OK

The Reaganauts claimed that cutting taxes and increasing deficits was a way to reduce the size of government, by "starving the beast".  Of course it didn't work that way:  They just created deficits.  The beast, it turns out, only referred to social-welfare programs, things that made people less willing to become low-paid servants of the wealthy.  Military spending and covering massive speculative losses of the banksters?  That wasn't the beast.

But there is a beast that can, and must, be starved, before it eats the country alive.  It is, of course, the massive cost of health care.  The US pays far more per capita than any other country and gets mediocre results for it.  The high overhead of the insurance system is part of the problem, of course, but the insurance companies actually do pay out more than those in other countries.  The beast is out of control.

And the new HCR bill only hints at what still needs to be done.

Mitt Romney recently tried to distance himself from the new national HCR law.  Of course the bill is based on Romneycare, the Massachusetts reform bill that has been in place for a few years now.  Romney noted three differences between his plan and the new federal one.  One, the federal system has price controls.  Two, the federal system has cost controls.  Three, the federal system is federal, not state-based, and thus must be wrong.  

Give the Mittster credit:  He pretty much had a hat trick of Fail there!  The three biggest problems with Romneycare are that it lacks price controls, lacks cost controls, and is too limited in scope.

Romneycare is not a complete success.  While it has raised the percentage of people with insurance, costs are totally out of control.  The insurance companies this year announced small-group rate increases of 8 to 30 percent, atop last year's 20-30% hikes.  My carrier had a 28% hike last year and then asked for 17% more this year, a cumulative rise of 50% in the two years since the individual mandate took effect.  Coincidence?  Maybe not.  Credit however is owed to Romney's replacement, Democratic Governor Deval Patrick, whose Division of Insurance exercised (for the first time) its residual right to reject rate hikes.  So the majority of rates are currently frozen.  Also note that the Massachusetts Health Connector, the prototype Exchange, functions as the assigned-risk pool, with higher rates than private plans.  Those who can get coverage elsewhere do; the Connector, by adverse selection, gets the rest.  It's not clear if there will be any regulation of its rates, which have to date been somewhere between stratospheric and astronomical.

So what happens when insurance prices are frozen?  Let's begin with a fable.

On the far-off island, King Willard heard too many complaints that the peasants didn't have enough bread.  So he ordered all of the peasants to buy a loaf of bread every week.  There were two bakeries on the island, one on each side, owned by the Baker twins, Carly and Barly.  Most people bought Baker bread anyway, but when the King ordered the bakers to keep a record of who did and didn't buy any, the Bakers were very happy, and made a big contribution to the King's Royal Yacht Fund.  

Of course King Willard was not a socialist; he believed in good old mercantilism.  So he didn't regulate the Baker's prices.  Soon Carly and Barly raised their prices of a loaf from one doggma to 1.2 doggmas.  And of course people still bought, lest the King's Enforcers charge them a 5 doggma fine for not buying bread.  Then they raised the price to 1.5 doggmas, then 1.8 doggmas, then 2 doggmas.  And still they sold the bread, though there was much anger in the land.

The Bakers were willing to share a bit of their wealth with Merky Miller, who milled flour for them, and Miller paid a bit more to the farmers, so they supported the King too, and shared much of their additional profit with him on Rice Pudding Day.  Everyone else, though, was suffering.  And eventually there was a revolt.  King Willard was overthrown.  The mill and the bakeries were nationalized and the price was restored to one doggma.  The farmers made a bit less, but they were gladto see Rice Pudding Day abolished.  And the people ate even better, including those who chose to bake their own bread, or eat bagels, or eat corn tortillas.

When you force up demand for a product which is controlled by a cartel, then the price naturally goes up.  It's just supply and demand.  Health insurance is sold by a small number of companies who are exempt from antitrust.  They do not compete much on price.  When it's time to set annual rates, they are allowed to collude.  Massachusetts probably has more competition than most states, but it's still very limited.  This type and level of competition doesn't control cost.

The insurance companies justify their higher rates by showing that they're paying out more.  Most of the insurance here is on HMO plans, which means that the HMO negotiates its rates, privately, with hospitals, pharmacies, and other providers.  They aren't reimbursing users on an indemnity basis.  This is not entirely a bad thing:  As a customer, I don't have to worry about juggling doctor bills and making claims.  I show my HMO card to the provider, pay the copay, and it's all handled for me.  The first bills of the year come to me because of the deductible, but they are tracked, and once they're paid I never see them.  I am not unhappy with the way my HMO works, just with the price.

The hospitals know that the HMOs can raise rates, so the flow of money coming in to the system is pretty much unchecked.  Thus the hospitals can ask for more money.  They can use this to "compete" with each other, each trying to build duplicate facilities, each paying more to the big-name specialists.  It is a huge waste of money but it's the kind of competition that results when there's so much money around.

So if the insurance rates are lowered, the HMOs will have no choice but to pay out less.  Thus they will negotiate harder with the hospitals, pharmaceutical companies, and other providers.  And the providers will know that they're for real this time.  It's not competing for which CEO gets the biggest bonus.  (Patrick's Republican opponent this year, Charlie Baker, was CEO of Harvard Pilgrim Health Care, the second-largest health insurance company, before leaving to run for office.  He was very well paid.  These "nonprofits" lack shareholders but not rich executives.)

The new HCR law talks a bit about cost control, at both the insurance and provider levels, enough to give Romney a very thin political cover to his right.  How they're exercised, and what's done to supplement them, will make all the difference between success and failure.

Capping insurance rates, for the same benefits, is how costs can be controlled.  We must starve the beast!  Pay less to the insurance companies and let them do their job of "managing" care, not via balance billing.  They in turn will pay less to hospitals.  Take away their antitrust exemptions too, so they're really have to compete, not just screw up service.  The hospitals, with less money coming in, will have to think harder about their expenditures. They may have to pay their top specialists less.  Big Pharma may have to charge Americans a smaller multiple of what the rest of the world pays.  When there's less money available, they'll fight over it.  

Price controls at the provider level are another option, if the insurance companies can't get it done themselves. Look at Japan, where people use medical services a lot more than Americans do, at far lower cost.  It's a private system, but prices are regulated.  They get so many CAT scans that it may well be causing them harm from the X-Ray exposure.  Those CAT scans are cheap because the government says so.  And the CAT scanner machines are much cheaper, because they can't afford expensive ones.  They've created a whole market tier of cheap CAT scanners that cost a fraction of what Americans pay.  But then American CAT scan owners only want the best.  Once in a while the best machines may well be needed, and I'm sure Japan has a few of those too, but not every taxi ride has to be in a stretch limo.

Americans, though, are so politically used to deregulation that direct price controls are unlikely to succeed.  It's easier to regulate the insurance rates, and let the hunger trickle down the food chain.  Providers will complain.  But they will continue to provide service, because to not do so would be to lose even more money.  We have to stop being afraid of them.   Certainly almost every other country has shown how it can be done.  The beast is sucking our blood dry, and we just have to tame it.

Originally posted to Frenzy. Illusion. Shadow. Fiction. on Sun Apr 04, 2010 at 09:27 PM PDT.

Poll

Should this diary have had a poll?

33%7 votes
33%7 votes
33%7 votes

| 21 votes | Vote | Results

EMAIL TO A FRIEND X
Your Email has been sent.