An excerpt written by an economist friend who is, like me 100pct in favor of universal healthcare. If you have a moment, it is well worth a read: Im afraid almost all discussions on the left and right regarding the Affordable Care Act (ACA) miss some very basic things. So I hope this email will explain a few economic ideas and put them into perspective for you, whether youre on the left or right and whether you like Obamacare or not. Before I do that, though, let me say that Im a raging capitalist and Im in favor of universal healthcare coverage. Im indifferent as to having either (1) a 100% government-guaranteed single-payer system or (2) a 100% private solution where the government guarantees that the poor are fully covered. Each has its pros and cons. For countries like Spain and the UK, a single-payer national system works. (Ive lived in both countries almost all my life, and their healthcare systems work. The only time Ive ever paid $250 for an aspirin was in a US hospital.) On the other hand, private solutions work very well for Singapore and Switzerland. So one model is purely public, and it works; and the other is purely private, and it works. There is a lot of demand for healthcare, so you have to ration medical care via price or quantity. Thats basic economics. It is for voters and politicians to decide what they prefer. Im indifferent to the solution, as long as it is well thought out and implemented and in fact provides universal coverage. The problem is that the ACA takes the worst elements of public and private and fails to provide universal coverage for millions of people. Now, lets look beyond good intentions and see how the ACA works in practice. The main egregious problem with the ACA is that it increases concentration in the insurance and medical markets. It forces consumers to buy into oligopolistic and monopolistic marketplaces. Insurance and medical companies stocks have all gone up since Obamacare passed. (Theyve gone up twice as much as the S&P this year.) What these companies are all telling us is that the act is good for their business and good for their margins. Before the ACA, the US health insurance market was extremely uncompetitive, as this article in the NY Times notes: As a general rule, the larger, more densely populated states have the most choice — and even the biggest insurer controls only a minority share of the market. According to statistics from the American Medical Association, the leading insurance provider in California covers 24 percent of the population, while in New York the figure is 26 percent and in Florida, 30 percent. But there are nine states where a single insurer covers 70 percent or more of the people. In Hawaii, one insurer covers 78 percent. In Alabama, it’s 83 percent. And in at least 17 other states one insurer covers at least half the population. Some members of the Senate Finance Committee, which is taking a lead on health care legislation, come from states where the insurance market is highly concentrated. The Democratic chairman, Senator Max Baucus, is from Montana, where 75 percent of people are covered by one major insurer, Blue Cross Blue Shield of Montana. For Senator Charles E. Grassley, Republican of Iowa, the figure is 71 percent, by Wellmark. For Senator Olympia Snowe, Republican of Maine, it’s 78 percent, by WellPoint. “For many Americans, the idea that they have a choice of health plans is about as mythical as unicorns,” said Jacob Hacker, professor of political science at Yale University. In theory, the ACA could have improved things, and many supporters think it does through exchanges. Unfortunately, it didnt. Under the Affordable Care Act there will be far fewer choices and less competition. Dont take my word for it; read this NY Times article. Of the roughly 2,500 counties served by the federal exchanges, more than half, or 58 percent, have plans offered by just one or two insurance carriers, according to an analysis by The Times of county-level data provided by the Department of Health and Human Services. In about 530 counties, only a single insurer is participating. This is truly staggering, when you consider it. Citizens will now be forced to buy insurance from oligopolies and in many cases monopolies. Theyre not getting healthcare from the government; theyre being forced to buy from private companies that have pricing power and market dominance. Insurance companies are still exempt from anti-trust supervision. This would never happen in other industries. You dont need to know anything besides basic economics to understand that oligopolies and monopolies are bad for consumers. Consider having to pay for phone services from one or two phone providers. (Wait, we already had that, and Ma Bell was broken up...) Medical companies are also exempt from fair pricing laws. If you go to a hospital, youll get a different price depending on whether youre uninsured or Medicaid pays for you or your insurance pays for you. You cant drive into a gas station and be charged an arbitrary cost after youve filled your car, but you can be charged an arbitrary number by a hospital. (Imagine: a black, a WASP, and a Jew go to a gas station, and they all get different prices. Wait, we got rid of that injustice too...) In theory, the ACA fixes fair pricing laws, but it doesnt apply to most hospitals. See Federal health law falls short of a goal in the Boston Globe. In the 21st century, states still control and regulate insurance, which means fragmentation, very high barriers to entry, and local oligopolies. It is insane that the Federal government regulates banks at a national level via the Federal Reserve and the FDIC but allows insurers to have local market dominance. (The law that allows this is the 1945 McCarran-Ferguson Act.) If youre curious about how insurance companies are oligopolies, read here. And read this‪ … and this.‪ You can ship and sell Coca Cola across state lines, but you cant sell insurance across state lines. Some argue that you could get one lax insurance regulator in North Dakota, and then insurance companies would all set up shop there and start selling across state lines. That has an easy solution: have one national regulator and let insurance companies compete across state lines. Not only is there a lack of competition among insurers, there is a lack of competition among hospitals. This has happened because antitrust policy has been so inadequate for so long in the health sector. See Health Care Needs Stronger Market Forces in Forbes. (Here is a more in-depth paper, if youre curious.) The problems that arise from a lack of competition are rife on the pharmaceutical and medical side as well. Obamacare will do almost nothing to change that. See How a Cabal Keeps Generics Scarce in the NY Times. It should come as no surprise that medical and pharma companies helped draft the ACA. Who said Congress wont turn a few tricks for the right price? See ObamaCares Secret History in the WSJ. In theory, the ACA will control costs and wont let insurance companies and hospitals gouge us, but these types of regulations havent worked in the past. Howard Dean is a doctor and a Democrat. His very thoughtful views on how pricing regulations havent worked are presented here. If you think costs will fall and insurers wont profit, Ive got a bridge to sell you in Brooklyn. The law is complex, badly written, and will be gamed. See The Coming Clash over Insurers’ Compliance with Obamacare from the Independent Institute and HHS Releases Final Medical Loss Ratio Regulations in the WSJ. I highly recommend you read Matt Taibbis chapter on Obamacare in his book Griftopia. The book is highly worth buying and reading. It is informative, entertaining, and extremely infuriating. Your blood will boil after you read it. Taibbi establishes the point that the Affordable Care Act will screw Americans. This case is also made by the Institute of Economic Affairs, in The scourge of Obamacare. In the United States, one of the most protuberant and harmful political myths — one shared by subscribers to almost all political persuasions — is the odd, naive idea that big business and big government are permanent antagonists. As a historical and empirical matter, of course, nothing could be further from the truth, a reality thrown into sharp relief by the political machinations underlying Obamacare. The new law is fundamentally anti-competitive and anti-small business, riddled with onerous regulations and handouts to favoured corporations. As usual, the relationship between big business and big government is not one of rivalry, but of symbiosis, routing genuine free markets in favour of collusion. The ACA wont cover everyone, and it will force people seeking coverage to buy from monopolists. Many people will get subsidies for their new insurance policies, and many people who didnt have coverage will now have coverage. This is great news. However, it would be hard to design a worse system if you tried. There are simpler ways by which we could have covered everyone without forcing people to participate in private oligopolies and monopolies.
Posted on: Sat, 09 Nov 2013 14:59:17 +0000
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