The One Thing Healthcare Lacks that Makes It So Dysfunctional

People making value-sensitive decisions and thereby driving value-improving competition in the book industry! Photo by @thiszun on Pexels.com.

If I had to pin down one thing that healthcare lacks that makes it such a dysfunctional industry, this is what it would be: value-sensitive decisions. I throw the term around here and there, but it deserves a little more explanation.

You’ve heard of someone being price sensitive, right? It means price is an important consideration when they are choosing between multiple options.

How about quality sensitive? That means quality is an important consideration when choosing between multiple options.

Everybody is quality sensitive; they don’t want to acquire something that doesn’t fulfill their need.

And people are usually price sensitive. The exception would be when the difference in price between their multiple options is such a tiny percentage of their wealth that it’s deemed insignificant. For example, a wealthy person buying a book on eBay would probably choose the $25.00 “Like New” book rather than the $24.99 “Acceptable” book. The poor college student, on the other hand, may very well get the cheaper one!

Remember, Value = Quality / Price. Therefore, when someone is both quality sensitive and price sensitive, it’s called being value sensitive.

In a normal industry, value-sensitive people buy the option that they deem to have the best mix of quality and price, which is slightly different for every person depending on what aspects of quality are most important to them and how much money they are willing to spend on the thing. These value-sensitive decisions are the engine of competition.

You see, when value-sensitive decisions are taking place in an industry, every company in that industry is trying to deliver the best mix of quality and price because they know that if they succeed at doing that, consumers will choose their product over their competitors’ products, which will enable the company that accomplishes that to reap the biggest share of the profit pie.

Of course, there are different consumer segments with different wants and different amounts of money to spend, but companies are trying to achieve that perfect mix of quality and price for each consumer segment that they’re targeting.

This is the core aspect of a properly functioning market. Without value-sensitive decisions, everything gets distorted. Companies will still fight for the greatest share of the profit pie, but the focus of competition is no longer on overall quality and total price to achieve that. Instead, competition shifts to focus on the aspects of a product that consumers are basing their choices on.

So, bringing this back to healthcare, if a patient has no idea about the relative quality of Hospital A versus Hospital B, they use quality surrogates, such as convenience of parking or how beautiful the lobby is. And if they will only pay a flat copay regardless of the total cost of their hospitalization, they stop caring about relative total price completely.

Think of a scenario where a patient has a flat copay for any in-network hospital. If they have to pay $10 to park at Hospital A, but parking is free at Hospital B, the cost of parking has now become the salient feature upon which they will be basing their assessment of price. And assuming they think both hospitals are of equivalent quality, that parking fee just made Hospital A’s value lower compared to Hospital B, so the patient will choose to go to Hospital B.

Basing a multi-thousand dollar purchase decision that could literally be life or death on a $10 parking fee seems pretty ridiculous, doesn’t it? But this is what our healthcare purchase decisions are relegated to when we do not have the information and incentives necessary to make proper value-sensitive decisions.

Given the sorry state of value-sensitive decisions in our healthcare system, I would argue that it is delivering exactly the overall low value that we should expect. And this is why I focus so much on explaining how we can eliminate our healthcare system’s barriers to value-sensitive decisions.

A Framework for Thinking About Welfare Policies

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If you’ve read much of this blog, you already know that my brain makes sense of the world via exhaustive, mutually exclusive categorizations. And here is that applied to welfare.

Speaking specifically of financial situations, there are three categories of people . . .

  1. Self-sufficient: They currently don’t need external financial support
  2. Temporarily dependent: They need some degree of financial support now, but they have the potential to shift into the self-sufficient category
  3. Permanently dependent: They need some degree of financial support for life

I believe people want to be in the self-sufficient category. Being self-sufficient is fulfilling; it’s an achievement obtained through effort that leads to growth, and humans obtain fulfillment from personal growth.

But humans also want to get the most for the least amount of effort. If it’s unquestionably proven and everyone knows that you can get equally great-looking and strong abs with the Seven-Minute Abs workout or the Eight-Minute Abs workout, nobody would choose the latter unless they get some ancillary benefit from working out for an extra minute.

Welfare efforts, either private or public, need to take into account those two features of humans as they seek to achieve the goals of (1) helping people who are in the self-sufficient category to stay there, (2) financially supporting the people in the temporarily dependent category in a way that promotes their movement into the self-sufficient category, and (3) providing sufficiently for the permanently dependent in a way that preserves their dignity.

But this is only half of the discussion. Remember, there are two groups of people involved in welfare efforts: those to whom the wealth is being provided (the recipients) AND those from whom the wealth is coming (the benefactors). My simple framework above only deals with considerations about the recipients.

And what of the benefactors? Talking specifically about government welfare programs (forced giving “at the point of a gun,” as libertarians would put it), there are several impacts on them that should not be ignored. Forced giving takes away the increased societal cohesion and shared empathy that comes when a benefactor gives to a needy neighbour. Beneficiaries may give more of themselves when they do it voluntarily and when they have more control over how their donation is used (because they are giving in a way that they feel is most efficient and best for the recipients). And when high taxation is instituted for the sake of wealth redistribution (especially if it’s progressive), beneficiaries’ incentives change–their marginal willingness to work and create more jobs and wealth (which will probably end up being used by others rather than themselves if they are already wealthy) is diminished, although the macroeconomic impacts of that are unclear.

