New York Times columnist and Nobel prize winner in economics Paul Krugman is famous for his dedication to fiscal stimulus as an escape from our current economic woes. No matter how much money the government pumps into the economy he wants more if the result is not what is desired. Thus he is indulging in a species of tautology. His reasoning can never be proven wrong; it includes all possibilities. Only one possibility actually, a stimulus always works if large enough. If you’ve spent all the money in world without result it’s because you still haven’t spent enough. Spend more and things will get better. If they don’t, continue spending until the end of time. There’s no science here because Krugman can never be proven wrong.
What does this have to do with health insurance? Well, people who think deep thoughts about medical care and work at centers that have Ethics, Humanities, and/or Policy in their names are often guilty of the same unipolar vision exhibited by stimulus addicts. There’s a perspective piece in the New England Journal of Medicine that is a perfect exemplar of the failure of analytical thinking by people whose sole reason for being is analysis. Truth and Consequences — Insurance-Premium Rate Regulation and the ACA examines the subject of increasing health insurance premiums. The piece states that the largest insurance companies have seen a disproportionate increase in profits over the past 10 years and that these profits are ten times the rate of inflation. Mills, et al don’t identify which companies are making these “disproportionate” profits.
In response to these profits the US Congress has passed a new law, the Patient Protection and Affordable Care Act (Affordable Care Act, or ACA). ACA requires the secretary of HHS in conjunction with the states to establish a process for the annual review of “unreasonable” increases in health insurance premiums. To help defray the cost of monitoring premium increases ACA will award the states $250 million over 5 years to stimulate their review of premium increases. Of course the feds expect something in return for this money. What’s expected of the states is that they will report trends in premium increases and that when an insurance company requests an “unjustified” or “excessive” rate increase the states will be asked (required sounds more apt) to recommend whether the offending company should be excluded from participation in the state exchanges established under the ACA which start in 2014.
Since an “unreasonable” rate increase lacks precise definition all this information flowing from the states to Washington will somehow help the federal bureaucrats come up with such a definition. Mills, et al comment (unhappily) that since regulation of insurance companies is a state responsibility that it’s uncertain how all this new information will stop “unreasonable” rate increases. Accordingly Senator Dianne Feinstein (D-CA) has introduced a bill “the Health Insurance Rate Authority Act of 2010 (S. 3078), which would establish a national health insurance rate authority to set limits on premiums. Without such federal action, states would most likely continue to use different and often lax criteria for identifying unreasonable premium hikes.” Quotation from Mills, et al.
The authors of this Perspective are cognizant that blocking “unreasonable” rate increases may result in hassles to both physicians and patients similar to what happened during the HMO craze of the 90s. They conclude on an upbeat: “This potential for disruption of patient care makes it all the more important that the quality-based improvements in the health care delivery system that are outlined in the ACA be realized. According to the Commonwealth Fund, reforms such as the establishment of team-based approaches to patient care, the wide dissemination and use of electronic medical records, and the creation of the Patient-Centered Outcomes Research Institute have the potential to save the health care system more than $700 billion over 10 years. If successful, these reforms could help to reduce the tension among government regulators who are demanding lower increases in insurance premiums, health insurers who are placing limits on medical care to achieve savings, and providers who are pushing back against what they perceive as private-industry regulation of medical practice. Without a comprehensive approach to bending the cost curve of health care while improving the quality and safety of patient care, neither the promise of stabilization of premium rates nor the broader promises of the ACA as a whole will be realized.” There’s no mention that the savings posited above, which are sure to be illusory, are only 3% of our annual medical bill. Furthermore, no one has yet devised a plan which improves quality and safety and simultaneously lowers cost.
There is no industry more tightly regulated than the health insurance business. Yet they still seem able to make “disproportionate” profits secondary to “unreasonable” premium increases. There’s no reason to suspect that the people who run the health insurance industry are any more greedy or prone to malfeasance than any other executives. They must be acting the way they do because their circumstances allow or encourage them to operate the way they do.
Back to Professor Krugman. When spending rivers of money fails to cure the economy the only reasonable solution is to spend oceans of fiat currency. So when regulation of health insurance fails to control costs, indeed it seems to encourage greater expense, the solution is more regulation.
It seems odd to me, but obviously not to Mills and her colleagues, that they don’t ask why health insurance costs are escalating so rapidly. The only sector of American life that has a similar upwards cost slope is higher education. Needless to say, Mills, et al work for a university. The regulatory apparatus that operates in virtually every state has as its main effect the discouragement of competition. The realities of life, especially in a democracy where lobbying is a constitutional right, ensure that regulations and licensing exist almost for the sole benefit of those regulated and licensed.
A simple remedy, that if it won’t cure might palliate, is to let buyers purchase their health insurance across state lines. This of course would free carriers from the mandates for coverage that states impose on health insurance vendors. It is quite certain that these mandates, which are the fruit of regulation, drive up costs. But liberal government and much of academia do not want a solution that lessens government control as they are certain that only more regulation can improve our insurance dilemmas.
If Mills, et al were serious observers of our bloated health care apparatus, they would question the assumptions that drive their “analysis” and conclusions. It is possible that more regulation of our medical “system” might bend the cost curve (this “curve” has rapidly become a trite cliché – anyone who parrots it is suspicious) downwards. It is also possible that they’re 180 degrees off from the truth. They should consider that a major cause of of high healthcare premiums is over regulation.
The problem with the debate about how to better organize our medical system is that, at least in the medical press, it’s not a debate. When journals like the NEJM discuss the subject everything the editors learned about scientific method is forgotten. They become enthralled by social doctrine and present only one side of the argument. This is a “sin” they would never commit were the subject medical science. It might be better for the country if the NEJM and its like entirely forswore the subject – health insurance in particular and the economic organization of the profession in general. The inescapable conclusion is that medical journals are not the organs that can achieve a balanced discussion of this issue – a great disappointment.
And just for the record – there are no such things as “disproportionate” or “unreasonable” profits except in the eyes of politicians and the misinformed. There’s obviously a great overlap between the two. Businesses will make the profits their markets allow. If these markets are distorted for whatever reason these profits will be larger than those that would accrue in a free, open, and competitive market. If one accepts this postulate than the remedy for “excessive” profits is obvious.