“But the great puzzle of health care policy: Just why is it, to accommodate this worthy goal, must your and my health care and insurance be so deeply regulated and so thoroughly dysfunctional? As one small example, why does a 20 minute skin check with the resident of my dermatologist generate a phoney baloney bill for over $1000, meaning a cash and carry market for such a simple, elastically demanded, and perfectly predictable service is impossible?
Why, in order to provide for the unfortunate, do we not simply levy taxes, and pay for charity care, and leave the rest of us alone? Regular Americans have jobs, buy houses, buy TVs, cars, and smartphones, negotiate the complexities of 401(k) and IRA plans, cell phone contracts, frequent flyer programs; hire the complex professional services of contractors, car mechanics, lawyers and accountants, and deal with the insane complexity of our tax system.”
“I think the answer is relatively simple. Our political system is allergic to the word "tax." Instead of straightforwardly raising taxes in a non-distortionary way (a VAT, say), and providing charity care or subsidies -- on budget, please, where we can see it -- our political system prefers to fund things by forcing cross subsidies.
Medicare and medicaid don't pay what the service costs, because we don't want to admit just how expensive that service is. So, large hospitals make up the difference by overcharging you and me instead. The poster child (though not really a cost driver) is emergency room care. The government passed a law saying hospitals must provide emergency room care for free. But money does not grow on trees, so again you and me (via private insurance) must get overcharged to cross-subsidize. The ACA tried to force young healthy wealthy (not getting subsidies) to vastly overpay for insurance, to cross subsidize the poorer and sicker.
This might seem like a wash. OK, if instead of paying taxes, it makes you feel good to pay business class prices for health insurance, what the heck. Economically, a cross-subsidy works the same as a tax. In fact, we do have Europe-size taxes and subsidies, we just hide them.
But it's not a wash. Cross-subsidies are dramatically less efficient than taxes. Choosing cross-subsidies over taxes is indeed the second original sin of health care and insurance regulation. Cross-subsidies cannot stand competition.
If as now you and I are grossly overpaying for health care and insurance, to cross-subsidize others, a competitive market would come along and peel us off. A local skin-check clinic could offer that service for $50.
Low prices, efficiency, and innovation in the provision of services like health care come centrally from competition, and especially disruptive competition. With no competition -- especially no entry by new doctors, hospitals, clinics, insurance companies -- costs spiral up. As costs spiral up, the cost of the charity care spirals up. As that spirals up, the size of the cross-subsidies spirals up. As that spirals up, the need to restrict competition spirals up.”
“Bottom line: Much of the pathology of health care and health insurance comes from this second original sin, choosing cross-subsidies rather than straightforward taxes. Cross-subsidies require the government to stop competition, so an initially clever way of hiding taxes eventually builds into a monstrously inefficient system. (That's a key point. Initially, it is about the same. But the cross subsidy system gets more and more inefficient over time.)
We would be far better off to admit this; raise explicit taxes enough to provide the charity end of our care, and let health insurers and care givers compete for the rest of us, as airlines, computer makers, and everyone else does. The politician's job is to explain to people that what they pay more in taxes they will more than make up in lower health care and insurance costs.” - The second original sin of healthcare regulation, John Cochrane, 04/05/2017
Link to the entire essay appears below:
http://johnhcochrane.blogspot.com/2017/04/the-second-original-sin-of-healthcare.html
DO CERTIFICATE-OF-NEED LAWS INCREASE INDIGENT CARE?
by Thomas Stratmann and Jacob W. Russ
Abstract
Many states have certificate-of-need regulations, which prohibit hospitals, nursing homes, and ambulatory surgical centers from entering new markets or making changes to the existing capacity of medical facilities without first gaining approval from certificate-of-need regulators. These regulations purport to limit the supply of medical services and to induce regulated institutions to use the resulting economic profits to cross-subsidize indigent care. We document that these regulations do limit supply. However, we do not find strong evidence of higher levels of indigent-care provision in states that have certificate-of-need regulations as opposed to those that do not.
Discussion and Conclusion
This paper analyzes the connection between CON laws and cross-subsidization in the health care industry. We consider CON laws as a mechanism for financing a subsidy to the medically indigent.
The theory of cross-subsidization requires that CON programs do two things: First, they must act as an entry barrier to reduce the competitiveness of regulated medical sectors and increase the profitability of existing providers. Accomplishing that, these regulations must also force firms to provide the cross-subsidy. CON laws must provide incentives for the regulated to
use their profits to provide more indigent services than they otherwise would.
