Which Beast to Starve?
Today brings a sharp contrast in political philosophies and economic reality. As Paul Krugman discourses on three decades of Republican attempts to shrink government and “drown it in the bathtub,” President Obama discloses his intention to stop feeding the free-market monster that has devoured American health care.
In advance of Thursday’s summit, the White House leaks a proposal to oversee and limit double-digit health insurance rate increases such as those the President denounced in his weekly address Saturday.
Legislation introduced last week by Sen. Dianne Feinstein would create a seven-member rate board, the Health Insurance Rate Authority–consumer, industry and medical representatives and experts in health economics–to determine which increases are justifiable and which are unconscionable by insurers who are siphoning off one out of every three dollars spent for “overhead” and profit.
This attempt, finally, to rein in a greedy industry, along with restrictions on denying care to policy holders, should become the centerpiece of streamlined reform legislation to replace last year’s fiasco of a bill.
Its thrust, to protect Americans from private greed, is revealing in the light of GOP efforts to “protect” them from their own government, starting in the Reagan era.
The starve-the-beast strategy, Krugman writes, was “a game of bait and switch. Rather than proposing unpopular spending cuts, Republicans would push through popular tax cuts, with the deliberate intention of worsening the government’s fiscal position. Spending cuts could then be sold as a necessity rather than a choice, the only way to eliminate an unsustainable budget deficit.”
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36 Responses to “Which Beast to Starve?”
Cool. Federal price controls. We know those work well. All this for an industry with profit margins below 5%. Sounds like a good idea.
P.S. The California regulators had to approve the price increase for it to go into effect but I'm sure they didn't know what they were doing
Krugman: [snicker]
His released “plan” is surprising in its increase, rather than overdue decrease, in overreach by Washington, but it's particularly lowly that he'd include a cheap, impulsive, sub-50-IQ appeal to losers by promising price controls. (Sibelius has been a laughable bureaucrat, no matter what some weird activist drecks have thought of her, or how much they weirdly have adored her. I suspect this is plain classic, demagogic, appeal-to-base-motives-of-the-losers gimmickry by Obama and puffery in the Dems' opening bargaining position — assuming any real “bargaining” will be done by the Dems with the GOP — rather than satisfying or granting any demands for her for insultingly excessive power.)
It could also show they are still out of touch with reality, or they misbelieve reflexive loser-outrage is more prevalent among the public than it really is, and that any outrage can be exploited more than it really can. Plenty of people aren't fooled or so easily and cheaply seduced by a stunt like this.
“Federal price controls. We know those work well.”
The insurers may cut their own throats, PR-wise, by big price increase demands (I figured that the Anthem rate increase would eventually be exploited; the much-larger 56% increase in Michigan was in a place that is removed from most people). That doesn't merit even worse behavior by Washington.
The insurers may risk more ire from many, but they should respond to this in a number of ways, including terminating all policies once legislation is in effect, and then reissuing policies, at higher rates, with stricter standards of underwriting and rejection. It's a tricky game in states with an assigned-risk, must-insure state pool (a rate increase for these patients will of course have to be sought), but should send the right message. Shifting arbitrary rate reductions to providers is a necessary step. Presto — supply (provider) shortage. Way to go, Dem-agogues.
As usual, they had a chance to do this right, with or without trying to do this before the (probably fake) Dem-GOP bargaining session for the actual legislation. They could have used, in the future, a “public utility” approach (not the same as “public utility” as entitlement-minded people reflexively wail) by setting up effective monopolies for the insurers, then regulating them highly, not limited to rates they could charge (an intelligent approach would be like other public utilities, and structure the rates and other regulations on an overall profit or rate of return). Setting these up in this way makes them surrogates of the state or federal governments (the move by Washington spits on constitutional federalism, but this is nothing new) and sets them up for eventual takeover or all-but-formally-and-competely-public status.
Leave it to these dunces to be too greedy simply to appeal to losers and be demagogic prior to their “bargaining” and working on actual legislation. Willingness to be underhanded and use the reconciliation device in order to ram this down everyone's throats is scummy but is merely an embellishment now — the nature of what is being said to be sought is even worse, much worse.
