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Friday, August 24, 2012

Romney's Health Care -- pre-Paul Ryan. Little of substance.

Romney’s Health Care Plan: Little of Substance

Martin G. Evans
Professor Emeritus, Rotman School of Management, University of Toronto.
[1065 words]
Mitt Romney's health care plan – outlined on his website – is a cornucopia of ambiguity and contradictions. At least we know with Obamacare where we stand. Romney's prescription is full of pious hopes but has little to say how those hopes will be realized.
In the preamble to the Romney plan, the campaign declares:
Mitt will produce policies that give each state the power to craft a healthcare reform plan that is best for its own citizens. The federal government's role will be to help markets work by creating a level playing field for competition.
First, notice the lower case “f” in “federal;” that must be the initial step in reducing the size of government. Then notice the contradiction between the first and second sentences. It is impossible to give license to the states to do as they want and simultaneously impose Federal government regulations to create a level playing field. Those Federal regulations will, of necessity, impinge upon state autonomy.
States have had many years to devise plans to suit their circumstances. Why are there not already a number of states with full insurance for all their citizens? What will Mr. Romney do to help states create a fully insured population?
The Romney plan then articulates a number of steps to “Restore State Leadership.” These include:
  • Block grant health payments to the states
    • But there is no explanation of the way in which such grants will be calculated. Will it be on the poverty level, or the morbidity index, or on a per capita basis? Different states will benefit under different formulae. For example:
      • New Jersey and Virginia have roughly equal populations. New Jersey is about 9% larger so would receive 9% more in Federal funds if this was the criterion.
      • However New Jersey would do slightly better (8%) if crude mortality rates were used as the criterion for the distribution of Federal funds: 821 per 100,000 in New Jersey versus 760 per 100,000 in Virginia
      • Finally, the poverty rate in Virginia (9.2%) is over one and a third times that of New Jersey (6.8%). under a poverty rate criterion, Virginia would receive a third more of the Federal health care funds.
  • Limit federal standards on insurance (private and Medicaid)
    • But he says nothing about which constraints will be lifted and which maintained. Without that detail, it is impossible to make any sensible appraisal of this aspect of the Romney plan.
  • Ensure flexibility to help the uninsured, including public-private partnerships, exchanges, and subsidies.
    • Sounds a lot like Obamacare to me.
  • Ensure flexibility to help the chronically ill, including high risk pools, reinsurance, and risk adjustment
    • It is not clear what he means here. Traditionally high risk pools have been very expensive. So, with no mention of subsidy, it is hard to see how the Romney plan deals with the cost of insuring those with pre-existing conditions.
  • Offer innovation grants to explore non-litigation alternatives to dispute resolution.
    • This is already happening.

The second leg of Romney’s Plan is to promote free markets and fair competition. To achieve this he suggests:
  • Cap non-economic damages in medical malpractice lawsuits.
    • It is not clear that this makes much difference. Some states limit malpractice awards, others do not. When Texas imposed mal-practice caps, there was little change in health care costs
  • Empower individuals and small businesses to form purchasing pools
    • That is what the Obamacare exchanges do.
  • Prevent discrimination against individuals with pre-existing conditions who maintain continuous coverage.
    • Yes of course. But how does it get paid for unless there is an individual mandate to purchase health insurance. Romney’s plan makes no mention of this; although, of course, it was the cornerstone of the Massachusetts plan.
  • Facilitate IT interoperability.
    • Already underway.
The final leg in Romney’s plan is designed to empower Consumer Choice. This seems to me to be a very dubious approach. The essence of markets involving consumer choice is that seller and buyer are each fully informed. Health care consumers cannot know what they need; they cannot predict the level of illness they will incur in the future. There is no way they can anticipate what will befall them. In health care, markets fail.

To improve con summer choice, his plan suggests:
  • End tax discrimination against the individual purchase of insurance.
  • Allow consumers to buy insurance across state lines.
    • The problem will be that with different state regulatory regimes; there will be a problem in designing policies that will be acceptable across state lines. This will increase the need for Federal intervention to assure a level playing field across the states.
  • Unshackle HSAs by allowing funds to be used for insurance premiums.
    • As HSAs are tax deductible, there will be a cost to the Federal government in lowered tax revenues. How will Romney pay for this?
  • Promote “co-insurance” products. These insurance plans provide that the insured will cover a set percentage of the covered costs after the deductible has been paid.
    • These do not protect the individual who experiences a severe chronic decline in health. The ‘health status” insurance plan suggested by John Cochrane at the University of Chicago might be a better suggestion. These plans come into effect if the individual suffers a medical situation which places him or her in a higher cost policy. The health status plan pays for the increased insurance cost.
  • Promote alternatives to “fee for service.”
    • Experiments along these lines are already under way. Romney does not specify the kind of alternatives he envisages.
  • Encourage “Consumer Reports” type ratings of alternative insurance plans.
    • But the real information that consumers need is the effectiveness of various treatments, doctors, and hospitals. Progress is already under way in this area.

Mr. Romney’s plan is not a well thought out, coherent response to the problem of 40 million uninsured Americans. Instead it is an unspecific blend of hope, failed policies, and inconsistent suggestions. The problem is that the solution to the health care problem requires collective action – that is what insurance is all about. Mr. Romney and the Republicans want to rely on the traditional values of rugged individualism. These are just not appropriate here.