There are many other considerations and values that come into play when deciding how best to provide welfare in a society, and I will not try to go through them exhaustively. But I do have a couple other points to make on this topic.

First, it’s ok for people to have different values that lead to different decisions about how best to support those in need. I don’t feel like people generally come to their preferences about this topic based on bad motivations, of which probably the most common accusations are greed and selfishness–“liberals want free stuff from the rich,” and “conservatives don’t care about the poor.” On the contrary, they all seem to be trying to figure out what the right thing to do is, but there are multiple values at play, and it just depends on how you prioritize those values.

Second, people forget that there is a difference between inequality and poverty. The is especially relevant to my post last week about socialism. Is the goal to eliminate wealth disparities, or is it to eliminate poverty? There’s a huge difference. That same question, put a different way, might help clarify the distinction: Is a society morally objectionable if it has eliminated poverty but still allows for significant wealth inequality (assuming the society’s policies are such that it also supports people’s freedom of opportunity to move between classes)? Your answer depends on your core values and beliefs about the goals of a society.

And now you know a little more about why I said I’m torn about where I sit on the welfare spectrum.

What Is Socialism?

Image credit: Daria Kochetova

The term socialism has been a popular one this election season, but people are using it in many different ways. Some say most Democrats (including Joe Biden) are socialists. Others disagree and reserve that term for Bernie Sanders. And still others reserve the term for the policies more akin to Cuba and Venezuela. Then there’s the question of whether the Scandinavian countries are socialist, and even Canada gets thrown into the mix. (I have enjoyed reminding conservative friends lately that I grew up in a “socialist” country and that it was a great life!)

The difficulties people have in defining socialism arise, in large part, from not realizing that the they are entangling multiple distinct aspects of government into a single term. They need a framework to categorize the major aspects of government.

To elaborate on what I wrote in that linked post (which you should read first if you haven’t lately), socialism is strictly defined as a system where the “means of production” (i.e., the companies producing the goods and services) are owned socially. Social ownership could mean a few different things, but usually these days we interpret that to mean that the government owns them and runs them.

As an aside, this is where the term “socialized healthcare” comes from–the government owns and runs the health insurance industry, plus or minus the provider organizations as well. I guess if it only owns the health insurance side (e.g., Medicare for All), it can only be considered half-socialized healthcare. And if the government owns the provider organizations as well (like in the U.K.), then it’s fully socialized healthcare.

Anyway, based on that strict definition of socialism, the term only encompasses a single spectrum out of the five–the economic spectrum. It says that the locus of decision making about the use and distribution of resources/goods/services is closer to the centralized end of the spectrum.

But people don’t commonly use that strict definition, and that’s where things get messy.

When I studied socialism in social studies class in my Canadian public high school, the term was used a little bit more broadly to include government ownership of the means of production AND a great degree of wealth redistribution to ensure a relatively high minimum standard of living for all citizens. In other words, the term encompassed two spectra–the economic spectrum and the welfare spectrum.

Using that definition, we appropriately didn’t see Canada as a truly socialistic country: The Canadian and provincial governments only own a few industries’ means of production, and they provide generous but not expansive (socialism-level) welfare programs. That’s why we studied other countries’ governments to learn about socialism.

And now, with this talk of Cuba and Venezuela, people seem to be adding in a third spectrum to their definition: the liberty spectrum. This definition of socialism, then, includes government ownership of the means of production, extensive welfare programs, AND severely limited liberties (i.e., totalitarianism).

There’s no sense in arguing over which definition is correct. People are allowed to use whatever definition they want (thanks, First Amendment!), so debates over definitions of terms get us nowhere. Instead, people need to clarify the definitions of ambiguous terms they are using so the focus can remain on the substance of the conversation rather than the words being used to convey that substance.

So, is President-Elect Joe Biden a socialist?

Well, if your definition of a socialist is someone who will push our government toward more centralized economic decision making (via a mixture of policies that (1) regulate the free market and (2) increase government ownership over some aspects of the economy) and toward more wealth redistribution, then, YES, he is a socialist.

But if your definition of a socialist is someone who will enact extensive central planning, near-total wealth redistribution, and maybe some totalitarianism as well, then he’s nowhere near a socialist. Or, if you think his true policy preferences fit that description and that his policies are calculated to get us to that point, I guess you could say he’s a closet socialist, or maybe a progressive socialist.

Either way, define your terminology and then let’s move on to substantive discussions about the merits and limitations of his policies and alternatives to them.

My Biases, Disclosed

First, congratulations to President-Elect Joe Biden. He’ll have the House on his side, but it’s starting to look like the Senate may be his barrier to moving any of his major healthcare plans forward. Now that he’s been elected, my recent evaluation of his healthcare plan takes on new relevance.

