Adios ACA?

Today, the Supreme Court took on health care, and, by commentators' accounts, it wasn't pretty.  The transcript is available here.  Some snap thoughts:

1) The Solicitor General, Donald Verrilli, didn't do a very good job advocating the law today.  Surprising, given that he's a perfectly good attorney.  But the line of questioning from the usual suspects (Scalia, Alito) was predictable, and he didn't seem too well-prepared.  A lot of the time, reading the transcript, I thought the left-leaning justices (Ginsburg and Breyer especially) did a better job of advocating the law than Verilli did.

2) Having said that, I'm somewhat surprised at how hostile some of the conservative justices were toward the law-- everyone and their mother knew Clarence Thomas wouldn't be voting to uphold the mandate (since he's stuck somewhere in the 19th century), but, going in, I thought Scalia (given some of his past votes in commerce clause cases) and Chief Justice Roberts were possibilities to vote to uphold.  I thought a 7-2 decision with Thomas and Alito in dissent wasn't out of the question.  Now, Scalia is an absolute no, and the swing justice, Anthony Kennedy, seemed pretty hostile, especially when Verrilli was arguing the case.

3) The decision certainly comes down to how Kennedy's feeling.  And Kennedy is a very unpredictable vote-- he has long, philosophical debates in his head, then makes decisions based on the weather.  OK, maybe that's a little unfair, but only a little.  He didn't seem to internalize the arguments in the briefs, and looked like he wanted to find a "limiting principle" for restricting the government's power to regulate commerce.  Never mind that the "limiting principle" was staring him straight in the face in the brief...  Having said that, if Kennedy goes along, I think Chief Justice Roberts will too.  Roberts absolutely wants to strike down the law, but if it gets upheld, I'm almost certain he'll join the majority so that he can write the majority opinion.  Otherwise, I think it's a 5-4 decision with the predictable justices (Breyer, Ginsburg, Sotomayor, and Kagan) in dissent.

4) The limiting principle that Kennedy is looking for should be pretty straightforward.  Health care is the only market that 1) everyone in the country besides Christian Scientists participates in, 2) has expenditures that are necessarily unpredictable, and 3) is provided to everyone as a matter of course.  While it's true that there are certain markets with 100% participation, health care is the only one in which participation is mandatory.  Take something like food-- everyone who is alive eats, but if I show up to the grocery store starving, the grocery store doesn't have to feed me.  Contrast that with health care.  Insurance or not, if I get hit by a bus tomorrow, I'll be taken to the hospital, I will be given emergency surgery to keep me alive, if my bones need surgery to be repaired, it will be done, and if I need pain medicine, I will get it.  If I don't have insurance and don't have the funds to pay for my medical care... the hospital will swallow the costs.  Except that it won't.  It will raise prices for those who can afford to pay.  In turn, insurers (who end up bearing those costs) will raise premiums.  In other words, those who do have insurance will subsidize those who don't.

The government, then, can very clearly regulate market participation, even if it can't mandate participation.  But, even if I don't consume any medical services for 10 years, I'm still a market participant because I am always a potential consumer of medical services, since I will be treated in hospitals regardless of whether I "choose" to be (or regardless of whether I can pay).  That isn't the case in many other markets.  The government can't, then, require that I buy a cell phone or that I buy a car or that I buy broccoli, as the conservative justices disingenuously suggested, because I'm not necessarily participating in those markets.  Right now, I ride the subway everywhere.  I am in no way in the auto market, even though I undoubtedly consume transportation services quite frequently.  Similarly, I communicate with plenty of people, but I don't necessarily consume communication services.  And, even though I'm in the food market multiple times a day, my participation is regular, it's predictable, and it's not necessary-- no one is providing me with food regardless of my ability to pay, and no one is required to feed me if I'm starving (though we tend to think it's a nice thing to do).

So distinguishing health care is easy, and the opinion should write itself.  Now we'll see if Kennedy wakes up on the right side of the bed in June...

Debating Health Care

Today, the Supreme Court heard the first day of arguments on the constitutionality of the health care reform bill Congress passed last year.  It's kind of the Super Bowl for legal dorks-- the Court scheduled six hours of oral arguments over three days on four constitutional issues.  Overruling the law would be a huge step-- it would overturn 70 years worth of Commerce Clause jurisprudence.  It would, in a broad sense, probably the most substantial Commerce Clause decision since World War II.

