Post Mortem on the Health Care Bill

Well that was a big waste of time and effort. Your tax dollars at work. For the last eight years the House conservative ideologues huffed and puffed but could not blow down President Obama's house. But they sure did a job on their own place.

It's a strange situation. The conservatives got their way, which turns out to be the status quo as the Democrats left it, something they profess to dislike intensely.  Mrs. Pelosi claimed a great victory for the Democrats who were powerless to do anything without their conservative allies. She actually sounded pretty silly.

The President is a practical dealmaker and is most definitely not a conservative ideologue. In fact conservatives didn't particularly like him and some worked against his election. He was voted in based on his common sense perceptions of what was going wrong in our country, perceptions shared by a great many others who are also not conservative ideologues, in fact many Democrats. In his world of real estate deal making everyone gave in a little to get things done. Not so for conservative ideologues who, like petulant children, kick and scream to get their way, but find out in the end that mother was right after all.

To be sure Speaker Ryan's plan was complicated, and therefore there was no groundswell of support. It was carefully crafted so as not to hurt the Obamacare winners, to help those who need it, to move things toward a market based system, and to actually be enacted. For most people who are not political junkies this kind of complicated law, like Obamacare itself, was going to have to be passed to find out what was in it. The conservative ideologues would have none of this intricacy. Even the astute Dr Krauthammer favored passing a law that the Senate Democrats were sure to vote down and who would then take on the blame for its failure. But figuring out who to blame is hardly the point of fixing our health care system.

The President's focus is on getting his promises accomplished and he is going to move on. The conservative ideologues are saying that now we can begin again and do it right, but I think they're going to find that for now the rest of us are ready to move on as well. They have had their day. It strikes me that this fight might have been an opportunity for Democrats to exercise some influence. After all there is general admission that Obamacare is headed for major fiscal problems and needed major revision. Speaker Ryan's plan actually left Obamacare in place, albeit with considerable alterations. But unfortunately these days the liberal ideologues are just as much in the ascendency among Democrats as their counterpart conservatives among the Republicans.

The first hand has been played and Mr. Trump now knows where the cards lie. He's a quick learner, non-ideological and results oriented and it will be interesting where he goes from here.

The problem with Free essential benefits

There's a lot going on with the health care bill. Right after President Trump took office people were criticizing Speaker Ryan like crazy for not repealing Obamacare right away as promised. Now they're criticizing him for not taking enough time. He's probably kicking himself for acceding to the pressure to take this job.

However, I think the conservatives who are resisting the present bill have a point about the essential health benefits idea. It is short sighted to have the concept that there are some medical care items that are so important that they should be exempted from any financial restrictions like deductibles.

Take colonoscopies for example. The socialist-thinker says that we want to encourage people to get colonoscopies so we should make them "free". So there's no misunderstanding I also strongly recommended to all my patients that they have screening colonoscopies. But colonoscopies are not free and making them "free" actually raises the price which we eventually pay indirectly. If colonoscopies are subject to the same deductible as every other procedure people will prefer to have theirs at the out-patient center instead of at the hospital where the price is much higher. And soon some enterprising person will set up a colonoscopy center where this screening procedure, which has become very routine, is done in large numbers very efficiently, perhaps even by trained PA's, and thereby really cut the price.

When colonoscopies are "free" such forces do not operate. When they are "free" they are a liability to third party payers who then regulate them so that we are told who can have them and how often.

I will not even mention the added cost of paying for the regulators, the administrators, the billers, the coders, the IT personnel, all the hangers on who are needed to make this procedure "free".

The same reasoning applies to all the other "essential benefits" that some wish to exempt from deductibles, things like pregnancy care, drug rehab, etc. Surely it is appropriate to help those who truly cannot pay, but why continue to push medical prices higher and higher by making things "free".

The Health Care debate

I made the pretty obvious prediction that fixing our healthcare economics isn't going to be easy. Changing 50 years of accumulated bad government policy is problematical, not so much because we don't know what the problems are, but more because the public has gradually accommodated itself to the present system. Abrupt changes are disconcerting and can do some real harm, at least temporarily .

President Trump has made the statement that making the change was harder than he thought. You can't fault him for that because to really know the problems you not only have to be immersed in the system in some way but also to have really given it a lot of thought for a long time. And beyond that you have to understand the politics involved in turning the battleship around without sinking the rest of the flotilla.

President Obama likewise had extremely limited understanding of healthcare economics. He wouldn't be expected to know much given his lack of background in the subject. During the Obamacare debate, for example, he made some very foolish statements about how doctors behave. Whether he understood his lack of knowledge is hard to say. He never admitted his surprise as Trump has. Speaker Pelosi and Senate Leader Reid were in the same boat. The ACA was mostly devised by policy wonks who had no particular complaint with the old system and just wanted to bring everybody into it. The politics was much easier because of the overwhelming congressional Democrat majority, including 60 Senate members, but even so it was a hard sell.

