The worst of both worlds

We lost.   They won.

We are:

Progressives who favor a single-payer system

Libertarians who favor HSAs

Moderate economists who favor cost control to free up money for other societal goals

They are:


Pharmaceutical companies


Private prepaid health plans (for some odd reason referred to as “insurance companies”)

Medical device makers

And many other special interest groups

Kausfiles summed it up perfectly:

Today’s left and right anti-Reid activists have a common enemy in corporatism, the easy alliance between Big Government and entrenched, favored too-big-to-fail businesses (Aetna, AIG …. ) that threatens to give us all the inequality of capitalism with all the dynamic innovation and accountability of socialism.

I’m no health care expert, and don’t even know the details of the bill.  The issue that concerns me is health insurance.  I’d like to switch to a system where people paid for the overwhelming majority of their health care expenses out of pocket, like any other service.  Something like the plan Brad DeLong once proposed (but without the regressive sin taxes.)  The way to achieve this is with a combination of HSAs and catastrophic insurance.  According to the Wall Street Journal, the new bill effectively outlaws HSAs, by mandating coverage of all sorts of wasteful procedures, such as the scam of using expensive medical equipment to test for all sorts of possible diseases someone might have, even when there is no scientific evidence that the tests are helpful.

At first I discounted the WSJ report, as their editorial page has a right-wing bias and can be unreliable on occasion.  But my last glimmer of hope was extinguished when the more liberal LA Times confirmed the WSJ report.

Is there any good news in the report?  I hope one of you can cheer me up.  I heard that the tax on “Cadillac plans” survived.  That could be significant, but only if it is not indexed to inflation.  I suppose we’ll have to wait for the final committee compromise, but right now it doesn’t look good.

There is a lot of talk in the press about all the cost containment experiments in the bill.  We already have a good mechanism for experiments—it’s called “states.”  Remember the Massachusetts plan?  One of my commenters disagreed with me when I said that the Massachusetts plan outlawed HSAs.  He claimed they were allowed.  Maybe so, but this debate is now a moot point, as the Federal plan will supersede all state experiments, and Massachusetts will have to give up its HSAs.

You might think HSAs are a side issue; after all they only cover 4% of workers.  Yes, but they covered only 1% in 2006.  The medical industrial complex is made up of very smart people.  They currently rake in 16% of GDP, and the percentage is rising rapidly.  They weren’t going to stand by and allow the adoption of a system that spends only 5% of GDP in Singapore.

Sometimes I think the two political extremes blew an opportunity.  Let Medicare take over catastrophic insurance for everyone, and let HSAs cover 95% of health care bills.  Then provide a subsidy to low income workers’ HSAs.  Voila, no private insurance companies.  But realistically, how likely was it that a bunch of idealistic single-payer and HSA advocates were going to beat a $2.2 trillion dollar industry?  Once they started to pressure those Democratic “moderates” then all the talk about “bending the curve” seemed to disappear.  And the Republicans probably thought “why should we help the Democrats win a big bipartisan victory.  If we demagogue Medicare maybe we can win the mid-tern elections.”

But don’t despair.  No matter how powerful the medical-industrial-complex appears today, history shows that no special interest group is invincible (except lawyers, obviously.)  Remember back in the 1950s when 35% of workers were unionized?  I’m sure most people at the time thought that they were also politically untouchable.  Now they are down to about 7% of the private sector workforce.  Perhaps someday we’ll have drugs that can prevent or cure diabetes and cancer, and eventually the patents will expire and they’ll become generics.  Technology is probably our best hope for preventing the medical-industrial-complex from eventually swallowing the entire economy.



42 Responses to “The worst of both worlds”

  1. Gravatar of StatsGuy StatsGuy
    21. December 2009 at 12:05

    “We lost. They won.”


    BTW, how often do MoveOn and Cato agree? (The last time I recall was the war in Iraq…)

    One quibble:

    You have Doctors in the “They Won” column. You really should put “Specialists Who Get Paid Silly Amounts for Unnecessary Procedures” in the They Won column, and “Generalists With Big Med School Loans Who Are Getting Squeezed by Medicare” in the We Lost column.