We investigated indigent care with state-level hospital data and put together the most comprehensive CON-regulation database to date. We do not find any evidence of an increase in indigent care. Our coefficients are small in magnitude, not statistically different from zero, and the direction of the effect changes across specifications. Our evidence is consistent with previous studies in showing that CON programs are effective at restricting the supply of regulated medical services. It appears, however, that CON programs do not induce cross-subsidization. Since we lack measures of hospital profitability, our data do not allow us to make conclusions about whether this is because supply restrictions have not increased hospital profits, or because indigent care provision is not sufficiently enforced by the states that have these provisions.
Link to the entire paper appears below:
http://mercatus.org/sites/default/files/Stratmann-Certificate-of-Need.pdf
“Hospitals are in a state of uncertainty as to how to cover the funding gap from uninsured patients as Medicaid and Medicare are expected to decrease payments for those bills.
A new report from the Urban Institute in the most recent Health Affairs journal notes Medicare payments to help compensate for the cost of treating the uninsured in hospitals are set to drop this year as more get coverage through the Affordable Care Act (ACA). Similar payments for Medicaid will begin to fall starting in 2016, which means the healthcare providers might have to take a larger financial hit.
“Providers incur significant costs in caring for the uninsured,” the report said. “However, the bulk of their costs are compensated through a web of complex funding streams that are financed largely with public dollars.”
If those funding streams begin to dry up, it could pose major financial challenges to providers, especially in states that have not adopted Medicaid expansion or where implementation of healthcare reform has been slow, according to the report.
In 2013, providers spent almost $85 billion to pay for the uninsured, but 65 percent of that was offset by the government. Under the ACA, Medicaid compensations for such costs are expected to be cut by 50 percent, and Medicare is expected to be cut by 28 percent.” - Hospitals face O-Care uninsured funding gap, thehill.com, 05/27/2014
Link to the entire article appears below:
http://thehill.com/policy/healthcare/207286-hospitals-face-o-care-uninsured-funding-gap
“Insurers are rushing to gather health information from the new customers they won on public marketplaces in a high-stakes outreach effort crucial to their hopes of profiting from the health-care law.
Health plans need to know the health status of those signing up for coverage so they can project whether the costs are likely to outrun the premiums coming in. That information will be critical in figuring out prices for next year, among other things. But, under the law's new rules, enrollees don't have to disclose pre-existing conditions to buy insurance.
Insurers still generally have only early signals, including age and gender, on the four million people who federal regulators say have signed up so far for marketplace coverage. Those details don't paint a full picture of the insurers' potential risk and may even be misleading. That's partly because the young people who sign up for health coverage may be those more likely to have serious medical needs, insurance-industry officials say.
To fill in the blanks, insurers are calling, emailing and writing letters to new enrollees, urging them to divulge information about their conditions, prescriptions and even personal habits, often through online forms called health-risk assessments that have long been used in employer-sponsored wellness programs.” - Health Plans Rush to Size Up New Clients, wsj.com, 02/27/2014
It should be self-evident that the above procedure is not how the insurance mechanism works. An insurer is not in the business of guessing what risk aspects are associated with particular risks and guessing a price. Rather, the insurer measures the risk first then assigns a price to insure the risk. For example, beach front property in Myrtle Beach, SC represents a different risk and associated price than property located in Billings, Montana.
One can quickly see that the one story brick ranch designed home in Billings, Montana is going to be overcharged to subsidize the beach front frame designed home in Myrtle Beach, SC.
One also needs to pay particular attention to this passage in the article: “That's partly because the young people who sign up for health coverage may be those more likely to have serious medical needs, insurance-industry officials say.” The problem expressed in the passage is that one may well end up with an inordinate amount of beach front property and few homes in Billings, Montana. Better yet, the insurer has no idea how many beach front properties it has acquired. Oops!
Upon further reflection, the passage “That's partly because the young people who sign up for health coverage may be those more likely to have serious medical needs, insurance-industry officials say” points out another possible trend/pattern. How so?
ACA/Obamacare, the supposed design thereof, is predicated on a cross subsidy [the least wealthy and most healthy subsidizing the least healthy and most wealthy] associated with signing up 40% of the insured’s in the category of ages 18 to 34. The current percentage is 25% in the age group 18 to 34. What if the lower than projected sign-up rates, 25% vs. 40%, in age group 18 to 34 is associated with the healthy people in age group 18 to 34 not signing up and the less healthy in age group 18 to 34 signing up?
