Tag Archives: Health care policy

America’s Economy: A Backlash Avoidance Policy

For the past several years, American economists and government officials have been justifying the great financial bailout of 2008/09 in terms of its backlash avoidance effect.

Why backlash avoidance? Well, they explain that excessive consumer and corporate debt represented a primary cause of the 2008/09 crash. And they acknowledge that such overleveraging of debt should usually be rectified by shifting funds from consuming goods and services (i.e. current spending) to repaying debt.

But here’s the rub: if we all decide to stop spending at the same time in order to repay debt, the decline in economic activity could actually worsen the slump that was triggered by the excessive debt. Thus, the economy would experience a backlash effect.

The solution? At the very moment when consumers and corporations feel compelled to “do the right thing” and focus on repaying debt, the government should encourage them to do what is customarily the “wrong thing” and consume more products and services instead. Supplemental government spending (i.e. economic stimulus) may be necessary as well.

Several backlash avoidance policies appear to apply to the American economy of 2014 as well. But today, ironically, government officials may find it advisable to sit back and passively allow the free market to heal the economy.

For instance, the sharp contraction of Gross Domestic Product during the recent winter has been attributed in part to an unexpected decline in health care spending. So should the government rush to stimulate more spending on health care services? Well, no, the Affordable Care Act (i.e. Obama Care) is explicitly designed to reduce the bloated cost structure of the American medical system.

In addition, the home construction market continues to lag below normal historical levels, thus weighing down economic growth. So should the government encourage banks to relax their mortgage lending standards to encourage new residential construction? Of course not; sub prime mortgage loans, also known as “toxic debt,” represented a primary cause of the 2008/09 collapse of the global economy.

Furthermore, the economy continues to be plagued by the unusually harmful effects of long term unemployment among mature workers. So should the government develop new programs to explicitly encourage the hiring of mature workers? Regrettably, such programs may discourage the hiring of recent college graduates, who are struggling with unprecedented levels of student loans.

To be sure, government officials are finding it difficult to passively permit health care spending to slump, home construction to lag, and mature workers to remain unemployed when assistance can be justified on economic (and perhaps even moral) grounds. And yet it was also difficult for officials to authorize the bailout of 2008/09, a decision that may have prevented a second Great Depression.

There is a difference, though, between the situation in 2008/09 and the one that exists today. In 2008/09, an activist government was needed to authorize a bailout. Today, though, by simply allowing economic trends to run their course, the government may be able to ensure a beneficial outcome.

Oddly enough, the much derided paralysis of America’s federal government may help it remain passive in the face of public pressure to take action. In other words, the government’s very dysfunctionality may allow the health care, home construction, and mature worker employment sectors to generate the short term pain that is required to ensure long term prosperity.

Obama Care: Did The President Lie?

Do you remember the first time that a representative of America’s Republican Party accused President Obama of a lie about the Affordable Care Act?

It was a fairly spectacular setting. The President was delivering his first ceremonial State of the Union speech to a joint session of Congress. When Obama declared that his health care reform proposal would not extend medical services to illegal residents, Republican Congressman Joe Wilson interrupted the speech by screaming “You Lie!”

He later apologized for his severe breach of decorum, but today, Republicans are no longer apologizing for accusing the President of telling lies about the Affordable Care Act. So did Obama lie to the American people when he claimed that “if you like your (health) plan, you can keep your (health) plan”?

The answer depends on what the President meant by the word “plan.” If he meant “health insurance policy,” then he didn’t lie. Health organizations are now cancelling “plans” that don’t meet the minimum definitions of “insurance policies.” Indeed, these companies are not cancelling insurance policies at all, but instead are cancelling more limited types of health plans.

What is the difference? Well, insurance policies are designed to cover consumers against catastrophic losses. The plans that are now being cancelled, though, often feature benefits that are limited at extremely low levels, or that permit companies to cancel coverage or drastically increase premiums once consumers become ill and need to claim benefits. Such plans are actually designed to avoid coverage for catastrophic illnesses, not to insure for them.

This is why Aetna’s home page, for instance, carefully differentiates between “health plans” and “insurance solutions” to consumers. The firm refers to “plans” and “insurance” as distinct and separate services because they design and sell them as uniquely different types of contracts.

If President Obama was thinking of “comprehensive health insurance” when he said that “if you like your plan, you can keep your plan,” then he was indeed telling the truth. If that was what he had in mind, then he wasn’t referring to the types of contracts that are now being cancelled by companies.

