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Rhetoric vs Reality

From economist Tyler Cowen at Bloomberg, What Democrats Won’t Admit About Voters and Health Care

But keep in mind that the American Health Care Act of 2017 does not prevent states from spending whatever is needed to cover pre-existing conditions, if they so choose. The underlying truth is that voters at the state level just aren’t that interested in paying for these benefits, preferring instead to lower taxes, or to spend the money on roads, schools and prisons.

In other words, when American voters are given a direct bill for health-care expenditures, they recoil, even when the beneficiaries are in needy or desperate situations. The Democrats are good at tarring the Republicans for indifference to the plight of these people, but less keen to admit that the larger popular indifference plagues their own health-care visions as well.

A meme I’ve seen going around on Twitter put it this way: Health-care expenditures are about 1/6 of GDP, but no American wants to spend 1/6 of income on health care.

The failures reflect scarcity in the world around us. It turns out we value health care for others more in rhetoric than in reality.

HKO

Promising benefits and hiding the cost is no virtue. This is the real reason that Gruber and the Democrats lied so blatantly. Usurping the power of the consumer will not improve health care.

A Health Care Reader

The health care debates are particularly contentious because they are a focus of the fundamental philosophical differences in political and economic thinking.  While activists insist they are only trying to be pragmatic in providing care for all, they remain hostage to ideology much more than they realize.

Politicians want to provide benefits without paying for them. They hide costs, even from themselves, in the tax code, regulations, mandates, cross subsidies, and wishful thinking.

Righteous virtue signaling insists there is a moral right to health care.  There is no such right either in the constitution or in a moral code that will inevitably contradict that right with a claim on someone else that they have not agreed to.  Your right to health care does not include the right to get the services of a health care professional for free. This posturing also does nothing towards solving the problem.

Kevin Williams at National Review makes the point clearly in The ‘Right’ to Health Care:

Declaring a right in a scarce good is meaningless. It is a rhetorical gesture without any application to the events and conundrums of the real world. If the Dalai Lama were to lead 10,000 bodhisattvas in meditation, and the subject of that meditation was the human right to health care, it would do less good for the cause of actually providing people with health care than the lowliest temp at Merck does before his second cup of coffee on any given Tuesday morning.

Health care is physical, not metaphysical. It consists of goods, such as penicillin and heart stents, and services, such as oncological attention and radiological expertise. Even if we entirely eliminated money from the equation, conscripting doctors into service and nationalizing the pharmaceutical factories, the basic economic question would remain.

We tend to retreat into cheap moralizing when the economic realities become uncomfortable for us. No matter the health-care model you choose — British-style public monopoly, Swiss-style subsidized insurance, pure market capitalism — you end up with rationing: Markets ration through prices, bureaucracies ration through politics. Price rationing is pretty straightforward: Think of Jesse James and his “Pay Up, Sucker!” tattoo on his palm. Political rationing is a little different: Sometimes it happens through waiting lists and the like, and sometimes it is just a question of money and clout. American progressives love the Western European medical model, but when Italian prime minister Silvio Berlusconi needed a pacemaker, he came to the United States to have it implanted.

Obama invoked courage to save his health care bill. Neil Cavuto properly questioned how much courage it takes to hide economic realities from the voters:

Obama invokes courage because the only struggle he can envision is a moralistic one, between good and evil- between rich and poor.  He does not consider the intellectual dishonesty or consider that ends he pursues do not justify the means. He does not consider that there may be a difference in means to achieve the end he desires, one that is both moral and functional. His approach was neither.  Cavuto quotes John Kennedy, “The great enemy of the truth is very often not the lie-deliberate, contrived and dishonest, but the myth- persistent, persuasive, and unrealistic.”  That is a keeper.

The ACA is based on very bad analysis and ignorant economic thinking. There is a difference between health care and health insurance. Those without health insurance are not often without health care.  Insurance is not an effective means to cover routine known expenses; it should cover the unusual and rare chance of a catastrophic expense

Again from Kevin Williamson at National Review, Back to Reality:

In the same way that Washington has tried to manage housing by regulating and subsidizing mortgages, politicians have long tried to manage health care by regulating and subsidizing health insurance. It does not work. It has not worked, and it is not going to work.

Critics on the left, especially those who support British-style government monopolies on health care, insist that because demand for medical services is relatively inelastic — because you aren’t comparison shopping after a traumatic car accident — ordinary market operations cannot handle health care. But demand for food is inelastic, too, at the hungry margin. It’s just that we rarely get to that margin because food is plentiful, thanks to massive investment in its production, distribution, and improvement. Ultimately, that is what has to happen with health care, too.

But what about pre-existing conditions?