Stated alternatively, age group 18 to 34 is the prize group in the supposed design of ACA/Obamacare. If the scheme designers can attract 40% of the total risk pool from the 18 to 34 age group everything will supposedly be great and grand and the scheme succeeds. But what if the prized group is not the “young invincibles” of stellar health but rather populated by the "young-vincibles" with non-stellar health that represent a much higher price to insure than the designers imagined? If the prize group, the plum as it were, is in fact populated by the young-vincibles then the cross-subsidy fails and more price pressure is exerted upon the total scheme.
This aspect of the ACA/Obamacare exercise ends as:
(1) the designers of the ACA/Obamacare scheme put much weight on a cross subsidy based on the young subsidizing the old. The scheme is predicated on 40% of the exposure units being in the age group 18-34. The scheme only attracted 25% in the age group 18-34,
(2) the same schemers assumed the exposure units associated with the age group 18-34 group would be, in the main, healthy and with low utilization of health-care and hence health insurance. The assumption is reasonable if one takes the group as a whole. A problem arises when the aspects of "the group as a whole" is supplanted with "the group as a hole",
(3) rather than "young invincibles" populating the 18-34 group, the group is populated by the "young vincibles". That is, rather than the 18-34 group having the health aspects associated with the group as a whole, the group is made up of the less healthy segment of the 18-34 year olds with the more healthy not participating,
(4) the cross subsidy of the young to the old, partially or fully fails in its mission as a subsidy, as the price to insure the actual group of 18-34 attracted to the scheme is much higher than designers imagined as the actual group insured does not exhibit the health aspects of the group as a whole.
Link to the entire Wall Street Journal article appears below:
http://online.wsj.com/news/articles/SB10001424052702304703804579382972774459560?mod=WSJ_business_LeftSecondHighlights&mg=reno64-wsj
Consider these excerpts from an article recently appearing in the Wall Street Journal:
‘In all, 25% of the people enrolling in private plans through the online portals since their launch in October were between the ages of 18 and 34, according to the data. Through the end of December, that proportion was 24%, according to a previous report from the federal government.
That is well short of the percentage of young people who might have registered in the exchanges. Insurers say they need strong enrollment from younger people. who are likely to be healthier, to balance out the likely higher costs racked up by older, sicker people.
Kaiser Family Foundation, a health-policy think tank, has said census data suggest that about 40% of people for whom the exchanges were intended are in the 18-34 age group.’
‘The Congressional Budget Office initially estimated that 7 million people would use exchanges in 2014; the nonpartisan agency has since revised that number downward to 6 million to take into account the technical problems that stopped many from signing up in the first weeks of the exchanges' launch.
Actuaries have warned that if the participants in the exchange end up incurring bigger medical claims than they had anticipated, insurance premiums will jump in future years. Older people and women typically have higher costs, though not always, they say.
The key question is how costs will compare to expectations," said Ross Winkelman, a fellow of the Society of Actuaries. "Age is a useful, but imperfect predictor of costs. Enrollment at the oldest ages seems to be outpacing expectations, which will clearly raise some concerns."
Administration officials declined Wednesday to discuss concerns about the balance of risk in the new insurance marketplaces.’
‘Other supporters of the law have said they are banking on getting young people in as the deadline for getting coverage this year nears.
"We are doing everything we can in the next six weeks to make sure young people know they can get free or reduced-cost coverage," said Aaron Smith, the executive director of the advocacy organization Young Invincibles.
The group has planned more than 100 events around the country for the coming Presidents Day weekend, including an enrollment event in Miami and a pub-crawl in Austin, Texas.’ - Young Remain Slow to Sign Up On New Exchanges [print edition] 02/13/2014 (appearing in the on-line edition as: Health Exchanges Hit 3.3 Million Enrollees Through January) (1)
One might want to further examine the position of Aaron Smith, executive director of the advocacy organization Young Invincibles, regarding: "We are doing everything we can in the next six weeks to make sure young people know they can get free or reduced-cost coverage."
The first concern a young person might examine is the following from the healthcare.gov web site:
“People under 30 and people with hardship exemptions may buy a "catastrophic" health plan. This type of plan mainly protects you from very high medical costs.”
