The Republican healthcare plan has a formidable foe: economics
Joe McLean
Tuesday 11 July 2017 22.54 AEST
Having sworn for six years to “repeal and replace” Obamacare, Senate Republicans, unable to pass a plan before their summer recess, recently got their first taste of how the homefolks feel about it. While many ducked those messy town-hall meetings, they couldn’t avoid hearing the angry voices during Fourth of July parades, picnics and fireworks.
Why are regular people so angry, even in deep Red States? Because voters instinctively understand the irreconcilable conflict between political rhetoric, conservative dogma and the hard reality of economics.
On one hand, the devotees of Ayn Rand, (Paul Ryan, Rand Paul, etc.) are on the talk shows explaining that laissez faire capitalism and free-market competition are the answers for better care and lower costs – plus tax cuts for the rich of course.
On the other hand, Republican moderates recognize the disastrous impact of kicking tens of millions of Americans off their health insurance and rightly fear voters’ backlash. But both camps have chosen to ignore some pretty basic facts they should have learned in “Economics-101.”
This is not a new problem. We’re in this mess because politicians’ historically “kick the can” down the road. In 1986 President Reagan signed the Emergency Medical Treatment and Labor Act, (Emtala) mandating emergency services regardless of the ability to pay. Back then, Republicans and Democrats overwhelming agreed that nobody should be left to die because they couldn’t afford to go to the doctor – but unsurprisingly, no one ever dealt with how to pay for it.
Ever since, there has been a bitter, ongoing political fight about who deserves what care and who pays. Progressives and Democrats think health care should be a basic human right. Republicans, and Atlas Shrugged conservatives say everybody should pay their own way. We all want better care and lower prices. But the Republicans now controlling our entire government can’t craft a workable plan because they ignore at least four immutable economic principles.
First, health care markets don’t obey Adam Smith “invisible hand” of supply and demand. As any economist will tell you, certain sectors of a capitalist economy, such as agriculture and health care, are “price-inelastic.” “Inelasticity” is just a fancy term meaning the demand for a good or service does not go down when the price goes up.
Why is this so? Because everybody wants their sick child to get well, and they expect modern medicine to do whatever it takes and damn the expense. This “price-inelasticity of demand,” is what makes health costs so hard to control
To deal with the effects of price-inelasticity in our everyday lives, we use on health insurance. Insurance works because not everybody gets sick at the same time. So if everyone buys insurance policies, the risk and the costs are spread out over time, and the price is affordable for everybody.
Here’s where Republicans ignore the concept of “homo economicus” or “economic man.” By definition, homo economicus makes consistently rational and self-interested decisions. Millions of working families choose to pay for food, shelter, clothing, school and transportation before they pay for health insurance. They reason that the risk is worth the savings. For many young and healthy folks this makes good economic sense.
Behavioral economists call this the “free-rider” phenomenon, and it’s the third economic principal conservatives tend to misinterpret. But when free-riders inevitably get sick or old, the law (and simple decency) demand we take care of them. So who gets stuck with their bills? You do. When hospitals and doctors can’t collect from the free-riders, they pass those costs along to the rest of us, and our insurance premiums go up.
Conservatives say it’s wrong to force people to pay for something they don’t want, and that’s a compelling argument. But the flip-side of that coin is, “Why should I have to pay for the free-riders? I’m homo economicus too!”
Finally, health care isn’t even a true free market. On the supply side there are huge barriers to entry - exhaustive educational requirements and strict state and federal exams and license regulations – as there should be.
Who wants an ignorant, negligent doctor? On the demand side, most consumers don’t have the medical knowledge or judgment to make the kind of “free and informed” decisions required in a truly free market. Besides, when you get sick, you don’t really have a choice. Going to the hospital is not like deciding to buy a new smart phone is it?
Obamacare was designed to deal with all of these economic realities. The law addresses price-inelasticity by paying doctors for making you feel better, not just for doing a lot of stuff. That’s called “outcome-based pricing.”
Obamacare covers annual physicals and preventive care, so the need for exorbitantly expensive emergency room visits is dramatically reduced. The law requires that doctors and hospitals publish outcome statistics so consumers have quality-of-care information for comparison shopping.
Taking a carrot-and-stick approach to homo economicus, the law gives subsidies to working families who can’t afford expensive individual premiums, and levies penalties on free-riders.
All these are pretty solid, conservative, market-based, Republican ideas. In fact, the plan which became Obamacare was conceived by economists at the conservative Heritage Foundation. It was a free-market response to the Democrats’ proposals for universal single-payer, or “Medicare for All.”
Obama may have co-opted the plan, but it’s chock full of traditional conservative dogma. The only reason I can think of that Republicans didn’t embrace their own plan was because Obama proposed it.
But now, having campaigned for six years on “repeal and replace,” Republicans find themselves hoist by their own petard. To disguise their lack of a workable plan, they willfully ignore the laws of economics and pontificate on the virtues of free market capitalism as the cure for all ills.
Paeans to American capitalism might sound great in political speeches, but 20 million-plus people will lose their health insurance in order to give 1% another big tax cut. Real people will die. Homo economicus understands this all too well - and that’s why Republican lawmakers will continue getting an earful from the folks back home, including Republican base voters.
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