The Court, rather than hearing the law as a whole, will actually hear four distinct issues related to the Affordable Care Act (ACA), two of which I actually think are pretty boring.  Probably the least interesting issue before the Court will be argued Wednesday afternoon, and concerns a part of the law that mandates the expansion of Medicaid coverage.  Medicaid operates as a federal-state partnership: the Feds provide some funds and instructions that the states are charged with carrying out.  The expansion would have required states to pick up a share of the costs, and 28 Republican-led states sued, arguing that the expansion is "coercive" to the states.  This is probably the least contentious of the issues, and the states will almost certainly lose-- the Feds have a well-recognized power to threaten to pull funds for states that don't comply with a federal program.  Usually, this takes the form of the federal government pulling highway funds from states that lower the drinking age below 21 (which explains why there aren't any states that let you drink at 18).  The Medicaid case would, in essence, pull federal Medicaid funds from states that don't participate in the expansion, which is a perfectly constitutional federal program-- states, after all, technically don't have to participate in Medicaid; they're free not to accept federal funds and pull out of the program.  The real issue, of course, being that no one would be too excited about living in a state that doesn't provide Medicaid.  But it would be shocking to see the Court overturn the Medicaid fix, so I doubt it will be an issue.

The second least interesting issue was argued this morning.  It concerns the Anti-Injunction Act of 1867, which prevents constitutional challenges to taxes that have yet to go into effect.  Since the penalty for failing to obtain health insurance doesn't kick in until 2014 (or maybe 2015; I don't remember exactly), deciding on this issue would give the Court a way out; it could say that it lacks the jurisdiction to hear the crux of the case until the penalty goes into effect.  This one is kind of curious, since both the Administration and opponents of the law contend that it's not a tax.  Over their objections, the Fourth Circuit decided that it was, so the Court appointed a private lawyer (Robert Long from the DC law firm Covington & Burling) to argue the opposing side.  The early indication from the morning's argument seems to be that the Court will be rejecting the Anti-Injunction Act argument.  Which I find a bit curious, since it seems to me that the easiest way for the Administration to win the argument on the individual mandate is to argue that the penalty for failing to obtain coverage is simply a tax (which is the crux of a brief filed by Columbia Law professors Gillian Metzger and Trevor Morrison and joined by a number of prominent Constitutional Law scholars) which can be waived by obtaining health care coverage.  But that doesn't seem to be the route that the Administration is traking.  We'll see if it's a mistake...

Now, the two most interesting issues are set to be argued tomorrow and Wednesday morning.  The big one is the constitutionality of the individual mandate.  Opponents of the ACA have built their argument on the contention that a mandate requiring individuals to buy a private product is an unprecedented infringement on personal liberty, and that upholding the mandate would give the federal government the power to regulate anything and everything under the Commerce Clause.  It's entirely accurate to characterize this as a fringe position.  Going back to the Court's decision in Wickard v. Filburn (1942), the Commerce Clause has covered essentially all economic activity reasonably related to a national market.  In that case, the Court decided that a law regulating wheat production could enjoin a farmer from exceeding his quota even if he used the wheat for consumption on his own farm, the perfectly reasonable rationale being that, even if the wheat was not sold directly into the market, growing wheat for personal consumption directly impacted the national market by displacing wheat that would have been bought in that market.  Since then, the Court has pushed back on Wickard only modestly, holding most significantly in United States v. Lopez (1995) that a statute barring people from carrying guns in school zones was not sufficiently related to interstate commerce to be covered by the Commerce Clause.

The health care case is as close to airtight as there is.  While the law, on its face, requires people to buy a private product, the relation to interstate commerce is very clear and straightforward.  To start with, everyone in the country participates in the health care market all the time, whether they are consuming medical services at a particular moment or not.  Whether I am insured or not, and whether I have the means to pay for health care or not, if I were to be hit by a car tomorrow, I would be transported directly to the hospital, where I would receive medical treatment.  The question would not be whether I am in the health care market, but who would pay for my health care services.  If I had insurance, it would be my insurer.  If I didn't, my health care provider would eat the cost.  But not really, because the story doesn't stop there.  If uninsured people are going to keep being given treatment (and that's an unavoidable proposition, unless you think doctors should ignore the Hippocratic Oath and start digging through people's wallets at the hospital before giving them life-saving treatment), health care providers will continue to do what they're already doing-- they will raise the rates they charge those who can pay to compensate for those who don't.  Since we overwhelmingly pay for medical care through insurance (really, it's the only way to do it; for economic reasons, medical care markets really only function when insurers pay), insurance companies will raise premiums, since providers will charge them more for procedures.  Consequently, at the end of the day, those who do buy insurance end up paying for those who don't.