President Trump has some advantages. HHS Secretary Price has a deep personal understanding of both the medical and the legislative issues. Speaker Ryan has an overwhelmingly better grasp of the issues than did Speaker Pelosi, although she is said to be good at head counting when it comes to passing legislation.

Senator Schumer and the Dems, as expected, have turned their faces against the new American Health Care Act for the time being. Whether they can hold fast against items, which will be presented later, that promise to substantially lower the cost of health insurance and health care generally remains to be seen. Meanwhile we are now seeing a battle royal among the Republicans. As one political commentator said this is an old time legislative fight, something we haven't seen in decades.

I think Ryan and Price's basic goals, designed first and foremost to lower the cost of health care and then to make sure that everyone has access to at least basic standard medical treatment, are widely accepted among the Republicans. The argument is about the politics of how to get there. It's really pretty interesting. The opening gambit of the AHCA was laid down and now there's a pretty public debate. It reminds me a little bit of what I've read about how things went when our constitution was being devised. The points of reference are pretty disparate at this stage and we'll see what compromises can be reached. If there was ever a time for President Trump's deal making skills this is it. He is said to be working very hard at it.

I've heard the argument put forth that Obamacare is collapsing financially, that we should just let that happen and then people would clamor for a solution. That road would lead to disaster. The Republicans were elected in part to fix this problem and they'd better do it.  

Observations on the AHCP Republican healthcare plan

Here are some initial observations about the American Health Care Plan.

Obamacare diagnosed the problem of our health care system as an underinsurance problem and focused on getting everyone insured. Although it's true that something like 15% of our citizens were locked out of the system, Obamacare addressed only one of the symptoms of our sick system rather than the disease. Furthermore its treatment was faulty and was falling apart.

The Obamacare plan for the uninsured was to have the younger healthy people fund the care for the older sicker people but they weren't buying into the deal. There were certainly winners but a lot of losers too as many were forced off insurance they liked and had to pay much higher premiums. Many of the winners, actually most, were simply being pushed into the Medicaid program. Medicaid is not the subject of this post except to say that it is a truly terrible program. It is flawed from many aspects but from the economic standpoint it is at the same time grossly wasteful and grossly underfunded and pushing more people into it is definitely not a rational solution for what ails our system.

Most reasonable Democrats agree that Obamacare as it stands is flawed but wish simply to fix it. However not only is the basic concept wrong but it does nothing to correct or even aggravates the more fundamental problems of our health care system such as severely excessive medical prices, stifling of innovation in medical services and grossly excessive outside interference in medical practice. The plan that the President and Congressional leaders have now proposed will attempt to address all these problems.

The Repubs have some major problems that the Dems didn't have in 2009. The Dems had a filibuster-proof 60 member majority. Also, despite its problems, 8 years have now allowed a bunch of Obamacare beneficiaries to settle in. The Repubs must honor Trump's pledge that the new plan would take care of these people. Parading them around would be red meat for the Dems attacks. More than that it's the right thing to do.

What the Repubs must absolutely clarify is that the AHCP is only the first installment of a comprehensive three part plan to rationalize American health care economics and it is the least important part to boot. It's the Obamacare replacement to help the uninsured. It gives them money through the tax system to use to buy their own insurance. No more mandates. It keeps in force the Obamacare insurance regulations on pre-existing illness and children up to age 26.

The next 2 parts to follow are more critically important. Part 2 is Tom Price, the HHS director, eliminating many of the Obama era regulations on health care. Part 3 is the good part intended to lower health care costs, encourage service innovation and give health care back to patients and doctors. This includes things like buying insurance across state lines, malpractice reforms, broadening the use of health savings accounts, and allowing various organizations other than employers and unions to develop specific insurance products. For example ARC, an organization advocating for the disabled, could develop an insurance plan tailored for its members like my disabled grandson.

The reason for splitting things up like this have to do with Senate rules which will allow Part 1 to be passed by a simple majority, but Part 3 will need to get some Democrat buy-in to overcome a filibuster. However the whole thing ties together. Giving the uninsured money to buy their own insurance is important, but bringing the cost down and allowing for service innovation is critical, not just for the uninsured, but for everybody.

The Dems are shooting at the plan, which is to be expected. The Repubs did it with Obamacare. However the Dems have allies of convenience in Rand Paul and his conservative friends who look at the refundable tax credits as another government entitlement. There's a problem with their argument. Tax subsidies, mostly from the federal government, amounting to more than $300 billion, go to people who get insurance through their employer. No matter how you slice it that ain't fair to those who don't. Dr. Senator Paul can't have things both ways. Either you give the subsidies to everybody or not to anyone, but taking them away from those who get employer based insurance at this point would be political suicide.

