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Juggling Three Trillion Eggs

June is likely to be a pretty thin month on Contra here for a number of reasons, most of them cooking down to the degree that my time and energy are committed to other things. I appreciate your emails, though. The boy is alright, if winded and maybe a little grouchy.

I knew that Obamacare was in trouble when its supporters stopped calling it “Obamacare.”

One of the law’s politer fans among my readership sent me a note earlier today, certain that the Supreme Court was going to hand down its ruling on the Affordable Care Act this afternoon. She knows I’m interested in the topic and that I have skin in the game. (I’m a freelancer and thus have to buy a policy on the individual market. It’s the largest single expense that Carol and I have.) We’ve discussed it before. She and I always used to call it “Obamacare,” without any suggestion that the term was some sort of epithet. No more. Well, there won’t be a decision today, but whatever you want to call the law itself, the issue’s been much on my mind.

I’m a skeptic of the ACA, mostly because of the risk of an adverse selection death spiral in the private insurance business. The bill enacts penalties that are trivial compared to the cost of either buying or providing coverage, which means that some people and small businesses are likely to pay the fines rather than comply, particularly since the bill forbids any kind of criminal sanctions for noncompliance. (Most of my earlier points may be found in this post.) The nature of the Supreme Court’s decision is critical. If the Court throws out the individual mandate while leaving the rest of it in force, the death spiral is almost inevitable. If the court throws out the entire bill, we’re back where we started. If the bill continues as passed, nobody knows what state the health insurance business will be come 2015.

“Affordable care”, alas, is a false promise, even if the entire bill survives intact. Revealingly, the bill’s key architect now says that the ACA will raise insurance premiums, especially for young people. My own premiums will likely rise by 19%. Given that Carol and I are square in the demographic that the insurance industry loves to hate, I guess I should be glad that we have coverage at all.

Even that isn’t a sure thing. I’m going to make a point here that I haven’t seen anyone else make in the years-long discussion: No matter what you intend to do, reforming a sector of the economy as large as health care guarantees that there will be a certain amount of blood in the streets. Health care expenditures now consume about 17% of GDP–three trillion dollars–a number that makes most American industries look like rounding errors. Any change that embraces that much turf and that much money will be disruptive down here in the waiting rooms. Any change. Insurance companies will reduce their presence in some areas. People will game the system. Prices of drugs and medical equipment will rise, triggering layoffs and outsourcing and trimming of insurance benefits. Doctors who are approaching retirement age may leave the field early rather than endure the paperwork and the fee limitations, leaving us with an even greater shortage of skilled practitioners. There will be mistakes and confusion on a truly epic scale, and a substantial number of people will slip through the cracks. Tumors will grow, conditions will fail to be diagnosed, and many will suffer.

This, furthermore, is best-case. If something goes wrong, well, the consequences are impossible to predict, beyond their being bad.

Do I have any better ideas? No. There are too many pathological conditions in play here: Nobody knows what their current health insurance costs. Everybody wants somebody else to pay for it. Human variability among individuals is broader than we’re willing to admit. We know far less about the workings of the human body than we claim to. Health care costs are hugely concentrated among relatively few individuals (I’ve heard 90/10 most often, but have not seen good numbers) so even policies with spectacularly high deductables will cost a great deal. Healthy people are too willing to ascribe their health to moral superiority, and bad health to bad behavior. (This is a phenomenon I’ve dubbed “Higgsism,” from the hero of Butler’s Erewhon.) Almost everyone is still repeating Ancel Keys’ scientific fraud, that carbs are good and fats are bad. The “death panels” meme cannot be un-coined.

Etc. The end result is that I consider universal health care an unsolvable problem, as most people understand the term “solvable.” (My definition of “solvable” does not include “imposing a solution by force on the public that the public does not want.”)

Whatever happens next week when the Supreme Court hands down its decision, we are in for a wild ride. You can’t juggle three trillion eggs without breaking some. Before you say that’s ok, imagine that one of those splats on the national carpet is you.

Pause before clicking that comments link, and recall that my tolerance for tribal hatred is close to zero. Note well that I did not use the words “liberal,” “conservative,” “Democrat,” or “Republican” in this post, nor any of various possible synonyms. If you intend to comment, I dare you to do the same.


