Thursday, September 23, 2010

The Pledge's Health Care Critics

Cross-posted from Critical Condition on National Review Online.


The Republicans’ Pledge to America has come under a fair amount of criticism from both the left and the right. (On Wednesday night, I gave its health care provisions a 7 out of 10.) Some of these criticisms are fair, some are unfair, and some are based on a faulty understanding of what the Republicans are proposing. Let’s go through the criticisms.

First, let’s swing our eyes to port. Igor Volsky of the Center for American Progress put out a detailed post arguing that “the document provides almost no specifics about what the party would do to control health care spending, improve quality, or pay for its reforms. And at least 7 of the GOP’s ideas on health care are already included in the health care law.” I disagree with him on both counts.

As to the first point, the Pledge does propose measures that would curb health-care spending and improve quality. Malpractice reform would curb defensive medicine and reduce wasteful health spending. Legalizing the purchase of health insurance across state lines would dramatically reduce the cost of insurance. Expanding health savings accounts will incentivize more people to migrate to consumer-driven health plans, which will also lower costs and improve quality. Of these measures, the first two would cost the government zero; HSA expansion might reduce tax revenues somewhat (because HSAs are tax-free), but not by much given their currently low penetration.

Ezra Klein advances the argument (as does Igor) that repealing Obamacare will increase the deficit, since the CBO scored PPACA as reducing the deficit by $143 billion. Even if you believe in the omniscience of the CBO (I do not), we all know that CBO scores are heavily gamed by legislators. It is far from clear that a Republican Congress in 2013 trying to repeal the law would garner the same score from the CBO as the Democratic Congress did in 2009. Remember also that the CBO, in its scoring of PPACA, did not have time to consider the costs of most of the new discretionary spending that the law requires. Suffice it to say that deficit hawks are the ones who most dearly desire the repeal of Obamacare.

Returning to Igor, there are superficial similarities, but serious substantive differences, between the Pledge’s health-care proposals and those of PPACA. Let’s take them one by one:
  1. Insurance across state lines. Republicans advocate the full liberalization of health-insurance consumption: just as I can order a laptop from California, even though I live in New York, so too can I buy health insurance. PPACA “allows” state governments to do something they could pretty much do already: enter into compacts with each other to allow for cross-border insurance sales. These compacts aren’t going to happen, especially between states with significantly different regulatory structures. The whole point of buying insurance across state lines is to liberate insurance from the lobbyist-driven mandates that drive insurance costs skyward.
  2. High-risk insurance pools. The PPACA-sponsored high-risk pools are seriously underfunded and have essentially no chance of succeeding. In addition, for PPACA, they are temporary measures meant to tide patients over until the guaranteed-issue mandate (requiring coverage of preexisting conditions) goes into effect. For Republicans, high-risk pools are an alternative to guaranteed issue.
  3. Pre-existing conditions. PPACA requires that insurers accept everyone who applies, regardless of preexisting conditions. This is a recipe for skyrocketing health costs, because it encourages people to wait until they are sick before buying insurance. (PPACA’s individual mandate, even if it manages to pass constitutional muster, doesn’t go into full effect until 2018.) The Republican proposal echoes pre-PPACA law: requiring insurers to cover those with prior coverage and a preexisting condition. (Jonathan Cohn objects to the Pledge because he doesn’t believe high-risk pools work: but that’s more of a philosophical objection.)
  4. Lifetime and annual caps. This is the one area where PPACA and the Pledge are basically identical. This aspect of the law will increase the cost of insurance, but not by much: my actuarially knowledgeable colleagues put the cost increase at 1-2 percent.
  5. Rescissions. The rescission provisions in both PPACA and the Pledge are mostly symbolic. It is already illegal for insurers to dump patients simply because they get sick: it is a violation of the insurance contract. If applicants for insurance knowingly misrepresent their health status, however, it is the beneficiary who has violated the contract. There is only a small bit of room in between these two situations for tweaking regulations.
  6. State innovation. PPACA allows states to receive waivers, if the HHS secretary is so kind as to grant them, to slightly stray from PPACA’s blizzard of unfunded state mandates. Republicans favor a far more decentralized approach. PPACA clearly constrains the latitude of states to cover the uninsured; this is indeed an area in which the Republican and Democratic approaches are diametrically opposed.
  7. Abortion. It is the consensus of abortion activists on both sides of the aisle that PPACA allows federal funds to pay for abortion. Republicans seek to restore the Hyde Amendment principle that taxpayer money can’t be used to fund abortions.
I should here mention that there is some confusion about exactly what Republicans are proposing. Peter Suderman, in an otherwise excellent piece, is worried that the Pledge’s promise to require insurers to cover those with preexisting conditions will lead to the famed “adverse selection death spiral.” But as I explained above, the Pledge only requires coverage for those with prior insurance, preventing healthy people from gaming the system, and thereby avoiding the death spiral. Moreover, what the Pledge is advocating has been a part of federal law since the passage of the Health Insurance Portability and Accountability Act in 1996. (For a thorough treatment of this topic, see Jim Capretta and Tom Miller’s piece in the Summer 2010 issue of National Affairs.)

