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The Individual Mandate: Unconstitutional in 1781

March 27, 2012 Leave a comment

What is so extreme about the individual mandate? Somehow huge mandatory government interventions like medicare and social security survive most conservatives’ “literal” reading of the constitution, but an unenforceable fine for not buying health insurance establishes an unfathomable expansion of government authority. It’s clear that this seasonal crop of literalists are just constitutionalists of convenience – they don’t like Obamacare ipso facto it’s unconstitutional.

Who knows, I’m not a lawyer either so I’m probably practicing a little motivated reasoning myself. But the case for constitutionality seems so simple to me that unless your committed to an absurdly strict reading, you should accept that Obamacare should stand.

Where in the Constitution…?

Anyone asking a version of the above question and looking for precise written permission for a Congressional power is arguing about the wrong document. The Articles of Confederation limited Congress to the powers it “expressly delegated,” but when the Founders drafted the new Constitution the Anti-Federalists lost. The new document dropped the rigid wording and allowed Congress to pass laws that flow reasonably from the listed powers. More exactly, Congress may enact regulations that are “necessary and proper” to execute the Constitutional powers such as regulating commerce.

Is the healthcare market commerce?

To ask the question is to answer it. The healthcare market for insurance is obviously commerce. I’m not sure how that is even in dispute. Congress recognized that many citizens who want to buy insurance can’t, so made a regulation that forces insurance providers to cover people with pre-existing conditions. Most of the opponents of the individual mandate accept the premise that Congress can and should pass a regulation that prohibits pre-existing condition exclusions in insurance plans.

Is the individual mandate “necessary and proper?”

If you accept that Congress can regulate the insurance and can make it illegal for healthcare companies to deny coverage to those with pre-existing conditions, than mandating that people should buy health insurance or pay a penalty is a “necessary and proper” regulation to execute the goal of coverage. Without the mandate, insurance companies could not reasonably cover enrollees with pre-existing conditions because of adverse selection and free-riders who would just jump into insurance once they got sick. Without the healthier people in the risk pool, insurance doesn’t work. Imagine if you could buy car insurance after you got in an accident.

In Massachusetts, only once Mitt Romney’s individual mandate went into effect did the healthier citizens broaden the risk pool.

As you can see, when the mandate became “fully operational” [the 2nd dotted line] the “not chronically ill” enrollees (i.e. healthier people) joined the ranks of the insured en mass.

The individual mandate is necessary and proper to address the market failure inherent in the insurance market for healthcare.

Technicalities shouldn’t matter

As I stated earlier, I’m not a constitutional lawyer so it’s possible that the individual mandate will be struck down because of some legal technicality of, say, Congress not designing the mandate as an explicit tax, which has the exact same consequences economically. Maybe a majority of justices will find some quasi-theological distinction between activity and inactivity, but the Roman Fabius and the Taoist Laozi both teach us that non-doing is a form of doing.

Opponents might not think that the policy tool is perfect, but Congress has the Constitutional power to address a market failure. The Supreme Court should uphold the mandate and give Congress reasonable scope to regulate commerce. If Obamacare is bad policy, elections can be the remedy.

Private Healthcare’s Flawed Genetic Code

March 8, 2012 2 comments

Ezra Klein has an insightful piece about the New York Times’ report that gene sequencing will soon become much more affordable. He argues it will sort purchasers of insurance into high cost and low cost groups too efficiently. Since insurance companies can’t discriminate based on genetic information by law, it will cause an unsustainable spiral.

Eventually, genomic testing will be a powerful predictor of future illness. And it raises the potential that young people will get themselves tested and then purchase insurance based off the result. So those with a clean genomic result might go for a cheap catastrophic plan, while those with a high risk of developing pricey illnesses will opt for more comprehensive insurance.

The result would be, in insurance terms, an “adverse-selection death spiral,” as the healthy opt out of expensive insurance, the sick opt into it, and premiums spin out of control.

Undoubtably, Klein is correct. But I’d like to point out that this is already a flaw in a private insurance markets. Private insurance companies have no incentive to cover high-risk or sick people (unless under totally unaffordable and unrealistic rates). That’s why anyone that thinks insurers should cover people with pre-existing conditions must favor government intervention that requires healthy consumers to buy in and spread the cost out.

As the graph makes clear, the majority of healthcare spending comes from patients with chronic conditions (half of total spending comes from only 5% of the population). Unless the government covers those patients directly or spreads the cost out to the healthier population through mandates, we won’t have a workable healthcare model for treating the people who need it most. Well… unless you think charities can make up the hundreds of billions of dollars in shortfall?

