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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

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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.

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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.

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Supply, Demand, and Finance

Kevin Williamson follows in the footsteps of Henry Hazlitt in his clarity of economic and political issues. Like Hazlitt he is not a professionally trained economist, but brings a writer’s clarity to the subject.  I have probably excerpted him more than any other single writer.

From Kevin Williamson at National Review, Back to Reality

But health-insurance companies do not provide great health care to the American people. They do not provide health care to the American people at all. Doctors, nurses, pharmacists, physical therapists, drug researchers, and nerds who design superior artificial joints provide great health care to the American people. Insurance companies provide financial services. That’s what insurance companies are: financial-services companies.

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.

Government misunderstands insurance. Politicians believe that creating large pools of health-care consumers will make health care more affordable for individuals and families. It doesn’t. If Smith can’t afford his medical expenses and Jones can’t afford his medical expenses and Brown can’t afford his medical expenses, then Smith + Jones + Brown can’t afford their collective medical expenses, either. The large pools built by insurance companies help with this by exploiting the fact that not everybody is going to get sick at the same time; the payment of benefits out of insurance premiums can reduce the amount of financial disruption illness or accident causes to an individual or family at any given time, but insurance does not make the medical services they consume less expensive. In fact, medical benefits may make those services more expensive, for instance by creating new record-keeping costs for medical practices, or by simply driving up demand by pumping money into the market through poorly managed, low-accountability entitlement programs such as Medicaid.

Easy mortgage money helps keep housing prices high. Easy medical money probably helps keep medical prices high.

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 first we’ll have to liberate ourselves from the superstition that we can trick or bully the financial-services sector into solving the problem for us.

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Invisible Subsidies from the Rich

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

Question: Do we want our health-care system to be more like the spontaneous order that produces both awesome cars and terrible traffic, or do we want it to be more like the New York City train system, a system that works well enough when it is working — which isn’t often enough?

The passage of the Affordable Care Act was a vote for trains, and the House Republicans’ recently unveiled and remarkably modest attempt at reforming it is a vote for a train system with a slightly different fare structure and schedule.

We should think a little bit about why cars — and not just cars for the rich — are so much better than they used to be.

The short answer, of course, is competition. Competition is a spur to innovation, and it is a spur to — more important — investment. What transformed Karl Benz’s first primitive automobile into the wondrous machines we see before us on the road every day was the massive deployment of capital. If you think not only of all the machinery, financial assets, and human ingenuity that are at work making automobiles today but also of all the machinery, financial assets, and human ingenuity that have gone into the incremental development of the modern automobile over the centuries (many of the technologies that make a modern car run far precede the first automobiles) — it is beyond comprehending.

Of course that has happened with trains, too — modern trains really are superior to their 19th-century counterparts — but in a very different economic context, one with markets driven not by individual consumers but by governments and large enterprises working not from changing individual preferences but from various kinds of central plans, a market in which new equipment is purchased not every few years but every few decades. At the high end of the automobile market are buyers who get a new car every other year — and who want something new and better every other year.

That part is key. There is something egalitarian about trains and other forms of mass transit, but it is in the individualistic automobile market that we really see a massive transfer of wealth that no one ever notices. In cars as in mobile phones and many other consumer goods, new technologies, new materials, and new concepts are developed most often at the high end of the market, with the associated costs borne — enthusiastically — by early adopters and high-end purchasers. Things like cruise control and automatic windows begin as luxuries for Rolls-Royce owners and Cadillac drivers, but end up as everyday conveniences for working stiffs with Hyundais, who enjoy an invisible subsidy from the high end of the market.

HKO

This economic reality, this invisible subsidy, is the most neglected part of the arguments on health care policy.  It is the core reason that the poor in America with all of its inequality are far better off than many countries with much less inequality.  It is the reason you can see people on welfare with cell phones. Our health care debate is too willing to sacrifice innovation to an egalitarian access, noted most in Medicare for all or a single payer system.