  2. Gravatar of ssumner ssumner
    21. December 2009 at 12:07

    Statsguy, I was thinking about that. The AMA supports the bill, so I suppose they must mostly represent the specialists. I know a GP who works very hard and doesn’t earn very much.

  3. Gravatar of Mike@pvl Mike@pvl
    21. December 2009 at 12:36

    Reading some other posts on this topic, Krugman’s in paticular, and one thing stands out. “Bending the cost curve” no longer means anything like “creating an inflection point, after which health care costs increase at a decreasing rate”. This was my mental definition all throughout the debate. But now I see people saying the Reid bill bends the curve, and they give examples that seems more like shifting the curve to me.

    So talk about bending the curve didn’t disappear, they just changed the definition when it became convenient. Similar to how now “covering the uninsured” now means “criminalizing the act of being uninsured” longer means “providing health care”

  4. Gravatar of dWj dWj
    21. December 2009 at 12:49

    This is probably a good thing, in a second-best sense at least. Also, this “Independent Payment Advisory Board” for Medicare sounds like a good idea, though I don’t know how Independent it’s likely to remain when it starts deciding that treatments are too expensive for Medicare to cover.

    On the whole, of course, there’s a lot more in here to further impede the development of any sort of functioning market than to promote it, but if you’re looking for “any good news” whatsoever, and you’re willing to unbundle at a small enough level of granularity, there seem to be some trifles.

    (I think the “Private prepaid health plans” evolved in some sense from what were insurance plans in the thirties and forties, and they still maintain some element of insurance. Of course, there are a lot of purchases that maintain “some element of insurance” that don’t then get labeled “insurance plans”, so I think at best I could call this labeling a historical curiosity.)

  5. Gravatar of Doc Merlin Doc Merlin
    21. December 2009 at 12:59

    Oh, also on the winning side are new age “crystal healers” and other frauds.

    I don’t see how we can fix this 🙁

  6. Gravatar of KR KR
    21. December 2009 at 13:14

    I completely agree that an HSA model would have been an effective means to expand coverage, while also promoting cost consciousness at the consumer level. As a recent HSA convert(switched from a traditional plan in order to mitigate my ridiculous premiums),I can attest that the HSA model is extremely effective at forcing individuals to limit their discretionary health care consumption (broadly defined).

    Separately, I’m not sure I agree that medical device makers should be listed in “They Won” category. Under the latest iteration of the bill they are subject to an additional “medical device tax,” which in aggregate may total $20b. Additionally, as Washington looks to control the costs of insuring 30 million additional individuals, they are likely to employ some form of comparative effectiveness, which in turn will increase the cost of getting new devices to market as well as the level of uncertainty surrounding reimbursement risk. The unfortunate result is likely to be a decrease in capital availability and innovation within the medical device industry.

  7. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    21. December 2009 at 14:01

    “Robert Kuttner speaks with Milton Friedman”

    “RK: But, you know, physicians incomes relative to other highly skilled professionals are relatively lower in the western countries that have universal health insurance, so I think it is kind of indeterminate.

    MF: We have the worst of all of all worlds on that score

    RK: I couldn’t agree with you more. We have the worst mix of government and private, I could not agree with you more.

    MF: We ought to have much more private or much more government.

    RK: Well, to the extent that government is involved at all it ought to be doing a better job than its doing now. I am entirely in agreement.”

    This has always been my view. The system is such a morass that no one really knows what’s going on. To the extent that people will be helped by this bill, I’m for it. Economically, I don’t believe that anybody has a good idea of how this bill will change things going forward, either for better or worse. Raymond Smullyan and Martin Gardner couldn’t untangle this system for me.

    This is my favorite plan, with a few minor variations:

    “A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance””hard to justify with universal catastrophic insurance.

    This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns””the possibility of being impoverished by a major medical catastrophe””and most could readily finance the remaining medical costs. Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary. The demonstrated efficiency of private enterprise would have a chance to improve the quality and lower the cost of medical care. The first question asked of a patient entering a hospital might once again become “What’s wrong?” not “What’s your insurance?”

