Obamacare

The Advantages of 'Substandard' Health Plans

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Stanford economist Edward Lazear, who chaired George W. Bush's Council of Economic Advisers from 2006 to 2009, explains why one man's "substandard" health plan is another's optimal coverage:

Plans that exclude the president's "core" benefits may be exactly what is desired for those in good health with the means to cover their limited every-day and predictable medical expenses….

Just as it would be a bad idea to require that all cars come with power windows, power locks, and automatic transmissions, it is also unwise to order citizens to buy health care that includes maternity benefits or other care. 

Some may have no intention of having children.  

Others may not want to devote the time required to take advantage of the preventive care that is covered.

Still others may be skeptical of the effectiveness of mental health care….

The fact that a health care plan does not include all the benefits of other plans does not imply that it is "substandard." Instead, the [Affordable Care Act] replaces plans that cater to needs of a particular consumer with those cluttered with bells and whistles that may be of little value.  

Lazear also notes that generous coverage contributes to health care inflation by encouraging overconsumption: When someone else is picking up the tab, consumers do not worry much about the price. In fact, because the health care market is dominated by third-party payments, patients typically do not even know the price before they decide whether to "purchase" a particular medical service. The other day The New York Times published an op-ed piece in which Peter Ubel, a professor of medicine at Duke University, proposed a radical idea: What if doctors deigned to tell patients, before asking them to approve a procedure or course of treatment, how much it will cost them? Ubel argues that doctors should "discuss out-of-pocket costs with patients just as they discuss any side effects."

That is eminently sensible, except that doctors may have no idea how much the services they offer will cost the patient or his insurer, because the answer depends on carrier-specific negotiations, the details of the patient's policy, and his prior covered expenses. Patients may not find out how much a treatment costs until months after they buy it, when they get an "explanation of benefits" in the mail. Even then the answser may not be final, because there is room for dispute about exactly what is covered. Furthermore, out-of-pocket costs may be negotiable, since hospitals are accustomed to receiving only partial payment of the bills they issue (and presumably inflate them with that in mind). The upshot is price signals that are late and faint, if not utterly obscured.

The major exceptions are medical services, such as dental care, vision correction, and plastic surgery, that consumers typically buy with their own money. You can easily get a price quote for a tooth implant, Lasik surgery, or a nose job. It is almost impossible to get a clear idea of how much an MRI or a tonsillectomy will cost. In my experience, such questions usually elicit blank stares, as if they've never been asked before. Imagine how well the car repair market would function if customers had no way of knowing how much a new transmission would cost until months after agreeing to buy one.

Obamacare, Lazear notes, compounds this problem by requiring people to buy more coverage than they would otherwise choose:

Health economists, notably Daniel Kessler at Stanford, have demonstrated that the failure by the consumer to pay for health care on the margin induces high and in many cases over usage.  

Plans that have low co-pays, first-dollar coverage, and insure routine predictable health care events induce high and excessive use of care.

By contrast, those like catastrophic care plans that do not insure the routine and cover only unpredictable high cost events induce consumers to behave more efficiently. 

Banning such "substandard" plans makes no sense from a cost-control perspective. Last month I compared Obamacare's minimum coverage requirements to the federal ban on incandescent light bulbs, which likewise overrides consumers' assessments of their own interests. But while the light bulb requirement was defended in the name of efficiency, Obamacare mandates inefficiency. 

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  1. Stanford economist Edward Lazear, who chaired George W. Bush’s Council of Economic Advisers from 2006 to 2009

    BOOOOOOOOOSH!!!

  2. others may be skeptical of the effectiveness of mental health care….

    Must be nuts.

  3. Once again, you are talking about letting people weigh risks and benefits for themselves and make their own purchasing decisions. This is simply not acceptable.

  4. I used to take a $2000 deductible plan in my 20s. I got a 10% discount automatically on those few times I went in, because I was paying in ‘cash’ (no paperwork).

    1. $5000 deductible and BCBS pricing. It was awesome.

    2. My wife and I still have a “grandfathered” high-deductable plan, and we can vouch for the difficulty of getting a straight answer about pricing in advance of the visit/procedure.

      1. I do the same thing. Every time I ask for a cash price the receptionist’s head explodes.

        1. I’ve seen it too. I ask, “How much is your visitation fee?” They say, “It depends on your insurance.” To which I reply, “Are you fucking retarded?”

        2. I love to ask that question just for the fun of it.

  5. this article is preaching to the choir. It needs to be shown to the masses prostrating themselves at the feet of The Obama, convinced of his magical powers to solve everything. They believe the “substandard” plans to be shit be he told them so.

