Laffer: Patient-Centered Health Care (Updated)
In a Wall Street Journal op-ed this morning, Arthur Laffer destroys the Obama administration’s strawman argument that critics of Obamacare have no viable alternative and would prefer to do nothing about health care. Laffer briefly outlines a patient-centered approach to health care reform that is far superior to anything being conjured up by the Democrats:
Rather than expanding the role of government in the health-care market, Congress should implement a patient-centered approach to health-care reform. A patient-centered approach focuses on the patient-doctor relationship and empowers the patient and the doctor to make effective and economical choices.
A patient-centered health-care reform begins with individual ownership of insurance policies and leverages Health Savings Accounts, a low-premium, high-deductible alternative to traditional insurance that includes a tax-advantaged savings account. It allows people to purchase insurance policies across state lines and reduces the number of mandated benefits insurers are required to cover. It reallocates the majority of Medicaid spending into a simple voucher for low-income individuals to purchase their own insurance. And it reduces the cost of medical procedures by reforming tort liability laws.
By empowering patients and doctors to manage health-care decisions, a patient-centered health-care reform will control costs, improve health outcomes, and improve the overall efficiency of the health-care system.
Laffer’s op-ed is a reminder that Americans should not be forced to choose between two very bad options just for the sake of ”doing something”:
Option A = a single-payer health care system, which is either implemented directly, or disguised as “public choice” leading to single-payer over time.
Option B = a compromise(d) version, brought to you by the likes of the ”Gang of six,” the Blue Dogs, “pragmatic” progressives, and their rent-seeking allies. This option is likely to end up being Waxman-Markey dressed up in a hospital gown.
No, I’ll take option C, along the lines of what Laffer has in mind. Those who reject options A & B must fight against Democractic efforts to portray them as obstructionists. Nothing could be farther from the truth. In fact, option C is much more like real reform than are options A & B, which would simply pile more corrurption and government failures onto the existing system.
Laffer’s piece is especially timely considering that the Democratic party machinery is right now ramping up its efforts to depict opponents of Obamacare (options A or B) as a right-wing mob of birthers in brownshirts. Contradicting themselves, the DNC and Barbara Boxer are simultaneously accusing this same rabble of being too well dressed to be authentic hayseed voters. Instead, they claim that the “Brooks Brothers” protestors at health care town halls are part of an astroturf campaign funded by the insurance and pharmaceutical lobbies. Meanwhile, there are reports that progressive activists will tap into the Soros war chest to organize counter-protests in the coming weeks against their “tea bagger” enemies.
Update
The Washington Post is reporting that the Baucus “gang of 6″ are inching toward reaching a “bi-partisan” health care deal. I’m now concerned that the Option B [see above] proposal that comes out this process might actually make Waxman-Markey look like Mr. Smith’s boy scout camp in comparison.
Pending additional changes, it sounds like the Finance Committee’s bipartisan legislation will be much more about increasing government revenues and control over private lives than it will be about meaningful health care reform. The current version includes:
A 35 percent excise tax – ka ching! – on private “Cadillac” health insurance plans, which the committee claims is intended to contain costs. Of course, this provision would prompt employees to demand salary increases to compensate for the resultant cuts to their total compensation packages. Higher salaries = higher incomce tax revenues. Ka ching!
The plan actually introduces a two-way mandate: penalties – ka ching! – on individuals who do not obtain health insurance as well as fines – ka ching! – on employers who attempt to dump their employees into the co-ops.
Other new taxes, fees, and regulatory fines. Ka – ching, ka-ching, ka-ching!
A few years down the road, when the government’s heavy hand does not generate the promised reductions in costs, then rationing begins with the phasing-in of the Orwellian-named Medicare Preservation Commission.
Even more absurd, though, is that this proposal will look to place the word “reform” in the same bill as “Medicaid expansion.”
As I wrote above, I’ll take Option C, thank you.