    Or I’d prefer this:

    “To put it plainly, when free marketers warn that Democratic health care initiatives will make us more “like France,” a big part of me says, “I wish.”

    To be honest, the main reason that I favor these two choices is that I can understand them.

  8. Gravatar of nerdbound nerdbound
    21. December 2009 at 14:03

    Just to be clear here, neither of the articles you mention say that HSA’s will be demolished or that ‘Massachussetts will have to give up its HSA’s’. The articles don’t say that because it isn’t true! The WSJ article says that HSA’s ‘could’ be harmed if new minimum coverage requirements make it so that it’s unprofitable for insurance companies to offer them (and that’s certainly a reasonable argument: let’s see some evidence of whether it’s true, eh?). The LA Times article doesn’t even mention HSA’s (that I saw). It just mentions that there are new minimum coverage requirements.

    I actually have an HSA at the moment, and I would be sad to see them disappear, as they seem to be a great thing for young workers. And they’re good from an efficiency standpoint too. So reading your words above scared me for a moment: are they all being outlawed? But I don’t see any analysis from economists saying that HSA’s are going away: just opinion journalists at the WSJ. I mean, they could be right, but I’m not going to just assume that they are. Evidence, man, evidence!

    At any rate, this bill is certainly redistributive from the young to the old: young people ordinarily try to get by with an HSA or no health insurance coverage, while old people want as much coverage as they can get. The theory is that this leads to adverse selection. So HSA’s help solve moral hazard, while similar coverage across the board helps solve adverse selection. I’m not really qualified to say which matters more from an empirical perspective or anything like that. But this post is unconvincing to me, because it just says ‘the bill may increase moral hazard!’ and that kinda just goes with the territory.

    So my basic take is: the bill is good from an equity standpoint, helping the poor and the sick, and whether it’s good from an efficiency standpoint is kinda hard to tell. I keep waiting for some decisive evidence on that question: Bryan Caplan did some posts on how adverse selection doesn’t really exist empirically that I found highly interesting, but I’m not sure what I think on that: I’d be interested in others’ opinions and more research. But basically, if a bill substantially improves equity without harming efficiency very much, I have a hard time hating it. And if the best evidence that it harms efficiency is that the WSJ has published an article saying that it will strip us of all we have and love in life, my support for the bill has only increased!

    I’d be interested in your thoughts comparing the bill to the status quo, as opposed to comparing it to first-best policies.

  9. Gravatar of Bababooey Bababooey
    21. December 2009 at 14:21

    except lawyers, obviously.)

    Thank you for acknowledging that. It will go in my report.

    What I will enjoy watching play out is the requirement that insurers rebate any portion of the insurance premiums that pay for administrative costs in excess of 10%. I have no idea how those costs are quantified, or how much is minimally required, but I guess the Senate confidently knows.

    And since Ben Nelson was able to force the Federal government to pay 100% of Nebraska’s Medicaid costs, I wonder how many senators will hold-out for the same deal when they vote on the joint committee bill.

  10. Gravatar of StatsGuy StatsGuy
    21. December 2009 at 14:28


    “the bill is good from an equity standpoint, helping the poor and the sick”

    “this bill is certainly redistributive from the young to the old”

    These statements are only consistent if we assume that redistributing wealth from the young to the old is equitable. Because, perhaps, the old have contributed so much to the public savings surplus in the past 25 years… Or, because the average young family is richer than the average retiree…

    Do you have any data that would help me reconcile the two statements above?

  11. Gravatar of MIke Sandifer MIke Sandifer
    21. December 2009 at 16:08

    The problem I have with the bill is that it’s much more complex and convoluted than need be, which means expect perhaps many negative unintended consequences.

    The HSA HDHP approach is far more straightforward, giving incentives for patients to save money, leaving them and their doctors to figure out how. Instead, we’ll now have a new bureaucracy to muck up the system in some ways. As the saying goes, the more pipes, the easier it is to clog up the plumbing.

    Even worse in my view, this plan doesn’t take effect for years. Subsidies for HSAs for those who need them could come much sooner, with a simple expansion of the current system, sans a few other changes. Removing restrictions on competition within states and decoupling health coverage from employment would also be helpful.

