The Conservative case for the Affordable Care Act

is the title of an op-ed in the New York Times by J.D. Kleinke of the American Enterprise Institute. If you have read my blogging or my book, you will know that I basically agree with him–the political rhetoric around Obamacare never matched the policy reality.

Some predictable push back from Jim Capretta, and Michael Cannon. I like both of these guys personally, and think they have some good thoughts and ideas. However, the opposition to Obamacare, driven in part by them, has always been oversold on policy terms and has been mostly about politics. What would be useful would be for them to be clearer about what they would do instead. In fairness, Jim Capretta has written a fairly complete vision of what a replace of Obamacare would look like, and Michael and colleagues at Cato have an ebook on reform options.

However, I don’t think they have a political party that can muster the 218 members of the House and the 60 in the Senate needed to pass their ideas (or anything) after voting to repeal Obamacare, even if there is a Republican clean sweep this fall (which seems unlikely in any event). As I have said before, if they clean sweep the election I expect the Republicans to repeal the ACA, but not to replace it with anything. If the President wins re-election and the hope of repeal becomes a fantasy, I think there will be a deal to move ahead on health reform, wrapped up in an overall deal on the tax code, etc. in the next Congress. Republicans need a deal on health reform because there is little reason to believe they can muster the political will to actually pass something. They seem to be the last to know, though maybe Kleinke is beginning to realize this.

a similar post is cross listed at freeforall.

updated: added a clause to the last sentence.

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

19 thoughts on “The Conservative case for the Affordable Care Act”

  1. But Capretta isn’t entirely honest, either. He says (regarding market-based reforms to the insurance system):

    In most sectors of our economy, the normal dynamics of supply and demand keep costs in check and reward suppliers that find innovative ways to deliver more for less. As described above, however, this is not the case in the health-care sector, principally because the federal government has completely distorted consumer incentives.

    I won’t deny that there are serious problems with our health care finance mechanism, but those problems predate Medicare. The problems are tied into the fee-for-service model itself. When Medicare adopted fee-for-service reimbursement in an environment where Medicare recipients would inevitably become the major consumers, the distortions Capretta cites are entirely predictable.

    But the problem is deeper than simply fee-for-service reimbursement. The problem is also that market forces simply do not apply, with the possible exception of cosmetic procedures. For example, a colleague recently went in for a cardiac stress test. He had a serious heart attack six years ago, and his cardiologist is monitoring things. He was told not to take his blood pressure meds for 24 hours before the stress test. They took his BP before they put him on the treadmill, and the tech panicked when his BP appeared to be dangerously high. The tech called the doctor, who said to send my colleague to the ER and the doctor would come downstairs to meet him.

    My colleague didn’t get to do any comparison shopping for hospital ERs, although there are two in Our Fair Town. He had to go to the hospital where the cardiologist happened to be at that time. Similarly, when I needed my appendix removed fifteen years ago, I didn’t get to shop for hospitals and diagnostic imaging services and surgeons.

    Health care (and especially acute health care) is not like other goods and services. We don’t have the chance to shop around before we purchase. We purchase it, and then settle up later.

    This model might have been adequate in an era when physicians really couldn’t do very much that was definitive. With modern technology, that is no longer the case. But it also means that fee-for-service simply is not an acceptable model any longer. It distorts our health care system: a physician’s income is determined largely by two factors. Where does she practice, and how many procedures can she perform? Fine tune it slightly by asking how much she wants to work, and you can tell how much she brings in.

    Under this model, primary care practitioners (Family Practice, Internists not otherwise specialized and Pediatricians) get hosed. They simply don’t have that many things they can do to patients. Among secondary specialists, Neurologists and Cardiologists get hosed relative to a Gastroenterologist or an ENT, they don’t have as many torture rituals. The education and training levels are similar for all medical specialties and subspecialties — it’s a question of, “How many things can I bill insurers for” that (largely) determines income. We need a better model, because as it stands, we are getting way too many subspecialists and not nearly enough primary care folks.

    1. Sure, they are much stronger identifying what they are opposed to by using “pure types” that don’t and likely cannot exist in health policy. This is part of my point that they (conservatives, repubs) are much better off working off of the ACA for a deal because they could bring some notions to bear within the overall structure of the ACA, but I just don’t think they have political coalition to pass a framework. Even looking at Capretta and Cannon, Jim C says everyone should be covered, while Michael C is immensely proud of being opposed to what he calls “the church of universalism”….they would never be able to stop fighting and pass something. Plus, there aren’t 40-50 Rs willing to risk losing their House seat for a health reform vote.