In every election season, people want to know what everyone’s political preferences are. This is a precarious topic especially for me, as someone interested in helping leaders fix healthcare, because any expressed preference risks closing doors. But so does remaining completely ambiguous.

I think readers can guess some of my preferences based on my writings, but I fear there are incorrect assumptions made as well. So let me answer the question as directly as nuance allows.

First, as usual, I will frame this discussion. I believe that all opinions about government can be divided into five major categories, which I explained a year ago in my post describing my framework for categorizing governments. I won’t re-explain the categories or their respective spectra here–go read the explanatory post. It’s super short.

The three spectra most relevant to opinions about how to fix healthcare are the economic spectrum, the welfare spectrum, and the liberty spectrum.

Economic spectrum. I believe in a decentralized locus of decision making. The economic rationale for this is incredibly persuasive to me–the aggregate information conveyed by self-optimizing decisions made by millions of people every day adds up to way more market insight than a central deliberate overseer could ever have. That doesn’t mean I believe there are no benefits to the occasional centralized decision, nor does it mean the end result of the aggregation of all the individual decisions is always optimal, but I do believe that long-term success in a market is far superior when we rely on that information. This assumes people have the information requisite to make self-optimizing decisions, which has mostly not been the case in healthcare. In a case like that, my preferred solution is not to centralize the locus of decision making; rather, it would be to get people the information they need. A major implication of this for our healthcare system is that I do not believe the government should set fixed prices. You will notice that even a U.K.-style system or a single-payer system can be implemented in a way that adheres to this.

Welfare spectrum. This is the one I have the hardest time with. I have been in dozens of homes and seen first hand the depravities of entitled attitudes and multi-generational government dependence. But I have worked as a physician in community hospitals and seen the tragic consequences of being uninsured. I have served in religious capacities and seen the dignity that comes from achieving self-sufficiency. But I have experienced the burden lifted by food stamps and Medicaid. In short, I am pulled in different directions, and where I place myself on this spectrum depends less on the amount of wealth redistribution involved and more on the principles upon which those programs are based. I’ll write more about this next week.

Liberty spectrum. This one also pulls me in a couple different ways. I have strong moral beliefs that I would love for everyone else to espouse, but I also believe we can show an equal amount of love and consideration for those whose beliefs are opposite of ours. I also believe in allowing people their own agency to live their lives how they feel is best, which makes me hesitate to support government policies that enforce or subsidize one set of beliefs over another. But I do have a strong preference for overall minimalism and simplicity. Each additional law and regulation that results in additional complexity in our already overly complex modern lives pains me, and I believe the cumulative burden of complexity on us and on businesses is ignored when discussions of individual policies are undertaken. Therefore, the threshold benefit for me to be willing to support yet another complexity-increasing regulation is incredibly high, and I am predisposed to support changes that lead to overall simplification.

I’m not sure that will adequately sate anyone’s curiosity about my voting record, but those are some of the major principles upon which I rely to make my decisions.

Two last thoughts about my biases. First, I make a point to suspend judgment on any issue until I feel I have thoroughly grasped the arguments–and especially the values that undergird those arguments–from all sides. Second, when one gains additional understanding about an issue, I believe it’s ok for them to change their opinion without it undermining their credibility; a well-reasoned change in opinion should be seen as the mark of an imperfect being who has the intellectual integrity to admit ignorance and continue to strive for a more complete knowledge.

Cost vs Price vs Charge, Explained

I’ve written a lot of long blog posts lately, and partly that’s because I don’t want to split certain things up. But I, as much as anyone, love when I see an article is really short. It feels like less of a commitment. So, I am committing to deliver short posts more often. That means covering less ground with each post, but I think discussing a specific single principle in a blog post can be very effective. So, now that I’ve gone on so long about short blog posts, here’s this week’s dose of health policy . . .

Let’s talk about terminology.

When I started medical school, I didn’t understand why there were so many doctor words. It seemed to interfere with physicians communicating clearly with patients because they so often slip into using those jargon-y words.

I have since learned that to be clear with your communication, you need words with precise meanings. This avoids so many problem-causing ambiguities. For example, I could tell another doctor a patient has an owie on his back and it hurts, and it would communicate almost nothing. But if I said the patient has a unilateral eruption of erythematous papules and vesicles along the T6 dermatome with associated burning pain and paresthesias, the other doctor would be able to visualize exactly what I’m describing (Herpes zoster, AKA shingles).

Here are two terms that are used ambiguously in health policy discussions all the time: cost and price.

Cost is the amount of money that goes into producing a product or delivering a service. Calculating cost is often challenging. For example, if you admit a patient for a heart failure exacerbation, you can fairly easily allocate physician and nursing time to the cost of their stay, and it’s not too difficult to calculate many other things like the cost of the medicine you administered and the cost of cleaning their room after they’re discharged, but what about the cost of actually staying in that room for 4 days? You start getting into the depreciation of capital expenditures. And how do you allocate a percentage of administrative employees’ salaries to the cost of that patient’s hospital stay? Maybe this is why so many hospitals don’t even bother calculating costs for specific services delivered!