    Oh well. If we got a better bill, this wouldn’t be the country we love.

  12. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    21. December 2009 at 16:38

    I don’t think Richard Epstein would agree with Scott’s list of winners:

    He’s arguing that many provisions in the bill virtually guarantee insurance companies will go bankrupt. Such as:

    The initial process that goes into effect in 2010 requires the Secretary and the states to develop a plan to look for “unreasonable increases” in charges for insurance coverage. At this point, all health-insurance issuers must submit to the state insurance commission authority “a justification for an unreasonable premium increase prior to the implementation of the increase.” (It is not stated as to how one justifies increases that are, by definition, unreasonable.) Thereafter, once the information has been submitted and evaluated, it appears that the state insurance commissioner shall make appropriate recommendations “to the State Exchange about whether particular health insurance issuers should be excluded from participation in the Exchange based on a pattern or practice of excessive or unjustified premium increases.” In effect, it appears that the State Exchanges can exclude health-insurance issuers from offering their plans through the Exchanges, at which point the subsidies to insurers will be lost.

    The piece is lengthy, but worth reading. His basic argument is that all the cost containment/reimbursement provisions are a violation of the 5th Amendment ‘takings clause’. That in all rate regulation cases it’s settled law that the industries must be allowed a return on their investment equal to that in a competitive industry. He argues the bill is unconstitutional on its face at many points.

  13. Gravatar of Blackadder Blackadder
    21. December 2009 at 18:23

    Health insurance stocks were up big today, suggesting that the market forecast of the bill’s effect on insurers differs from Prof. Epstein’s.

  14. Gravatar of Jim Glass Jim Glass
    21. December 2009 at 18:28

    Today’s left and right anti-Reid activists have a common enemy in corporatism.

    Corporatism in action indeed is what we are all seeing here.

    Looking at the big picture, the big structural problems in the private (non-Medicare, non-Medicaid) US health care market are…

    1) The employer-tie in plus tax deduction for the employer, a result of WWII wage regulation, that has no rationale at all in medical economics. No other nation has this. What sense is there in having the quality of medical care be tied to the financial health of one’s employer, for better or worse? Or in making insurance non-portable? Of course, the tax deduction gives profitable, deep-pocket, (influential) employers a competitive advantage…

    2) The McCarran-Ferguson Act, 1945, which (a) allows state regulators to bar interstate purchases of insurance, enabling state politicians to create local monopolies of favored insurers, and (b) prohibits federal anti-trust actions against those local monopolies. So what predictably results?

    Well, in New York, just two insurers, GHI and Empire Blue Cross, have 47% of the market; in New Jersey, just one, Horizon Blue Cross and Blue Shield, has 43%; and in Connecticut, Wellpoint by itself has 55%.

    Worse, with no anti-trust enforcement the politicians, favored insurers and unions set up local monopolistic “iron triangles” in places like NY that mandate all kinds of coverage (sex change operations, you name it) that create jobs for the health workers, extra premium revenue for the insurers, and payof^h^h, er, brib^h^h, er, generous contributions to the politicians.

    The unions are big supporters of this corporatism, because they use regulation of the big, government-favored corporations to their own ends. (See GM & UAW.) Don’t anyone pretend for a moment that the unions represent the poor or the “little guy”.

    The result is that here in NY, for a middle-aged self-employed guy like me, when one comes over the border from Pennsylvania the number of available policies drops from near 100 to 12, and the minimum monthly cost goes from $140 to over $400.

    Also, all innovative cost-reducing practices get stomped on. For instance, earlier this year in NYC a doctor tried to open a chain of clinics for the low-income market by charging only $79 a month for basic health services. The regulators put him out of business because he charged too little. They said provision of a service for a flat rate is insurance (tell that to your phone company) and the “premium” he charged was anti-competitively too low, below the regulated premium rate.

    Now one might think the remedy for these problems would be straightforward enough: break the employer tie, and repeal McCarran-Ferguson to create a national truly competitive market for insurance subject to anti-trust rules — as apply to every other nationally sold product and service in the USA (even to alcohol post Prohibition!)

