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The · Psychohistorian


Health care reform done right

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Remember when Obama said that medicare and medicaid really needed to be cut, but declined to address the issues in his 2012 budget? The Republicans said he was irresponsible not to address them, without immediately addressing those issues themselves. The press expected everyone to treat the issue as a political football, with everyone telling everyone else, "you first".

Now it looks like those expectations were wrong. The news now is that House Republicans are putting together a 2012 budget that reduces projected expenditures by $4,000,000 million - that's $4 trillion - over the next 10 years, largely by addressing medicare and medicaid. Of course, since the Constitution requires spending to be initiated by the House, it's only appropriate that they were the ones to take the bull by the horns.

The mechanism appears to be a good one. The approach for medicare seems to be to switch to a system where the government pays some fixed amount for retirees' health insurance, starting with an amount that's similar to what's spent per medicare retiree now. The savings presumably comes in allowing that amount to increase by inflation or some other rate substantially less than the rate at which medicare expenses normally increase, which is quite high due to the introduction of ever more expensive new treatments. We won't see drastic cuts to health care immediately, or ever.

Indeed, we're likely to see considerable improvements. By letting the patient select the health care plan, we can expect more rational tradeoffs between, say, the quality of day to day care and the extent to which extreme life extending measures are covered. Retirees who don't want extraordinary measures taken to prolong their lives will no longer be shortchanged by disproportionate spending for those who do. Competition between insurance providers for patients will probably result in better actual improvement in the quality of care than the present system, where inclusion of treatments in the medicare system tends to be driven by the potential financial gains of whoever is trying to get a patented new drug or device covered.

Overall, this seems like it could be an excellent example of how market forces can be harnessed to provide better service at less cost.

The approach to medicaid is somewhat different: it would be changed to be composed of block grants to states. The idea is that the total amount of block grants can more easily be kept from escalating out of control than the present complex system. Since the details would still be decided by a government - albeit a state government rather than the federal government - there's no real reason to believe that the resultant medical care would be improved, but there's no reason to believe it would be worse, either.

Details are still to come. With what's been outlined so far, though, it seems likely we'll be able to find out many of those details before the law is passed, rather than afterwards, this time.

Edit: a few more details. "Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy. Future Medicare recipients will be able to choose a plan that works best for them from a list of guaranteed coverage options."
http://online.wsj.com/article/SB10001424052748703806304576242612172357504.html
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On April 5th, 2011 04:28 am (UTC), izmirian commented:
I'm glad that they are actually considering the issue of long-term Medicare costs. After the results of the bipartisan commission seem largely to be ignored it's nice to see this back in the news.

The proposed plan for Medicare has some merits, but it assumes that there is a well functioning private insurance market which hasn't been the case so far. If the health-care reform actually goes into full effect and the pre-existing condition and rescission issues go away then I'd be more inclined to go with something like this. With the insurance market we had a couple years ago when I was looking for insurance, I wouldn't be very confident in anyone being able to get private insurance, much less a senior citizen.
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On April 5th, 2011 08:15 am (UTC), psychohist replied:
Actually, there was a well functioning private insurance market. It was just a market for policies sold to employers to cover their employees, rather than for policies sold directly to individuals. And the reason for that is simple: policies sold to employers are paid for at least partially by pretax money, so there are very few cases where it makes sense for people who are employed to buy policies individually.

Medicare, though? That's a huge market. We're talking about over $10,000 annually per person - a total market size of over $450,000,000,000 per year. Unless the regulations are written to make it completely impossible to make any profit providing that insurance, existing insurance companies will be rushing to fill it.
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On April 5th, 2011 03:50 pm (UTC), izmirian replied:
I'm sure the insurance companies will rush to fill the market and if the incentives and regulations are well done it could be a pretty good system. But the government will have gotten out of the business of guaranteeing any particular level of medical coverage for seniors. If it happens that you can't get coverage (the insurance companies determine, maybe correctly, that your expected costs vastly outweigh any premiums) then that's your problem. Ideally I'd like to see some guarantee from the government for a baseline amount of coverage at least until the insurance market can be shown to be working better.
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On April 5th, 2011 05:16 pm (UTC), psychohist replied:
Please don't assume that everyone has broken health insurance regulations just because California does.

In particular, existing regulations governing "Medigap" insurance, which covers costs not paid for by Medicare, prohibit the refusal of anyone for preexisting conditions as long as those people have maintained continuous insurance, similar to Massachusetts' Romneycare. Even if you haven't maintained continuous insurance, they can only impose a limited waiting period - I believe it's six months. There's no reason that the proposed new system would work any differently. And of course, with the government paying for the basic Medicare insurance, continuous coverage should be pretty easy to maintain.
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On April 6th, 2011 05:37 am (UTC), izmirian replied:
I don't think that the health care issues that the US has been working through are unique to California. If anything it is Massachusetts which is unique in having a sensible health care policy.

But if you are going to replace Medicare with private insurance then I would like sensible health care regulation on the federal level. It's ironic that Republicans, who have been so resistant to having regulations like the one you cite for Medigap insurance applied to the private insurance market are now lobbying for a huge change which relies on better regulation of the private insurance market. If only we had had health care reform 10 or 20 years ago I think you would find a lot more people in favor of the current Republican proposal.
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On April 6th, 2011 07:11 pm (UTC), psychohist replied:
I think California may be unique in how it acts as if prices can be regulated at levels below costs. This has previously manifested as a problem in auto insurance and electricity, so it's not limited to health insurance.

When Massachusetts got into similar situations on auto and health insurance, our solution was to allow insurers to raise premiums to cover costs, which seems to me the obvious solution. I think it's pretty unique to California that they have chosen instead to keep prices down for the majority by allowing insurers to drop the people who actually need health insurance the most.

The Republicans had four years of control of both houses and the presidency, and didn't change the medigap regulations, so they must not have objected all that much. I understand some people think Republicans are against all regulations, including the most sensible ones, but some people think Democrats are against all private enterprise and in favor of a communist economy, too. Both caricatures are, well, caricatures, and neither describes reality all that well.
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On April 7th, 2011 02:49 pm (UTC), izmirian replied:
It seems like framing this as a California problem isn't the strongest argument. From previous threads I know that you have other good suggestions for improving the private insurance market. I think a better line of argument would be to agree that there are issues with the private insurance market and that it would ideally be improved before dumping everyone from Medicare into the private insurance market.
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On April 8th, 2011 02:20 am (UTC), psychohist replied:
Aside from some form of availability guarantees, my primary issue with the present health insurance system is that, for people who aren't retired yet, health insurance is selected and paid for by the employer rather than by the individual, and thus is optimized for the employer's benefit rather than for the individual's. In particular, this results in health care that's targeted at short term fixes to symptoms, rather than long term prevention of problems. Note that these issues don't apply to Medigap policies, which seem to work pretty well.

Medicare has a different set of problems in that it's driven politically by the providers rather than the individuals, and thus tends to favor expensive proprietary solutions over more effective but less expensive solutions and prevention. These problems are even more severe than the problems with the private insurance market.

The Ryan proposal guarantees availability, and gives the individual the choice of insurance providers. This largely fixes the problems of the present private market, although individual choice will still be somewhat limited by the requirement for government approval of the available insurance plans. That still makes it better than the present private insurance system, and far better than the present medicare system.


Edited at 2011-04-08 02:22 am (UTC)
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On April 9th, 2011 02:53 pm (UTC), harabise commented:
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