Tag: ObamaCare

ObamaCare Increases the Salience of Antitrust in Health Insurance Markets

Posted on by Brad DeLong

From Last January: ObamaCare Increases the Salience of Antitrust in Health Insurance Markets from “Important” to “Essential”: As the extremely-sharp Aaron Edlin has taught me, apropos of the current wave of proposed health insurance mergers–Aetna-Humana, Anthem-Cigna, and Centene-HealthNet:

The coming of ObamaCare makes any willingness on the part of antitrust authority to allow these mergers to go through extremely dangerous and destructive policy indeed.

The imposition of the individual mandate to purchase health insurance makes maintaining competition in health insurance markets significantly more important. Usually, the exercise of market power and the ability to easily collude implicitly or explicitly made possible by large market shares are curved by the possibility of exit. The ‘exit the market and buy something else’ option for consumers is the one competitor that the firm cannot acquire and merge with. It is the one competitor with which the firm cannot collude, implicitly or explicitly.

Imposing an individual mandate to purchase is a wise policy in a market place where the major market failure is adverse selection. It threatens to be a catastrophic policy in the marketplace where the major market failure is the exercise of sellers market power.

We see this flashpoint–and it is a dangerous flashpoint–in health insurance right now. But the issues are actually much broader. Here is the wise Kevin Drum:

Kevin Drum: Our Four-Decade Antitrust Experiment Has Failed: “We have four airlines serving 80 percent of all passengers…

…We have four cable and Internet companies providing most of the nation’s cell-phone and television service. We have four big commercial banks, five big insurance companies (only three if two proposed mergers go through this year), and a handful of producers selling every major consumer product. Even when you think you have a choice, like in the array of online travel-booking sites, two companies (Expedia and Priceline) own all the subsidiaries…. Over the past few decades, America has undergone a sea change in antitrust law. It’s now all about ‘consumer welfare’—which means, in practice, that big mergers are fine as long as the mergees can make a credible case that the combined entity will be good for consumers. You will be unsurprised to learn that high-powered marketing departments are very good at collecting data to show exactly that, and that high-powered attorneys are extremely good at turning this data into bulletproof legal arguments. The result is that very few mergers are ever turned down.

But this siren call has led us down a long, blind alley. It turns out that in the short term, plenty of big mergers really can be good for consumers. In the longer term, though, very few are…. We’d be better off returning to an older, cruder rule: ensuring that there are plenty of competitors in every market and refusing to allow any single company to become too dominant. As near as I can tell, there’s a real tipping point around the number three or four. If a market is dominated by four companies or less, that’s when it starts to wither….

Needless to say, even a crude market share rule doesn’t make things simple. You’ll still have arguments over what counts as a single market (online advertising or the entire advertising industry?). You’ll have arguments over just how big a single company should be allowed to get (30 percent share or 50 percent share?). You’ll have industries where it’s not easy to have lots of competitors. And you’ll have some industries where the returns to scale to are so potent that small companies just flatly can’t compete. There’s no easy panacea. But ‘consumer welfare’ is an open invitation to thousand-page regulatory filings that dive deep down a rabbit hole and never come up for air…. Competition is the core engine of capitalism. If you have plenty of it, you can make do without a lot of other regulations. But once you allow competition to wither, there’s little choice left…. The federal government should do its best to ensure that markets have plenty of competition, and then it can afford to get out of the way and regulate fairly lightly. Other companies will do their work for them. What’s not to like?

Must-Read: Michael Hiltzik: Mergers in the Healthcare Sector: Why You’ll Pay More

Posted on by Brad DeLong

Must-Read: Because people must purchase health insurance under ObamaCare, the demand curve has a steeper slope–and thus oligopoly and monopoly are even more dangerous and destructive than they typically are:

Michael Hiltzik: Mergers in the Healthcare Sector: Why You’ll Pay More: “Aetna is seeking to merge with Humana in one of the two proposed health insurance mega-mergers facing state and federal scrutiny…

…the other deal would combine Anthem and Cigna. Lower prices. More efficient healthcare. More innovation. Better customer service. That’s what hospital and insurance companies say, anyway.  But here’s what the data say: Hospital and insurance mergers almost always lead to higher costs, lower efficiencies and less innovation. The reason is simple: Mergers reduce competition–and it’s competition that drives down prices and encourages more efficiency and innovation. Some healthcare mergers have been outright disasters for consumers; studies of mergers that took place in the 1990s and early 2000s showed price increases of as much as 40% in communities that lost competition. These findings are important because we are deep into a new era of healthcare consolidation. In 2015, 112 hospital mergers were announced nationwide; that’s 18% more than a year earlier, and a 70% increase over 2010…