Price is the total amount of money that is paid to the hospital for delivering a service. Sometimes the patient pays part of the price (known, confusingly, as the patient’s “out-of-pocket cost”), and the insurer pays the rest.

The difference between the price and the cost is the profit the hospital made on delivering that service. Think about how impossible it would be to safely set prices when nobody is accurately calculating costs in a hospital. This is going to become a huge issue when patients start shopping for prices and hospitals are required to start pricing competitively. They’ll have no idea if the price they’re setting will make them a profit or not.

And let’s add a bonus term, one that is special to healthcare. The “charge.” This is completely separate from price. I think it’d be clearer if it were known as the “fictitious price.” It’s basically a made-up number that hospitals use as an anchor for the starting point of price negotiations with insurers. Nobody actually is meant to pay these fictitious prices, although it’s the default thing that will be printed on a bill sent to someone who doesn’t have insurance. And some hospitals jerkily expect people to pay that amount, but usually what happens is they put the patient in contact with their finance people and work out a cash-pay price for them instead. Although, how can they set a reasonable cash-pay price if they have no idea what the cost was of delivering that service to the patient?

Let’s use these terms properly so our discussions can be focused around substance rather than arguing over the definitions of terms!

How to Decide if a Policy Designed to Increase Access Is Good

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When I was evaluating Joe Biden’s healthcare plan recently, I talked about how to properly evaluate policies that attempt to increase access. I think this is important enough to discuss briefly in its own post.

But first, as a brief reminder, there are traditionally three issues that healthcare reformers are attempting to solve: cost, quality, and access. And I like to combine quality and cost into one variable–value.

Access-increasing policies are typically evaluated based on (1) how many people they will cover and (2) how much they will cost, but we need to add a super important third metric in: How many barriers the policy creates to improving value.

Just because access-increasing reforms of the past have worsened healthcare value doesn’t mean they always have to do that. It just means healthcare reformers of the past haven’t known how to improve the value of healthcare, so they haven’t been able to evaluate their policies on that metric. But that’s what the Healthcare Incentives Framework is for (specifically this part of it), and that’s why I have been using it to evaluate politicians’ access-increasing policies lately.

And by the way, I’ve already written about how pretty much any universal-access system, properly implemented, can do very well on that third metric.

A Healthcare Platform for President Trump

Photo credit: Dennis Van Tine/STAR MAX/IP

Last week, I evaluated President Trump’s healthcare platform. The problem is, he doesn’t seem to have one. At least, he doesn’t say anything about one on his official campaign website. This is in stark contrast to Joe Biden, who gives many details on his healthcare plan (see my evaluation of it here).

So, to help President Trump out, I decided to write a healthcare plan for him. Let me be clear from the outset that this is not my personal healthcare plan–it is just one of many possible ways to implement the principles outlined in the Healthcare Incentives Framework, and it’s a way I could see Republicans going about it.

One other reminder: The President doesn’t make laws! But the modern reality in this country is that people want to hear a President’s plan for fixing all sorts of problems, so there we have it. He does have the power to set the agenda and influence his party, so this is by no means a useless endeavor.

Ok, now on to his brand new healthcare plan, which I am pretending to write on behalf of his staff, with a little rhetoric mixed in just for fun . . .

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President Trump will address both of the major issues in our healthcare system: value and access.

The problem with policies designed to increase access is that they usually create market distortions that become barriers to improving value, so his plan starts by addressing how he will improve value, after which he will show how he has crafted a way to increase access that will not undermine his other efforts.

First, he intends to enable patients to act as consumers and make informed choices. This applies to their ability to shop for the best insurance plans and their ability to shop for the best providers.

Take the insurance side first. To facilitate patients shopping for insurance plans, he has a unique approach for each segment of the insurance market.

For Medicaid, which is administered state by state rather than nationally, instead of allowing states to create and administer a single Medicaid plan, he will require them to contract with multiple insurers to each offer a Medicaid plan. This gives Medicaid enrollees more choices, and their insurance is provided by private businesses rather than government beaurocrats. The good news is, more than 2/3 of all Medicaid enrollees are already such plans (known as Medicaid Managed Care), and when these policies are combined with the other policies described in this plan, they will start to generate significant savings.

For Medicare, President Trump will make a similar change. Instead of the government offering a traditional Medicare plan, Medicare will shift over to relying exclusively on private insurers to create Medicare-compliant plans, and Medicare itself will simply pay those private insurers for each enrollee they have. This is called Medicare Advantage, and 34% of Medicare enrollees are already on such plans. But, again, increasing this number to 100%, when combined with the other changes in this plan, will create greater competition and cost savings.

For the private insurance market, President Trump will continue to rely on healthcare.gov as the marketplace for private health insurance plans. Even though this website was poorly rolled out, it has become a well-known source for health insurance, and now it will rise to its full potential because Medicare Advantage and Medicaid Managed Care plans will be rolled into it, meaning every American who does not get insurance through their employer will be able to shop for their health insurance on healthcare.gov. This will simplify the experience of buying health insurance, and it will strengthen Americans’ ability to find the best plan for them.

