Annals of Derp: The Infinite-Deductible Plan

Updated in tribute to the late Kenneth Arrow

Image from 25 Cognitive Biases.

Shorter Bret Stephens, "A Price for the G.O.P.'s Health Care Insanity", June 30 2017:

A colonoscopy will cost you $372 in Australia and $3,059 in the US, so obviously the problem in America is insurance, as Kenneth Arrow crisply explained in 1963, because nobody's going to shop around for the best price on their hip replacement if the Blue Cross is going to be paying for it anyway. Thus the Affordable Care Act is a colossal failure, so the Republicans should stop trying to repeal and replace it and instead double the limits on health savings accounts. I am not a crank.

No, that problem isn't insurance, because Australians don't shop around for the best deal on a colonoscopy either. They can't, because the government controls prices for medical services, as part of the operation of its publicly owned and funded Medicare system of universal health insurance, as do the other cheaper countries Stephens references, Spain, UK, and New Zealand. Thanks to these and other countries, we know a lot more about this now than Kenneth Arrow did in 1963, although Arrow knew a whole lot more than Stephens does, see below. Controlling health costs requires an active government effort, which is why the US is always dead last in doing it even as it provides mediocre care.

Update: Kenneth Arrow, who died last February, was the Nobel-winning economist who demonstrated from the model-theoretical standpoint in his 1963 paper that health care is a special case for which a laissez-faire market approach is "intolerable", and that government is obliged to step in, most likely acting as insurer, to make up for this. Krugman cited him in 2009 to warn against making the Obama plan too market-oriented. For Stephens to be quoting the work in defense of a system where everybody pays cash is like quoting Galileo to prove the Sun revolves around the Earth. I can't imagine what he thought he was accomplishing.

Stephens really does make that psychotic break from denouncing the death-spiraling Obamacare in the usual distorted terms to saying the Republicans should stop trying to do anything about it:

Here, however, is where the philippic against the Affordable Care Act ends. Barack Obama inherited a broken health care model and made it worse, unless you count shunting millions of people into Medicaid as a triumph. For all the liberal angst about the Republican House and Senate bills, they are only tinkering with the same unfixable formula.

The only genuinely promising reform in the Republican health bills are proposals to nearly double contribution limits for heath savings accounts and allow them to be used to pay for premiums.

(Like Brooks, Stephens seems to be free from copy editing—note the failure of subject-verb agreement in "the only genuinely promising reform... are".)

Yeah, I count enrolling 14 million adults in Medicaid as a triumph. I'm sorry Justice Roberts allowed it to be kept from the other 2.6 million from the non-participating states (where state rules say you're too wealthy for Medicaid if you're a family of three with an income averaging $8,870). I can't find where Bret Stephens explains why he thinks it isn't a triumph, either. I guess he thinks it's too obvious to require comment beyond the perfunctory Stephens sneer there.

That link, on his assertion that Obama "made it worse", is to Congressional Budget Office projections from March 2016 that don't anywhere say it's worse, either: they say that under current law the percentage of uninsured will hold steady from 2016 through 2026 at about 10%, from a high of 16.3% in 2010 (or decrease to 7% if you don't count unauthorized immigrants, who are not allowed to benefit from federal insurance programs). I don't know whether he's lying there or just magisterially assuming without looking that the data must back him up because he's always right.

I won't bother to go through his thoughts on "Obamacare" proper, the Marketplace for individual policies, because he just repeats stuff I've dealt with recently, but it's important to note that that's all he's talking about when he complains about Republicans "tinkering with the same unfixable formula." Their plans to gut Medicaid and tear down Obama's vital regulation of the health insurance system as a whole (the ten essential services, the ban on annual or lifetime payout caps, the cap on excess profits or what insurance companies call "medical loss ratio", and so forth) are much more than tinkering, but he doesn't seem to know they're in the bill.

