Congress and its allies on the left are hell bent to overhaul the health care of every American. They have focused strongly on increasing regulation of insurance companies. They get the most of the blame for increasing premiums and skyrocketing health spending. Though certain targeted and technical reforms of the health insurance market are sorely needed, making insurers the scapegoat for out-of-control costs in our current health system misses the point.
Recent premium increases in health plans offered by Anthem Blue Cross in California have attracted federal scrutiny of insurers, but experts attribute increases to external factors beyond the control of insurance companies. New state mandated benefits increase the minimum level of coverage an individual can purchase. As Americans embrace frugality in response to high unemployment and economic hardship, many choose to forego health insurance, especially among younger and healthier populations. Removing these individuals from insurance risk pools leaves behind a greater concentration of sick and costly patients, so that insurers have little choice but to increase premiums in order to maintain solvency.
In a recent briefing paper, Milliman lies out the internal factors which affect premium costs. Rates are set according to actual claims and “benefit cost trend”, which reflects the future cost of benefits. Affecting benefit cost trend are factors such as medical inflation, provider contracts, use of services, mix and intensity of services, and cost-sharing. Of further consequence are changes in member characteristics, as mentioned above, and administrative costs and taxes. Insurer profits account for a small fraction of the factors behind increasing costs.
A study recently published in Health Affairs describes the evermore prevalent effect of increasing provider rates in California. Robert A. Berenson et al. explain how demand in the insurance market for greater provider choice has given providers greater clout in negotiations with insurers, allowing them to increase their rates. The formation of accountable care organizations, consisting of multi-specialty groups of providers collaborating to offer efficient and better quality care to their patients, largely accounts for this.
The mission of accountable care organizations is honorable; however, the effect these provider groups have on rising premiums could negate the benefits of their creation. According to Berenson et al., “If accountable care organizations lead to more integrated provider groups that are able to exert market power in negotiations—both by encouraging providers to join organizations and by expanding the proportion of patients for whom provider groups can negotiate rates—private insurers could wind up paying more, even if care is delivered more efficiently.”
In order to address rising costs in health care and the subsequent rises in premiums, Berenson et al. suggest that if the market cannot be altered to discipline providers, the government should impose price controls on insurers and providers both. This profoundly flawed tactic is reflected in the President’s recent proposal for health care reform, which would require a “Health Insurance Rate Authority” to regulate premium increases. This approach is doomed to failure, not only due to very nature of price controls, which is the most recurrent economic policy failure in history, and a guarantor of shortages and related miseries, but also because it fails to acknowledge that other factors contribute to the problem of increasing premiums. Milliman warns that “Simplistically limiting premiums rate increases to some predetermined inflation index fails to recognize the fundamental elements involved in setting health insurance rates, and would likely have severe consequences within a short period of time.”
According to Berenson et al. “The shift in who holds the upper hand in negotiating payments—once held by health insurance plans but now resting with health care providers—has had a major impact on California premium trends”. To reverse this game of tug-of-war, the “upper hand” must be given to the consumer. In order for the market to adequately respond to the laws of supply and demand, patients must own and control their own care. Only when patients are put in charge of the flow of dollars spent on health care can a just equilibrium be achieved. Insurance price controls that do not take into account all drivers of increasing cost cannot possibly achieve this.
Last week’s bipartisan summit on health care reform seems to have done little, if anything, to build support for the President’s vision of health care reform. Strong opposition to the Democrats’ proposals remains the position of a majority of Americans. And now, even the President’s biggest fans are following suit.
In an interview‘ with CNBC, Warren Buffett, a Democrat and supporter of President Obama, advised the President to follow the wishes of the American people to scrap the current health care legislation and start over. Buffett highlighted the failure of Democrats’ proposals to address cost as his biggest concern:
We have a health system that, in terms of costs, is really out of control…And if you take this line and you project what has been happening into the future, we will get less and less competitive. So we need something else.
But concerning the current proposals before Congress, Buffett lamented that, “unfortunately, we came up with a bill that really doesn’t attack the cost situation that much.” Buffet’s concerns have been certified by the President’s own Centers for Medicare and Medicaid Services who have reported that the Senate health care bill would raise national health expenditures by $234 billion by 2019.
Buffett advised that the President scrap all the backroom deals and unpopular provisions of the current bills, and focus primarily on cost. Buffett explained that lowering costs should even take precedence over expanding access to care, since he does not believe “in insuring more people till you attack the cost aspect of this.” Since cost is one of the current roadblocks to expanding accessibility of coverage, the President would be wise to heed Buffett’s advice.
Buffett also addressed one of the most crucial reasons behind the need for the President and congressional Democrats to start over on health care reform, and that is the profound absence of support among the American people. Said Buffett:
If it was a choice today between plan A, which is what we’ve got, or plan B, what is in front of — the Senate bill, I would vote for the Senate bill. But I would much rather see a plan C that really attacks costs. And I think that’s what the American public wants to see. I mean, the American public is not behind this bill. And we need the American public behind the bill, because it’s going to have to do some tough things.
Democrats’ health care proposals would overhaul one sixth of the nation’s economy through an unpopular federal takeover of the health care system.
As Warren Buffett’s interview with CNBC showcases, even the Left’s biggest fans are coming to realize this is a bad idea. As talk of passing a bill through reconciliation intensifies, Democrats should instead take into consideration the other options before them, which include several incremental changes that would garner bipartisan support in Congress and among the American people.