Health Care Fail

For the last three weeks, I have been writing about the informationincentive, and rent-seeking issues that will doom Obamacare -- for example, how its impossible for a centralized board to set prices, and why a complete end to individual shopping will doom us to both rising prices and increasing frivolous demand.

I really didn't have to bother, though, because it is unnecessary to hypothesize -- we can just look at Massachusetts, which embarked on a proto-Obamacare several years ago.  John Calfee has a great column in the WSJ today.  Some excerpts

  • On costs

Massachusetts reformers deferred cost control to the vague prospect of a "Round 2" of reform—much as congressional Democrats did a year ago when they passed ObamaCare. Meanwhile, economists John Cogan, Glenn Hubbard and Daniel Kessler reported in the Forum for Health Economics & Policy (2010) that insurance premiums for individuals (alone or in employer-sponsored group plans) increased 6% to 7% beyond what they would have without the reform. For small employers, the increases are about 14% beyond those in the rest of the nation. Four years after reform, Massachusetts still has the highest insurance premiums in the nation, and the gap is getting wider.

In 2010, insurance firms announced premium increases of 10% to 30% in the individual and small-group market. Gov. Patrick, on the verge of a tough re-election race, had the state insurance commissioner deny the higher rates.

  • On frivolous demand

But the number of emergency room visits, which everyone expected to drop once people had to purchase insurance, is still going up. Surveys show roughly half the visits are unnecessary. Surveys also indicate that finding a primary care physician is becoming more difficult.

  • On the end game of a centralized price-control regime

Last month Round 2 arrived. Gov. Patrick introduced a bill that will impose de facto price controls on everyone from solo primary care doctors to prestigious academic hospital systems. An 18-member board will decide how and how much providers should be paid, and the bill gives regulators the power to force private insurers to accept these fiats. Some 30 states experimented with such rate-setting in the 1970s and '80s. Except for Maryland, all of them—including Massachusetts—deregulated in the 1990s because costs rose even as quality and choice declined

  • On politicization of decision-making

Insurance firms protested that they increased premiums because they had to deal with entrenched providers, especially hospitals, most notably the academic giants of Boston and Cambridge. Then the state prepared to introduce highly intrusive price controls over those providers—only to discover that this would provoke formidable political opposition while encountering myriad practical difficulties

To the last point, what happens to prices when providers know that a) consumers aren't shopping any more; b) consumers will take the service at any price, because they aren't paying; and c) insurance companies have to pay the bill, not matter how high, based on government rules.  Of course prices go up, because the entire price-discovery mechanism has been eliminated by government fiat.  Then the government has to step in with a doomed-to-failure price-setting plan.  In the end, those with political connections get the prices they want, and those who do not get throttled to make up the difference.

  • caseyboy

    Obamacare is just a step toward single payer (US government) insurance. Obamacare will screw up the insurance market so badly that they'll have to step into the vacuum they created. Its all part of the plan.

  • Sam L.

    On costs--kick the can down the road, where somebody wilier than we can figure it out/hide costs better.

    On frivolous demand--fewer primary care docs (surely we have too many already not being paid enough for their time and insurance and government compliance problems).

    On end game...(surely we have too many already not being paid enough for their time and insurance and government compliance problems, so we'll add in hospitals, insurance companies,...).

    And it just goes on down that well-paved road to Hell.

  • cziltang

    A short horror story re: the cost of services when someone else is paying:

    I work in corrections. We do urine drug testing on probationers. We do have a bulk contract, but can get a GC Mass Spec test, complete with drug levels (ng/ml) and chain of custody protocols for court hearings for less than $35. Meanwhile, as part of the process for my wife's chronic pain treatment, she is occasionally required to give a urine sample for testing to make sure she is not overusing her meds (or supplementing them with illegal substances).

    The first bill I received for one of her GC Mass Spec tests was $1021.00. Now that it has become apparent to all involved that my insurance company will not pay the bill (not a medical necessity, in their opinion) nor will I, I received a second bill. Now, the same test apparently costs $99.00.

  • Ted Rado

    Any health care program must face the reality that we cannot give unlimited health care (organ transplants, major surgery, etc) to everyone until they die, at little or no cost to the induvidual. Nobody is willing to face this fact. The more we try to dream up a magic health care system that takes care of everybody at little cost to the individual, the more we screw things up. Thus, we must accept that some form of health care rationing must occur. Years ago, your health care was whatever your family could afford. Poor people went without, resorting to home remedies. There was an incentive for folks to earn more money. Now everything is an entitlement, so the incentive system of old is collapsing.

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