EK: Do you think there’s anything the Obama administration can do about that? Or is it just a question of the marketplace at work now?[bold italics mine]
RL: I don’t think there’s anything they can do for March 31. But as we move to 2015 open enrollment, the Secretary of Health and Human Services has some power to reshape the plans. The mandated benefits are so high they’ve driven costs up and created narrower networks. The statute talks about actuarial levels so the Secretary can’t just do anything she wants. But given a combination of regulatory authority and what the Obama administration has been willing to do already in overriding statute, I think they could do some pretty significant things.
If an entrepreneur had crafted Obamacare he would’ve gone to a middle class family. A family of four make $54,000 a year has to pay $400 in premiums net of subsidy and for that the standard silver plan has an average deductible around $2,500 and a narrow network. They’re going to pay almost $5,000 for that?
So the entrepreneur would say I’ve got $5,000 in premium and all this deductible, what do they want for that? And they probably would’ve said we want office visits and lab tests because the kids need to go in occasionally and then we want catastrophic care. The problem with Obamacare is it’s product driven and not market driven. They didn’t ask the customer what they wanted. And I think that’s the fundamental problem with Obamacare. It meets the needs of very poor people because you’re giving them health insurance for free. But it doesn’t really meet the needs of healthy people and middle-class people.
The essential problem is that almost half of health spending is driven by about 5% of consumers, a majority of whom have chronic medical conditions. Pretty much all of the cost, and many of the access, problems come down to how to spread around the costs of these high cost patients.
However, the problem lies in the text that I highlighted and put in italics. What consumers want is a health plan that they see working for them on their routine visits, routine visits that make up a vanishingly small part of our total health expenditures (from memory it's something less than 5% but I'm not inclined to search for one of the sources I read this in at the moment). This leads to the virtually unique situation where a system that is responsive to consumer demand is a system that is fundamentally broken because consumer demand is so divergent from the major drivers of cost and measures of quality (like mortality and morbidity or comparative cost of care; I would also add that hearing from my fiance she comes across a fairly large number of patients who have very good things to say about doctors that are responsive to consumer demands but give incorrect diagnoses and inappropriate treatment plans, this really is a bizarre market where we have to leave our standard rationality assumptions at the door).
I remember when there was a bit of an outcry because McDonalds, and some other employers, were cutting their health plans in response to these laws. These plans were exactly the sort that many consumers demanded, they saw them used frequently because they covered things like getting a kid amoxicillin for their strep throat. However, these were mostly mini-meds, the McDonalds plan had a $2000 yearly limit if I remember correctly. Even combining this with a catastrophic plan, plans like these simply won't do a good job getting the early treatment for chronic medical problems, or for long term health issues like maternal care (impacting the infant's long term health), that is essential to bending the cost curve.
Ultimately, the problem is that the market responds to people's short term needs while the political system responds to people's long term needs. In the short term, people want a plan that they will feel is doing something for them by paying for routine care while insuring them for an acute emergency. In the long term, people want a system that provides excellent health care to get mortality and morbidity down and that costs far less than today. However, with health care these priorities are opposed to some degree. One of the low hanging fruits to trim costs is to discourage people from overuse of routine care and antibiotics, making the routine visits that customers demand more difficult is in their long term interest, especially if it gets practitioners to focus more on long term health management rather than acute care. More importantly, designing a health care system at works means designing one that benefits not the middle class family that the entrepreneur focuses on but rather the individual with a chronic medical condition who is marginally attached to the labor market and good health insurance is the marginal intervention that will tip them into the labor force.
What this means for Obamacare I don't know. I see the good sense that getting people to sign up will mean moving towards the approach an entrepreneur would take. I also believe that this is a not insignificant part of why our health care system is such a disaster, these are the worst group to focus on to meet the public's demand for an efficient, affordable, and effective health care system. Solving the divide between what people want as families and what they want as the more amorphous public is something that I don't know how to bridge using market mechanisms.