This scummy gimmick is likely to make the “progressive” talkers on the radio twitter with joy.
I PERSONALLY was told in a vision to take the mark of the beast and survive because the truth was the Jewish prophets wrote this line in scripture to set up a government in the future where their seed could control the economies of the world with fear through their written word (bible).
http://www.articlesbase.com/health-articles/adv…
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Sounds about as effective as putting limits on the price of gasoline on gas stations. They could simply lower the prices that they pay to surgeons against the AMA wishes, negotiate drug prices against PhRMA wishes, and watch private insurers do the same, since many of them use the government's RBRVS as their guide. Then they could make guideline for Medicare/Medicaid reimbursement something like the British QALY. None of that would be popular, but it would be effective and it would control the industry without having to take over the private market directly.
But, in the political world, price controls will be attempted again. That's the real broken.
And in which way would that be different from price controls?
Health insurance is different, it exempted from antitrust laws so there is market control and less or no free competition and room for monopolistic pricing. “Price controls” or a board to prevent gouging are proper under these circumstances, the analogy by DLS to a utility is correct.
References to percentages are misleading, you'd need a CPA to explain what they really mean and what is being hidden where. For example, Grocery stores average a 1% margin but on huge volume, they are very profitable. If you call “profits”
PREMIUMS – (PAYOUTS – OVERHEAD COSTS), according to their own records
as of 2008 Aetna, United Healthcare, Humana, and Cigna had 2008 Net Profits of 4.4%, 3.6%, 2.6% and 2.3% respectively. (Source: Annual Reports)
Yet
At Aetna: 5 individuals making a total of 74 million in one year
At United Healthcare: 5 individuals making a total of 59 million in one year
At Humana: 4 individuals making a total of 21.2 million in one year
At Cigna 3 individuals making a total of 14.7 million in one year.
Why do I not take insurance company allusions to modest profits at face value? Why is their stock soaring? How little was it that banks claimed to be making off sub-prime loans?
How about a board to look into this and oversee prices to prevent gouging as is being proposed? Big deal. A pretty modest proposal.
I would require structural changes to the market, perhaps them to all be converted to not-for-profit companies like they used to be, throw the money-changers out of the temple as it were. Or better yet, have a basic single payer coverage, remove antitrust restrictions and have these health insurance companies sell supplemental health insurance, like they do now with Medicare.
You could avoid the whole mess by taxing for and providing a basic policy for everyone, perhaps with a million dollar limit. The tax could be either be used for a public option policy (like Medicare) or as a voucher to purchase a traditional health-care insurance policy. Everyone would then be insured, the government can make volume pricing deals for services and drugs and those who want to pay for it can have the insurance they want, –and not pay for the public option.
But ProfElwood is right, the major cause of health-care cost increases is the cost of health-care, I endorse his types of solutions.
I would make other structural changes, such as limiting pharmaceutical patents (almost all of their breakthrough research is culled from (financed by the government) university research anyhow). Forget that, just expand the NIH to support medical researchers. I would also make it easier for qualified people to become primary-care physicians (the number of physicians produced “needed” is set by (surprise) the profession).
You don't need the same profit motive for people who want to become physicians or medical researchers (as long as they earn a decent income) –they don't go into these professions for a dot.com payoffs, mansions and limos (like bankers and insurance company execs do).
Have the government finance research, there would be just as much progress in medicine (and drug companies would not be driven by profits to foist on use -even advertising– marginally-better or even defective drugs on us like VIOXX and AVANDIA).
I would also make wider use of Nurse Practitioners and Physician's Assistants. An open secret in medicine is that these para-physicians are completely qualified to handle 80% of the people who visit physicians, the checkups, vaccinations and infections.
The whole insurance-based business model is unsuitable for health care. The public pays for people that have no insurance (or lets them die), the insurance model cherry-picks the profitable healthy and leaves the government or cost-shifting to deal with the losses. THIS IS NOT FREE ENTERPRISE. And unlike most business models medicine attracts people for reasons other than just making money, you are not making aircraft bolts or selling cars (although you do have to provide superior and sufficient remuneration to attract sufficiently superior people) you don't need the same profit motive to get the job done.