Failing to buy health insurance, then, is a direct economic act.  The position advanced by opponents is that we all participate in the food market, so the government can require us to buy broccoli.  But that's a complete non-sequitur.  Yes, we all end up getting food, but, for one thing, food providers don't have to give us food if we need it-- we might think it's a good thing for the grocery store to feed me for free if I'm starving and can't afford food, but the law doesn't recognize that as an imperative.  And food is not a market with adverse selection issues that has to be paid for through insurance; I can't put off eating because I figure the food provider will feed me anyway, and food isn't something whose costs will bankrupt me-- an emergency surgery after a car wreck that insurance doesn't cover can easily bankrupt someone; a Big Mac at McDonald's most definitely can't.  So, in a particular sense, health care is a unique market in that people both constantly participate in it, and can really only pay for it through an insurance rather than out-of-pocket mechanism.  All of which makes it pretty plainly within Congress's powers under the Commerce Clause.

The last issue, which will be argued Wednesday morning, concerns the ACA's severability-- that is, if the individual mandate were found to be unconstitutional, the Court would have to decide whether it can be "severed", or detached, from the rest of the law.  My view is that it's, plainly, not severable.  ACA rests on a three-legged stool: a requirement that insurers not be able to refuse coverage to those with so-called pre-existing conditions, subsidies for people who can't afford insurance to get it, and a requirement that everyone purchase coverage or pay a penalty.  The reason it's a stool is that all three features are necessary for the law to function.  If you require insurers to cover everyone and provide subsidies to those that can't afford it, but get rid of the mandate for individuals to purchase insurance, the predictable result will be that no one will actually get health insurance until they need coverage-- after all, if the government is picking up the tab for their purchase of insurance, and companies can't turn them down for coverage, there's no reason to pay premiums until they actually need coverage.  As a result, costs will skyrocket, as insurers will have to charge a fortune just to be able to cover costs.  The result would be an absurdity.  You similarly need subsidies, since you can't squeeze water from a stone-- requiring someone with no income (or very little income) to get insurance is an obvious absurdity.  And, if insurers can reject applicants on the basis of pre-existing conditions, the individual mandate becomes essentially meaningless-- those people's premiums will be so high that very few will be able to afford them, which means subsidies for those people will have to be sky-high.

But the Court shouldn't even have to get to severability, because the law is so clearly constitutional.  Frankly, even though this is the most reactionary Supreme Court we've had since the 1930s, this shouldn't even be a close decision-- Clarence Thomas will certainly vote to invalidate the law (but then, Clarence Thomas is an army of one-- a weirdo whose views are as far outside the mainstream of the legal profession that no one really subscribes to them besides Thomas himself), and Antonin Scalia might as well (though I have my doubts).  But even far-right justices like John Roberts and Samuel Alito will have a hard time finding that the law is unconstitutional.  I think it'll be a 6-3 upholding the individual mandate.

Robert Samuelson is a terrible journalist

Robert Samuelson of the Washington Post is my least favorite kind of pundit.  Ideological hacks come in a number of different flavors.  Some, like George Will and Charles Krauthammer, are unabashedly ideological-- they play for Team Republican and they know it.  Others, like Rush Limbaugh and Glenn Beck, are rodeo clowns-- they say things to get a rise out of people, and their fans claim that whatever racist, sexist, or otherwise insulting trope they're trotting out is what everyone is thinking, and the brave Limbaugh is the only one saying it.

But Robert Samuelson is a different breed-- he's the "reasonable" ideologue.  He likes to talk about being committed to "fair", and "unbiased" reporting, and faults others for "twisting" the rhetoric or facts to match their political preferences.  He accuses the "liberal" mainstream media of doing it most, this time in a column about Medicare reform.  Here's the crux of his claim (not in order, but it gets at the key arguments:

But many Democrats despise vouchers, which (they say) would “privatize Medicare” and “end Medicare.” The language is self-serving demagoguery intended to terrify seniors. Unfortunately, some in the media sometimes sloppily adopt these attack phrases as acceptable descriptions.

...

