Our local newspaper, the Daily Oklahoman, recently published this editorial by Stephen Parente, PhD, of the Carlson School of Management, University of Minnesota. Make no mistake, Dr. Parente, writing opinion pieces like this one is in no danger of receiving an appointment to the president’s council of economic advisors. I would like to expand on some of his points and then use his reasoning to explain why the “Austrian” brand of economics, rather than those varieties relying on economic modeling remains so appealing to me as an aid to understanding events and the business environment.
Dr. Parente correctly points out that health insurance premiums will skyrocket over the next two years and in fact, this has already begun. Mandating certain coverages and admitting those with pre-exisitng conditions to risk pools has contributed significantly to the initial surge in the cost of health insurance. I have written previously that forcing an insurance company to cover someone with a pre-existing condition is like allowing someone to purchase homeowner’s insurance after their house has caught fire. The effect on the policy price for the neighbors if this is allowed, is predictable.
Parente writes, correctly, that when the Obamacare re-insurance and risk corridor provisions end, the insurance companies will no longer have access to taxpayer money in order to subsidize the highest risk individuals. This, he maintains, will result in an even more aggressive surge in premium charges. At this point in the piece, I wondered if Dr. Parente thought of Obamacare as poorly crafted or whether, like me, he entertained the idea that the train wreck he has predicted was intentional and deliberate.
Is it possible, for instance, that ending the insurance companies’ access to taxpayer loot, was a symbolic kick in the teeth that so many on the left wanted to see delivered to the “evil” insurance companies, only to see yet another executive order at the 11th hour to suspend this aspect of the “law?” (Remember that the uncompensated care scam, Disproportionate Share Hospital Payments, was to end with the passage of Obamacare, only to have this provision suspended, a huge gift to the corporate hospital industry.) Or will ending these insurance subsidies bring ruin to all of the insurance companies except for a few big boys who will control the whole game when the dust of consolidation settles? History is on my side, I think, in ascribing the worst of motives to the gang in D.C. I would love to get Dr. Parente’s thoughts on this at some point.
Towards the end of Parente’s piece is where he and I part ways and I believe it is due to his faith in his economic models to provide an accurate forecast of the future health care landscape. The economists of the “Austrian School” place little or no faith in models primarily due to their adherence to the theory of subjective value, a theory that basically states that something is worth what you can get for it, each purchaser, as an individual, valuing goods differently, depending on their most urgent need at any given time (my apologies to economists for my butchering this, if I have).
To say that employer health care coverage won’t “stem the losses,” as Parente writes, neglects the fact that employer groups are seceding from the insurance game in record numbers, self-insuring for the health needs of employees, removing themselves from the gunsights of government and their insurance cronies.
Traditionally an option for only the most gigantic companies, self-insurance, thanks to the expense associated with the Unaffordable Care Act, has become more attractive to companies with as few as 50 employees. (We have 42 full time employees at Surgery Center of Oklahoma and have been self-insured for 7 years now). A surge in the number of competitive and transparently-priced medical providers (physicians and facilities) has also significantly ameliorated the risk of self-insurance. After all, to be self-insured (often referred to as self-funded) means paying health claims out of operational revenue, backed up by “re-insurance,” a catastrophic, disaster-type policy, often very reasonably purchased. In this arrangement, the self-insured employer is a highly motivated consumer, always seeking value in the health marketplace. Self-funded employers all over the country are steering their employees to facilities like ours by offering to pay the entire bill (no co-pays or deductibles), travel and lodging, as well, in an effort to keep their costs down.
It should come as no surprise that the Surgery Center of Oklahoma is very popular with many self-insured companies and their employees, our prices representing savings that translate into better profits and profit-sharing with company employees. As more self-insured companies seek out the value of transparently-priced health facilities and physicians, the deflationary effect on the actual price of health care should not be underestimated, something that Dr. Parente fails to take into account. That is the problem with economic models, after all. There is simply no way to account for all of the variables involved, much less the shifting of the known variables as conditions change.
Finally, as premiums surge for individuals and their insurance becomes unaffordable, many individuals will drop their insurance altogether or simply increase their deductible. The purchase of healthcare will then be largely (or entirely) out of the pocket of these individuals, and people spending their own money tend to ask the same question, don’t they? People want to know “how much is it,” and they want to know up front. Just asking this question is deflationary, as knowing that the patient will walk away seeking a more reasonable price if too large a quote is given, will tend to keep prices in check.
In all fairness to Parente, he had little space to share his thoughts and he and I might actually be on the same page. I am going to give him the benefit of the doubt due to his devastating finish:
“The Affordable Care Act was supposed to make health care cheaper while providing universal health care. Instead, it will make health care unaffordable for many while leaving more Oklahomans uninsured. This health care cure may be worse than the disease.”
I remain optimistic. I believe that the Unaffordable Care Act will very unintentionally and paradoxically give us a shot at a true consumer and market-based health care industry thanks to this one simple truth: the government never gets it right. Obamacare’s attempt to line the crony’s pockets will more likely destroy them as the empowered consumers shun the low-value providers and increasingly understand the entire scam.
G. Keith Smith, M.D.