He also cites a forecast in Fortune from last August on rising employer premiums—

Employers' costs of providing health benefits are expected to go up by about 6% next year while employees should expect about a 5% increase in their monthly premiums, according to a new survey by the National Business Group on Health (NBGH). 

—when more relevant actual facts are available, published by Kaiser Family Foundation in September, and provide a very different picture:

Annual family premiums for employer-sponsored health insurance rose an average of 3 percent to $18,142 this year, a modest increase at a time when workers’ wages (2.5%) and inflation (1.1%) also grew modestly, according to the benchmark Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2016 Employer Health Benefits Survey released today. Workers on average contribute $5,277 annually toward their family premiums.

This year’s low family premium increase is similar to last year’s (4%) and reflects a significant slowdown over the past 15 years. Since 2011, average family premiums have increased 20 percent, more slowly than the previous five years (31% increase from 2006 and 2011) and more slowly than the five years before that (63% from 2001 to 2006).

“We’re seeing premiums rising at historically slow rates, which helps workers and employers alike, but it’s made possible in part by the more rapid rise in the deductibles workers must pay,” KFF President and CEO Drew Altman said.

It's made the situation much better, all round, except for those pesky rising deductibles, which are directly connected to, wait for it, something very dear to Bret Stephens's heart:

The recent trend in part reflects covered workers moving into high-deductible plans compatible with Health Savings Accounts (HSAs) or tied to Health Reimbursement Arrangements (HRAs).  These plans have lower average premiums than other plan types.

The beloved HSA! That's where the most unpleasant feature of the world under ACA is coming from!

And, as logic would dictate, exactly what Stephens, with most Republicans, wants for those who have no insurance at all, or what you might call the infinite-deductible plan, as he goes on to write:

Government subsidies of H.S.A.s for low-income people, [Peter] Ubel writes [in Forbes Magazine], could turn H.S.A.s into something other than “another tax break for the wealthy” and “make our health care system more responsive to consumer needs.” This is what Singapore does, along with mandates for employees to set aside a portion of their income for H.S.A.s, and for employers to match it.

Oh, tell me about Singapore, which also operates a variety of levers to force prices for medical services to incredibly low levels, including owning 80% of the nation's hospitals and providing 20% of primary care; private providers have to keep their prices down or they can't compete with the (excellently run) socialist ones.

Incidentally the same principle, using government-owned institutions to force price competition, was supposed to be part of the Affordable Care Act in the form of a public insurance company which was to hold down the premiums, but Ben Nelson and Olympia Snowe wouldn't let us have that. If they had, maybe Obama's 2008 promise—

“While Sen. Obama promised during his campaign in 2008 that the average family would see health insurance premiums drop by $2,500 per year, the average family premium for employer-sponsored coverage has risen by $3,671,” noted Maureen Buff and Timothy Terrell in the Journal of American Physicians and Surgeons

—could have been kept. (Though I'm sorry to say it really looks as if Obama didn't know what he was talking about when he used that line.) (Update 2: No, I'm wrong, and Dean Baker—h/t commenter RAM—corrects me: "Okay Obama's $2,500 drop in premium number was relative to a growing baseline. This was completely obvious at the time and was apparent to anyone who spend two seconds looking at the projections. Health care costs had been rising 6 to 7 percent annually for decades. Obama was not saying that his plan would reverse this pattern and actually cause costs to decline. He was talking about costs relative to the baseline projection of growth. (Costs actually have dropped relative to baseline projections that even more than Obama projected, although it is debatable how much the Affordable Care Act is responsible.)"

Anyhow, that's Bret Stephens on health policy: arrogant, sloppy, clueless, and possibly dishonest, though the actual falsehoods may be an inadvertent consequence of that obnoxious self-regard.

More from Lemieux, possibly making this post unnecessary:

The takeaway, obviously, is to misleadingly quote an economist who made a famously prescient argument that markets in health care don’t work to suggest that the solution to American health care is more markets. Hard to quibble with that logic!