Selling Health Insurance Across State Lines Won’t Save Money

An idea that sounds easy is too complicated to work.

The effort to replace Obamacare faces increasing challenges, the more it is subjected to the harsh light of scrutiny. A good example is the proposal, apparently central to the Republican replacement plans, to allow people to buy health insurance across state lines.

This idea has been put forward as an elixir to all sorts of health sector problems. In his joint address to Congress, President Donald Trump argued that allowing people to buy health insurance in other states would “create a truly competitive national marketplace that will bring costs way down and provide far better care. So important.”

From Bloomberg View – Articles by Peter R. Orszag


Here’s How Trump Will Change Obamacare

Congress will take symbolic steps while states do the work.

Promises made by Donald Trump and Republicans in Congress to repeal and replace the Affordable Care Act are proving to be more complicated than they sounded on the campaign trail. With reality now setting in, what’s most likely to happen?

I expect to see Republicans stage a dramatic early vote to repeal, with legislation that includes only very modest steps toward replacement — and leave most of the work for later. Next, the new administration will aggressively issue waivers allowing states to experiment with different approaches, including changes to Medicaid and private insurance rules. At some point, then, the administration will declare that these state experiments have been so successful, Obamacare no longer exists.

In other words, the repeal vote will be just for show; the waivers will do most of the heavy lifting.

From Bloomberg View – Articles by Peter R. Orszag


Another Piece of Obamacare That Trump Should Keep

To get a sense of the future of American health care, amidst the post-election uncertainty, watch what happens to the Center for Medicare and Medicaid Innovation. This agency, created as part of the Affordable Care Act, has attracted substantial opposition. A recent proposal to change reimbursement to doctors for administering certain drugs, in particular, has led to calls that it be abolished. But let’s hope the center survives, because it could prove crucial to any new effort to raise the value of health care in the U.S.

From Bloomberg View – Articles by Peter R. Orszag


We Already Have Health-Risk Scores. Now Let’s Use Them.

Most Americans know they have a personal credit score, and many know where to find it. Few know they also have a personal health-risk score. If these were better known, and better constructed, health insurance markets in the U.S. would work more smoothly.

Commercial health insurance plans, as well as Medicare, Medicaid and other government programs, generate risk scores every year for most of the people they cover. These scores are estimates of each person’s cost of care, compared with the average costs in a large population. And they play a big role in health insurance; they’re often used, for example, to determine how much more insurers are paid for sicker beneficiaries.

From Bloomberg View – Articles by Peter R. Orszag

Health Care Costs and Patient Health

Healthcare costs vary greatly depending on where you are. While this fact is empirically known there is some debate about the reasons why. For decades, the Dartmouth Atlas of Health Care has published research indicating that the varying healthcare costs are attributed to differences in practice. That is, different hospitals go about treating illness in different ways, each resulting in different costs. What the Dartmouth team also finds, most notably, is that higher costs do not parallel higher quality. Therefore, it should be possible to reduce costs without diminishing quality of care. This position has been acknowledged and embraced publicly by many leaders in this arena, including American economist Peter Orszag.

Peter Orszag

Do health care costs relate to quality of care? (photo: Getty Images)

However, a new Brookings Institute report disagrees. Louise Sheiner, a senior fellow at Brookings, accepts that healthcare costs differ geographically, but asserts that varying methods of medical practice are not to blame. Rather, her report claims that the overall health of patients is what causes the variation in cost. Essentially, the states with higher healthcare costs have sicker people. Those states have sicker people, she explains, because of socioeconomic factors affecting the need for medical care.

The correlation between costs and overall health is the crucial point of the two perspectives. Sheiner holds that a diabetic patient in a state with a high prevalence of diabetes is ultimately less healthy than an apparently similar diabetic person in a state where diabetes is less common. Based on this position, the variation in Medicare costs across states is caused mostly by the underlying health of the people in the state. How doctors treat patients has no effect at all.

A way to examine this idea is by analyzing the spending of people on Medicare as they move from one state to another. A recent paper produced by academics from MIT and the University of Chicago examined just that, and found the costs changed as soon as Medicare beneficiaries moved. That change happened regardless of if they moved to high-spending area or a low-spending one.

From that, we can determine that the overall health of a patient determines, at most, half of the differing costs. It is starting to look better for the Dartmouth team.

Also, consider how easily health care costs can vary. A patient’s bill will vary greatly depending on what hospital the ambulance takes them to, though the quality of care will not.

So what we know is that health care costs fluctuate significantly and overall health of patients cannot account for the majority of it. Therefore, there most be ways to lower costs without diminishing quality of care — good news for Americans.

from Peter Orszag Healthcare

Disparity in Pay and the Fluidity of the Job Market

There is a longstanding and growing inequality in the incomes of Americans. That statement is woefully unsurprising, though the true terms of income disparity may be. It is often assumed that the rising inequality in earnings comes from differences within companies, when the senior high-level employees earn huge paychecks and their underlings make far less. Recent research indicates, however, that income inequality stems more so from differences in compensation across companies. Researches submitting to the National Bureau of Economic Research found that the growing dispersion of income, measured from the 1970s to 2010, was the result of increasingly unequal pay among different businesses.

These findings can do very little when engaged in a vacuum. In an article writing for Bloomberg, Peter Orszag relates that research to a study presented at the Federal Reserve conference this summer in Jackson Hole, Wyoming. The fluidity of the job market has decreased in recent years. Americans are staying at their current jobs longer. Indicators of this trend include the number of Americans moving across state boundaries for new jobs.

peter orszag

Are you chained to your current job?

Another chief piece of evidence for the stagnated fluidity of the job market is the relationship between job creation and job destruction. The rate that jobs are created and destroyed is only two-thirds as high as it’s peak in 1991. All the indicators show that this decline started prior to the recent recession.

These trends are not limited to any one industry or region. The decrease in job market fluidity is present across all states, in all major sectors, ages and genders. This decline in job turnover could also halt future productivity growth.

What we can assert from the studies is that people are hesitant to leave high (or even simply adequately) paying jobs for something they would enjoy more. Also, those with low-paying jobs have less accessibility to new opportunities. Earnings at different companies are growing more and more unequal and job turnover rates are falling. But why? It is unclear how closely these two findings are related, it is clear that these trends are having a surprising effect on the economy and hopefully policy makers are taking note.

from Peter Orszag Healthcare