The government is free to run its own insurance. They already own over half the market.
MaxPower is right. The health insurance industry has not been a true, free capital system for a very long time.
Willingness to be underhanded and use the reconciliation device in order to ram this down everyone's throats is scummy but is merely an embellishment now — the nature of what is being said to be sought is even worse, much worse.
This scummy gimmick is likely to make the “progressive” talkers on the radio twitter with joy.
Some are more honest about their intentions, and here's an example of an apparent progressive talk radio host reacting with joy as you predicted, DLS.
Despite the populist appeal, Max, reducing the compensation of all the insurance execs to $0 would still not be a drop in the bucket toward reducing consumer prices for health insurance.
You're kidding right? 74 million at Aetna? Aetna is a $35 billion company so that $74 million is .2 percent of revenue. So say they plowed all of that back into a .2% premium reduction. Of course, the execs would quit but so what, they suck anyway.
Regarding the public utility argument, what limitation do you want to put on the application of that argument? Why not make the car industry a public utility (Oh, we already did that with the exception of Ford). How about the food industry. Oh and by the way, regulated utilities were the least efficient forms of industry out there. Remember the phone company pre deregulation? How about most electric utilities? If you think making insurance a utility will lower costs, I've got some land on the moon to sell you. A regulated industry is allowed to raise prices if it needs to to sustain the enterprise. This takes all pressure off of efficiency because they price to cover costs rather than price to serve the market.
I largely agree on the issue of competition, but you'll see little in the way of serious proposals in the current round of HCR. Let anyone compete anywhere and kill the AT exemption. But not with the silly minimum policy idea. That's just another form of price support. So insurance companies will cherry pick and compete for the healthy? What's wrong with that? It puts the cost where it belongs. Nobody complains about life insurers competing for the healthy or auto insurers competing for safe drivers. Why is it that when the subject is health insurance, we forget everything we know about the operating of an enterprise (for profit or not for profit)?
As to the silly argument about margin versus volume, you must be crazy. Grocery stores operate on 1 to 3 percent net margins. This puts enormous pressure on pricing and costs because it actually doesn't take a lot to lose 1 percent of margin somewhere along the way.
A regulated industry is allowed to raise prices if it needs to to sustain the enterprise. This takes all pressure off of efficiency because they price to cover costs rather than price to serve the market.
Dave Shuler at The Glittering Eye has been blogging about this.
Price controls and single payer are cheaper – in Europe.
http://en.wikipedia.org/wiki/Health_care_system…
If markets gave us the best and a cheaper systen I'd say keep what we have. But it isn't working and cost more than any other Western nation.
Right Rudi and what are the likely drivers of cheaper?
1. Lower drug costs because US consumers pay more. You can drive it down but innovation will suffer as a result. As to how much it will suffer and how big a difference that makes, I personally have no idea nor do I think anyone else does since it's pretty hard to know.
2. Lower physician and other health professional compensation. Hard to do anything about this in the short-term without massive backlash but certainly an option if you want to go there.
3. Less coverage in the very expensive last period of life. Again, certainly an option but not without its risks.
So my question to you is, forget the delivery vehicle for a moment, which of 1 to 3 do you want to do? Insurance just passes through costs. It's not the problem. The problem is the end cost of health care so how do you want to reduce that…mandate lower prices and lower compensation or reduce the number of treatments performed. Nothing else will actually reduce costs.
The problem we have is that people are not owning up to the true cost drivers here and doing head fakes about cost control. If the bill is a straight desire to insure more people because a group of folks believe it's the right thing to do then let's go with that story. The discussion about cost containment is just silly and, I might point out, it is in fact no business of the government's how much of my money I spend on health care. Thus the % of GDP comparisons aren't a reason to act, their an indication of the preferences (for more expensive care) and the options (more) that people in this country have relative to others.
Like maybe this could have something to do with it.
http://www.worldsalaries.org/generalphysician.s…
Price controls…..
Anyone else reminded of empty shelves in Soviet grocery stores?
Hey Obama, take your money, find like minded liberals and start your own private sector insurance company with YOUR OWN money.