On the topic of employer-sponsored insurance, President Trump will take a historic first step in decoupling health insurance from employment because someone who loses their job should not lose their health insurance along with it. He will take this step by extending the employer health insurance tax exemption to all people buying health insurance on healthcare.gov. Employers will also have the option to stop paying for health insurance on behalf of their employees and instead give that money directly to their employees in the form of a pay raise, which allows employees the freedom and choice to use that money to shop for an insurance plan that fits their needs better than their employer’s plan.

President Trump will also get rid of Obamacare’s innovation- and competition-destroying medical loss ratio rule, which will become unnecessary after the changes described here fix the broken insurance markets and allow them to start pricing more competitively on their own.

He will also instruct the Centers for Medicare & Medicaid Services to sponsor bundled payment and reference pricing pilots. These are alternative payment models that enable patients to more easily compare apples to apples the prices of their healthcare provider options and then decide for themselves if they think it is worth it to pay more to go to a more expensive provider (which, in healthcare, usually does not mean better quality!). These pilots will help spread these new payment models as (1) insurers discover it saves them (and their enrollees) money and (2) providers discover that they can also make more money by lowering their prices and winning more patients.

These common-sense policies will transform the healthcare insurance market into one of honest competition and innovation.

President Trump will also make changes to improve the healthcare provider market and allow patients to more easily find the best providers.

First, he will build on the progress he has already made with healthcare price transparency by requiring all healthcare facilities to publish their cash prices for the most common shoppable services. The required price reporting will include bundled prices, when applicable. Over time, as more bundled prices become available, patients will have an even easier time shopping for the best deal because they will be able to compare up front, apples to apples, prices between providers for the same bundle of services.

In additon to price data, patients need quality data. President Trump will require healthcare providers to start tracking and reporting quality metrics that are more useful in helping patients be good shoppers. This means there will be a shift in focus away from aggregate quality ratings and toward the specific metrics that patients need to know most when deciding between different providers.

President Trump will make all those price and quality data publicly available so that entrepreneurs can use them to design creative and simple shopping websites, similar to what we see with flight booking websites.

All those changes to the insurance market and the provider market will help people become better consumers of healthcare. And when our nation has consumers shopping for the best value in healthcare, it will stimulate the kind of competition we have never gotten in healthcare–competition over value. In other words, these changes will shift insurers’ and providers’ focus of innovation onto ways to improve value for patients, and as a result quality and price improvement dividends will accumulate long after these policies have been enacted.

Joe Biden’s plan is costly, and it is fiscally irresponsible because it has nothing in it that will make a major dent in the cost of healthcare, which is the biggest contributor to our growing national deficit.

President Trump also wants to ensure everyone has access to affordable health insurance. How can he make affordable insurance to everyone without interfering with the market changes described above?

His solution is to take the guaranteed renewable insurance approach. Here is how it will work:

At the time of implementation, everyone in the country will have the option to purchase health insurance without their pre-existing conditions being considered. Insurers will only be allowed to set premium prices based on the individual’s age and smoking status.

As long as an individual maintains continuous coverage, they will always be able to continue with the same insurance plan or even switch to a different plan without any of their pre-existing conditions being factored into their premium price.

However, if an individual chooses not to maintain continuous insurance coverage, insurers have the freedom to take pre-existing conditions into account and charge them a different price. If the individual is healthy, they could still be offered a price as low as others their same age and smoking status who maintained continuous coverage. But if the individual has pre-existing conditions, they could be charged as much as the maximum premium, which would be the premium a 64-year-old who smokes would be charged.

Once they have again maintained 12 months of continuous coverage, the prices available to them will revert back to the continuous coverage price being offered to others their same age and smoking status.

This will encourage healthy people to make the choice to maintain insurance coverage without any draconian or unconstitutional big-government mandates. Personal accountability will be maintained.

However, for these changes to work, President Trump will have to solve one more problem that Obamacare created.

Currently, people up to 400% of the federal poverty level (FPL) qualify for subsidies to make sure insurance premiums are not financially grievous. What the middle class above 400% of the FPL has found, however, is that their premiums have rapidly become unaffordable.

President Trump will eliminate that 400% FPL limit and instead switch it to a flat limit of 9% of a family’s income, enabling anyone to afford health insurance if they choose to purchase it.

In summary, President Trump’s plan to fix healthcare starts by making changes to the insurance and provider markets to refocus healthcare competition on innovations that improve value for patients, which will lead to billions of dollars saved. And at the same time, his plan will encourage and enable all Americans to purchase health insurance at affordable prices in a way that does not create market distortions that interfere with value-improving innovation.

And he will accomplish these changes all for a much lower cost than Joe Biden’s foolhardy plan to strengthen the unpopular Obamacare policies and force more people onto government insurance.

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Well, Mr. President, there you have it. A ready-made health policy platform, complete with rhetoric, to win over those last few independents and propel you into another four years as President. Let’s just hope you have congress on your side with this plan or it will go nowhere.