These descriptions aren’t acceptable, because they don’t reflect reality. The fact that some voucher advocates also use “privatize” doesn’t change matters. Consider.

Vouchers would not “end Medicare.” Fundamentally, Medicare promises health-care coverage to most Americans 65 and over. We call this an “entitlement.” The entitlement wouldn’t end. The federal government would still pay for coverage. In this basic sense, Medicare vouchers don’t threaten the program.

...

But similar changes can occur — and already have — under the present system. If the government cuts reimbursement rates for some services, those services may become less available. In 1997, that’s precisely what happened with home health care services. The American Medical Association has repeatedly warned that if Medicare reimbursement rates are held down, fewer doctors will see Medicare patients. Similarly, premiums for wealthier recipients have already been raised for doctors’ services and drug coverage.

Vouchers wouldn’t “privatize Medicare.”The reason is simple: Medicare has always been “privatized.” Most doctors who receive Medicare reimbursement aren’t government doctors. Similarly, most hospitals are private, whether for-profit or not-for-profit. Drug and medical-device companies are private. Under the Medicare Advantage program, insurance companies already offer competing plans for about 25 percent of recipients. They offer “Medigap” insurance (plans that cover what Medicare doesn’t) to another 18 percent of recipients.

Samuelson's claim is that, because a voucher program would involve some government support to help seniors buy health insurance, that doing so wouldn't "end" Medicare.  He suggests that talking about "privatizing" Medicare is misleading because Medicare is already privatized, in the sense that Medicare doesn't employ medical practitioners.  His first claim is enormously disingenuous.  His second is either patently dishonest, or reflects deep stupidity.

To begin with, it helps to understand what Medicare is.  Simply put, it's a government-run health insurance provider for senior citizens.  That means that, once you're eligible, government provides you with health insurance that allows you to have your treatment paid for by Medicare.  One simple way to think about it is that's Blue Cross/Blue Shield for the elderly.  Now, it doesn't have to cover everything-- you can decide that Medicare should cover only certain procedures, or should have a certain deductible, or something along those lines.  In practice, those kinds of changes happen all the time (and Samuelson describes them, dishonestly, as similar to a voucher scheme).  Those kinds of changes, if draconian enough, could be fairly said to gut Medicare.  But so long as a government-run insurance plan remained in place, it would still be Medicare. 

A voucher scheme, as contemplated by the right, gets rid of that health insurance program.  Instead, it provides seniors with a block of money to go out into the private insurance market and buy insurance.  Samuelson and other hacks on the right call that "Medicare".  But it's Medicare in the same way that the government dissolving the US Army and instead paying private contractors to wage war on its behalf wouldn't "destroy" the US Army.  Sure, there would still be an institution providing defense services, but that doesn't mean that it would be the US Army.  Plain and simple, saying that vouchers destroy Medicare is nothing more than calling a spade a spade.  Now, you can argue that a voucher program would do a better job of delivering health care to seniors, or that it would save money (the second claim is perhaps, in a vague sense, true; if you cut services enough, you could cut costs.  Literally all of the evidence refutes the first claim).  But that doesn't mean that a voucher program is the same thing as Medicare; it's a scheme to destroy Medicare and replace it with a voucher system.

The second claim Samuelson makes is, if it's possible, even worse than the first.  Samuelson says that a voucher scheme wouldn't "privatize" Medicare because... Medicare is already private.  Now, if Samuelson is serious about that claim, he's stupid.  I think, more likely, he thinks his readers are stupid.  Medicare is NOT privatized because Medicare isn't a hospital or a drug provider or any other provider of medical services.  Medicare is an insurer-- it's the entity that pays for medical treatment, not the one that provides it.  Imagine for a moment that the government gave you an option to buy homeowners insurance (call it GovInsCo).  It would pay all of the costs of repairing your home if it was destroyed in a natural disaster.  In essence, you'd submit your receipts for home repair to GovInsCo, and it would cover up to a certain amount in repairs.  Would you call that a "private" program just because the repair company you hired to fix your house would be privately owned? I doubt even Samuelson would be audacious enough to make that claim, but he persists with making the claim about medicine.

What Samuelson does, in short, is get worked up over those who point out that a voucher scheme replacing Medicare would, in fact, "end" Medicare, since no government-run insurance plan for the elderly would exist.  And handing seniors money to buy private insurance in its place would, in fact, be a "privatization" of Medicare, as it would take seniors out of a government-administered health insurance program and instead hand them vouchers to buy private insurance.  In short, just because Samuelson recognizes that people overwhelmingly like Medicare, and don't like the idea of privatizing it, he insists that a plan to do just that is... something else.