Categories: healthcare

Romney’s In Context Gaffe

January 10, 2012 Leave a comment

All the political talk on Romney’s “I like being able to fire people” gaffe centers around whether or not it’s appropriate for his opponents to take him out-of-context to attack him. Fair minded observers should agree that it is wrong to take political statements out-of-context… although Romney’s campaign disagrees.

Aaron Carroll ignores the political nonsense and notes that Romney’s statement is wrong in context:

Let’s say that you are self-employed, and lucky enough to have found a company to provide you with health insurance. Then, let’s say you develop cancer. You suddenly find out that your insurance company stinks. So you fire them, right?

Of course not. You’re screwed. Now you have a pre-existing condition. There’s not an insurance company out there that wants to cover you. So you don’t fire them. You scream, and curse, and cry, but you’re stuck. Only healthy people have the luxury of picking and choosing.

Let’s also not forget that most people don’t find out that they’re not getting “good service” until they’re sick.

(photo via Vanity Fair)

Categories: healthcare Tags: ,

Border Walls and the High Cost of Healthcare

May 12, 2011 2 comments

President Obama’s signature legislative achievement goes a long way toward improving America’s healthcare insurance system – now he’s calling on congress to fix our defective immigration rules. But healthcare costs still pose significant problems and America continues to overpay for medical services compared to other nations. So the president might as well aggravate the anti-immigrantion Right further and break down the wall separating these two issues. The GOP keeps saying they want more free market solutions for healthcare, President Obama should offer one.

The administration should seek an international agreement to recognize foreign medical accreditation, increase visas for qualified doctors, and encourage insurance companies to finance patient travel. Fred Hansen in an Institute of Public Affairs article writes,

Although up from 500,000 in 2006 to 750,000 in 2007, the number of Americans traveling abroad for healthcare is tipped to increase to 6 million by 2010.

Unfortunately I can’t find more up-to-date numbers, but it is clear that medical tourism will continue to grow. Of course, many people naturally fear the idea of foreign medicine, but if importing medical services or traveling abroad for them lowers prices or provides access to otherwise unavailable higher quality care to a suffering patient that xenophobia can be an expensive and dangerous delusion.

In 1993, the trade economist Jagdish Bhagwati wrote a piece for the Journal of Commerce advocating that Hillary Clinton’s healthcare task force open the borders for medicine and doctors.

The entry of more foreign doctors wouldn’t require anything as formidable as easing immigration restrictions. Temporary visas for providers of professional services can be made available readily to qualified doctors from abroad.

[…]

Economic research strongly suggests that the AMA makes [foreign medical] examination tougher when doctors’ earnings are under pressure, thereby reducing the pool of eligible applicants for visas. Limiting entry eases competition among doctors and keeps their earnings-and the cost of health care-higher than it might otherwise be.

As the healthcare cost graph (linked above) shows, Americans spend $64 billion in excess costs because of overpriced healthcare workers. As President Obama goes around the country to push for immigration reform he might think about how he can build on his previous success by tearing down a few walls.

When Unbearable Debt Meets Unsustainable Political Support

April 13, 2011 Leave a comment

Many idealists think we can just inform the public enough to understand the best policies to govern ourselves. Unfortunately tilting at windmills seems more productive. Policies gain and maintain support not by voter knowledge but by voter experience. I don’t care how many TV specials or column inches get devoted to explaining that congestion pricing is better for drivers – it will only reach a critical mass of support when drivers experience the benefits outweighing its costs.

As a pure political argument, do you think hugely slashing defense spending is a winner? Maybe right now. What about the months after 9/11? Voters have no idea what the practical differences are of a few hundred billion more or a few hundred billion less in spending on the military. If the country feels safe they’ll support a low level of defense spending (assuming that the level is compatible with actual and perceived safety). Are high tax rates politically sustainable? If there is strong economic growth, yes. Of course if they’re too high and they weaken growth they’re not sustainable. Bill Clinton easily won reelection and somehow maintained higher tax rates that many currently think would be politically reckless to advocate. Those tax rates even gave us a surplus and would do a lot to balance our budget. What’s the difference? Clinton didn’t explain it better – he presided over a growing economy. Clinton even won large percentages of wealthy voters (not majorities though). Today, growth is anemic.

