Tag Archives: health care

A little departure

I have posts on the details of the PPACA queued up, so don’t fret – we will get back to that. But I wanted to take a little departure to explore a topic that came up while reading Facebook in the car on the way to work this morning. Don’t worry – I carpool, so I wasn’t driving while reading. That would be a public health failure.

One of the threads I was reading contained the comment that the best way to correct the problems in the health care system would be to get rid of Medicare/Medicaid and all private insurance, and go with strictly free market capitalism for health care. I’m sure that the commenter was not the only person in the country who thinks about this as a possibility. After all – it works (with caveats) for cheese and sweaters, why shouldn’t it work for health care? So – let’s explore that concept, and see what we conclude.

To start with, we have to figure out what people mean when they say the “free market” system. Do they mean a market that upholds the assumptions of Perfect Competition, a theoretical construct in economics used to define the most efficient market? Do they mean laissez-faire economics, where there are few, if any, government regulations, including those preventing Monopolies (which by the way, are the antithesis of Perfect Competition). Do they mean no government ownership of any resources of production? Or, more cynically, do they mean that the government just doesn’t do anything they don’t want it to? The question matters, because all understanding any system starts by clarifying the assumptions you have made about that system. This is especially true in economics, where we don’t do ANYTHING without an assumption of some kind.

Since finding out what this particular person meant, assuming he or she could clarify it precisely, is not possible, we will make an assumption based on what little information we do have – that the goal was to get rid of all private insurance and Medicare and Medicaid. First off – that in and of itself defies the free market. In any case where you have a product that has risk associated with it – such as whether or not your house will get hit by a hurricane, whether or not that drunk driver will hit your car, or whether or not you will develop a devastating health condition – the free market will create an insurance system to make a profit by spreading your individual risk out over large groups of people. But I’m pretty sure the person in question didn’t think about that. So, we will continue to consider a world where – by some magic that doesn’t include government regulations preventing the very thing that the free market would invent were we to get rid of current health care provision system (are you still with me?) – there is no Medicare, Medicaid, or private insurance.

So – you get sick, and what? You go to a doctor, and they charge you money. Ok, so what happens if you don’t have enough money? Well, under a truly free market system, if you can’t buy cheese, you don’t get cheese. No money, no sweater. Logically following then, if you can’t pay your doctor for their care, or the pharmacist for their drugs, then you stay sick. You might get better on your own. Or you might not. In the end, a free market system, with no insurance, would mean that if you got hit by a car, or you got a severe infection, or if you developed a disease like cancer, then unless you were a multi-millionaire, you would die. That’s it, end of story. Most people simply cannot save enough money to pay for health care if they have a disease that is much more complicated than say a minor cold, even if prices were to drop to a fraction of what they are now. Health care is a million times better than when it was possible to pay for services with a chicken and some canned goods. The procedures, the machinery, the devices, the drugs, everything. That’s, in part, why an insurance market for health care was developed in the first place. Because health, and health care, aren’t just cheese and sweaters, where the middle-income people just get lower quality versions of, and low-income people do without. If you get hit by a car, and you don’t have the money to pay, in a truly “free-market” world for this good, you die.

Now, even in our current world, before or after the PPACA, this is still a possibility. We haven’t the addressed the questions of whether it is ok with us as society that anyone dies from a lack of health care. There are questions of personal responsibility versus luck of the draw, etc. There are probably people out there that think it is just fine and dandy if people die if they can’t pay. We can think about those issues in later posts. But what I can say is that the idea that there is a free-market system, that doesn’t include private health care insurance, which would allow anyone except the super-wealthy to survive, is patently ridiculous.

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In need of health care myself

I’ve fallen back off the posting wagon, due to illness in the youngest son, and myself. We had to enjoy some fine health care – which, thankfully, we have. The next sections of the PPACA are actually quite interesting. They discuss the Exchanges, or the private market compromise so as not to have government provided health care (except for the Armed Forces, the VA, Medicaid, and Medicare of course) once everyone is required to buy health care insurance.

Sec 1311 gives money to the states to set up these Exchanges, which most likely due to insurance laws are run through the States. They have to be set up starting in 2014, and money won’t be available after January 1, 2015.

The Exchanges themselves are to “facilitate the purchase of qualified health plans” and assist small businesses in doing the same, which under the PPACA are now required to offer health insurance in finding appropriate plans. These are separate goals, although states can choose to offer a single Exchange to achieve them both. There are some restrictions placed on advertising, so as not to scare off people with high medical needs, ensure provider choice, assistance for low income people in finding health insurance, meet certain quality standards and plans for improving quality, and share information with those people who would choose to enroll in these plans.

The plans would be rated, by a system developed by the states, to make decision making easier on the prospective enrollees. These ratings, and all of the other information, would be available by the aforementioned Internet Portals (Portals!!). The Exchanges would have open enrollment periods similar to the ones that current health insurances have. There are special provisions that say that stand-alone dental plans can be offered, even though they don’t offer any of the previously described qualifying health benefits.

The states retain the right to add benefits to the plans in their Exchanges, above and beyond the Federal minimum, but these costs must be borne by the state.

