The current debate in Congress on healthcare is so hyperbolic and disingenuous that I felt it was time to actually pull out the threads and uncrumple the ball and lay it all out.
I will talk about the moral dimension, then the financial dimension, then the health dimension.
The moral dimension is simply this question: do we help each other through sickness and in health, or do we take the opposite extreme of every man for himself (women be damned)? Or do we take some middle road? Throughout most of my life, the moral choice made in the US was that middle and upper class people help each other out as a group, while we helped the working poor to a lower standard, and we essentially let the underclass die. Our sense of shame prodded us to ease the brutality of that death sentence somewhat by setting up a safety net. While that safety net was significant (medicaid, medicare, emergency services for the uninsured, for example), its moral foundation was that “we” treated “them” as inherently lower and less deserving. For generations health was never considered a right, and the debates focused on to what extent the recipients of “our” generosity were worth the expense.
The ACA fundamentally challenged that moral stance by declaring that we should take care of all of us to a more reasonable minimum standard, and it set in motion a trend towards more universal insurance coverage.
The current debate is completely hostile to that moral advance of the ACA, and I think racism and class superiority is a driving force. Some of the people who hate the ACA really want an underclass to exist, they enjoy winning, and nothing stimulates their competitive brain receptors like seeing the underclass waste away while they sip drinks by the poolside. They realize the ACA threatens to bring in more equality, so in retaliation, they ramp up their attack with an agitated fury and logical vacuum that can only be explained by the fear of the loss of their position in society. That is the moral failure in today’s debate, and it is driven by psychological forces that people experience when they lead narrow unexamined lives.
The financial dimension is a bit complex but important. Many people misinterpret the incentives of the four parties to each transaction, so I will lay them out:
- Patients want to avoid doctors when we are well, but we also want the power to buy health-related services at only the level we need when we need it, no more and no less. It is important to see that there is not an infinite demand for services; thus patients are not the driving force behind cost escalation. But we want to be able to spend millions of dollars if needed, thus some kind of risk pooling is in our interest. It is not very relevant to us as patients whether costs are pooled by a public instrument or a private one. Like all consumer choices, we will minimize our personal costs and if insurance is not required or favorable, we will not buy it.
- Providers (doctors, hospitals, etc) are private entities with the inventive to maximize income. Like anyone selling anything, they will do whatever it takes to make more sales – upselling, advertising, monopolistic practices, and lobbying. While the individuals involved in that system usually want to care for people at a personal level (they chose to go into that line of work), their corporate structures have the incentive to care less and charge more.
The first two of the three parties – buyers and sellers – operate just like with any other kind of financial transaction, but with healthcare, there are third and fourth parties.
- Insurers and underwriters are private or governmental or non-profit organizations that provide the pooling of risk, taking a cut of the sales. Their incentive is to pay less out and charge more, but they operate in a market and under regulation, so they must stay within acceptable limits to stay in business. The important function of insurers is to determine what is an acceptable expense – more on that below. Many people on both sides incorrectly blame insurers for cost escalation and other problems, but insurers actually have the incentive to lower costs, so they are just a distraction from the central problems.
- Courts are the final party involved in the money side of things, because ultimately they rule on insurance claims, if patients appeal, and thus courts ensure the insurers are following their own rules.
Costs can only be kept “correct” (not artificially low or high) if there are market forces at play, and the root reason why health costs have gone up in the last decades is that the market forces are not strong enough. Markets must have buyer choice and seller choice to be true markets, but in the US consumers cannot effectively shop around for health-related prices, so there is too little choice. Insurers commonly make deals with providers that cap prices on each procedure (more proof that insurers are on our side), but they are not allowed to cap the number and kind of procedures done.
Countries with more efficient health delivery systems (that is, all other countries) achieve that because they do fewer procedures, do them more efficiently, do not spend as much on marketing, and do not pay the doctors and CEOs outlandish salaries. Their cost savings are not achieved by pooling (insuring) differently.
The ACA changed the way the parties collude to set costs in some important ways, but it did not change the basic set of incentives. The main changes were that insurers were required to spend 85% of revenues on health costs, and they no longer could deny coverage (thus their whole business model became simpler, and they downsized). So under ACA, insurers are a less important variable in the cost equation than before.
