MA health care legislation; dumb and dumber and how to fix it.

This is an article about RomneyCare, but with the passage and upholding of ACA it behooves all Americans to pay attention.   We have in front of our eyes an amazing example of politicians taking a problem, analyzing it and then proposing stupendously awful "solutions".   Republicans defend Romney suggesting that universal care would have been passed in Massachusetts and he salvaged it, while Democrats criticize Romney for not going far enough and leaving the one party in power to fix up his mess.  Shocker, both are wrong.  Let us look at the problem and discuss a solution!

Deval Patrick recently signed legislation that will control costs for MA residents.  Apparently it was a huge surprise to folks that intervention of strong-arm policies to insure everyone has lead to significant problems.  A quick look at what has transpired in the State.

While there are many ways to examine quality with certain indicators being debatable, one is clear and concise. Access.  The quicker you can see a doctor the better.  That much is clear, this is the embodiment of prevention therapy.  The longer problems go un-diagnosed/untreated the worse the patient feels while driving up costs in the long-run.

Kaiser Health News has coalesced different sources last year and the conclusion was obvious, wait times have increased across the board.  MassMed.org conducted a similar study and found that although internal medicine (PCP) wait times dropped from last year it remains to be the longest at 48 days total on average.  All specialties went up and family medicine jumping 7 days. 

Wait times are obviously proportional to the amount of doctors we have.  It is easy to insure everyone and call it a day, but increasing demand while doing nothing with supply is going to create some problems.  Oh the joy of central planning.  MassMed updated their proprietary index that tracks multiple indicators to determine "practice climate".  The chart:

Quite notable that the practice climate in the national space has flat-lined while MA has continued to decline. This decoupling is an indication that whatever recent legislation occurred since 2007 is having a negative impact on the quality of our doctors.  No worries though, after ACA is fully implemented the coupling should resume!  

So what is the purpose of the recent legislation?  As always, it is to control costs.  Forget that politicians always pay lip service to controlling costs when proposing massive intervention we discover that after messing with the free market, costs generally go up.  

Forbes provides for analysis, but this chart is notable:

Who wants to pay more and get less!?  I know you do, thankfully ACA will take care of that for you.

So what was the point of RomneyCare?  Well, ever since the champion of conservatism decided to shove EMTALA in 1986 down America's throats doctors have had a bit of a problem with managing ER visits.  See, people kind of figured out that instead of paying for insurance is kind of stupid since they can just wait to get sick, go to the ER and be treated no matter what.  This caused some squealing among hospital networks as they concluded that even jacking up health care costs for all of us still left them multi-billion dollar holes.  EMTALA was the humanitarian answer to providing health care costs at someone else's expense.  As so often happens when Republicans and Democrats get together, they get to give out goodies while the rest of us poor suckers pay for it dearly months, years and decades later.  

So now Republicans proudly announce that ER visits have vanished thanks to Romney and Beacon Hill. Oh yeah?   Reuters finds otherwise. The NCPA confirms and find that RomneyCare did not control ER visits, in fact they went up: 

How utterly embarrassing.  So let us sum it up, shall we?

Costs went up, ER visits went up, quality went down.  It is bad enough that a bunch of new expensive bureaucracy was created, but the hidden costs of more expensive lower quality care will negatively impact us far beyond what a chart or a number can show.  

So back to this new legislation that our wonderful Governor signed.  In a nutshell:

The new law allows health spending to grow no faster than the state’s economy through 2017. For five years after that, spending would slow further, to half a percentage point below the growth of the economy, although leaders would have the power under certain circumstances to soften that target.

Right.  Let me quickly explain what this means.  In words that everyone can understand.  "Because costs are out of control due to a variety of horrible policies enacted in the past 50 years and the failure of RomneyCare the current administration is going to employ price fixing to solve the problem".  

This 300+ page law will achieve this economically demented goal by indexing to the Gross State Product and surcharges on hospitals.  Two new state agencies — the Health Policy Commission and the Center for Health Information Analysis — have been created to punish all hospitals that fail to comply.  I think we can all agree that the path to freedom and prosperity is laced with more agencies having the power to completely throw pricing mechanisms out the window. 

As I have written countless times before, price fixing is one of the most favorite tools of the economically ignorant.  It offers beautiful short term gains while pushing shortages through the supply chain.   This way the politician looks like a hero and the market is blamed after it all blows up.  It has happened every single time in history and will continue to happen.  We are going to experience shortages.  This means more wait times and lower quality.  Yes, it is that simple.  

Whenever the answer to bad legislation is more legislation, run like hell.  Unfortunately after ACA rolls out there will be no place to run.

So what to do??

Shall we follow the path of the Canadians or the Brits?  Well, as discussed previously if you object to an agency putting a price on your life (literally) then the NHS is not for you.  If you believe that Canada is the answer, then you need to turn off Michael Moore and focus on Claude Castonguay. Who?  Oh nobody special, just the father of the Canadian health care system.  So what does he think after the failed socialized experiment?

“We thought we could resolve the system’s problems by rationing services or injecting massive amounts of new money into it,” says Castonguay. But now he prescribes a radical overhaul: “We are proposing to give a greater role to the private sector so that people can exercise freedom of choice.”