“If you buy a catastrophic plan in the Marketplace, you can’t get lower costs on your monthly premiums or lower out-of-pocket costs based on your income. Regardless of your income, you pay the standard price for the catastrophic plan.” (2)
Therefore, if you are young, age 29 or under, you can purchase a catastrophic plan but you do not qualify for a subsidy. Hence someone picked winners and losers in the subsidy game and young people wanting the lower cost catastrophic plan are the losers. Very nice indeed!
An additional concern a young person might want to examine is the price of the catastrophic plan. Similar plans were roughly 25% less expensive before 01/01/2014 and ACA pricing. The increased price is subsidizing older insured’s. Hence the young indirectly or directly subsidize non-catastrophic coverage purchasers (those over 30) yet themselves can not qualify for a catastrophic plan subsidy. The subsidizer can’t obtain a subsidy. A one-way subsidy street. Sweet! (3)
Notes:
(1) Young Remain Slow to Sign Up On New Exchanges [Health Exchanges Hit 3.3 Million Enrollees Through January], WSJ, and wsj.com, 02/13/2014 and 02/12/2014, respectively.
http://online.wsj.com/news/articles/SB10001424052702303704304579379042898603278
(2) Can I buy a “catastrophic” plan?, healthcare.gov
https://www.healthcare.gov/can-i-buy-a-catastrophic-plan/
(3) Where's The Outrage From Young Americans About Obama's Health Reforms?, forbes.com, 07/31/2012
http://www.forbes.com/sites/scottatlas/2012/07/31/wheres-the-outrage-from-young-americans-about-obamas-health-reforms/
“Experts say the administration has until mid-November to iron out the problems or risk jeopardizing its goal of signing up 7 million people in the first year of the Obamacare marketplaces. The number includes 2.7 million healthy young adults whose participation will help offset the higher cost of insuring sicker and older beneficiaries.” - Obamacare site improves, but new problems emerge, msnnews, 10/16/2013 (1)
“The number includes 2.7 million healthy young adults whose participation will help offset the higher cost of insuring sicker and older beneficiaries.”
Certain political elements make a concerted effort to court young people. This same element, in the main, wants to charge the young to cross subsidize the old in regards to health insurance. Cross subsidization is by no means a new tactic e.g. Social Security and Medicare at this juncture are basically pay-as-you-go with the young paying for the old. But the new tactic is: The blatant advertising of the cross subsidy stratagem.
Hence certain political elements that court younger people with promises of political solutions to economic problems i.e. social justice are advocating the younger subsidize the older. Why wouldn’t each age group merely pay for the risk they themselves represent? Why would the least wealthy group, the young, pay for, in the main, the more wealthy older group? Reverse social justice?
Beyond social justice being a mirage [F.A. Hayek], younger people might want to examine Director’s Law:
Director's law states that the bulk of public programs are designed primarily to benefit the middle classes but are financed by taxes paid primarily by the upper and lower classes. The empirically derived law was first proposed by economist Aaron Director.
The philosophy of Director's law is that, based on the size of its population and its aggregate wealth, the middle class will always be the dominant interest group in a modern democracy. As such, it will use its influence to maximize the state benefits it receives and minimize the portion of costs it bears. (2) (3)
Moreover, a media barrage has begun aimed at the young with the by-line of: you must purchase as it’s the “law”. Is it "law" or is merely manmade legislation created by the stroke of a pen and can be voided by a stroke of a pen? Legislation is top-down edict of the few whereas law is emergent order of the many which emerges over long periods of time. Adding the label of "law" to manmade/mandated legislation of the few, is merely a political attempt to give the weight of law to legislation. (4)
Maybe the young, those that feel they are being railroaded, should consider reading Thomas Lambert's, law professor at the University of Missouri, essay entitled How the Supreme Court Doomed the ACA to Failure. Why would the young want to read such essay? The essay includes the quintessential ACA work around of when to pay the tax [penalty] and when to buy the insurance. Lambert offers charts, examples and includes a to-the-point discussion.
The link to Lambert’s essay appears below:
http://www.cato.org/sites/cato.org/files/serials/files/regulation/2013/1/v35n4-5.pdf
Notes:
(1) http://news.msn.com/us/obamacare-site-improves-but-new-problems-emerge
(2) Director’s Law
http://en.wikipedia.org/wiki/Director's_law
(3) (4) Law, Legislation and Liberty, Volume 2: The Mirage of Social Justice, F.A. Hayek
http://www.amazon.com/Law-Legislation-Liberty-Mirage-Justice/dp/0226320839/ref=sr_1_7?s=books&ie=UTF8&qid=1381998835&sr=1-7&keywords=f.a+hayek