My Evaluation of President Trump’s Healthcare Platform

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I’ve been going through a number of Democrats’ healthcare plans, so it decided it’s President Trump’s turn. As with the others, I will rely exclusively on his official campaign website.

The problem, however, is that President Trump’s campaign website doesn’t give much information like the others. There isn’t an “Issues” section that lays out his plans for all the major policy topics. Instead, he has a “Promises Kept” section, which lists his achievements in each major policy area, including healthcare. This is helpful for seeing what he’s already done, but it doesn’t give any substance on what he plans to do if he wins another term as President. Is this an acknowledgement that he doesn’t have a plan, or does he just want to focus instead on all the things he’s already accomplished? Probably a little of both.

So, in the absence of any declared plan, let’s instead look at some direct quotes from his website. These are what I believe to be the main big-picture points:

  • The Department of Agriculture provided more than $1 billion in FY2017 to be used to improve access to health care services for 2.5 million people in rural communities.
  • The Trump administration expanded access to Association Health Plans (AHPs) allowing small business to pool risk across states.
  • The Trump Administration allows for Short-Term Limited Duration plans to be extended up to 12 months.
  • As part of the landmark Tax Cuts and Jobs Act President Trump repealed the individual mandate, which forced people to buy expensive insurance and taxed those who couldn’t afford it.
  • President Trump signed a six-year extension of CHIP to fund healthcare for 9 million.

And then looking at the sidebar on that same webpage, it links to a chronological list of his major healthcare-related achievements. Here, again, are direct quotes of what I believe to be the main big-picture points:

  • Protected people with preexisting conditions. (2/5/19)
  • HHS finalized a rule aimed at increasing transparency in the pharmaceutical industry that requires drug companies to disclose the price of medication in direct-to-consumer television advertisements. (5/8/19)
  • Worked with Congress to stop surprise medical billing. (5/10/19)
  • Created new insurance options though association health plans, short-term plans, and health reimbursement arrangements: some are up to 60% less expensive. (6/13/19)
  • President Trump put reforms into place that have expanded Medicare Advantage options and Health Reimbursement Accounts. (6/14/19)
  • President Trump signed an executive order that increased price and quality transparency in American health care. (6/24/19)
  • Empowered patients to choose the best doctor at the best price, gave Americans transparency with the price and quality of service before you buy. (6/24/19)
  • The Trump Administration issued guidance expanding options for individuals with chronic conditions. High deductible plans can now cover products such as insulin, inhalers and statins pre-deductible. (7/18/19)
  • HHS awarded almost $107 million to 1,273 health centers across the U.S. in order to improve the quality of the centers’ health care services. (8/20/19)
  • The Administration proposed a rule to require insurance companies and group health plans to provide enrollees with cost estimates. (11/17/19)
  • Costly Obamacare taxes were repealed, including the “Cadillac tax” and the medical device tax. (12/16/19)
  • President Trump signed four executive orders to ensure that Americans are receiving the lowest price possible for their prescription drugs. (7/24/20) (Must have been in response to my 6/16/20 post about difficulties finding the lowest cost of prescription drugs!)
  • President Trump signed an executive order expanding access to telehealth services in order to ensure rural Americans access to healthcare. (8/3/20)
  • President Trump signed an executive order to lower drug prices by expanding drugs covered by the “most favored nations” pricing scheme to include both Medicare Part B and D. (9/13/20)
  • President Trump signed an America-First Healthcare executive order, stating the policy of the Federal Government is to protect those with preexisting conditions & ensure access to affordable care. (9/24/20)

I don’t think it’s accurate for me to be too critical of what he has or hasn’t done based on just this information. Take, for example, the executive order to increase price transparency. When you read the details, it represents a legitimate first step toward making prices available to patients. These tiny achievements snippets just don’t give enough detail, nor do they cover all the efforts of his broader administration, such as the CMS-guided shift to value-based purchasing.

But I do think it’s fair for me to say that President Trump has not led the Republicans to making great strides toward fixing any of the three issues usually argued about in healthcare (cost, quality, access). And possibly this is because the Republican party is kind of stuck.

Think about it. Nobody in government has a solid solution to improving cost and quality in healthcare. But Democrats can still at least work toward achieving universal access. Republicans, on the other hand, traditionally don’t prioritize or champion efforts to achieve universal access, so what are they left with? Nothing substantial.

Maybe next week I need to help President Trump out and write a healthcare platform for the Republican party.

My Evaluation of Joe Biden’s Healthcare Platform, Part 3

Image credit: Andrew Caballero-Reynolds/Getty

This is the final part in the series. Part 1 was direct quotes from Joe Biden’s official campaign website about his healthcare plan. Part 2 explained the main parts and rationale of that plan. And in this final part I share my assessment of that plan.

First, as a brief summary, let me remind you of the main parts of Joe Biden’s plan.

