Friday, November 29, 2013

Having Your Cake and Eating it Too: Health Care Edition


I noticed fairly recently that there's growing anger among many state policymakers and insurance commissioners about the narrowing provider networks under many of the plans in the ACA's exchanges.

Before I delve into the few points I wanted to make, I suppose a quick primer is in order for how most insurers work. An insurance company, say, Aetna or BCBS, contracts with a network of providers and hospitals and agrees to pay them a certain amount in reimbursement for various procedures. What the aforementioned malcontents are upset about is that many of these plans on the exchanges in some states are featuring more narrow networks of hospitals and doctors in order to offer lower premiums. Naturally, the ACA is to blame for this, right? 

Not really. I'd argue that this is more of a feature of a competitive market than anything else. The insurers, wanting to offer more affordable plans in the exchanges, contracted with doctors and networks that agree to take lower payments for equivalent procedures than other, more expensive hospitals or doctors would. The savings, then, are passed on to consumers in the form of lower premiums.

The other important point to be made here is that this kind of insurer, known as a Health Maintenance Organization, or HMO, has been around since 1973, and has been growing in prevalence for quite some time. The ACA simply accelerates their growth because--guess what? People like lower prices. People like competition. And, quite frankly, this kind of narrowing of the networks is a very good thing, because it plays a huge role in slowing the growth of health care costs (which, by the way, means more money you could be spending on other things). For example, in the 1990s, HMOs became far more prevalent, but in the early 2000s, there was a backlash in many states as a result of the narrowing of provider networks. An MIT study comparing states that restricted these cost-cutting measures to those that did not found this:
"I find that the backlash increased the U.S. health care share of GDP by 2 percentage points relative to a counterfactual with no backlash, which is slightly more than its entire increase during the backlash period."
You'll also note the spike in 2001, at the height of the backlash, which appears to corroborate this story:

Look, I can understand that some people might be upset about losing a doctor they like, but this isn't really news at all. Insurer networks change all the time. And people are going to have to decide if they want to have a wider choice of doctors or if they want to save money, similar to any other decision a cost-conscious consumer would have to make.

Policymakers--both left and right--should stop promising the moon to constituents on health care, because that's exactly how we ended up in such a mess. Designing a health care system that isn't as staggeringly wasteful and inefficient as ours is can't be achieved if we promise that you can always keep your doctor or your health plan, or if we try to force insurance companies to cover certain hospitals. This isn't realistic, and even worse, it isn't good policy, and it has to stop.

P.S. I think it should be noted that there are winners and losers under every single public policy, and acting surprised or expressing a sense of schadenfreude only further degrades the quality of policy discourse.

Monday, November 4, 2013

Breaking News: Incompetent ECB is Shocked At Its Own Incompetence

Forgive me, that was cutting, but this is just too much. Last Friday, there was an article in the Washington Post that began with the following sentence:
"On top of high unemployment and sluggish growth, the European Central Bank has a new headache: an unexpected drop in inflation."
Seriously? The drop in inflation was "unexpected?" On the one hand, you've got most Eurozone countries adopting one form of austerity or another--in the case of Greece or Spain, quite severe cuts, while in Germany the cuts are more modest. On the other hand, you've got a staggeringly incompetent central bank that has repeatedly refused to take any additional steps to ease monetary policy in the face of falling inflation and sky-high unemployment






So how this comes as a surprise to anyone is really beyond me. In fact, it should have been all too predictable. Now all that remains is to see if the ECB is actually willing to do something about it. So far, European officials have lulled themselves into complacency since the most immediate crisis was staved off last year. But the real crisis is still very much alive and well, and they ignore it at their (and Europe's) peril.

Friday, November 1, 2013

Employer Provided Health Insurance Isn't Really Provided by Employers


As many of you may have noticed, I've been on a bit of a tear lately attacking employer-provided health insurance. Anyway, I'm at it again today. One of the things I've actually heard a lot of people saying about EPI usually goes something like this, "Why should I care if my employer-provided plan ultimately costs more that one I can get in the exchanges? My employer's the one footing most of the bill!" 

This is demonstrably wrong. It helps to think about it like this: when you're a worker who gets paid in cash and gets insurance through your job, your total compensation is how much your employer spends on you--both on cash wages and for your insurance. Simply put, every dollar an employer puts in towards paying "their part" of your premium is basically just one less dollar they'd have paid you in wages. In fact, over the longer run, employees who don't get insurance from their employers ended up getting paid higher wages overall (ever notice how contract workers get higher pay than salaried ones?). So even if your employer supposedly seems to be footing the bill for most of your insurance plan, they really aren't, and every time health care costs rise more rapidly, that ends up depressing your wages. For those of you visual learners, here's an interesting comparison to consider:



There's a bit of a lag in the data, and there are obviously many, many more factors at play here than just health care costs, but it certainly is interesting to think about and does seem to bear out the theory. As you can see, in the early 1990s when health care costs grew more slowly, wages grew somewhat more quickly. 

In any case, this apparent one-for-one trade-off that's been found between EPI and wages is made even worse by the fact that employers sometimes end up offering plans that are far more expensive than many employees actually need. For example, a company that has both younger and older employees might offer a generous (read: expensive) health plan that the younger employees don't actually need, but are basically coerced into getting if they want to be insured. This creates the doubly unfortunate situation in which a rise in costs eats into their wage growth and is further exacerbated by that already expensive plan. Needless to say, this is a lose-lose situation for a lot of people.

So have I convinced you yet?