Update II
I should note: it’s still not clear that the Democrats will be able to forge a compromise (Option B) that satisfies the progressive wing of their party while simultaneously keeping in the fold key industry players and interest groups. The New York Times reported yesterday that the Obama administration is reneging on promises it made to the drug industry to exclude provisions allowing the government to negotiate lower drug prices under Medicare. The administration has lowered the bar several times, but even after settling for “insurance reform” instead of “system reform,” they’re still pushing for a comprehensive approach, which in today’s political climate will require dealmaking that is something akin to herding cats. The result is likely to be a complete mess that will make the rent-seekers happy but will make the overall system worse, yet the Obama administration will trumpet the finished product - whatever it is - as “reform.”
The logical first step is to tackle tort reform, scope-of-practice laws, and the interstate commerce issues. In the meantime, we can continue to vigorously debate the structure advantages of Options A, B, and C.
The likelihood of the DC elites taking such a sensible approach without serious prodding, however, is very low. The trial lawyers would fight tort reform all the way down the line. Medical providers and heavily vested big insurance companies often benefit from state “mandates” that require insurance to cover things like podiatry, chiropracty, and “guaranteed issue.” For good reasons, the doctors academies will defend their own turf (and their patients). And, frankly, I don’t blame these groups for standing up for what they believe in (and their own interests, for that matter).
It’s just that the public needs to stand up for its interests as well and evidence suggests that the public at large does not receive a net benefit from current tort, scope-of-practice, and interstate commerce rules/practices/enforcement pertaining to health care. Again, I’m not saying that the status-quo in these areas is all bad by any means – far from it. But they do present opportunities for meaningful reforms. Unless there is a powerful groundswell among voters, however, the so-called health insurance ”reform” legislation will be very little like real reform and much more like a Waxman-Markey giveaway. It will incease the size, power, and intrusiveness of the federal government, while simply piling more government failures onto the existing system. The current system succeeds in spite of excessive crony corporatism, but we can do better.
Finally, the more I think about it, the less concerned I am about the federalism issue. One of the primary, basic, originalist responsibilities of the federal government is to promote and regulate interstate commerce. The irony is that the federal government has used the commerce clause to extend its reach into many areas where it does not belong, and yet it’s allowed health insurance to operate as if it is still 1785. Voters must insist that the federal government learn how to walk before it tries to run (everything).
Update III
I had missed this yesterday: an excellent op-ed by Charles Krauthammer, in which he suggests radical tort reform and real health insurance reform. Krauthammmer further smashes the strawman argument that critics of Obamacare are not offering alternatives.
“No, I’ll take option C, along the lines of what Laffer has in mind.”
Here Here!*
*Disclaimer…Jay_C’s message was paid for by the insurance and pharmaceutical lobbies and the RNC. The views expressed above may not necessarily be his own, after all, he is that spineless sellout we keep hearing about wearing Brooks Brothers, carrying that Anarchy symbol sign
Good post. There is, in fact, an option C that is NOT a do-nothing approach. Check out Dr. Laffer’s full report on health care at http://www.lafferhealthcarereport.org.
I agree David, but good luck getting the progressives to talk about the substance of it. They have the “public option must be there” blues…
Classic forced-choice politics. You must choose between two bad options, even though there are many more than two available. But the pols will only allow the two choices that pay off their various beholden power blocs….
Neither of which will actually accomplish any significant portion of what is claimed for them, and could very well make things worse, even MUCH worse. It took us fifty years to get to this point. Shouldn’t we spend more than fifty DAYS working on reforms?
“Instead, they claim that the “Brooks Brothers” protestors at health care town halls are part of an astroturf campaign funded by the insurance and pharmaceutical lobbies.”
Well Mr. Press Secretary Gibbs, people your parent’s age really fit the mold of “astroturfers” dont you think? I noot 100% sure, but I’m pretty sure Brooks Brothers doesn’t make velcro-shoes and …
http://www.redstate.com/moe_lane/2009/08/06/behold-those-scary-scary-swastika-bearing-astroturfers/
First, it is nice to see people arguing for specific alternatives.
