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.

-----------------------------------------------------------

* 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.”

Kansas, Medicaid expansion, and human rights

In his well-covered “state of the state” speech, the Governor of Kansas, Sam Brownback (full text from the Lawrence Journal World, reported by the Kansas City Star or as you prefer either the Huffington Post’s reporting of it or the Kansas City Business Journal’s), addressed the thorny issue of Medicaid, the program that ostensibly provides medical coverage for the poor, but in reality only covers a portion of them. Most states do not cover childless adults, no matter how poor, unless they are demonstrably disabled, and what qualifies varies from state to state. The financial standard for eligibility is also very variable from state to state; in many places, including Kansas, it is well below the poverty line. Most Medicaid recipients are children in dire poverty and their mothers, and most Medicaid dollars are spent on nursing home care for the medically indigent (and, given the cost of nursing home care, it is really easy to become indigent if you are in one for very long). One of the mainstays of increased coverage for the uninsured in the Affordable Care Act (ACA) is the expansion of Medicaid to all people under about 140% of the federal poverty level.

Brownback said that “Many states have made the choice to either kick people off Medicaid or pay doctors less. Neither of those choices provides better outcomes. Kansas has a better solution,” but, while whether it is better or not may depend upon one’s interpretation of that word, it is not likely to cover more Kansans. He has indicated that no state money would be spent on expanding Medicaid. This does not, however, mean that there will be no Medicaid expansion in Kansas, as for the first several years the costs of such expansion under the ACA will be 100% borne by the federal government. If the state opts for taking the money (and the governor, unlike many other very conservative governors in the US, has been coy about this) it will be able to do so without state dollars. Brownback is committed to eliminating the state income tax, to compete with states like Texas (“Look out Texas, here comes Kansas!”) and is confident, along with his funders like “Americans for Prosperity”, that business growth resulting from his already-implemented tax cut, which has cut almost 1/3 of the state budget income, will more than make up for it (critics note that other states without income taxes have other big sources of revenue, such as oil in Texas and tourism in Florida, that Kansas does not have). This job growth is also part of his plan for getting people off Medicaid “With jobs providing an off ramp from Medicaid, we will be able help those in need of services and reduce our waiting list.” (Did I mention there was a waiting list?) But, of course, this assumes that those jobs will come with health insurance. Definitely not a certainty, as most will be low-wage jobs, the kind most likely to not have health insurance coverage, and a state requirement for such coverage is definitely not something supported by the Governor or his political allies.

Whether Brownback will actually refuse the federal funds is uncertain; not all conservative governors have stuck to this principled, if cruel, position. Governor Jan Brewer of Arizona, a darling of the right with her aggressive enforcement of Arizona’s anti-immigrant laws (in an interesting coincidence, largely written by Kansas Secretary of State Kris Kobach), has reluctantly agreed to accept this money (“Medicaid expansion is delicate maneuver for Arizona’s Republican governor”, New York Times, January 20, 2013), as have Republican governors Susana Martinez of New Mexico and Brian Sandoval of Nevada. Of course, all three have a large and growing Latino population which supports and will benefit from Medicaid expansion, and whose votes are becoming increasingly important. Latinos are also the fastest growing population in Kansas, accounting for 70% of the state’s population growth from 2000-2010; they are not only in the bigger cities such as Wichita and Kansas City – the state’s first majority-minority counties are in its southwest -- but they are still not a significant enough voting block for Brownback to have any concern that they might swing an election to a Democrat. Indeed, in the 2012 election, extremely conservative Republicans supported by the Governor and lots of money from Wichita’s Koch brothers unseated most of the states just very conservative Republicans in primaries, giving him control of the state senate as well as house. Indeed, one of those defeated was the Senate majority leader, a rancher from the far southwestern corner of the state where the Latino vote did not prevent him from being beaten by a Koch-funded political newcomer.

Of course, there are reasons to doubt the core economics of Governor Brownback’s policies, based on the state’s economy picking up as a result of his tax cuts; even if one believes that will happen, it will be a long time and those whose benefits have been cut (who, given that the vast majority of the state budget is spent on education, followed by Medicaid and other core social services for the aged and disabled, will be the most vulnerable and our future) will suffer. As for the benefit of no state income tax, I lived in Texas, and the result is that every other tax is burdensome, and those taxes are much more unfair than a graduated income tax: real estate taxes that hurt the elderly and sales taxes that hurt those for whom the costs of the necessities of life are most of their income.

Expanding Medicaid, as called for by ACA, will not solve the problems of uninsurance. There remain not only the undocumented, but those who are employed by businesses that do not provide health insurance, including many that are too small to be required to do so even under the new law (and these are the jobs that Brownback’s policies, if they are successful, are most likely to create). But it will certainly help many families. And that should be the role of government, to help its people survive, and become educated, and be able to maintain their health. Economic growth will likely follow, at least much more likely than by cutting the taxes on the most wealthy.

And of course, at the most basic level, economic growth is not the goal; it is at best a strategy for improving the lives of our people. An article in Kansas City Star on January 20, 2013 ( “As the number of minority students grows in area schools, a learning gap remains” addresses the growth of minority, African-American and Latino, students in suburban as well as inner-city school districts. The article notes that the way school taxes are tied to real estate, “The rich get richer.” But it also quotes an educational leader who notes that “The moral imperative is now an economic imperative….The purchasing power of the new generation will depend heavily on the achievement of students of color. Social Security will need their economic success.

‘Everyone needs to understand…Someone else’s child is directly linked to your economic security.’” That is all true, but, at bottom, the core reason to provide education and health care is not so people will be able buy more stuff.

Recently, I saw the movie Les Misérables. I may be one of the few who did not see the stage play, but I am familiar with the story and loved the Jean-Paul Belmondo version set in WW II. Yes, it was long and not every actor was a great singer, but it told the story, and the story is of the oppression of the poor by those with power, and the occasional brave resistance of people who speak truth to power. And, in the last scene, after Jean Valjean dies, he is transported to a heaven not of clouds and harps and angels with wings, but one in which he and all of those who fought with him are standing on a barricade, continuing the fight.

Yes, the rich and powerful will buy and will influence politicians, and they will often win. But as health workers, and as citizens, it is our job to keep on advocating for the core needs of people, especially education and health care, to be met, not as a byproduct of economic development but as a human right.