    The bipartisan Wyden-Bennett reform would have done this, would actually have “bent the cost curve” by eliminating the employer’s tax deduction subsidy, and covered the uninsured on a deficit neutral basis (as scored by GAO) by using the tax savings. (No fantasy future cuts from Medicare to cover 40% of reform’s cost required!) But the Iron Triangles were having none of that — it was a non-starter. See David Brooks on Baucus on that.

    Instead we got the Obama strategy of “get a bill passed by paying off every interest group with what it wants in advance”. Pharma, the unions, the AMA, the insurers, the big corps, they all got what they value locked in place to start with. So where is the actual “reform”? This bill really boils down to locking the status quo in place while insuring 30 million more people through it, coming up with all kinds or roundabout taxes, charges and promises of future unstated, to-be-determined-later Medicare spending cuts to pay for it. Corporatism incarnate.

    The point of the “public option” as competition (aside from it being the camel’s nose for a future single-payer system) was that it wasn’t competition to the Iron Triangles, the public option provider had to “compete” following all the rules that prevent actual competition from reducing costs in places like NY.

    If creating real competition was ever really wanted by the reformers, of course the simplest thing to do was enable inter-state competition, let the insurers of Pennsylvania sell in NY. But they were having none of that!

    Well, in the spirit of giving a nod to everybody’s concern about everything to get that 60th vote, there is a provision in the Senate bill that proposes to very cautiously, tentatively, at some future date, experiment with inter-state insurance sales. Guess what provision those Democrats who were so concerned about “increasing competition” via the public option are
    already attacking.

    All IMHO, FWIW

  15. Gravatar of Jim Glass Jim Glass
    21. December 2009 at 18:34

    The problem with Epstein’s prediction is that the insurers are supporting the plan, and overall have all along (while objecting only to particular provisions). They’ve had a seat at Obama’s table from the start.

    So they seem to be figuring that they wlll gain more from having 30 million more new insureds than they will lose from the new regulations.

  16. Gravatar of MBP MBP
    21. December 2009 at 18:39

    Scott- Nitpicking I know, but I can’t agree with you that health insurance companies “won”. They will face a windfall profit tax of $10 B per year by 2017, paid out of after tax income (total industry profit is now about $15B). At the same time they will face government mandated minimum loss ratios (meaning minmimum % of premiums that must be paid out as medical services) and their rate increases will need to be pre-approved by gov’t.

    Yes, stocks in the sector were up today. Bizarre. Perhaprs its about expectations: the market expected an outcome that was even worse??

  17. Gravatar of MBP MBP
    21. December 2009 at 18:44

    To Jim Glass- Insurers are supporting the plan on the one hand, while they are desperately trying alter it in their favor on the other hand. If they give up their seat at the table, the Dems will squeeze them even more. They decided that trying to shape the legislation would be more effective than opposing it. I think they were wrong.

  18. Gravatar of Scott Sumner Scott Sumner
    21. December 2009 at 19:33

    Mike@pvl, I agree.

    dWj, You might be right. As I said I haven’t really studied the bill, and was just reacting to the HSA ban.

    Doc Merlin, Are they covering that too?

    KR, You may be right. I was reacting to the fact that this allows medical spending to keep zooming upward, so my hunch is that most providers will benefit. But this really isn’t the issue in my view. Even subsidized markets are competitive, so I am not saying that medical device makers or insurance companies or drug companies earn above normal profits. My problem is with their revenues, which I think are much too high, not their profit margins.

    Don the libertarian Democrat, Yes I saw that reason article too. One thing I like about Reason is that for a libertarian magazine they are pretty open-minded. After all they published my piece on inflation, even though it went against their in-house view (which I believe is that inflation is a worry.)

    The other plan you describe is quite similar to what I mentioned in the post.

    nerdbound, You said;

    “Just to be clear here, neither of the articles you mention say that HSA’s will be demolished”

    The title of the WSJ article was “The End of HSAs” Yes, they didn’t use the term “demolish” but neither did I. But doesn’t “end” mean the same thing?

    Both articles said the bill mandates that all insurance plans cover certain procedures. That defeats the entire purpose of HSAs, which is to have people pay for medical expenses out-of-pocket.