He is going to get rid of the limit (400% of the federal poverty level) on who qualifies for health insurance premium subsidies when they are buying insurance on the private market, and he will replace it with a flat percentage of income (8.5%). Anyone whose health insurance will cost more than 8.5% of their annual income will qualify for a subsidy. And he’s going to make those subsidies more generous, so whether someone qualifies for a subsidy will be calculated based on their income compared to the price of a gold-level insurance plan rather than a silver-level plan. And, to top it all off, he’s going to create a new government-run health insurance company that will offer an insurance plan on the private market. This “public option” will be available to other groups as well. For example, employers could, instead of administering their own employer-sponsored insurance plans, have their employees get on the public option. And in states where Medicaid eligibility is more restrictive, many of the uninsured will qualify to be on the public option plan for free.

Ok, now for my thoughts on all of that.

First, I like to start by thinking in terms of the big picture. There are three problems healthcare reformers are usually trying to solve. They want to (1) increase access to care, (2) decrease the cost of care (prices), and (3) improve the quality of care. But I merge the last two goals into one by saying that they want to improve the value of care (which takes into account prices and quality).

So how will Joe Biden’s plan do at increasing access and improving the value of care?

Let’s take the increasing access one first. Remember from last week that there are about 30 million uninsured people in the U.S. Joe Biden’s website quotes that this plan will get 97% of Americans insured, which means there will only be about 10 million uninsured people when all this is implemented. Whether that is too many or not is purely a judgment call based on your own personal moral and political beliefs, so I won’t give any comment on that.

What I will comment on, however, is the other aspect of access-increasing policies that needs to be taken into account. You see, there are two questions that need to be considered whenever you are evaluating a policy designed to increase access. The first is what I already mentioned: How many people it will get insured? The second question, which is almost universally forgotten, is this: How will this policy impact our efforts to improve the value of care? If we increase access and, at the same time, impair our efforts to improve the value of care, we have taken one step forward and one step backward all at the same time.

If you’ve read any of my other writings, you will already know that I believe the key to improving value in healthcare is to get more patients to choose higher-value insurers and providers, which comes from giving them price and quality information about their options and then making sure nothing interferes with their incentives to choose the highest-value one for them. When that is happening properly, market share flows to the higher-value providers and, therefore, it stimulates competition over who can offer the highest value to patients.

Single-payer systems, such as Medicare for All (where a single insurance company run by the government insures everyone in the country), typically are implemented in a way that creates many barriers to that value-improving competition. (By the way, to be clear–I am not saying those barriers are intrinsic to single-payer system designs, just that that’s how they always seem to be implemented; if you want to know more on this topic, see my description of an optimal single-payer system and my evaluation of Elizabeth Warren’s healthcare platform.)

In contrast to Medicare for All proposals, improving the Affordable Care Act is pretty much the most value-improvement friendly way to increase access; it doesn’t create any major new barriers to the changes that need to be made to improve value.

Summarizing this analysis of how Joe Biden’s plan does with the first issue (increasing access), fixing the ACA rates poorly on getting everyone covered (although he is going about it in the most reasonable way possible) but it rates highly on not creating new barriers to fixing the second issue.

And now, speaking of that second issue, improving the value of care, let’s see how Joe Biden’s plan does at that.

. . . Crickets. In spite of choosing an access-increasing plan that will not create too many barriers to our efforts to improve value, I don’t see much in his plan that will take advantage of that. I don’t think this is necessarily an oversight. I just think he and his team don’t know what needs to happen to make transformative changes in healthcare value (although that’s what this blog is all about–apparently they haven’t found it yet). But he has at least proposed what he can to try to lower drug costs, which makes political sense because that’s been a hot topic these days.

I haven’t yet mentioned the public option, so let me say something about that before I close this series.

Creating a public option is a workaround. It’s trying to solve a problem without getting at the root of the problem, which severely hampers its effectiveness at solving that problem and also risks causing collateral damage.

The primary problem that a public option is trying to solve is the issue of non-competitive insurance markets. But no other market in society needs a government-produced option to keep the market’s pricing honest, so why does healthcare insurance? The answer is that it doesn’t. What the healthcare insurance market needs is what other markets already have, and it’s the same thing I mentioned above: It needs shoppers to be able to readily identify the highest-value insurance plan and then choose it. Eliminating barriers to this will do more to stimulate competition over value than a public option will, and it risks no collateral damage.

A public option is also a gradual way to shift more of the population onto public insurance and slowly phase out private insurance, which essentially results in a single-payer system. You could call it Medicare-and-Medicaid-and-Public-Option for All. Whether that’s his goal or not, it doesn’t matter, because it opens up an avenue for that to eventually take place. And I’ve already mentioned my concerns about single-payer systems above.

Overall, I am impressed with Joe Biden’s approach to fixing the ACA. It’s a very rational approach, which is why it’s exactly what I described in my KevinMD post in 2019 about a possible optimal future U.S. healthcare system. But I am very concerned about his addition of a public option, which I think will distract from the real changes that need to be made in the health insurance market and will also create serious risk of new barriers to improving the healthcare system’s value. And as for his plan to improve healthcare value, he doesn’t really have one. So it’s only half a plan, really, with some positive aspects and some negative aspects. Drop the public option and propose some things to improve the value of care (here are some suggestions), and we’ve got ourselves a solid option for the future of our healthcare system.