From Michael Tanner at National Review, The Vexing Question of ‘Preexisting Conditions’

A lot of numbers have been thrown around about how many Americans have preexisting conditions. Barack Obama, for example, has suggested that the number is as high as 133 million. But these figures grossly exaggerate the number of Americans who would be affected by changes to the ACA’s preexisting-conditions provisions. They include, for example, Americans on Medicare or employer-provided health insurance, neither of which are subject to medical underwriting. If you get your health insurance at work, the company’s overall costs may increase to reflect its claims experience in the event that Congress’s reform bill gives insurers the right to charge more for those with preexisting conditions, but your individual contribution will not increase because you have such a condition.

And The Pre-existing Lie by Rich Lowry

You’re not affected if you get insurance through your employer (155 million people), or through Medicaid or Medicare. You’re not affected if you live in a state that doesn’t request the waiver, a category that will certainly include every blue state and most red states, too. Even if you buy insurance on the individual market and live in a state that gets a waiver, you’re not affected if you’ve maintained insurance coverage continuously and not had a gap in coverage longer than 63 days.

By this point, we’re talking about a fraction of a fraction of a fraction of the population. If you do have a pre-existing condition in a waiver state and haven’t had continuous coverage, you can be charged more by your insurer only the first year. The state will have access to $8 billion in federal funds explicitly to ease the cost of your insurance, and the state must further have a high-risk pool or similar program to mitigate insurance costs for the sick.

Jeff Jacoby addresses some of the fundamental problems in our health care system,  Ditch Obamacare, and don’t stop there

If Republicans were serious, and willing to endure some political pain to reach a better outcome, they’d eliminate the tax deduction for employers who provide health insurance as part of employee compensation. They’d repeal laws that force insurers to cover a legislated array of medical benefits and treatments. They’d remove the barriers that restrict consumers in one state from purchasing health insurance across state lines.

And they’d break the destructive habit of treating health insurance as the logical and preferable way to pay for routine health care.

 

John Cochrane at The Hill, Here’s what healthcare looks like in a perfect world:

It’s wiser to start with a vision of the destination. In an ideal America, health insurance is individual, portable, and guaranteed renewable. It includes the right to continue coverage, with no increase in cost. It even includes the right to transfer to a comparable plan at any other insurer.

Big cost control comes from the only reliable source — rigorous supply competition. The minute someone tries to charge too much, new doctors, clinics, hospitals, and models of care spring up competing for the customer’s dollar. Access to health care comes like anything else, from your checkbook and intensely competitive businesses jockeying for it.

he original sin of American health insurance is the tax deduction for employer-provided group plans — but not, to this day, for employer contributions to portable individual insurance. Insurance then became a payment plan to maximize the tax deduction. It became horrendously inefficient as people were no longer spending their own money.

Worse, nobody who hopes to get a job with benefits then buys long-term individual insurance. This provision alone pretty much created the preexisting conditions problem.

Cross-subsidies are a second original sin. Our government doesn’t like taxing and spending on budget where we can see it. So it forces others to pay — it makes employers to provide health insurance. It forces hospitals to provide free care. It low-balls Medicare and Medicaid reimbursement.

The big problem is that these patches and cross-subsidies cannot stand competition. Yet, without supply competition, costs increase, the number of people needing subsidized care rises, and around we go.

HKO

The illusion that market forces do not work in health care is nonsense,  We have spent decades subverting market forces and then declare that it does not work. The problem with our health care is that market forces only work too well, and the system has responded to the adverse incentives created by poorly analyzed and poorly executed solutions.  If you pour money into a market, mandate an increase in demand, restrict the supply and reduce competition, then you will get the mess we have.

The debate is subjected to hyperbolic partisan ignorance, useless virtue signalling, intentionally misleading statements,  if not out right lies about both the nature of the problem and the solutions proposed to fix it.

Reality is not optional and it is an act of fraud and cowardice for political leaders to pretend that it is.

Further suggested readings:

Lessons from the Health Plan Collapse

The depth of the loss is probably exaggerated.  It is still very early in the term of this administration and the humiliation will subside. Still, there are some harsh lessons that should be learned .

President Trump may have found the limits of bluster.  When it comes to critical policy, the details do matter; you cannot just declare that your bill will be great.

The ACA front loaded the benefits and rear loaded the costs. The Republicans found it tough to take away benefits.  Like bricks on a pickup truck, we keep adding bricks beyond the load capacity and then only blame the last few bricks when the axle snaps.  The problem with health care is an accumulation of mandates, regulations, perverse tax incentives, and wishful thinking. It is a Rube Goldberg cluster of attempts to hide the true costs of health care, so that politicians can make promises without paying for it.

Apparently, the Republican opposition to this bill was that they were not removing enough bricks from the truck.  Perhaps they need a heavier duty truck with a bigger load capacity. For the left that means single payer, but that only further hides true costs by removing the function of prices and incentives. For me it means restoring consumer power and facing economic reality. Insurance is not health care, mandates cost money, and restricting supply while increasing demand and money flow will cost you somehow.  This is the economic equivalent of gravity.