    I don’t see how the poor are helped by this bill. The poor are already covered under Medicaid. I don’t doubt that there are some people who are helped, perhaps in the millions, but I don’t see any evidence for a net gain, and I see a lot of evidence that there was a missed opportunity. Recall that when judging the “status quo” it is not enough to look at where things are now, you also have to look at the current trajectory. HSAs had increased 4-fold in just 3 years, and those hopes now seem dashed.

    Bababooey. Good points.

    Statsguy, Both of those questions are very good, and I think I know what the answer is in both cases.

    Mike, Good points.

    Patrick, He may be right about the law (and I have great respect for Epstein) but I don’t think anyone pays any attention to the Constitution any more. Doesn’t the Constitution also say that property cannot be forcibly seized except for public purposes?

    I also think he is wrong about the insurance companies. If the Dems couldn’t get the public option through a Senate with 60 seats, how are they going to get it in the future? (I assume they will lose seats in 2010.) So Congress will have to do something to keep these private companies in business.

    Blackadder, Thanks. As long-time readers know I always side with the markets over the experts.

    Jim Glass, Very good points. You said:

    “Also, all innovative cost-reducing practices get stomped on. For instance, earlier this year in NYC a doctor tried to open a chain of clinics for the low-income market by charging only $79 a month for basic health services. The regulators put him out of business because he charged too little. They said provision of a service for a flat rate is insurance (tell that to your phone company) and the “premium” he charged was anti-competitively too low, below the regulated premium rate.”

    This caught my attention. Does anyone know if car dealers offering warranties are required to register as insurance companies?

    Yes, the Wyden approach sounded much better to me, although once again I never studied the fine print.

    MBP, You may be right. Again I meant they won in terms of more revenue. But I can’t say what the long run effect on profits will be. Too many variables to consider.

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    21. December 2009 at 20:16

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  20. Gravatar of Blackadder Blackadder
    21. December 2009 at 20:26

    [Insurance companies] will face government mandated minimum loss ratios (meaning minmimum % of premiums that must be paid out as medical services) and their rate increases will need to be pre-approved by gov’t.

    My guess is that this part of the bill won’t be in the final version. They’ll fix it to be a more reasonable number in conference or it will be snipped out in the dead of night (which is apparently the only time Senate can actually vote on legislation, making me wonder if some of them might be vampires or something).

  21. Gravatar of link link
    21. December 2009 at 21:48

    Silly, puerile, whiny….what doctors won? Plastic surgeons who merely avoided a tax?

    HSAs showed real potential and were growing healthily, but allowed too much freedom to the individual. Democrat libertarians, my hind end. There’s no such thing. So be a slave and learn to love it.

    The push of the elderly from Medicare to Medicaid will ruin primary care doctors. So be happy, and hate a doctor. After all, he inherited his license from his fat cat father. Right?

    The insurance companies are so laden with regulation that many will go out of business and do what the Marxists want–drive us to a single-pay system. Only we’re killing Medicare, so all that’s left is Medicaid.

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  23. Gravatar of Ryan Ryan
    22. December 2009 at 05:28

    You people get what you ask for. I’ve never seen more rent-seeking behavior from **EVERYONE** than I have in health care over the last year. Everyone wants to game the system, including consumers. Everyone wants to get something for free. Even well-meaning economists chime in with their own imaginary “perfect plan” so that they can come out looking like wizards from the ivory tower.

    Honestly, to believe that you can screw with the value of money, but that we should leave health care to market forces is the most atrocious hypocrisy ever committed by the economics profession. That’s why I say: you get what you ask for.

    If you look to the federal government to solve every little tiny itsy-bitsy micromanaged factor of your life, then you will soon see the federal government selling out your interests to lobby groups. This should come as a surprise to no one; it’s been going on for centuries. Why complain about it now. We live in a world where people would rather call the police or craft a new noise ordinance law than go next door and talk to your neighbors face-to-face. Well, welcome to health care in a world where all conflict must be resolved by the president of the United States. Well, you get what you ask for.