Must-read: Dylan Matthews: Barack Obama: One of the Most Consequential Presidents

Posted on by Brad DeLong

Must-Read: Dylan Matthews: Barack Obama: One of the Most Consequential Presidents: “You can celebrate or bemoan these accomplishments…

…But no one can deny that the changes Obama has wrought are enormous in scale. Obamacare: a big ** deal…. National health insurance has been the single defining goal of American progressivism for more than a century… ever since its inclusion in Teddy Roosevelt’s 1912 Bull Moose platform…. It was the big gap between our welfare state and those of our peers in Europe, Canada, Australia, New Zealand, and Japan. And for more than a century, efforts to achieve national health insurance failed…. Then on March 23, 2010, President Obama signed the Affordable Care Act….

When you consider the law in the context of 100 years of progressive activism, and in the grand scheme of American history, it starts to look less like a moderate reform and more like an epochal achievement, on the order of FDR’s passage of Social Security or LBJ’s Great Society programs….

The Affordable Care Act was hardly Obama’s only accomplishment. He passed a stimulus bill… Dodd-Frank Act…. executive action to… curb greenhouse gas emissions… protect nearly 6 million undocumented immigrants from deportation… ended the ban on gay and lesbian service… made it easier for women and minorities to fight wage discrimination, cut out wasteful private sector involvement in student loans… hiked the top income tax rate… reprofessionalized the Department of Justice….

There are obviously places Obama fell short…. Monetary policy… combating HIV/AIDS and other public health scourges abroad… deport[ing] millions of unauthorized immigrants… perpetrators of torture and other war crimes from the Bush administration should have been criminally prosecuted. But… it could never be said that he accomplished little…. And on foreign issues, Obama’s record is perhaps the most successful of any Democratic president since Truman. He has reestablished productive diplomacy as the central task of a progressive foreign policy….

You can generally divide American presidents into… [the] ultimately forgettable … and the hugely consequential for good or ill (FDR, Lincoln, Nixon, Andrew Johnson). Whether you love or hate his record, there’s no question Obama’s domestic and foreign achievements place him firmly in the latter camp.

Must-read: Richard Mayhew: “A California Earthquake for Narrow Networks”

Posted on by Brad DeLong

Must-Read: Richard Mayhew: A California Earthquake for Narrow Networks: “[The] Covered California… exchange’s five-member board is slated to vote on…

…[whether] insurers would need to identify hospital ‘outliers’ on cost and quality starting in 2018. Medical groups and doctors would be rated after that. Providers who don’t measure up stand to lose insured patients and suffer a black eye that could sully their reputations with employers and other big customers. By 2019, health plans would be expected to expel poor performers from their exchange networks. The goal is to start trimming the inefficient high cost extremes.

In some ways, this is not an unusual move.  Narrow networks have been proliferating under the ACA, and they were around pre-ACA…. My employer’s best-selling commercial network is a narrow network built when Howard Dean was the favorite Vermonter among online liberals.  Narrow networks are usually built to get a better price and value proposition than a broad network… an insurer thinks it can steer thousands or tens of thousands of members to Provider A… so Provider A should give the insurer a volume discount.

When I was building narrow networks for Mayhew Insurance, there were a set of hospitals and provider groups that were in our broad network that we really tried not to use for the narrow products.  One… had good quality but a gold-plated contract that was paying them roughly twice the regional rate for a set of frequently used codes.  Another… tended to have very low HEDIS scores on basic things…. Other[s]… we were stuck using them as they were the only specialist of that type within forty miles, but we actively tried to… get new docs to those regions….

The interesting thing is the threat of en-masse exclusion to trim the outliers…. There are some significant concerns with implementation. The big one is what exactly is quality? Is it risk adjusted and if so, how is it just medical risk adjustment or is it medical and socio-economic risk adjusted? How does a provider appeal?  How does a provider get back in?… Even with those questions, this is an interesting experiment.

