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After Obamacare

In the next few weeks, the Supreme Court will hand down its decision on the constitutionality of Obamacare and its individual mandate. Via Meadia and the public have both expressed our dissatisfaction with this boondoggle of a reform and its operating mechanisms, but if the law is struck down, what will replace it?

The Economist offers one possibility: the “Utah Health Exchange”, which is experiencing early success and being rolled out to the entire state. So how does it work?

The Utah Health Exchange is decidedly not Romneycare or Obamacare. But what is it? At first glimpse, it is a snazzy web portal where four of Utah’s five largest health insurance companies offer about 140 plans to about 6,600 employees of 285 small businesses. Each employer determines in advance how much he will contribute to an employee’s insurance, as in a defined-contribution pension plan. The employee then filters the plans and selects his favourite—again, as he might choose mutual funds in his defined-contribution pension plan.

As Patty Conner, the exchange’s director, explains, this has advantages over traditional corporate health insurance. In the old system employers had no certainty about premiums, which often rise abruptly. And employees, offered little if any choice, often got stuck with inappropriate plans. Small businesses, specifically, offered no insurance in Utah. Their employees and families account for many of the state’s 300,000 uninsured, more than 10% of the population.

Look for more such ruminations in the press as the decision date for Obamacare approaches. For while that law is not the solution to our nation’s significant healthcare problems, a solution must be found.

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  • Anthony

    “For while that law is not the solution to our nation’s significant healthcare problems, a solution must be found.” WRM, yes a solution must be found but health care will not reform itself; for a very interesting perspective on incentive (money) of healthcare provision see George Halvorson – healthcare infrastructure in America intertwines many economic interests.

  • Mrs. Davis

    The important difference in the Utah plan is that it transfers some power back to the consumer. If you don’t like your insurance company, you can walk at the next renewal period. With employer sponsored insurance, the consumer has no power, only the employer and the insurance company.

    This is why we don’t need a sclerotic national plan. Let the states be laboratories of experimentation to evolve the appropriate set of tradeoffs.

  • WigWag

    Does the article explain how people with preexisting medical conditions can obtain affordable insurance? Does it explain how minimum wage workers or very poorly paid workers can obtain affordable insurance? Does it explain how Utah’s plan solves the problem of cost shifting from those without insurance to those with insurance?

    The article in the “Economist” is claptrap. Considering Professor Mead’s propensity for pointing out drivel published by the New York Times, one would have thought that he recognized drivel when he saw it; apparently not.

    In one of Professor Mead’s recent (entirely justified) rants against the New York Times, he accused the newspaper of burying the lead and not including some of the most salient facts until the final paragraph, which presumably, many readers did not get to.

    Isn’t that precisely what Professor Mead did with this post when he saved this little gem for his final sentence?

    “For while that law is not the solution to our nation’s significant healthcare problems, a solution must be found.”

    If the Utah law is not the solution, or even an important part of the solution, why write an entire post implying that it was a major achievement when he knows perfectly well that it wasn’t? Why wait until the final sentence to reveal to his readers that the Utah plan really doesn’t make much of a difference at all?

    Could Professor Mead (or one of the youngsters who interns for Via Meadia) be auditioning for a position at the New York Times?

    Sometime back Professor Mead made the following promise to his loyal readers,

    “…but unlike some publications at Via Meadia we think it’s important that our readers get information that allows them to form an accurate impression about what is going on — even if some of what is going on makes for disquieting reading.”

    This post is a failure; it also breaks the promise that was so recently made.

  • MarkE

    The healthcare problems that need to be solved are cutting the total cost of healthcare, increasing the efficiency of healthcare delivery, and distributing healthcare effectively. These problems are usually accomplished faster, cheaper, and more innovatively by market based solutions. The government can help by dealing with information asymmetries with mechanisms like the Utah Health Exchange. Even if the market solution produces much less expensive healthcare, the poor will require subsidy since they don’t make enough money to pay for their own care.
    The design objective should be to keep the subsidized population way less than 50% so they can’t keep voting themselves more-and-more expensive care. Also the total government expenditure should be limited by a maximum percentage of GDP, e.g., 12-15%.