      1. More than “everybody should be covered,” Jim C says, “Nearly everyone’s covered now, and the only real hole that needs patching is for people who move from employer-sponsored plans into the private market and get screwed. And the reason they get screwed is because of the market distortions caused by Medicare.”

        My point is that the market distortions are inherent in any third-party payer system based on fee-for-service. The fact that it’s the Big Bad Gummint that (in this history) distorted the market is a red herring.

        I believe you’re correct about ACA being a framework they should work within. The bigger question is, do they recognize that as a fact, or even a hypothesis worthy of consideration?

  2. I don’t think that our problems with healthcare were caused by government intervention, and I don’t think that they can be solved without government intervention.

    There’s very little downward pressure on prices in the health care market. Part of that is that you can’t shop around in a crisis, as Dennis points out. But even if one does have some options, one can’t really make cheaper substitutions to the same degree that one can with food, clothing, shelter and transportation. Medical treatments tend to be both very important to maintaining quality of life and very specifically tailored to individual situations. When you are told that you need to take a specific medication or have this operation to continue or resume a healthy life, you only forgo that if you can’t afford it. When it is a matter of life or death for your child, you don’t ask how much it costs – you just do whatever you can and get all your family, friends, church and community memebers to kick in if you can’t do it on your own. The only downward pressure is ability to pay. Eliminating medicare won’t change that. I consider a system which requires thousands of people in the lowest quarter of our income distribution to go without needed medical care so that people in the upper quarter can make astronomical profits to be immoral. This is an unusual case in which we need the government to come in and set some limits, like the percentage of insurance company revenues which must go to treatment in the ACA.

    I also don’t buy that there are serious problems with people consuming more healthcare than they need because it doesn’t cost money (because they trust their doctors is another issue, see below). Even if going to the doctor is free in terms of money, it costs time. Most people must use up sick days, lose income from work, or hire a babysitter. With few exceptions (eg. massage therapists) going to the doctor is unpleasant, sometimes very unpleasant. So, even people who have weekday hours free and don’t need a babysitter must choose to do something unpleasant, instead of something that they actually enjoy. That is a cost.

    Now, people consuming more than they need because their doctors are overprescribing is a problem. But blanket increases in the cost of services won’t target unnecessary procedures. Rather, it will target people who can’t afford to pay, whether they need the treatments prescribed or not. Moreover, it won’t make people who can afford to pay forgo treatments wrongly recommended by a trusted doctor. Only the types of treatment guidelines included in the ACA can target cutbacks so that they don’t affect people who actually need care.

  3. Providing health care insurance is inherently a monopolistic system.

    First, because all members of the potential pool must participate. Otherwise the moral question arises of when do you not treat someone who is not covered in the pool.

    Second, when everyone must be included the system will tend to a monopoly. This occurs because a smaller company may be hit by a large pool of expensive members. That small company then becomes absorbed by a larger company. Alternatively, you have a large secondary insurance pool in which all companies participate. In either case over time the small companies are all absorbed or the secondary pool dictates coverage requirements to all.

    If you accept this then the logical conclusion is to allow the one ‘natural’ monopoly, i.e. government, to handle the problem. The beneficial secondary effect is you remove the profit motive from the insurance process which has the benefit of reducing costs.

  4. If you accept this reasoning, food is inherently a monopoly, as the moral question arises of when do you not feed somebody who can’t pay for a meal. Housing is inherently a monopoly, as the moral question arises of when do you not house somebody who can’t pay for a roof over their heads. Every necessity of life is inherently a monopoly, by this reasoning.

    And yet, most necessities of life are not, in fact, monopolies. But instead are handled as markets, with some provision, either governmental or private, for those who fall through the cracks. Doesn’t this imply that there’s something wrong with the reasoning?

    Perhaps the problem with the reasoning, is that the existence of a moral question doesn’t demand the creation of a monopoly? You seem, in fact, to be taking the existence of a moral question as equivalent to proving a particular answer to that question. An awful lot of steps skipped there, I think.