OK. How does this work?
OK
OK for the middle class and wealthy.
Fine.
possibly fine depending on the mandates. Do you/he see this as superceding state legislation that mandates certain coverages?
Fine for those without pre-existing conditions.
Also fine. From all I have read to date this would maybe cut 2-3% of costs, but every little bit…
I don’t see anything is his sketched out proposal to cover the uninsured or to deal with pre-existing conditions. Does he address these issues?
A few things I would like to see in any health care reform package:
1) Changes in the accreditation of medical schools, an increase in the number of medical schools*, and more government aid to medical students focused on GPs, all aimed at increasing the number of doctors.
2) Increased number of nursing schools and increased responsibilities for nurses at most levels.
3) Increased aid to community medical centers that are already providing medical care on an ability to pay basis.
4) Decoupling of employment and insurance. Employers could issue vouchers for the employed (or simply directly pay premiums) and government could issue vouchers for those that need them. This would require some government regulation on who insurers could deny coverage for, who insurers could cancel and why they could be canceled. Some provision for pre-existing conditions would also be needed.
5) A need based public option.
* A C in freshman comp should not end your chances of being a doctor.
#1 assumes that the doctor shortage results from an inadequate number of medical schools. I would argue that low payment rates for providers (which the Obama administration suggests lowering still further) combined with high exposure to lawsuits from a completely out-of-control tort system is a far bigger disincentive to becoming a doctor (especially a GP, which is the lowest-paid by the government AND the most directly exposed to the tort lawyers) than just lack of available slots.
#2 and #3 involve substantial costs on the government that is already running a $2 trillion yearly deficit. In order to be taken seriously, advocates for reform need to start sincerely answering where the money could come from. Magic wands about massive savings from making computer databases of medical records don’t count. Also, talking about getting rid of unnecessary tests doesn’t count either since there is no way to tell that most of those tests were unnecessary until after a diagnosis. Furthermore, the reason doctors order many of those unnecessary tests is as a hedge against getting sued, which links back to what I said above.
#4 sounds all nice until you realize how it would work in practice. Employers would simply drop medical benefits from their pay package and dump the whole cost on the government. And we don’t have the budget to pay for that. Proposals to require that employers dropping medical coverage pay a $750 fee to the government are insufficient to constitute a real deterrent, given the costs of coverage. Also, requiring insurers to provide coverage for pre-existing conditions sounds nice until you realize that the ONLY way that insurers could absorb the guaranteed expenditures that would require is by increasing premium payments on everyone. Thus, this would increase costs, not lower them.
#5 again begs the question of where the money is coming from, especially after my criticism of #4 kicks in and results in a massive increase in the number of people who “need” the public option. Furthermore, as I have discussed many, many times elsewhere (ALWAYS ignored by health care reform proponents), the “public option” uses cost-cutting mechanisms (lower payments to providers) and budgeting procedures (year-to-year budgeting based on current demand only) that have the unintended side-effects of decreasing availability substantially, especially for critical infrastructure like GPs and MRI machines.
In short, Jeb, your wish list is kind of like a little kid’s letter to Santa — disconnected from the real constraints and even ignorant of where those constraints are coming from.
Oh, and about the “C in freshman comp”: Perhaps you don’t think that doctors need to be able to communicate effectively, but I disagree. I don’t want to put my life in the hands of a person who was either too lazy or too incoherent to get a decent grade in a basic writing course that should be aced by anyone who paid attention in 7th grade.
All of the GOP proposals involving HSAs have included subsidy to lower wage earners to fund their HSA/HDDP. It’s possible that they need to increase the allotments, but I’m pretty damned sure that 47 million people could be given a generous amount and the tab would still come in far less than the cost of the Dem’s reform proposals.
Wait, Christine. I’ve been told for weeks by literally every single Democratic party blogger or commenter I’ve seen address the issue on every single site I’ve read that “GOP proposals” regarding health care reform do not exist. Are you now telling me that those claims were not true????