So, to sum up, the Exchanges will certify health plans, operate a toll-free number where you can ask for assistance, operate the Internet Portal, rate the health plans, present the details of the health plans in a standardized format, tell people when they are eligible for Medicaid, CHIP, or any state assistance program for health care, provide a calculator that tells people how much their insurance actually costs after the tax credits (that we haven’t gotten to) are applied, grant certifications that people are exempt from the penalty for not purchasing insurance (we’ll get to that soon), tell the employers who ceases to have insurance each year, and establish something called the Navigator program (explained at the end of this post).

The Exchanges have to be self-sustaining, they must consult with the relevant stakeholders, and they must publish their costs. The Exchanges also ask the health plans to justify any rate increases they wish to implement, and then use this information in deciding whether the plan can be offered in the Exchange. It also requires the insurance plans to increase their transparency of costs. They must also implement methods to improve health care quality such as patient-centered education, reduction of medical errors, wellness and health activities, and reduction of disparities.

The final part of this section provides grants for Navigators, or entities that have previously established relationships with employers and employees, consumers, or the self-employed, that could be used to facilitate those groups’ purchases of the health plans available from the Exchanges.

So – there you have it – one of the more controversial sections of the PPACA. The only one more controversial is the section that provides for the penalties if you don’t buy a health plan. We shall press on and try to get to that one quickly.

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Section 1001 – continued!

I did mention section 1001 was a doozy – right?

The next part Section 1001 discusses the prohibition of discrimination in favor of highly compensated individuals. In order to understand this portion of the PPACA, we have to delve into the Internal Revenue Code of 1986. I hope that we are not like the dwarves of, sorry – this should be Mines of Moria, Helm’s Deep, and dig too deep. (My Lord of the Rings knowledge is slacking – must watch all three movies in a row!)

The Internal Revenue Code of 1986 is the name Congress gave to the Internal Revenue Code of 1954 when they updated it in, you guessed it, 1986. (The Federal Government is renowned across the world for its inventive naming system.) It is also referred to as Title 26 of United States Code. Because one name isn’t confusing enough. The PPACA refers to section 105(h)(2) of the aforementioned IRC of 1986 in describing what requirements group health plans under the new system have with regards to highly compensated individuals.

So one implication of this is whether or not the awesome health care provided to the highest paid officers of a business, among others, counts as income for purposes of taxation. It does not, assuming that the business does not discriminate solely in favor of providing health care to the fancy pants employees, and leave the regular joes and joettes alone in the dark, crying out for their Lipitor. Health care plans are not allowed to give great care to the people in charge, and not include everyone else. In any case, the CEO must declare the excess reimbursement for the personal doctor that flies with her on the jet, and pay the Tax Man. (These prohibitions have always applied to self-funded insurance plans, but this part adapts and applies them to group health insurance plans as well).

The next section on ensuring Quality of Care has some nifty stuff about the 2nd Amendment in it, so we’ll save that for tomorrow. (Who knew that guns were so healthy!)

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Essays on the Great Depression – Introduction

In the introduction to his book, Ben Bernanke makes the argument that monetary factors, specifically the gold standard that many countries held two between the first and second World Wars, and the policies that resulted from this choice played an important role in the Great Depression. He makes the point that countries that left the gold standard were more easily able to adjust to changes in output and prices than those that didn’t.

Another point he makes that due to the gold standard, there can be actually multiple possible paths an economy can take (multiple equilibria). The equilibrium point can be one of flexibility and stability, or it can be one of pessimism and large fluctuations. Without belaboring the equations – the major difference between the different points is the confidence of both consumers and investors. When there is high confidence, things are well, and when there is low confidence, things are poor.  Bernanke then presents evidence to support the point that monetary contractions, thought under some theories to have no effect of import on an economy, actually did contribute to the extent of the Great Depression. This is evidence of the non-neutrality of money. This concept is a highlight of the Keynesian school, anathema to the neoclassicists, and as usual, no one is really sure where the Austrians stand on it.

The next portion of the introduction is dedicated to the failures on the Aggregate Supply side of the situation. He lists these as two – debt deflation and the slow reaction of nominal wages to adjust to price changes. Sticky wages, as they are called, are often the bane of an economy’s existence. While theory would suggest that wages should be able to fluctuate as rapidly as prices, in reality this never happens. Contractual obligations, political pressure, and habit will prevent wages from dropping when prices drop; and pressure to maintain profits will prevent them from rising quickly. A final point addresses the idea that wealth redistribution can have real negative consequences.

So what does this mean for us? First, any notion of a return to the gold standard should be squashed on first sight. Theory and evidence shows that a gold standard economy is not a nimble economy, leaving aside the reality that modern economies have far outstripped the world’s ability to supply such gold. Second, it would be great if we could come up with some way to be more flexible with wages. One way would be to encourage more part-time work, but that is difficult in this country with our aged employer-based health care system. Too many people are tied to jobs that they aren’t optimally productive at, or would be willing to work for less (in terms of hours), but can’t because they can’t pay their health care bills if they do so. This lack of flexibility in the economy is one that should be a sticking point for those who claim that the economic health of the country is foremost, but is sadly lost in partisan concerns about the intrusion of government. I’m sure we will get to that down the road.

 So there is the introduction. The next part discusses financial markets – we’ll slog through that one and hopefully get there before Professor X learns to roll over.

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