IT IS now nearly a year since the roll-out of Obamacare. The launch was a shambles, and Obamacare is a totem for every American who hates big government. Republicans will deride it, yet again, in the mid-term elections.
Obamacare is indeed costly and overcomplicated. Yet it is not to blame for America’s health mess, and it could just contain the beginnings of a partial solution to it. But that will only happen if politicians treat health care like a patient: first, diagnose the disease, then examine whether Barack Obama’s treatment helped, and then ask what will make the patient better.
Xi who must be obeyed
A quick check-up
Begin with the disease. At the core of America’s problems with health care is a great delusion: it likes to think it has a vibrant private marketplace. In fact the country has long had a subsidy-laden system that is the most expensive and complicated in the world, with much of the government cash going to the rich, millions of people left out and little individual responsibility.
America devotes 17% of GDP to health care, compared with 9% in Britain, yet nearly 50m Americans were uninsured in 2012 and life expectancy is slightly below average for a rich country. And the taxpayer foots much of the bill: government health spending per head in 2012, before Obamacare’s main provisions took effect, was 50% higher than in Britain, which has a nationalised health system. Some spending, such as the huge Medicare programme for the elderly and Medicaid for the hard-up, is obvious. But much is opaque.
Employer-sponsored coverage is tax exempt, costing the government at least $200 billion a year. These subsidies fuel health-care inflation and favour rich employees, who would pay higher taxes if they were compensated with wages alone. Just as bad, roughly half the population finds that their health insurance is tied to a job; this makes it harder for them to switch employers. Rising premiums come out of wages; health-care inflation is one of the main reasons why pay for the average American has stagnated. Meanwhile many of the uninsured are free-riders: young people who do not buy insurance but rely on costly emergency rooms if something awful happens.
The system seems designed to encourage waste. Doctors are often paid for every test or invasive procedure, rather than for keeping patients well. Patients don’t know what anything costs, and the bill will in any case be settled by a third party, so they don’t haggle. Prices can be sky-high and vary wildly. A mammogram in New York may be less than $100 or more than $1,700. No matter what the Republicans say, this is not a free market in any normal sense. But what about the treatment?
Ironically the “socialist” Mr Obama did not do the one thing that might have cut taxpayers’ costs dramatically: introduce a European “single payer” health-care system (with ideally some small treatment user fees to deter overuse). Instead he tried to tweak America’s system in two ways—to expand coverage and to reduce costs. So Medicaid now covers the not-very-well-off as well as the truly poor (at least, in Democratic states), and Obamacare bans insurers from charging sick people higher premiums. To expand insurers’ pool of patients and keep costs down, it required Americans to buy insurance or pay a penalty. To make insurance-buying easier, Mr Obama introduced online exchanges where people can shop for a health plan, and offered subsidies to those who cannot afford one.
The results are mixed. Practically every competent health-industry lobbyist managed to insert a line protecting the services his paymasters provide—so Obamacare is too costly and too complicated, but it is doing a little better than it is given credit for (see article). The share of uninsured 18-64-year-olds has fallen from 18.5% in the second quarter of 2013 to 13.9% in the second quarter of 2014 according to a survey. This is probably due mostly to the expansion of publicly funded Medicaid, rather than people flocking to the Obamacare exchanges, on which people buy their own insurance. Encouragingly, health-care inflation has also fallen back, though that may largely be because of a weak economy.
So what would make American health care better now? Since its failings lie more within the system than with the president’s attempt to reform it, health reformers should concentrate on three areas that could make its flawed market work better: directing handouts towards the poor rather than the affluent, nudging individuals to take charge of their own health care, and making sure that prices are transparent.
Injecting the right people
For a start, Congress should move towards scrapping both the tax break for employer-provided health insurance and the requirement that firms offer it. Those savings could be used to help cover subsidies for the poor. Without the tax distortion, employers would pay higher wages instead of benefits and workers would shop around for the best value health plans.
That is already beginning to happen. Flawed though they are, Obamacare’s exchanges could be the foundation of a new model. Employers are already making employees pay more of their own individual health costs upfront. A worker who has to pay the first $1,000 of his annual bills out of his own pocket is far more likely to shop around. And as patients become more like consumers, health-care providers are improving their game (see article). Walmart and other retailers are selling basic medical services more cheaply and outside usual hours.
Reform will work only if prices are transparent. This is where antitrust and other competition authorities could come in. Cosy deals between hospitals and insurers that suppress price information should be barred. The government should release more data on the price and quality of doctors. In April it published doctors’ charges for treating elderly patients, but largely withheld the most useful information, such as data showing doctors’ treatment of specific patients over time.
Obamacare’s effects will not be fully understood for years; but it will never be the core of the problem. If America wants to stick to the idea that it has a health-care market, then it should focus on trying to make it more like a market—with prices, competitors and some form of choice.