I’m shocked…shocked that there is gambling going on in this establishment!
Jeb: David Guenthner was kind enough to provide a link (above) to the full report by Laffer, Arduin, and Winegarden. The report is primarily an econometric study of why the likely reforms will only exacerbate existing problems with the health care system. It analyzes the following approaches: new competitive public option; individual and/or employer mandates; health care exchanges where individuals can purchase health insurance, at discounted rates for certain individuals; prohibition on rate differentiation based on health status, although differentiation by age is allowed (guaranteed issue); and best practices mandates. They conclude that, by 2019, those approaches would: increase the federal deficit by $2.85 billion; increase national health care expenditures by additional 8.9 percent; increase medical price inflation; contribute negatively to U.S. economic growth; and that 30 million Americans would still remain uninsured.
In addition to the analysis, the report also outlined patient-centered solutions at the end, which are a little more fleshed out than they are in the op-ed linked above. Still, it is an outline, not yet a detailed policy framework. A lot more work needs to be done along these lines.
We should all agree to have Congress set aside 12- 18 months to develop three general policy tracks in detail and then test these models for projected performance: 1). immediate or transitional (gateway) single-payer; 2). the coop model (gang of 6); 3). patient-centered model.
Based on your past responses, I gather that you would like to act more quickly, but can you honestly tell me that you would support Senate compromise package in its current form (as reported yesterday in the Washington Post)?
This is getting long, so I will try to respond to your specific points after I post this more general response.
Jeb, I don’t think that HSAs would only benefit the middle class and wealthy. In talking to my progressive friends, they’re often giving me anecdotes about guys they know who are carpenters, bartenders, etc. who make decent money but don’t have employer-provided insurance and can’t afford to buy their own. Under a patient-centered approach, they would be in better shape than they are now: they could receive a small tax credit to put into their HSAs, plus the market for individually purchased insurance would be more favorable.
Instead of penalizing companies for offering “Cadillac” plans, the patient-centered approach would make it so that employers and employees would have to pay for the true value of these coverages in the marketplace, which means they’d probably replace the Cadillac plans with other compensation.
If we’re actually talking about reform, Medicaid is rife with waste and abuse.
The issue about how to deal with state mandates is an anguishing one for anti-statists like me, but yes the feds would have to override state mandates to encourage more interstate competition. Often, federalism can lead to good policy experimentation, new efficiencies, etc., but the barriers to entry when it comes to health care are overriding the benefits from state-to-state policy differentiation. A cynic might sat that it’s more like, in each state, the state governments and big insurance companies have set up self-serving rackets that do not benefit the public at large.
As for pre-existing conditions: 1). It is assumed that the transition to a patient-centered approach would be phased; 2). I have no objection, for example, to the government providing emergency vouchers in special cases to pay out-of-pocket, but (uncompromised) enforcement of contract law should take care of most abuses.
As a classical liberal, I say that the federal and state governments should go back to the basics: enforce contract law and promote interstate commerce (within constitional limits, of course).
As for your first 3 things things: I think we can have a really good discussion about items 1 – 3, which suggest “reform” in the true meaning of that word (unlike some other items I’ve seen). In theory, I would support efforts to increase the supply of doctors, nurses, and health insurance options, but as Jason points out, the government is often very clumsy and inefficient when it tries to make that happen. The government always has a vital role to play in providing hard infrastructure, but when it comes to health care, a lot of the infrastructure is private, and we already have the best health care infrastructure in the world. Well meaning progressives sometimes cause more harm than good when they take very interventionist approaches to improving “human infrastructure,” when a lighter hand would accomplish much more.
I favor decoupling employment and insurance, using the patient-centered approach. Jason makes a good point about employers dumping coverages, but then they’ll be forced to make up the difference in total compensation packages, or they will lose a lot of talented/experienced/good employees to other firms, who might not offer health insurance but they will pay the employees what they’re services demand in the market. Employees will then put their extra salary into the HSAs to buy into appropriate insurance pools and pay out-of-pocket expenses.