There is an important link between the moral and financial dimensions, which is the question: what do we do if someone is not insured and they get sick and need help? They were not paying their share into the risk pool to help others, so when they need help, do we help anyway? (The same question is asked in the Little Red Hen story.) Or do we let them get insurance when they need it? Ultraconservatives say no, if they failed to think ahead, we should let them die. They are right on purely economic grounds for the same reason that if you sustain a loss of property that was not insured, you are out of luck; no one will pay you back the value of your loss. But it is clearly barbarian for us to live like that. If we really pause to consider this, we can only come to the conclusion that if we do not want to be barbaric, we need to require people to be in the risk pool. That is, either we have a public pool that automatically covers everyone, or else we require them to be in a private insurance pool. It does not make moral sense to have the “choice” to be uninsured.
The ACA was a compromise plan that favored the private pools to appease conservatives, and one of its failures was that the penalty for not being in a pool was too small; thus its adoption rate has been gradual.
The second financial dimension concerns the role of health spending as a tool of wealth distribution and equality. (I was talking about spending on health itself above, and now switching to issues of taxes and credits.)
Pre-ACA, health spending wasn’t tied in any rational way to income equality, so those expenses, being relatively equal across economic tiers, was a “regressive” type of expense; that is, one whose percentagewise impact on the poor is greater than that on the rich.
One of the most important effects of the ACA was in how it changed the distribution of wealth generally. It shifted the tax burden and entitlements on a gigantic sector of the economy such that wealthier people were paying a much larger chunk of the cost of health services for all of us, and many more people were getting those services at little or no cost. If you’re into active public management of poverty (as I am), this form of progressive taxation was a good start. Two or three more programs of that magnitide (such as in housing, food, or transport) would have made the US more like the compassionate socialist European states.
The condensed version of the way ACA was affordable is that Medicaid was theoretically expanded to include more people, and additionally, if you graduated out of Medicaid (by earning too much to qualify), then you still would qualify for credits towards premiums. Thus there was little or no gap which had existed previously. (One of the persistent failures of US social programs is that they often have a cutoff, so people have an incentive to stay poor to remain eligible.) As income goes up between around 30 to around 90,000 per year, the credits phase out.
The current agenda is being set by the uberrich, who seem to always want more money, so the brunt of their health reform proposals are to reverse the ACA taxes and entitlements. They say the ACA is broken and use terms like “choice”, but all of that is lies and distractions, and their actual motive is that they do not want to pay the taxes, along with the racist/classist motives as noted above. They propose reducing Medicaid and eliminating income-based help on premiums. Not only is the entire dimension of the health system as a tool of equality being chopped, it is even proposed to be reversed by creating a credits that the wealthy qualify for.
The health dimension includes the questions of what gets done for patients, who decides what gets done, and whether it is effective. Amidst all the noise about choice and rising premiums, these questions are not making the news. The current debate is completely missing the much larger factors of what the money gets spent on. We should be debating the finer points of who gets to decide whether to do each procedure and how much they can charge for it. Or we should be implementing more market forces to keep those prices under control. One of the ways to shift incentives is to pay for outcomes rather than procedures, so insurers only pay after the patient is treated successfully, instead of paying simply because something was done to them.
One of the big principles missed by conservatives is that people will not make good decisions about insurance in an unregulated market. Generally speaking we will under-insure ourselves if given too much choice. We might choose a plan with a 1 M$ lifetime cap, because that seems like a lot, but then need 2 M$ to survive cancer, and having made that choice when we were not thinking we might get cancer, we end up dying because of it. Or we might choose a plan that does not cover some drug that we never heard of, and then end up needing that particular drug.
We also do not know what procedures we need if we do not happen to have medical training. But on the other hand we cannot let doctors decide everything, or they would simply order every known test for every patient and drive prices up forever.
So the question of what gets done ultimately has to be a community decision – made either publicly or by insurers backed by courts. It does not make sense to make those decisions as individuals or as providers. The conservative’s notion that “doctors and patients” will decide on everything on a case-by-case basis is naive and does not contain costs. The ACA took a rational approach to that question by making those choices nationally, and putting into law specifically what had to be covered for everyone.
What do we do next? There are a lot of ways to rationally pay for healthcare costs. Here is the super-consolidated list of points that would need to be decided:
- Who sets prices – There has to be a market force limiting the ability of providers to set runaway prices. (This point is rarely mentioned in debates, but assumed to be the role of insurers.)
- Who decides what procedure is done – There has to be a market force limiting the ability of providers to do unnecessary procedures. (This point is rarely mentioned in debates, but should be central.)
- What choice of doctors will you have – If insurers are allowed to control prices, they have to limit choice of providers as a way to do it. If you want to be able to go to any doctor and they can charge whatever they want, then there is no way to control runaway prices. (Republicans pretend to favor choice but have no plan that makes sense; Democrats pretend to favor choice but actually favor insurer price controls.)