But if he was thinking of the types of low benefit, easily cancellable contracts that the Affordable Care Act explicitly deemed insufficient for insurance purposes, then he was not speaking truthfully. After all, the Affordable Care Act was designed to require Americans to purchase full insurance policies that provide coverage far superior to the terms of these meager plans.

So did the President lie? Reasonable people may differ; you are certainly free to decide what you will. Perhaps we can all agree, though, that it would be helpful for our political leaders to use more precise language in the future … beginning, for example, with a clear definition of a “health plan.”

The Massachusetts Strategy: Medical Cost Budgets

As the American presidential contest barrels towards the Labor Day holiday weekend and the proverbial “home stretch” of the campaign, the candidates continue to fling charges at each other regarding the health care system.

Mitt Romney, of course, continues to refer to the President’s universal health care plan as a burden on American society and as an unnecessary tax on the middle class. And Barack Obama continues to riposte that his Affordable Care Act is actually modeled on the 2006 landmark Massachusetts law that Romney championed as Governor.

Lost in the squabbling, though, is the fact that the Massachusetts model of universal health care has now been in operation for six long years. So how is it doing? Is it achieving its goals?

Primary Goal: Mission Accomplished!

The primary goal of the Massachusetts law, of course, was to extend health insurance coverage to virtually all state residents. That mission has indeed been accomplished; over 98% of all residents are now enrolled in state-mandated and government approved health insurance plans.

The enrollment process for individual policy holders is managed through an online portal known as the Health Connector. Many industry specialists have praised the effectiveness of the portal; in fact, it has become a model for the state-based “exchanges” that are now being developed across the nation to comply with the provisions of the Affordable Care Act.

Regrettably, investigative reporters at the Boston Globe have noted thousands of cases of individuals who appear to be “gaming” the system by enrolling in health plans for brief periods of time in order to gain temporary coverage to receive medical services. Nevertheless, the vast majority of the 6.5 million residents of the Commonwealth of Massachusetts appear to be complying with the letter and the spirit of the 2006 insurance coverage law.

Secondary Goal: Yet To Be Achieved?

The secondary goal of the Massachusetts law was to reduce the cost of providing health care services to residents throughout the Commonwealth. And the actual results? Pragmatically speaking, the evidence is mixed at best that the costs of medical care are actually trending downwards.

In theory, as a result of the enrollment of all residents into insurance plans, the utilization rates (and thus the costs) of primary medical care and preventive care services should increase over time. Policy makers are hoping, though, that these increases will be offset by concomitant declines in the utilization rates (and thus the costs) of hospital emergency room services and preventable disease treatment regimens.

Many studies have confirmed that these utilization and cost trends are indeed occurring for certain clusters of individuals. But other studies have noted that the overall costs of providing medical services to the population may be increasing significantly.

Next Step: Government Cost Targets

So how do the current Governor Deval Patrick and the Massachusetts Legislature intend to address the challenge of controlling medical costs? Earlier this month, they signed a bill into law that establishes explicit cost reduction targets for levels of health spending throughout the state.

For the next five years, through 2017, the law is designed to limit inflationary increases in health spending to levels that are consistent with the growth of the Massachusetts economy. And thereafter, it is designed to reduce health inflation rates to annual levels that are one-half of one percent below the growth rates of the state’s gross domestic product.

According to government estimates, the aggregate costs of medical care will decline by up to $200 billion over the next fifteen years if the health system meets these targets. Whether or not the system will actually do so, though, is any one’s guess.

It May Take Years

Does the Massachusetts model of universal health care represent an approach that should be replicated across the nation? A successful Massachusetts initiative, of course, can serve as an effective model for the other 49 states.

On the one hand, government mandated universal cost budgets may distort the market for health care services. Let’s assume, for instance, that the Commonwealth experiences an outbreak of influenza in a year when its costs are budgeted to decline by one half of one percent. If it diverts funds from other initiatives to fight influenza, it may force itself to abandon health programs with significant long term benefits.

On the other hand, it is possible that the government of Massachusetts is the only entity that possesses the authority and the power to mandate cost reduction activities on a statewide basis. In other words, no other organization may be able to accomplish such broadly defined goals.

It is, regrettably, too early to assess whether the cost budgeting law will prove to be effective. That is not surprising; after all, it took years to conclude that the original 2006 law could succeed at enrolling most residents in insurance plans. It may likewise take years to assess whether medical cost inflation can be controlled through the use of budgetary targets.