  24. Gravatar of StatsGuy StatsGuy
    22. December 2009 at 05:51


    “Also, all innovative cost-reducing practices get stomped on. For instance, earlier this year in NYC a doctor tried to open a chain of clinics for the low-income market by charging only $79 a month for basic health services. The regulators put him out of business because he charged too little.”

    Jim, do you know if the doctor in question accepted _all_ patients at the same rate? Part of the problem is that there is a legitimate reason for regulation (cherry picking/moral hazard/adverse selection). But these defenses have largely been used to justify the sort of anti-competitive behaviors you describe. Nice comment.

  25. Gravatar of MBP MBP
    22. December 2009 at 06:22

    Statsguy – The doctor who set up his own clinic and charged a flat fee was shut down because the gov’t viewed his business as being insurance and he did not have an insurance license. Nor did he have adequate capital held in reserve to provide care (according to the gov’t). Barriers to entry in health insurance are quite high.

  26. Gravatar of MBP MBP
    22. December 2009 at 06:25

    Blckadder – I think the minimum loss ratio provision will survive in the final bill. No Rep or Senator gains from defending health insurers. They are even less popular than pharma. If anything, the final bill will be even more harmful to insurers as the House extracts its pound of flesh in return for abandoning the gov’t run public option.

  27. Gravatar of Doc Merlin Doc Merlin
    22. December 2009 at 08:06

    Ok, seems as far as I can tell, that the “religious and spiritual health” amendment didn’t make it into the final senate bill. So, never mind.

  28. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    22. December 2009 at 08:15

    ‘Barriers to entry in health insurance are quite high.’

    Not in any economic sense, they aren’t. The barriers are legislated, at the behest of aroma therapists and their ilk. Repeal McCarran-Ferguson and numerous new options would arise.

  29. Gravatar of Chris Chris
    22. December 2009 at 10:05

    Awesome post! Right on!!!!!!

    I was watching MSNBC this morning and Patrick Leahy was being interviewed. He lamented the fact that the public option was killed in the Senate bill, as this would have given the private insurance companies “real competition”. At no point did the MSNBC anchor bring up that it is currently illegal for health insurance companies to compete across state lines and that of course, if the government makes competition illegal, there naturally isn’t going to be much competition. This, and the amount of rent seeking that went into the bill, really proves that we have the worst legislature money can buy.

  30. Gravatar of MBP MBP
    22. December 2009 at 15:48

    Patrick – I didn’t mean to imply that there are high natural barriers to entry for health insurers. The barriers to entry are mostly two fold: access to significant capital and many layers of gov’t rules/regulations. Allowing interstate competition would help lower the price of insurance and would certainly allow companies to offer more consumer friendly products — without mandatory aromatherapy, chirapractic care, hair loss treatment, etc….

  31. Gravatar of Blackadder Blackadder
    22. December 2009 at 17:16

    Blckadder – I think the minimum loss ratio provision will survive in the final bill. No Rep or Senator gains from defending health insurers.

    You don’t have to defend health insurers. You just cut it out of the bill when no ones looking. We’re talking about a 2000+ page bill here that’s going to be passed in a hurry, so it’s not like it would be that difficult if key people were on board (it’s what they did with caps on executive pay, after all).

  32. Gravatar of ssumner ssumner
    22. December 2009 at 17:24

    Blackadder, Yes, I think you are probably right.

    link, Our medical system has many problems, but lack of revenue isn’t one of them. 16% of GDP and headed much higher.

    Ryan, I am not quite sure who that is addressed to, but thanks for your opinion. I certainly agree that we ask too much of the government.

    Statsguy, Your response to Jim implies the NYC doctor was running an insurance company. But he wasn’t, he was running a medical practice. There is a difference, unless you consider auto dealers with warranty programs to be “insurance companies.” Of course with car repairs the stakes are much higher, the deductible on my warranty is more than $79.

    Patrick and Chris, Good points. In almost all industries the main barrier to entry is regulation, not cost.

  33. Gravatar of jm jm
    23. December 2009 at 06:11

    “…eventually the patents will expire and they’ll become generics.”