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This post was mentioned on Twitter by JoeGandelman: Which Beast To Starve? Another great one from veteran journalist/editor/journalism prof Bob Stein: http://bit.ly/9rgVYC...
The Swiss system isn't single payer, but it does involve some price controls. Steveinch did a good job pointing out whose oxen would get gored if we adopted a similar plan here- which also explains why it will never happen (do you see either party taking on the AMA?) I think I've read that the Swiss govt partly got their physicians to buy into this by paying for all medical education. I guess getting out of med school without six figure loans might soften the blow, but I still doubt it would go over here. If I'm not mistaken, they also have strict tort limits too.
Here's some more info…consumers (voters) probably wouldn't be happy paying more out of pocket either, so i don't see politicians going this route for that reason either.
The title and the article itself beg the question…isn't it a false dichotomy to assume we have to choose between starving government and starving capitalism? As a conservative, I certainly lean more toward keeping govt lean but I wouldn't say starve it…
And a commenter on this blog recently asked why we (meaning conservatives) would want to vote in politicians who don't believe that government works…well, by the same token, why do progressives want to vote in politicians who don't believe that free enterprise can work?
There are some good arguments for why our healthcare system can never function perfectly as a free market system- but rarely are those arguments made. Instead, what I hear most often is people saying that the system currently is not a free market system, and yet simultaneously the progressives raising that point will say that the free market has failed and this provides a rationale for a socialized system. Why is the more obvious solution never suggested- to restore more competition to the markets in healthcare and try to maximize the market forces that would keep costs contained?
In regards to 3:
Exhaustive care doesn't translate to better care:
http://www.reuters.com/article/idUSN06415881
Seems Palin's Death Panels actually cut costs and stop needless treatments…
DLS> [Federal price controls] “likely to make the 'progressive' talkers on the radio twitter with joy”
C-S> “here's an example of an apparent progressive talk radio host reacting with joy [...]“
Thank you, C-S.
Incidentally, yes, I, too, heard someone twittering, on the radio – I believe I overheard Stephanie Miller mention it briefly this morning. (She and others may have had more to say about it a few minutes later, but I was away from my vehicle at that time.)
It's demagogery in political office at its worst, lowly appeals to the lowest, as well as, as an additional “benefit,” promptly and violently trashing constitutional federalism and respect for the Constitution, but such things have mattered least to those lefties who are most … “excited” (“agitated” is often not sufficient a term). (They didn't even wait for Dem governors and other Dem officials in various states to abuse their legitimate roles in state offices to exploit this first. These people were also too inept to seize this as an excuse to beg for more “stimulus” and other relief measures.)
Rudi,
You mistake me, I didn't say I was opposed to any of 1 through 3. I simply said that 1 through 3 were the only ways to control costs and, thus far, those pushing HCR show no inclination to work on any of them (in part because they are demogogued any time they mention it).
The thing you need to think about is incentives. In a world where I pay my own health care costs, I have an incentive to choose palliative care and save money because that money ultimately passes to someone about whom I care. In a world where someone else pays, whether that's the government or the insurance company, I have no incentive to make the same choice. Furthermore, if the payor is the government, it must take on the “evil” role of telling me I cannot have my expensive care even if I want it. This is not something that government is well set up to do as witnessed by the recent debate on mammography.
So what the proponents of HCR must have in mind is one of two things…either they are not serious about cost control, having embraced none of 1 through 3 or they are serious about it but do not want anyone to know they are serious about it.
“Lower drug costs [in Europe] because US consumers pay more.”
That certainly was true for their defense costs, and what military they had, during the Cold War.
(** POW **)
One qualifier on your salary guide, steveinch. Family doctors, if you figure their hourly wage, make close to the national average (roughly $50K/yr, family doctors $100K/yr, but work over 80hrs/wk). Specialists do quite a bit better, so it's rather deceptive to mix them together.
Prof E,
As I understand it, the link refers to GPs, not specialists.
“Lower physician and other health professional compensation. Hard to do anything about this in the short-term without massive backlash but certainly an option if you want to go there.”