  • vanderleun

    What will take its place? How about we spend a few years ceasing to [mess] around with this thing and think it though. What would be nice about anything that took the place of this monstrosity would be that it did not extend the insane and invidious paternalism that is the hallmark of all so-called “thinking” about this issue.

    As usual Tocqueville has seen this coming a long way off:

    “Above [the people] an immense tutelary power is elevated, which alone takes charge of assuring their enjoyments and watching over their fate. It is absolute, detailed, regular, far-seeing, and mild. It would resemble paternal power if, like that, it had for its object to prepare men for manhood; but on the contrary, it seeks only to keep them fixed irrevocably in childhood; it likes citizens to enjoy themselves provided that they think only of enjoying themselves. It willingly works for their happiness; but it wants to be the sole agent and sole arbiter of that; it provides for their security, foresees and secures their needs, facilitates their pleasures, conducts their principal affairs, directs their industry, regulates their estates, divides their inheritances: can it not take away from them entirely the trouble of thinking and the pain of living?”

    The whole “effort” to “solve” this social problem boils down to the old joke about the man who hits himself on the head with a hammer and goes to the doctor:

    “Doctor, it hurts when I do this.”

    “Well, stop doing it.”

  • Sam L.

    What comes after? One would hope for a long discussion and solution-seeking before doing anything else. Our healthcare “system” is not a system, but a patchwork that grew from private attempts to provide a system and government efforts to control it, or guide it, or to pander to “special interests”.

  • Fred

    Wig Wag, I believe it was Obamacare that Professor Mead was referring to in that sentence.

  • thibaud

    Mr. Mead once again shoots from the hip, making simplistic judgments without bothering to do the most basic research on a subject.

    A few simple facts about Utah’s botchjob that the Economist’s readers turned up (see the Most Recommended Comments for details, evidence, and some source links):

    1. In three years, the Utah program has managed to cover a grand total of 0.01% of the market. The Utah program has had no meaningful impact on the small business sector – ~1,000 new enrollees vs a total ~300,000 Utahans employed in this sector. Oops.

    2. The Utah program is adverse selection on steroids. As with any opt-in system, for-profit insurers cherry-pick the best risks – ie, people who aren’t sick – and leave out people who are worse risks, ie sick people who actually, y’know, _need coverage_. Oops.

    3. Among large businesses, the Utah program is merely shifting coverage from one program to another instead of increasing the extent or quality of coverage. Oops.

    4. The Utah program caps employer contributions, which is another way of simply shifting the cost burden even more onto the backs of individuals. Oops.

    Can we please dispense with the fiction that for-profit insurance is compatible with broad, high-quality, affordable coverage?

    The basis of any sensible, affordable, efficient health care system is universal health insurance that covers everyone for basic needs + catastrophes.

    It works well in Sweden, which has outstanding health care and medical research facilities while spending a tiny fraction of what we waste annually on admin.

  • thibaud

    Chief Justice Roberts will likely wrote an opinion that very narrowly strikes down the mandate while making it crystal clear that, had the Obama admin and Congress used the tax system to expand coverage, Obamacare would be constitutional.

    In other words, what follows Obamacare will be some version of the public option, funded by a reformed tax system that severs the absurd linkage of employment and insurance coverage.

  • f1b0nacc1

    Dream on Thibaud….

    What follows Obamacare will be …. ….


    The Left will vote against anything less than their pipedream of single payer (the plan being that they can preserve the issue to use int he future), while the Right will offer limited, incremental steps of mixed value. The result will be nothing, muddling-through, a brownian motion of policy.

    Perhaps this is a good thing, after all. The problem of health-care delivery (as opposed to health insurance) is that we want unlimited quantities of high-quality healthcare at zero cost. This isn’t going to happen, no matter how many ways we try to pretend that it will. You can have the European (including Japan) model, which provides wonderful insurance coverage, and adequate care as long as you don’t get terribly sick. You can have the American model, which provides less than adequate coverage, but provides superb care (for a price, often a very high price) if you do get sick. Pretending that you can cherry pick the best of both worlds simply ignores that the bad parts of each model are often necessary preconditions of rhte best parts.

