Why Health Policy Problems Are Rarely Solved, Part II

For at least half a century, we have been struggling with three health policy problems that never seem to go away: cost, quality and access to care. This is the case even though public policy has been actively trying to solve all three—with increasing aggressiveness through time.

Over the past 50 years, medical science has improved. Today, we know more and we can do more. We have better drugs, better diagnostic tools and better therapeutics. And we have better outcomes.

But, suppose we define quality as “best practices,” given the state of knowledge at any one time. Let’s define ideal access as “access to the best practices.” Let’s measure cost effectiveness as “health outcomes per dollar spent.” These definitions allow us to use a consistent standard in evaluating policy success over the five decades.

So, here is the question: Are we doing better today than we did, say, 10 years ago? Or, 20? Or, even 50 years ago? It’s not clear to me that we are.

The Regulatory Cycle

In response to a perceived social problem, governments enact a law or impose a regulation. Inevitably, the intervention is designed to force people to do (or refrain from doing) what is in their self-interest.

But as I pointed out in Part I, highly intelligent, entrepreneurial people in complex systems will pursue their own interests by finding ways to circumvent the regulation. As time passes, the circumvention will become increasingly successful, often creating new problems—maybe even worse than the initial problem the regulation was designed to address.

In response, governments rarely repeal the original regulation. Instead, they create a new regulation—which leads to more circumvention and even more regulation.

In health care we have been doing that for more than 100 years. The result is a system that is so completely burdened by regulation and perverse incentives that virtually no problem is being solved by normal market processes. We have the opposite of Adam Smith’s invisible hand. All too often, when people act in their own self-interest in health care, other people are made worse off.

Case Study: Employer Plans

Legislation in 1996 removed the ability of employers to exclude new employees or charge them a higher premium because of a preexisting condition. Subsequently, the Affordable Care Act (Obamacare) requires that all but the smallest employers offer comprehensive health insurance to all employees and their families.

Here is the problem. Suppose a company hires an able-bodied worker and only later discovers the worker has a child with very expensive medical problems. The company might end up spending hundreds of thousands of dollars a year (maybe several times the employee’s annual wage) on health care costs.

In this way, the unfortunate employer is being forced to bear the entire cost of what is clearly a social problem, yet the employer was not in a position to reduce or ameliorate the problem.

It didn’t take long for employers to find a sensible solution: make their plans attractive to the healthy and unattractive to the sick. Even before there was Obamacare, a typical employer plan had inexpensive primary care and free wellness programs (maybe including a gym membership), but very high deductibles and out-of-pocket exposure for anyone needing hospital care.

This practice is the exact opposite of what traditional insurance principles would dictate. In a normal insurance market, the insured are left to handle small expenses they can easily afford, leaving the insurer to pay for and manage the large expenses.

Another example: There are many reasons why an employee might need care that is outside the network of doctors covered by the employer’s insurance plan. The worker might have a medical emergency while on a vacation or need difficult-to-find care. In times past, the employer’s insurer would negotiate a reasonable fee for the plan and for the employee. These days, many employers are negotiating a low payment for themselves, leaving employees to do their own negotiation for their share of the bill.

These practices send an implicit message from the employer: “We don’t want to be known as a good place to work if you have large medical bills, especially out of network.”

In a very real sense, the employer insurance market resembles a game of musical chairs. No business wants to be the last one holding the largest medical bills.

Case Study: The Obamacare Exchanges

I would guess that when the Affordable Care Act was passed, President Obama himself thought that people would be able to buy a standard Blue Cross plan at an affordable price, regardless of health condition.

Apparently, that is what Blue Cross of Texas thought. When the exchanges first opened, Blue Cross offered plans that allowed the enrollees to see almost any doctor and enter almost any hospitals. Although there is some risk adjustment in the exchange, there was not enough to offset the cost of all the sick enrollees Blue Cross attracted. In a short period of time, it lost three quarters of a billion dollars and left the market.

The most successful insurer in the exchanges—with about a fifth of all the plans sold at one point—is Centene. This company began life as a Medicaid contractor and the plans it offers look very much like Medicaid with a high deductible. They pay fees to doctors and hospitals that are only slightly above what Medicaid pays, and providers that don’t accept Medicaid managed care are typically not in their network.

Today, Blue Cross is back in the Texas exchange—but with plans that look very much like Centene’s plans.

One problem is that these plans look very unattractive—especially to healthy people who are not getting a subsidy. Perhaps to avert sheer embarrassment over lackluster enrollment in President Obama’s signature public policy program, the Democrats in Congress created a second layer of subsidies. These are so generous that someone with an average income today is probably paying zero premium.

As Beverly Gossage and I wrote in the Wall Street Journal, if you have an average income, are buying your own insurance and are healthy, your choices have never been better. But if you are sick and need expensive care your choices have never been worse. The out-of-pocket exposure in these plans is as high as $9,400 for an individual and $18,800 for a family. The top doctors and medical centers are generally not participating. And, if you go out of network, the plans pay nothing.

Like the employer plans, the insurers in this market appear to be trying to attract the healthy and avoid the sick.

What Problems Have Been Solved?

Prior to Obamacare, people in Texas who were “uninsurable” in the individual market could enter the Texas risk pool. Although they paid a higher premium, they had a standard Blue Cross plan that gave them access to just about any doctor or hospital. Their out-of-pocket exposure was nowhere near what it is in the Obamacare exchanges today.

For people who obtain insurance at work, over the past decade things have become progressively worse for people with expensive medical problems.

Obamacare is not delivering more care. In fact, in the decade following the passage of the ACA, doctor visits per capita actually went down. And for those with serious health problems, it appears for many the out-of-pocket costs have gone up and access to the providers they need has gone down.

We can debate whether cost, quality and access problems are better or worse than in years past, but they certainly have not gone away.