    They argue the point of a 60-year old having no need for maternity care by questioning 1) your knowledge of what insurance actually is, 2) that you are shirking your societal duty of sharing costs across a pool of participants, 3) whatever ad hominem is in vogue at the moment.

    1. The masses are not doing that. Notice where Obama’s approval rating is.

      Not everyone is a hard core prog.

      1. 2016 increasingly seems like conservatives’ fight to lose, especially when exchange numbers stay low because exchange plans remain unaffordable. Progs will have a legacy of throwing the previously insured into the ranks of uninsured, penalizing the uninsured who continue forgoing insurance, and raising premiums across the board. The schadenfreude, it is a treat.

        1. So did 2012, but conservatives rose to the occasion.

          1. 2012 wasn’t like this. This is bad.

            1. 2012 wasn’t like this. This is bad.

              Worst economy since the 1930s and Obama and his policies directly responsible….

          2. They handled 2010 pretty well though.

            2012 was too far away from the vote.

            2014 may be ugly. Seriously ugly for the Dems.

            Not sure about 2016, it depends what changes.

            1. I meant 2014. Getting ahead of myself.

        2. The question is how do you clean up this mess? I hope the Republicans just first try to undo the damage and then look for smaller things to do to make things better.

          Lets let Obamacare be the death of the new giant federal solution.

          1. First repeal all of the ACA.

            If they then went to readd some piece, make that argument later.

            1. I wonder about that at this point though. The insurance companies have restructured their whole operations around this mess. They will probably not allow it to be pulled out from under them now. They will have to push for bigger penaltaxes immediately and more draconian enforcement.

    2. “Letting people die because they can’t get healthcare” is pretty much a standard talking point too.

      1. That works right up until people lose their health insurance. Then all that goes away and they just want it back.

        1. Democrats’ shockingly rookie mistake: the people voting for your legislation aren’t supposed to be the people paying for it.

      2. Wait, when did we do that?

        1. 1981-1992

          and

          2001-2008

  6. Some may have no intention of having children.

    And what if they are hit by a bus?

    1. He seems to have disappeared since that gem.

      1. Maybe he was hit by a bus.

        1. Then He must be spending all his time trying to sign up on the exchanges so he can get his abortion payed for.

    2. And what if they are hit by a bus?

      Then Obamacare will pay for the abortion.

  7. The point we need to get across, loud and clear, is that an “essential benefit” is effectively the same thing as a “mandatory minimum”.

    The law doesn’t just say “wouldn’t it be nice if everyone had mental health coverage?” It says “Everyone MUST HAVE mental health coverage or PAY A FINE.”

    THAT is the disconnect.
    Hammer on that point.

  8. “Imagine how well the car repair market would function if customers had no way of knowing how much a new transmission would cost until months after agreeing to buy one”

    But, but that comparison is invalid because healthcare is DIFFERENT!!!!!!!!!!!!!!!!

    Healthcare is a RIGHT!!!!!!!!!!!!!!!!!

    This is also the kind of crap you’ll hear if you start pointing out the economic absurdity of Obamacare to leftists.

    1. Its also why the anti-insurance argument of a few people on this site is idiotic. Insurance isnt the problem, as the transmission example shows.

      1. I’m re-reading Thomas Sowell, and he hammers home the point about price coordination of an economy.

      2. Employer-provided insurance is the problem.

        People need to know how much they are actually paying. Employer-based insurance shields them from the price signals. Even indirect price signals.

  9. “doctors may have no idea how much the services they offer will cost the patient or his insurer, because the answer depends on carrier-specific negotiations, the details of the patient’s policy, and his prior covered expenses. Patients may not find out how much a treatment costs until months after they buy it, when they get an “explanation of benefits” in the mail. Even then the answer may not be final, because there is room for dispute about exactly what is covered. ”

    I tried recently to discover the how much I would pay if I switched from Crestor to generic Lipitor. No one knew. I asked the pharmacist and handed him my insurance card and all he could give me was a ballpark figure. So I called my insurance company and I talked with a representative for several minutes and had to be placed on hold so he, too, could give me a ballpark figure. I didn’t find out the true price until I took the plunge and had my doctor write me a new prescription and I had it filled. No one knows what anything costs. It’s bizarre.

  10. Just as it would be a bad idea to require that all cars come with power windows, power locks, and automatic transmissions, it is also unwise to order citizens to buy health care that includes maternity benefits or other care.

    The retort I’ve seen about this is that every car is manufactured with mandated safety features and that’s analogous to the Obamacare regulations. But, it’s not. The power windows thing is definitely the better analogy because it’s something that’s not absolutely necessary.

  11. Huh! Wow. I didn’t realize there were so many advantages. what is a tummy tuck des moines

  12. Very scary to learn that things can change so easily

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