Now, let’s turn to the Right. Conservative critics of the pledge are disappointed that the Pledge didn’t do more to tackle entitlement reform. Philip Klein describes the document as “reinforcing [Republicans’] timidity.” Erick Erickson calls it “perhaps the most ridiculous thing to come out of Washington since George McClellan.” Et cetera.

I share their basic disappointment that the Pledge doesn’t say much about entitlement reform. However, the news isn’t all bad. If National Review’s editors are right, that a “full accounting of Social Security, Medicare, and Medicaid” means “putting their long-term unfunded liabilities on budget,” this would be a huge breakthrough in honest fiscal accounting, and help build popular support for broader entitlement reform. Today, the deficits run by the big entitlements are not counted toward our official deficit and debt totals, even though we have to pay them off with the same borrowed taxpayer dollars.

And another of my NR colleagues, Kevin Williamson, is an actual fan of the Pledge: “You guys do appreciate that this would be more than President Reagan managed on the spending front, right?” Kevin is the fiercest deficit hawk I know — his blog, Exchequer, is singularly devoted to the subject — and his words should be weighed accordingly. “As a matter of politics,” writes Kevin, “entitlement reform is going to be a long and complex fight, and difficult to summarize in a short campaign document.”

Let’s remember that, even if Republicans take the House, they are facing a likely Democratic Senate and certain Democratic White House. There is only so much they can get done. Their approach, it would seem, is to bite off today what they can chew, regain the trust of the electorate, and build upon their successes in 2012. We’ll find out soon enough if that was a wise strategy — but it can certainly be called a plausible one.

11 comments:

  1. "The whole point of buying insurance across state lines is to liberate insurance from the lobbyist-driven mandates that drive insurance costs skyward."

    You do know that I dont intend to lower my fees just because some company is from Idaho?

    How do they intend to cut back to 2008 levels? What are they going to cut? I have been hearing this for years. Until they give me very specific ideas on what they will cut, I do not believe it. Just more BS.

    Steve

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  2. "You do know that I dont intend to lower my fees just because some company is from Idaho?"

    You're missing the point Steve. Health inflation has three primary sources: price inflation on a given service, increased utilization of services, and new services that were previously unavailable. Prices, volume, new stuff.

    When a state mandates that more services be covered that were not before, this leads to more volume, and more new stuff. The fact that you won't change your prices is immaterial to the fact that mandates increase the cost of insurance.

    I would like to buy insurance that does not cover in-vitro fertilization, contraceptives, low cost preventive care, and acupuncture, but depending on where I live I may not be able to do so.

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  3. AB-Then change the laws within that state. The selling across state lines thing is just a smoke screen. Most people think it means you want to increase competition. I know that is not true, but when I talk with fellow docs at work, they think that is the purpose of selling across state lines.

    If you allow sales across state lines, you will have eliminated state mandates by necessity, I believe. The local insurance companies will know the markets better and have prior contracts. The new companies coming in will not get discounts from providers.

    Steve

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  4. Martin Wolf's more eloquent response describing what I think will happen when Republicans take bake the government.

    http://blogs.ft.com/martin-wolf-exchange/2010/07/25/the-political-genius-of-supply-side-economics/

    Steve

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  5. Hi Steve, we had this discussion before, but I think you're still not getting the gist of the interstate insurance idea: it's not about renegotiating fees to doctors and hospitals. It's about liberating indviduals from onerous insurance mandates. For example, states that mandate that all insurance plans must cover psychiatric illness have 25% higher costs than those that don't. States that have community rating -- requiring the young to pay the same as the old -- have much higher insurance rates. These mandates are far more important to the cost of insurance than are doctors' fees.