  1. Jeff,

    You’ve definitely hit on a sore point here. As I’ve been mostly an independent contractor for the past 15 years or so, I’ve found that health insurance is excruciatingly expensive…and I’m just a year younger than you, and a Type I diabetic for the past 9 years as well. Like you, we found that our health insurance policies (individual for me and for my wife) were the single largest cash outlay we had every month. And since I’ve been unable to find work that I can do for the past 20+ months (don’t tell ME the economy’s improving!), we had to drop hers. I mean, a $15K annual deductible doesn’t really cover anything. I’d intended to drop mine as well, since I’ve always had to pay for my own health care anyway, but as a diabetic I’d be pretty much left out in the cold if I should find work and be able to afford it again.

    There are so many, many factors that have caused this problem, but you hit on the main one (and it’s a theme that Jerry Pournelle has been repeating for a few years now): everybody wants affordable health care, and they want somebody else to pay for it. Obviously, there are many other things that have contributed to the situation in which we now find ourselves, but that’s the primary driver.

    I see some dark times ahead, to be honest.

    And thanks for talking about this. I’ve posted similar things in the past, but you’re much more widely read by others!

    1. You’re precisely the kind of guy I’m worried about. Carol and I are in very good health (so far) and working on keeping it that way. (My blood numbers are better than they’ve been since we’ve been tracking them, almost certainly because I eat very little sugar, and drink almost none, especially HFCS.) However, I’ve seen enough of my trim, healthy friends come down with fatal illnesses to be sure by now that it’s a lottery, not a task.

      What precisely is to be done is unclear, but like you, it will probably get quite a bit worse before it gets better.

  2. Jack says:

    Until I turned 65 last year and was forced to drop me from our individual Blue Cross / Blue Shield program (wife and me) we paid a bit over $10K year for BC/BS with the highest deductible available.

    Historically, medical expenses as a percent of GDP have increased not far from 10% a year. If that continues, 1/3rd of our GDP would be devoted to medical services by 2019.

    It’s not possible mathematically to extract enough money from the economy for this level of expenditure and maintain other minimal government functions, such as roads, defense, etc. even with Swedish levels of taxation. (Referring to the days when the maximum marginal rate exceeded 100%, not the current lower tax levels.)

    Likewise, it’s not possible for some combination of government and private expenditure for health care to hit 1/3rd of GDP in the next 10 years.

    We as a society ration scare goods by price. There’s no great demand for a government program to subsidize the price of Rolls Royce automobiles so that everyone can drive one.

    If we as a society have decided that health care of similar quality must be available to everyone, regardless of ability to pay, then a different rationing mechanism must be introduced.

    Some countries with nationalized health care systems ration by inconvenience – you want an appointment for a problem? We have an opening for you six months from next Tuesday. Don’t miss it.

    Or, there’s an approved drug list and if the administering authority things the cost/benefit ratio is not suitable, it’s not available.

    And, the pay scales for the medical community is decidedly lower than in the US.

    All of these and more mechanisms are used to restrain the level of overall expenditure. Some work better than others, of course, but I think the best of the European systems (Germany and France) are still pushing 10% of GDP in medical care.

    Of course, don’t make the mistake of thinking that the really well to do will put up with anything but state of the art medical services. Perhaps via a visit to Switzerland, but I’m sure other mechanisms will be available.

    As to what solution that (a) can be accepted by the electorate; and (b) the interested parties and (c) will actually make things better, your guess is a good as mine. I can’t see anything that simultaneously meets all three conditions.


    1. Erbo says:

      It’s even worse than it appears. Federal medical spending has grown from $53 billion in 1980 to $820 billion in 2011, approximately a 9.3% compounded annual increase. By the Rule of 72, that means that it will double roughly every 7-1/2 years. Within 15 years, then. the total will rise to $3.2 trillion. This is almost as much as the entire Federal budget as of 2011. There is no way the government can spend that much money, as it doesn’t have it and can’t acquire it, either through taxation or borrowing. Any attempt to do so would likely result in a collapse of both government and private industry.

      Karl Denninger has written extensively on the subject of health care, both on his blog, The Market Ticker, and in his book, Leverage: How Cheap Money Will Destroy The World. Jeff, you’d probably like his writing. He freely criticizes both sides of the political aisle, as neither one of them seems to show any goddamn sense. He’s a registered Libertarian, and he freely criticizes his own party’s candidates, too.

  3. I’m not convinced that Obamacare is the best approach, but it seems like the most likely to be palatable to American society. It falls far short in areas of cost control (from what I’ve read), especially.