    1. The food & housing analogy fails because the cost of those in some form is accessible to most people without crippling their standard of living. (And BTW, their costs are kept accessible in no small part due to government support.) But this is not nearly as true of health care.

      1. The food and housing analogy fail because they don’t have the kind of volatility health care costs do. You landlord can’t come in one day and say “I’ve quintupled your rent, pay the next six months in advance or leave now and watch me burn all your possessions” (We’ve moved forward since 18th and 19th century great britain.) And your grocer similarly can’t say, “Sorry, only filet mignon for you from now on, bub, and I’ve notified all the other grocers in town, so don’t try to get out from under.”

  5. Look at the things that are needed for efficient markets: symmetric information (not just data), liquidity (a constant flow of transactions), easy entry and exit, negligible transaction cost, transactions handled by market-makers without conflicting interests, and so on.

    Health care has pretty much none of those characteristics.

    But Capretta is right that federal intervention in health care — particularly medicaid and medicare — has grossly distorted the market. Without those federal funding mechanisms, hospitals, doctors and insurance companies would rightly have decided that the risks of exceeding DRG costs and the risks of nonpayment precluded offering care except at very high prices. And older or poorer consumers would rightly have recognized that sophisticated health care was beyond their means and gone off to die in the gutter. Which is a perfectly reasonable state for a market to be in, and I am not nasty enough to wish that Capretta and people like him could experience it firsthand.

  6. Hm, is it possible there are things, in many case the very same things, which are needed for efficient government, which are lacking? And that we’re not comparing imperfect markets to perfect government, but imperfect markets to imperfect government?

    1. All prosperous countries provide near universal health care for their populations at a per person cost of more or less half that of the US, for more or less the same health outcomes. And the most efficient systems are those that are most “socialized”. So the answer to your question is no. Contemplate the data Brett. You’re an engineer, and you know that data, as opposed to ideology, is ruthless.

      1. Actually, not more-or-less the same outcomes, generally speaking better outcomes. When you look at the US on most health care metrics (other than expenditures), we are middle-of-the-pack. Now, I grant that the better outcomes are on population measures, but what that says is that we spend a lot of our health care expenditures on things that are ineffective with regard to the population measures. It’s also demonstrable that we do not spend a lot of money on things that are effective on those population measures.

        1. I am happy to be corrected. But I am unclear about how to replace “for more or less the same health outcomes” in an accurate but still cogent way.

          The target of these micro summaries are mostly people who are unaware of what’s going on in the rest of the world. If it gets too confusing…

          I’ve honed what I originally wrote down to the barest minimum but I would love to have it improved for future use.

          1. How about, “With mostly better outcomes”?

            If you want to get past the soundbite thing, note that France has the second-highest per capita health expenditures among the major industrialized nations. The French rank near the top on most metrics and spend half what we spend.

          2. I think that works for the soundbite, thanks Dennis. I first learned about all this stuff somewhere around six years ago, and I was fairly shocked. Even doubted that it could be true. But it is in fact true, and people like Brett need to acknowledge these facts (so we can all use the same facts) and update their assumptions.

        2. Arguably what it says is that we are compensating for a lot of bad habits. Once you get past a minimal level of health care, an awful lot of the difference between nations in the area of health is driven by culture; Diet and exercise, for instance: They have a HUGE impact on health, but can’t really be attributed to one’s health care system.

          Unless you control for an incredible number of variables, you can’t really do a valid comparison between national health care systems.

          1. Uh huh. I don’t think that ‘arguably’ is the word you’re looking for. More accurately, something like, “I reached behind me and pulled this out, let me see how it sounds”.

            Course I could be wrong. How about some data that shows how this plays out across oh say the top 30 countries or so. Do add Singapore and Switzerland, as I believe they’re most friendly to your, um, principles.

  7. “Republicans need a deal on health reform ..”
    The US now has a virtual parliamentary system. The Republicans will lose in 2012; so they will be the loyal opposition, with no significant input to policy. I assume the filibuster will go, as it makes a parliamentary system unworkable. The job of the opposition isn’t to legislate, but to hold the ruling party accountable. Republicans won’t need a deal on health reform, but a decision whether to accept Obamacare and move on, or continue with a “Clause Four” denialism tha twil keep tem in the wilderness in 2016.

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