It's an approach that is, at its root, profoundly dishonest.

We Need Fewer Markets in Health Care

A common refrain that you hear from plenty of Republicans on the health care debate is that we need a free market for health care.  Deregulate the sector and open it to the "magic of the market", they claim, and health care costs will fall while the quality of service will rise.  Steve Forbes ranted for awhile about this at a "motivational" seminar I went to with my office yesterday.  Look how well the markets for couches and haircuts and computers work, they say.  You can get a nice leather couch for $5000, or a crummy Ikea version for $300.  You have plenty of options, and you can choose the one that suits your needs.  Same with haircuts.  John Edwards can get a presidential haircut for $400, and someone who wants to cut costs can go to Chinatown and get a trim for $8.  Magic.

The irony, though, is that none of the people claiming that markets will fix health care understand how markets work at all.  Their argument falls apart more or less instantly.  The first thing they don't understand is that markets aren't inherently efficient.  The argument isn't even technical-- it's intuitive.  Think about the market for couches I describe above.  Why is that market efficient? You can divide it into a few crucial points.  The first crucial point is symmetry of information.  The couch seller knows what he's selling, and you know what you're buying.  If you want information about how other people found the couch, you can get online and look up people's reviews.  You can sit in the couch and test it.  You know what your needs are, and how much you're willing to pay for a couch that meets those needs.  And you know when you're satisfied with what you got.

Now think about the health care market.  Say you've got a stomachache.  The doctor puts you through 5 different tests and gives you a diagnosis, prescribes you medicine, and a week later you feel better.  Great.  Your insurer gets a bill for 5 procedures and your prescription drug plan picks up the bill for your medicine, with you paying $50 out of pocket for the whole thing.  What do you really know? That your stomach hurt before and it doesn't hurt now.  What's more crucial is what you don't know.  Were those 5 tests necessary? Were they redundant? Did you need the medicine? Would you have felt better even if the doctor hadn't done anything? If a second doctor had ha a different opinion about your condition, how do you decide which doctor was right and which doctor was wrong?

The answer to all of these is that consumers DON'T know.  When it comes to medicine, the doctor has all the information and the patient has none.  Which means that there isn't the kind of quality control that you have in a functioning market.  If your Ikea couch falls apart, you return it to the store.  If it's uncomfortable, you don't buy a couch from there again.  With medicine, how do you know if you got unnecessary or harmful procedures? Unless the doctor visibly screwed up, again, you don't.  So, unless doctors have an incentive to control costs, they won't (and right now, doctors get paid not holistically, but per procedure. And the more expensive the procedure, the bigger the payout, regardless of whether the procedure is necessary or more effective than a cheaper alternative).

A second crucial point is that health care is a market in which everyone participates all the time, whether they like it or not.  A Constitutional issue arising out of the recent health care reform asks how Congress can force Americans to participate in a market.  Well, the answer is that health care is the one market in which everyone participates no matter what.  Say, hypothetically, I don't take medicine and I don't buy health insurance.  Say I'm 23 years old and healthy and don't think I need it.  But, true story, last Saturday I was  riding my bike, popped a tire, and tore up my hands pretty badly.  My wrist took a knock, and I was lucky I didn't break it (I've broken that wrist before).  Had I broken my wrist, if I didn't have insurance, I would have had to go to the hospital.  When I got there, I would have gotten my wrist X-rayed, they would have put it into a cast, and I would have gotten some Vicodin.  Without insurance, they would have handed me a bill for a few hundred dollars.  Maybe more.  Now, I'm 23 and haven't held a full-time job in my life.  I have... less than a few hundred dollars in my bank account right now.  There's no way I could pay for that treatment without insurance.  I'm also pretty much judgment-proof: without a job or any assets, there's no way the hospital is going to end up collecting on that bill until I finish school (read: ever).  So who picks up the tab? Well, you do, if you pay taxes.  My refusal to buy health insurance is subsidized by your tax dollars, and costs are passed on to those who do have coverage by higher rates for those who are able to pay.  Put simply, here's another difference between the health care market and the couch market: if you don't like any couch, you don't have to buy a couch.  If you don't want health insurance, your participation in the health care market is subsidized by others.  And your refusal to participate drives up everyone else's rates

