Who is gaming the system? Surprise, it's the corporations!

I recently participated in a panel discussion following a presentation on the impact of the Affordable Care Act (“Obamacare”) by UC-Berkeley economist J. Bradford DeLong. Unsurprisingly, Dr. DeLong, who worked in the federal government as Deputy Assistant Secretary of the Treasury for Economic Policy in the early years of the Clinton administration, during an earlier attempt to pass comprehensive health reform, took an economic point of view. He described the economic theories behind each of the approaches to health reform, how the ACA was put together, how it most resembled the “RomneyCare” model implemented in Massachusetts and endorsed by Hillary Clinton but abandoned by the Republicans; he also showed that the Obama administration miscalculated the near-unanimity of Republican opposition. He also looked at how the implementation of the ACA has been more successful than many feared (or hoped) and how the economic analysis behind it was distorted by the Supreme Court decision to allow states to not expand Medicaid, which has resulted in an enormous transfer of wealth from the “red” states that have not to the “blue” states that have done so. Apparently, the ideological commitment by many states (including my own, Kansas, and neighboring Missouri) to harm its people and give away money is puzzling from a purely economic, as well as a human, point of view.

One of the themes Dr. DeLong notes coming especially from “conservative” economists and Republican politicians (and we hear a lot) is the need for people to have “skin in the game”, by which they mean co-pays, deductibles, and other ways of people paying out of their pockets. As Dr. DeLong noted, the only large, well-designed, and meticulous study of the impact of such “skin in the game”, the 1983 RAND experiment (which I have previously discussed; see Insurance company profits up and patient care down, May 17, 2011*)  showed that even small out-of-pocket payments discourage people from seeking care for both minor and major conditions, ultimately cost much more to care for, and harm the health of those people. As noted by one of the audience, current requirements in many “high-deductible” plans for “skin in the game” cost-sharing are far greater than those studied by RAND (and can be 45% of a person’s income!) and are thus even more likely to have a major negative health impact.

Another common “game” meme, mentioned by one of the other panelists, is concern with people “gaming the system”. If this conjures up images of elegant gamblers in formal wear playing roulette with James Bond in a posh casino on the Riviera, that is the intent. Like Ronald Reagan’s “welfare queens” and Kansas Governor Sam Brownback’s “able-bodied adults who refuse to work”, it is meant to divide people by creating a “them” who are taking it easy while the hard-working “us” pay the price. Of course, this is nonsense; most of those individuals so “gaming the system” are merely trying their best not to break their budgets paying for health insurance until they get so sick that they need it. Yes, this is certainly contrary to the concept of insurance (everyone pays and only some people benefit, but you never know when it will be you), and is a big reason that most countries have gone to a “social insurance” system that just covers everyone.

In fact, despite all the fooforaw about it, there is no data suggesting that there is massive “gaming of the system” by regular people. Michael Hiltzik’s Los Angeles Times column of February 27, 2016 makes this clear, focusing on “Special Enrollment Periods” (SEPs), times when people can enroll in or change their insurance outside of the usual ACA annual period. Huge insurance companies like Aetna and Anthem have asserted, without much evidence, that people are using these SEPs (mostly designed to allow changes when you get married, divorced, have a baby, move to a different state where your current plan wouldn’t cover you) to “buy to use”, in Anthem’s words, meaning you wait until you’re sick to get insurance. Hiltzik presents data that shows this is not significantly the case, and that it is absurd; he writes “Aetna must think the entire country consists of people plotting how to get a quickie marriage or divorce or have a baby just in case they get sick. The vast majority of SEPs cover a relatively trivial number of cases, unless you think there are hordes of people applying to become members of a Native American tribe after they get sick.”

Of course, people do game the system. But the big gaming is by the insurance companies themselves and the providers of care. These corporations, big insurance companies, health systems, drug makers, who have the clout to “game the system” do so all the time as part of their core business models. It is convenient for them to divert our attention to regular people, middle-class people, and especially poor people, as the ones gaming the system. In fact these are of course the folks who suffer the most harm, whose health is most affected, whose access to care is most limited, and who are stuck with crummy health coverage because this is all they can afford.

The insurers work every legal angle (and perhaps some not-so-legal) to figure out how to mostly insure relatively healthy, low-cost people (after all, 5% of people account for 50% of health costs and 1% for 20%, see my Red, Blue, and Purple: The Math of Health Care Spending, October 20, 2009, and Kaiser Health News report 2013),  while the high-cost patients are covered by Someone Else. Providers, especially health systems and hospitals, figure out how they can “upcode” to get maximum reimbursement from insurers, attract people who have high-profit-margin conditions to themselves, and encourage high-cost, low-reimbursement poor and poorly-insured people to find their care from Someone Else. Insurers blame providers for charging too much, providers blame insurers for paying too little. One of the other panelists, a hospital executive, complained about how insurers seek transfer risk, which is part of the definition of insurance, to the providers. Neither is blameless, and the other big players, pharmaceutical companies (and device manufacturers) make out like bandits, with no major candidate having a real plan to address this according to a report by Julie Rovner of Kaiser Health, (cited here by Medpage Today). Of course, this equates all plans to “negotiate prices” and it is obvious that a single-payer health plan, such as that advocated by Bernie Sanders, will have a lot more negotiating clout than the multiple-insurer mess that other candidates support and exists today.

What did I say as a panelist? Basically, that the goal of the system should be to maintain and improve the health of people, and that the economic design of the system should be designed to achieve that goal, rather than having competing economic theory be the driver, and people the incidental victims. I said that spending money on providing health care to people was not a bad thing, but spending huge amounts on “health care” when more than half was going to profit was. I said that all this spending on medical care (and profit) limited what was left to be spent on creating the conditions that allowed people to benefit from medical care – like housing, food, education – the social determinants of health.

I think that this resonates with people, both at the event and in the world. Or maybe I’m one of those “hopeless idealists”. If the alternative is being cynically corrupt, I wouldn’t want to be anything else.

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* Citations from that blog post: “RAND Health Insurance Experiment (as cited in Freedom abroad, health at home: experiments in preventive health care, February 13, 2011; the study was published in the New England Journal of Medicine in 1983[1]; and it is summarized in an article by Joseph P. Newhouse, "Free for all?:  lessons from the RAND Health Insurance Experiment", RAND 1993.”