    But we have to do something. We as a civilization have decided that it is unacceptable for people to die on the steps of the hospital (as they do in some places) because they can’t pay. Having decided that, we must now decide how to pay for it. And the way the system works presently – that the costs of those indigent patients are rolled over onto the paying patients – is not sustainable.

    I think that as a line in the sand by which the U.S. will have a national healthcare system, this plan is workable, and as time passes once it’s established, there can be tinkering done to it, and further measures to control cost. (If you want to know what medicine really costs when people control costs from end to end, ask your vet.)


  4. Bob Fegert says:

    There is only one possible solution in my opinion.

    Multi-tier health care.

    Cadillac care for those that can afford it.

    Ordinary care for the middle class.

    Ward care for the rest who can pay nothing. This would mean large wards, charity hospitals, low-cost generic medications..etc (and very limited ability to bring malpractice claims since tier 3 care would be less than ideal and could be sued out of existence) The poor will always be with us, sadly. The failure of The Great Society is proof enough.

    Malpractice cases need to be capped on the pain and suffering claims. Only in extreme cases should huge amounts be awarded. And it should take all members of the jury voting yes to award them… just like it takes to convict in a criminal case.

    Common sense is in very short supply in these matters.
    Someone always has to pay! There really is no free healthcare lunch.

    I really see no other way to go that won’t bankrupt the nation. Creating total economic collapse will not give us a healthier populace…just the opposite.

  5. Tom Hanlin says:

    “We as a civilization have decided…”

    This is the step that leads only downwards. You may speak for yourself. You may not speak for me, or tell me what I have decided.

    I do not want health insurance, nor can I afford it or the fines that Obamacare will levy on me if I opt out. I can just barely afford to have an apartment, right now, I am unemployed. Your “help” in forcing insurance down my throat is likely to render me homeless.

    Tell you what, if you’re concerned about the well-being of other people… donate to a charity. That’s fully righteous. Trying to spend my money on things I can’t afford is exactly not that.

  6. Fully aware that the plural of anecdote is not data, having lived for 19 years in the States after being born and lived for 36 years in England, all I can say is that the current US system is broken in the senses of efficiency, costs, coverage, etc, etc. I would choose the European systems in a heartbeat: they cover everyone, everyone pays for them (and much less than the US equivalent), and it’s case closed. My own experiences between the UK and the US show that the US system is horrendously expensive and inefficient.

    And, puh-lease, none of those scare stories about “oh, you have to wait 6 months for an appointment”, we’re intelligent people here, thank you.

    I am lucky in that I am covered by the company I work for. But at my age (a couple of years less than Jeff), there’s no way I can afford to work for myself and still be covered, there’s no way I can get another position unless it has coverage, etc. Automatically, the need for a job with health insurance puts a brake on my mobility, my ability to do as Jeff does. In a wider sense, the same issues put a brake on recovery: without a mobile workforce, you perhaps can’t expand as quickly as you’d like.

    And then again, relying on emergency rooms for health care as almost 20% of Americans have to, is just a hidden cost that we all have to pay for anyway. TANSTAAFL.

    Now is the individual mandate the answer? It’s a step in the right direction as far as I’m concerned. There’s still a long journey ahead though.

    Cheers, Julian

  7. Larry Nelson says:

    I’m an optimistic guy, but this is an area where even I have a tough time in finding a workable path. Here is an idea that I think would work but that would be hard to sell:

    1. Rank medical procedures by cost effectiveness. Well baby care gets a #1. Liver transplants in old alcoholics get a #2153.

    2. Tax everybody about 8%.

    3. Figure out how far that 8% goes in the ranking. Give everybody an insurance voucher that covers up to procedure up to #1182 or as far as it goes.

    4. Anybody who wants coverage for procedures beyond #1182 buys supplemental insurance (taxed at about 30%) up to whatever procedure number they wish. The tax helps to buy the base voucher up to #1242 next year. There will be pre-existing condition limits on these supplemental policies to prevent adverse selection.

    It is mostly fair if not perfectly egalitarian. There is some incentive for people to pay attention to their health through preventive care so they don’t end up with a procedure outside of their voucher coverage.

    The challenge will be when someone dies of #1183 because their voucher only goes to #1182. No politician will be able to stand that pressure.

  8. Tom R. says:

    I am not a historian and what little I think I know may well be wrong, but perhaps if we stop for a bit and see how we got were we are today it may help in figuring out where to go from here.

    First a bit of semantics. I don’t consider Health Insurance and Health Care the same thing at all. Health Insurance has created this huge administrative overhead that is now a large part of Health Care. Having worked in various bureaucratic institutions most of my life the one thing I learned that they value preserving the status quo above all else since they ARE the status quo.