Part 1 might have some alterations before coming to a vote. But the most important point is that passing Part 1 is necessary both to replace the Obamacare arrangement to help the uninsured, but also to get to the good stuff in Parts 2 and 3.

One last point. Almost immediately the AMA leadership came out against the new plan. That alone would make me support it. The AMA presumes to speak for all physicians, but have less than 20% membership, and that counts student and resident members. Practicing doctors didn't drop their memberships because they just forgot to send in their dues. The AMA doesn't speak for them so don't be fooled by that one.

The Lack of Market Forces in U.S. Healthcare. MRI Cost and Utilization as an Example.

The fundamental problem with the economics of medical care in our country is that, in accordance with government policies over many decades, we've relegated payment to third parties. The result has been high prices, reduced quality of services and stifling of service innovation. I'd like to provide some concrete examples in the next few posts. I'll start by inserting a section from an essay I wrote 3 years ago:

In Japan medical services are completely private but prices and fees are strictly controlled by the government and are set very low. The average price for an MRI of the head in 2009 was set by the Japanese government at $105 as opposed to over $1000 in the U.S. At such prices one might have expected producers to have limited interest in these tests but in fact Japanese manufacturers responded to the market by producing compact machines at a much lower price[1] and are producing these machines for export.  As a result consumer demand increased markedly and Japan now has far more MRI machines and does far more MRI tests per capita than any other advanced country[2] resulting in both decreased cost and increased diagnostic capacity. Contrast this situation with that of Canada where funds for medical services are centrally controlled and availability of MRI machines is limited by budgetary constraints. One finds there long waiting periods for all but the most urgent MRI tests[3] and therefore marked decrease in diagnostic capacity.

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[1] Reid, T. R. (2010-08-31). The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care (pp. 92-93). Penguin Group. Kindle Edition.

[2] MRI scanners per capita http://www.oecd-ilibrary.org/sites/health_glance-2011-en/04/02/g4-02-01.html?contentType=/ns/StatisticalPublication,/ns/Chapter&containerItemId=/content/serial/19991312&itemId=/content/chapter/health_glance-2011-30-en&mimeType=text/html

[3] Waiting list for MRI in Canada http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2653696/#__sec7title

I quote this section not to endorse the Japanese system or to suggest the correct utilization of MRI scans but simply to show the large elasticity that exists in the use of medical  technology and how such technology is dependent on economic stimuli.

Many people have the idea that medical practice is cut and dried, that there is only one right way to treat each case, and that therefore the market forces of substitution or alternative choices cannot operate such as for example when buying a refrigerator or a television. This is far from true. If a patient comes with shoulder pain there are multiple diagnostic and treatment options. MRI gives the most definitive anatomical diagnosis but is not needed. After all there was a time when there was no MRI. A cost of $100 vs $1000 makes a great deal of difference as to whether it is selected.

In Japan almost all have insurance. There is a fee for service system and the patient pays a portion of the cost, usually 30%. All medical facilities must be operated by doctors. The government carries on negotiations with doctor representatives to set prices. I believe that it would be better to have a market based system in which the patient makes cost decisions which would result in lower prices and more innovation. However the point is that the price was forced down. Hitachi and Toshiba innovated by producing a new line of compact, inexpensive MRI machines costing around $150,000 - a fraction of the price of the bigger machines then used in the United States resulting in a much larger MRI market.

In our system the orthopedist demands an MRI which leaves no diagnostic ambivalence. The cost to the patient is either zero or some small co-pay. The third party payer has little justification to refuse. All it can do is put up roadblocks, demanding a lengthy frustrating procedure to obtain permission. Canada with it's government run system faced the high cost MRI problem by limiting the availability of MRI machines. MRI facilities in Canada have a substantial wait list problem, with some centers reporting wait times of up to one month for urgent scans and up to several years for non-urgent scans.

The U.S. has 4 times as many MRI scanners as Canada and Japan has many more than both countries. Japanese patients have many more MRI scans than in the U.S. and far more than in Canada. In the U.S. because of third party payment there is little market pressure on cost and technical innovation tends toward higher cost refinements rather than lower cost advances. Technology is the lifeblood of medical advances. However, for third party payers technology that increases cost is a liability and is resisted. The Canadian government payment system follows suit and therefore a system intended to assure medical care for all by putting the government in charge ends up by restricting its availability.

MRI is an essentially harmless way to investigate the body's anatomy. Originally it was developed with brain and spinal cord diagnosis in mind. However it has now revolutionized orthopedic diagnosis. I read recently that prostate MRI is equal to needle biopsy in localizing cancer. Who knows what other uses might be found  in a mass market, but it's use is restricted by payers. MRI price is obviously far higher than it needs to be, even for insurers. The real price would be discoverable only in the free market in which consumers rather than third parties paid. Direct payment would put market pressure on price, would not restrict the market but would expand it and would lead to innovation based on cost and efficiency just as it did in the computer market.