Must-read: Abbe Gluck et al.: “Yale Health Care Industry Symposium”

Posted on by Brad DeLong

Must-Read: Abbe Gluck et al.: Yale Health Care Industry Symposium: “The New Health Care Industry—Consolidation, Integration, Competition In The Wake Of The ACA…

…Building An ACO—What Services Do You Need And How Are Physicians Impacted? Michael Chernew…. States’ Critical Role Overseeing Vertical Health Care Integration Jaime King and Erin Fuse Brown…. A Healthy Skepticism Of Incumbents, A Healthy Commitment To Entry Barak Richman… Unpacking The Issues Of Vertical And Horizontal Consolidation—The St. Luke’s Case Toby Singer…. Physicians And The New Health Care Industry—Benefits Of Generational Change William Sage…. High Prices And Payment Reform—Let’s Get Practical Robert Berenson…. Consolidation And Competition In US Health Care Martin Gaynor…. Dubious Health Care Merger Justifications—The Sumo Wrestler And ‘Government Made Me Do It’ Defenses Thomas Greaney…. No Evidence That Insurance Market Consolidation Leads To Greater Innovation Leemore Dafny and Christopher Ody…

Mid-February musings on the economics, sociology, and psychology of Obamacare implementation

Posted on by Brad DeLong

ObamaCare: How Is It Doing?

There have been three very surprising things with respect to Obamacare implementation so far.

The first is the surge in enrollment in employer-sponsored insurance. The fear was that people and employers would find the coverage offered on the exchanges irresistible, and that there would be a great deal of disruptive churn as the exchanges started up. The penalty for large employers who did not offer health insurance was constructed to guard against this. Yet it seems to have been needless. The appearance of the exchange option appears to have led to more rather than fewer employers offering insurance.

Kevin Drum February 2016 Mother Jones

This is a problem for economists: alternatives are supposed to be at most irrelevant, and certainly their appearance is not supposed to lead to more people voting with their feet for something that was always there. This is a victory for psychologists and sociologists, who if they did not predict this consequence are at least unsurprised by it. The implementation of Obama care thanks health insurance more salient in workers’ minds, and so more highly valued. This shift in valuation induces more employers to offer it as they try to find their compensation sweet spot.

The second surprising thing is the failure of national health expenditures to rise as ObamaCare has been implemented more rapidly than was projected in the baseline. There was, everyone agreed, a great deal of pent-up demand for medical care from people who had been unable to get affordable insurance. When this wave hit, everybody expected, spending would surge–especially as, while ObamaCare did a great deal to expand demand for medical services, it did little to expand supply. The initial surge would, people thought, eventually ebb. But the ebb would leave national health spending on a higher trajectory: people who had not had access to affordable medical care would have it, and they would use it.

The hope of ObamaCare’s advocates was that a system with near-universal coverage would be a more rational and more cost-conscious system. Rather than treating patients and then scrambling for someone with deep pockets who could be made to pay not only their own but others’ bills, a rational calculus of treatment costs and benefits would become at least possible. And, down the road, this plus increased competition would bend the cost curve—and, if not, then whatever additional regulatory steps would turn out to be necessary would be taken.

But the cost curve bent itself.

The cost curve bent itself before Obamacare implementation even began.

And the bending of the cost curve continues. Some attributes the bending to the lesser depression and to a consequently poor society.

As a full explanation, this seems highly strained. Once again, it looks like a victory for the psychologists and the sociologists. The public debate around ObamaCare raised the salience of cost control, of avoiding overtreatment, and of being good stewards of what might be increasingly limited medical care resources in a context in which more people were able to draw on those resources.

All in all: a substantial surprise for us economists. Perhaps we should be cast down from our high seats in the Ttmple of policy analysis?

And there is, of course, the third surprising thing about ObamaCare implementation.

The unreliable rumor on the street is that when Chief Justice Roberts decided to rewrite the Affordable Care Act from the bench—lawlessly, in a technical sense: in a manner with no support in president, law, or the Constitution—Roberts and his clerks thought that they were throwing Americas right wing a bone, but a nothingburger bone. The money to finance Medicaid expansion was more than free to the states: everybody who could do the arithmetic knew that as the federal government paid for the Medicaid expansion, other ancillary draws on state treasuries would decline, leaving states in a better fiscal position. One-third of the Medicaid expansion money would provide more employment in healthcare, as people without affordable access to medical care gained it. One-third would beef up the shaky finances of those healthcare providers who do treat Americas poor. And one-third would flow into the medical industrial complex which would no longer be informally taxed to pay for services that the federal government was now willing to pay for.

How could you turn this down?

Unless, that is, you are a psychopath or a madman for whom treating the poor and paying those who do treat the poor is a minus, Medicaid expansion was and is a no-brainer.

