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Tuesday, March 27, 2012

Everybody is trying to gain share

A piece in the Kaiser Health News caught my eye. Insurers are paying patients to select lower cost providers.

This is an interesting twist but perhaps I should not have been surprised. I have previously blogged on the convoluted nature of triangular relationships and the tendency of these relationships to result in two of the parties ganging up on the remaining party ( At the time all I saw was the providers and payers in cahoots, reigning in care and sharing the gains. The approach described in the Kaiser Health News piece puts this in an entirely different light  with payers and patients teaming up to put the squeeze on providers.

I believe this approach may have legs. The question I have is just how much money will it take to entice a given patient to go elsewhere for care? It might not take much under many circumstances and the insurers may be willing to pony up significant sums to shuttle patients to lower cost providers. The math is fairly straight forward. Whatever the delta, offer half and look for a bite.

This is classic arbitrage. There will be easy early gains to be squeezed and price pressures down will tend to decrease the range of prices to where everything will look like Medicare pricing. In the present environment no one will charge less than they charge Medicare because they cannot. The insurers will capture temporary gains until providers figure out how to gain the system by increase volumes as they have done before.  That is assuming that global payments do not become the norm. If that happens, then the insurers will switch sides and the providers and payers will again gang up patients, figuring out how to cut back on care, saving money and those two parties will split the gains.

Ah... the circle of health care continues....

Sunday, March 25, 2012

I have been away for a while - Travels in Haiti part 1

It has been a while since I have posted a blog. I have had a remarkably busy two months, perhaps highlighted by a trip to Haiti in mid February. I traveled with an established group from a church which had developed a long standing relationship with the Episcopal Church on the island of LaGonave. This is off the coast of Haiti and is considered a back water by Haitian standards. There is basically no functioning state. There is so little wealth there is also little or no crime. The people are resourceful.
The trip to get there was interesting to say the least. Our flight into Port-au-Prince was unremarkable. I was struck by my initial impressions from the air. I was expecting a tropical and lush environment. I saw what looked like eastern Colorado, dry, rocky, and barren. The airport in Port-au-Prince was in the midst of reconstruction. It was filled with what the Haitians call the "blancs", a continuous flow of volunteers from all over the US and Canada. This was very heartening.

The trip to LaGonave requires either a brief flight or a ferry ride. We had lots of luggage, including medications,  shoes, hats, and sewing machines in addition to our individual personal items which meant the air route was out of the question. The ride was an eye opener for me. Immediately upon leaving the terminal, I felt as though we had entered an alternative universe where a different history was unfolding.  As crowded as the terminal was, outside was a sea of people, all looking to make themselves useful to those visitors entering the alternative Haitian universe. There were UN soldiers intermixed and also cruising in jeeps, all armed to the teeth and distinguished by their North Carolina Tar Heel colors. While I perhaps should have felt anxious, for whatever reason I did not.   We were met in Port -au-Prince by representatives of the Episcopal Church of LaGonave who had arranged for ground transport to the ferry, about a 1.5 hour drive from the airport.

Port-au-Prince was crowded, dusty, and filled with litter. It turns out that having trash receptacles requires a background infrastructure which can collect the trash and take it somewhere out of site. This is something we take for granted and as far as Haiti is concerned, anything which requires infrastructure likely does not exist in any sort of robust form. The Haitian perspective on waste disposal is any given place is as good as any other place. Why make an effort to collect trash when there is no way to get it to where it can have less impact.

Traffic is a mess, but no more so than other lesser developed countries. Our trip to the ferry was interrupted by an accident involving two truck and a large bus. The road we used was a "two lane" road, ostensibly one lane in each direction. The wreck we encountered appeared to have happened when one truck attempted to pass another and at the same time a bus, traveling in the same direction attempted to pass both at the same time. The road was not wide enough to accommodate the three vehicles, prompting all the parties to side-swipe each other, the bus (filled with passengers) careening into the ditch. The trucks were immobilized, now occupying the entirety of the road and traffic backed up in both directions.

No HERO units patrolled these roads and those marooned by the wreck were left to their own devices. There was single lane on one shoulder that could serve for traffic to pass. This lane was quickly undermined by the game of chicken played. If you waited to let traffic pass in the other direction, your lane going in the direction you wanted to go would never get a chance to pass. Thus the only remaining lane came to a standstill. Ultimately, someone seized the day, prompting enough cooperation to take turns. I am not sure how the trucks were moved and by whom. They were not there when we came back through next week.

We arrived at the ferry terminal late, but our ride was still waiting on us. We all piled into a modest motor boat, the type I regularly associate with water skiing on Smith Mountain Lake.Twelve people, 2000 lbs of luggage, and one small oversight. The boat was not rated for this weight load. Perhaps 1-2 miles into the 30 mile trip, we were taking on water and what appeared to be an alarming rate. Our captain turned around and intercepted a slow moving ferry filled with Haitians, desperately wanting to unload his passengers and cargo, and I mean desperate. We approached the lumbering ferry, basically ramming it twice, I believe to convince them we were serious. We tied up briefly, launching ourselves and our luggage on top of a boat filled to the gills with people, charcoal,and  produce. We crushed a few poor souls and tomatoes. The Haitians welcomed us on board and appeared to be concerned with our welfare.  I held on for dear life for the next 2.5 hours while the boat slowly inched toward LaGonave.

