they oppose the healthcare bill when they actually don't". The argument they make is "People oppose the bill, but when they're presented with individual provisions, they support them. Thus, it's a message issue."
The problem, of course, is that this suffers from extreme, extreme bias based on the questions being asked.
This bill is undeniably huge, in scope (a cited estimate of 940 billion over ten years, and if you correct for the "doc fix" and the 6 years of payouts vs 10 years of fees issue, about 2.3 or 2.4 trillion over 10 years), and also in number of provisions (the actual bill is over a thousand pages long).
This bill certainly gets SOME things right - it extends coverage to everybody, it ends preexisting conditions, it mandates that people get insurance and it tries to crack down on the "dropped coverage" abuses that insurers have perpetrated. These are undeniably good things, and despite my opposition to the bill, those are features I support.
If you were to ask me if I support the bill, I'd say no, but if you asked me if I supported those particular provisions, I'd say yes. I would thus fall into their "tricked by message" category. Of course, the real problem is that the issues I have with the bill, that in my mind outweigh the good provisions of the bill, are never asked about.
Here is a somewhat concise list:
1) Putting drug companies in a position of pricing pressure from monopsony power, for example, is one thing I've written about at length and would kill more people in the long run than providing insurance to everyone would save because it would crater the R+D pipeline at colleges and startups.
2) Driving down health costs by cutting payouts to doctors is another major problem - we have a major, major shortage of doctors, and this bill not only exacerbates demand (an unavoidable feature of extending universal coverage) but also crushes supply, instead of increasing it, by implicitly reducing how much doctors are paid through insurance companies and Medicare. (For reference, 56% of MA primary care doctors don't take new patients,  the average waiting period for an appointment for those who do take new patients is 44 days, approximately 10% of doctors leave the profession every 5 years and need to be replaced by new MDs and a growing number of doctors refuse to take Medicaid or Medicare patients because the payouts are so unbelievably low.)
3) The bill DOESN'T correct a number of very real problems of how hospitals and doctors are compensated - I think they should be compensated more, but I think they should be compensated differently. Instead of on a "per test" basis, it should be some weighted average of per-test, per-outcome and per-appointment (perhaps with per-condition thrown in). This would make the system cheaper.
4) The bill does not make the penalties for the insurance mandate high enough, which means people can game the system by only getting insurance when they need care and dropping it when they don't. That skyrockets costs.
5) The bill doesn't deal with very important issues like portability of healthcare. If I want to keep my plan after I leave my job, I still can't. In fact, my company could decide to drop my healthcare, pay me the minimum subsidy required by law and make me shop on the exchange, which will be more expensive but have worse options than my company-negotiated plan.
6) The bill includes enough mandates or potential for mandates that health insurance costs will go up for treatments that I don't want or need (chiropractice, for example, or smoking cessation therapy).
7) The bill doesn't allow insurance companies to be actuarially fair and charge more on the basis of obesity or smoking, which are certainly lifestyle-related, which means that not only are healthy people subsidizing unhealthy people, which is a factor of luck and is defensible, but responsible people are subsidizing irresponsible people, which is a factor of effort and is not.
8) The bill does NOT correct for foreign countries exercising pricing power on US drug countries, which leads to higher US drug costs and is a massive reason why our healthcare is more expensive than foreign healthcare.
9) The bill does not allow for things like 'catastrophic coverage' and versions of it curtail wonderful things like FSAs and HSAs, all of which reduce healthcare costs.
10) The bill crushes R+D by medical companies through taxation as well as pricing pressure, and that is a very, very bad thing for the future health of America.
11) If the first ten years of the bill were graded by the CBO equalizing the 10yr vs 6yr issue and screening out the doc fix, it would add 1.4 trillion to an already stretched deficit. The "savings" in the second ten years are not true savings, because the assumptions on the increase in healthcare costs that get "curtailed" by the bill are based on fanciful predictions in the growth of Medicare costs, which are driven upwards largely by R+D, which will be hit substantially. We could cut our trade deficit in half by blowing up everyone's gasoline-consuming automobile, but that doesn't mean we are better off.
12) Further skepticism about the CBO estimates. The first-decade cost of Medicare was 1000% of the CBO-estimated cost of Medicare because so many dynamic equilibria were considered to be static (things like "who gets a pension or employer-subsidized healthcare in retirement, and will that change", and "how much do we have to pay doctors to take those patients"). This bill is bigger than Medicare, with more room for error.
13) The employer-related healthcare provisions will make it even more costly to hire American workers. We're already suffering from severe offshoring, thanks to an overvalued dollar, the highest corporate tax rates in the world, an exploding minimum wage, a well-intentioned but arcane regulatory framework and a brutal process for constructing any sort of capital assets. Intel recently estimated that building factories in china costs 30% less than building the identical factories in America... and the difference is not made up for anymore by the productivity of American workers, because the cost differential has grown so much and foreign workers are becoming so much better (and American workers aren't improving). We already have 10% unemployment and about 18% total underemployment + unemployment... how many of those underemployed will turn into unemployed because it's just not worth it to have those workers? How many people not reflected in either of those numbers will get fired?
14) Concern over marginal tax rates - Between 25,000 and 40,000 a year, people already pay near or over 100% marginal tax rates because of the dropoff in government subsidies (If I go from 25,000 a year salary to 35,000 a year salary, the amount of government programs I lose are greater than 10,000, so I'm actually poorer). This is a substantial impedance to work and thus economic and personal improvement. We also have the highest share of government being paid by the rich in the entire world already... do we really want things like "brain drain" to lower tax locales?
15) Doesn't deal with the easiest low-hanging fruit because those are democratic constituents- tort reform, excessive union benefits ("cadillac tax"), etc.
16) Because it's opposed to any sort of incrementalism, we actually haven't figured out if there are other ways for insurance companies to scare off high-risk customers. I guarantee you every insurance company will be looking for ways, and they'll be a lot more creative than a government bureaucracy.
Nobody asks these things about the bill, so it looks like a Republican "message" victory, instead of substantive opposition. If you asked people about these things, they'd perhaps respond differently, and the individual components piece would line up with the overall opposition piece. Let's not forget that Massachusetts - the most educated state in the union, a Democratic stronghold but dominated by independents instead of typical democratic constituents (unions and poor) - just elected a Republican Senator who ran against healthcare. The vast majority of voters in this state knee-jerk agree with Democrats - I guarantee they did not get sucked into a fake Republican message.

EDIT: One other major problem that cropped up later - Private companies have incentives to drop employers onto the public exchange and just pay the penalty. It's way cheaper for like 90% of American workers for companies to drop coverage, pay the penalty and provide additional salary to cover the public-exchange healthcare premiums than it is for those companies to keep providing private healthcare (the major problem is that healthcare premiums on the exchange are too low. A secondary problem is that the penalty for not providing healthcare coverage is too low). This will a) send us towards even more centralized healthcare, which kills R&D more, and b) cost the taxpayers a TON and makes the deficit reduction projections look like a comic joke.

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