And even if you are a madman and a psychopath, you are also a politician. You draw heavily upon the medical-industrial complex for your campaign contributions. Would you seek to anger the MIC over real money, for nothing except a symbolic declaration that all of the works of the hated Kenyan-Muslim-socialist were rotten? Particularly since those works had originally been the core social policy platform of your own 2012 presidential nominee?

The answer is: yes.

Mad men, and psychopaths, and totally unfazed by the idea of inciting the ire of the MIC. Ohio Governor John Kasich said, apropos of his acceptance of Medicaid expansion money:

You know how many people were yelling at me? I go to events where people are yelling at me. You know what I tell them? I mean, God bless them, I’m telling them a little bit better than this. But I said, there’s a book. It’s got a new part and an old part. They put it together. It’s a remarkable book. If you don’t have one, I’ll buy you one. And it talks about how we treat the poor…

And the response, from then Louisiana Governor Bobby Jindal and current South Carolina Governor Nikki Haley, was this:

At a closed-door donor forum in Palm Springs hosted by the Koch brothers, Kasich was attacked by two fellow Republican governors, Nikki Haley and Bobby Jindal, for, in the words of a source who attended the event, “hiding behind Jesus to expand Medicaid.” The source added, “It got heated”…

So: contrary to what sources who may or may not be reliable concerning Chief Justice John Roberts’s assumptions about the ability of some of his party colleagues to do the math, not a nothingburger bone of a concession at all…

Once again: we economists are in trouble. Politicians turning down free money? Politicians alienating powerful lobbying groups that are in large part inside their coalition for no gain?

Now in the long run it may all work out for the economists. How long will the wave of cost control enthusiasm last? How long will the provision of health insurance remain salient and thus a cheap way for more employers to please their workers? How long will the Brownbacks and their flacks continue to claim, largely falsely, that Medicaid expansion props up inner city hospitals that ought to close because they treat Black people? How long will those who elect and reelect the Brownbacks continue to buy this, as rural hospitals that treat white people continue to call out for the life preserver that the Brownbacks? continue to refuse to throw?

But in all three of these cases the long run is certainly taking its own sweet time in arriving…

Must-Read: Richard Mayhew: The Hope of Health Care Cost Stabilization: “We knew that there was going to be a massive amount of catch-up [health] care…

…as people who either were uncovered, sporadically covered or had no usable insurance because the cost sharing was atrocious got coverage through either Medicaid expansion or the Exchanges. The big question was always how much catch up care was happening and if/when would it subside as crisis care converted into maitenance care. There is starting to be some evidence that the catch up care wave is subsiding…. This uncertainty about catch-up care was why there were the three R’s of risk adjustment, risk corridors and re-insurance. No one knew how many expensive surprises were out there.

https://www.balloon-juice.com/2016/02/03/the-hope-of-stabilization/

Must-read: Richard Mayhew: “The Sovaldi that Wasn’t”

Posted on by Brad DeLong

Must-Read: Richard Mayhew: The Sovaldi that Wasn’t: “Last summer every insurer in the country was rerunning their models on how the next wave of cholesterol drugs…

…were going to blow up the cost structure… inhibitors… priced at over $1,000 per month…. The specific on-label use… were for a… subset… with high cholesterol… genetic markers and clinical indicators…. We got that one wrong…. “A surge in sales of pricey new cholesterol treatments is unlikely to materialize this year, contrary to the previous expectations of Express Scripts Holding, an executive from the largest manager of U.S. drug benefits said on Friday.”…

This is intriguing. It may be a blip or it could be a portent of a significant change in provider behavior.  If it is blip, disregard the rest. There is a possibility that providers are becoming price aware…. The big fear with the new inhibitors was that they would be widely prescribed for a much broader population of people than the clinically significant group…. That is the entire point of the pharmaceutrical advertising industry, to get providers prescribing higher cost medications for marginal cases.

Must-read: Richard Mayhew: “The Hope of [Health Care Cost] Stabilization”

Posted on by Brad DeLong

Must-Read: Richard Mayhew: The Hope of [Health Care Cost] Stabilization: “We knew that there was going to be a massive amount of catch-up [health] care…

…as people who either were uncovered, sporadically covered or had no usable insurance because the cost sharing was atrocious got coverage through either Medicaid expansion or the Exchanges. The big question was always how much catch up care was happening and if/when would it subside as crisis care converted into maitenance care. There is starting to be some evidence that the catch up care wave is subsiding…. This uncertainty about catch-up care was why there were the three R’s of risk adjustment, risk corridors and re-insurance. No one knew how many expensive surprises were out there.