Jason,
The number of medical schools does effect the competition for entry and excludes many who could otherwise be excellent physicians. Also I assume that normal economic principles play at least some part in the cost of medical school. Low supply…
The government does not dictate the price of most medical care so Medicare and Medicaid payments are not a likely cause of physician shortages. Tort law, at least in some areas is a greater concern, but still all I have read suggests that it amounts to 2-3%. Do you have any references that show it to be a larger component of cost.
Much larger than either of those two costs is the avg $500,000 debt on leaving medical school (that demands a high income to pay off) and the ridiculous work load of interns.
1 and 2 are about increasing supply of medical professionals (the largest component of health care costs). Assuming again that basic economic principles apply (at least to some degree) more doctors and nurses means lower paid doctors and nurses and thus a decrease in the cost of the largest component of health care costs.
That does not follow, particularly with my listed caveats.
1) Any plan to cover the uninsured will require at minimum short term costs and more likely long term government investment. Do you have a non-magic pony solution to this that doesn’t involve government investment?
2) Pet peeve: that is not what begs the question means.
I have known plenty of people that received a C in freshman comp (or similar) and were/are much better at communicating than most doctors I have been to.
Patrick,
I will address your points when the kids nap.
The government DOES dictate Medicare and Medicaid payment rates, though. We can infer from providers’ responses to those payment rates what would happen more generally if the government gained dominance as the primary payer in the health care system more broadly. And what we find is that low Medicare/Medicaid payment rates are driving many doctors, especially in rural areas, to refuse to accept those patients. That means that if government’s role increased, either fewer doctors would accept the patients OR, if accepting them were made mandatory, fewer people would endure the costs and risks of becoming doctors in the first place. Either scenario would decrease overall supply of doctors to patients under the government-controlled health care system.
I don’t need it because actual cost is not my argument. My argument is that the perceived risk of exposure to lawsuits deters doctors from becoming doctors in the first place (especially in certain specialties, like OB/GYN or GP). The fact that ruinous lawsuits remain a possibility even for doctors that operate in good faith with good professional practices is sufficient to cause the disincentive I talk about.
This is only true if you assume that lower pay combined with the same risks of exposure to lawsuits will result in an increased number of people wanting to become doctors in the first place. That contradicts the very most core fundamentals of what we know about individual economic behavior. Lowered pay combined with sustained risk of lawsuit does not, in fact, draw more people into a field. It draws fewer.
Mere assertion on your part does not consistute an argument. Try again.
You’re trying to shift the burden by conceding the point and demanding that I provide an answer for you. That’s bizarre.
Yes, I agree. Any massive extension of coverage is going to require substantial and sustained government investment. It therefore falls to those advocating change to provide ideas on where that money will come from. It is not the duty of those criticizing their proposals to do that work for them.
Perhaps this is because you believe that the use of that term in formal logic is the only meaning it has. I was using the term in the literal sense — your position of advocating universal coverage paid for by the government begs (for) the question “where will the money come from?”
Ok, great. What other academic courses are irrelevant to being a doctor? How shall we reorganize transcript reporting to differentiate between the ones you think are relevant and the ones that are not? Should this be another government mandate?
Or was your original comment snark using a too-easy rhetorical target instead of a real point about qualifications for getting into medical school?
I would have to finish reading it to say. I can say that it is not my preferred option, but I cannot yet say that it is on balance better or worse than the status quo. My point in earlier arguments was not so much that it needs to be pushed through now or sooner if possible, but that many of those who are calling for more time now are precisely the ones who are responsible for putting off the debate until now.
The professions you cited are all middle class. I don’t have a problem with HSA and I don’t object to them being included in health care reform, but they do little for the lower middle class and the poor.
How would that work?