Perhaps the mistake was to take a systemic approach rather than address the component problems in separate bills.  Cost and access are related, but require very difference approaches.  In the focus on cost and access we do not want to sacrifice  innovation, quality and service.

The Republicans who have swept state governments and shown much fiscal success in that arena are facing much greater obstacles with national power.  The difficulty of assembling a collation on a national level is much different. Lawmakers must address fears and concerns that may be much less prevalent in their district. Senators and Congressmen face a powerful national media that local lawmakers usually avoid.  This is a fact to be accepted and requires an exceptional ability to communicate concepts of policy in commonly understood language.  Coverage with no providers is not a solution.  Lower premiums with outrageous deductibles is not cheaper.

As Glenn Harlan Reynold notes, the Republicans should have their health care bill, their tax reform plan, and their infrastructure bills lined up like planes on a runway. The reality of passing legislation is more complicated, but they are better off failing early, if they learn from it and keep pushing.

They will not succeed by rushing, blustering, and sacrificing transparency.  If they repeat the mistakes of the last administration they will reap the same rewards.

Other recommended readings on health care reform

It’s time to drag healthcare out of the 19th century

Supply Side Health Care Reform

Ditch Obamacare and Don’t stop there

Republicans Should Kill Obamacare or Let it Die

Health Care in Concrete

From Megan McArdle at Bloomberg, Republicans Should Kill Obamacare or Let it Die:

Some forms of government policy are built of political concrete. Once done, they cannot be renovated, added to or even destroyed without immense cost; for that reason, they tend to go on much as they always have, for good or for ill.

This was the problem that Democrats faced with Obamacare. Other countries, it was often observed, had a national guarantee of health insurance; surely, we could build a system very much like those. But the other countries had built their systems earlier, when there weren’t so many concrete towers already in the way. By the time Obamacare came on the scene, America already had government programs that were propping up health care for almost everyone in the country: tax-subsidized employer-sponsored health insurance, Medicare, Medicaid, the VA. No one was willing to shoulder the cost of knocking those things down and designing a rational, well-built structure to take their place, so instead the administration threw up an annex next to the Medicaid edifice, and tore down the little remaining patch of ground that wasn’t government-subsidized, and threw up a new tower to hold its residents.

 The planning was haphazard, the work shoddily done, and the result kept threatening to collapse.

And yet it was locked in. That whole “political concrete” thing.  For the enthusiasts, the very difficulty of alteration was not a bug but a feature, because it meant that it would be hard for Republicans to undo. So we were all left with a subpar system that is difficult to either repair or replace.

You do not fix a concrete eyesore in stages. You either knock it down, or you leave it where it is and learn to live with its flaws. If Republicans want to actually do a radical renovation of our nation’s health policy architecture, then they should get a reasonable estimate of the costs, grit their teeth, and go ahead and actually build something sound, and enduring, while demolishing substantial portions of the ugly and unsustainable mess we currently have.

HKO

I also contend that viewing it as a broad systemic problem may be misleading.  A few underwriting rules would solve the uninsured questions. The poor could actually have coverage purchased for them so they will not be able to game the pool.

But this requires that the tough decisions must be made, not delegated and hidden in a rat hole of mandates and indirect subsidies. What will and will not be covered.

The first rule of politics is to ignore the first rule of economics.

No Train to Utopia

from Kevin Williamson in National Review, Plans, Trains, and Automobiles

Trains are the preferred mode of transit if your ideal is central planning. Automobiles are the preferred mode of transit if your ideal is spontaneous order. It is in the nature of trains that they tell you where to go; it is in the nature of automobiles (for the time being, at least!) that you tell them where to go. If you have ever lived in New York and relied on the trains to get around, then you understand both the virtues and defects of the planning model: If everything goes according to plan, the system works pretty well. When the plan breaks down — which it always does — it is a mess, often a mess that leaves you with no choice but to go outside the system for an alternative. (That fellow from the 19th century would probably think Uber is pretty nifty.)

Likewise, if you’ve spent much time in Houston, Atlanta, Los Angeles, or any American city that got most of its growth in the post–World War II era, then you appreciate the virtues and defects of the spontaneous-order life: The price of gasoline is unpredictable, traffic is terrible in some places (although here there is a bit of central planning to blame, too, in the form of Dwight Eisenhower’s ill-considered federal highway system), the cost of owning and maintaining a car is very burdensome for some people and introduces an unwelcome degree of financial uncertainty into their lives, some people insist on driving their F-350 Super Duty trucks 87 mph while swerving from lane to lane, suburban sprawl, etc.

Transit, like most everything else in life, is about trade-offs. There are many roads that lead to home and subways that will take you to the office, but there is no train to Utopia.