Two things. First, a new report today states that some doctors, among the lowest paid, are reducing their work hours — which means, their availability. Is reducing pay likely to reverse this problem?
http://www.dartmouth.edu/~news/releases/2010/02…
Second, I've described some of what I've recently experienced where I am now as “the future of health care in this country,” a provider (supply) shortage due in large part (as openly stated by the many practitioners who have answered my questions about it, or on their own accord when I complain about access problems) due to low compensation. Doctors and others are going elsewhere and avoiding coming here. This is bad enough with additional problems related also to undercompensation (and a limit to possible cost-shifting, which we already know occurs in this country) with Medicaid and Medicare. Would reducing pay, with low pay already an openly understood problem, correct this?
My skimming caught up with me again, it was stated very clearly at the top. My apologies.
With that, I started wondering what the ranges really were and came up with this:
http://www.allied-physicians.com/salary_surveys…
But of course, the problem is still entirely due to insurance.
Now just hold on, Steve. Our system costs twice as much as Europe's. Yet you're claiming we pay doctors more than twice as much as, say, the French. Wouldn't that have to mean the rest of our system–medicare doughnuts, perfidious insurers and all–is *better* than theirs?
It also has the major flaw of not distinguishing between family doctors and specialists:
What the study can’t determine is whether the reduction in hours comes from those in any specific area of medicine, for example, general practitioners versus surgeons. The CPS classifies general practitioners and surgeons the same: physician.
Well, that would depend on the breakdown of how much spending goes to what area, because there's also the cost of drugs, well, we pay quite a bit more there too, so take that back. Then there's the cost of excess and unnecessary treatment, … okay forget that one also.
Hey now! You're trying to make a distraction. It's insurance and profit that causes all these problems. Insurance and profit, see.
“It also has the major flaw of not distinguishing between family doctors and specialists”
True. It wouldn't surprise me if more surveys addressed this as well as made other distinctions.
You're absolutely right to raise the family [primary] versus specialists split because it's important about multiple things. (Some of this was addressed during the Clinton health plan attempt.)
I know from my experience here that it's bad, and probably most or all of the country will be this way eventually. The emergency room at the public hospital here gets even more business than it usually would otherwise, because of the shortages of providers and refusal to accept both new patients for regular care, and walk-ins. These aren't just individual doctors and groups I'm writing about, but clinics, too — including urgent care clinics! Even the public hospital's urgent care clinic is closed on weekends. I've been referred by other doctors and clinics to the urgent care clinic, to be referred onward to the ER, or referred directly to the ER by others, and enjoyed waits recently of a) seventeen and b) sixteen hours for service. It's so far impossible to get a regular doctor, at all — I have yet to be able at all to get a full exam, as well as have all my prescriptions reviewed and any changes made (one was corrected by a clinic I got one visit to after the first ER visit, before being handed off and hands released by that clinic when they referred me to someone else. Nobody wants to take or keep new patients, as a rule. Everybody is overloaded — it's truly a shortage. Expect that to be widespread when there are cost controls later as the population ages at the same time.)
And, the providers I've talked to, or who have talked to me without waiting, have said it's about low pay.
Or, as a related article put it,
“The overall decrease in hours coincided with a 25 percent decline in pay for doctors' services, adjusted for inflation. And when the researchers looked closely at U.S. cities with the lowest and highest doctor fees, they found doctors working shorter hours in the low-fee cities and longer hours in the high-fee cities. “
http://www.washingtonpost.com/wp-dyn/content/ar…
It's insurance and profit that causes all these problems.
Phew, I was growing concerned that legislators hadn't studied the matter thoroughly, it's a relief that they're right on the money.
You know, I understand some of those health insurance execs take home *millions*.
he whole insurance-based business model is unsuitable for health care.”
While I don't agree with all of your conclusions, most are valid points and very worthy of consideration.
Thanks
Seems Palin's Death Panels actually cut costs and stop needless treatments…”
When, the first reality show comes out: “How Grandpa Saved His Family Money and Pain”, it may become the politically/societal/popular correct thing to do. I know, I also saw the movie “Talk To Her” and there will be some people resisting common sense.
If nothing else, some funds from the “bill” should be allocated to make it ironclad for those ALREADY disposed in this direction to make sure their wishes are carried out, since the default often is to use all possible means to extend life.