The third crucial point about the health care market is that it's necessarily an insurance-based market.  Last year, I was 22 years old.  My health care consisted of a checkup with the doctor and a trip to see the dentist. I consumed maybe $300 of health care services that year.  My health insurance made good money treating me.  But say I'd gotten into a car wreck and needed 3 surgeries and six months of rehab.  I would have consumed $300,000 of health insurance, which is almost $300,000 more than I have in the bank.  I would have been one of the brokest people of all time (alright not really, but I would have been SUPER broke).  That kind of accident is an inherent risk that everyone faces.  And there are two potential solutions.  Every person in America could put aside $500,000 to hedge against the risk of getting cancer, getting in a car wreck, or any number of tragic catastrophes.  Now multiply that $500,000 by 300 million Americans.  That's $150,000,000,000,000.  $150 trillion dollars.  Ten times the size of the economy.  And that's dead money-- if it's reinvested somewhere other than in the safest investments (cash or Treasuries), there's a risk of losing it. And it's also ten times the number of outstanding Treasuries in the market.  So what do we do instead of suggesting that all Americans save twelve times the country's median pre-tax income so they have it around for a rainy day? Well, you have them buy insurance.  That way, insurance companies will make a profit on healthy 23 year olds, lose money on those who have tragic accidents, but come out relatively ahead in the end.  So there's really no practical way for Americans to buy health care outside of insurance.  And, if relatively healthy young people aren't forced to buy insurance, it drives up rates for others.  Which brings me to the next point.

The fourth crucial point is that the health care market has a huge adverse selection problem.  Insurance companies are eager to pick up customers.  But not all customers are created equal.  Health insurers love signing up people like me who consume $300 of health insurance a year, pay out $500-1000 in premiums, and sign up again.  But people like me are also the ones most likely to forego that health insurance altogether and skip their appointments.  So who IS in the market?  The answer is sick people and old people.  It's a sad reality, but old people are sicker and need more health care than young people.  If you're blessed enough to have grandparents who are around, you know that they take an alphabet soup of pills with every meal.  They go to the doctor pretty regularly.  If I fall down, I dust myself off, put on a band-aid, and curse.  If a 75-year old falls down, he breaks his hip.  Insurers aren't interested in insuring those people at prices that aren't astronomical because they know that those people are going to be consuming a whole lot of health care services.  But old people are also retired.  They might have some disposable income, but even with a paid-off house and car, chances are they're consuming more in health care than they have in cash coming in.  So if one of those people is lucky enough to convince an insurer to cover them, either their premiums will be through the roof, or insurance that agrees to cover them will cover two trips to the doctor and a tooth cleaning at the dentist's.  Unleash the magic of the market, and the market will run screaming away from old people.  Health insurers are about as eager to provide old people with comprehensive health insurance as fire insurers are to provide someone living in Hell with fire insurance- it's not a winning proposition.

So how do we make that market work? Well, short of the government providing health insurance itself, doing research on what does and doesn't work, and restricting what it will and won't cover, there are really only a few possible steps.  First, you have to make health insurance available to old and sick people.  In effect, that means not rejecting people on the basis of pre-existing conditions.  But if people can't afford health insurance, you can't force them to buy it.  That leads to the next step.  So second, you provide old and poor people with subsidies to buy insurance.  But if insurers can't discriminate on the basis of pre-existing conditions, people are going to wait until they get sick, then run to the insurers and say, "Give me insurance!" Which inevitably gets you to the third prong.  Third, you mandate that everyone buy health insurance.  That way, people pay premiums while they're healthy, and their premiums subsidize the higher cost of treating the old, which drives down those old people's rates.

So, essentially, we end up with a three-legged stool.  If everyone gets health care, we have to make sure they pay something into it and aren't freeloading.  So we end up with a restriction from discriminating against those with pre-existing conditions.  To make it affordable, we get subsidies for those people.  And to prevent people from signing up only when they get sick, we get a mandate for everyone to buy insurance.  And that looks... a lot like the Affordable Care Act.

Of course, there are still the cost-control issues, but those are likely best resolved by doing studies on which procedures are effective and which are not, paying doctors who get better results more (in any single case, it's hard to determine whether a doctor did a good job; in the aggregate, it's easier to track a pattern), and allowing those who can save money in the process to keep their savings.  Once doctors are paid for results and not for procedures, their incentives shift, and they start focusing on controlling costs rather than on doing lots of profitable procedures.  This part of the argument is actually borne out by the evidence.  The reason we pay more than any other country for health care (without getting better results) is that we consume more health care than any other country.  Obviously without getting much bang for the buck.