    The Scandanavian countries have very good coverage, but they also have smaller populations with unique demographics that help mask (to some extent) the limitations of their systems. Survival time after diagnosis (for cancer, heart-disease, etc.) do not compare favorably to American figures, though they (the scandanavians) often provide superior non-critical coverage of the population before it gets seriously ill. If you are 30 and relatively healthy, move to Sweden, then move back to the US when you are 55 and your health is in decline. There are tradeoffs in each approach, and as much as we might like to hope for a universal one-size-fits-all (the core of the Blue Model(tm)), it simply doesn’t exist.

    You mention adverse selection (I notice you conveniently ignore free-riders, the consumer counterpart), but you don’t show any realistic approach to coping with it other than handing the whole thing over to the government (whether directly or through a throughput reimbursement model, like the French) and having the taxpayers finance the contradiction. Sooner or later, there will have to be painful choices made about how much coverage will be paid for, and how we will determine who gets what scarce resources. You might be comfortable with the government making those decisions, I am not. Obviously reasonable people can disagree on which method is most desirable/least undesirable, but to argue that the problem will simply go away is dishonest in the extreme. We get faceless clerks determining our access to helathcare either way, the choice is whether their masters will be politicians or insurance execs.

  • WigWag

    “In other words, what follows Obamacare will be some version of the public option, funded by a reformed tax system that severs the absurd linkage of employment and insurance coverage.” (thibaud)

    Let’s hope that’s true. Any other proposed solution is nonsense. Health care is delivered in a dramatically better fashion in many nations than it is in the United States. There is no need to reinvent the wheel here (which is what both Obamacare and Romenycare did; mostly to protect the profits of the insurance companies and the sensibilities of ignorant Americans who worship at the altar of the free market with even more fervor than they worship the deity of their choice).

    All that needs to be done is to examine the health delivery systems of nations that do it better than we do; any of the Scandinavian nations, Germany, France, Japan, Israel, etc. If we implemented any of the various systems that these other countries use, the result would be an improvement.

    Only ignoramuses believe that there is a uniquely American fix to be had for this problem. Or perhaps they’re not ignoramuses at all; just people who are perfectly happy with a system that dispenses mediocre care at prices too expensive for millions of Americans to afford just so health insurance companies can earn delicious profits.

    One other thing, thibaud, perhaps the best option would be if the Supreme Court throws out the individual mandate while leaving the rest of the law intact. If this happens the result will be a health insurance industry that can’t cherry pick policy holders but doesn’t have a large cadre of healthy young people willing to pay any premium at all. It’s hard to imagine a better, quicker or more entertaining way to watch the health insurance industry collapse.

  • Jacksonian Libertarian

    The problem with Health Insurance is that it separates the patient from the buying decision, and so nearly completely gets rid of the competition Doctors and Medical facilities would have to face to provide continuous improvements in Quality, Service, and Price. Compare patient paid for Lasik eye surgery and the huge advances in Quality, Service, and Price ($299 per eye, that’s cheaper than designer eyeglasses) made there, and the Health Insurance paid for services with the long waits for appointments, outrageous prices like $200 for Tylenol, and all the unnecessary testing and surgery simply because the Insurance company is paying for it all. That this blog mentions even a tiny market with only 4 insurance providers as an advance shows just how far the Healthcare sector (17% of the economy) is from a truly competitive market place.

    I recommend that only High Deductible Catastrophic Health Insurance with Health Savings Accounts be legal. But by all means get a second opinion, or are second opinions not covered under your health plan?

    We will know we have arrived at a truly competitive healthcare market when doctors and medical facilities must advertise their prices and services to get new patients, and walk-in doctor visits are welcome.

  • thibaud

    @fibster – nice straw man re “zero cost” and “handing the _whole thing_ over to the government.”