My Evaluation of Joe Biden’s Healthcare Platform, Part 2

Photo by JIM WATSON/AFP via Getty Images

Last week, I posted the salient direct quotes from Joe Biden’s official campaign website talking about how he will try to fix the healthcare system. This week, I’d like to go through the main big-picture parts of his plan and explain their context and rationale. Then, next week, I’ll conclude this short series by making some predictions about how effective his plan will be and recommending some important changes.

First, possibly due to political feasibility, he isn’t pushing for Medicare for All. He wants to keep the Affordable Care Act (the ACA, or “Obamacare”) and fix the parts of it that aren’t working so well.

So let’s take a look at that.

There are many parts to the ACA, but its main thrust was to increase insurance coverage. Here are some 2019 data to show what kind of numbers we’ll be working with in this discussion:

People over age 65 are on Medicare (60,000,000 people), so that’s straightforward.

But for the rest–the under-age-65 people–they fall into one of four insurance groups . . .

  • Employer-sponsored insurance (160,000,000 people) if they’re lucky enough to work for an employer that provides benefits
  • Medicaid (70,000,000 people) if they’re poor enough to qualify
  • Private insurance from the “private market” (10,000,000 people) if they make too much to qualify for Medicaid and don’t have an employer that provides benefits
  • Uninsured (30,000,000 people) if they don’t get insurance from their employer, they don’t qualify for Medicaid, and they don’t want to fork out the dough for insurance from the private market

Now, how did the ACA work to decrease the number of uninsured people? There were many ways, but here are the two biggest ways:

First, it allowed states to liberalize their eligibility criteria for Medicaid, and it offered federal funds to pay for most of the costs associated with all those new Medicaid enrollees. That accounts for about 12,000,000 of that 70,000,000 number listed above, some of which were previously uninsured, and others of which were previously on private insurance.

Second, it created a tax (also called a “health insurance mandate”) for anyone who didn’t have health insurance. This was to push the uninsured who didn’t qualify for Medicaid to buy insurance. And because everyone was going to be required to buy insurance, they had to make sure it would be affordable for everyone, so they promised to help cover the cost of insurance premiums for anyone under 400% of the poverty level. And to prevent insurance companies from taking advantage of the government’s willingness to help pay for people’s insurance premiums, they made a rule that insurers have to charge everyone the same premium (although that price can be adjusted up or down to a limited extent depending on two factors only: age and smoking status).

So, an easy way to describe the ACA’s second way it was trying to increase insurance coverage is by saying it was attempting to shift uninsured people into that private market. The ACA even created a nice website (healthcare.gov) to make it extra easy for people to shop for insurance plans on the private market by listing them all there side by side in a standardized fashion, and the website went so far as to pull in people’s tax information to calculate their premium subsidy right up front as well.

Unfortunately, most of the uninsured who didn’t newly qualify for Medicaid still didn’t buy insurance, not only because the tax/mandate was initially weak, but because it was subsequently eliminated. But the sick people are still buying insurance in the private market because it’s worth it for them since their premium is the same as everyone else with their same age and smoking status. This has left that private market’s risk pool with horribly high average risk and, therefore, horribly high premiums, especially for anyone who earns more than 400% of the poverty level and therefore doesn’t qualify for any premium subsidies. And that’s why there are still 30,000,000 people who are uninsured.

The natural solution to this would be to restore the mandate and to get rid of the 400% poverty level limit and just decide to subsidize the premiums for anyone whose premium will amount to, say, more than 8.5% of their annual income. This would shift many healthy people back into the private market and bring premiums down a whole lot by lowering the average risk, which would then pull even more people from the uninsured group into the private insurance group.

And that’s exactly what Joe Biden plans to do. Except for the reinstating the mandate part, which would probably not be popular nor even possible. I guess he hopes that if his subsidies are generous enough, he will get more healthy people into the market even without a mandate.

He is making the subsidies extra generous. Not only can anyone qualify now (as long as their premium is going to be more than 8.5% of their annual income), but also the benchmark plan these subsidies are based on are gold level plans rather than silver (meaning out-of-pocket costs, especially deductibles, will be a lot lower). So we will see how many of those 30,000,000 people will be enticed into buying health insurance.

But he’s gone further than that. I think he feels that insurance companies don’t truly competitively price their plans because he’s also going to create a new publicly run insurance company that will offer its own plan (known as a “public option”) in the private market alongside all the other private insurers’ plans on healthcare.gov. If the public option ends up being way cheaper than all the other private insurance companies’ plans, everyone will choose to get on that public option, and it will force private insurers to start pricing their plans more competitively. This should also help to lower prices in the private market, which will price even more uninsured people into the market.

There are lots of other details to his plan (you can read them in last week’s post), but the parts discussed here are what I believe to be the biggest core pieces. Everything else is somewhat peripheral.

I have lots of thoughts about how this plan into fits into/contributes to/detracts from the overall changes that need to be made in our healthcare system, so look forward to those next week.