We arrived as dusk was falling. My arms were stiff from clinging to the boat. I was sore from sitting on something hard and uneven. The Haitians appeared to be completely nonplussed. This was every day life for them. I ostensibly came to aid them. They had saved my butt on day one. We entered the harbor and the boat docked in A L'Anse-a-Galets. We were met by our hosts and transported to the Episcopal compound a few miles away where we settled down for the night, taking inventory, and looking forward the week ahead.

Principles vs. expediency

The Supreme Court is going to hear the case challenging the individual mandate next week. This case is perhaps the most important and potentially far reaching Supreme Court case of the past 100 years. While proponents of the health reform bill discounted the significance of constitutional issues from the start, it is basically undeniable that the bill raises questions which are fundamental to the extent of the powers of the Federal government which have not been addressed previously.

The functional importance of the individual mandate to the overall functioning of the health care bill is difficult to argue. Without the individual mandate, the system put in place by the Affordable Care Act becomes basically unworkable. By requiring insurance companies to provide coverage to everyone irregardless of pre-existing conditions is an invitation to game the system. While public appeals to the contrary may forestall gaming behavior at the onset of the program, over time people will find that they can maximize their own welfare by waiting until they actually need medical services before they purchase insurance. Waiting will become the norm and to believe otherwise is simply delusional.

Proponents of the health care law realize this is the case. Kevin Drum wrote in Mother Jones
Properly framed, the broccoli question is not really a hard one to answer. Here's what I think is the basic four-step legal justification for the individual mandate:
  1. The healthcare sector in America is part of interstate commerce. This is beyond dispute.
  2. Congress can regulate the healthcare sector. This follows directly from both the Constitution and many decades of actual practice. This is also beyond dispute.
  3. Broadly speaking, Obamacare is a reasonable effort to regulate the healthcare market. Regardless of whether they personally like the approach Congress took, I don't think it's hard to convince even conservative justices that the overall structure of Obamacare, with its mix of public and private delivery, is a proper exercise of Congress's authority over a large and complex segment of interstate commerce.
  4. The individual mandate is necessary to the proper functioning of Obamacare. Without the mandate, the entire structure of Obamacare fails. This is fairly easy to demonstrate.
The biggest point of contention is #4, and that has nothing to do with the interstate commerce clause. It has to do with the Necessary and Proper clause — and that's a very expansive grant of power. In McCullough v. Maryland, Chief Justice John Marshall wrote: "Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional." The individual mandate may not be the only way to accomplish Congress's goals, but I think the facts of the case provide an extremely strong basis for concluding that it's both "appropriate" and "plainly adapted" to those goals.
So then, what's the limiting rule? Why can't Congress mandate that we all eat broccoli? Answer: because it's not necessary to the proper functioning of any plausibly reasonable healthcare regulatory structure. Congress may have the power to intrude on individual liberty, but it can't exercise that power arbitrarily. It has to be appropriate and plainly adapted to a legitimate broader goal. The individual mandate is. Forcing you to eat your broccoli isn't.
However, that is not necessarily the question which the Supreme Court will address. The Court's decisions are generally not based upon what is likely to work best. Over a century ago, the court in Lochner vs. the State of New York declared that a law limiting baker's hours was unconstitutional. This ruling has become infamous based upon the Court's logic extending beyond powers clearly defined in the constitution, and this decision has become almost the starting point for defining judicial activism and "just making it up." The Supreme Court has since shown its reticent to over extend its reach and will go to great lengths to accommodate the will of legislative bodies and avoid "just making it up.".

However, this law is different. For example, the state law which Lochner contested placed limits on the nature of contracts which could be entered into by various parties.  Subsequently to Lochner, the Court has found that states can regulate contracts, limiting the degrees of freedom of parties when the enter into such agreements. No one forced the parties to fashion private agreements in the first place.They have never ruled on whether the Federal government can force parties to enter into contractual agreements. This is why this law is unique.

While the idea that the state can compel us to purchase broccoli sounds silly (because it is), Drum's argument that it is reasonable for the state to compel us to enter into contractual relationships which we do not desire if it furthers some other broader goal such as health care reform is faulty for two reasons. 

First, virtually any compulsion can be justified as furthering some societal goal. Yes, it would be difficult to find a rationale about broccoli in particular but I could easily see a much broader requirement regarding inclusion of entire types of "healthy" foods based upon the the state's financial interests. It could be argued that the success of health care reform is dependent upon adoption of healthy behaviors of the public. Why not compel people to enter into health club contracts? If it is deemed that the services offered by private companies, such as home health companies, may save someone other than the patient money, can the state compel individuals to purchase services they do not desire?

The second reason Drum's argument ins faulty is upholding the individual mandate basically undermines a basic tenant of contract law.  As pointed out in George Will's weekly column today, much of the law regarding contractual agreements is based in common law. One of the tenants of this common law is that contracts which are entered into under duress or based upon coercion can be challenged by those coerced as being non-binding. If coercion by the state is OK and cannot be used to invalidate contracts, it basically opens the door for the legal enforcement of coerced contracts of all types. All you need to do is to capture a legislative body and create a large enough coalition to force the minority to become contractually beholden to whoever has legislative power. Now that is a scary thought!

The choice is clear. For the expediency to try to make a bad piece of legislation work are we willing to undermine centuries of contract law and the foundations of private exchange, all without any constitutional precedent for the Federal government. I think not.