- Self-pay versus risk pooling – Only the 1%s could afford to pay full medical costs without pooling their risk, so all the rest of us need to pool risk. However, some chunk of the middle/upper income people could pay for a fairly large portion of typical medical costs if they accumulated money in health savings accounts (HSA), thus partially being their own insurer. (Everyone is assuming the combination of insurance and HSAs as far as I can tell, but Republicans want to expand the use of HSAs.)
- Who gets included – Let’s assume that our goal is to care for everyone equally, and leave no one out. So the baseline assumption is that everyone is in a cost sharing pool of some kind. (Democrats generally favor this; Republicans generally opposed.)
- Mandated coverage – This is really another word for who gets included; it may sound draconian to say “mandated” but it is how every other country does it. (Democrats generally favor; Republicans generally opposed but without any rational alternative.)
- Penalty for not being covered – Pre-ACA, the penalty for not being covered was that once you developed a condition, you could not get covered for it at all, or only after a long wait. Thus in some cases the penalty was your life. Starting with the ACA, the penalty shifted to a simper tax payment. Another alternative is paying higher premiums after a coverage lapse. Another alternative is to automatically include everyone, avoiding the question of enforcing a penalty. If there is a choice in coverage, there logically has to be a penalty for opting out; otherwise the insurance market would collapse. A lot of people do not get this, but it is the main thing we need to get if we insist on using the insurance model for health costs. (Democrats generally favor the tax penalty or universal automatic coverage; Republicans favor a penalty through higher premiums.)
- Change in coverage – Risk pools inherently require people to pay into them as a group when they are not sick, and by the same token, you would need to pay for the level of insurance that you might eventually need, before you need it. The strategy of buying minimal insurance while healthy and then switching to better insurance when you get sick undermines the whole concept of risk pooling. The ACA dealt with this problem by limiting the period of enrollment in a plan to the calendar year, which was not sufficient, since it would be economically favorable to wait out the year and then switch, for those who develop a chronic, expensive condition. Other solutions are automatic universal coverage, higher premiums (as above), and longer enrollment periods such as 3-5 years. (Democrats favor the ineffective one-year period and do not seem to have a solution; Republicans favor higher premiums.)
- How the risk pools are grouped – There has to be a way to decide who is in a pool together, if there are going to be multiple separate pools. One way is to have the whole country in one pool. Another way is by employer. Another way is by insurer. Pre-ACA, continuously insured people were in pools by employer or by insurer if covered individually, while those who could not get insurance in the market either were in the medicaid pool or public high-risk pools. With the ACA, this mostly did not change but the ACA “exchange” established separate pools with a more transparent market. (Democrats favor a universal pool or the ACA compromise; Republicans appear to favor the tiered pre-ACA pool system.)
- Who underwrites the shared risk pools – This is the question of insurance backing, and currently includes government, quasi-government public insurance companies, non profit and for-profit backers. (Everyone appears to be sidestepping this and is OK with the current slate of complex options.)
- Who pays premiums – This is the question of whether consumers pay directly, through an employer, or via taxes. Pre-ACA, taxes paid for most of medicaid, most people with private insurance paid through an employer, and some paid directly. ACA did not overhaul that system, but it added a major tax credit component, such that insurers could collect part of the premiums monthly from the government and part from the consumers. (Democrats favor the current complex system or universal “single payer” via taxes; Republicans appear to favor the pre-ACA system.)
- How is poverty handled – This is the question of how and if the health system trends towards more or less income equality. As I said above, the ACA had a system of credits and overall expansion of low-income support. (Democrats favor the current ACA system; Republicans favor a regressive taxation/credit system instead which makes it impossible to fully include the poor in the whole healthcare system, leading to countless deaths.)
Given the huge range of ways to do things, here is what I would do. My first choice would be single payer via taxes, automatic universal inclusion, and essentially removing the insurance component. The market forces would be created by publicly setting rates for outcomes, allowing providers to compete by minimizing the procedures necessary to achieve the outcomes.
Given that my first choice is a political non-starter, my second choice would be to keep ACA with these few changes: (1) improve the ability of insurers to negotiate prices and procedures, (2) shift to fees based on outcomes, (3) increase tax penalty for non-coverage, (4) lengthen the enrollment period to 2 years, and (4) phase out employer-sponsored plans.
Conclusion: There are complex choices to make, there is no one obvious best answer, and Republicans (mostly) are clouding the issues through a steady stream of lies to the point where meaningful real debate is possible.
(edited 3/11 to add more on medicaid and poverty)