What does this tell us about any debt reduction plan? Since future congresses will have to keep any policies in place that balance the budget, the policies can’t be incompatible with voters’ improving experiences. Paul Ryan’s medicare “fix” isn’t bad because it is unfair or ideologically conservative – even if you forced everyone to read and love Atlas Shrugged it wouldn’t fix the deficit. When the elderly start getting vouchers that decrease in value (they grow at the rate of inflation but healthcare grows faster) they’ll see their situation as steadily deteriorate and vote to change the policy.  That doesn’t mean that benefits need exponential growth to maintain support, but shifting the cost to consumers also doesn’t work. Public debt means higher taxes and less ability to spend elsewhere while private debt directly consumes personal wealth that reduces demand and economic growth. That’s why costs need to be contained not payments. Ezra points out that smaller versions of Ryan’s plan failed:

Various states have gotten waivers to radically remake their Medicaid program, and the consumer-driven model that Ryan is proposing for Medicare has been attempted in the Federal Employee Health Benefits Program and Medicare Advantage. None of these programs have worked, which is why we’re in our current predicament.

Voters need to feel that their overall well-being is improving which means holding down costs in a way that doesn’t prevent economic growth. A growing economy makes every policy sustainable; the trick is to pick solutions that don’t kill economic growth. Paul Ryan correctly realizes that medicare can’t be an open-ended commitment because doing so would eventually harm the economy. His numbers don’t add up, the distribution is unjust, and its prospects are inconceivable but we can debate the merits of it as policy. He should be commended for offering something tangible even as we reveal its flaws. Are there other solutions?

The Kaiser Family Foundation compares some proposals. Many Democrats think strengthening the Independent Payment Advisory Board holds promise. Introducing a dedicated VAT to government healthcare spending always made sense to me – that way it explicitly ties what we’re willing to spend to what is politically sustainable.

Politicians should remember that the single best thing they could do to reduce the deficit is choose policies that maximize economic growth (even if that means taking advantage of cheap borrowing now). Yet, our debt is so large more must be done. Since the major problem is too many retirees relative to able workers, we could change one policy that no one seems to notice would dramatically help. Increase the number of young workers… otherwise known as immigrants. Obviously immigrants age too so it’s not a magic bullet, but anything that keeps the dependency ratio at a reasonable level would be enormously helpful.

Another aspect of immigration policy that needs consideration (since we can’t feasibly let in enough migrants completely solve everything) are temporary workers. Temporary workers are great because they come at almost no cost to the taxpayer. We don’t have to educate them and we don’t have to pay for their retirement, but they grow the economy and pay taxes. As Matthew McConaughey might observe, high school girls and temporary immigrants have a lot in common: they “stay the same age.”

Much more needs to be done, but anything that passes must maintain support.

GTSCW: Health Care Edition

March 1, 2011 1 comment

In another installment of Graphs that Subvert Conventional Wisdom here’s a chart that surprised me and dispels a common fallacy about American vs other health markets.

Probably due to sheer repetition I always bought into the notion that one of the trade offs of expanding coverage usually had to be longer wait times due to doctors having to deal with more volume. Previously I assumed we’d just have to do our best to mitigate that inevitable downside – it doesn’t seem so inevitable after all.

Expanding health coverage continues to be a worthwhile goal and I remain convinced that a greater governmental role is necessary (a free market linked with guaranteed catastrophic coverage is a political impossibility). Wait-times was one of my bigger reservations about increased state involvement; I still worry about decreased competition arresting medical innovation. Is that another myth or is there more truth to that?

(via: Kevin Drum)

Categories: GTSCW, healthcare Tags:

Understanding Healthcare Reform

September 23, 2010 3 comments


(h/t The Daily Dish)



Here’s Ezra Klein on some of the cost savings measures contained in the bill.

Behind the acronym [IPAB] will be 15 presidential appointees, each confirmed by the Senate. They’ll be drawn from the health-care industry, academia, think tanks and consumer groups. Their reform proposals will have to pass through Congress, but they will have some advantages: If Congress doesn’t act, their recommendations go into effect. If Congress says no but the president vetoes Congress and the veto isn’t overturned, their recommendations go into effect. If Congress wants to change their recommendations in a way that’ll save less money, it will need a three-fifths majority. Oh, and no filibusters allowed.

The hope is that this will free Congress to permit cuts by making it easier for them to dodge the blame. “Putting the knife in someone else’s hand will be a relief,” says Robert Reischauer, director of the Urban Institute and a former director of the Congressional Budget Office. “It will allow Congress to rant against the cuts without actually stopping them.”

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