So after thinking socialism was the answer, Claude concluded after some soul searching that the private market is the answer.   Perhaps the millions who have suffered under a system Claude ushered in can take comfort in knowing that he finally figured it out.

Does that mean we should be happy of the status quo?  Of course not and the numerous health related articled I have penned demonstrate clearly that the status quo is problematic.  The question is, WHY?   We have a classic example of intervention policies distorting pricing and then politicians using the free market as the scapegoat.   Democrats would like a single payer as it would solve the problem of greedy insurance companies (companies our Gov't created) and Republicans think that if we reform the edges we can get out of this mess.   Both are hopelessly lost.  

We need to lower costs, dramatically.  This is my fundamental philosophy, more goods and services at lower prices is the way to prosperity.  This is so easy, even a caveman can do it.  The working poor of this country that eke out an existence can become the middle class if and when prices for food/housing/energy and health care drop.  They can purchase more goods while saving more money in the bank (although with Bernanke in charge, maybe not the best idea).  Capital formation is the key to long term wealth, there is nothing else that really matters.

We must expose true-price and party-to-party negotiation.  Guess what?  More insurance is exactly the opposite.  When you go shopping for car repairs without insurance, you see the price upfront and you base your decision on that price.  Price may just be a silly little number, but it is the quintessential mechanism that makes the entire system go round and round.   Insurance hides that information.  With that information hidden the consumer makes poor decisions.   Compare your behavior when doing car repairs with insurance and without.  There is a world of difference. So what are the major obstacles?

1) Subsidies.  Tax subsidies have done massive damage to how health care is provided in America. Because companies get subsidies for providing benefits the majority of Americans get their insurance policies from the employer.  This is extremely problematic for two reasons.  First, a majority have no clue how much their insurance costs them as the premiums they pay is a fraction of the trust cost.  Secondly, there is hidden wage suppression due to insurance increase absorption.  So while we "enjoy" our benefits it could be costing us thousands in real wages!   Remove this link permanently and have people buy insurance themselves.   Repeal the 1973 HMO act that gave rise to the money-hungry HMOs whose only real business is to withhold as much money from payment as possible.   This will also remove the moral hazard of people losing their job and their coverage.   When Americans finally see how much their insurance really costs behavior changes can finally happen.

2) Government provided care.  The remaining Americans who do not work are on health care plans that remove price from the equation.  Medicaid is now larger than Medicare and is roping in more and more people.  In fact ACA and RomneyCare heavily rely on Medicaid to solve the problem of the "uninsured".  Unfortunately this pure welfare system simply increases costs for all health care procedures as the price is hidden and incentive to choose a doctor wisely discouraged.  Medicaire while at least partially funded by taxes does exactly the same thing and for an age group that consumes the *most* amount of health care services in the country.   While reforming these two programs is out of scope of this article, it is important to recognize that between Medicaire/Medicaid and employer provided health care virtually nobody understands or sees the price!  Worse yet, Governments that run out of money go after these types of services first and foremost - with no private option to turn to this significantly disenfranchises the poorest Americans.  

3) Insurance.  Health insurance that we have today is a perversion and nothing more.  The insurance companies have placed their fat asses squarely between the consumer and provider thus badly throwing the entire pricing mechanism off kilter.  They have done so through employer provided health care, legislation that gave them teeth and exchanges like the ones RomneyCare creates.   Insurance must act LIKE insurance.  That is, it needs to kick in when an emergency event occurs and at no other time.   This should be so obvious that I am annoyed at just having to write it.   Paying for check-ups, physicals, scans, examinations and almost everything else you do on a regular basis at the doctor's should NOT be covered by insurance companies.  The fact that this happens simply drives costs through the roof.   The bitter tragedy is that the more insurance companies get involved, the more we need them.   

By stripping away the obstacles that prevent a normal relationship between you and the doctor our entire health care system will shrink tremendously.  The red tape will fall away, the insurance companies will shrink in size and power and prices will plummet.   Those prices that we do currently have are a distortion and a forgery, but these prices are well above inflation rates.   As a side note, whenever you see a protracted price trend above inflation be confident that something is very wrong.   For visual purposes:

The rapid increase after LBJ's Great Society is not a coincidence.  

In terms of reform ideas.  Medicaid should become a State only system, let each State figure out how to properly administer and handle the costs.  A system I favor is block grants to people under certain state poverty lines.  That way instead of paying a doctor that *had* to take Medicaid, the entire system and red tape vanish.  People will be given sums of money that adequately reflect health care costs in that region.   If they choose to spend that money elsewhere, so be it.   Catastrophic insurance will cover emergencies, but routine day-to-day costs will be taken care of between the patient and the doctor, NOT a middle man.  This alone will drastically reduce wait times and costs.  The block grant sum will invariably get smaller each year until some base price is established, a true real base price.   However each State can decide their own approach, after 50 individual experiments we will find out exactly which idea works.  Without 150+ million people getting health care from their employer the price normalization mechanism should kick in very quickly. 

Yes, the first few years there will be price shocks as the true cost of our insane system come to light, but after shedding all the weight it will be the envy of the world - once again.