So I wrote this pretty much stream-of-conscious, so I doubt it all makes perfect sense, but I think it reflects my thoughts on the issue.

Health Care Debate

Paul Krugman points us to this link outlining the origins of health care reform.  What it tells us is that Obama's big, bad, socialist, job-killing health care reform with a freedom-killing individual mandate... was suggested by the Heritage Foundation in 1989.  But somehow, the Republican alternative to single-payer 20 years ago (which was adopted by Congressional Republicans as an alternative to Hillary Clinton's plan during her husband's first term) has morphed into a Marxist fantasy.  Interesting.

I tend to disagree with Krugman on health care- he thinks single-payer is the best option.  I think the numbers back him, but he ignores the frictions that come with transitioning to one kind of system when we've built an entire health care edifice on private insurance.  I think our best bet is to take what we've got, create incentives to provide cheaper, more effective care by aligning the incentives of providers with the incentives of patients.  It's hard to do in a market like health care, where market fundamentalists can't get it through their head that markets for health care aren't like markets for couches and markets for lattes-- if your latte tastes bad or makes you fat, or your couch is uncomfortable, you know it right away.  If you get sick, you don't know what procedures you need, and you don't really know if your doctor is doing a good job or a bad job unless they really screw up.  So just stepping back and letting the market work won't do to the health care market what it does to the couch market.  So the best we can hope for, I think, is to reward doctors whose patients get better results at cheaper rates after the fact.  It's imperfect, but I think realistically it's easier and less chaotic than blowing up the system we have right now and starting over from the ground up.

Health Care Cost

I've been avoiding it for now, but the one issue that you can't really leave off the table when you talk about the US's long-term budget outlook is health care.  Contrary to what Republicans might tell you, overpaid public workers, social security, and public unions aren't the problem.  Contrary to what Democrats might tell you, military spending also isn't the problem, nor can the budget problem be solved by keeping health care (including MediCare and MedicAid) the way it is is.

Right now, health care takes up about 23% of the federal budget.  That's not far out of line from defense (20%), social security (20%), and discretionary spending (19%).  But unlike the other 3, which have been pretty constant over the years, and which can be tweaked, health care spending truly has been running out of control.  And not just Medicare and Medicaid (which have actually done a better job of cost control than private insurance), but the entire sector.  Take a look at Chart 3 from this link to the Kaiser Family Foundation.  Heck, look at all the charts.  Since the 1970s, our health care costs have grown more than any other developed country's, and they've way outpaced inflation.  And no, we don't do the best job at treating patients (our life expectancy is pretty average), and no, you can't chalk that average life expectancy entirely up to "Americans are fat."  So it's very clear that if we don't do something about health care, costs will explode and we'll turn into an economy where every third dollar we consume is on some kind of health care product or service.  And that's not sustainable.  So at some point, we'll have to cut back.

Paul Ryan has a plan to do that, which he calls "premium support," and which he claims is "the same as the plan congresspeople get."  Paul Ryan is lying.  Right now, the way Medicare works is that a central office pays providers (doctors) for doing procedures that the doctors deem necessary.  Ryan's plan involves giving senior citizens vouchers to buy insurance in the market, and allowing the price of those vouchers to appreciate at the rate of GDP growth.  It's a horrible idea for very simple reasons.  The whole reason Medicare and Medicaid have grown as much as they have is that medicine as a whole has gotten more and more expensive.  At a rate much faster than the growth of the overall economy.  So the amount of medical care that you could buy for $250 in 1980 was a heck of a lot greater than the amount of medical care you can buy for $250 today, even if you adjust today's dollars for inflation.  Ryan's plan does nothing to control that growth.  So your voucher will buy old people less and less health care, meaning that they'll either have to suck it up and die, or pay out of pocket.  And if you think those are appealing options, then voting for Ryan is the way to go.

