Minefields in the health care endgame

COMMENTARY

Lonesome Hobo Economics

…But I did not trust my brother
I carried him to blame
Which led me to my fatal doom
To wander off in shame…
Bob Dylan, JWH, Lonesome Hobo 1967

I was ecstatic at the temper and pitch of President Obama’s health care address. I accept in principle the president’s position that the political instability arising from too dramatic a shock to the existing complex US health care system argues strongly for exerting every effort to avert the spread of panic or fear. The crazy, racist, Christian or theocratic right is playing hard on these fears, and it is important that they be isolated.

That said, the “public or non-profit” option alternative – never mind anything less than that, or the status quo — is hardly risk free. Introducing a public or non-profit option that competes with a large, complex private sector of the US economy, however, can have large, unexpected effects. Large market power is necessary to drive Mayo-clinic style delivery reforms that are required to overtake the very large initial subsides needed to launch and maintain the promised levels of coverage, including pre-existing conditions, and capped out-of-pocket expenses not covered by many existing plans.

The tax and subsidy challenges to get it right are daunting. I confess, after a day’s consideration, serious questions remain, the sum of which point to the high price in costs — and risks — paid for each step away from a single-payer system concept. Each concession to the insurance companies, drug and medical equipment companies, private hospitals, the wealthiest doctors and the danger of uncontrolled costs, instability and conflict are also increased.

One important question is will individual mandates become a hit, or an enhancement, of working people’s income? The president has bought into the individual mandate proposition. Will there be any mandate, or effective incentive, for employers to actually purchase, rather than drop health insurance, and turn en masse to the public option? Will it be like Massachusetts, which has not controlled or reduced costs because the public option there has little market power and private insurers still drive the market.

Some mandate is essential. Of the millions uninsured not a few are healthy individuals who choose not to obtain insurance. Thus, adding all these healthy people to the insurance pool is one of the major means by which universal coverage costs per person should be reduced. In addition, those now covered are paying approximately $1000 a year to cover the costs born by hospitals and emergency rooms and clinics serving uncovered patients.

Obama was leery of mandates in the campaign. He often cited strong ties to the South Side of Chicago and his days as a community organizer. He knew there were millions of Americans who would be hard pressed to pull even a $100 a month out of their disposable income to pay for health insurance. Workers take-home pay has been flat or declining for most of the past 30 years. Many workers covered under company plans already cannot afford to pay the co-pays and other out-of-pocket deductibles and caps on dependent coverage for their families.

While not having this coverage results in ruin and bankruptcies, workers are often forced to choose between food, housing, clothing vs health insurance Such co-payments run from $50 to $100 or more per week. So now that the president is committed to an individual mandate, we are talking big time subsidies being required for “those who cannot afford to pay”. If the public, or non-profit, option is too weak relative to insurance companies, there is no telling how high such costs could go, which would imperil further moderate reforms.

Which brings us to another issue. In order for mandates to work, there will have to be substantial subsides for many working Americans. However, keeping his promise to not add to the exploding federal deficit puts a lot of pressure on the president to set too low a level on qualifications for subsidies, resulting in a decline in disposable income for everyone above the qualification who must purchase coverage from either private, or public or other non-profit options. Such a result could unravel the pro-health care coalition. A large unknown here is exactly how the labor market will influence, or be influenced by, employers who choose (or are compelled) to reduce or drop private insurance coverage altogether.

In a recession with unemployment near 10% and rising, qualified workers will now be tempted by offers that do not include health insurance, that before would have been rejected. Deals already done — for example the one with the pharmaceutical industry, to pay them $80 billion to agree to cover the donut hole in Medicare prescription drug coverage — make the sum of concessions already hefty.

The president has further pledged that any public, or non-profit, option will be required to fund itself entirely on premiums. That might work if it could be scaled up fast enough to have the power, combined with Medicare Medicaid , the VA, government employees and Schips to restructure the delivery of medical services away from defensive and toward an outcomes-based health system. But that’s a lot of bureaucratic re-shuffling that will not be done overnight.

My takeaways for the road ahead are: 1) the subsidy must be large, especially in the beginning – to avoid any drop in working people’s income; and;

2) the non-profit sector must scale to a large portion of the total health care system and use its power to drive reform and gain the cost savings needed.