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  6. I think I am getting what you say now, but I am not clear why you approach it this way. It seems like what you really want is for states to do away with their mandates. I would agree with that, with the caveat that I dont really want to end up with a complexity issue so that consumers cannot adequately compare products. Am I to assume, dont want to put words in your mouth, that you are pursuing it this way because of the politics? Rather than have a federal decree that eliminates the ability of states to set coverage requirements, usually at the request of in state insurers I suspect, are you trying to avoid the appearance of infringing on state's rights?

    How do you avoid the free rider problem? Say I decide to go with an insurance plan that does not cover emergency care, knowing that emergency rooms and hospitals must provide emergency care.

    Is there any basic level of care that you would mandate?

    Steve

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  7. "AB-Then change the laws within that state. The selling across state lines thing is just a smoke screen."

    A smoke screen for what? You seem to think there is some hidden motive here, and that is not the case. Mandates drive up the cost of insurance, and force people to buy coverage for things they either don't need, or that should not be covered by insurance. What do you think is a more feasible plan of action: changing the laws in 50 different states where entrenched interests have successfully lobbied to get mandates for things that benefit them, or for federal law to allow people to buy the insurance product they choose? We just passed a huge federal health reform bill that dictates a lot of things to states when it comes to insurance, there's no reason we couldn't have used this to allow interstate sales.

    As to your comment about local companies and networks, there are already a lot of companies doing business nationwide and have networks pretty much everywhere.

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  8. "How do you avoid the free rider problem? Say I decide to go with an insurance plan that does not cover emergency care, knowing that emergency rooms and hospitals must provide emergency care.

    Is there any basic level of care that you would mandate?"

    I don't really see the need for the ad absurdum. Given that emergency care (which really is not a large portion of our overall health spending anyway) is the only example that fits your "free rider problem", I honestly don't think that is something we need to worry about. And if you think it is likely that insurers would start selling a product that didn't cover emergency care I would say you are mistaken. Emergency care is the exact type of thing insurance is meant to cover, the same cannot be said for in-vitro fertilization or psychiatric care.

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  9. "What do you think is a more feasible plan of action: changing the laws in 50 different states where entrenched interests have successfully lobbied to get mandates for things that benefit them, or for federal law to allow people to buy the insurance product they choose?"

    In order to pass a law that will allow the kind of sales across state lines that you want, you will have to eliminate state mandates. If mutual of Idaho wants to sell their insurance without OB coverage in my state, they need some way to not have to comply with our state mandate. If you are going to eliminate the mandate so that they can sell in my state, why not just eliminate the mandate? What I am advocating for is the same thing you are, I am just doing it more directly. Then, if insurance companies decide they want to sell across state lines, they can.

    "Emergency care is the exact type of thing insurance is meant to cover, the same cannot be said for in-vitro fertilization or psychiatric care."

    Neither is in-vitro, but psych care is. So what do we do with the free rider problem when someone has a psychotic episode?

    Steve

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  10. I can post references, but about 80% of mandate costs are comprised of maternity, mental health, home health, preventive care for children, and infertility services. It is estimated that additional mandates add about 0.04-0.05% to cost of policies (10 mandates, add 5%).

    Questions:

    Are some of the 80% listed above excessive and what should be in a policy? I would argue that bare bones policies, and this is not a right or wrong but can be ideological, are problematic for various reasons. We will disagree there I think.

    Additionally, if I live in Houston, NY, or Boston, and I buy a policy written in Iowa City (put aside legalities for now), are mandates the issue, or are the inflated costs of care in these cities? Moreover, how long before a slew of folks from Miami, NY, etc., buy these policies and the folks in Iowa began to respond in kind and charge rates commensurate with the care policy owners receive in their home towns. It may not just be about mandates.

    Now if the markets respond in kind and prices come down as a result, great, but I guess again, it is a matter of right vs left perspective and the drivers that get us there.

    Brad

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  11. Hi Brad,

    Sorry for the delay in responding. I'd be interested in your references, given that it sounds like you're talking only about coverage mandates, and not things like guaranteed-issue, community rating, and cost-sharing. But yes, the coverage mandate costs you mention are the big ones.

    Given that maternity is (usually) a choice, and not an illness, it's not obvious that maternity should be part of an *insurance* plan, if the term insurance is to mean anything. Mental health is complicated, and worthy of a separate discussion. Broadly speaking, as you know, my view is that insurance should cover catastrophic illness, leaving routine medical expenses to an HSA.

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