    As to cost, the most absurd contortions result when supposed free-market apostles defend our pseudo-market non-system which burdens the nation – including, not least, US employers – with far MORE cost, waste, needless admin of all sorts than does any of our peer nations’ systems.

    Again, our Frankenstein kludge is both less efficient and no less, in many ways more, conducive to bad outcomes.

    As to yet another of your straw men, by definition the “public _option_” presumes the existence of private options that co-exist alongside it. The Germans offer such a hybrid system, and it works fine for their big, complex, advanced industrial democracy.

    As to that favorite health insurance mafia bugbear, the consumer free rider problem you mention is trivial compared to the real adverse selection problem – aka that routine, casually cruel, uniquely American farce whereby entire operations of multi-billion $ for-profit companies exist for no other purpose than to find ways to deny benefits to, and impose extreme financial hardships upon, millions of ordinary American citizens who are not in any way “free riders.”

    Every healthcare system has rationing one way or another, but better to have the practice be done transparently, openly and with some public input instead of through an obscene, behind-the-scenes practice by a health insurance mafia that sends hundreds of thousands of US families annually into financial ruin – for no reason other than we allow them to. Pity that a smart guy like you falls for such an obvious red herring as this, the most egregious of the for-profit US health insurance mafia’s many scams.

    @WigWag – to your last sentence, yes, in the absence of desperate attempts to ensure profits for-profit insurers, there’s a good chance that they will die a slow death under Obamacare.

    Far more sensible would be a quick transition to a system based on a pubic option, with an immediate end to all these backdoor subsidies. IIUC Germany has a fair sized private insurance market, as does Australia, co-existing with a robust government insurance system.

    Eliminate deductibility of corporate healthcare premiums, and force the private insurance companies to compete like any normal service provider, ie not on the basis of government protection and restraints on competition but on pricing and quality of service delivery.

  • Jim.

    The chance of the Public Option passing any American government where there’s (R) control of the House, the Senate, or the Presidency is basically nil.

    That said-

    Signing up for insurance in this country needs to be like buying a computer online. Check the boxes you want next to the coverage you want, and watch what happens to the prices. (The price varies based on which company you go with, and your individual situation, obviously — age, gender, smoker / nonsmoker, etc.)

    When you’ve gotten the coverage you want for the price you can pay, that’s your policy.

    This way, you’re your own “death panel”. You’ve been the one to decide what the insurance company will pay and what it won’t, and you have every incentive to pick the company that offers the best deal.

    Anything else leads to systems ripe for vast abuses, and bankruptcy for the state.

  • MarkE

    If “the sensibilities of ignorant Americans who worship at the altar of the free market” lead us to a market solution for healthcare production and distribution, it is most likely the optimal solution. It certainly has proved to be the best way to produce and distribute most other goods and services in the U.S. Why shouldn’t healthcare be primarily managed the same way?
    To my way of thinking the European “single payer” solutions are all de facto failures since they are embedded in welfare state financial fiascos which are unsustainable. The stingy Canadian and British systems are probably sustainable but wouldn’t be tolerated by “ignorant American.” It is somewhat frightening to see clownish American politicians trying to imitate European systems like some gold-dusted mimes.

  • thibaud

    Healthcare is a pseudo-market. There is no transparency regarding pricing. Core elements of a free market such as consumer preference, price elasticity of demand etc are irrelevant to the vast majority of healthcare purchases. Providers and payers are separated. Massive subsidies and social/political choices regarding provision and rationing of care enter at nearly every stage of the process.

    If you believe that healthcare operates like a normal market, you really don’t know what you’re talking about.

  • Kris

    thibaud@13, you can make a case for your preferred public option solution, but I find it difficult to credit you with good faith when you repeatedly resort to straw men and cheap playground insults. How many of your free-market interlocutors here have been defending the current kludge of a system? How many of them wouldn’t enthusiastically sign on to the proposal in your last paragraph? Why then have you been conflating opponents of your own pet solution with hypothetical supporters of the status quo, for post after post for many weeks now?

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