Rife seems strong, but there is certainly waste and abuse. Waste and abuse are endemic to large bureaucratic operations (both government and HMOs). I have seen no evidence that the waste and abuse in HMOs is greater than for Medicare. I have seen evidence of higher administrative costs in private health plans, some of it to combat waste and abuse.
That is indeed a tough pill to swallow.
1) it is a current problem as well so whether the transition is phased or immediate is not primary.
2) enforcing contract law does little to help when insurance contracts specifically prohibits coverage of pre-existing conditions. It could help in some cases where the claim of prior condition is invalid, but does nothing for the person who switches carriers for whatever reason (job move, carrier drop, etc) and still needs treatment. Some sort of government vouchering might work but I think the better solution is removing that proviso from health care contracts.
How do we go about making those changes if not through government?
I think that the current accrediting bodies could remain if additional accrediting bodies were introduced.
As alluded to in my caveats for decoupling health insurance and employment, I think that the state mandates for employer health insurance could be replaced with mandates for employer provided vouchers for health insurance. In order for that to be successful other steps would be necessary including some method of consolidation for customers so that economies of scale would still be in play.
That is certainly true for the high end and to a lesser extent to the middle. Below that state mandates requiring coverage could be replaced with mandates for vouchers.
Where in my comments do you get that I am advocating government gaining dominance as the primary payer? It is easy but not very worthwhile to tackle straw men.
Consider also that virtually every OECD nation has greater government involvement in dictating medical pricing structures and that almost all of them have greater numbers of doctors per capita. That seems to run counter to your thesis.
Your position assumes that med school berths are not being filled and that reasonably qualified people are not being turned away. As long as reasonably qualified candidates are being turned away it seems obvious that more medical schools will mean more people attending medical schools and consequently more doctors.
Right back at ya with regards to your original critique of my position.
You have stateded in earlier posts that the problem of the uninsured is one that needs to be addressed. If you agree that it is a problem that needs addressing and you concede that addressing it will require substantial and sustained government investment then your critique of my position applies equally well to yours. The how will most likely need to involve a number of measures including cuts to other programs, finding savings within the current system, and some new taxes or fees.
In part it was an easy target, but the larger point remains that GPA and testing requirements for medical school are not on par with the requirements to be successful in medical school or medicine. Just getting in to medical school is frequently cited as the most difficult part of getting a medical education. That absolutely should not be the case. Do you disagree?
I notice that you did not address the debt incurred to become a doctor. Do you think that this does not need addressing?
Jeb, to clarify one of the points I made: let’s say you work for a company that pays you $80,000 a year plus benefits that include all/most of a Cadillac family health coverage worth $12,000/year and then the company decides to drop insurance. Your total compensation pakage was preciously $92,000+ and now it just dropped to $80,000+. Well, if you’re worth $92,000, why would you settle for $80,000. If the company does not make up the difference, you’re going to look for an employer who will pay you what you’re worth.
Under Laffer’s outline for patient-centered approach would replace the tax exclusion for employer-provided health insurance with an individual deduction. Along with expanded HSAs, the above employee would find employment that paid him $92,000 a year; he would likely buy his own NON-CADILLAC insurance coverage; he’d pay for many routine costs out-of-pocket, which would make him less likely to demand things that might be a poor investment but, heck, since they’re “free” might as well use ‘em (like name brand meds instead of generic, a nuclear stress test at age 43 without being symptomatic, etc.). This family would be better off while contributing less to health care cost inflation.
As for lower-income families, most would be covered by the vouchers that would replace Medicaid. I admit that you might end up with a lower-middle income segment falling into a “blind spot” but perhaps they could qualify for a small voucher (such as the bartender I mentioned above).
Actually, when I think about it, the employee above would not be able to command the full $92,000 compensation package on the market because the employer is presently getting the deduction, but the same principles apply. Anyway, I’d need to open a spreadsheet to figure it out. My point is that a given employee is worth a certain total compensation package and if insurance is removed as part of the total package, he will demand the net difference in salary.