    Now for a bit of perhaps fractured history.

    Prior to WWII it is my understanding that Health Insurance either did not exist of was fairly rare. During WWII there were both wage and price controls and a severe shortage of labor. Employers were not able to offer higher salary but they were able to offer benefits and thus Health Insurance was born. I think it actually began in the Kaiser ship yards and was an in house operation with their own doctors and clinics for their employees. Other companies, in order to compete, created the demand for employer provided Health Insurance and thus the behemoth we are now being consumed by was born.

    Please do correct any errors or omissions in what I just said. I am an engineer not a historian.

    I don’t have any magic way out of this problem and apparently neither does anyone else. Like Jeff said there are two many “stake holders” with conflicting self interests for this ever to be resolved in a way that would make everyone happy.

    What I am going to say next may not set well with everyone, but it may be at the heart of the problem. Doctors and the HEALTH CARE system is programmed to try to maintain life for as long as possible NO MATTER WHAT THE QUALITY OF THAT LIFE IS. To me this is not theoretical, both my parents had Alzheimer’s and I watched the entire progression for almost a decade in each case. No, I am not advocating death panels or euthanasia, but we do need to look at when prolonging life, just because you can, does not make sense. I have no data to support this, but I would not be surprised if that is where a large part of the increasing cost of Health Care each year is going.

    The exponential growth of Health Care as it is now practiced can not be maintained since it is a hidden tax on every single individual and the entire country. Also it is not like most other things that people buy since it is REALLY hard to comparison shop! Perhaps if this hidden tax became one that was more open and visible it could be better controlled.

    I think that everyone in our country should have access to BASIC health services and as much preventive services as we can afford. Beyond that I do not know. I do know that any time I see growth rates like we are currently seeing for Health Care it is a sure sign of a bubble and will be followed by a collapse.

  9. Chuck Waggoner says:

    Healthcare costs are significantly more in the US than in any other well-developed country. There is a reason for that: regulation and certification have kept it closed to world competition, and the self-regulating bodies of doctors and lawyers, who decide how many will be schooled and admitted to those professions, have seen to it that there is always a shortage of both doctors and lawyers. The result is predictable—super-high wages in those professions, growing ever higher.

    My daughter in-law is a doctor and a German national. Her annual salary there is a matter of public record, and is just under the equivalent of US$57,000. Show me a practicing doctor in the US making only $57,000. Her main complaint about compensation, is that tenured teachers retire to a higher pension in Germany than do doctors.

    We opened up the unskilled labor market to compete with China, and wages in that area have become competitive with those on the world market. We have not opened up healthcare to world competition, but we must; and when that happens, there will be a huge reduction in healthcare costs here.

    Now before I hear the moans that lower-paid doctors and healthcare workers will mean lower quality services, just first take a look at comparisons of current healthcare between the US and other countries of the world. The quality of service delivery could not be worse in the US, as we have *by far* the highest healthcare costs per capita, while almost all other developed countries have significantly healthier citizens with much greater longevity. The US does not have the best healthcare in the world, contrary to the wild mantra circulating, that the US is best in everything. Outside of Mayo Clinic, when the world’s rich want healthcare, where do they go? England and Switzerland, primarily, and Cuba secondarily.

    Economist Dean Baker has been warning for years that it is healthcare which will bankrupt the US, not the so-called “entitlements” like Social Security, which we all have paid into over the whole course of our lives to have available at our retirement—and are, in fact, contrary to lying Congressmen’s claims, fully-funded through the likely longevity period of baby boomers. Baker is the only economist I know who actually offers solutions to the economic problems the US faces. And allowing free trade in healthcare delivery—letting someone get a hip replacement in India, where even including airfare, the cost is a tiny fraction of the same procedure in the US, done with the same equipment and the same or higher level of expertise as in the US—is the only answer. That is in addition to removing the medical and legal self-regulating bodies from determining how many doctors and lawyers are educated and certified, so the purposely contrived shortages in those professions end, and stop them from being grossly overpaid compared to the world market salaries of those professions. In the meantime, allowing and encouraging foreign doctors and lawyers to be painlessly certified to practice in the US, would greatly and immediately help stop healthcare costs from rising.

  10. gaddi shlasky says:

    Doesn’t it all come down to two words, selfishness and greed?
    I second Mr. Bucknall’s reference to some of the continental European health care systems. It can work.

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