    Not necessarily. It won’t be at all surprising to see the law changed to extend patent rights indefinitely, as was done (and will probably continue to be done, forever) for the Disney copyrights. After all, the drug companies have much deeper pockets than Disney.

  34. Gravatar of ssumner ssumner
    23. December 2009 at 06:18

    jm, I’d be very surprised.

  35. Gravatar of Doc Merlin Doc Merlin
    23. December 2009 at 08:51

    jm, I’d be more than surprised. Everyone realizes that innovation would grind to a halt with indefinite copyrights.

  36. Gravatar of Doc Merlin Doc Merlin
    23. December 2009 at 08:51

    Darnit, I meant indefinite patents.

  37. Gravatar of David David
    23. December 2009 at 09:48

    I think the HSA fears are overblown. The article is very vague about the threat to HSAs. I haven’t read the Senate bill but the tax change might be the same as the House version; the elimination of non-prescription drugs being a qualified expense. That sucks but it’s not a dealbreaker.

    I have an HSA/HDHP in NJ, which has got to be one of the top states for mandates. There’s nothing the Feds can really add that isn’t already covered. The only thing they can do that would kill HSAs is mandate more services to be not subject to the deductible, beyond well child visits and annual checkups. Mandates that are subject to the deductible will just drive the premium up, but not by as much as for first-dollar plans.

  38. Gravatar of scott sumner scott sumner
    23. December 2009 at 19:54

    David, I don’t follow your comment. The deductible for HSAs is up in the $1000s. Most of those tests cited in the LA Times story wouldn’t even reach the deductible. Are you saying that HSA catastrophic insurance policies would not be required to cover those procedures?

    I keep reading articles that the Dems hate catastrophic insurance plans. I hope they allow them, but if they mandate all sorts of coverage, to me it seems to defeat the entire purpose of the plans. For instance, what about mental health coverage, therapy, that sort of thing? Will it be mandated? And what about states that already have lots of mandates? Will those simply be repealed?

  39. Gravatar of David David
    24. December 2009 at 12:56

    What I meant was that, at least in my HSA plan, some things are not subject to the deductible, like annual “well child” visits and some OB/GYN stuff. In other words, like a first-dollar plan, there’s no out-of-pocket cost for those procedures. I think this is a NY mandate (my insurance is NY, not NJ. I mis-typed earlier.)

    I’m not sure if you can classify what I’ve got as “catastrophic” insurance. It’s basically a normal NY insurance policy (mental health, etc. is covered) with a very high deductible, $6,000 for a family. The premium is $600 a month. Compare that to the HMO I left at $1900 a month and you can see the attraction.

    So what I was saying is, there’s already a successful growing HSA plan market in heavy mandate states. Adding mandated coverage would drive up premiums in other states, but not by as much as they would drive up first-dollar premiums.

    However, if they start mandating more and more services to be not subject to deductible, then HSAs are dead. Another dangerous thing I read a few months ago–but I can’t find this language in my brief scan of the text–is that the bill might lower the maximum deductible. That could kill HSAs.

  40. Gravatar of Round Up – December 24, 2009 « Restrained Radical Round Up – December 24, 2009 « Restrained Radical
    24. December 2009 at 14:10

    […] Without a public option or Medicare buy-in, I thought this bill was acceptable. But I don’ t know how it affects Health Savings Accounts, which I favor and which I hope will one day replace insurance. According to one source, the bill makes HSA’s so unattractive that the bill will effectively kill HSA’s. That alone would render the bill bad enough for me to oppose. The worst of both worlds […]

  41. Gravatar of Greg Ransom Greg Ransom
    25. December 2009 at 16:11

    So have you figured out yet that classic liberalism is neither left or right, and that this language is pathological and unhelpful?

    “I can see how a right-winger like Gibson might enjoy glorifying the pure tribal culture as compared to the decadent, cosmopolitan city.  But the P.C. left also romanticizes tribal cultures ..”

  42. Gravatar of ssumner ssumner
    26. December 2009 at 16:41

    David, Yes, I think a $6000 deductible can be considered catastrophic. I hope you are right, as you say it depends how many benefits get mandated.

    Greg, I notice you often post comments on different posts–I responded in the other post, although I am not certain I got your point.

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