Ryan's claim is that the magic of the market will drive down costs, as seniors will comparison-shop for the best plans.  Now, for a supposed believer in free markets, Ryan happens to have absoltuely no idea how they work.  The reason Medicare was created is that magic insurance markets don't want anything to do with covering old people.  As anyone who passed second grade science knows, old people take lots and lots of medicine, and are sick a lot more often than young people.  To put it in insurance parlance, providing health insurance to old people is like providing flood insurance to someone living on a beachfront in New Orleans-- you don't want to be anywhere near it, and if you are, the premium you charge will be through the roof.  Problem is, in the flood insurance market, someone can always opt not to buy flood insurance.  Or they can move to Denver, where flood insurance costs like $6.  But handing old people a voucher and telling them to go buy health insurance is like handing someone a voucher and telling them to get that beachfront flood insurance in New Orleans-- it's not gonna buy you much insurance.  And the old person equivalent of moving to Denver is getting younger.  Which would be a pretty sweet option, if it were possible.  So Ryan's plan is essentially to cut the amount of healthcare old people can get, and after that let them rot.  And if you think that sounds like a sweet deal, well, then by all means vote Ryan.

But I DON'T think that's the way to go.  So we've gotta look for another solution.  I think the important premise to start with here is that we want everyone to be able to get healthcare if it's necessary.  It sounds radical, but it really isn't at all.  Healthcare is unique among economic goods and services in the sense that everyone is always in the market for it, whether they like it or not.  Before the passage of the Affordable Care Act (ACA), you didn't have to buy health insurance.  But that didn't mean you weren't in the health care market.  If you didn't buy health insurance, even if you didn't visit a doctor or buy medicine, if you were out riding your bike and got hit by a car, an ambulance would come and take you to the hospital and do emergency surgery and do all of that without digging into your pocket to figure out if you had health insurance.  And if it turned out that you didn't have any savings to pay for the procedures and you were uninsured, well, that was called medical bankruptcy.  Your medical costs ended up covered, through higher cost of care for those who DID have insurance.  So how to deal with that? The answer is, simply, through a mandate.  Typically, people who didn't buy health insurance before ACA were young people who thought they didn't need it.  And those were the exact people insurance companies wanted to cover because chances were pretty good they'd make money off of covering young, healthy people.  By forcing those people to buy insurance, you end up subsidizing the costs of those who are more expensive to cover (i.e. older people), and you also end up keeping people from entering the insurance market only when they get sick.  So if you start with the idea that everyone is going to get health care, whether they have insurance at all, you end up inevitably with a system in which everyone has to buy insurance, and if you make everyone buy insurance, then you have to provide subsidies for poor people who wouldn't be able to afford it.  Organically, you end up with something that looks, well, pretty much exactly like the insurance reform portion of the ACA.

But that only covers reforming the market.  That part doesn't deal with costs.  So what's our cost issue? I think the problem is incentives.  Right now, health insurers (Medicare included) pay physicians and pharmaceutical providers by the procedure.  If Uncle Charlie goes to the doctor's office, gets 185 procedures and dies in 6 months, the doctor gets paid a whole lot more money than the other doctor who might give Uncle Charlie 3 procedures, but keeps him alive for 9 months.  So the incentive is to provide not just more procedures, but procedures with bigger profit margins.  That means, given a choice, MRIs instead of X-Rays, not necessarily because MRIs are better, but because they're more lucrative.  This is where critics usually step in and argue that the doctors are practicing "defensive" medicine because they might get sued.  That's also baloney.  Medical malpractice suits (insurance premiums, settlement payments, payouts, etc.,) and all associated costs combine to make up less than half of one percent of health care costs.  And, when Texas passed a law capping punitive damage awards in malpractice suits at $250,000, the number of suits shrank dramatically... but the cost of health care remained completely unchanged.

So what do we do? The answer is, rationing.  You can call it "death panels" if you like, but right now, we have remarkabkly little research on which procedures are effective and which aren't.  So the first step is doing that kind of research.  Which is actually in ACA, but has been demagogued as "death panels."  Figures.  The next step is aligning incentives so a market in health care can function.  That means setting up a system where physicians who get better results treating similar problems are compensated better, and those that can get those results with less cost can keep a chunk of their savings.  Of course, that's easier said than done, and that kind of system has to be designed by someone who understands the dynamics of health care markets a lot better than I do.  But I think that's the abstract goal, and it's one that tends to get lost by Democrats who claim single-payer is a universal elixir, and Republicans who want to invoke the "magic of the market" without bothering to figure out how the market in health care actually works.

Just as a last note, I think the best article I've read on health care cost control is this piece by Atul Gawande in the New Yorker a few years back.  If you read one article about health care cost control, this is the one.